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Sunday, April 20, 2014
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How can Georgia stimulate innovative entrepreneurship?


17/02/2013 20:46 (426 Day 08:52 minutes ago)

The FINANCIAL -- Entrepreneurs: everyone loves them.



They are full of energy, and always have new ideas that excite people. I see two different types of entrepreneurs: those that run the small business that form the lifeblood of the economy, and those that create new products and ideas that stand at the basis of revolutionary new enterprises. Your small neighborhood supermarket falls in the first category, while Facebook falls in the second category.

The developing world, Georgia included, has no lack of the first category of entrepreneurs: small business entrepreneurship is very common indeed. Often these small businesses are an alternative form of employment: with no intention to expand, they often only employ the owner and a few others. Instead of finding a job somewhere, the owner simply creates one for herself.

The second category of entrepreneurs is harder to find: this form of entrepreneurship is strongly intertwined with innovation and technology. However, if entrepreneurs in the second category succeed, they create big businesses that often employ thousands of people. In this article, I’ll discuss with Georgia can do to support entrepreneurs that will eventually create innovative new companies. We’ll see that for entrepreneurs, it is crucial to have simple rules and regulations, fast bankruptcy procedures, and knowledge hubs.

First, barriers to starting a business and running it should be low. Someone who starts a new business doesn’t necessarily know much about the administrative and legal sides of things, and we don’t want potential entrepreneurs to waste too much on this. Georgia has already done much in this respect by simplifying business registration procedures. Tax procedures are also relatively simple, and done online, although this is can be complicated for a foreign entrepreneur, since online tax filing is only possible in Georgian.

Second, make it easy to go bankrupt. Entrepreneurs most often fail, and that is part of the process. Entrepreneurship is about taking risk, and sometimes a business doesn’t work out the way the owner had expected it to. This often involves substantial financial risk. Many entrepreneurs go through personal bankruptcy with another venture before starting the company that actually leads to their success. The ability to go through personal bankruptcy quickly is essential: if it takes many years to get out of personal bankruptcy, entrepreneurs will be hesitant to put too much on the line financially.

Third: knowledge hubs are essential for entrepreneurs to start high-value added businesses. An prime example of this is Silicon Valley: thousands of technology entrepreneurs work in a relatively small area there, not only because they can find other entrepreneurs there, but also because there is a university nearby (Stanford) that consistently delivers high-quality graduates who can work with these start-up businesses. Another example of this Boston, where many science-related startups are born, because of the presence of a large biotech industry and two world-class universities (Harvard and the Massachusetts of Technology). In these knowledge hubs, entrepreneurs get to interact with each, find new partners, benefit from existing knowledge, and “ideas have sex”. In Georgia, some proto-knowledge hubs are starting to emerge around some of the universities in Tbilisi , but there is still a lot of work to be done. The government can stimulate this process by focusing on technical education, with skills that allow graduates to become twenty-first century entrepreneurs: if a university is very good in technical fields, a knowledge hub will often naturally come into existence around it.

Georgians have learnt how to run small businesses: now it is time to think about how we can create new big ideas. Simple rules and regulations, and quick bankruptcy procedures are prerequisites, and knowledge hubs can be the birthplaces of these new ideas and businesses.



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