2/7/2021 7 Ways Entrepreneurs Drive Economic Development

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INNOVATION

7 Ways Entrepreneurs Drive Economic Development

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Entrepreneurs create businesses, businesses create jobs and people with jobs make good customers.

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Image credit: Thomas Barwick | Getty Images

Ed Sappin
CEO of Sappin Global Strategies

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October 20, 2016 6 min read

Opinions expressed by Entrepreneur contributors are their own.

There’s been a lot of talk lately about the future of work. Much of the time, these conversations are
fueled by the anxiety many of us share as we try to understand the impact new technologies will have
on our industries. We tend to reduce these discussions to binary arguments -- how smart machines
will do extraordinary things to improve our lives, or how this or that innovation will make human
labor obsolete, creating a jobless dystopia. Both conclusions strike me as somewhat specious. It’s not
that these concerns aren’t valid, but they oversimplify a more complex phenomenon.

Why do entrepreneurship and innovation fuel economic growth? On the surface, the answer seems
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intuitive: entrepreneurs create businesses and new businesses create jobs, strengthen market
competition and increase productivity. Here in the United States, entrepreneurism is part of our
American identity and self-image. It’s non-partisan, too; both sides of the political spectrum celebrate
entrepreneurial small business as a fount of innovation and growth. Entrepreneurism is seen as a
route to upward mobility -- a way for average people to build wealth. Let’s take a closer look.

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2/7/2021 7 Ways Entrepreneurs Drive Economic Development

1. Investing in products and services people need.

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What motivates a person to start news
a newand
business? According to traditional models, entrepreneurs
updates.
create new businesses in response to unmet needs and demands in the market. That is, there is an
opportunity to provide a product or service that is not currently in existence, or otherwise available.
Economists refer to these business-starters as “opportunity” entrepreneurs in order to distinguish
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these individuals from those who start businesses for lack of better work opportunities. So-called
“opportunity” entrepreneurs, who&launch
News Trendsnew enterprises in response to market needs, are key players
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when it comes to fostering economic growth in a region. They enable access to goods and services that
populations require in orderSocial
to be Media
productive. This is not toWebinars
ignore “necessity” entrepreneurs that
launch enterprises because they have no other options. Both can and do contribute to economic
growth.

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Related: 5 Key Ingredients for Corporate Innovation Allow

2. Providing employment opportunities.

New businesses need to hire employees. They create jobs and these economic opportunities uplift and
support communities through increasing the quality of life and overall standard of living.

3. Commerce and regional economic integration.

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Technology has made it possible for small, entrepreneur-led businesses to expand into regional and
global markets. When new businesses export goods and services to nearby regions, these enterprises
contribute directly to a region’s productivity and earnings. This increase in revenue strengthens an
economy and promotes the overall welfare of a population. Economies that trade with one another are

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2/7/2021 7 Ways Entrepreneurs Drive Economic Development

almost always better off. Politics aside, engaging in regional and international trade promotes
We'd and
investment in regional transportation like infrastructure,
to send you notifications
which alsofor the latest economies. This has
strengthens
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never been more true than it is today, as we live in an increasingly interconnected global economy.
Even for a large and advanced economy like the United States, foreign markets have a signi cant role.
Foreign trade, according to some estimates, is responsible for over 90 percent of our economic growth.
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What exactly is innovation and how does it promote economic development? Under what conditions,
do entrepreneurs innovate?News
A widely-accepted
& Trends de nition measures innovation using a set of criteria
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including how many new products are invented, the percentage of high-tech jobs, and the size of the
talent pool available to techSocial Media
industry Webinars
employers. More recently and increasingly, our de nition of
innovation has expanded to include the development of new service offerings, business models,
pricing plans, and routes to market. While the role that startups and young tech companies play in job
creation is well documented, their contribution to overall productivity is less intuitive and not
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discussed as often. To better understand how innovation contributes to economic development, I’ve
unpacked a few examples below.

Related: How to Build Innovation Into Your Business Without Creating Chaos

4. New technologies promote e ciency.

The ability to turn ideas into new products and services that people need is the fount of prosperity for
any developed country. Economic growth, generally speaking, is driven by new technologies and their
creative applications. Periods of rapid innovation historically have been accompanied by periods of
strong economic growth. The impetus of innovation is the greatest natural resource of all: the human
mind. Creating innovative products and solutions requires an educated population and an
environment where collaborative work can take place. In addition to being good for business,
education increases workforce creativity and quality of life.

5. Addressing environmental challenges.

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Innovation is (and will continue to be) crucial when it comes to addressing the enormous
environmental challenges we face today: combating climate change, lowering global greenhouse gas
emissions, and preserving biodiversity in the environment. Without power for extended periods of
time, commerce comes to a halt.  Without water, we cannot live. Reliable access to these innovations
(such as irrigation technology, electricity, and urban infrastructure) increases productivity and
enhances economic development.

6. Innovation impacts socio-economic objectives.

Innovative business practices create ef ciency and conserve resources. Innovation in agriculture is
especially relevant for addressing socioeconomic challenges (in addition to encouraging economic
growth). In the U.S., for instance, we waste billions of dollars annually due to inef ciencies and
uncompetitive practices in our healthcare system. Hopefully, new ideas and innovations in the future
will address these problems, resulting in further reforms. When this occurs, Americans’ overall health
and quality of life will bene t, and so will our economy if our wasteful healthcare costs also decrease.

7. Innovation happens where there is competition. 

In essence, there is a positive feedback loop among innovation, entrepreneurship, and economic
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development.

New and growing businesses represent the principal sources of job creation and innovative activity in
an economy, two factors that generally result in the rising standards of living for all.

Related: We've Become So Obsessed With 'Innovation' That It's Now Meaningless

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However, it’s important to understand that entrepreneurship and innovation are dependent on access
We'dtolike
and participation. For entrepreneurs to send
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new ideas for the
to life, they need latestto education and a
access
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level-playing eld on which to compete. In this vein, the role of government leaders and public policy
is to create conditions that allow more entrepreneurs to start businesses by implementing policies
which nurture that environment so those businesses can grow. Economic growth suffers when
Starting Your
entrepreneurial activity is unevenly Business
spread Growing
socio-economically, Your Businessand geographically.
demographically,
Under the right conditions, entrepreneurs have an incredible power: they help regional areas prosper
economically, and they alsoNews
serve & Trendsas they help engineer
society Franchises
innovative solutions to problems and
challenges.
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