Part 2 - Assessing Your Ecosystem

A key step before starting the process of deriving any policy change is a proper diagnostic of the current barriers and challenges faced by entrepreneurs. After this assessment, specific interventions to address these barriers can be designed. A menu of such interventions will be discussed in Part 3 of this toolkit. However, before addressing the challenges that entrepreneurs face, it is necessary to identify, know, and assess the entrepreneurial ecosystem you’re addressing.

What is an entrepreneurial ecosystem?

Beyond the identification of entrepreneurs’ challenges and sub-challenges, it is crucial to understand the notion of the “ecosystem”. This notion stems from life sciences and is now widely used when designing entrepreneurship interventions. The components, challenges, and interventions of the entrepreneurial ecosystem, while distinct, are interdependent and intertwined. Each can impact the other, in positive or negative ways. Chain reactions, unintentional consequences, and externalities are common.

Crucial to understand is hence that the success of start-ups and SMEs is not dependent on just themselves, but also on the ecosystem that supports them.

Structure of Part 2 of the toolkit

• Entrepreneurs thrive in environments where multiple factors and stakeholders (public and private) work together to form an entrepreneurship ecosystem composed of governance, markets, financing, human capital, culture, infrastructure, and support mechanisms - components of the ecosystem will be detailed in Section 2.1.
• In the benchmarking study conducted by I4Policy, fourteen entrepreneurial ecosystems have been identified and studied. This analysis led us to identify seven typology of challenges they face - these will be detailed in section 2.2 and further in part 3 of the toolkit.
• To help you identify your own entrepreneurial ecosystem and the challenges it faces, a methodology has been developed under section 2.3.
• KPIs are objective indicators that can be used in policies to both assess the current level of the entrepreneurial ecosystem in your country as well as assess the impact of your entrepreneurship-focused policy. In order to make your policy operational, specific, tangible and measurable, KPI indicators have been provided under section 2.4.

Components of the Ecosystem

The entrepreneurial ecosystem consists of numerous stakeholders and actors along the growth trajectory of a business.

They include actors from private sector,  academia, development partners, government, etc.

Typical Ecosystem Actors along the IDIA Scaling Pathway

Stakeholders in the Entrepreneurial Ecosystem

There are a number of stakeholders in the entrepreneurial ecosystem who are critical to the success of any intervention. When assessing the ecosystem, policymakers may consider the influence and impact of interventions to these stakeholders.

Stakeholders in the Entrepreneurial Ecosystem - i4Policy

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The Tunisian Ecosystem
Incubators/Accelerators Working Spaces Public Services Investors Media Enablers
Tunisian Startup Ecosystem

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The Thai Ecosystem
Global Partners Corporate Incubators & Accelerators VC, Banks, Financial Universities Government Associations
Thailand Startup Ecosystem

Ecosystem Challenges

• Several constraints hamper the development of entrepreneurs and their businesses, thereby limiting job creation and innovation.

• In Kenya for example, 78.1% of SMEs surveyed in 2021 said they need a loan, but are unable to borrow enough money because of difficulties in obtaining or preparing documents that the lenders need (indicated by 38.8 % of the enterprises); a poor financial situation of the borrowers (20.6 %) or lack of collateral (6.2%).

• Similarly, in a survey conducted across 14 African countries among the youth (18-24 yrs), 53% report lack of access to capital as the biggest challenge to starting a business.

• Thirdly, in South Africa, 1 in 10 entrepreneurs reported exiting at an early stage due to reasons such as lack of profit, problems accessing finance, taxes, bureaucracy, or an incident. Moreover, while 68% of adults in South Africa agree that it is relatively easy to start a business, only 20% have the intention to do so.

• Literature on assessments of entrepreneurship ecosystems and the challenges faced by entrepreneurs across the world is abundant.

• The next slide presents a review of fourteen existing assessment frameworks of entrepreneurial ecosystems. This review emphasizes the need for a multi-dimensional approach to ecosystem assessment.

• That means taking into account all the various challenges (e.g. financing of businesses, governance, community support, infrastructure) that can affect entrepreneurship in a region, and how they interact with each other.  

	Babson	Council of comp.	GEDI	Rainforest	6+6	GSMA	GEM	WEF	UNCTAD	GII	GCR	Enterprise surveys	Doing Business	OECD	i4Policy
Finance	✓	✓	✓	✓		✓	✓	✓	✓	✓	✓	✓		✓	✓
Market Access	✓		✓			✓	✓	✓		✓	✓	✓		✓	✓
Business Support	✓	✓	✓		✓	✓								✓	✓
Governance	✓	✓	✓		✓	✓	✓	✓	✓	✓	✓	✓	✓	✓	✓
Culture	✓	✓	✓	✓	✓	✓	✓	✓	✓		✓			✓	✓
Infrastructure		✓				✓	✓	✓		✓	✓	✓	✓		✓
Human Capital	✓	✓	✓		✓	✓	✓	✓	✓	✓	✓	✓		✓	✓
Sources	The Aspen Institute (2013). Entrepreneurial Ecosystem Diagnostic Toolkit & The Innovation for Policy Foundation (2022). Benchmarking Small Business Acts and Startup Acts in Africa.

Babson College - Babson Entrepreneurship Ecosystem Project, Council on Competitiveness - Asset Mapping Roadmap, GEDI - Global Entrepreneurship and Development Index, Rainforest - Innovation Rainforest Blueprint, 6+6 Koltai and Company - Six + Six, GSMA - Information and Communication Technology Entrepreneurship, GEM - Global Entrepreneurship Monitor, WEF - World Economic Forum - Entrepreneurship Ecosystem, GII - Global Innovation Index, GCR - Global Competition Index, World Economic Forum, Enterprise surveys  - World Bank, Doing Business - World Bank, OECD - Organisation Economic Co-operation and Development - Entrepreneurship Measurement Framework

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i4Policy has analyzed the challenges covered by all 14 entrepreneurial ecosystem diagnostic tools. We find that, despite wide variation in sources, the evaluative approaches are relatively consistent.

We conclude that seven challenges are considered the main categories in most of the fourteen methodologies reviewed. These seven provide us with a well-researched typology of challenges faced by entrepreneurs across the world:

Finance

Market Access

Business Support

Governance

Culture

Infrastructure

Human Capital

Pre-seed finance Private equity & Venture capital Bank finance Capital markets Alternative finance

Domestic market Internationalization Equipment & Inputs Procurement Innovation adoption

Growth support Operation support R&D Collaboration within ecosystem

Regulatory quality Enforcing contracts Political & economic environment Business procedures Digital governance

Personal development Community support Networking Women entrepreneurship

Digital infrastructure Utilities Logistics

Basic skills Advanced skills Business skills Labour market

A short description of each of the seven challenges is provided below. Part 3 of the toolkit will discuss these in depth. Every subsection will address per challenge a) the relevant policy objectives, b) the expected impacts of entrepreneurship policy and c) appropriate KPIs to include. Moreover, case studies are used to analyze and present existing policy interventions across the region.

1. Finance: Entrepreneurs face a lack of financing mechanisms for starting and growing their firm. This includes financing mechanisms including debt, equity, grants, and blended financing.
2. Market Access: Entrepreneurs face challenge in acquiring early customers and having access to distribution  channels, suppliers, entrepreneurial networks.
3. Business Support: Entrepreneurs are challenged by  a lack of business support through professional services, including business development services, incubators, accelerators, and entrepreneur friendly association.
4. Governance: This challenge addresses the laws and regulations that are non conducive to the growth of firms, startups and impact the implementation practices of entrepreneurs.
5. Culture: This challenge addresses the unfavorable societal attitudes toward entrepreneurship, unavailability of role models, low tolerance of risk, and level of trust among entrepreneurs.
6. Infrastructure: Entrepreneurs face a lack of accessible and reliable quality of infrastructure, including electricity, telecom, transportation, and logistics.
7. Human Capital: Entrepreneurs are challenged by the lack of skills and aptitudes needed to start and grow firms, from educational institutions and the private sector.

Assessing your Ecosystem

We propose a three-step process for assessing your ecosystem:

Step 1 – Collect benchmarkable data of your country and relevant peers
Use internationally renowned data sources to identify key challenge areas such as, the Global innovations index, Network Readiness index, Global competitiveness index, Doing Business index, Human capital index.

Step 2 – Augment quantitative assessment with qualitative review
Complement and cross-check the picture arising from step 1 with micro-analysis arising from Worldwide enterprise or i4policy data, e.g. World Bank Enterprise Survey data (Top 10 Biggest challenges mentioned by entrepreneurs). Collect input from interviews, consultations, hackathons, meetings with local entrepreneurs and stakeholders.

Step 3: Validate assessment through deliberation

Discuss a summary of the findings from step 1 and 2 with policy makers, regulators, agencies, citizens and the community involved. This will create awareness, a chance to make adjustments, be informed about ongoing reforms and importantly create a support base for your assessment. Important stakeholders might include Chambers of commerce, Tax authority, Ministries of ICT, BEIS, Finance, EDUC, Labour, Competition and capital markets authorities, Entrepreneurial ecosystem and startups, etc.

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Step 1 – Collect benchmarkable data of your country and relevant peers

Assessing Your Ecosystem - Step 1

To develop a practical ecosystem diagnostic tool a magnitude of indicators of entrepreneurial determinants was identified and analyzed. Based on the relevance, availability, and quality of data the most relevant indicators for conducting ecosystem analyses in developing countries are chosen.

Besides collecting the data for your country, it is important to select relevant peers. For example, while the USA has the best entrepreneurial ecosystem according to StartupBlink, that does not necessarily mean it is the most relevant peer for your country. The further away from the frontier, the more sense it makes to compare yourself to best-practice countries in the region or on the continent.

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Step 2 – Augment quantitative assessment with qualitative review

You can validate your findings under step 1 by cross-checking your quantitative findings with a qualitative approach. For example by gathering and analyzing survey-data and organizing consultations with local entrepreneurs and the ecosystem support services in your country.

Check if their perception and opinions match your results under step 1. Be aware of differing dates of data collection and overlapping indicators. To overcome these issues, it is important to discuss your findings with stakeholders and substantiate the findings.

To help you with steps 1 and 2, suggested Key Performance Indicators for each of the seven challenge areas have been included in section 2.4 of this toolkit.

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Step 3 – Validate assessment through deliberation

The ultimate goal of your exercise is to identify key challenges for improvement and shift from analysis to action. It is important to start coalition building in this phase. Your partners, ecosystem and governmental actors need to buy in the assessment and agree with areas for improvement. To gain ample support it is recommended that time is spent discussing and fine-tuning results.

Also during this stage it’s key to find out what reforms are ongoing in the different key areas. The end-result of the three-step-approach could look like a dashboard as pictured in the following slide.

• A green box depicts an enabling environment for firm’s growth
• An orange box means the area slows firm growth
• A red box signals the area halts growth.
• A blue corner marks on-going reforms in the areas.

Take enough time to discuss these findings and labels with your stakeholders. The buy-in and recognition of work to be done will align interest for the actual policy reforms you will need to propose.

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Example: Qualitative Assessment (Category Level)

Qualitative Assessment (Category Level) - i4Policy

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Example: Validate Summary (Sub-Category Level)

At the sub-category level, policy makers may further assess the state of the ecosystem based on all data sources and expert opinion.

Finance | Capital markets

Country A’s capital markets have developed rapidly in the past decade, with laudable gains. Several issues hold back growth in the sector. For example, insider trading, while illegal, is not enough to void a contract (which is best practise internationally to send a strong signal about expected rule adherence). Overall market capitalisation is low and neither the primary or secondary markets are characterised by adequate liquidity. The range of products available on the market is limited. The overall cost of capital is considered high, and transaction costs continue to stifle rapid growth of companies.

Indicator	Country A	Country B	Country C	Country D	Scale	Year	Source
Risk capital	0.07	0.11	-	0.876	0-1	2018	The Global Entrepreneurship And Development Institute
Market capitalization	-	13.6	30.9		0-100	2020	Global Innovation Index
Ease of protecting minority investors’ rights	32	102	45	82	0-100	2019	Doing Business

Key Performance Indicators

• Key Performance Indicators (KPIs) help to measure the success of an activity and serve two essential roles in the assessment of an ecosystem;
  • KPIs help to identify ecosystem problems, design policies, make predictions and determine resource allocations
  • KPIs help to assess the policy outcomes, provide success benchmarks to compare different policies within and across ecosystems
• KPIs are useful if they are clear, relevant, adequate to assess performance and monitorable.
• An illustrative list of KPIs for each sub-challenge has been given in the following slides. These KPIs facilitate the assessment of the ecosystem.

Accounting for Delays: It is important to note that there can be a time delay between the moment that the KPI starts changing and the ultimate policy outcome. For instance, an increase in investment in early-stage startups may not affect profits of investors for several years as the startup needs some time to mature. Hence, the impact of increased investment will not immediately be reflected through increased profits. This shows that assessing and improving your ecosystem is a long-term activity, that needs to be continuously adapted and conducted.

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Finance KPIs

Sub Challenge	Description	Indicators	Source
(Pre-)seed finance	Captures the availability of finance for the earliest stages of entrepreneurship where the entrepreneur needs to test the viability of his business idea (prototyping), commercialize their innovation and establish their company. Typically includes a mix of “friends, fools and family funding” and money from grants, soft loans and entrepreneurship prizes.	Availability of entrepreneurship prizes	Expert opinion/survey
		Availability of prototyping infrastructure	Expert opinion/survey
Private equity & venture capital	Measures the availability of risk finance, particularly equity finance (VC, business angels) but also venture debt. Crucial for high growth of unestablished businesses due to high risk appetite of investors.	Venture capital availability	www.weforum.org
		Proportion of investment financed by equity or stock	www.enterprisesurveys.org
		Internally financing of fixed assets	www.enterprisesurveys.org
Bank finance	Encapsulates the availability and ease of attracting bank finance. Tailored bank products for young firms, the availability of working capital and the ease of getting loans are critical for the smooth functioning of businesses.	Domestic credit to private sector	www.data.worldbank.org
		Bank lending rate	www.data.worldbank.org
		% of firms whose recent loan appl. was rejected	www.enterprisesurveys.org
Capital markets	Tracks the development of a country’s capital market. A well-developed capital market cuts transaction costs, lowers the cost of capital and provides opportunities for a rapid scale-up of companies. It includes the maturity of stock markets.	Risk capital	www.thegedi.org
		Market capitalization	www.globalinnovationindex.org
		Ease of protecting minority investor’s rights	www.globalinnovationindex.org
Alternative finance	Captures the use of digital payments. Digital payments are an important tool for advancing financial inclusion and lowers the cost of providing financial services and increases business’ productivity.	Volume of factoring	www.fci.nl/en/international- factoring-statistics
		Volume of leasing	https://africalease.org/en/
		Revenue from donations (crowdfunding)	https://p2pmarketdata.com/crowdfunding-statistics-worldwide/

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Market Access KPIs

Sub Challenge	Description	Indicators	Source
Domestic market	Captures the favorability of the domestic market in terms of size, the competitive environment and the fairness of competition. A level-playing field and a growing economy fosters growth of companies, competing on the merits.	GDP Growth %	www.theglobaleconomy.com
		Domestic market scale	www.globalinnovationindex.org
		Competition	www.thegedi.org
		Shadow economy	www.theglobaleconomy.com
		Extent of market dominance	www.thegedi.org
		Firms competing against unregistered or informal firms	www.enterprisesurveys.org
Internationalization	Tracks time and cost to export and import products. Ease of export and import creates bigger markets and hence fosters growth.	Trading across borders	www.doingbusiness.org
		Internationalization	www.thegedi.org
		Applied tariff rate	www.globalinnovationindex.org
Equipment & Inputs	Measures the availability of inputs on the market. The availability and access to equipment (e.g. offices, physical space, machinery or high-tech equipment), technical material (including packaging), and raw materials at the right quality, price and reliability supports business expansion.	Local supplier quantity	www.weforum.org
Procurement	Captures the ease for SMEs to access public and private procurement markets. Access to information, timely payments and contract sizes with attention to SMEs enhances opportunities for firms to win tenders, thereby opening up a new market segment for smaller firms.	Public procurement score	www.worldbank.org
		Private procurement: opportunities for SMEs	Expert opinion
Innovation adoption	Tracks the diffusion of new products and services and the capability of the consumer market to absorb them. The openness of consumers to use new services and solutions provides a good basis for business to get prototypes and ideas to the market.	Legal framework adaptability to emerging technologies	www.weforum.org
		Knowledge diffusion	www.globalinnovationindex.org
		Adoption of emerging technologies	www.globalinnovationindex.org
		Technology absorption	www.thegedi.org
		Medium and High-tech industry	https://unstats.un.org

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Business Support KPIs

Sub Challenge	Description	Indicators	Source
Growth support	Measures the maturity of business development services in an ecosystem. The availability of well-known and qualitative incubators, accelerators, business upgrading agencies, chambers of commerce help entrepreneurs reach the potential to scale and increase local productivity.	Availability, accessibility, and quality of incubators/ accelerator programs	Expert opinion/survey
		Availability, accessibility, and quality of commercial BDS providers	Expert opinion/survey
		Number of networks, platforms, and associations	Expert opinion/survey
		Availability of mentoring programs	Expert opinion/survey
Operation support	Captures the availability and affordability of support services for young firms, such as accounting, legal and information services. If these services are widely available and affordable it helps entrepreneurs to focus on their core business and developing their ideas.	OECD SME Policy Index	www.oecd-ilibrary.org
		Access to information for SMEs	Expert opinion/survey
		Costs of accountant	Expert opinion/survey
		Costs of legal aid	Expert opinion/survey
R&D	Measures the extent to which firms are involved in R&D and the results of the R&D, represented by patents and product innovations. R&D is important for longer-term survival and competitiveness of firms and the creation of new ideas. The presence of large R&D firms creates spin-offs and foster co-operation in the ecosystem, creating knowledge spillovers.	% firms that spend on R&D	www.enterprisesurveys.org
		% firms that introduced a process innovation	www.enterprisesurveys.org
		Patent applications	www.globalinnovationindex.org
		Gross expenditure on R&D	www.globalinnovationindex.org
		Process innovation	www.thegedi.org
Collaboration within ecosystem	Provides a picture of the state of cluster development in a country. Clusters prove to be a growth driver for SMEs as they provide cooperation between companies and institutions, easy and fast access to information and facilitate cooperation in different stages of production.	University/Industry collaboration	www.globalinnovationindex.org
		State of cluster development	www.globalinnovationindex.org

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Governance KPIs

Sub Challenge	Description	Indicators	Source
Regulatory quality	This sub-challenge captures perceptions of the ability of the government and the public service to formulate and implement sound and independent policies and regulations that permit and promote private sector development, with special attention to the ICT regulatory environment.	Regulatory quality index	www.govindicators.org
		ICT regulatory environment	www.itu.int
		Government effectiveness	www.govindicators.org
Enforcing contracts	Measures the time and cost to resolve a commercial dispute, the quality of judicial processes, and the respecting of property rights. Good enforcement procedures enhance predictability in commercial relationships and reduce uncertainty for businesses and investors.	Rule of law index	www.worldjusticeproject.org
		Intellectual property protection	www.weforum.org
		Property rights index	www.internationalpropertyrightsindex.org
		Enforcing contracts	www.doingbusiness.org
Political & economic environment	Captures the stability and freedom of corruption of countries. It includes a measure for the economic stability of a country. Low inflation rates and stable countries provide a fertile ground for businesses to thrive.	Corruption index	www.transparency.org
		Political stability	www.govindicators.org
		Economic freedom	www.heritage.org
Business procedures	This sub-challenge captures perceptions of the ability of the government and the public service to formulate and implement sound and independent policies and regulations that permit and promote private sector development, with special attention to the ICT regulatory environment.	Starting a business	www.doingbusiness.org
		Business freedom	www.heritage.org
		Paying taxes	www.doingbusiness.org
		Resolving insolvency	www.doingbusiness.org
		Obtaining construction permit	www.doingbusiness.org
		Ease of hiring foreign labor	www.doingbusiness.org
		Start-up visa score	www.swibo.org
		Government coordination	Expert opinion
Digital governance	Tracks the evolution of e-government services in terms of availability, quality, and diversity of channels and the use by the public of these services. Includes the availability of open data for accountability, innovation and social impact.	Government online services	www.publicadministration.un.org/egovkb
		Publication and use of open data	www.opendatabarometer.org

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Culture KPIs

Sub Challenge	Description	Indicators	Source
Personal development	Captures personal entrepreneurial traits of the population, such as self-confidence, ambition, non-fear of failure and the ability to identify good opportunities. These traits are important to decide to become an entrepreneur.	Non-fear of failure/Risk acceptance	www.thegedi.org
		Opportunity startup	www.thegedi.org
Community support	Provides a picture of the country’s beliefs with respect to entrepreneurship. A positive view of entrepreneurs in terms of status and career choice, encourages careers in the private sector and starting a business, fostering risk-seeking entrepreneurial behavior.	Cultural support	www.thegedi.org
Networking	Measures the extent to which entrepreneurs’ access and mobilize opportunities and resources and the ease of access to reach each other. A strong network helps find the right resources and fosters creativity.	Networking	www.thegedi.org
Community support	Tracks the availability of women entrepreneurs and female opportunities. Gender equality fuels growth by bringing women into the labor force and by raising women entrepreneurs, the overall level of human capital, productivity and wages. Women entrepreneurs add creativity and ideas to the market.	Percent of firms with female participation in ownership	www.enterprisesurveys.org
		Gender equality index	www.hdr.undp.org

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Infrastructure KPIs

Sub Challenge	Description	Indicators	Source
Digital infrastructure	Captures the maturity of the digital infrastructure in a country. It includes costs of internet, availability of broadband internet and handset prices. Efficient telecommunications decrease cost of business, increases market reach, and allows for innovation.	Mobile tariffs	www.mobileconnectivityindex.com
		Handset prices	www.mobileconnectivityindex.com
		Internet access	www.itu.int
		4G mobile network coverage	www.itu.int
		Fixed broadband subscriptions	www.itu.int
		International internet bandwidth	www.itu.int
		Internet access in schools	www.data.uis.unesco.org
Utilities	Measures the availability, reliability and affordability of utilities in a country. A high quality of utilities decreases the costs of business and are fundamental for business operations, especially in the manufacturing services.	Electricity output	www.globalinnovationindex.org
		Access to electricity % population	www.data.worldbank.org
		Getting electricity	www.doingbusiness.org/
		Reliability of electricity supply	www.enterprisesurveys.org
		Reliability of water supply	www.enterprisesurveys.org
Logistics	Measures the quality of physical infrastructure (roads, air, trains) in a country and the administrative logistics process. Good infrastructure and easy procedures reduce the cost of business and transaction costs.	Logistics performance index	www.lpi.worldbank.org
		Quality of road network	www.weforum.org
		Quality of rail network	www.weforum.org
		Quality of air network	www.weforum.org
		Quality of port infrastructure	www.weforum.org
		Gross capital formation	www.globalinnovationindex.org

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Human Capital KPIs

Sub Challenge	Description	Indicators	Source
Basic skills	Measures the basic quality of human capital. Access to quality basic education at primary & secondary school and/or to basic training in work experiences, is needed for productive employees.	Learning adjusted years of school	www.worldbank.org/en/publication/human-capital
		Adult literacy rate	www.data.uis.unesco.org
Advanced skills	Measures the quality and access to advanced education and training at schools or at work. Skilled, competitive employees are needed for high-growth business, especially in knowledge-intensive sectors.	Tertiary enrolment rate	www.data.uis.unesco.org
		Technicians and professionals in workforce	https://ilostat.ilo.org/
		Labor productivity per employee	www.conference-board.org
		Ease of finding skilled employees	www.doingbusiness.org
Business skills	Captures the extent of business savvy workers and access to training in entrepreneurship skills in a country. These skills are needed to bring a good idea to market, adapt to consumer demands and grow businesses.	Training in starting a business	Expert opinion
		Entrepreneurship competencies in national curriculum	Expert opinion
		ICT Skills	www.weforum.org
		Quality of management schools	www.weforum.org
		Start-up skills	www.thegedi.org
		Human capital	www.thegedi.org
Labour market	Indicates the conduciveness of labour regulation to business growth. It includes the ease of hirings and dismissals, minimum wages and openness to new forms of labour such as the gig economy.	Prevalence of gig economy	www.weforum.org
		Labour freedom index	www.heritage.org

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Further Reading

• Understanding your Ecosystem
  • GIZ (2021). Guide to Strengthening Entrepreneurial Ecosystems
  • Aspen Institute (2013). Ecosystem Diagnostic Toolkit

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Continue to

Part 3 - Policy Interventions by Topic Area

Finance

Market Access

Business Support

Governance

Culture

Infrastructure

Human Capital

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