Erik Stam

Why Butterflies Don't Leave: Locational Behavior of Entrepreneurial Firms

Abstract Entrepreneurship is an important process in regional economic development. Especially the growth of new firms is of major significance to the commercialization of new ideas and employment growth. These growing new firms are transforming structurally like caterpillars turning into butterflies. However, like butterflies, they are at risk of leaving their region of origin for better places. This article analyzes how and why the spatial organization of firms develops subsequent to their start-up. A new conceptual framework and an empirical study of the life course of entrepreneurial firms are used to construct a theory on the firms’ locational behavior that explains that behavior as the outcome of a process of initiatives by entrepreneurs, enabled and constrained by resources, capabilities, and relations with stakeholders within and outside the firms. The study shows that entrepreneurs decide whether to move their firms outside their region of origin for different reasons in distinct phases of the firms’ life course. Being embedded in social networks, for example, is an important constraint on locational behavior during the early life course of a firm, but over time it becomes less important, and other mechanisms, such as sunk costs, increasingly determine a firm’s locational behavior. The development of spatial organization is also of major importance: when a multilocational spatial organization has been realized, it is much easier to move the headquarters to another region. The spatial organization of entrepreneurial firms co-evolves with the accumulation of the firms’ capabilities. A developmental approach that incorporates evolutionary mechanisms and recognizes human agency provides new insights into the age-old study of the location of firms.

Entrepreneurial Ecosystems and Regional Policy: A Sympathetic Critique

Abstract Regional policies for entrepreneurship are currently going through a transition from increasing the quantity of entrepreneurship to increasing the quality of entrepreneurship. The next step will be the transition from entrepreneurship policy towards policy for an entrepreneurial economy. The entrepreneurial ecosystem approach has been heralded as a new framework accommodating these transitions. This approach starts with the entrepreneurial actor, but emphasizes the context of productive entrepreneurship. Entrepreneurship is not only the output of the system, entrepreneurs are important players themselves in creating the ecosystem and keeping it healthy. This research briefing reviews the entrepreneurial ecosystem literature and its shortcomings, and provides a novel synthesis. The entrepreneurial ecosystem approach speaks directly to practitioners, but its causal depth and evidence base is rather limited. This article provides a novel synthesis including a causal scheme of how the framework and systemic conditions of the ecosystem lead to particular entrepreneurial activities as output of the ecosystem and new value creation as outcome of the ecosystem. In addition it provides a framework for analysing the interactions between the elements within the ecosystem. This offers a much more rigorous and relevant starting point for subsequent studies into entrepreneurial ecosystems and the regional policy implications of these.

The Evolution and Nature of Young Firm Networks: A Longitudinal Perspective

This paper describes the evolution of networks during the first three years after start-up and puts forward explanations of the nature of networks of young firms after three years. We extend current research on networks by explicitly including both temporal change and spatial variation in our analyses of the longitudinal dataset. In this paper we define networks as: the main business relationships with respect to sales, supply, outsourcing and cooperation. The nature of these business relationships is specified by four main characteristics: type, number, source, and location. The longitudinal network analysis is therefore at the micro-level: the individual young firm and the characteristics of its most important business contacts are central. In contrast to the literature our analyses show that sales relationships become increasingly social in source during the first three years after start-up. We also find a persistent geographical concentration strategy in the main business relationships. It seems that extra-regional relationships are losing ground to intra-regional relationships over time: firms are narrowing their spatial scope in their first three years. In addition, we trace important effects of gender, education, innovative firm behaviour, region and sector on the nature of young firm networks three years after start-up.

CREATIVE INDUSTRIES IN THE NETHERLANDS: STRUCTURE, DEVELOPMENT, INNOVATIVENESS AND EFFECTS ON URBAN GROWTH

Abstract. Creativity is central in stimulating economic growth in cities, regions and advanced capitalist economies in general. There is, of course, no one‐to‐one relation of the number of firms in creative industries to economic growth. Innovation is a key mechanism explaining the relationship of creative industries with economic performance. Based on an empirical study in the Netherlands we explore the effect of creative industries on innovation, and ultimately on employment growth in cities. In the Netherlands the three specific domains of creative industries ‐ arts, media and publishing, and creative business services ‐ make up 9 per cent of the business population. Drawing on survey data we find that firms in creative industries are indeed relatively innovative. Yet substantial differences are found across the three domains: firms in the arts domain are clearly less innovative, most likely due to a different (less market‐oriented) dominant ideology. In addition, firms in creative industries located in urban areas are more innovative than their rural counterparts. We go on to analyse how the concentration of creative industries across cities is connected with employment growth. With the exception of the metropolitan city of Amsterdam, we find no measurable spill‐over effect from creative industries. The presence of the creative class (in all kinds of industries other than creative ones) appears to be a much stronger driver of employment growth than creative industries.

Industrial Dynamics and Clusters: A Survey

Frenken K., Cefis E. and Stam E. Industrial dynamics and clusters: a survey, Regional Studies. This paper reviews the literature on clusters and their effects on the entry, exit and growth of firms as well on the evolutionary dynamics underlying the process of cluster formation. This extensive review shows that there is strong evidence that clusters promote entry, but little evidence that clusters enhance firm growth and firm survival. From a number of open questions various future research avenues are distilled that stress the importance of firm heterogeneity and the exact mechanisms underlying localization economies.

The Dutch Entrepreneurial Ecosystem

In this report we discuss, synthesize and further develop the entrepreneurial ecosystem approach. A dynamic entrepreneurial ecosystem approach is developed to analyze entrepreneurship in the Netherlands: how it has evolved, why the rate of solo self-employment has increased and how the entrepreneurial ecosystem can be adapted to increase productive entrepreneurship. We summarize and extend the entrepreneurial ecosystem literature with a model that includes framework conditions (formal institutions, culture, physical infrastructure, and demand) and systemic conditions (networks, leadership, finance, talent, new knowledge, and support services) that affect entrepreneurial outputs (entrepreneurial activity) and outcomes indicating value creation (productivity, income, employment and well-being). The Netherlands has seen a remarkable rise of independent entrepreneurship in the last decade. However, this rise of independent entrepreneurship reveals to be predominantly a rise in solo self-employment, not an increase in growth oriented and innovative entrepreneurship. This shift can partly be explained by the specific institutional context of the Netherlands. The rise of self-employment in the Netherlands seems to have lowered unemployment rates, but it is unlikely that the rise of self-employment and new firm formation has positively affected innovation and in the end productivity growth over the period 1987-2013. This rise of self-employment and new firm formation and stagnation of innovation is what we label the Dutch Entrepreneurship Paradox. Especially favorable fiscal treatment of self-employed, and an increasing demand for flexible labor, stimulated the growth in the number of solo self-employed since the early 2000s. There is a major policy task not to let entrepreneurship be a driver of productivity decline (or at best a flexible belt in the labor market), but to stimulate productive entrepreneurship instead. In order to increase productive entrepreneurship in the Netherlands, we propose four policy actions. Each action addresses a change in one of the four framework conditions of the entrepreneurial ecosystem: changing formal institutions to enable labor mobility (development and circulation of talent); opening up public demand for entrepreneurs, to provide finance for new knowledge creation and application; stimulating a culture of entrepreneurship and entrepreneurial leadership; adapting or creating physical infrastructure to enhance knowledge circulation and networks.

Entrepreneurship, Innovation and Institutions

This paper discusses the nature of entrepreneurship and its relation to innovation along a cycle in which exploration and exploration follow upon each other. We place the roles of entrepreneurship in innovation policy within this cycle of innovation. Different types of innovation along the cycle of innovation are realized with different forms of entrepreneurship, which are constrained or enabled by different legal institutions. One of the key roles of governments is to design, change or destruct institutions in order to improve societal welfare. The question is what governments should do in the context of innovation policy. Here, social scientists can make a contribution by providing insight into what entrepreneurship and innovation is (theories about these phenomena), and how institutions affect them in reality (empirical evidence about their effects). This requires social scientists to be engaged scholars and to provide new policy options as an honest broker between the academic world and the policy world. The key question of this paper is: How can policy best enable innovation based entrepreneurship? The answer is derived from looking at both theoretical tenets and empirical evidence using an institutional design perspective, which aims at providing arguments for the design, change and/or destruction of institutions, given the goals of the governments. We provide an overview of some (empirically tests of) institutions that enable or restrain particular types of entrepreneurship. Examples of these institutions are intellectual property rights and the Small Business Innovation Research program, employment protection, and non-compete covenants.

Ambitious Entrepreneurship: A Review of Growth Aspirations, Intentions, and Expectations

In the study of entrepreneurial behavior types, “ambitious entrepreneurship” recently emerged as a new research concept. Unfortunately, a systematic overview of what is known (and not known) about this topic is missing. In particular, insights into the various definitions, measures, and antecedents of ambitious entrepreneurship are lacking. In this chapter, we offer a state-of-the-art review and analysis of extant research on ambitious entrepreneurship. We structure the literature review by providing insights into antecedents of ambitious entrepreneurship, and extensively discuss the conceptualization and operationalization of this research concept. We clarify the differences between related concepts such as growth intention, expectation, and aspiration, and argue how all these concepts fit into a unifying framework of ambitious entrepreneurship. We summarize promising future research avenues for the study of ambitious entrepreneurship, both from a methodological and a conceptual point of view.

New firms evolving in the knowledge economy; problems and solutions around turning points

This paper explores and explains the emergence and growth of new firms in the knowledge economy. The resource-based view, capabilities approach, and evolutionary economics are used as a foundation for a developmental approach. The development of the firm is conceptualized in terms of processes that include opportunity recognition, resource mobilization, resource generation and resource accumulation, which lead to the development of competences and capital in a base made up of productive, commercial and financial resources. Problems originating within or outside the firm may deplete the productive, commercial and asset base, leading to turning points in the life course of these firms. These have negative consequences when problems are not solved, but positive consequences when they lead to new solutions and the development of new competence. The empirical study shows that even in an elite sample of young fast-growing firms, most firms face turning points in their life course, and thus do not grow in a continuous way. The study shows that quantitative growth indicators do not always reveal growth problems that have been faced by new firms. Some problems do not negatively affect the employment growth of the firm, and other problems are solved before growth stagnates. The qualitative analysis shows that young firms are almost always in disequilibrium: there is almost never a perfect match between the constituents of their resource base, between input resources and requirements for expansion. This explains why continuous growth is so unlikely. Although every firm seems to grow in a unique manner, there is evidence for the presence of a limited set of necessary mechanisms for the growth of (new) firms, which work out in particular ways given the specific context and history of these firms.

Employment Growth of New Firms

This paper analyses the association between dynamic capabilities and new firm growth, controlling for measures of firm resources, characteristics of the entrepreneur, and aspects of the environment. The central research question is: How strong is the relationship between dynamic capabilities and the growth of new firms? The paper opens with a review of empirical studies on employment growth in new firms and then moves on to a discussion on the role of dynamic capabilities in the explanation of new firm growth. After a description of the data and variables the results and implications of this study are discussed.