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NEW STRATEGIES FOR ENTREPRENEURSHIP AND SMALL AND MEDIUM
SIZE ENTERPRISE DEVELOPMENT
M.Soc.Sc. Viesturs Zeps
Investment and Development Agency of Latvia
Knowledge and Innovation System Department
Pērses street 2, Riga, LV – 1442, Latvia
E-mail: viesturs.zeps@liaa.gov.lv
Dr.Chem. Valdis Avotiņš
Engineering Research Centre of Ventspils University College
Inženieru Street 101a, Ventspils, LV – 3600, Latvia
E-mail: valdis.avotins@venta.lv
Dr.Siemon Smid
ASSYSTEM UK Ltd.
11, Rue de Bitbourg
L-1273 Luxembourg
E-mail: ssmid@assystemuk.com
Current expectations about creation of new innovative firms include more often
references to the need of new methods or new strategy. Small and medium size
enterprises (SMEs) form a backbone of European as well as Latvian economy. Policies
at various levels have declared the fostering of new innovative SMEs as a top priority,
while only few effective and targeted actions follow. Even more, EU itself and several
member countries have placed the performance of the created SMEs among policy
monitoring systems and key performance indicators.
Several recent studies have outlined extreme importance of innovation culture factor.
Reshaping existing societal values to entrepreneurial ones becomes complicated in the
society of individuals that are more oriented to stable job places in public sector or large
companies than take new innovative entrepreneurial initiative and risk to start own
business.
The paper approaches selected strategies of SME and entrepreneurship development as
a part of public policy measures. The analysis identifies effective way of promotion of
youth entrepreneurship as a driving measure of innovation policy, identifies the
preconditions and rationale behind it. It examines recently designed and tested initiative
in Latvia. The outcomes of young entrepreneurship pilot exercise provide learning
platform for local governments and regional growth centres trying to promote new
innovative firms.
Keywords
Entrepreneurial culture, entrepreneurship education, lean management; business plan
competition; student companies; mini-companies; innovation culture.
Introduction
Charter for Small and Medium Size enterprises1 (further referred as SMEs) adopted
already in 2000 together with Lisbon Agenda of 2000 and renewed start in 20052
1 More detailed information may be found at:
http://ec.europa.eu/enterprise/enterprise_policy/charter/index_en.htm
2 More detailed information may be found at:
http://europa.eu.int/growthandjobs/pdf/COM2005_024_en.pdf
1
indicated the need for various mechanisms in different levels to support birth and
development of new SMEs. And indeed, the structure of companies in the whole EU
market, that has been stable for more than 20 years having approximately 95% of
SMEs, clearly defines their contribution to whole welfare and growth of the region.3 It
forms the rationale for different the support mechanisms to SMEs and entrepreneurship
set within the frames of priorities all level policy.
However surveys of Eurobarometer4 continuously discover the lack of entrepreneurial
spirit among population of EU, almost 50% of EU citizens prefer the employment route
rather than their own venture while the percentage in the United States still remains
above 60%. National survey5 on entrepreneurship indicates that only 2% of Latvian
population is entrepreneurs and 6% are self-employed, while GEM 20066 states that 4%
of adult population may be counted as future entrepreneurs (are in the process of
establishing company) but activity level in early stage development is 6.6%. These
figures are higher than other post-soviet countries but still below the US and China.
There is already growing supply of business plan training and entrepreneurship
education. Usually the courses are targeted towards various groups of society
(unemployment, women, socially excluded groups, accountants, lawyers etc.) according
to the gaps identified. The dominance of educational aspect and focus to labour market
has limited involvement of young people from higher education institutions in the
training. Students represent the target group more willing to take risk and be involved in
business than older people7. Young people are more open to take challenge in their
carrier and operate in teams, to adapt new unknown methods and skills as well as to use
competition as a learning opportunity for their growth. At the end, they prefer to
become self-sustainable and independent, they are looking to combine learning with
employment for this. Why not to offer them to become an entrepreneur?
The purpose of this paper is to analyse outputs of one successful initiative that have
been oriented towards senior students to provide them skills and training through the
interactive process of business idea formulation and involve in business after the
graduation before the launch of the Innovation and Entrepreneurship motivation
program for period 2007-2013. The first part of the paper is dedicated to empirical data
of already existing entrepreneurship training market in Latvia exploring main
shortcomings, while the second part discovers the methods, results and conclusions of
the pilot activity.
1. Young entrepreneurship measures: part of enterprise policy
The obvious mandate of most governmental policies to promote entrepreneurship is
to increase innovation and to reduce levels of unemployment. In the view of Henriksen
(1999), these aspects are closely linked. New firms are necessary not only to replace
businesses and jobs that are lost due to the disappearance and downsizing of existing
3 European Commission, “SMEs in Europe 2003”, 2003 Observatory of European SMEs, No. 7. (maybe
there is newer reference – however trend should have not been changed)
4 More detailed information may be found at: http://ec.europa.eu/public_opinion/flash/fl_192_en.pdf
5 Laboratory of analytic research and strategies, Latvian Sustainable Development Plan 2030, October
2007. Pp.21.
6 Global Entrepreneurship Monitor 2006, more detailed information at
http://www.gemconsortium.org/download/1193670918953/GEM_2006_Global_Results_Summary_V2.p
df
7 Survey of Higher Education Institution “Turība”,“Analysis of involvement in Business and Self-
Employment”. May,2006.
2
businesses, they are critical to innovation activity.8 According to Henry et al.9 “As
entrepreneurship is considered by many to be a recipe for economic prosperity, there
is an obvious need to increase the supply of entrepreneurial talent to create and grow
new businesses that will generate employment and create wealth for the local
economy”. Wennekers and Thurik10 and De11 also argued that additional major role for
government is in encouraging entrepreneurial culture or social capital and creating the
appropriate institutional framework at the country level to address the supply side of
entrepreneurship (i.e. focusing on the number of people who have the motivation, the
financial means, and the skills to launch a new business).
Promoting entrepreneurship in the educational system is strongly contributing to
company establishment, employment and economic development in local communities
and regions. Awareness raising, information dissemination and education are examples
of traditional value added activities for regions to carry out in order to stimulate the
regions ability to innovate.
The transformation process from an industrial society to a knowledge society requires to
change approach of entrepreneurship methods and policies.12 This leads to definite
implications also on entrepreneurship policies targeting young people. The theory says
that measures in entrepreneurship education for youngsters starts from awareness and
motivation measures, replaced by skills and opportunity measures at later university
stage with higher student’s understanding and closer to a real start-up phase.13 In the
context of transition traditional entrepreneurship used to focus on production, price, and
product; in knowledge society critical are virtual elements of collaboration, team efforts,
intangible competences, usually limited in traditional courses.
The promotion of the entrepreneurial spirit among students has a special relevance for
various reasons. On the one hand, the incidence of the educational system as a
socialising instrument can help to train more entrepreneurial people. In this sense, the
entrepreneurship courses are of great importance, as well as specific practices by means
of which values aimed at promoting favourable attitudes towards individual initiatives
and business creation are transmitted. On the other hand, “students are considered as
potentially one of the most important target groups for future entrepreneurs, becoming
one of the most important business sources. The competencies gained during the
educational process, both in terms of knowledge, skills and behaviours assimilated by
the students, are basic for starting a successful business activity. The practices for
fostering the entrepreneurial spirit are initiated in secondary schools, and it is important
to continue this in the university level where more specific contents are dealt with, such
as, for example, the production of the business plan.” 14
8 Stevenson, L., Lundstrom, A. (2001) Entrepreneurship Policy For The Future, Swedish Foundation for
Small Business Research, Stockholm
9 Henry, C., Hill, F., Leitch, L. (2003) “Developing a coherent enterprise support policy: a new challenge
for governments”, Environment and Planning C: Government and Policy, Vol.21, pp.3-19
10 Wennekers, S., Thurik, R. (2001) “Institutions, entrepreneurship and economic Performance”, in A.
Lundström & L. Stevenson, Entrepreneurship Policy for the Future, Swedish Foundation for Small
Business Research, Stockholm, pp.51-87
11 De D. (2001) “Fostering Entrepreneurship in Europe”, in A. Lundström & L. Stevenson
Entrepreneurship Policy for the Future, Swedish Foundation for Small Business Research, Stockholm,
pp.107-128
12 Shapiro H., Shapiro S. Creating opportunities for young entrepreneurship. Nordic examples and
experiences.Swedish Foundation for small business research. The Case of Denmark. Swedish Foundation
for small business research, 2005, pp.31-107.
13 Lundstrom A. Creating opportunities for young entrepreneurship. Nordic examples and
experiences.Swedish Foundation for small business research, 2005, pp.15-17.
14 David Urbano PANEL Network WP 4.3 Report “Benchmarking on motivation and mobilisation of
people for entrepreneurship. Report on motivation and mobilisation of people for entrepreneurship. Best
3
2. Best practices in promotion of new business ideas in Latvia
In countries that have made a rapid transition from the command economy to a market
driven economy and even further – shift towards knowledge based economy, companies
were forced to re-orient their business towards the innovative business according to the
needs and competition of the market. According to the statistics, only 17.5%15 of
Latvian enterprises correspond to be innovative, where innovation mainly means new
improvement of production technologies and new machineries – the product innovation
counts only for 4.7% of all companies, however small percentage of innovative
companies generate 42.3% of total turnover thus indicating that are more productive and
export oriented.
Recent survey16 outlines that only 36% of population has thought about being an
entrepreneur, and only 42% of them would establish their own companies. Meanwhile
41% of population has never thought of becoming an entrepreneur. But at the same time
it has proved that those who have chosen to become self-employees and entrepreneurs
would not return to employment clearly indicating that policy targeted to youth
involvement into business would add more SMEs to national economy. Various policy
measures and support actions for developing business ideas has resulted in experiences
and practices that are described below.
1.School children companies; supported by Junior Achievement Latvia. One of the
earliest practical experiences young person may acquire is to participate in the pupil
company program organized by non-profit organization Junior Achievement Latvia17
(already 14 years in the market, involving more than 30 thousand of pupils from more
than 300 secondary schools annually, there is EU-wide network of this organization).
Pupils are thought according to special entrepreneurship program and as a practical
lesson they establish and close down ‘pupil companies’ with assistance of teachers.
2. Master program. Executive Innovation management master program has been
launched in 2003 jointly with Buskerud College of Norway in Riga Technical
University. The program has more practical focus to new product development and
innovation management skills in company.
3. Business plan contests. Besides the academic and executive courses in universities
various business plan contests and business simulation games take place. For example
business plan competition organized by daily newspaper Dienas Bizness and Junior
Chamber International where the major emphasis are on the quality of business plan (a
prerogative of students in economy study programs) itself not on the business potential
behind it, so the winners mostly divide the price not investing in new business creation.
4. Women entrepreneurship. Micro loan program for women (started already in 1999)
was continuously re-placed by Mentoring program (with support of Ministry of
Economy) that resulted in 600 individuals trained and 40 teams received micro loans.
5. Small grants and Loans. Latvian Land and Mortgage bank launched entrepreneurship
training program “Altum”18. Program provides eased access to credits for training
graduates, however according to rather high and fluctuating interest rates willingness to
take credits was far below expected.
practices in four European cities: Barcelona, Dublin, Milan and Munich.” Autonomous University of
Barcelona, 2005, 65 p.
15 Source: Central Statistical Bureau of Latvia, R&D and Innovation Statistics, 2006. May be accessed at:
http://www.csb.gov.lv/?lng=en
16 Survey of Higher Education Institution “Turība”,“Analysis of involvement in Business and Self-
Employment”. May,2006.
17 See more at: www.jal.lv
18 More detailed information at: www.altum.lv
4
6. Entrepreneurship courses for unemployed. National Employment Agency offers
entrepreneurship training for unemployed people. However the courses are rather
theoretical and general often attended because of scholarship provided.
7. Student attraction to their native town. Small provincial city of Līvāni (small town in
the eastern part of Latvia) has become a success story in Latvia with their initiatives to
foster the entrepreneurship. The part of the re-patriation policy of skilled and talented
individuals was a small grant competition for Līvāni born students packed with offer to
settle in newly established business incubator. The grant provided initial seed capital for
company establishment (first – specialised training, afterwards – seed capital). The
project method is similar to “Innovation Training” further analysed in this Paper.
8. National Business plan competition “Idea Cup 2007”. Very important national
initiative that plays significant role in the overall improvement of innovation culture and
is worth to consider for further analysis are Business plan competition organized by
Investment and Development Agency of Latvia (further referred as LIAA) “Idea Cup
2007” 19 originated from Scandinavian “Venture Cup” model with strong emphasis to
self-learning and mentoring. The contest attracted 269 business ideas, where 130 were
selected to second stage and 56 business plan submitted.
3. “Innovation training” project in Latvia
Bearing in mind the four levels of start-up creation according to empirical evidence (1)
awareness raising and idea creation, (2) idea formulation and initial proof of concept;
(3) market assessment, market plan and business model; (4) detailed business plan,
mentoring, first clients and first sales20) the focus of this paper will concentrate on the
second phase – idea formulation, which is crucial after individual (or group) has decided
to involve in business. This stage of development is essential to increase the overall
survival rate of start-up companies within longer period.
To promote entrepreneurial spirit among Latvian students and increase their motivation
to involve in business, LIAA in 2006 implemented a pilot action “Innovation training”
for last year students in Higher education institutions (further –HEI). The major aim of
the pilot project was to encourage students to implement their ideas in their own
companies.
This project was based upon the success of the interactive entrepreneurship training a
year before at the University of Tartu, Estonia, where from 25 participants 7 real
companies were created. Set targets for Latvia were really ambitious compared to
limited resources allocated and short period for implementation. Likewise to Estonia the
project intended to target the stage of idea formulation leading to qualitative business
plans thus increasing the survival rates of new firms in the market.
3.1. Method
The training course was targeted to last year students in HEI haven’t started company
representing natural science and engineering departments. To motivate higher interest of
participants students were asked at the beginning to present their ideas.
Key selection criteria for participants were submitted business idea that could not be
real one. No sector specific requirements are placed but multiplicity of the student
backgrounds are fostered as the most innovative solutions may rise in the crossroads of
different sectors (physics and arts, chemistry and electronics etc.).
19 More detailed information at: www.idejukauss.lv
20 Uffe Bundgaard-Jørgensen, Masterclass seminar on “Investment Readiness”, April 2-3, 2007. See
more detailed: http://entrepreneurs.gate2finance.com/
5
Skills were provided at intensive 5 following full day courses, involving practical tasks,
games, simulations and team work. After intensive courses 5 to 10 day break to further
elaborate designed business concept ended with final consultations with lecturers and
mentors. After the final fine-tuning of concept students presented their ideas to real
business angels or risk capitalists, receiving professional comments for further idea
development.
To ensure the efficiency as well as individual approach total group of students didn’t
exceed 25 persons.
The topics included in the curricula were chosen to enable the execution of a practical
training on generating ideas, developing them into concepts and testing and presenting
the concepts. The course aims at developing the following essential entrepreneurial
skills that are mostly needed for start-up companies:
•generating and systematically analysing ideas for business concept
actualization purposes (students lack the skill of finding viable ideas and
systematically analysing them, they are prone to work with only one idea;
students can't see different aspects affecting the feasibility of the idea)
•developing group work – working in team and leading it, focusing on
common interest and vision, creating synergy
•presenting and selling ideas/concepts (students don't know how to sell an
idea to potential partners, investors)
•getting financial help
The course was supported by the Innovation Management Suite (IMS), an integrated
software tool box which supports the development and implementation of new business
processes. IMS support all main entrepreneurship activities, such as: (1) idea
management; (2) project planning management; (3) roadmapping; (4) portfolio
management and (5) financial performance simulation. IMS is a management tool box
which contains all conceivable state-of-the-art methods and techniques needed to
develop a new start-up and it is available on-line through a personalized and password
protected additional encryption & authentication layer.
Adaptation to Latvian circumstances. To support students with materials for further
studies as well as to increase their understanding (avoid misperceptions because of lack
of field specific economic English terminology) theoretical materials, presentations and
case studies were translated to Latvian. Knowing that local champions and their
performance (success and failures) play the most significant role in understanding and
motivation, rather important was to elaborate similar Latvian case studies to be analysed
during the courses. As well as it was intended to have materials for further trainings that
would be conducted by other trainers.
To ensure the continuity of the courses in Latvia “train trainers” seminar was held. Due
to a set of reasons it was decided to involve lecturers from HEI (not consultants) to take
further lead of the “Innovation Training” with the additional aim – foster the result
oriented entrepreneurship support actions and initiatives, that could be managed by
innovation centres, business laboratories, networks in the HEIs and overtake initiative
for following years.
3.2. Selection and training process, its correlation to outputs
Presuming strong correlation of selected group towards results achieved at the end this
part of the project together with promotion was one of the core issues – meaning that
selection of most motivated candidates would lead to higher success rates according to
involvement in business. Higher education institutions did the selection.
6
Table 1. Overview of the course characteristics
Provider
Position
Assystem, NL Large HEI with
strong traditions
covering almost all
sectors of science
Regional large HEI
with strong
traditions, less
flexible
Recent and modern HEI
with entrepreneurial
traditions
Method 5 following days 6 following half days 5 following days Split 2 day, 2 day and 2
day training
Students
selected/
graduated
28/24 20/7 25/24 25/25
Characteristics
of students
Students from all Latvia
with different ideas
(students from all
regional centres)
representing 9 HEIs
Ph.Ds but the group did
not reach the required
minimum of 20 persons
(all from the same HEI)
Mostly 1st and 2nd
year students (all
from the same HEI)
Students with background
in economy represented
(incl. foreign students).
Totally 3 HEIs
represented (involvement
of students (20%) with
background in art)
Ideas
developed*
10 ideas developed, 4
technological and/or
innovative,
2 technology intensive
ideas developed
8 ideas developed, 1
technology intensive
5 ideas developed, 4
innovative
Quality of
presentations**
4 5 3 (not prepared to
real life conditions)
3 (not structured clearly
enough)
Overall
Satisfaction
rate***
4 4 4 4
Success stories 2 ideas in negotiations
with venture capitalists
1 idea in negotiation
with venture capitalists
1 Patent acquired to
introduce new
product in the market
1 idea developed further
(and submitted to and won
the international design
contest); is in negotiations
with potential producers
Additional
Comments
Covered students
form totally 16
districts of Latvia
Period of courses
where not welcome
to senior students
(they were preparing
for examination)
Contributed ‘business lab’
that supports new-
businesses created by
students.
Major
observations
Synergy of students with
different backgrounds
created new ideas and
allowed to analyze
different perspectives of
ideas, however only the
most motivated (group
leaders) moved further
with starting a business
Ph.D students have
more ready ideas,
however they are
overcrowded with daily
activities in research.
Young students
attend the course not
because they want to
establish companies
but because of
additional training
that could be added
to CVs
Established infrastructure
adds more if one has
decided to start business.
Method of splitting
courses lead to low
attendance rates and low
level of overall student
readiness to access
market.
Involvement of Art
students lead to very good
mix of ideas.
Follow – up required to foster the most successful students to involve in business
Importance of incubation services after the courses would be necessary to nurture ideas further.
Lack of pre-seed and seed facility will influence the amount of really established companies.
*Technology intensive ideas in the context of this Paper means – business ideas requiring research and/or
field specific knowledge in natural sciences. Innovative idea means new in the market.
** Estimation made by Course providers, LIAA, and Venture Capitalists (measures – 5 very good; 1
poor)
*** Satisfaction rate estimated according to evaluation questionnaire submitted to students (measures – 5
very good; 1 – poor).
Initial intention that one large regional university located outside Riga would cover the
students from regions finally turned to be true (students represented totally 16 districts
7
of Latvia) while the dedicated period for training organization restricted access to
courses for more experienced senior students that were in the middle of their
examination sessions.
Despite the ambition to attract the students of different faculties those studying
economy were dominant within the training courses that leads to another one trend –
ideas related to service provision were dominant as well. At the end from 107 students
selected 81 graduated and 8 later on started a company. Total expressed interest reached
130-150 persons, that were not selected as for example having ideas with some ethical
bias. Finally 25 business ideas were developed during the courses, 3 were recognized to
be the best – image processing software to measure effectiveness of advertisement
posters; creative recreation centre for children and unique gloves for disabled people. In
addition 4 more where recognized as perspective, real and applicable to market
conditions.
Lack of further follow-up on regular basis, incubation and/or mentoring services as well
as seed funding decreased the possibilities that participants will really start their
business. The communication between training providers in HEIs would have add more
to promotion of entrepreneurship culture in HEIs.
Team work of participants added more value to the overall training, it allowed to
explore some of the ideas in the manner author would not have thought, but at the same
time it is impossible to expect the groups of persons not being acquainted before will
form the company.
The execution of the training seminars was characterized by good student’s cooperation,
high involvement and a positive attitude towards the trainers. However some students
had the expectation that they would be able to work alone to create their own business.
But the training seminars required them to work together to increase the rate of success.
For most of the participants collaborative working was advantageous, but a minority of
students kept insisting on working on their own business ideas. It was tackled
differently in different HEIs, for example, they were asked to look at the ideas from
investors’ perspective if they should risk their own money. And what is most important
– the training seminar does not support single entrepreneur developments, based upon
the experience that successful entrepreneurs establish a wide range of collaborations.
3.3. Potential impact and dissemination of results
Each of the organized training seminars had their own strengths and weaknesses that
worked excellent for project as being a pilot action, for example one targeted Ph.D
students and had most mature knowledge intensive and innovative ideas, while the
participant rate was low and opportunity to dedicate proper time for trainings was low;
another one trained junior students – they will hardly be involved in business recently as
have 3 to 4 years still to study; others tried to split the 5 following days – leaving
participants to forget the logic of knowledge acquired at the end do not achieving
business ideas ready enough.
Involvement of real capital industry professionals added sense of reality and some
critics to students sometimes overwhelmed with their idea. The project did not really
contribute to deal-flow for venture capitalists however it approximated the potential for
further training and promotion activities, reaching for more than 200 students in Riga
considering to start business and at least 100 students being in regions.
Overall estimation and evaluation of students’ satisfaction rates requires further to
develop the concept and involve more actors in the conduction of training seminar.
Targeting exactly the business idea formulation stage was and according to evidence
8
still is the most appropriate approach to achieve results in longer term. Having more
than 90% of graduates saying they will advice colleague or friends to participate to the
trainings project adds more than 60 individuals to market moving towards their own
business already knowing exact further steps.
Due to success of the project and approach used, the experience has been further
transferred to Romania (2007) and Ukraine (2007). The advertising film (designed by
one of the teams participated in “Innovation Training”) presented at the events of
different level and scope as well as at international conference in Latvia “Baltic
Dynamic 2007” attracted world-wide attention of specialists active in promotion of
young entrepreneurship.
Conclusions and Recommendations
Conducted research confirmed two major market gaps – (1) small ratio of new
innovative companies as shortcomings of entrepreneurship education and
(2) requirement to shift the approaches and content of new enterprise promotion
activities during the development phase of knowledge economy, further on it is
necessary to target students more actively as they are the part of society with high risk
taking potential.
Method and approach used in „Innovation training” has proved its high effectiveness
and good results, and, what is more important – repositioned attitude and created
platform to promote entrepreneurship and innovation culture in Higher education
institutions that by tradition are conservative.
Essential difference of the applied method rests in its strict relation to outputs.
Traditional education courses are too academic and process oriented and provide
knowledge not always connected with outcome thus they do not enable participant to
link acquired skills with result necessary for his/herself venture. Entrepreneur does not
see academic side as essential, more important are obtained solutions for his own ideas
that decrease the risks and increase the potential to win. Here the theory was well
balanced with numbers, combined with case studies and stories of businessmen. In
addition, practical preparatory work increased skills to present the idea as well as to
formulate entrance rules for investors. Key conclusions might be summarised as
follows:
•Precondition for participation in the course was the business idea. Team work
was essential it ensured opportunity to interact with different people, face
different views that often happen in real world. Motivation to work with own
ideas, competition of ideas increased the abilities to lead students towards
thinking in real result based categories and to become more and more open to
discussions.
•Mix of students with different backgrounds, structured and innovative ideas,
made possible for teams to value new perspectives thus the multiplicity of
student mini - teams should be fostered in further trainings.
•Cases when idea at the end become unsuccessful or persons idea was not taken
forward by mini-teams approximates participant to real market conditions.
9