Innovation and entrepreneurship are two sides of the same coin. Being a good entrepreneur requires identifying a real-world problem and creating an innovative solution that customers are prepared to pay you for, profitably.
On the other hand, people often come up with fantastically creative concepts that end up looking for a problem to solve. This is not innovation; it is simply invention.
Innovation is sometimes confused with R&D (research and development). But there is a distinction here too. R&D is the process of turning money into ideas. Whereas innovation is the process of turning ideas into money.
But how can government support innovation and entrepreneurship to increase economic activity, create jobs and grow the economy? The best example of an innovation ecosystem, Silicon Valley, had no government intervention. Instead, it grew organically with the successful entrepreneurs funding and supporting new entrepreneurs. This ‘virtuous circle’ continues and Silicon Valley remains the perceived go-to place to ensure success.
Many governments have the aspirations to create a Silicon Valley in their own countries. Few have got anywhere close to succeeding.
Models of success
There are many models of innovation ecosystems, but one that is simple to understand and covers all key elements has been developed by CAMEO.
Under the CAMEO model, five key areas need to be developed: Coaching (support to entrepreneurs), Capital (financing of startups and scaleups), Connections (networks within and external to the ecosystem), Culture (including creating awareness and a positive feeling within civil society) and Climate (creating the right regulatory environment to encourage startups).
Following such a model, governments can support innovation and entrepreneurship. They need to take the long-term view of success and not let politics get in the way. Luckily, the UAE has a stable long-term government that is unlikely to change in the near future.
Also, the definition of success needs to be clear from the start. What are the KPIs that will be tracked? What results will indicate a successful outcome of the intervention? Over what time frame is success being measured? How can progress be tracked?
The Virtuous Circle
The model that can work well is one where government allocates a budget each year for supporting new innovation and entrepreneurship. And this budget must be spent by defined innovation centers with experienced staff and a strong track record of success.
In Ireland, for example, four Business and Innovation Centres (BICs), established in different parts of the country, are allocated funds from the central government. They use these funds to pay for staff, facilities, etc. and support innovative businesses. They promote their center in the local catchment area and encourage entrepreneurs to apply for support. A rigorous selection process ensures only high-quality, high-potential business ideas are accepted. Businesses are then provided a range of startup and growth services to accelerate their development. These services are the secret sauce that makes the model work.
The fiscal logic for this kind of support is as follows. Money invested in the BICs will cause more, better businesses to be started and grown, employing more people, trading with more suppliers, and ultimately generating income, corporation, and consumption tax. This tax revenue is larger than the initial government investment, so a positive return is generated.
Obviously, in the UAE context, the tax revenue is not relevant (apart from a small amount of consumption tax), but the support model would still create the increased economic activity of the companies and employees, all of which go towards the success of the country.
Software, not hardware
As mentioned above, support is the most critical indicator of success.
Many countries have focused in the past on building fantastic infrastructure, beautiful incubation centers, exotic co-working spaces, and huge technoparks. Politicians like infrastructure as it is visible to the voters and shows they are ‘doing something’. However, this ‘hardware’ is of little value without the ‘software’ (services) to support the tenants.
In Ireland, all four BICs are certified by the European Business and Innovation Centre Network (EBN). This certification ensures that the companies being supported get high-quality services from professionals with years of business support experience. The certification, coupled with a focus on continuous improvement and being part of a global network, is the main reason the Irish innovation and entrepreneurship system is so strong.
What’s next for the UAE?
As part of the UAE’s ‘Entrepreneurial Nation’ initiative, the country has set a target of 20 unicorns (startups valued at $1 billion-plus) based here by 2031. With the SkillUp, StartUp, and ScaleUp programs, they hope to attract potential entrepreneurs and help them build great businesses.
This ambitious target has its challenges. Most people are attracted to the UAE by the offer of a job in a zero-tax environment. The vision of such people is not entrepreneurial. It is very short-term and about ‘making a quick buck’. True entrepreneurs take a longer-term view and are in it for a more significant win.
Zero tax is always helpful to any business, but entrepreneurs need access to skilled employees, easily available capital, and markets. A network of mentors, often previously exited founders, is also a bonus, and one that Silicon Valley provides is volume.
The challenge for the UAE is to encourage entrepreneurs to start their businesses here. Taxes can’t go any lower than zero, so the focus needs to be on alternative benefits. The ‘hardware’ is in place through entities like Dubai Silicon Oasis. But the focus is still on infrastructure. Structured, high-quality services need to be developed and delivered within that infrastructure.
UAE has great potential to build its incredible successes over the past decades to move from an employee’s paradise to an entrepreneur’s paradise. It has many of the ingredients in place and a desire to grow in this direction. And if the past has shown us anything, when the country puts
its mind to building something, it usually succeeds.
David Tee is a seasoned entrepreneur and innovation expert. He specializes in putting together innovation ecosystems at regional and national levels for governments and has successfully implemented projects across the Middle East and Europe. He is the author of UPSTART NINJA, the ultimate mentoring handbook for entrepreneurs.