The ultimate goal of economic development is to build assets and create wealth.1 Economic wealth
is produced by entrepreneurs who identify market opportunities and build businesses that capture
them. Entrepreneurs and their enterprises are the engines of individual and community wealth creation.
Therefore, an effective process of developing new enterprises is essential to successful economic
development.
In this article, we offer a new paradigm for enterprise development as well as a new approach for
implementing that paradigm, called the entrepreneurial development system (EDS). As in all paradigm
shifts, our approach encompasses much of what has gone on before but places it in an entirely
different context and adds several elements: a new mission and new functions and tools.
Our approach is based on a number of critical assumptions. In the first half of this article, we
present these assumptions as a series of specifications for a new paradigm and contrast them with
the beliefs and practices underlying enterprise development today. We have chosen to proceed in
this manner because it is often difficult to perceive the limitations of current practice without having
an alternative with which to compare it. This is particularly a challenge when making a case for
an innovative alternative that, to our knowledge, has never been articulated before. We would suggest
that our critique of the status quo and case for change can best be understood after reading both
the specifications and our alternative. In the second half, we describe the EDS and offer it as the
operating program for a 21st-century enterprise development system.
This is a conceptual as well as a practical piece. Because of the relatively unexplored and complex
nature of this territory, we are limited in the kind of “hard” evidence that is available to support
these conclusions.2We have arrived at our ideas about the need for change and the promise of the
new possibilities suggested here in two ways: first, by drawing extensively on the literature from a
number of fields including (but not limited to) economic development, entrepreneurship, innovation,
business strategy, developmental psychology, educational theory, macro sociology, regional
science, and social systems theory; second, by systematically reflecting on more than 40 years of
combined experience working with hundreds of entrepreneurs and enterprises of various types and
with approximately 100 enterprise development organizations throughout the world. We believe
that the ideas presented here suggest a new and fertile research agenda, and we recognize the need
for continued efforts to document both the issues and the solutions.
THE SPECIFICATIONS OF A NEW ENTERPRISE DEVELOPMENT PARADIGM
The mission of enterprise development is to significantly increase the rate of formation, development,
and success of new enterprises within a region in a way that creates individual and community
wealth. The question is how this should be accomplished.
We must develop a diverse supply of entrepreneurs who are capable of building successful companies
in sufficient numbers to create wealth for the entire economy. An entrepreneurial economy
requires entrepreneurs. The critical determinant of a region’s economic vitality is the quantity and
quality of its entrepreneurs and how well they are matched to the market opportunities they pursue.
A region’s supply of entrepreneurs cannot be taken for granted; it is also not acceptable to argue
that nothing can or should be done to change it. However, this is largely the situation in the field of
enterprise development today. It is assumed that there is no need to be concerned with the supply of
entrepreneurs (i.e., it is not anyone’s responsibility, there are already plenty of entrepreneurs), that
other factors are more important for enterprise development (such as financing and technical assistance),
or that nothing can be done to change the supply. Although rarely made explicit, these
beliefs limit the potential success of enterprise development activities.
Building a successful business is often viewed as a matter of assembling the right ingredients
(e.g., products, customers, employees, money)—a mechanistic process of “packaging.” However,
this conception leaves out the critical role of the packager—the entrepreneur. It truly matters who
the entrepreneur is. Venture capitalists recognize that when they invest in a business, they are
investing in a person.3 The individual leading the venture is considered to be more important than
the enterprise’s products, which ultimately must be adapted over time to changing market conditions.
This does not mean that there are not other significant factors that contribute to success—
there are. But these factors are distinctly secondary to the root of the business—the
entrepreneur. Therefore, we must look at the human capital component before examining such factors
as financing and technical assistance.
The assumption that seems to underlie most enterprise development strategies in the United
States is that to significantly increase the rate of formation, development, and success of new enterprises,
we must offer more services. This focus is evidenced by continued calls by service organizations
for funding to support the provision of financial and technical assistance. The problem with
these proposals is that they contain neither a reference to the number and quality of the entrepreneurs
in their community nor any assessment of demand for the proposed services4 (Bennett &
McCoshan, 1993; Johannisson, 1993).
The dynamic regions around the world that communities want to emulate (e.g., Silicon Valley,
Route 128, Research Triangle, Emilia Romagna in Italy, and Toyko) do not just attract or recruit
entrepreneurs from other areas (although this does take place)—they develop them. 5 It is this
ability that accounts for the success of these regions and the abundance of money available for
investment. They are not successful, as some mistakenly believe, because of the presence of financing
and technical assistance. Such a conclusion confuses the consequences of success with its
causes. This same reasoning underlies the belief that by offering these services, individuals will be
induced to become entrepreneurs. Entrepreneurs do not start businesses because services are available;
services are demanded and used as the result of the existence of entrepreneurs. Although services
are necessary, they are not sufficient to transform a region’s economy into a dynamic force. If
they were in fact sufficient, we should wonder why they have not, after significant investments,
produced the desired results in many of the places they have been implemented.
Establish a Development Function
What is missing in the current model of enterprise development is any attention to the quantity
and quality of an area’s entrepreneurial capital. If it is indeed possible to develop entrepreneurs, the
supply is not fixed. We methodically cultivate many other kinds of talent; why not entrepreneurs?6
If our objective is to develop a diverse supply of entrepreneurs capable of building successful
companies, we must change the primary focus of enterprise development from providing services
to developing entrepreneurs. Developing entrepreneurs means increasing the entrepreneurs’ ability
to achieve their goals—specifically, to successfully engage in the kinds of work required to
identify and capture new market opportunities. Development is a competency, an ability to deal
with new circumstances. “It is an increase in capacity and potential, not an increase in attainment”
(Ackoff, 1981, p. 35). The intangible nature of the development process makes it difficult to
describe.
Providing services is not the same as developing entrepreneurs. Services do not create a change
in capacity. Service provision involves a transaction between two parties to solve a problem or
address a specific need. Although the ability to successfully use some kinds of services might
require an increase or change in an entrepreneur’s abilities, the mere provision of that service in no
way ensures that such a result will be brought about.
Service provision involves the delivery of a solution (created by a resource specialist or expert)
to a client. Clients can then use that solution to improve the performance of their business, but they
do not necessarily know how to develop a similar solution for themselves or how to adapt the one
they just purchased in the event that circumstances change. One of the most common types of
enterprise development services is the preparation of business plans. Many entrepreneurs, for
example, comment that they do not understand the meaning of the answers provided by the plan to
the questions about their business, even if they participated in its preparation. This kind of outcome
might be acceptable (although certainly not desirable) if the business plan is to be used only as a
document for obtaining financing, as is frequently the case. But to create a business plan that can be
used for the purpose of managing a business, and to use it as such a tool, requires not only a great
deal more effort but also a higher level of understanding and skill on the part of the entrepreneur. To
produce this kind of a change in capacity requires more than simply delivering a product or service;
it necessitates engaging the entrepreneur in a process of development. The nature of this process
and the ways in which it differs from providing services will be described more fully later in this
article.
To the best of our knowledge, very few enterprise development organizations in the United
States are engaged in the task of developing entrepreneurs. Those that claim to be doing so are
mostly micro-enterprise programs that work with low-income individuals who lack the skills to
be successful entrepreneurs and in which there is no choice but to focus on their development.7
For the overwhelming majority of businesses, the responsibility for development is largely left to
the entrepreneurs themselves.
The primary mission of enterprise development must be to develop entrepreneurs. The secondary
challenge is to provide the services necessary to help those entrepreneurs become successful.
These are two distinctly different functions. The problem with the current system is its exclusive
focus on providing services. It is not that services must be changed or replaced but rather that they
must be supplemented with a new function, the purpose of which is to develop entrepreneurs.
Services must be subordinated to this new function—they must not dictate the system, as they do
now. This change of focus, from providing services to developing entrepreneurs, will produce a
restructuring of the service system.
The function of developing entrepreneurs must be performed by an entirely new and independent
organization in the enterprise development system; it cannot be the responsibility of existing
individual service providers. A single organization is not capable of performing well two completely
different functions simultaneously (Porter, 1985).
Expand the Population of Entrepreneurs
What kind of entrepreneurs should we be trying to develop? Here too the ideas behind current
practice, in both the public and the private sectors, are quite limited and limiting. Different organizations
tend to focus exclusively on particular types of entrepreneurs. This behavior would be
acceptable if it were simply a form of specialization, but the reasons are often much deeper. Such
behavior frequently reflects the belief that the key to economic success is to find and work only
with the “right” kind of entrepreneur—the next Bill Gates or Michael Dell. This belief is reflected
in constant debates about who is or is not a “real entrepreneur” (Huefner&Hunt, 1994; Kassicieh,
Padosevich, & Banbury, 1997; Schumpeter, 1991), the importance of small or large companies to
the economy (Florida & Kenney, 1990; Harrison, 1997), and the superiority of trickle-down over
trickle-up economics.
Problems arise from believing that the economy needs only one type of entrepreneur.We must
accept the reality that dynamic economies require a complex mix of large and small companies. If
an economy requires many different types of entrepreneurs, we must broaden our focus from an
exclusive emphasis on a particular kind of entrepreneur (e.g., high-tech, minority) to the diverse
mix required in a multifaceted, global economy.
Another restrictive belief is that entrepreneurship occurs only if one is creating an entirely new,
independent entity. Entrepreneurship takes place in a variety of settings, including those within
existing companies or in strategic alliances between two or more companies. In limiting entrepreneurship
to one particular setting, the types of market opportunities that require the resources and
capabilities of a large company (or of several companies with complementary capabilities) are
overlooked.
Because entrepreneurship occurs in a variety of organizational settings, we can create a new
supply of clients for enterprise development by broadening the settings from which we draw entrepreneurs.
Mature firms are not necessarily skilled in entrepreneurship and so can use help in developing
those abilities, both individually and as part of a strategic alliance (Block & MacMillan,
1993; Kanter, 1989; Pinchot, 1985).8
Create an Entrepreneurial Community
We must focus not only on developing individual entrepreneurs but also on creating an entrepreneurial
community. The economic performance of a community’s firms is and always will be
broadly distributed. Our goal should be to shift the performance of the entire population of
firms—not just some of them. Given that we want to transform the entire business community into
a globally competitive force, the client in enterprise development should not only be the individual
entrepreneur or particular groups of entrepreneurs, but rather the entire business community.9
To work at the level of the entire business community requires that we view the economy as a
whole, not only as a set of distinct and unrelated parts. There is a common belief that by helping one
part of the business community to succeed, we are helping all.10 However, this assumes that the
many segments of the business community are connected. If they are not, as is often the case, the
improvement in one group’s performance will not necessarily produce an improvement in another.
In highly fragmented economies, such progress in the development of the business community as a
whole will occur only if we work to improve that community’s social capital (the network of relationships
among its members) (Flora, 1998; Putnam, 1995). These connections cannot be assumed
to exist; they must be built if the business community’s development process is to succeed.11
Develop Entrepreneurs by Building Skills
If we want to develop entrepreneurs, we must help them build the necessary skills. There is a
prevailing belief that entrepreneurship is a trait that drives individuals who possess it to engage in
certain behaviors (Huefner&Hunt, 1994; Kassicieh et al., 1997; Schumpeter, 1991). If this is true,
nothing can be done to develop entrepreneurs because we are powerless to effect changes in traits.
The only feasible responsewould be to identify andwork solely with those individuals who already
have them.
Another problem with this belief is that no one has ever been able to accurately identify such an
entrepreneurial “characteristic” or a particular behavior in which all successful entrepreneurs
engage.12 All entrepreneurs, however, do perform certain key functions—they identify market
opportunities or needs, imagine and develop innovative solutions that address those needs, and
build organizations to capture those market opportunities. Because the actions needed to perform
these functions successfully will be different in different contexts, all entrepreneurs cannot be said
to engage in the same behaviors.
It is the entrepreneurs’ skill in performing these functions that determines their success, and
entrepreneurial skills can be developed. Although such talent is not evenly distributed among the
population, the fact is that entrepreneurs are made and not born (Shefsky, 1996).
Entrepreneurship involves a set of skills that is the result of cultivation and development rather
than innate endowment. Given the importance of skills, the extent to which they are overlooked in
enterprise development is surprising. When analyzing entrepreneurs, the current practice is to distinguish
them by characteristics such as the following:
type of business (manufacturing, technology, retail),
demographics (African American, Hispanic, Asian, female),
size of company (micro enterprise, growth firm),
background of entrepreneur (technical and/or scientist, economically disadvantaged), and
geographical location (rural, urban, university town).
The problem is that these distinctions are descriptive only and are useless as guides for action;
that is, they provide no help in determining how one would treat an entrepreneur on the basis of his
or her membership in that particular category. They falsely suggest differences where none exist
and lead policy makers to fail to perceive the real distinctions (and needs) that exist among entrepreneurs
within these categories.
Entrepreneurs can be most usefully categorized by their levels of skill in creating and operating
new businesses rather than by their personal attributes or those of their enterprises. In our experience,
the differences between minority and highly technical entrepreneurs, for example, are
grossly overstated. What determines the potential for success of entrepreneurs in either group are
their levels of skill in creating and operating new businesses.13
The fact is that entrepreneurs have different levels of skill, and one must treat entrepreneurs at
each level differently to work successfully with them. Although this observation is one that any
business advisor would quickly recognize and accept, we know of few enterprise development
organizations that explicitly differentiate their clientele except by size of company. This typically
leads them to adopt one of two approaches toward their clients: a cookie-cutter approach in which
everyone is treated exactly the same or an ad hoc approach in which all entrepreneurs are treated
differently. The cookie-cutter approach can be efficient but never effective; a completely customized
approach can be effective but is certainly not efficient. Neither approach represents a systematic
method for working with a variety of entrepreneurs over the long term.
Entrepreneurs build newskills not by acquiring information but rather through a process of personal
transformation that involves a deep level of qualitative change. Rarely do entrepreneurs,
prior to starting their first venture, already possess all the skills they need to become successful. At
some stage in their lives or at some point in the process of forming their businesses, they have to
build the necessary skills.
. . . entrepreneurs are made and not born.
When you dig deeply into the stories of successful entrepreneurs, you find crucial experiences
and relationships that provide the necessary nurturing or cultivation for undeveloped talent.14
These stories usually reveal the existence of a particularly supportive individual or group of individuals
(Gardner, 1993), a rich context that provided varied opportunities to learn, a series of progressively
more significant attempts and failures, and the emergence of skill over time.
The process of building these skills is not a matter of passively “acquiring” information, receiving
services, or adopting the latest business practices. Although the degree of change required will
depend on the individual’s current level of skill and the growth objectives of the enterprise, becoming
more skillful often involves significant, qualitative, and sometimes difficult changes in behaviors,
capabilities, beliefs, and personal identities—in other words, a transformation (Alexander &
Langer, 1990; Bechard & Toulouse, 1998; Cooper, Gimeno-Gascon, & Woo, 1994; Dilts, 1996;
Fisher & Torbert, 1995; Kegan, 1994; Krueger & Brazeal, 1994; Ray, 1993).
Atransformation represents a leap to a higher level of functioning. It is a qualitative, not a quantitative,
change. Whereas the process of informing takes place within an existing structure and set
of skills, transforming involves a change in the structure of the individual or business itself and the
creation of new capabilities. The difference between information and transformation is similar to
that between growth and development. Growth is a scalar concept that occurs within existingways
of doing things. Development means finding newways of doing things that enable the achievement
of entirely new possibilities.
Many enterprise development practitioners operate under the mistaken assumption that they are
helping entrepreneurs build new skills by teaching them to do business plans15 or by providing
training courses on other subjects. Any training that can be completed in a short period is capable
only of providing information, not of developing new capabilities or skills.16 No amount of technical
or financial assistance will produce a transformation. The value of these resources is realized
only when an entrepreneur already has the skills necessary to use them effectively in his or her business
(Glasmeier, Fuellhart, Feller,&Mark, 1998). It is the entrepreneur’s level of development that
influences readiness, willingness, and ability to use technical assistance. As a result, the provision
of technical assistance should be connected to the entrepreneur’s level of development in order to
be effective. This is rarely done in the current system because differences in levels of skill or development
are not recognized.
Provide New Offerings That Produce Transformations
If building entrepreneurial skills involves a transformation, we must establish entirely neweconomic
offerings that produce these outcomes. Existing programs for entrepreneurs are not
designed to help them build skills. To understand why, we must first introduce a set of distinctions
about different economic offerings and the needs they satisfy (Gilmore & Pine, 1997).
According to Pine and Gilmore (1999), there are five different types of economic offerings
whose values increase in relation to one another: commodities, goods, services, experiences, and
transformations (see Figure 1). Commodities, the most basic economic offering, are distinguished
by price. Physical goods provide different features or benefits and therefore greater value. Services
provide more value still, although their intangible quality makes them more difficult to evaluate
and compare.
However, consumers are increasingly demanding offerings that cannot be adequately described
by these first three categories. The next offering “occurs when a company intentionally uses goods
as props and services as the stage for engaging the customer in such away that it creates a memorable
event” (Gilmore & Pine, 1997, p. 16). The offering is “no longer the goods or services themselves,
but the experiences they create” (Gilmore & Pine, 1997, p. 17). Examples can be drawn
from DisneyWorld to eating establishments such as Planet Hollywood or the multimedia field of
“edutainment.”
Experiences are not the highest level of economic offerings.
Just as customizing a good automatically turns it into a service, so customizing an experience
turns it into something distinct. If you design an experience so in tune with what an individual
needs at an exact juncture in time, you cannot help but change that individual—guiding him to
(and through) a life-transforming experience. (Gilmore & Pine, 1997, p. 17)
The value of transformations exceeds that of all other economic offerings.
Experiences and transformations are not just another kind of service.
Both goods and services exist completely outside the recipient. . . . The new economic offerings
. . . are inherently personal. . . . Experiences only occur within the individual, while
transformations go even further and actually change the individual buyer. . . . Experiences
unfold over a duration of time and transformations must be sustained through time. (Gilmore&
Pine, 1997, p. 17; see also Pine & Gilmore, 1999)
An example from enterprise development illustrates the differences in these five types of offerings.
Originally, the value of business incubators to entrepreneurs was claimed to consist of
low-cost (below-market) space—a commodity whose only source of value was the price. Then, it
was recognized that incubator space provided additional benefits or “goods”—flexible leasing
terms, a variety of sizes, shared physical resources—that were not readily available. Next, incubators
became known as providers of business services (e.g., business planning, accounting, office
support). More recently, entrepreneurs have begun to recognize the value of the experiences they
have in incubators—the opportunity to interact with peers and advisors (Lichtenstein, 1992).
These experiences enable them to gain valuable knowledge and moral support.
The next as yet untapped level of economic offering in the field of enterprise development
would be to help entrepreneurs develop the necessary skills to build successful companies—to
guide entrepreneurial transformations.
These distinctions among economic offerings are consistent with the new vision that has
emerged of how economies develop (Doeringer, Terkla, & Topakian, 1987; Klein, 1977). In this
vision, the sources of economic competitiveness and value have moved away from the factors of
production, such as land, labor, and capital, and now rest with the ability to create new knowledge
(i.e., invention) and the ability to quickly assemble the various resources to capture market opportunities
(i.e., entrepreneurial know-how or innovation). Land, labor, and capital are tangible assets
that are easily duplicated by other firms and countries; they can be purchased. The ability to invent
and innovate is an intangible asset that must be cultivated.
Land, labor, and capital are tangible assets that are easily duplicated by other firms and countries; they can be purchased. The ability to invent and innovate is an intangible asset that must be cultivated.
Howdoes one facilitate the development of an individual whose objective is to create something
new? What entrepreneurs require are offerings that can help them successfully develop these skills.
These new transformational offerings must involve the following.
Two-way or reciprocal interaction between the entrepreneur and those who are helping in the
transformation process. Development or transformation is not something that is done to or
for someone; rather, it can be achieved only by the entrepreneur himself, with assistance.
Intensive, deep, and ongoing relationships that help guide the transformation process. Entrepreneurial
skills are not developed in isolation or through superficial encounters, but rather
within a supportive context such as a community (with the relevant kind of social capital).
A long-term process. Transformations take time.
A different approach to achieving results. Facilitating entrepreneurial transformations does
not mean attempting to control the behavior of entrepreneurs or force predetermined outcomes,
but rather creating favorable conditions or an environment in which entrepreneurial
skills can develop.
Learning by doing. Skills are inculcated, as an ancient Chinese proverb expresses so well:
“Tellmeand I will forget. Showme and I will remember. Involveme and I will understand.”
This new level of economic offerings is beginning to receive attention in the medical, educational,
management consulting, and therapeutic fields. However, the understanding in the enterprise
development community of the transformation process and how to manage it is very limited
at present. New offerings must be established as well as new methods for marketing, financing,
delivering, and evaluating them.
Establish an Enterprise Development System
Enterprise development must be operated as an integrated system of activities and programs in
order to be effective. Such a system is in the highly specialized business of producing individual
and social transformations. As a result, the system will have to use processes that are unique to the
facilitation of transformations.
Enterprise development must be organized around a set of processes and practices that can be
implemented in a methodical, controllable, and reproducible fashion. During the past 15 years, the
quality management movement has demonstrated that you can improve on an outcome only when
you understand the process by which it is produced (Crosby, 1987; Deming, 1986). The more
deeply and explicitly the transformation process is understood, the better the achieved results will
be. Facilitating transformations is clearly not a routine or mechanical activity. The practices and
processes used by the enterprise development system will have to honor the organic and nonlinear
nature of transformational change.
We need to develop and use a body of actionable knowledge about what works in developing
entrepreneurs and under what conditions. The processes and practices used by the enterprise development
system must be based on this knowledge, which in turn has to be subject to continuous
improvement efforts. This knowledge will also enable us to evaluate the performance of the system
in a way that will tell us how it can be changed and improved.
The performance of the enterprise development system should be evaluated on the basis of the
following five criteria: effectiveness, efficiency, equitability, sustainability, and scale of impact on
the community’s economy. The system’s effectiveness in developing entrepreneurs should be
judged by howwell it increases the rate of newbusiness formation, the rate of survival and success,
the rate of development of entrepreneurs and their enterprises, and the efficiency and effectiveness
of the dissolution process if a firm fails.
The system’s efficiency should be judged by the level of resources required to achieve these four
objectives. Its equitability, fairness, and inclusiveness should be judged on the basis of its ability
and willingness to work successfully with different types of entrepreneurs at all skill levels.17
Enterprise development can and should be a system for democratizing entrepreneurship.
The enterprise development system must be judged on its sustainability or ability to produce a
continuous stream of high-quality entrepreneurs. Because economic conditions are constantly
changing, economic success is not a permanent state. Even those places that have achieved a certain
level of prosperity must be concerned with maintaining it. The challenges of achieving
large-scale impact are truly daunting. To create 100,000 net new jobs by a strategy of enterprise
development, for example, a community would have to create firms at one of the rates described in
Table 1 every month for the next 10 years!
We cannot afford to expand the operations of the current system to achieve this scale; a substantial
change in the process by which it produces results is required. How do we get to a scale sufficient
to transform the community’s economy? Not byworking with one entrepreneur at a time, but
rather by creating a dynamic process with a “developmental” multiplier that produces a critical
mass or chain reaction.
We need a new approach to enterprise development that can effectively, efficiently, equitably,
and continuously develop entrepreneurial talent and build successful companies on a large scale.
Our suggested approach is the EDS.
AN OPERATING PROGRAM FOR A NEW ENTERPRISE DEVELOPMENT SYSTEM
The Entrepreneurial Development System
The field with the most impressive track record of success in developing talent on a widespread
basis is sports. Professional sports are built on a highly developed infrastructure or “farm system”
for the methodical cultivation of talent. In this infrastructure, individuals develop and hone their
skills in increasingly competitive environments as they progress. The result is a system that ensures
a continuous flow of skilled players to the very highest levels of the sport.
The EDS is designed to be a farm system for developing entrepreneurs and building the next
generation of companies. The EDS is more than just a strategy; it is an actual operating system for
creating as well as managing the social capital and community infrastructure necessary to develop
entrepreneurs. During the past 10 years, all the elements of this system have been implemented by
the authors in numerous enterprise development programs in Philadelphia, Louisville, and South
Africa that serve high-tech entrepreneurs, manufacturing firms, minority entrepreneurs, and micro
enterprises (see Lichtenstein, 1999). In this section, we present a brief description of the EDS.
The Structure of the System
In a manner similar to sports, the EDS operates by classifying entrepreneurs into levels according
to their skill in creating and operating a new business.18 There is a pattern to entrepreneurial
skills that can be explained by reference to the following four dimensions (Gerber, 1995;
Lichtenstein & Lyons, 1996):
technical skills: ability to perform the key operations of that business;
managerial skills: ability to organize and efficiently manage the operations;
entrepreneurial skills: ability to identify market opportunities and create solutions that capture
those opportunities; and
personal maturity: self-awareness, willingness and ability to accept responsibility, emotional
development, and creative ability.19
An entrepreneur’s level of development is defined by skills along these four dimensions. Table 2
describes the pattern and degree of skills at each level.
Entrepreneurs at each level possess a different profile.20 Rookies, as the label suggests, come to
entrepreneurship with few if any skills. They may include youth entrepreneurs and those who are
thrust into entrepreneurship due to circumstances such as corporate layoffs or welfare-to-work
programs. Single A entrepreneurs are typically technical people with strong operational skills in
their field, be it web development, medicine, specialty chemicals, or collections, but with very limited
managerial or entrepreneurial skills. They may have invented a new product or service but
experience difficulty in building it into a viable business. In characteristic fashion, their business
tends to run them rather than the otherway around (see Gerber, 1995). DoubleA’s are more experienced,
with stronger managerial and entrepreneurial skills, but they are not very highly developed.
Triple A’s have more extensive skills, typically having worked in a number of different businesses
before, perhaps even in other start-ups as a member of the management team, and have left to begin
a new venture. These entrepreneurs may even have started another business before but are now
involved in a venture that demands a much greater level of skill and sophistication.
Beginning with an entrepreneur’s current position on the ladder of development, the EDS helps
him or her progress to higher levels of skill and achievement, the goal being to reach the economic
“majors.” Each movement to a higher level involves a transformation. The time required to progress
up the ladder depends on one’s starting point; clearly, those with a higher level of skills upon
entering the system will take less time to achieve success. Successful outcomes include “graduation”
to the majors (which is defined in terms of business performance, not size), a viable business
at a particular level (e.g., profitable and paying livingwages to its employees), or the kind of experience
that enables the entrepreneur to become a more valuable employee in another business (by
selling his or her company to a larger one or by taking a well-paying job in another firm).
Entrepreneurs at the same level of development are clustered into success teams to address common
needs and to encourage learning and peer support (Sher&Gottlieb, 1989). An individualized
game plan is developed for each entrepreneur based on specific goals, needs, and the development
path of the business. Needs are diagnosed by identifying specific obstacles that stand in the way of
the entrepreneur’s acquisition or use of crucial resources, employing new tools that have been created
for just such a purpose (Lichtenstein & Lyons, 1996).
Services are customized according to the entrepreneur’s level of development, unique pattern of
needs, and personal or stylistic preferences. Such customization requires a comprehensive toolkit
Entrepreneurial Development by Skill Level
Technical Managerial Entrepreneurial Personal Maturity
of solutions that offers a wide variety of choices for delivering services to meet multifaceted and
changing entrepreneurial needs.21 This help is provided on a flexible and ongoing basis during the
course of the entrepreneur’s journey through the development levels.
Through the use of this diagnostic approach and a comprehensive toolkit of solutions, the EDS
is able to systematically and efficiently respond to the needs of different types of entrepreneurs in
different ways. It works with entrepreneurs in a holistic manner, addressing many different aspects
of both the person and the business (e.g., technical, managerial, personal). The system also regularly
monitors the performance of its firms on many different dimensions as a means of evaluating
entrepreneurs’ progress.
The EDS connects all rungs of the skill development ladder together so that movement to the
highest level of performance is possible from any position in the business community. It focuses on
all levels and kinds of entrepreneurs and as a result is neither trickle-up nor trickle-down. It encourages
a complete distribution of performers within its area of operation.
In this respect, the EDS provides away to systematically address the fragmentation in enterprise
development caused by the fact that agencies focus exclusively on different populations of firms
and provide only partial solutions (in terms of movement up the development ladder; Reynolds &
White, 1997).22 For example, entrepreneurs who have successfully graduated from business incubation
or micro-enterprise programs have complained that they did not know where to go to learn
how to take their business to the next level. Graduation, interpreted as a measure of success by service
providers, can in many cases simply be another level in which entrepreneurs stall in their
development as they outgrow the assistance that has been provided by that particular organization.
Most enterprise development programs tend to focus on particular rungs of the development
ladder—some intentionally and others without knowing it. Table 3 describes our perspective about
how current economic development programs are clustered according to the level of entrepreneur
on which they focus. In it, we make some broad generalizations for the purpose of illustrating these
ideas.
Rarely do formal or even informal ties exist among these programs so that entrepreneurs successfully
completing one can smoothly transition to another. TheEDSoffers away to address these
breaks in the ladder by explicitly articulating a progression of development levels and by connecting
entrepreneurs to the organizations that can help themmove to their next stage of development.
New Enterprise Development Roles
The EDS includes six unique and highly specialized functions that are not found in any enterprise
development infrastructure: scouts, diagnosticians, mentors or performance coaches, success
team managers, alliance brokers, and a general manager.
The scout identifies and recruits entrepreneurs to participate in the system. This person also
uses skills to find individuals in the community with the necessary skills to capitalize on market
opportunities that have been identified by the system but are in need of someone to pursue
them. These individuals are then assisted in forming, operating, and owning those businesses.
The diagnostician, or “company doctor,” assesses entrepreneurs’ needs and skill levels and
assigns them to the appropriate level. These individuals also help entrepreneurs develop
game plans, which are revisited and revised on a regular basis, and refer them to appropriate
service providers who can address their needs. The diagnostician, who is a general practitioner
rather than a specialist, provides an unbiased, single point of contact for assistance while
ensuring access to the entire range of enterprise development services. This individual also
helps the entrepreneur integrate the advice he or she receives on a particular issue from various
functional specialists.
The mentor, or performance coach, provides guidance to individual clients as they seek to develop
their skills and improve their performance. Coaches, who are often different at various
levels, go beyond simply providing answers to questions (which is the realm of a service provider
or resource specialist) to take an active role in developing the entrepreneur’s thinking,
skills, and ability to adapt to changing circumstances.
The success team manager is responsible for coordinating the activities of a cluster of entrepreneurs
(15 to 30) who are operating at the same level of development and perhaps in a similar
market or industry. This manager facilitates the sharing of information, ideas, and resources to
deal with common business issues and helps with similar developmental challenges.
The alliance broker identifies market opportunities that involve multiple companies as well
as cut across different development levels and organizes firms to capture those opportunities.
This individual builds forward and backward market linkages and facilitates alliances that
help firms reduce costs by pooling their resources. The broker encourages collective behavior
by viewing all firms in the system as a set of assets (rather than deficiencies) to themselves,
other companies, and the community.
The general manager of the EDS is responsible for integrating these critical functions into a
cohesive and mutually reinforcing system with accountability for well-defined performance
outcomes.
Participation in the system involves intense interaction among peers, entrepreneurs at other levels,
mentors, resource specialists, customers, and a host of other players in the business community.
It is through these relationships that transformation of the client entrepreneurs and their companies
takes place.
Relationship Between Development Activities and Service Provision
At its core, the EDS consists of two interlocking subsystems: a system for developing entrepreneurs
and a system for managing assistance providers. The first subsystem organizes entrepreneurs
to ensure that they receive appropriate assistance; the second organizes providers into a coherent
and strategically deployed confederation.
The service provider subsystem does not replace existing service providers; it integrates and
disciplines them so that each provider can concentrate on what it does best. Service providers
become specialists engaged by the EDS to meet specific needs. Thus, each service provider serves
a particular entrepreneurial need at an appropriate level of development.23
Although some matching of appropriate services as well as referrals takes place in current practice,
rarely is it done systematically, strategically, and on the basis of a thorough knowledge of the
capabilities of the various service providers. With few exceptions, providers commonly compete
against each other for the same entrepreneurs or myopically serve a small clientele without connecting
them to other sources of assistance (Servon, 1998). By helping service organizations clarify
their unique market niche, the EDS eliminates unnecessary duplication, defuses destructive
competition, and releases resources to fill gaps in available services.
In the EDS, all assistance is provided within a common diagnostic framework and process: A
diagnosis is performed, a development level assignment is made, and the type and amount of
Benefits to Entrepreneurs, Service Providers, and the Community
Implementing the EDS offers a number of potential benefits to entrepreneurs, the service providers,
and the community.
Benefits to entrepreneurs. Why should entrepreneurs participate in the EDS? In general, it is
because the EDS can provide a clear ladder to success and help entrepreneurs progress to higher
levels of skill and achievement in building their companies.
No one succeeds in business by working alone, although many try to do so and others seem to
have no choice. Some entrepreneurs make an effort to create for themselves the kind of functions
that are contained in the EDS—and the more successful ones have been able to do so. Others are
unable to assemble the right kind of support and use what they can access and therefore struggle
unsuccessfully. The EDS, as a public good, can present individual entrepreneurs with a support
structure that is easily used and customized to meet their needs. There is no need to operate on one’s
own.
The EDS can provide entrepreneurs with three kinds of benefits: access to resources (that are
also more affordable and available in the right form at the right time), psychological support, and
opportunities to develop new skills. These benefits make it
less costly for an entrepreneur to form a business,
more likely that he or she will succeed (or easier to exit, having created some kind of asset, in
the event of failure),
less time consuming to achieve success (faster time to market),
less expensive to operate a business by enabling firms to share resources, and
easier to use resources more intensively for a greater return on investment.
These benefits can have clear and measurable economic value, which could be measured by
comparing the performance of firms that participate in theEDSwith those that do not. For example,
recent data from the sport of professional basketball clearly indicate that the individual player’s
performance, as well as the general level of play in the sport, suffers when players skip college to
turn professional early. A correlation has been shown to exist between the increasing number of
non-college-trained professionals and an overall decline in shooting percentage and defensive play
(Wise, 1998). A business analogy might be for a firm to go to an initial public offering prior to perfecting
its product or the skills needed to change its product. The risks of failurewould be increased
in the event it does not achieve market acceptance due to the more limited adaptability of the entrepreneurial
team.
Benefits to service providers. The potential benefits to service providers of implementing the
EDS come from its ability to
create demand for services and improve use by clearly articulating entrepreneurial needs;
link clients to providers and provide them with qualified, prescreened clients;
enable providers to take preventive rather than corrective action on a problem (being brought
in before it is too late to solve the problem).
link services for synergistic effect, thus enhancing client performance and the impact of each
provider;24
enable services to be delivered more cost-effectively because entrepreneurs are organized
into levels of development in which needs tend to be similar, yielding economies of scale and
an enhanced demand for services;
foster coordination among service providers, resulting in resource pooling, ease of referral,
and the capacity to assist in strategic decisions about the deployment of limited resources
among client firms.
The EDS would use neither a laissez-faire nor a command-and-control approach to organize
entrepreneurs and service providers. It would rely on enlightened self-interest and individual
choice. Those who believe the benefits outweigh the costs will participate. Those who do notwould
not get access to the same level of opportunity and benefit.
Benefits to the community. Perhaps the greatest benefit of the EDS to a community is as a framework
that enables the diagnosis of complex enterprise development problems on a macro level and
the identification of strategic solutions. For example, one particular northeastern U.S. city has
often been described as good at starting firms but not at growing them to maturity. Local venture
capitalists and others have complained about the lack of “good” entrepreneurs in which to invest.25
An analysis of aggregated secondary statistics on start-ups would neither reveal this problem nor
suggest potential solutions. By using the EDS framework, this situation could be explained with
the following hypothesis: There are many Single A entrepreneurs who start firms and plenty of
financing is available for Triple A entrepreneurs, but the support structure for Double A entrepreneurs
and the processes for transforming Single A entrepreneurs into Double A (and Double A
entrepreneurs into Triple A) are weak or nonexistent.
In fact, discussions with entrepreneurs at this skill level confirm the impression that there is a
disruption in the ladder of development and the infrastructure of support in that region. Many Double A entrepreneurs
must seek financing outside the region because local investors are unwilling to
invest in them until they are at the Triple A level; but in exchange, they are asked to move to the
investors’ location so that they can be closely observed and supported.26 If that is true (and such
statements and conclusions can be substantiated by further research), the diagnosis suggests a clear
and targeted local enterprise development strategy. By using the EDS framework, the issue can be
translated into a question capable of being researched and on which action can be taken.
The benefits of the EDS to a community derive from its effectiveness in developing entrepreneurs,
efficiency in producing results, equitability of focus on different types of entrepreneurs,
ability to build a continuous stream of new companies and business leaders, and operation at a scale
sufficient to transform the economy.
Challenges to Implementation
The uniqueness of the EDS’s mission and approach presents certain implementation challenges.
To adopt the EDS in its entirety, a community or region must be willing to do the following.
Engage in innovation. The EDS is not just a technical solution; it is a political and social one.
A champion or pioneer will be needed to lead the charge—someone with the vision to see the
possibilities and the courage to undertake something new.
Resolve political issues among people and organizations in the best interests of the entire
community and focus all attention on the achievement of results.
Form new institutions with the responsibility for developing entrepreneurs, staffed with people
possessing the right skills,@151those of diagnosing, facilitating, and organizing.
Undertake a community-wide diagnosis to develop a design for an EDS implementation that
is specifically tailored to the local context in which it will operate. This involves a detailed assessment
of existing and potential entrepreneurs to ascertain the percentages operating at
each level of development and entrepreneurs’ specific needs. The diagnosis must also examine
the existing service provider infrastructure to determine its capabilities, gaps, and overlaps.
Implement the entire system. The potential power of the EDS comes from the fact that it is a
system; the synergistic interaction of the elements produces a result greater than the sum of
the parts. Piecemeal implementation of individual elements will not enable a community to
achieve the large-scale, ongoing transformations it is seeking. This investment situation is
similar to that of Federal Express, whose founder, Fred Smith, had to set up an entire network
of operations and planes that could carry packages anywhere in the country customers
wanted to send them—before he opened for business.
CONCLUSION
H. L. Mencken once said that “for every complex problem there is an easy answer, and it is
wrong.” Community-wide enterprise development is a complex problem; therefore, any useful
solution is bound to be so as well. In this article, we offered a new approach built on a fundamental
rethinking of current theory and practice.We believe that this solution can cope with a high level of
complexity, drive transformational change at the individual as well as social level, and be implemented.
Using the EDS, a community could effectively, efficiently, equitably, and continuously
develop entrepreneurial talent and build successful companies on a large scale.
No comments:
Post a Comment