• Traditional economic development focused on large employers and established industrialists was rational for an economy of expensive experimentation.

• As “bits over atoms” made experimentation cheaper and consolidation rose, regions now need more churn — in the good sense, of more new firms trying more things faster.

• Entrepreneurship did always matter but its importance is rising, so local leaders who want their regions to thrive must increase its prioritization.

When a contestant on reality TV says they’re an “entrepreneur,” the mock translation is: they’re unemployed. 

It’s something Rae’Mah Henderson, herself an avid entrepreneurship booster, jokes about with friends. “If you don’t have no PitchBook page,” they say, “you ain’t got no job.”

“If you have an idea to make things better, you have a responsibility to give it a try.”

Victor Hwang, right to Start

Henderson, newly a staffer at Innovate Alabama and a Builders Live co-host of mine, is keenly aware of the sidekick status entrepreneurship takes in American culture. For all the celebrity CEOs and parasocial relationships with the rich and famous, in our everyday lives, business creation is often associated with make-believe startup culture. 

Perhaps not for much longer: A whole generation of community organizers have taken up the cause of making entrepreneurship a more recognizable and prioritized part of state and local planning. This has driven the rise of “entrepreneur ecosystem building” as an identity. 

I’m one of them. In my telling, entrepreneurship matters for three big reasons: bringing ideas to market, creating new jobs and sparking others to follow, all of which comes with the reward of wealth creation.

If this is so clear and increasingly academically backed, why wasn’t entrepreneurship already the center of economic development? And what does that answer tell us about our future?

Regions with more startups have more chances to prosper

Dell Gines, formerly of the Kansas City Federal Reserve Bank and a Technical.ly Builders Conference speaker last year, described “four waves” of economic development. He recently outlined these again with ecosystem podcaster Anika Horn:

  • In the 1930s, industrial recruitment formed the field
  • In the 1980s, small business development started
  • In the 1990s, “cluster-based” strategies advanced
  • It wasn’t until the 2010s that “entrepreneurial ecosystems” took root

Now at the International Economic Development Council (IEDC), the field’s primary trade group, Gines is part of a cohort of leaders pushing the ecosystem line, which has its skeptics. Pro-entrepreneurship isn’t necessarily pro-business, after all. 

“Those waves match the way economies functioned at the time,” said Victor Hwang, another Builders Live co-host and chief at pro-entrepreneurship advocacy group Right to Start. And now, he said, entrepreneurship is at the center again because “people are the new companies.”

To be fair to economic development, its traditional model evolved for entirely sensible reasons. When an economy is dominated by physical products — manufacturing equipment, offices full of filing cabinets and reams of paper — experimentation is relatively costly. Big firms with more excess capital can more easily test a new manufacturing line (“scaling known production,” in the jargon). Transportation costs were higher and distribution was slower. With site selection more predictable, linear growth developed an industry of conservative bean counters to guide big industry.

All this has been changing for decades. The rise of bits over atoms in our economy — where even manufacturers now rely on software and advanced analytics to make their businesses work — means a higher share of economic activity is cheaper to experiment with. 

That has elevated the importance of churn. A region with more, faster-moving experiments has more chances to house the breakthroughs. As industry continues to consolidate in the United States, entrepreneurship becomes a necessary counterweight. A region’s growth, resilience and even political stability now depend on running more of these experiments, reallocating faster and seeding more new entrants.

Traditional economic development organizations that still spend vast sums on flashy consultants to reinterpret data and identify particular NAICS codes to target in business attraction campaigns are living in the past.

Over the last few decades, researchers have documented a decline in US “business dynamism,” using indicators like new firm formation, job creation and destruction, and worker flows. Productivity growth depends in part on resources moving from less productive firms to more productive firms. Here then, local trade and industry associations that specialize in winning special preferences for existing businesses, not sparking new entrants, often weaken the local economies they claim to build up.

Economic development was founded to grow existing industry, but the economy now runs on new sparks

Job creation is a classic way traditional economic developers can’t get out of their own way. The 50,000 jobs promised by Amazon HQ2 was a holy grail. But that was the last gasp of a dying strategy. 

New firms are disproportionately important to job creation relative to their size. Summaries from global policy forum OECD put it plainly: On average across nations, young firms provide a minority of employment, but create a large share of new jobs.

Entrepreneurship was long a store of wealth, especially for marginalized groups, reminds investor Brian Brackeen, general partner at Lightship and our third Builders Live co-host. Black Americans’ shortage of wealth is often attributed primarily to being locked out of both the housing market and small business ownership.

That abhorrent fact is made worse by the economic reality that all of us are made poorer when fewer of our residents get their chance at starting their own company.

“If you have an idea to make things better, you have a responsibility to give it a try,” said Hwang, of Right to Start. “And as a society, we have a responsibility to make sure it is a fair fight.” 

Entrepreneurship always mattered, and part of today’s story is simply higher visibility thanks to decades of economics research.

But the more important shift is structural: the opportunity to attract and retain big firms has declined as a broadly shared growth strategy, just as the payoff to sparking more new firm creation has grown. The economy rewards faster experimentation, more churn, and more reallocation — and in a more concentrated economy, new entrants aren’t just nice-to-have, they’re the counterweight that keeps markets contestable.

Or, to put it back in Rae’Mah’s reality-TV voice: the “entrepreneur” job title has become both more common and more confusing. Which is exactly why we need to get more precise — not just about who “counts” as an entrepreneur, but about what kind of economy we’re actually building, and for whom.“Many people also feel like the American Dream is like the original MLM,” said Henderson, evoking another staple of reality TV. “Somebody has to do something about that.”