Growing Entrepreneurs And Entrepreneurship: Lessons From Estonia

Famous entrepreneurs, such as Elon Musk and Steve Jobs, are often portrayed as mythical creatures who have left the womb imbued with the talent, burning desire, and tolerance for risk-taking required to be the exceptional entrepreneurs they ultimately became.  It’s a narrative that portrays great entrepreneurs as being born rather than made.

The reality isn’t quite so romantic.  For instance, German research suggests that entrepreneurship is most definitely a skill that can be learned, and the researchers argue that action-oriented training can enable us to unlock any entrepreneurial potential within us.  While this suggests that the best approach is very much one of “learning by doing”, a second study, from the University of Groningen, found that classroom-based study is just as effective as experiential study.

Supporting entrepreneurship

Being able to effectively support entrepreneurship and entrepreneurs is increasingly important as more and more of us have taken the entrepreneurial career path during the pandemic.  Indeed, a survey from Digital.com found that nearly a third of those who have participated in the “Great Resignation” have created their own business since quitting their jobs.  A major motivation for these fledgling entrepreneurs was the desire to be their own boss.

Of course, it’s well known that most startups fail and that being an entrepreneur is by no means easy, so any help that can be provided must surely be welcomed.  Estonia has a thriving startup scene, with more unicorns (startups with a billion dollars in either revenue and/or funds raised) per capita than any other country in the world.

Indeed, since the country’s independence in 1991, it has focused almost exclusively on entrepreneurship as a means to develop what has been described as the most digital state in the world.  Central to this has been the “I am an entrepreneur” program that aimed to promote entrepreneurship education in schools across the country.  The scheme aims to ensure that entrepreneurial competencies are developed at all school levels.

A perfect example of this is ENTRUM, or the Youth Entrepreneurship Ideas Contest and Development Programme.  It was originated by the energy company Eesti Energia and developed a four-step methodology to engender an entrepreneurial mindset in students ranging from 13 to 19 years of age.

Central to the project is the belief that there is an entrepreneurial mindset, which is capable of thinking creatively, being open and curious, acting courageously, having self-motivation, and ensures one takes responsibility for both oneself and for those around you.  

“In the modern world, it’s one thing to have the technical skills and toolsets, but another thing is to have an open and entrepreneurial mindset,” Professor Gert Jervan, Dean of Tallinn University of Technology, said at the EIT Digital Conference 2021.  “Estonia is not a small country, it’s a very small country, so we have to collaborate with external partners.”

Broad horizons

A recent study by researchers at the University of Texas at Dallas highlights the value of tapping into such an ecosystem.  The researchers draw a comparison with an apple seed that has the potential to grow into something great, but that potential is far from guaranteed.

“We are proposing that an entrepreneurial opportunity exists objectively, but that does not guarantee that if you identify it and try to exploit it, you’ll turn the opportunity into profits,” the authors say.

Each year INSEAD and Wipro produce the Global Innovation Index, which outlines some of the things that help to support entrepreneurs make the most of their talents, whether that’s an excellent education system, a legal framework to make creating and protecting intellectual property easy, the ease of creating a business in the first place, and ample financial support to help a business to grow.

In addition to building such an infrastructure, however, the University of Texas at Dallas authors advocate greater guidance and support on how to set up a business, and indeed how to respond should it fail.

“Policymakers should understand that when these youngsters venture into opportunities that don’t really exist, they are doomed to fail,” they say. “Failure rates can be high given their lack of business experience.”

An entrepreneurial nation

With few natural resources and a lack of major incumbent industry to gravitate towards, Estonia was forced to be entrepreneurial after emerging from Soviet Union occupation in 1991.  This has imbued the country with an entrepreneurial spirit that very much sees the kind of mindset encouraged by the ENTRUM program as the norm, with the courage to take risks and the resilience to bounce back successfully from them central to this national culture.

Indeed, Kari Liuhto argues that the role of Estonia as the Soviet Union’s “political guinea pig” may have in a perverse way helped to provide citizens of the country with many of the entrepreneurial characteristics that are serving it so well today.  Even with this inherently entrepreneurial mindset and culture, however, it is vital that the country opens itself up to the wider world.

“The biggest benefit [of being a member of EIT] is the EIT ecosystem, as it includes universities, it includes startups, and large corporations, so students have a wide range of different partners to work with that is very difficult to achieve on your own,” Jervan continues.  “So the number one keyword is ecosystem, as through that you have collaboration partners and ideas coming in, especially with the vivid movement of people across Europe that will hopefully return once Covid eases.”

Talent shortages

The Global Innovation Index illustrates this, as they cite the inhibiting impact a shortage of human capital is having on the innovation potential of the nation.  In The Light That Failed, Bulgarian academic Ivan Krastev highlights how many former Soviet satellite nations suffered from a declining population after they gained freedom, with many of those who so desperately wanted the kind of freedoms offered in the west choosing to move immediately across the former Iron Curtain rather than staying behind to try and build liberal states.

Estonia was no different, with the population of the country falling from over 1.5 million in 1991 to around 1.3 million today.  It’s a situation that was only made worse by the country joining the European Union, which granted citizens free movement to any of the 27 other member states (26 now, obviously). The country has responded to this potential brain drain in a number of ways, but foremost among them is the e-residency program that aims to create an army of digital citizens of the country.

Today there are around 80,000 e-residents, each of whom has access to various e-services, not least of which is the ability to establish a company within the confines of the European Union.  This option has been taken up by 18,000 e-residents, who were able to create their business purely online and take advantage of one of the friendliest tax regimes in Europe.

The number of e-residents pales in comparison to the size of the Estonian diaspora, however, with an estimated 15% of Estonian citizens living abroad.  

The country has attempted to engage with this significant, often highly educated, and well-connected population through its Compatriots Program, which was launched in 2004.  The program strives to preserve Estonian culture among the diaspora community and actively supports any Estonians wishing to return.  Indeed, these individuals qualify for support payments from the Integration and Migration Foundation’s Our People program.

These efforts hope to succeed where Bringing Talent Home, which was an initiative run between 2010 and 2012, failed.  Indeed, the requirements placed on diaspora ended up offending many of those who failed to qualify.  The startup visa program has been somewhat more successful, with 226 startups registered from the 697 founders approved by the scheme since it was launched in 2017.  In the same timeframe, startups have been able to recruit 2,237 employees through the scheme.

The importance of the migrant community was illustrated by recent Wharton research, which showed that when citizens return from abroad they not only bring with them the expertise and experience they gained overseas, but also the contacts and networks they established there.  This helps both in terms of coming up with novel ideas for new businesses and also attracting the finance to help them to grow.

Of course, the same applies when migrants move to a nation, but while the E-residency program has attracted applicants from around 160 countries, attitudes towards physical migration are mixed.  In the 2019 Eurobarometer study, Estonians were the most likely in the EU to support the right of EU citizens to live and work in the EU, but citizens also have grave reservations around immigration, especially when discussing people of different races and religions to their own.  Indeed, half of the respondents to the 2018 European Social Survey thought that people of different races or ethnic groups should not be allowed into the country.

Boosting digital literacy

With this general tension regarding the import of people from abroad, it is perhaps understandable that so much effort is made to better educate native citizens. For a nation that often likes to refer to itself as E-stonia, it’s perhaps not surprising that there are also a number of initiatives designed to enhance the digital skills of the country’s citizens.  These digital skills have been identified by the government as a priority in both the Lifelong Learning Strategy and Digital Agenda 2020.

These initiatives were given strategic priority in part due to the OECD’s survey of adult skills report, which outlined that nearly half of all adults in the country are unable to function in the kind of digitally sophisticated society they are striving to build.

For instance, the Progetiger program was created in 2012 to ensure robotics and programming were taught in schools.  The program is active in over 85% of schools, which are being taught things such as 3D modeling, robotics, and coding.  Even with these programs, however, the shortage of talent remains a restraint that is holding back the growth of startups across the land.

As research from Harvard and INSEAD illustrates, entrepreneurial success is often a matter of gaining access to human capital.  You will need the right employees, the right alliance partners, the right regulators and government supporters, and various other stakeholder groups that will be vital to the growth of your startup.

As a small country, Estonia perhaps understands these challenges better than most.  While Estonia has not been quite so fervent as its Baltic neighbor Latvia in wanting to tackle its dwindling population without immigration, the challenges involved in ensuring its burgeoning startups have access to the talent they need to grow is no less challenging.

According to the latest edition of the Startup Genome Global Startup Ecosystem report, around $540 billion in value was created by tech startups across 100 emerging ecosystems between 2018 and 2020.  The potential for startups to drive lasting change to an economy is clear, therefore, but doing so successfully is easier said than done.  One suspects that the ultimate success the country has will rest on its ability to develop and provide access to human capital.