Implications for Resource-Constrained Emerging Ecosystems in Transition
“If you think GOOD design is expensive, you should look at the cost of BAD design.”
-- Dr. Ralf Speth, German automotive executive and board member
Former CEO Jaguar/Land Rover
Entrepreneurial Ecosystem (EE) research has explored bottom-up ecosystems that spontaneously appear then develop over time and top-down formed ecosystems deliberately established through organizational sponsorship designed to enable productive entrepreneurship. Despite the crucial role organizational sponsorship plays in entrepreneurial support activities, prior research has overlooked the critical design methods used to formulate the strategy and temporal dynamic factors required to establish and operate top-down emerging resource-constrained ecosystems. Specifically, in the year leading up to initial ecosystem launch, which design methods are used to determine entrepreneur support activities and timing, then what is modified during the first year of operation? Approaching top-down established ecosystems as operating entities and building on current EE theory along with a range of design theories, this study examines relevant literature with a focus on initial and ongoing operating strategy formulation. The findings argue that effectuation principles can be used to design emerging top-down ecosystems better and proposes a new fourth, temporal effectuation means principle to explain support activity introduction timing and sequencing. By doing so, this paper offers evidence and theoretical elaboration for an extended version of the effectuation concept to build emerging entrepreneurial ecosystems in uncertain resource-constrained locations. These findings could be particularly relevant to inner-city, migrant-based, remote, transition economies or economically/demographically declining regions with a desire to promote entrepreneurship.
Entrepreneurial Ecosystem, Entrepreneur Support Processes, Ecosystems, Top-Down, Transition Economies, Effectuation
The Entrepreneurial Ecosystem (EE) is an approach to understanding and theorizing the context and contributing components leading to Small and Medium-sized Enterprise (SME) establishment and productive entrepreneurship within communities (Amezcua et al., 2020; Antony et al., 2017; Fernandes and Ferreira, 2022; Hakala et al., 2020; Spigel, 2020). Previous studies have shown that EEs consist of interdependent actors and factors, often managed by organizational sponsorship and/or orchestration actors (Isenberg, 2011; Leendertse et al., 2021; Nambisan and Baron, 2013; Pauwels et al., 2016; Stam, 2015; Stam and van de Ven, 2021). Previous research has shown that functioning EEs can be essential to new SME creation (O’Connor et al., 2018; Stam, 2018a; Stam and van de Ven, 2021). Lines of academic inquiry have focused on SME development activities within operating EEs – whether called business incubators, startup/innovation accelerators, clusters, studios, networks, captive corporate accelerators, academic spinoff initiatives, social enterprise incubators, or by many other names – to guide entrepreneurs from initial idea-search/sensing to business launch/operation (Bhave, 1994; Brown and Mawson, 2019; Cohen, 2013; Levie and Lichtenstein, 2010).
Recent studies investigate bottom-up and top-down occurring EEs. While bottom-up EE emergence assumes ecosystems evolve, over time, like natural ecosystems and may have an internal culture that coordinates and motivates stakeholders (Holmes et al., 2013; Lehmann et al., 2019; Lehmann and Seitz, 2017), top-down EE emergence occurs deliberately in ecosystems created and governed by a Chandlerian “Visible Hand” where government, venture capital firms, foundations, or other actors provide necessary resources as “feeders” of the ecosystem (Pauwels et al., 2016; Stam, 2015). However, little research exists explaining the processes used to design new ecosystems1.
Multiple lines of inquiry have drawn attention to the fact that organization sponsorship actors are vital for the establishment of top-down EEs designed to initiate and grow SMEs while managing risk elements (Abootorabi et al., 2021; Amezcua et al., 2020, 2013; Flynn, 1993; Hallen et al., 2020; Jourdan and Kivleniece, 2017; Spigel, 2020) in more difficult, severely resource constrained, locations such as minority focused inner cities, geographically remote, transition economies (Audretsch, 2021; Korosteleva and Stępień-Baig, 2020; Morić-Milovanović, 2022), and economically declining regions. (Andonova et al., 2019; Bruton et al., 2008; Porter, 1997; Pugh et al., 2021; Sternberg, 2021; Sutter et al., 2019; Thompson et al., 2018; Xie et al., 2021). These SMEs vastly outnumber larger companies that emerge from well-established ecosystems like the San Francisco Bay Area (Audretsch, 2021). Low growth, sometimes subsistence level, typically family-run SMEs form the core of economies worldwide. According to the US Small Business Administration, over 99% of America’s 32.5 million firms are SMEs, and 88% have fewer than twenty employees (“Frequently Asked Questions About Small Business, 2021,” 2021). What if that percentage was extrapolated to the 332.990 million existing companies that exist in the world (“Statistica,” 2022)?
Past research has examined the roles of various actors as top-down EE initiators, network builders, and resource providers (Aernoudt, 2004; S. L. Cohen et al., 2019; Ritala et al., 2022; Thomas and Ritala, 2022). However, little consensus exists on consistently effective SME development processes to help aspiring entrepreneurs move from the idea-sensing stage to SME launch and operation resulting in productive entrepreneurship (Audretsch et al., 2007; Minniti, 2008; Spigel and Harrison, 2018). What works and what doesn’t? Could this lack of consensus partially result from the ability to design and execute an effective end-to-end SME development program?
While many studies explore fundamental SME development process elements (Altman et al., 2022; Clayton et al., 2018; Cohen, 2013; S. L. Cohen et al., 2019; Hallen et al., 2020; O’Shea et al., 2021; Pauwels et al., 2016; Shepherd and Gruber, 2021), the way design elements are identified and selected remains undertheorized. While we have an extensive theoretical understanding of available EE design elements, we know little (Miles and Morrison, 2020) about the processes used to choose elements to support SMEs. In particular, what design processes are used in the year leading up to EE launch and during the first year of operation to improve EE processes?
To explore this critical issue, over one hundred possible EE design elements are extracted from recent research (Altman et al., 2022; Clayton et al., 2018; Cohen, 2013; S. L. Cohen et al., 2019; Hallen et al., 2020; O’Shea et al., 2021; Pauwels et al., 2016; Shepherd and Gruber, 2021), then classified in the three broad categories of buffering, bridging, and curating. With extensive EE design elements available and considering that each EE has different constraints and limited resources, design choices must be made in risky, ambiguous, dynamic environments, much like entrepreneurs starting new businesses. Four possible design methods inform the analysis of how these EE design choices are made and improved: causation, effectuation, design thinking, and scientific design (Camuffo et al., 2020; Felin and Zenger, 2014; Liedtka and Kaplan, 2019; Liedtka and Ogilvie, 2011; Mansoori and Lackéus, 2020; McKelvie et al., 2020; Novelli and Spina, 2021; Ries, 2011; Sanasi et al., 2019; Sarasvathy et al., 1998; Sarasvathy, 2001). This perspective is helpful because these EE design decisions are similar to decisions entrepreneurs make as they design their future enterprises.
According to this perspective, effective pursuit of a community-tailored, top-down developed EE depends on a design process with a capacity to systematically undertake activities involving inclusion or exclusion of essential elements and activities for ecosystem SMEs (Amezcua et al., 2020; Batterink et al., 2010; Dhanaraj and Parkhe, 2006; Pauwels et al., 2016). “Organizational sponsorship mediates the relationship between new organizations and their environments by creating a resource-munificent context intended to increase survival rates among those new organizations” (Amezcua et al., 2013). Examples of these elements found in the literature include new enterprise funding (van Rijnsoever and Eveleens, 2021), entrepreneur education programs (van Weele et al., 2017; Villegas-Mateos, 2021), and providing mentors (Ahsan et al., 2018; Assenova, 2020).
With over one hundred possible EE design elements identified and four alternative decision methods, this paper uses fifteen proposed geographical, business, and community-based EE design criteria that could apply to most emerging resource-constrained EEs, to explore the best-matched EE design method. The analysis reveals that causation, design thinking, and scientific design methods do not fit the proposed EE design criteria. On the other hand, effectuation design principles offer the flexibility, opportunity for discovery, and community involvement that appears ideal for EE design given limited resources and ambiguous/unpredictable outcomes (Alvarez and Barney, 2013, 2005; Hubner et al., 2022).
The findings in this paper significantly advance our theoretical understanding of both top-down EE initiation and the use of effectuation for EE design. The paper contributes to research on top-down EE initiation by theorizing the less studied but no less crucial extensive offering of EE design elements available to support entrepreneurial networks. While scholars have examined these top-down elements and processes separately, this paper argues that selecting the correct elements and processes tailored to the specific EEs, along with element introduction timing and temporal dynamics, will build ecosystems better matched to entrepreneur needs, market demands, and community requirements. This paper also unpacks and augments a list of over one hundred ecosystem design elements and articulates how those elements fit into the categories of buffering, bridging, and curating, which extends and differs from what is described by previous ecosystem orchestration research.
This paper also contributes to research on effectuation (Hubner et al., 2022; McKelvie et al., 2020; Sarasvathy et al., 1998; Sarasvathy, 2001a, 2001b) by unpacking the possible cognitive and process micro-foundations that enable the creation of EEs to support productive entrepreneurship. Although extensive effectuation research is related to individual entrepreneurial enterprise development, little is related to using effectuation to design new EEs (Lingens et al., 2021). This study takes use of the effectuation position seriously and elaborates an alternative and expanded point of view. The paper also argues that an enhanced version of effectuation, adding a temporal dynamic, can be used to design EEs and encourages a rethinking and extension of the effectuation concept as a method both for entrepreneurs building new companies and those building entrepreneurial ecosystems.
Few could refute the statement that Small and Medium-sized Enterprises (SMEs) form the innovation, job creation, and economic core of countries and regions worldwide (Criscuolo et al., 2017; Farzin, 2017; Moen et al., 2016; Saleh and Ndubisi, 2006). Moreover, newly established and operating SMEs are critical to regional economic development (Battilana and Casciaro, 2012; Willis, 2005).
Past academic research illustrates how a country's economic growth is linked to SME activity (Acs et al., 2018; Ayyagari et al., 2011; Beck et al., 2005; Mahmood, 2008). For example, Mahmood (2008) details the positive relationships between the relative size of the SME sector and indicators of a country's economic growth, noting that the impact of SMEs on the economy is significant – contributing approximately 50% of GDP. Ayyagari et al. (2011) highlighted how SME sector businesses with less than 250 employees drove growth and often demonstrated regional disparities.
From the rural Virginia Blue Ridge Mountain area to remote Democratic Republic of Congo villages and densely packed urban cities like Sofia, Bulgaria, Bucharest, Singapore, Paris, and New York City, small businesses vastly outnumber the few larger ones. They are primarily single proprietor/family-operated real-economy2 service and product providers. According to the US Small Business Administration, over 99% of America’s 28.7 million firms are small businesses, with 88% having fewer than twenty employees. What if that percentage was extrapolated to the 213,650,000 companies, according to Statista, that exist in the world (“Statistica,” 2022)?
It would be difficult to find a productive entrepreneur anywhere that can operate their business, be it a small subsistence level coffee farm, neighborhood Soul Food restaurant, community beauty shop, or highly scalable technology-based company, without a broader entrepreneur support system to provide needed elements for the formation and operation of their businesses. These support systems or components may be called supply chains, clusters, networks, platforms, alliances, partnerships, trade organizations, unions, accelerators, or incubators. However, they are all entrepreneurial ecosystems or contribute to those ecosystems (Adner, 2017; Cobben et al., 2022).
Productive entrepreneurship refers to “any entrepreneurial activity that contributes directly or indirectly to the net output of the economy or to the capacity to produce additional output” (Baumol, 1996) and can be interpreted as entrepreneurial activity that creates aggregate financial increases in the community.
As part of a broader entrepreneurial community viewpoint, Van De Ven (1993) argued that individual entrepreneurs could not manage all the required resources, institutions, markets, and business functions necessary to develop and commercialize their new entrepreneurial ventures. Instead, it requires both an internal team and a variety of external actors and factors to build and sustain businesses. The Entrepreneurial Ecosystem is the formal or informal structure that facilitates new company formation.
Several loosely defined definitions exist for EEs within academic research. These two may be considered both broad and accurate.
Entrepreneurial Ecosystems (EE)s consist of all the interdependent actors and factors within a particular geographic location that are managed and governed formally or informally in such a way as to enable and/or obstruct productive entrepreneurship (Stam, 2015; Stam and van de Ven, 2021).
An Entrepreneurial Ecosystem can be defined as the alignment structure of the multilateral set of partners needed to interact for a focal value proposition to materialize. (Adner, 2017)
While Stam and van de Ven (2021) focus on visible/measurable EE elements and ecosystem conditions, Adner (2017) adds the additional concept of actor alignment. Partner alignment of activities, actions, positions, and links within the EE is a critical strategic challenge. In this paper, I will illustrate how this interaction of EE elements and alignment can be essential to EE design.
The Stam/Van de Ven (2021) ten-element EE model is one example of a theoretical foundation in this study area. See Figure 1 below from Stam (2018). Successful and sustainable SMEs are a necessary fuel for the essential “EE Flywheel” where they feed experience, contacts, mentors, funding, and more back into the EE (Aldrich and Yang, 2014; Mason and Harrison, 2006; Spigel and Vinodrai, 2021). This statement from Spigel and Harrison (2018) further illustrates what I call an “EE Flywheel” effect, shown in Figure 1, which is essential to the functional and financial sustainability of Entrepreneurial Ecosystems:
“Rather, (an) EE can be seen as ongoing processes through which resources develop within an ecosystem, flow between entrepreneurs and other actors, and create or attract more resources over time, changing the overall structure of the ecosystem. We predict that ecosystems rich in entrepreneurial resources (strong) and with a structure that facilitates the flow of these resources (well-functioning) will see higher rates of innovative, growth-oriented entrepreneurship that will contribute to resilient economic growth.”
I propose that a positive outcome for an EE would be the full activation of an “EE Flywheel” where SMEs continue to develop and grow even when the primary funder reduces or eliminates its direct financial support.
Figure 1 – Key elements, outputs, and outcomes of the Entrepreneurial Ecosystem (Stam, 2018)
Recent studies of bottom-up and top-down occurring EEs show that, when fundamental resources and most of the Stam and van de Ven (2021) elements exist, entrepreneurial ecosystems can emerge on their own and evolve over time, like natural ecosystems, and may have an internal culture that coordinates, controls, and motivates stakeholders (Bøllingtoft, 2012; Holmes et al., 2013; Lehmann et al., 2019; Lehmann and Seitz, 2017). EEs like the San Francisco Bay area, New York’s Silicon Alley, and Vietnam’s South Central Coast agricultural region are examples of these naturally emerging bottom-up ecosystems (Bautista, 2001; Friederichsen et al., 2013; Ngoc et al., 2021; Tarp, 2017).
When essential resources are scarce, networks potentially fragmented, or actors non-aligned, an EE may emerge deliberately through top-down efforts created and governed by a Chandlerian “Visible Hand” where government, venture capital firms, foundations, or other organizational sponsorship actors provide necessary resources as “feeders” of the ecosystem (Nambisan and Baron, 2013; Nambisan and Sawhney, 2011; Pauwels et al., 2016; Stam, 2015). Table 1 titled “Bottom-Up Occurring vs. Top-Down Initiated Entrepreneurial Ecosystems”, summarizes and compares eleven key attributes of bottom-up and top-down occurring ecosystems.
Bottom-Up Occurring EE
Top-Down Initiated EE
(Amezcua et al., 2020)
Possibly decades - Slow evolution over time
Fast – possibly a year or less
Slow, if ever – may not collapse without significant external disruption (i.e., war, technology change, migration out of EE)
Could be fast – when external funding is reduced or eliminated
EE management actors
Fragmented – various community members
Organization Sponsor (i.e., Venture capital firm, government, foundation)
Fragmented but functional alignment
Little if any alignment before EE emergence
Organization Sponsor Involvement
Little if any
Deep – Vision, funding, network building, process initiation/management
Rich resource endowments
Limited resource endowments – usually resource constrained in some way
Human capital endowments
Rich and diverse human capital available
May be a pool of limited skilled, qualified, motivated human capital available
Many sources of financing available, along with reflows form previous successful entrepreneurs
Limited if any
EE network state
A robust wide and deep network available
Networks may be very local and limited
Successful community entrepreneurs provide investment capital, mentorship, network access, and more
Non-existent or under-identified and under-utilized
Table 1 - Bottom-Up Occurring vs. Top-Down Initiated Entrepreneurial Ecosystems
To increase SME survival rate, organizational sponsorship actors may provide operating and/or investment capital, initial structure or vision, and various other entrepreneur support elements. These actors include government agencies, universities, corporations, charitable foundations, venture capital organizations, and angel investors (Amezcua et al., 2013; Baum and Oliver, 1991; Flynn, 1993).
In theory, these interventions are primarily based on the assumption that early entrepreneurial endeavors suffer from the dual liabilities of newness and smallness (Gimenez-Fernandez et al., 2020; Wiklund et al., 2010). As new SMEs emerge, they are missing attributes of quality in the market, financial and social resources to generate growth, and sustained competitive advantages to protect against adverse external threats. Thus, three fundamental mechanisms are leveraged to support a new venture: buffering, bridging, and curating, which will be explored later in this paper (Amezcua et al., 2020; Miner et al., 1990).
Little consensus exists on consistently effective SME development processes to help aspiring entrepreneurs move from the idea-sensing stage to SME launch and operation, resulting in productive entrepreneurship (Audretsch et al., 2007; Minniti, 2008; Spigel and Harrison, 2018). This paper will investigate the pressing questions influencing the design and emergence of new resource-constrained EEs. I propose that the SME development design process can significantly influence potential outcomes. Figure 2 displays my proposed “Top-Down Initiated Entrepreneurial Ecosystem SME Development Design Framework” – the conceptual model that provides the scaffolding to explain how EE actors might create/design an initial SME development process for their EE.
In Figure 2 “Ecosystem State” refers to the existing structural properties: actors & systematic conditions, factors & framework conditions, and ecosystem macro-environment conditions. The first two categories map to the Figure 1 eleven Stam (2018) EE elements. Macro-environment Conditions have been added to account for additional EE elements not currently in the Stam (2018) model. These elements could include weather/climate, unemployment rate, regional catalysts, state of past EEs established, and the EE development stage.
The ecosystem state exists in the ecosystem before establishment of the new EE. These EE elements are the SME development process starting point.
Proposition 1: The more EE resources in the form of potential actors & systematic conditions, factors & framework conditions, and ecosystem macro-environment conditions in the EE, the more perceived fundamental SME development process elements will be available for EE process design.
As ecosystem designers gather elements for their SME development process, they will create a perceived inventory of resources available for their process design. This perceived inventory will influence decisions later in the design process.
Entrepreneurial ecosystems across the globe come in many shapes and sizes (Liguori et al., 2019). They emerge, then either grow, stagnate, or collapse. Top-down EEs may operate with the help of organizational sponsorship (Amezcua et al., 2020) actors who do the day-to-day work needed and may provide funding to help entrepreneurs turn their initial vision and passion into an operating business.
EE managers combine elements, processes, and people to create and maintain functioning EEs (Lingens et al., 2021). It is recognized that there is no one-size-fits-all formula (Audretsch and Belitski, 2017; Davidsson and Gruenhagen, 2021; Shi and Shi, 2022) for EEs, but the multitude of elements identified by academics could provide a rudimentary list of methods, processes, and initiatives for EE design.
Like the various activities entrepreneurs use to build businesses, SME Development activities influence a new venture's ability to access, interpret, and process the external information needed to launch, survive, and grow (S. Cohen et al., 2019). As far back as the 1980s, EE processes were identified as a puzzle to be solved. (Bhave, 1994).
Proposition 2: When potential fundamental EE development process elements are organized, classified, and prioritized into buffering, bridging, and curating activities/processes, a stronger and more focused the potential SME Development design will result.
Appendix 1, “EE Development Strategies, Processes, and Procedures” (available at https://bit.ly/APP1EDSPP ), illustrates EE development resources, tools, and processes identified in past research (Cohen, 2013; S. Cohen et al., 2019; Hallen et al., 2020).
No table could adequately summarize everything all SME development processes, but the three Amezcua et al. (2020) fundamental mechanisms—buffering, bridging, and curating—provide a way to classify the majority of elements used to help new companies launch and grow.
Buffering includes policies, programs, and strategies that safeguard (buffer) new enterprises from competition with elements like financial aid and subsidies. This can also include providing services and resources that may insulate a new venture from the "gales of competition" in the external environment (Wiklund et al., 2010). Buffering can refer to the substantial financial and in-kind subsidies offered to temporarily minimize the firm's expenses (Flynn, 1993; Miner et al., 1990).
Bridging refers to efforts to connect a new venture to its external environment in ways that increase the new firm’s resource endowment, social capital, and legitimacy (Flynn, 1993). Bridging involves non-monetary resources used when new ventures need to be bridged with non-monetary resources such as accountants, lawyers, or industry-specific suppliers and investors.
Curating is a specific type of bridging that involves directing an entrepreneur to the "best-matched" provider of financial and non-monetary resources. Curating is primarily characterized by the selective nature of the EE's interventions (Dutt et al., 2016; Jourdan and Kivleniece, 2017).
In unsure environments with multiple stakeholders —each with competing priorities— and limited resource availability, myriad EE design decisions must be made. The stakes are high, and communities depend on new EEs to transform entrepreneurial intentions and opportunities into enterprises that can provide innovative products/services, create jobs, and improve lives.
Proposition 3: In risky, unsure, resource-constrained EEs, the more Effectual Decision methods are used, the better the SME development process will leverage existing EE resources and be tailored to the EE.
Each community has different constraints, needs, cultures, opportunities, and available resources, so EE design cannot be one-size-fits-all. As shown above, there are many choices for EE design in a dynamic environment, much like an entrepreneur launching a new company. As a result, the desired outcome of an EE design is neither precise nor fixed.
When designing an EEs SME development process, like entrepreneurs building a business, consciously or unconsciously, four broad theoretical methods may be used. Appendix 2, “Contrasting Causation, Effectuation, Design Thinking, and Scientific Decision-Making” (available at https://bit.ly/APPECDS ), summarizes, defines, and compares these methods. In addition, the effectuation vs. causation table section is formatted per Sarasvathy (2001a) and has been expanded to include comparisons for Design Thinking, and the Scientific Decision-Making Process defined as:
Causation Process: Rests in the logic of prediction. Causation processes take a particular effect as given and focus on selecting between means to create that effect. A goal-driven actor follows causal reasoning in the pursuit of calculated ends, with risk weighed against potential profit. (Chandler et al., 2011; Mumford and Zettinig, 2022)
Effectuation Process: Rests on the logic of control. Effectuation processes take a set of means as given and focus on selecting between possible effects that can be created with that set of means (Sarasvathy, 2001a).
Design Thinking Process: An approach for solving human problems to create new products and services aimed at delighting customers and growing sales (Brown and Kātz, 2009; Liedtka, 2004; Liedtka and Kaplan, 2019; Razzouk and Shute, 2012).
Scientific Decision-Making Process: A structured way to make decisions based on the scientific method of forming hypotheses (assumptions) followed by methodical testing to determine if the hypothesis is true or false (Camuffo et al., 2020; Novelli and Spina, 2021; Koning, Hasan and Chatterji, 2022).
For EE design, first let us consider the potential environment (Audretsch and Belitski, 2017; Korosteleva and Stępień-Baig, 2020) and criteria that may exist no matter where, when, or how an EE is being designed (or redesigned).
TABLE 2 – EE Design Criteria
Example EE geographical, environmental, community design criteria
Table 2 illustrates three general EE design themes:
The EE Designer may be unsure which process elements the final EE design will contain.
The community has many types of stakeholders that must align.
Generally, the EE design process is unsure and fuzzy. As a result, the risk of failure could be high.
I propose that EE design would not be well suited to either Causal or Scientific Design methods since a specific final "effect" is unknown. Furthermore, there are few assumptions to test for the Scientific Decision-Making Design method, so it would be difficult to build models. However, as the EE design process proceeds, these design paradigms may sometimes be applied selectively.
The criteria for “wicked” problems well suited to Design Thinking methods fall under product/service design. “Wicked” problems are typically difficult or impossible to solve initially due to incomplete, contradictory, and changing requirements (Liedtka et al., 2017; Liedtka and Ogilvie, 2011). Therefore, although EE design may be a “wicked” problem, I propose that the unique EE resource constraints, stakeholder alignment issues, and extensive potential design elements rule out this method (Klenner et al., 2022).
Eliminating three methods - Causation, Design Thinking, and Scientific Decision-Making - leaves Effectuation, which, while not all scholars agree (Arend et al., 2016, 2015), has been established as an effective way for entrepreneurs to build businesses when expected outcomes are imprecise, there are resource constraints, and control is preferred over prediction (Fisher, 2012; Hubner et al., 2022; Welter and Kim, 2018).
A finite amount of time, maybe a year, will be available to determine which elements will form the EE's priorities, programs, and processes and to align the community so aspiring entrepreneurs can turn their ideas into productive functioning businesses.
Proposition 4: The more EE actors and stakeholders (at all levels) and Stam (2018) Systematic Conditions are leveraged and allowed to influence the SME Development Process Design, the better tailored and aligned the design with be to the specific EE.
(Sarasvathy, 1998) first introduced the concept of effectuation to design SME firms in her Carnegie Mellon dissertation, where she highlighted two ideas: “(1) The prefirm – what exists before the “firm” emerges, and (2) Effectuation - “the process by which the entrepreneur in a prefirm identifies, defines and often creates a market for their idea, and also creates a resource base and a stakeholder network.”
I argue that the top-down EE design process is not dissimilar to SME firm design. What Sarasvathy (1998) refers to as a prefirm can be considered a preEE where the EE designers - instead of an entrepreneur - will iteratively create an EE constructed for appeal to aspiring entrepreneurs while they develop and align the EE resource base along with the EE stakeholder network.
Since 2001 when Sarasvathy (2001) published the first academic paper covering the effectuation concept, academics, practitioners, and policy makers seem to support (Coudounaris and Arvidsson, 2019; McKelvie et al., 2020; Zhang and Van Burg, 2020) or refute (Arend et al., 2016; Dias et al., 2019; Kitching and Rouse, 2020) effectuation. I agree with the Kitching and Rouse (2020) argument that the “influence of structural and cultural contexts” must be considered when entrepreneurs use effectuation. Still, as the inclusion of Proposition 4 above indicates, this may be especially true for EE design using effectuation.
Sarasvathy (2008) generally describes effectuation as a logic of entrepreneurial knowledge or expertise defined by its interactive and dynamic processes that create new products and ventures (Sarasvathy, 2001a; Sarasvathy et al., 2008). Most, if not all, academic literature focusses on individual entrepreneur use of effectuation. I argue that effectuation used for EE design would benefit from the same effectuation principles (Deligianni et al., 2022; McKelvie et al., 2020; Sarasvathy, 2001c; Zhang and Van Burg, 2020):
Principle #1 (Bird in hand): Start with your means: who you are, what you know, and whom you know.
Principle #2 (Affordable loss): Decide on the basis of what you can afford to lose instead of expected returns.
Principle #3 (Crazy quilt): Form and obtain precommitments from partnerships.
Principle #4 (Lemonade): Leverage both uncertainties and contingencies.
Principle #5 (Pilot-in-the-plane): Rely on human agency to maneuver rather than on exogenous factors, such as technological trajectories.
Figure 3, titled Effectual SME Development Process with “when we should” temporal means principle, shows a modified version of the Sarasvathy (2001a) model with each of the Effectuation Principles labeled.
In conditions of uncertainty, effectuation logic uses the concept of “opportunity shaping,” orchestrating connections among internally and externally available resources and networks to realize creative opportunities (Roach et al., 2016; Zahra, 2021). I propose that this opportunity shaping can be done for EE design when exploring, selecting, and shaping EE processes. Table 3 shows how entrepreneurs use effectuation compared to how EE designers might use these design principles.
Academic research supports the notion that EE design elements, including those shown in Appendix 1, should be included in the SME development process (Amezcua et al., 2020; Clayton et al., 2018; Hallen et al., 2020; Shepherd and Gruber, 2021). In addition, I argue that the temporal dynamics (Ancona et al., 2001; Bayus and Agarwal, 2007; Huy, 2023; Reinecke and Ansari, 2015; Ter Wal et al., 2022; Wiggins and Ruefli, 2002) of those elements can also greatly influence SME development progress.
In EE Design context, temporal considerations can include the sequence timing or element introduction during the EE participant's journey, how often the elements are implemented, and resource time constraints such as mentor availability, participant time devoted to the program, and external time deadlines like funding requirements.
Proposition 5: The more temporal considerations and dynamics (timing of elements, resource availability times, and external deadlines) are considered and leveraged, the more effective the SME development program will be.
To account for these temporal considerations within the Figure 3 effectuation model, I propose an additional effectuation means principle titled “When we should.” I call this enhanced model “Effectuation+.”
A well-formulated SME development design, tailored to the EE, executed with aligned community stakeholders can contribute to consistent SME development (Busch and Barkema, 2022; Guerrero and Martínez‐Chávez, 2020).
Proposition 6: Use (execution) of an effective SME development and support process along with motivated entrepreneurs moderates possible SME emergence, operation, and sustainability outcomes.
When stakeholders have a clear, concise, step-by-step, measurable SME development program and all actors are aligned, confusion and misdirected resources can be kept to a minimum. In addition, an SME development plan will instill confidence in aspiring, motivated entrepreneurs (Obschonka and Stuetzer, 2017; Stam et al., n.d.; Van Gelderen et al., 2006).
Should EE process modifications ever stop?
This paper's SME Development Design Framework assumes a new top-down initiated EE, hence, the SME development plan created through Effectuation+ will have opportunities for improvement only seen when the design is implemented.
Proposition 7: The more SME Development program feedback, observations, and evaluations are used to modify the SME Development Process, the stronger the process will be for guiding SMEs from idea to productive entrepreneurship.
As the SME development program unfolds over weeks and months, EE management actors will seek constant feedback from participants and stakeholders to continually improve the SME development program.
Figure 1 - Stam (2018) Entrepreneurial Ecosystem model - illustrates the “EE flywheel.” This flywheel suggests the EE may be strengthened and sustained by recycling resources from productive entrepreneurship and new value creation.
Proposition 8: Previous entrepreneur participation in an SME development process, whether the entrepreneur creates a new SME or not, moderates potential outcomes of the future SME development process participants.
As shown in Figure 2, there are three possible SME development process outcomes, (1) a new SME, (2) SME failure or abandonment, or (3) the entrepreneur does not start an SME. Entrepreneurs exposed to even a partial SME development process gain from the experience and could provide future entrepreneurs valuable inputs as mentors, examples, investors, customers, or team members (Corner et al., 2017; Guerrero and Espinoza-Benavides, 2021; Simmons et al., 2014; Williams et al., 2020).
Although recent trends in theory, research, and practice have positioned the EE concept, organization sponsorship, and top-down ecosystem creation as crucial to healthy SME development in resource-constrained emerging and transition economy EE contexts, researchers have only peripherally investigated the critical design methods used to formulate the SME development processes designed to guide aspiring entrepreneurs from initial idea to SME establishment and productive entrepreneurship. I have proposed that EEs with SME development processes designed to meet community and stakeholder needs while leveraging existing resources with attention to temporal factors will effectively help the establishment of new SMEs. When the SME development process designers carefully consider and leverage temporal elements and dynamics (timing of elements, resource availability times, and external deadlines), a more effective and executable SME development program will result. As aspiring entrepreneurs go through and complete the SME development process, or in some cases exit early without completion, the experience of future new SME development process participants will be enhanced by the participation of these individuals who have been through the process in the past.
With these insights, this paper expands existing knowledge about how SME development processes may be designed. As such, this paper offers valuable contributions to our understanding of EE design elements, alternative design methods, top-down EE emergence, and essential temporal considerations for EE processes. Moreover, these findings could be particularly relevant to inner-city, migrant-based, remote, transition economy, or economically/demographically declining regions with a desire to promote entrepreneurship.
Research on top-down SME development processes and EE design is limited (Abootorabi et al., 2021; Pauwels et al., 2016; Spigel, 2020). While many studies detail and analyze existing EE processes employed to move aspiring entrepreneurs toward SME establishment, the design methods used to select and manage those processes remain essentially a black box (S. Cohen et al., 2019; Hallen et al., 2020). Researchers can make a more significant difference in practice by examining how SME development processes are designed and improved, with particular attention to temporal considerations. EE designs can be characterized by how often and effectively they move aspiring entrepreneurs from idea sensing to operating SME and productive entrepreneurship. However, the relational architecture of SME Development Design is also influenced by temporal considerations that shape element timing, sequencing, duration, and resource time availability which can impact EE participant entrepreneur experiences.
The focus on SME development process impact and maintaining an ecosystem flywheel illustrates the more extensive relational architecture of top-down EE design. Further, it articulates a set of links among this architecture, including existing EE resources, effectual design, community stakeholder participation, and continual EE design improvement.
In addition to advancing insights into ecosystem design research, this paper extends our understanding of ecosystem process elements within resource-constrained EEs used to support entrepreneurs by buffering, bridging, and curating. I move beyond bottom-up occurring, predominantly large, thriving, resource-rich ecosystem-based research and theories (S. Cohen et al., 2019; Gonzalez-Uribe and Leatherbee, 2018; Hallen et al., 2020) toward a better understanding of EEs with more severe resource-constraints. I suggest it is prudent to move beyond the question of “Do we have enough EE resources to start a thriving ecosystem?” Instead, asking, “How can we attract funding for our entrepreneurs?” and “What can we do with the EE resources we have?”
The framework presented here represents one step toward understanding how, when, and under what conditions limited EE resources can be leveraged to build a sustainable ecosystem. Rather than concentrating on whether resource-constrained EEs can create sustainable SMEs, I have suggested an SME development process based on the limited resources and networks that exist in an ecosystem now using effectual design methods.
Accordingly, this paper furthers our understanding of how it may be possible to build conditions within resource-constrained EEs that can educate, inspire, and motivate potential entrepreneurs.
This paper also advances existing knowledge regarding temporal considerations in top-down EE development due to an eagerness to quickly establish the EE with disregard for temporal challenges and inadvertently derail the SME development process.
These temporal challenges can include components like undeveloped essential support elements, inappropriate process element sequence, or an overestimate of volunteer or entrepreneur time availability. For example, mentoring (Assenova, 2020; Galvão et al., 2020; St-Jean and Tremblay, 2020) has been recognized as an essential support element for new SMEs. If the SME development program begins before a pool of matched mentors is built, the probability of SME sustainability will be reduced.
Inappropriate process/element sequence temporal challenges can plague education programs, product/market fit prototyping and SME team-building efforts. For example, if the education program (Belitski and Heron, 2017; Jansen et al., 2015; Walter and Block, 2016) does not match the participant's understanding level or offer sequential mastery, then entrepreneurs may feel frustrated and drop out of the program.
Little research has examined how SME development process design negotiates the tension between program design, community involvement, and the full complement of temporal considerations.
This paper proposes a series of important directions for future research, the first of which pertains to top-down EE design. Researchers should develop methods and instruments to measure the effectiveness of SME development processes and test the propositions presented in this paper. Further, although promising steps have been taken, the EE literature focuses on a narrow, limited set of basic development elements that neatly fit into the Stam and van de Ven (2021) model. Finally, a deeper understanding of the diverse relational features of SME development, and the mechanisms through which they affect the actions, relationships, experiences, and identities of entrepreneurs, is needed.
Community stakeholder participation in the EE design may promote a sense of EE “ownership” or an expanded identity within the new EE by enabling stakeholders to become aware of their individual impact and redefine their involvement to make a difference in their community. In addition, including stakeholders in the EE design process may motivate them to create more opportunities for impact to fuel the EE Flywheel (Grant, 2007).
In Proposition 8 above, I argue that an important contributor to EE sustainability is the “EE Flywheel” shown in the Stam (2018) derived Figure 1. Researchers should investigate how entrepreneurs who have undergone the SME development process participate in the EE as mentors, investors, coaches, or behavior models (Ozgen and Baron, 2007; Stuetzer et al., 2013; Sullivan and Marvel, 2011) and the effect on EE sustainability.
Stam (2018) and Stam and van de Ven (2021) developed the model shown in Figure 1 because they believed this view of the entrepreneurship context would facilitate understanding entrepreneurial economies from a systems perspective used to develop measurement instruments for EEs. Sarasvathy (2001a) developed effectuation logic as an alternative to causal logic. I argue that in unsure, resource-constrained environments, effectuation will be a superior logic for designing an SME development process.
Nevertheless, top-down EE design can be laborious and sometimes have weak effects and unintended negative consequences (Bika et al., 2022; Lerner, 2009; Murray and Fisher, 2023). One limitation of EE design interventions may be that they focus on one element: an education component pushing entrepreneurs through programs without attention to other factors like mentoring, network building, and post-development support. Instead, EE designers should strive to provide a complete end-to-end SME development program.
Finally, designing a top-down SME Development Process can be difficult in challenged locations with minimal resources. I propose that EE actors should look elsewhere to fill needs if a needed resource does not exist locally, a concept I call Cross Ecosystem Resource Sharing (CERS). In our connected world, resources are less a function of place and more a function of temporal considerations.
Many decades before Sarasvathy (2001a) developed the effectuation model that illustrates and theorizes how entrepreneurs can control their future, Peter Drucker, the 20th-century management academic and consultant, was said to have written, “The best way to predict the future is to create it.”
Whereas most existing research covers entrepreneurial ecosystem top-down and bottom-up emergence from many different theoretical perspectives, I have proposed that the top-down SME development process design can be accomplished using an extended version of effectuation principles to more effectively move aspiring entrepreneurs from idea sensing to productive entrepreneurship. This perspective fits with, challenges, and extends recent trends in entrepreneurship theory, research, and practice and adds conceptual rigor to recurrent discussions about the prospect of entrepreneurship initiatives “making a difference” in a transition economy, resource-constrained, inner-city, migrant-based, remote, or economically/ demographically declining regions with a desire to promote entrepreneurship. I have surfaced an end-to-end process model for the development and design of intentionally-created EEs, highlighting how the process design and community alignment structure of an EEs emergence plays a critical role in shaping aspiring entrepreneurs’ journey toward productive entrepreneurship.
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