1 Frédéric Delmar EMLYON Business School & Research Institute of Industrial Economics Karl Wennberg Imperial College London & Stockholm School of Economics of Economics Social Conditions for Growth – from Employment Programs towards Ambitious Entrepreneurship

Today’s Agenda I.Entrepreneurship as self-employment (“the petty bourgeoisie”) II.Growth oriented Entrepreneurship III.What is the situation in Sweden? Some empirical Evidences IV.Policy implications and practical applications? 2

I. Entrepreneurship as Self-Employment (1) Sweden has higher rates of self-employment (eget företag) than many OECD countries, including USA… (Shane, 2008) But the level of ambitious (growth-oriented) entrepreneurship is comparatively very low … Dan Johansson and Magnus Henrekson surveyed the literature or ‘gazelles’ – finding that more than 50% of all new jobs created are created by a small proportion of high-growth firms Source: Johansson and Henrekson (2008) 3

I. Entrepreneurship as Self-Employment (2) A majority of Swedish self-employed are ‘combiners’ – i.e. employees with a firm ‘on the side’ (Wennberg, Folta & Delmar, 2008) Few full-time entrepreneurs by international comparison ( GEM report, 2007) 4

Instead of encourage self-employment, encourage growth! Source: Fritsch and Schroeter (2009) Michael Fritsch and Alexandra Schroeter in Germany finds that there is an “optimal” level of start-up activity, i.e. too little or too much is not good!  Instead of encourage self- employment, we should encourage growth-oriented entrepreneurship! I. Entrepreneurship as Self-Employment (3) 5

So what is “good” entrepreneurship? I.Entrepreneurship as self-employment (“the petty bourgeoisie”) II.Growth oriented Entrepreneurship III.What is the situation in Sweden? IV.What can be done? 6

Growth oriented entrepreneurship in cities Source: Sternberg, Bosma Acs (2008) II. Growth-Oriented Entrepreneurship (1) 7

Relative differences between city and overall country Stockholm – an Entrepreneurial hotspot? Source: Sternberg, Bosma Acs (2008) Any entrepreneurshipGrowth oriented entrepreneurship II. Growth-Oriented Entrepreneurship (2) 8

Some empirical evidence from Sweden? I.Entrepreneurship as self-employment (“the petty bourgeoisie”) II.Growth oriented Entrepreneurship III.What is the situation in Sweden? IV.What can be done? 9

III. Our Research Project(1): Framework Source: Delmar & Wennberg (2009) Entrepreneurial firms learn from similar others They grow to achieve sustainable profit that are comparable to similar others (their aspiration level) The importance of feedback loops Two types of learning: Rational learning, “the more the better” Behavioral learning, “it is good enough” Learning changes as firms evolve in age and size Barriers to growth vs. barriers to survival 10

III. Our Research Project(2): The Model Probability of growth Probability of survival Probability Age and/or size of new venture Rational learning?Behavioral learning? Cut–off ? 11

III. Our Research Project (3): The data Source: Delmar & Wennberg (2009) The effect of social comparison of profitability among 14,700 Swedish knowledge-intensive consultant Firms (IT- Consultants, Engineers, etc) Data: FAD & LOUISE Independent incorporations (Aktiebolag) started The variable of investigation is employment growth 12

III. Our Research Project (4): The Measures We measure a bunch of cool things: Earnings per employee (industry mean and for each firm) Threat rigidity ( =firms in crisis) Age, size, age*size Survival bias We are interested in differences within firm’s evolution over time rather than differences between firms 13

III. Our Research Project (4): The Results Firm behavior changes over age and as firms grow “the aspiration level” drives growth Firms acts rational when young and small If things goes well (above aspiration)  invest more Firms more satisfied above a certain age and size: If things goes well  no need to invest If things goes poor  invest more Cut-off point: 5 to12 employees and 5 to 6 years old 14

III. The next research project… Source: Autio & Wennberg (2009) The next project investigate effect of social norms for start-up behavior among 682,154 persons in 68 countries Data: Global Entrepreneurship Monitor Results: Social norms have three times as much impact on probability of entrepreneurial entry compared to a person’s own attitudes Half of the variance in individual-level entrepreneurial behaviors resides in between social groups Entrepreneurship is a social phenomenon – difficult to rapidly change with policy measures – but once entrepreneurial attitudes are in place (lGnosjö) they are likely to persist over time – take Stockholm or Munich as good examples and learn from these! 15

Some empirical evidence from Sweden? I.Entrepreneurship as self-employment (“the petty bourgeoisie”) II.Growth oriented Entrepreneurship III.What is the situation in Sweden? IV.What can be done? 16

IV. What can be done? (1) We know that entrepreneurship is consistently higher in some regions True both for people born there and people moving there, natives as well as immigrants, high educated as well as low educated How does the interaction between culture/norms AND economic policies affect entrepreneurship? The importance of suitable role model Good policies comes from in-depth knowledge of firm behavior 17

IV. What can be done? (2) Search for profits leads to growth, not the other way around “Suitable profits” defined by social surrounding Growth as a process with important steps that the entrepreneurs need help to overcome: Knowledge Behavior Structure Better communicate both the advantages and disadvantages of growth - Management & entrepreneurship - Stability and development 18