5.6 – Importance and Growth of Digital Entrepreneurship

What is digital entrepreneurship?

Defining digital entrepreneurship – like defining entrepreneurship – is not an easy task and many definitions are used in practice. Several attempts were made to define digital entrepreneurship in 2015 as part of the European Commission’s suite of policy initiatives to harness the potential of the digital economy:

European Commission, 2015

Digital entrepreneurship embraces all new ventures and the transformation of existing businesses that drive economic and/or social value by creating and using novel digital technologies. Digital enterprises are characterised by a high intensity of utilisation of novel digital technologies (particularly social, big data, mobile and cloud solutions) to improve business operations, invent new business models, sharpen business intelligence, and engage with customers and stakeholders. They create the jobs and growth opportunities of the future

A second concept was put forth in the European Commission’s Digital Entrepreneurship Scoreboard in 2016. This definition considers digital entrepreneurship to include the digitalisation of entrepreneurs and SMEs (i.e., the adoption of cloud computing, mobile technologies, social media, and big data by entrepreneurs and SMEs, as well as the share of firms’ revenue deriving from e-commerce), as well as start-ups in ICT.

What are the potential benefits of digital entrepreneurship?

Digitalisation can drive innovation, creating new opportunities for entrepreneurs

Digital technologies are radically altering the ways that research and innovation are undertaken. The digital transformation has improved access to scientific publications and information through new tools and platforms, enhanced access to research data, and strengthen engagement with a wider range of stakeholders. These can be illustrated by four key trends.

  • First, data is becoming a key input for innovation because it provides insights into market trends, allows for the optimisation of production and distribution processes, and facilitates the adjustment of products and services to market demand.
  • Second, data enables services innovation since new services are (and will be) required, e.g., the Internet of Things has enabled predictive maintenance services.
  • Third, digital innovations such as 3D printing increase the speed of innovation cycles since product design, prototypes, and testing can all be accelerated.
  • Finally, innovation is increasingly collaborative, which helps share the costs and reduces the risks of digital innovation.

The self-employed can boost their productivity and access more opportunities

Digital transformation offers many opportunities for firms, including the self-employed, but only about 2% are taking full advantage of the digital economy (European Commission, 2014[14]) and there is a large gap in adoption rates of digital tools between small and large firms. The benefits broadly fall into two categories: creating opportunities to access new markets (i.e., customers in other regions or countries, new products, and services) and boosting productivity by reducing business operating costs.

Expected benefits of digital entrepreneurship for entrepreneurs and the self-employed

  • Improved access to market research, business data and networks
  • Wider reach and lower cost of client-facing operational functions, e.g., advertising, communications, and distribution
  • Lower cost of internal operational functions; e-creation of value
  • Improved customer relations through social media
  • Improved access to existing sales channels
  • Creation of new sales channels
  • New platform development, existing platform transformation
  • Greater ability to locate, contact and develop reputation with investors
  • Creation of economies of scale

This combination of new opportunities and reduced costs potentially opens-up entrepreneurship to more people. The lower costs of starting and running a business make it more feasible for those with lower levels of savings and capital to pursue digital entrepreneurship. This includes, for example, the potential to operate a digital business without a physical location and relatively little equipment. However, these lower barriers to entry would be expected to lead to more entrants, increasing competition. This is an important consideration for inclusive entrepreneurship policy because increased competition will likely hurt business survival rates. It is therefore unwise for policymakers to direct public resources towards supporting entrepreneurs with little chance of success in highly competitive industries that may already be characterised by an oversupply of goods and/or services.

Watch Richard Heaslip discuss how technology is changing the way we do business and the business environment in a highly digital economy.