copy the linklink copied!8. Increasing the scale-up potential for disadvantaged entrepreneurs

Policy recommendations

Foster an environment that is conducive to scale-ups by diverse entrepreneurs.

• Use regulatory impact assessments to identify and minimise the negative impacts of regulatory changes that impact business growth for different profiles of entrepreneurs, including motivations to grow. Priority should be given to gender assessments.

• Increase the share of entrepreneurs from under-represented and disadvantaged groups that have motivations for scale-up by promoting role models with different backgrounds and through entrepreneurship education (in the formal education system).

• Support dedicated business angel networks to improve access to external finance, notably for women entrepreneurs. This could include some financing to build up networks (e.g. operating costs) and promotion.

Adapt scale-up support programmes to better support entrepreneurs from under-represented and disadvantaged groups.

• Offer management training and mentoring to help entrepreneurs from under-represented and disadvantaged groups with growth motivations acquire entrepreneurship and management skills to manage a rapidly growing business.

• Offer tailored training programmes and bootcamps on digital skills, internationalisation and investor readiness for entrepreneurs from under-represented and disadvantaged groups.

• Design tailored and targeted initiatives as a method to bridge entrepreneurs from under-represented and disadvantaged groups into mainstream support programmes.

• Deliver support to growth-oriented entrepreneurs from disadvantaged groups in a progressive manner that requires a demonstration of success before more intensive support is offered.

Strengthen the evidence base on the effectiveness of policies and programmes.

• Develop disaggregated data on business performance and programme evaluation to better understand the impacts of different profiles of entrepreneurs.

• Undertake systematic and rigorous evaluations of programmes that support growth-oriented entrepreneurs. This is particularly true for finance programmes as there is a need to better understand the effectiveness of allocating risk capital investments to entrepreneurs from under-represented and disadvantaged groups.

What is a scale-up?

Scale-up broadly refers to the transformation of start-ups into larger enterprises. However, the term is used inconsistently in policy literature, which can create some confusion. Some literature uses the term in a general sense to imply business growth, without necessarily defining it precisely (see, for example (OECD, 2019[1])). Other policy documents, including the European Union’s Start-up Scale-up Initiative, use the terms “scale-up” and “high-growth” interchangeably (see Box 8.1 for recent definitions of high-growth) while the technology and innovation literature often makes an association between scale-up and ICT. Other research measures the relative performance of firms by looking at the top proportion of performers rather than using a fixed benchmark (Lopez‐Garcia and Puente, 2012[2]).

Regardless of how scale-up is measured, it must be recognised that business development is a process with varying phases of steady growth, stagnation, high growth and declines. This means that rapid growth does not have to be sustainable over a long period, even though it is often the focus of the discussion on scaling-up. The growth path can also take different forms, including organic (i.e. internally generated) and non-organic growth (i.e. through mergers and acquisitions, joint ventures or alliances). The latter is an often overlooked channel for growth, but SMEs accounted for 20% of mergers and acquisitions in the EU and US between 1996 and 2007 (OECD, 2019[1]).

While such approaches to measuring scale-up are useful for understanding macro-economic policy, labour markets and industrial change, they are likely unsuitable in the context of inclusive entrepreneurship for two reasons (see (Welter et al., 2017[6]) for a broader discussion on entrepreneurial diversity):

1. It is impossible to predict ex ante, which businesses will grow fast. They can be found across a wide distribution of different sectors and are not limited to the tech-sector (Brown, Mawson and Mason, 2017[7]). This is especially important to note in the context of inclusive entrepreneurship as women, immigrants, youth and immigrant entrepreneurs may self-select themselves into different sectors with lower growth potential, but this does not necessarily preclude them from growing their business. This decision is not only influenced by personal preferences but also by cultural norms and conventions.

2. A narrow understanding of business growth and scaling-up also overlooks the wider impact of business development going beyond pure growth figures (i.e. turnover or number of employees). That includes, for example, the development of highly innovative, environmentally or socially sustainable products and services. Impactful business development does not even need to be directly correlated to the business output. For example, migrant-led enterprises are on average more likely to employ immigrants, which can improve their integration into society (Bijedić et al., 2017[8]).

Therefore, this chapter considers scale-up in a broader sense. Much of the discussion will use the term “business growth” to refer to substantial growth but not at the same level as described in Box 8.1. Very few firms reach this rate of growth, and it would be expected that entrepreneurs from under-represented and disadvantaged groups are, on average, less likely to operate businesses that achieve high-growth. However, some will, and others are capable of growing their businesses at lower rates.

Why are policy makers interested in scale-up?

Start-ups are a key source of radical and disruptive innovations, and young firms contribute disproportionately to net job creation – the share of young SMEs in total job creation is about twice as large as their share in total job destruction or in total employment (OECD, 2019[1]). Older SMEs and older large firms account for the bulk of employment across EU Member States and non-EU OECD countries, but typically create fewer jobs than they destroy. This is confirmed by recent empirical research covering 20 EU Member States that found that young-small firms accounted for 40% of job creation despite accounting for 15% of total employment (Hallak and Harasztosi, 2019[9]). Moreover, the same study found that high-growth firms accounted for only a few percentage points of the population of firms but tended to create about 60% of new jobs across most countries and sectors. Among OECD countries, these few firms account for between 22% (the Netherlands) and 53% (France) of new job creation over five-year periods between 2001 and 2012 (Criscuolo, Gal and Menon, 2017[10]).

The impacts of these firms goes well-beyond job creation. Start-ups that grow in terms of employment, turnover, profitability or market share can also drive innovation, productivity growth and the competitiveness of national and sub-national economies. This can occur directly through their innovations and investments in human capital (Du and Temouri, 2014[11]), or indirectly through the generation of new demand for advanced products and services, generating knowledge spill-overs and strengthening the local entrepreneurship culture (OECD, 2010[12]; OECD, 2019[1]). There is also evidence that they can contribute to raising wage and income levels (OECD, 2019[1]).

There are considerable differences across countries in the extent to which younger firms are able to scale-up (OECD, 2019[1]). Rapid expansion of successful young firms appears to be more common in the United States than other OECD countries (Calvino, Criscuolo and Menon, 2016[13]), and there appears to be a gap between non-EU OECD countries and EU Member States (European Commission, 2016[14]). These differences can be explained by the industrial structure and size of the economy, as well as the institutional and policy settings (OECD, 2010[12]) and cultural attitudes towards entrepreneurship and risk (OECD/EU, 2015[15]).

These cross-country differences, combined with low productivity growth, persistent productivity gaps between micro-firms, SMEs and large firms, and widening wage and income gaps, have led to scale-up being a policy priority in many EU Member States and other OECD countries (OECD, 2019[1]). This is particularly true within EU Member States, where there has been a long-standing gap with the US in terms of start-up rates, availability of capital, and entrepreneurship culture (Braunerhjelm et al., 2016[16]). Consequently, there is a strong interest among policy makers in the EU to do more to promote and facilitate scale-up for start-ups with growth potential (see Box 8.2). There is, however, a need to do more to raise awareness about the untapped potential for business growth among groups that are under-represented or disadvantaged in entrepreneurship.

How many start-ups grow?

It is estimated that only 3% of start-up in EU countries grow (Svenssonn and Rodert, 2017[17]), and about the same proportion of micro-start-ups grow in OECD countries (4%) (OECD, 2019[1]). There are no consistent patterns across countries as to where firm growth occurs. Evidence from across EU and OECD countries shows that high-growth firms are in most economic sectors (Hallak and Harasztosi, 2019[9]; OECD, 2019[1]). Although high-growth firms are more common in regions with a high population density and a labour force with high skill levels (i.e. large urban areas), they can also operate in peripheral regions where their impact on net job creation and social inclusion can be significant (OECD, forthcoming[18]).

The impact of high-growth firms in the EU appears to be declining over the past two decades, likely due to the decline in the likelihood that new start-ups become high growth firms. Three possible explanations are offered by a recent study on business dynamics and job creation (Hallak and Harasztosi, 2019[9]). First, firms may be operating below their optimal scale due to imperfect information about their productivity, demand or credit constraints. Second, young innovative firms may be increasingly likely to be bought by larger companies rather than growing as independent firms. Finally, the decline in employment dynamism may be partly due to the aggregate productivity slowdown, which is linked with how labour is allocated across firms.

What is the scale-up potential among women, immigrant, youth and senior entrepreneurs?

There is mixed evidence on the potential for businesses operated by women, immigrants, youth and seniors to make substantial contributions to job creation, innovation and productivity growth. Some research suggests that, on average, many entrepreneurs in this groups do not create jobs. For example, longitudinal analysis in Austria shows that few women-operated businesses without employees grow (Korunka et al., 2011[19]), few high-growth firms in the US are operated by people under 25 years old (Azoulay et al., 2018[20]), and few refugee entrepreneurs have employees (Betts, Omata and Bloom, 2017[21]). This is also consistent with other metrics that are often associated with business growth and innovation. For example, only 3% of patent applications in Germany are made by women (Bundesministerium für Wirtschaft, 2012[22]).

Moreover, internationally comparable data show that women and seniors are less likely to have growth ambitions than the overall average (Figure 8.1). They are also less likely, on average, to introduce new products and services that could be used to give their firms a competitive advantage (Figure 8.2) and sell to customers in other markets (Figure 8.3). This would suggest that entrepreneurs from these groups, on average, have lower potential for growth.

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Figure 8.1. Women and senior entrepreneurs are less likely to have high-growth ambitions

Relative proportion of early-stage entrepreneurs that reported an expectation to create at least 19 jobs over the next five years (overall average = 100), 2014-18

Note: Early-stage entrepreneurs are those who are in the process of setting up a business or managing a business that is less than 42 months old.

Source: (Global Entrepreneurship Monitor, 2019[23]).

 StatLink https://doi.org/10.1787/888934066539

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Figure 8.2. Women and senior entrepreneurs are less likely to offer new products and services

Relative proportion of early-stage entrepreneurs that reported offering products and services that were new and unfamiliar to their potential customers (overall average = 100), 2014-18

Note: Early-stage entrepreneurs are those who are in the process of setting up a business or managing a business that is less than 42 months old.

Source: (Global Entrepreneurship Monitor, 2019[23])

 StatLink https://doi.org/10.1787/888934066558

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Figure 8.3. Women and senior entrepreneurs are less likely to export

Relative proportion of early-stage entrepreneurs that reported having customers in other countries (overall average = 100), 2014-18

Note: Early-stage entrepreneurs are those who are in the process of setting up a business or managing a business that is less than 42 months old.

Source: (Global Entrepreneurship Monitor, 2019[23])

 StatLink https://doi.org/10.1787/888934066577

There is, however, evidence that some entrepreneurs in these groups do have potential for creating businesses with scale-up potential. Looking at high-growth firms, the academic literature is recognising that the factors that influence the growth motivations for women are increasingly similar to those of men (Saridakis, Marlow and Storey, 2014[24]). Programmes that support women entrepreneurs in growing their business have demonstrated some success, including Going for Growth in Ireland. In 2018, 66 participants participated in the completed the programme between January and June, and hired an additional 90 full-time and 20 part-time employees during this period (OECD/EU, 2018[25]). Nonetheless, women are less likely to operate growth-oriented firms and are more likely to operate businesses in sectors with lower growth potential (OECD/EU, 2016[26]; Lassébie et al., 2019[27]).

Evidence by entrepreneurs’ age from the US (Azoulay et al., 2018[20]) shows that older entrepreneurs appear to be much more likely that young entrepreneurs to operate high-growth firms. Although the average age of an entrepreneur that achieved high-growth in the US is 45 years old, the probability is fairly constant between 46 and 60 years old. Moreover, conditional on starting a firm, a 50 year old business starter is 1.8 times more likely to achieve high-growth than a 30 year old. Among young high-growth entrepreneurs, the probability of achieving high growth increases sharply between the ages of 25 years old and 35 years old.

Taking a broader perspective on growth, it is clear that some entrepreneurs from under-represented and disadvantaged groups have the potential to create jobs even if they are not operating high-growth firms (Box 8.3). Part I of this book shows that about one-quarter of self-employed women had employees in 2018, while the proportion was even greater among seniors (50-64 years old) and immigrants. The share among self-employed youth with employees is lower but some evidence from the EU shows that among businesses that operated between 2002 and 2005, those operated by youth had an average growth rate that was double that of businesses run by those over 40 years old (Eurostat, 2006[28]).

The evidence base on the performance of businesses operated by other target groups such immigrants and the unemployed is thinner but suggests that there are some growth prospects, particularly among high-skilled immigrants. Recent evidence from the US shows that immigrants are over-represented among entrepreneurs as well as among high-tech growth-oriented entrepreneurs (Pekkala Kerr, Kerr and Xu, 2017[29]). Research on entrepreneurs that started their business out of unemployment suggests that few are likely to generate businesses that create a substantial number of jobs. This is likely due to less access to information about business opportunities and lower opportunity costs, i.e. the decision to create a business does not detract from other income generating activities (Shane, 2003[30]). This is consistent with recent quantitative evidence from Germany, where recipients of start-up subsidies for the unemployed started businesses that generated less income, created fewer jobs and were less innovative (e.g. fewer patents filed) relative to unsubsidised start-ups (i.e. average start-ups) (Caliendo et al., 2015[31]). Nonetheless, businesses started by the unemployed had higher business survival rates, which is likely due, at least in part, to the financial subsidy.

Women and seniors entrepreneurs are less likely to have scale-up motivations

Entrepreneurial motivations and intentions are influenced to a large degree by cultural norms and conventions (i.e. normative institutions). This includes decisions to pursue different business activities and strategies, as well as decisions to grow a business. Typically, businesses are perceived to be more likely to have a high-growth potential if they are young and small, or are located in the typical venture-backed, high-technology sectors. This view, however, contradicts empirical evidence (Brown, Mawson and Mason, 2017[7]).

These influences of cultural norms and conventions on entrepreneurs from under-represented and disadvantaged groups seeking to scale-up manifest in four ways. First, they self-select into activities and sectors that have lower growth potential. For example, entrepreneurs who experience disability tend to self-select into social entrepreneurship (Cardwell, Parker and Renko, 2016[47]), and women entrepreneurs towards less innovative sectors (e.g. the services sector) (OECD, 2017[48]). Second, discriminatory social norms may also negatively alter the self-perception of an individual. As a result, lower self-confidence can lead to missed opportunities for business development since risks are more likely to be avoided (Welter, 2006[36]). Third, social norms can lead to discriminatory behaviour towards several groups of entrepreneurs, notably people with disabilities. This can negatively affect self-perception, but also severely hinder access to human and financial capital. Finally, cultural norms and conventions influence how entrepreneurs interact with their networks, clients, partners, suppliers and business support services (Welter and Smallbone, 2012[34]).

The gender effects of cultural norms and conventions are strong. Media coverage on female entrepreneurs often focuses on characteristics and attributes which are stereotypical perceived as feminine (Byrne, Fattoum and Garcia, 2019[49]). This may in turn promote images of types of entrepreneurship that are seen as typical or socially acceptable for female entrepreneurs (Achtenhagen and Welter, 2011[50]). High-growth potential is commonly associated with masculine terms (Gupta, Wieland and Turban, 2019[51]). This can in turn discourage female entrepreneurs from entrepreneurial activity outside of typical female domains or lower their self-confidence.

There are also differences in risk aversion. Women and youth are more likely to report a “fear of failure” (see Chapters 2 and 3), which suggests that they would be less likely to pursue riskier activities such as growing a business. This negative self-perception is a commonly cited barrier among women entrepreneurs (OECD/EU, 2016[26]), which can lead them to scale-down their growth plans despite having strong business ideas.

Moreover, entrepreneurial intentions change over the course of life. For example, younger entrepreneurs are more likely to express high growth expectations than older ones (Davis and Shaver, 2012[52]). Entrepreneurial intentions of seniors are significantly positively influenced if it is perceived as socially acceptable (Kautonen, 2013[53]; Kautonen, Down and Minniti, 2014[54]; Kautonen, Tornikoski and Kibler, 2011[55]). Older entrepreneurs more frequently pursue non-pecuniary goals (Matos, Amaral and Baptista, 2018[56]) and are less likely to focus on business growth (De Kok, Ichou and Verheul, 2010[57]; Gielnik, Zacher and Frese, 2012[58]). A shift to entrepreneurship in later life is often accompanied by a reduction in income, but a higher quality of life (Kautonen, Kibler and Minniti, 2017[59]). They also have a shorter planning horizon compared to younger entrepreneurs (Schott et al., 2017[60]). Long-term benefits of business development may be less relevant to them, especially if they are accompanied by high financial risks. In the case of failure, a senior entrepreneur might lose her life savings (Trettin et al., 2007[61]). Therefore, monetary incentives for senior entrepreneurs to focus on business growth are often of lower importance. If an entrepreneur plans to retire in the near future, the question of business succession is likely to influence the decision to invest in business development as well. The entrepreneur cannot be certain that their successor will follow their strategies, nor can they be certain that a buyer will value their investment (Pahnke, Kay and Schlepphorst, 2017[62]).

Regulations about access to benefits and tax measures can contain disincentives to scale-up for many population groups

Regulatory institutions affect business development and the influence can be both enabling and restrictive. Regulatory institutions describe any laws or rules that govern business activities such as rules regarding market entry and setting up new businesses, labor market laws, tax policies or property rights. For example, if labor market regulations are too rigid they can negatively affect entrepreneurship, especially high-growth entrepreneurship (Baughn, Sugheir and Neupert, 2010[63]). Strong protection of employees and high wages can discourage entrepreneurs from hiring additional employees. But, deregulation does not necessarily always fuel growth and innovation because this can also create insecurity and lower commitment to employers, harming long-term efficiency (Henrekson, 2014[64]).

For inclusive entrepreneurship, the strongest disincentive typically come from regulations that determine access to various benefits (e.g. unemployment benefits). Regulations that set certain limits for the eligibility of receiving benefits can also have an impact on business development. While they aim to support entrepreneurs in certain situations, they also form a barrier if the beneficiaries avoid losing the benefits. For example, entrepreneurs who experience disability may fear the loss of regular public benefits for persons who experience disability if they extend their business and pass a certain threshold (Cooney, 2008[65]).

Income splitting tax policies show contrary effects on female entrepreneurship. They can discourage female entrepreneurs from entrepreneurial activity in general or from intensifying efforts towards business development through family and tax policies promoting traditional gender roles (Sjöberg, 2004[66]).

Women, youth and senior entrepreneurs often have lower levels of entrepreneurship and management skills

Scaling-up requires, among others, restructured business processes, additional know-how or delegating tasks and responsibilities to employees. The entrepreneur’s individual resource endowments can facilitate this process and minimise the need for additional external resources. Entrepreneurs from under-represented and disadvantaged groups, on average, have lower levels of human capital. For example, migrant entrepreneurs can lack knowledge on local consumer behaviour or regulations, the latter reinforced by linguistic difficulties. Female entrepreneurs are more likely to have less business experience when they have taken parental leave (OECD/EU, 2016[26]). Senior entrepreneurs may be at a disadvantage as part of their knowledge, especially on digitisation and current trends may be outdated. Relevant sources of information, such as websites, are perceived to focus more on a younger audience (Kautonen, 2013[53]).

Moreover, acquiring human capital may be hindered due to restricted mobility, language barriers or lacking knowledge on relevant institutions. This is especially relevant for people who experience disability (Drakopoulou Dodd, 2015[67]) and, again, migrant entrepreneurs. For the former, the lack of suitable public transportation, or classes that take place in floors without elevators can exclude them from participation in regular education (Cooney, 2008[65]). For the latter, especially for first-generation migrants, it can be more difficult and time-consuming to obtain information in an unfamiliar environment (Bijedić et al., 2017[8]).

Scale-ups have higher risk, which increases the already high barriers to finance for women, immigrant, youth and senior entrepreneurs

Hiring employees and investing in new business processes and innovations need appropriate funding to fuel the scaling-up process. Entrepreneurs often have to make considerable up-front investments that only pay off at a later stage of the business development, e.g. through the realisation of innovative product ideas or business concepts. External financial capital can therefore become a significant obstacle for scaling-up, even though some entrepreneurs may be able to postpone the need for external financial resources.

In credit markets, adverse selection and moral hazard are exacerbated in the case of young, innovative businesses without loan history or collateral to secure a loan (OECD, 2019[1]). Due to their higher risk profile, fast-growing companies also typically suffer from higher loan rejection rates than averagely performing firms (OECD, 2015[68]). At the same time, traditional debt may be ill suited for new, innovative and fast-growing companies, which have a higher risk return profile.

Furthermore, the personal financial situation and the ability to acquire additional funding can be limited for entrepreneurs from under-represented and disadvantaged groups. Those who experience disability (Drakopoulou Dodd, 2015[67]) and migrant entrepreneurs (Kay and Schneck, 2012[69]) can face increased difficulties in this regard. Limited career opportunities can lower the financial capacity of entrepreneurs who experience disability, in turn hampering access to external financial means. If their disability is seen as a risk factor, this can increase interest rates (Cooney, 2008[65]). For senior entrepreneurs, their age can perceived as a risk for potential investors due to the potential health risks and shorter period to earn future returns (OECD/EC, 2012[70]).

Sector specific differences may be an important factor as well, especially regarding gender differences. Typically, technology-intensive sectors are perceived to have the highest growth potential, while female entrepreneurs are predominantly active in trade and services sectors and sectors that are less capital-intensive (OECD, 2017[48]). Low capitalisation has been a reason why banks frequently refuse credit applications of female entrepreneurs (OECD, 2016[71]; OECD/EU, 2016[26]).

Similar issues arise when entrepreneurs from under-represented and disadvantaged groups seek debt financing. In 2017, the business angel market in the EU was worth about EUR 7.3 billion, mostly concentrated in the United Kingdom, Germany, France and Spain (EBAN, 2017[72]). Generally, these investments are targeted at growth-oriented sectors (Levratto and Tessier, 2014[73]). In 2017, nearly half of business angel investment in the EU was concentrated in FinTech (25.2%) and ICT (21.3%) sectors (EBAN, 2017[72]). Entrepreneurs from under-represented and disadvantaged groups are less likely to operate in these sectors (see Chapters 2-6), which partially explains why women, immigrant, youth, senior entrepreneurs, and the (formerly) unemployed receive a small fraction of business angel investments.

Recent OECD analysis based on Crunchbase data found that raising capital is even more difficult for female-owned firms (Breschi, Lassébie and Menon, 2018[74]). Using a sample of 25 000 start-ups across a wide set of countries and sectors, female-led business ventures (i.e. those with at least one female founder) are significantly less likely to be funded. Even when they receive funding, the receive 23% less, on average, than male-led start-ups event after controlling for the location and the nature of the start-up, as well as for the education level and professional background of the founders. Female-led start-ups are also 30% less likely to have a positive exit, i.e. be acquired or to issue an initial public offering (Breschi, Lassébie and Menon, 2018[74]).

Women, immigrant, youth and senior entrepreneurs tend to have smaller and less effective networks

There is long-standing evidence that entrepreneurs from under-represented and disadvantaged groups have small and less diverse networks. Networks are groups of actors with a relationship or tie that connects them and they have an important role in facilitating access to resources, ideas and opportunities for entrepreneurs (OECD/EU, 2015[75]). A large number of factors influence access to networks, including cultural norms and conventions, discrimination, educational attainment, workplace experience and more.

The challenges to building entrepreneurship networks vary across different population groups. Women entrepreneurs, on average, tend to have informal networks with strong-tie connections, whereas men tend to have larger networks with weak-tie connections, involving business service providers and other entrepreneurs (OECD/EU, 2015[75]). Youth entrepreneurs typically lack experience in the labour market and in self-employment. This lack of experience means that they have had fewer opportunities to build connections. They also have difficulty entering networks since they have little to offer other network members. Conversely, senior entrepreneurs likely have many connections and a wealth of experience to offer others. However, their connections tend to have diminishing value if they have been out of the labour market for some time and can also face unsupportive attitudes from their closest strong ties (i.e. family and friends) and others in the community (e.g. partners, suppliers and customers). Immigrant entrepreneurs may face language challenges when interacting with relevant connections, which hinders their ability to build relationships. Moreover, there is evidence to suggest that immigrants are more likely to mistrust government and public initiatives (OECD/EU, 2014[76]). The long-term unemployed typically face multiple forms of deprivation, including difficulties accessing housing, education, health, work opportunities, and physical infrastructure.

Build motivations and intentions for growth when appropriate

The first step to improving the scale-up potential of businesses started by entrepreneurs from disadvantaged groups is to try to increase the proportion of entrepreneurs that want to grow their business. However, this is not without caveats. Firstly, influencing the intention to scale-up can possibly result in problems regarding self-selection. Entrepreneurs that do not have the capabilities or initial intention to scale-up should possibly not be coerced into business development. Secondly, intentions cannot, for the most part, be changed in the short-term as the underlying factors are only to be influenced in a longer time-period. In the long-term, information and awareness campaigns can promote both growth ambitions and knowledge about relevant programmes.

Facilitate the acquisition of entrepreneurship skills for growth

At individual and business level, policies aimed at stimulating scaling-up of entrepreneurs from under-represented and disadvantaged groups should facilitate acquiring the resources required for business growth, i.e., human, social and financial capital. Adequate training possibilities can help to build the human capital of both entrepreneurs and employees. As some entrepreneurs from under-represented and disadvantaged groups face the challenge of restricted mobility or language barriers, comprehensive and easily accessible services that are available in multiple languages, can be a viable approach.

Enhance access to finance for business growth

Difficulties in accessing finance are widely recognised as one of the major obstacles for starting and growing a business and these barriers are often greater for entrepreneurs from under-represented and disadvantaged groups (OECD/The European Commission, 2013[39]; Marchese, 2014[85]). A lack of finance prevents entrepreneurs and SMEs from investing in innovative projects, improving their productivity, and seizing opportunities in expanding or accessing new markets (OECD, 2019[1]). There are several ways that policy makers can facilitate access to debt and credit for scale-up for entrepreneurs from under-represented and disadvantaged groups.

Build networks and eco-systems that support growth for all entrepreneurs

The concept of the local entrepreneurship ecosystem has gained traction in recent years as a way to conceptualise and build a supportive business climate. This concept focusses on the individual entrepreneur, rather than the “cluster” or “industrial district” approaches that focus on firms (Stam, 2015[90]; Stam and Spigel, 2016[91]; Autio, 2011[92]). Fostering entrepreneurship ecosystems means seeking to improve the setting and conditions within which entrepreneurs work (Malizia and Motoyama, 2016[93]).

While the literature on entrepreneurship ecosystems is largely descriptive, it is believed that the success of ecosystems is dependent on the number, diversity and capabilities of actors – including entrepreneurs, business development organisations, etc. – the strength of networks and learning opportunities between them, level of innovation, the governance and co-ordination of actors and a culture of risk-taking (OECD, 2019[94]).

Local authorities often play a key role in the development of a conducive business environment, including through partnership with the business community, research organisations and investors. Multilevel governance is an important dimension of any coordinated policy approach to SME growth (OECD, 2019[1]). The SPEED UP programme (Box 8.9) is an example of how cities and regions are working together to share good practice and learn about innovations in the delivery of business development. One of the participating regions is Flanders in Belgium, led by the City of Antwerp. It has selected the theme of supporting “target audiences” as its key issue, notably supporting the development of businesses led by women, youth and immigrants.

Remove hindrances to growth in the regulatory environment

Policy makers continue to simplify administrative obligations for entrepreneurs and SMEs. The aim is to reduce the costs and amount of time spent on complying with regulations. These ongoing efforts are important but there are several other areas where more can be done to facilitate business growth.

The efficiency of the court and legal system is particularly important for SMEs, which typically need to divert a higher share of resources than large firms to resolving disputes (OECD, 2017[98]). Efficient judicial systems are intrinsically related to larger average firm size and tend to improve the predictability of business relationships. Conversely, there is some evidence that weak judicial systems hamper firm growth because firms are less willing to establish partnerships with other firms (Johnson, McMillan and Woodruff, 2002[99]). Moreover, weak contract enforcement also leads to low levels of relationship-specific investments, which can further constrain growth prospects (Nunn, 2007[100]).

Intellectual property rights (IPRs) are useful tools for entrepreneurs SMEs to protect their innovations and intellectual property, especially when products can be easily replicated by others. Strong IPRs can increase the perceived value of the firm, which can improve access to external sources of finance as well as attract knowledge and commercial partners (OECD, 2019[1]). Weak property rights have a negative impact on high growth aspirations (Estrin, Korosteleva and Mickiewicz, 2011[101]; Estrin, Korosteleva and Mickiewicz, 2009[102]). Entrepreneurs and SMEs often encounter challenges using IPRs when operating internationally, due to high costs, the need for multiple filings, regulatory and technical differences across countries and the robustness of IP enforcement in different jurisdictions (OECD, 2019[1]). Policy makers could do more to streamline procedures and reduce application costs and time, particularly in industries where innovation occurs at a rapid rate. It is also important to improve litigation and enforcement mechanisms for entrepreneurs and SMEs that operate internationally. This requires improved IP information, coordination and enforcement across jurisdictions, likely provided by international treaties (OECD, 2019[1]).

Policy makers also need to ensure that employment protection legislation (i.e. the rules of hiring and firing) is appropriate. While they have an important role in labour markets by protecting workers’ rights and building long-term relationships between employers and employees, they can restrict high-potential entrepreneurship (Baughn, Sugheir and Neupert, 2010[63]). Evidence shows that stricter employment protection legislation leads to slower firm growth in sectors which are more labour-intensive, more innovative, or characterised by greater uncertainty (OECD, 2019[1]). Moreover, strict labour protections appears to reduce growth among the best performing firms and contraction among the underperforming ones (Calvino, Criscuolo and Menon, 2016[13]; Bravo-Biosca, Criscuolo and Menon, 2016[103]).

Most of these actions would support scale-up for all growth-oriented entrepreneurs, but it is likely that entrepreneurs from under-represented and disadvantaged groups would benefit disproportionately since many have greater difficulties navigating the regulatory environment due to a lack of experience and/or lack of language skills (OECD/The European Commission, 2013[39]). There are also some actions that policy makers can use to address the challenges for specific groups.

Identify entrepreneurs with scale-up potential

Public policies that aim to support business growth are likely to be more effective and efficient when they target individuals who manifest growth willingness. Support can then be given to translate this growth willingness into a growth motivation and to facilitate the acquisition of important growth resources, including finance, skills and networks.

One common approach to identifying entrepreneurs with scale-up potential is to use self-selection mechanisms and to provide more intensive support to those who have demonstrated success. An effective approach is “funnel” approach, which provides very light support to a large number of entrepreneurs and follow-up support is increasingly intensive and provided to those who can demonstrate success. This approach is effective because it likely delivers the most costly support to the few with the strongest motivation and track record. Furthermore, it also reduces the exposure to unnecessary risk for those with little chances of successfully creating a sustainable business.

Alternatively, individuals with growth motivations can be identified using interviews and surveys during programme in-take mechanisms. Although it will not identify all individuals with growth willingness, those who seek out support from programmes for business growth can be expected to have growth willingness. Furthermore, the most motivated participants in broader programmes for entrepreneurship education or start-up support could also be identified and offered business support if operational staff working on the programmes are alert to, or charged with, this task. On the other hand, it is not advisable to seek to promote growth across a full cohort of business starters or existing small business owners without some selection process, since many entrepreneurs are only interested in supporting themselves.

Build bridges to mainstream supports

There are different options for delivering policy actions to entrepreneurs from under-represented and disadvantaged groups (OECD/The European Commission, 2013[39]):

1. offering the same access to mainstream programmes as other groups;

2. offering targeted outreach and marketing to draw under-represented and disadvantaged groups into standard services that they may not otherwise access;

3. offering specialist actions for under-represented and disadvantaged groups through mainstream programmes and agencies; and

4. creating specialist agencies to deliver specialist support.

Support for business growth is generally likely to be delivered best by mainstream support agencies since the target client base is small. Moreover, support for growth is typically focused on the needs of the business rather than the individual characteristics of the entrepreneur so the support is more uniform than start-up support. However, entrepreneurs from under-represented and disadvantaged groups are under-represented in mainstream growth support schemes. The reasons for this are: (i) self-selection of participants with access, knowledge, and perceived benefits from mainstream growth support schemes, i.e. that under-represented and disadvantaged groups of entrepreneurs are less likely to apply; and (ii) various screening and eligibility schemes tend to winnow out these groups.

When entrepreneurs from under-represented and disadvantaged groups are less likely to apply to mainstream growth support schemes, this may be addressed by outreach activities so that information on growth support schemes actually reaches these groups. An approach that demonstrates this is the Fierce Founders initiative in the Communitech incubator in Canada (Box 8.10). The initiative is a tailored bootcamp within a business incubator, which helps attract more women into the incubator to address the gender imbalance among tenants since some participants are invited to other programmes in the incubator. Therefore, the bootcamp acts as a tailored stand-alone initiative and an additional in-take mechanism for the incubator.