What’s the best way to assess quality entrepreneurship?

Not all entrepreneurship is good entrepreneurship, but how do you measure, evaluate, assess a new enterprise? How do you identify which are destined for success—and which are headed for failure? Catherine Fazio, SF ’14, Managing Director of the MIT Lab for Innovation Science and Policy is working to get real answers to those questions.

Part of the Institute-wide MIT Innovation Initiative (MITii), Fazio’s lab convenes faculty and students from across campus to study innovation systematically and identify factors that create effective outcomes. “We’ve made terrific progress on developing new metrics for entrepreneurial quality and innovation ecosystems,” says Fazio. “Now the challenge is to turn our evidence-based research into effective policies and programs.”

Fazio, MIT Sloan doctoral student Jorge Guzman, and MIT Sloan professors Scott Stern and Fiona Murray put their collective insights into a 2016 policy briefing, A New View of the Skew: A Quantitative Assessment of the Quality of American Entrepreneurship. The idea is to help regional and national government agencies improve their performance in stimulating economic growth.

Fazio notes that the two most common methods for measuring entrepreneurship have polarized public policy debates in recent years. “One approach, which tracks the sheer quantity of new businesses, shows a three-decade decline in U.S. startup dynamism. The other method uses performance outcome post-mortems that end up conflating startup potential at founding with other factors that contribute to later success, such as regional ecosystems, the supply of capital, and luck. Some analysts look at that data and say we have too much entrepreneurship.”

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Smart phones are outwitting poverty

Alexander Graham Bell would be astonished at the power of today’s smart phones. Yes, the app that makes it possible to find a Starbucks along an unfamiliar highway can feel like a miracle, but the true revolutionary power of the telephone is felt most in developing countries. In Kenya, for example, the mobile phone has, to some extent, stabilized the economy for many citizens and transformed quality of life.

Nearly all Kenyan households own at least one mobile phone—not state-of-the-art smart phones, but phones “smart” enough to accommodate at least one M-Pesa account. Available to any customer of Safaricom, Kenya’s mobile network leader, M-Pesa is a money transfer service that allows a daughter at one corner of the country to send money safely and securely to her mother in a village seven hours away. Previously, she would have entrusted an envelope of cash to a bus driver heading to her mother’s village (at considerable risk) or relied on a money transfer that took days—and a daunting amount of red tape—to process.

Of course, to withdraw funds through an M-Pesa account you must have access to an agent who can disperse the cash. Happily, in response to the popularity of M-Pesa, the network across Kenya has mushroomed to 150,000 agents. Working with Innovations for Poverty Action, Associate Professor of Applied Economics Tavneet Suri, a native Kenyan, and her colleague William Jack have been tracking incomes in regions where new agents have opened for business. They compared the financial health of those regions with that of regions where agents are not as accessible.

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