Across francophone Africa, incubators are emerging rapidly to support a new generation of young entrepreneurs. Despite their huge potential, however, incubators are just one of many players in a typical entrepreneurial ecosystem. So it is increasingly important that incubators — in addition to allocating the necessary resources, services and funding to worthy start-ups — provide them with a platform to share and transfer knowledge across the ecosystem, not only with each other but also with the investors, research centers and industry experts upon which their businesses will ultimately depend.
As with Impact Hub Bamako, incubators can be part of broader international franchises, while others are anchored by academic, public or private bodies (or some hybrid of the three) and may already be associated with other incubators. Bond’innov, for example, is an incubator that promotes entrepreneurship cooperation between the global North and the South and that is headquartered in Paris and located on-campus with the Institute for Development Research, a large multidisciplinary research organization operating in more than 50 developing countries.
Start-ups are transforming cities. Entrepreneurs are inspiring creative communities and transforming the social and economic landscape of the neighborhoods where they cluster.
What drives entrepreneurs together and creates these communities? To answer this question, we looked at catalysts of entrepreneurial communities in cities around the world. The team found that a range of spaces — such as innovation hubs, incubators, maker spaces and fab labs — are at the core of these communities. They represent the main link between entrepreneurs and the broader economic and social fabric of the city. We call these “Creative Community Spaces” (CCS).
How are these CCS helping transform our cities? We compiled a set of case studies from around the world and analyzed their impact. There are more details in this report.
The corporate world is at the forefront of the tech-led transformation of the economy. The democratization of technology, whereby exponential cost reductions have allowed almost anyone to produce tech-based innovations, is disrupting core sectors of the economy.
Technology disruption is not confined anymore to the digital world. Data analytics, artificial intelligence, 3-D printing, robotics, sensorization, and an ever-evolving list of technology platforms have blurred the boundaries that once-protected physical ("brick and mortar") sectors, such as the hospitality, automobile, construction and manufacturing sectors.
Business as usual has not served companies in these sectors well. Traditional innovation models to create products and services do not match the pace and agility of competitive disruption from tech actors (e.g., large technology platforms with unbeatable access to data access and capital, such as Google or Amazon, and small and agile local startups). Thus, a new corporate innovation model, “Corporate Innovation 2.0,” is emerging.
The main characteristic of this new model is that it’s open by nature, as opposed to having a closed R&D process. Established companies tend to offer good structures for marketing, distribution, processes, scaling up products, etc., but, compared to start-ups, they often have a weakness in generating and rapidly applying creativity to develop new products and services.
Using open innovation techniques, corporations are trying to address this weakness by absorbing start-up innovation. We have seen three main types of mechanisms in this emerging model: corporate accelerators, competitions to generate new ideas, and co-creation with startups of new products and services.
Both Malaysia and India are countries steeped in innovation with a strong desire to foster new, innovative start-up enterprises.
With a global focus on providing more support to Small and Medium Scale Enterprises (SMEs) – and recognizing that – Asian countries are keen to learn from each other’s experiences. These efforts have taken on a greater priority in India under the leadership of Prime Minister Modi and his “Make in India” and “Start-Up India” campaigns.
, which is one of the most widely recognized impediments to SMEs, particularly for start-up enterprises. Through the $500 million MSME Growth Innovation and Inclusive Finance Project, the World Bank supports MSMEs in the service and manufacturing sectors as well as start-up financing for early stage entrepreneurs. The start-up support under this project ($150 million) is for early stage debt funding (venture debt) which isn’t well evolved. (Unlike India’s market for early stage equity which is considered to already be reasonably well developed.)
As part of this project, the World Bank and the Small Industries Development Bank of India (SIDBI), recently held a workshop in Mumbai to allow market participants to learn from one another, and particularly about Malaysia’s successful support for innovative start-up SMEs. The workshop’s participants included banks, venture capital companies, entrepreneurs, fintech companies, seed funders and representatives from the Malaysian Innovation Agency (Agensi Inovasi Malaysia – AIM).
A market in Ramallah, West Bank. © Arne Hoel/The World Bank
Snapchat made its historic initial public offering this month with a market valuation of $33 billion, which qualifies it as a decacorn (a firm valued at least $10 billion, compared to a unicorn, which is valued at a mere $1 billion). Snapchat, once the bane of parents as a teenage distraction, overtook Alibaba’s record of raising $22 billion in 2014 and has spawned two 26-year-old multi-billionaires.
It is tempting to be dazzled by the likes of Snapchat, Uber, Facebook and Airbnb and to conclude that the start-up scene is dynamic and thriving. However, the reality is rather different, and perhaps even somewhat grim: U.S. Census data released in 2016 show that new business creation is near a 40-year low. According to a number of researchers, the rate of business start-ups and the pace of employment dynamism in the U.S. economy have fallen over the past decades.
A critical factor in accounting for the decline in business dynamics is a lower rate of business start-ups and the related decreasing role of dynamic young firms in the economy. For example, the share of U.S. employment accounted for by young firms has declined by almost 30 percent over the past 30 years. This statistic has significant implications given that the churning effect of new firms is an important means of reallocating capital and labor from low-productivity to high-productivity activities, which in turn is required for long-term productivity-led growth.
If this were not worryisome enough, the data also shows that since around the year 2000, there are far fewer high-growth young firms being created in the United States. Most start-ups fail, but a very small percentage (between 1 percent and 5 percent, based primarily on data from OECD countries) are innovative and dynamic, grow rapidly and create the most jobs and value, thus making a disproportionate contribution to overall productivity growth.
The likelihood of a start-up in the United States becoming a high-growth firm is now lower than before the year 2000, which is counterfactual in the age of digital disruption. No one is quite certain of the economic, social, and demographic factors behind these trends of declining start-up activity and the dearth of high-growth firms in the United States, but there are a number of theories, including the effects of the Great Recession, generational cultural changes and changing risk appetite of young people, a burdensome regulatory environment, and the increasing importance of large, innovative firms that have adapted many of the appealing features of startups.
A World Bank Group team is exploring the topic of high-growth entrepreneurship in developing countries to examine whether there are similar patterns and trends as in the United States and OECD countries. This study looks at the prevalence and characteristics of high-growth firms in various economies, the attributes of the firm and the entrepreneur, the business environment, and other factors such as the role of foreign direct investment and spillovers/linkages and agglomeration effects. The focus of the study will be also to assess the policy instruments being deployed and how effective are these in providing targeted support to high growth firms.
The Global Entrepreneurship Congress (GEC) this week in Johannesburg, South Africa provides an excellent opportunity to exchange ideas and deepen insights on the challenges of identifying and nurturing high-growth firms. This year’s GEC theme is “Digital Disruption.” More than 4,000 disruptors — entrepreneurs, investors, policymakers and ecosystem builders from more than 160 countries — are coming together to exchange market-specific insights on how to identify and nurture the most innovative high-growth entrepreneurs from across the world to create high-quality jobs, drive productivity-led sustainable growth and find solutions to global challenges.
Start-up ecosystems are emerging in urban areas across the world. Today, a technology-based start-up develops a functioning prototype with as little as $3,000, six weeks of work, and a working Internet connection.
Entrepreneurs are not seeking large investments in hardware or office space. Rather, they look for access to professional networks, mentors, interdisciplinary learning, and diverse talent. Cities are best suited to meet their needs, as they provide diversity and allow for constant interaction and collaboration. Thus, the shift caused by the so-called “fourth industrial revolution” makes cities the new ground for organic innovation.
The urban innovation model can be applied in cities in both developed and developing countries. The same trends are driving the urbanization of organic innovation ecosystems in New York City, London, Stockholm, Mumbai, Buenos Aires and Nairobi. This presents a great opportunity for developing countries to build innovation ecosystems in cities and create communities of entrepreneurs to support the creation of new sectors and businesses.
But while some cities have organically developed urban innovation ecosystems, nurturing a sustainable and scalable ecosystem usually requires determined action. Moreover, not all cities are building their innovation ecosystems at the same pace.
To support a local innovation ecosystem and accelerate its growth cities can promote collaboration through creative spaces and support networks, while also hosting competitions to solve local problems.
Attendees at Republica Berlin 2016, an annual conference on digital culture for entrepreneurs from around the world.
Photo Credit: © Victor Mulas/The World Bank
We have witnessed in recent years the emergence of technology start-up ecosystems across the world. New technology trends are reducing the costs as well as the barriers of access to markets and resources for developing technology start-ups. If in the 1990s an entrepreneur needed $2 million and months of work to develop a minimum viable prototype, today she would need less than $50,000 and six weeks of work.
Entrepreneurs are also surging in emerging economies. India hosts major start-up ecosystems in New Delhi and Bangalore, with their start-ups having raised $1.5 billion in funding in 2016, respectively. São Paulo ranks among the top 20 start-up ecosystems with more than 1,500 active start-ups, closely followed in the region by Santiago and Buenos Aires. Warsaw hosts around 700 active start-ups, and Nairobi is the home of leading African start-ups, such as Ushahidi, M-Pesa or Brck.
Tech start-up ecosystems present new opportunities for emerging economies. Local entrepreneurs develop new business solutions that address domestic demands. For instance, in Kenya, M-Kopa is addressing the demand for energy in off-grid locations, a major issue in the country's rural areas. Unicorns, those start-ups that raise more than $1 billion, are no longer a U.S./Europe-only phenomenon. Indian, Chinese and Indonesian start-ups, such as Lu.com, Flipkart or Go-Jek, have reached this valuation, and African Internet Group from Nigeria is poised to be the first African unicorn.
Start-up ecosystems also create new jobs. Data from New York City's ecosystem on employment generated in the tech start-up ecosystem shows that most of the jobs generated by tech start-ups are not in start-ups themselves, but in local traditional industries that either are influenced or disrupted by start-ups. Think about a bank or a retail company that has to react to a mobile app providing finance or retail business and that needs to hire new talent to develop a competing app. More than 40 percent of these new jobs do not require a college degree. These are jobs like building a website, a basic database, a web or mobile app.
Maybe it's just easier to think that the keys to economic growth lie at the national level of governance – where monetary and fiscal policies, national law and development strategies are conceived and debated. Certainly national policy is important, but it is rarely where entrepreneurs have their first experience interacting with law and policy.
The city is where people’s ideas create business, where people work and where the bustle of the economy comes alive. The city is where an entrepreneur will first interact with systems that are ostensibly created to attract and support business investment and growth.
Cities can and do engage in reforms to help improve their economic competitiveness. Often this includes the identification of a business sector deemed competitive and some strategy on how to do it better. Improved competitiveness also can include investment in more efficient transportation systems, better access to utilities and services, improved tax policies, better zoning, infrastructure investment and investment in skilled labor. While working on these complex policy and investment opportunities is rational, it often takes time to do the analysis necessary to identify the best opportunities – and it takes much longer to actually see the rewards.
Fortunately, there is a reform that cities can do almost immeduiately, and at low cost, to help support business development and improve the business environment: business entry simplification.
The Philippine Experience & Lessons Learned
In decentralized economies like the Philippines, cities play an important role in business registration. In fact, almost of one-third of the country’s business registration steps fall under the responsibility of city-level leadership.
In working with Philippine cities to reform dated, cumbersome, and confusing business registration requirements, a World Bank Group team was able to help its clients reduce registration steps from an average of 41 to just three. Cities also saw an average spike in new business registration of around 20 percent in the first year after the implementation of reform.