The Democratization of Entrepreneurship

One of the great trends we’ve been witnessing over the past decade, and in particular the past 5 years, has been what you might call the “democratization” of entrepreneurship”. It’s a powerful trend and one that I think will have a huge impact not just on the US economy and workforce, but perhaps even more intensely on other areas of the world – particularly developing economies.

There are several underlying factors that I think underpin this sift that are worth noting:

– The breaking down of geographic boundaries that confined entrepreneurial communities. Fundamentally entrepreneurial communities are networks (not hierarchies). And as such they thrive best in open environments that lack artificial restrictions. They also thrive best when information sharing is free and when entrepreneurs have access to other entrepreneurs (in this way entrepreneurial communities follow Metcalfe’s law of networks which states that the power of a network increases exponentially with the number of nodes on that network; entrepreneurial communities are exponentially stronger as they add more entrepreneurs to their “network”). The globalization of economies combined with the free flow of information fostered by the internet and other media has enabled entrepreneurs to establish connections that extend beyond traditional geographic boundaries and create virtual communities of peers where they once couldn’t exist.

– Entrepreneurship is becoming more highly valued. While many societies have thought of themselves as “entrepreneurial” it’s really only been in the past 10 years or so that entrepreneurs, as members of the creative class, have been truly celebrated. Where once striking out on one’s own was considered overly risky and either big companies (or in some countries state enterprise) was the path to job security and economic independence, now in many parts of the world entrepreneurship is embraced (think of the emphasis both candidates in the recent US election put on entrepreneurs as the growth engine of the US economy, for example). This acceptance (even celebration) of entrepreneurship is opening doors for many people around the world that were until recently closed due to cultural and economic pressures.

– Entrepreneurs don’t care about pedigree. I referenced above a belief that entrepreneurial communities are networks, not hierarchies. Openness, the free flow of information, the lack of community gatekeepers and entrepreneurs as leaders are hallmarks of these networks (vs. hierarchies which are closed, tend to have a small number of people who control access to the system and where information flow is controlled and limited). As a result the fundamental tenants that underpin these networks there is a decreased emphasis on pedigree, background and connections. While this hasn’t completely taken hold in all countries, in many places entrepreneurs are rightly judged by the strength of their ideas, the value they bring to the community and the success of their past efforts and not on their family name or where they attended school. This has opened the door for many entrepreneurs who 10 or 20 years ago would have found themselves cut off from the opportunities they have today.

– A focus on mentorship and giving first. One of the most powerful trends in support of the democratization of entrepreneurship has been the establishment of broad mentor networks that support entrepreneurial communities. These networks are aided by the trends noted above and stem from the fundamental belief that a larger and larger number of experienced entrepreneurs are embracing of giving first, getting later. Ultimately the best mentor relationships become two way but the going in expectation of the mentor needs to be that they’re participating first to give with no expectation of anything they’ll personally take away other than the satisfaction of helping out. The development of these mentor ecosystems – bolstered by the rise around the world of accelerator programs (the Unreasonable Institute being a great example) – has allowed entrepreneurs greater access to advice and counsel and I think helps create better entrepreneurs and more vibrant entrepreneurial ecosystems.

Fundamentally the world benefits from the democratization of entrepreneurship as more people look to themselves as the engine to grow beyond their circumstances. And importantly this phrase works in reverse as well – entrepreneurship promotes democratization. Entrepreneurs value the stable systems that democracy tends to bring, they see themselves and not government as the answer to their societies challenges, they provide jobs and economic stability that promote stable society and they work in networks that by their nature are fundamentally more democratic than hierarchical regimes. I don’t have a crystal ball and I don’t know exactly what the next 20 or 50 years will bring. But I do believe that the global trend towards entrepreneurship will continue and that the world will be much better for it.

  • brgardner

    Do you think there is still some value that an entrepreneur can gain from building a pedigree, i.e. going back for an MBA? Or are they best served continuing to focus on building a track record and actively participating in the entrepreneurial community?

    • certainly. i have some opinions on when and why (and where) one might consider business school, but it’s hard to make sweeping statements that an MBA is worthless, etc. of course the best MBA students (at least the best ones interested in entrepreneurship) stay tightly integrated with their startup community when they’re in school!

      • brgardner

        I would like to hear your opinions of when, why and where.

        • I hate to be elitest (and to be clear, I didn’t go to any business school at all), but for the most part I think unless there’s a specific skill you’re trying to develop (in which case a local school could be great), it’s best to stick to the top 10. Beyond that I’m just not sure it’s worth the lost income and expense. In terms of when, I think it’s most beneficial after you’ve had plenty of time in industry (i.e. not 2 years after college) and particularly helpful if you’re looking to make a true transition in your career (less interesting if you’re just looking to take the “next step”) and as well when you are looking at larger, not smaller companies (no one in start-up world cares if you have an MBA in my experience)…

          • brgardner

            Thanks for the perspective!

  • NorrisKrueger

    Nice job, Seth – thanks!

  • While geography doesn’t matter as much as long as free and open internet exists, and it takes a lot less resources to get a startup to the product phase than ever before, getting that next step funding can be very difficult outside of what a local investor pool can offer even for small amounts. Systems like PayPal that have dispute resolution built in can incur huge costs for the recipient when they must be withdrawn to cash, This is due to the risk of chargeback fraud. As far as I know, PayPal will not connect directly with any African banks as is done in the US.

    This may change though as Bitcoin becomes more established globally. As an entrepreneur in Kenya or Uganda, I could collect invested funds in Bitcoin and a local exchanger could covert this into cash as I need it. By aggregating many payments they could spread out the wire fees and currency exchange fees needed to sustain their currenc exchange business among many customers.

  • “I do believe that the global trend towards entrepreneurship will continue and that the world will be much better for it.”

    So do I. Peer-to-peer marketplaces are increasing the pool of entrepreneurs, call them micro entrepreneurs, by lowering the investment it takes to make a living as an entrepreneur. The marketing/demand side of the equation is the tough one…but marketplaces are solving that one at scale. Excited to see what the future of online marketplaces wil be in 10 years.

  • What about access to capital? Do you feel that’s improved over the years? Government’s role?

    • Improved for sure, but in many parts of the world it’s still extremely challenging. As is access to a strong mentor network (which I probably could have expanded on in this post) but which is a huge challenge to entrepreneurs in the developing world with fewer successful entrepreneurs.
      As for government I think that first and foremost its role is to stay out of the way and, where it doesn’t exist, to make sure that it’s provided a legal framework and stability that enables the free flow of capital and ideas (this is a tall order in many places). That should keep many governments busy for a while. I do think that in some countries government can be a more direct supporter of entrepreneurs – tax incentives for investors and entrepreneurs, specific incentives for investment in specific types of technologies (what the US government has tried to do around green-tech; I’m dubious of this sort of thing in general but in certain cases where it’s in the national interest to support emerging technologies and where there are clear scale economics that need to be reached sometimes it’s unavoidable), etc. I suppose even direct investment is a viable option, although generally I’m a fan of more limited government involvement (when politics is involved structures inevitably get more complicated and don’t directly help entrepreneurs).

      • Access to capital still seems to be a problem in Canada. There’s a call for more government tax incentives, etc., but I agree with you — government objectives can get pretty muddied. I expect that as entrepreneurship continues to democratize, more and more capital will find its way there (without the attendant bubble).

  • Charles Rattray

    Nice article. I think two critical factors in the democratization of entrepreneurship are simply the world wide reach that technology now provides, and the power to build stuff that has value through both software and much more flexible, cheaper manufacturing.

    Networking, as you suggest, allows the new entrepreneur to connect with a growing army of ‘been there, done that’ folks who want nothing more than to share their experiences, both good and bad. When real experiences are shared well they make good stories where the lessons transcend a simple tale of facts, and become thought provoking encouragement. Those same networks of connected people also provide an almost infinite, if somewhat chaotic mechanism for product experiences to reach disparate customers right down to the level of the individual consumer.

    The rise in popularity of the App also allows entrepreneurs to create solutions for all sorts of problems, and to get direct and almost immediate feedback on whether the solution they are offering is a game-changer or needs more work. The inflection or pivot point comes much sooner as well. Even deep coding skills aren’t so necessary anymore. Code solutions are available through software sharing sites, integration tools, and SaaS development engines, making it much easier to focus on the domain expertise required to solve big problems.

    Ironically it may also be the popularity and creative uses of software apps that will drive manufacturing growth in the future, opening the door for the manufacturing of single units of stuff – a uniquely tuned product for each customer. Witness the growth in popularity, and falling prices of 3-D printing technology, where the emphasis is already turning to the market for designs, materials, and creative software that turns everyone into a designing and distributing entrepreneur.