How to enable entrepreneurial firms to grow in your city?

An entrepreneurial ecosystem approach to location decision-making for entrepreneurial firms 

Master thesis research by Gijs Kersten

In July 2016 Gijs Kersten graduated from the Tilburg School of Economics and Management at Tilburg University. He followed the master Strategic Management and wrote his master thesis in the area of entrepreneurial ecosystems.

In order to facilitate the growth of employment regional policymakers are keen to identify supportive conditions. In the past, policies devised to encourage employment growth have tended to focus on supporting entrepreneurial activities in general. Consequently, research also dealt mainly with this rather general form of entrepreneurial activities. However, this led to findings that indicated that most of the employment growth was actually the product of a few rapidly growing firms. This suggests that a change in governmental policies is required to facilitate these different “high-growth potential” types of ventures.

Recently research has indicated that different policies lead to different types of entrepreneurship, in particular, the formation of entrepreneurial ecosystems is beneficial to a more growth-oriented type of venture. In addition, it is suggested that firms will be less likely to move once they have become embedded in the regional ecosystem. Being able to create a system that facilitates the growth of entrepreneurial firms may also increase their regional embeddedness by optimizing the ecosystem to different stages in a firm’s growth.

The purpose of this thesis is to identify how growth-oriented, entrepreneurial firms can be facilitated, and ultimately, retained in Tilburg. A small group of fast-growing firms accounts for a large share of new jobs created, enabling these companies to grow will likely embed them regionally, and may even lead to additional entrepreneurial activities.

Studies suggest, that the different types of entrepreneurship require a conducive environment, one that consists of a wide array of factors that enable their growth. Each environment has to be shaped to local conditions and cannot simply be copied. Firms are more likely to remain in a certain environment if their development is empowered, therefore, this thesis set out to investigate what external factors influence the location decisions of entrepreneurial firms on their way to maturity. A distinction between companies in the start-up, initial survival, and early growth phase has been made to gain a deeper understanding of the changing needs and challenges of these firms as they grow. To address these needs the adequate environmental conditions are required.

In order to gain an understanding of the effect of current policies in place in Tilburg, a series of in-depth interviews with employees of the municipality of Tilburg and entrepreneurs have been conducted. For each of the identified categories of growth, entrepreneurs voiced their experiences with the existing ecosystem and their view of the role of the municipality therein.

While this thesis does not present an answer to what type of entrepreneurial ecosystem is required in Tilburg, it does identify the factors that may determine the location decision-making of entrepreneurial firms. This thesis found that as a firm grows its sunk costs increase, and consequently, companies will become increasingly embedded in the entrepreneurial ecosystem. As a result of that they will be less likely to leave the city or region. Access to human capital is the primary factor for location decision-making, as a firm increases its human resources, it consequently increasing the sunk costs associated with relocation behaviour.

In addition, this thesis found that the entrepreneurial ecosystem in Tilburg does not specifically focus on embedding fast growing firms in the early phases of their development, and hence, it remains likely that these entrepreneurial firms may relocate, before they grow sufficiently to begin to weigh sunk costs into their considerations. Policymakers should try to engage these companies in the system through relational support and network possibilities, in order to increase their beneficial experience of, and contribution to, the local entrepreneurial ecosystem.