Lebanon's Entrepreneurship Ecosystem

THE IDEA IN BRIEF

An ecosystem, not a programme.

The entrepreneurship ecosystem strategy for economic development is a paradigm proposed by Professor Daniel Isenberg of Babson College in 2011. According to Isenberg, it is a novel and cost-effective way to stimulate economic prosperity – one that replaces, or at least complements or is a precondition for, cluster strategies, innovation systems, knowledge-based economies and national competitiveness policies (Isenberg, 2011).

This article clarifies the concepts of entrepreneurship and ecosystem, their components and how they are related, and then examines their current state in Lebanon.

Objectives and methodology

The article sets out broad definitions of ecosystem and entrepreneurship, following the work of Professor Daniel Isenberg at Babson College and Bill Aulet at the MIT Sloan School of Management. It then discusses the six principles behind Isenberg's holistic entrepreneurship ecosystem strategy, their implications for policy-makers and nations, and finally the state of Lebanon's ecosystem.

The approach is qualitative, based on desk research: academic articles (mainly by Isenberg) and reports from the World Bank, the World Economic Forum, the Global Entrepreneurship Monitor and Arabnet.

Acronyms

BDL

Banque du Liban (the central bank of Lebanon)

EE

Entrepreneurship ecosystem

EES

Entrepreneurship ecosystem strategy

GEM

Global Entrepreneurship Monitor

IDE

Innovation-driven entrepreneurship / innovation-driven enterprise

MOET

Ministry of Economy and Trade

SME

Small and medium-sized enterprise

WEF

World Economic Forum

01 / WHAT IS AN ECOSYSTEM?

The key word is interdependence.

Merriam-Webster defines an ecosystem as "the complex of a community of organisms and its environment functioning as an ecological unit" – or, by extension, "something (such as a network of businesses) considered to resemble an ecological ecosystem especially because of its complex interdependent parts."

This raises a question: what role do business relationships play in such a system, and can the idea of an ecosystem be applied to today's businesses and entrepreneurial economies? To answer it, we first need to define business and entrepreneurship.

"Business" can refer to commercial activity, to the organization that carries it out, or to the dealings between parties. "Entrepreneurship" has even more meanings – risk-taking, innovation, business ownership, self-employment, seizing opportunities. So who is really an entrepreneur? The person who takes risks to build a business, or anyone who is self-employed?

02 / ENTREPRENEURSHIP

Aspiration is the dividing line.

The dictionary defines an entrepreneur as one "who organizes, manages, and assumes the risks of a business or enterprise." According to MIT Sloan's Bill Aulet, entrepreneurs must be willing to be different, to swim against the current and not accept the existing order of things; entrepreneurship is about working out who the customer is and how to turn that into a business – and having a great team matters even more (MIT Entrepreneurship Center, 2017).

Isenberg stresses that defining the ecosystem requires clarity about what entrepreneurship really is. In his view, the entrepreneur "is continually pursuing economic value through growth and as a result is always dissatisfied with the status quo." Entrepreneurship is aspirational and risk-taking, whereas self-employment as such is not: "aspiration, not business ownership per se, is the continental divide between the entrepreneur and the non-entrepreneur" (Isenberg, 2011).

2.1 Two forms of entrepreneurship

Aulet distinguishes two types of entrepreneurship: SME entrepreneurship and innovation-driven entrepreneurship (IDE). SMEs usually need little cash to start, become profitable quickly and then stabilize at a steady level of profit. IDEs need large investments over several funding rounds, so their cash flow is negative at first, but they can then grow exponentially – sometimes into large corporations – and they usually target global markets from the start.

Aulet and Murray (2013) illustrate the difference with two examples. The first is a local pizza restaurant specializing in organic ingredients, a carefully developed crust recipe and a commitment to the environment; for its owner, it was a chance to work again after three years without full-time employment – a classic SME. The second is Karen, a chemical engineering professor who, excited by her research results, filed patents on a new surface-chemistry technology and founded a company with a colleague and two graduate students to develop paper-thin solar sheets for a wide range of uses – an IDE. Both are entrepreneurs: each has identified a new opportunity and is pursuing it regardless of the resources currently available to them (Stevenson, 1983).

The difference matters. For entrepreneurs, it clarifies the path they will follow in building a firm. Governments, however, often blur it, treating both types the same even though their needs differ substantially. As Aulet and Murray put it, "from training programs and tax incentives to business accelerators and mentoring activities, entrepreneurial support programs must be designed differently for IDE-building entrepreneurs than for SME entrepreneurs."

2.2 Entrepreneurship and innovation

Modern entrepreneurship is often associated with a new idea, invention or innovation. But innovation is not simply having a new idea – ideas alone are worthless. Aulet expresses innovation as a simple equation:

Innovation = Invention × Commercialization

People often confuse innovation with invention. An invention is an idea or technology that does not, by itself, create value; innovation generates value for the world by making something faster, better or cheaper. Commercialization is the real driver of innovation (Aulet, 2013).

2.3 Types of innovation

From an entrepreneur's perspective, innovation can lie in a new technology, business model, process, positioning or any other new or better way of doing things. Innovations can also be categorized by their impact (Aulet & Murray, 2013):

• Disruptive: a new player brings a new, often revolutionary, technology to the market.
• Incremental: an existing technology or product is brought to market in a way that offers 10–20% better value.
• Lateral (general): an existing product or technology is taken unchanged into a different industry.

Business-model innovation is among the most powerful, because it creates enormous value for businesses and customers. Google transformed advertising by taking the idea of paid search from Overture (founded by Bill Gross) and commercializing it as AdWords – charging for ads tied to search words rather than for space on a page. Apple's iTunes did something similar: while others charged subscriptions, iTunes charged $0.99 per song, which the customer could keep (Aulet, 2013).

Entrepreneurs and governments must pay attention to which type of enterprise and which type of innovation they are dealing with. For entrepreneurs, each type requires a different approach, from finding the right customer to overall strategy. For governments, support and tax policies should be tailored to each type and designed to strengthen entrepreneurs' ability to create every kind of innovation.

03 / THE ENTREPRENEURSHIP ECOSYSTEM STRATEGY (ISENBERG, 2011)

Six domains, six principles.

Over the past decade, business and academia have increasingly viewed entrepreneurship as a whole system that fosters economic growth and supports innovation and a knowledge-based economy.

The first definition of an entrepreneurship ecosystem came from Spilling (1996), who linked the idea of an ecosystem to a region's business environment, describing it as "the complexity and diversity of actors, roles and environmental factors that interact to determine the entrepreneurial performance of a region or locality," consisting of "all economic actors and environmental factors existing in a geographical area." Cohen (2006) and Blessing, Mekemson and Pistrui (2008) developed the idea further. Finally, in his influential paper "The Entrepreneurship Ecosystem Strategy as a New Paradigm for Economic Policy," Isenberg (2011) built a comprehensive framework with six domains: policy, markets, support, finance, culture and human capital.

The model includes thirteen elements – leadership, government, culture, success stories, human capital, financial capital, entrepreneurship organizations, education, infrastructure, economic clusters, networks, support services and early customers – each of which falls within one of the six domains.

Isenberg's paper focuses on common policy mistakes the ecosystem approach aims to correct:

1. giving entrepreneurship too low a public priority;
2. lack of clarity in entrepreneurship-related policy objectives;
3. unintentionally weakening aspirational entrepreneurship;
4. unintentionally driving away providers of finance for entrepreneurs; and
5. fragmented programmes – in education, for example – that waste resources, invite corruption and contribute to brain drain.

To address them, Isenberg sets out six principles for policy-makers.

Principle 1: Distinguish between self-employment, SMEs and entrepreneurship – and focus on entrepreneurship

The word "entrepreneur" should not be stretched beyond its meaning: an entrepreneur continually seeks economic value through growth and is always dissatisfied with the status quo.

• Governments should treat entrepreneurship differently from self-employment and, arguably, from SMEs. Defining entrepreneurship as business ownership makes little sense. Isenberg suggests that self-employment and entrepreneurship might even belong to different ministries – labour for the former, economy for the latter. Entrepreneurs themselves dislike being grouped with SMEs, because it ignores the aspiration at the heart of entrepreneurship.
• Entrepreneurs should have equal opportunity, but entrepreneurship is not equal in its impact. Political pressure often pushes policy-makers to do the opposite of what is needed. The ecosystem should direct resources to deserving ventures and deny them to undeserving ones. Instead, policy-makers often focus on one quadrant and neglect another that is just as necessary, or give resources to the undeserving on the grounds that high-potential founders are elites who "don't need help" and that public goods must be shared equally.
• Ironically, sector-based approaches can work against entrepreneurship: concentrating on specific sectors dulls the entrepreneurial spirit and depletes this precious resource.

Principle 2: Give entrepreneurship an extremely high public priority

Why does entrepreneurship matter so much? Because successful entrepreneurship creates broad benefits that economists call spillovers. Successful entrepreneurs often become "addicted," starting new ventures or becoming angel investors and later venture capitalists. Entrepreneurship also nourishes the whole ecosystem: training and experience upgrade human capital; success stories inspire young people and make society more accepting of risk and failure (culture); successful entrepreneurs take on public leadership roles (policy); and successful companies become venture-friendly customers for start-ups (markets). There are further spillovers in quality of life, social innovation and philanthropy.

Policy implications: public funding should act as a stimulus to create a self-sustaining ecosystem. Isenberg suggests, for example, that municipalities devote 0.5–1% of their operating budgets to entrepreneurship development, and that public leaders communicate entrepreneurship as a high social priority.

Principle 3: Intervene holistically, with a whole-ecosystem perspective

A holistic model is essential for a self-sustaining ecosystem. Every ecosystem is unique and its elements interact in complex ways, so policy-makers must address all six domains: conducive policy, markets, capital, human skills, culture and support.

• Each nation must cultivate its own ecosystem. You cannot become Silicon Valley, and you should not try to copy it. Ecosystems grow over time through effort, resources, experimentation and learning until a unique system emerges.
• Governments should not intervene without a holistic approach; there is no single "silver bullet" policy. If policy-makers invest in education without supporting the other domains, for example, graduates will simply move to more supportive environments.

Principle 4: Set a target of one high-potential venture per 50,000–150,000 people each year

Isenberg's rule of thumb is that if a reasonably compact and populous region generates one high-potential venture a year for every 50,000–150,000 inhabitants, it reaches a tipping point. A smaller population, such as Ireland's (4.8 million), may need one per 50,000; a larger one, such as Argentina's (44 million), may succeed with one per 150,000.

• A thousand one-person micro-businesses do not naturally turn into ten high-growth ventures employing 100 people each. But the process of building ten high-growth ventures spins off many other businesses, such as smaller suppliers. Policy-makers should therefore aim for about one high-potential venture per 100,000 residents.
• The target should be measurable, well-defined and ambitious – and because many ventures will fail along the way, the environment must not penalize failure.

Principle 5: Focus on very specific, concentrated locations

According to Isenberg, the world's highest concentration of entrepreneurs is not in Silicon Valley, Tel Aviv or Cambridge, England, but in Cambridge, Massachusetts – on eight floors of one building, the Cambridge Innovation Center, a for-profit, non-incubator workspace that once housed some 350 start-ups in Kendall Square. By 2018, more than 5,000 companies had worked from CIC across its locations since it opened (CIC, 2018). Why? Because resources tend to concentrate locally and attract one another: human capital, information and markets gravitate together, their effects are strongest when they are close, and the spillovers are stronger too.

Policy implications: policy-makers and researchers usually treat the nation as the unit of analysis and believe, for political reasons, that resources should be spread evenly. Concentrating public resources in one area creates tension, but resolving it by doing the opposite is self-defeating, as Canada and others have found. A self-sustaining ecosystem needs proximity, so that its domains can evolve together and reinforce one another. This is different from innovation centres and incubators, which cannot work unless entrepreneurship already exists. Governments should "pave the footpaths" that entrepreneurs have already worn through the grass – by which time there is usually enough opportunity for the private sector, rather than the government, to drive the geography. Israel's ecosystem is an excellent example.

Principle 6: Create an organization with an expiry date to drive the ecosystem

Someone must be responsible for helping the ecosystem evolve – and then exit. Governments have the mandate to intervene holistically but not the competence; the private sector (not one entity but a "potpourri" of different players) may have the competence but lacks the mandate, perspective or motivation, since its activities aim mainly at profit.

Policy implications: a new organization should be created with the mandate, competence and motivation to strengthen the ecosystem until it reaches a self-sustaining tipping point. It should be owned not by government, a university, an incubator or a support organization, but by representatives of all of them. It should be temporary, with a "sell-by date" of no more than five years, and run by a small "SWAT team" empowered and resourced to succeed (Isenberg, 2011).

04 / LEBANON UNDER THE SCOPE

Six domains, one country.

This section examines the six domains of Lebanon's entrepreneurship ecosystem, based on secondary sources, mainly the WEF, GEM, the World Bank, BDL, Arabnet and government publications.

4.1 Policy

As discussed, policy-makers' first task is to distinguish self-employment and SMEs from entrepreneurship – and especially SMEs from IDEs – and to focus on the latter. Lebanon's national SME strategy, published by the Ministry of Economy and Trade (MOET, 2014), makes no such distinction. It classifies firms only by size, using turnover and number of employees and benchmarking EU and US definitions, into micro, small and medium enterprises. This matters because it is IDEs that drive exponential growth and international expansion.

The most important policy intervention has come not from government but from the central bank. In August 2013, BDL's Intermediate Circular 331 (Banque du Liban, 2013) allowed commercial banks to invest up to 3% of their capital in start-ups, incubators, accelerators and venture-capital funds, with the central bank guaranteeing up to 75% of each investment (Wamda, 2013). It released several hundred million dollars into the ecosystem and triggered the creation of new venture funds. Other support comes from Kafalat, which guarantees bank loans to SMEs. However, government policy remains fragmented across ministries and agencies, bureaucracy is heavy – Lebanon ranked 142nd of 190 economies in the World Bank's Doing Business 2019 report (World Bank, 2019) – and political instability limits long-term planning.

4.2 Finance

Thanks largely to Circular 331, Lebanon built one of the most active early-stage funding scenes in the Arab world in the 2010s, with local venture funds, angel networks and accelerator programmes. The gap is at later stages: start-ups that need larger growth rounds often have to raise money in the Gulf, Europe or the US – or relocate.

4.3 Culture

Lebanon has a deep commercial and trading tradition and a culture that admires business success. A large, successful diaspora provides role models, networks and capital, and local success stories – such as the music-streaming platform Anghami, founded in Beirut in 2012 – inspire young founders. Fear of failure, family pressure towards "safe" careers and a preference for traditional business remain barriers, and corruption undermines trust in institutions.

4.4 Support

Support organizations have multiplied: incubators and accelerators such as Berytech, Flat6Labs Beirut and the UK Lebanon Tech Hub; the Beirut Digital District, a cluster of tech companies and start-ups; co-working spaces; competitions; and NGOs such as IDEAS Lebanon. Weaker points are reliable infrastructure – electricity and internet speed and cost – and specialized professional services for scaling companies.

4.5 Human capital

Lebanon's greatest strength is its people: a highly educated, multilingual workforce and strong universities. Its greatest weakness is brain drain: many of the best graduates leave for the Gulf, Europe and North America because the local economy cannot absorb them – exactly the risk Isenberg describes when education is not matched by the rest of the ecosystem.

4.6 Markets

The domestic market is small – about six to seven million residents, including refugees – so Lebanese IDEs must think regionally or globally from day one. Proximity to the Gulf and cultural and linguistic ties across the Arab world are advantages, but early corporate and government customers willing to buy from start-ups remain scarce.

4.7 Applying Isenberg's target to Lebanon

With a population of roughly six million (about 5.98 million in 2018, according to the World Bank), Isenberg's rule of thumb implies that Lebanon would need between about 40 (one per 150,000) and 120 (one per 50,000) new high-potential ventures every year to reach a tipping point. Applying the rule to the more compact Greater Beirut area, home to more than two million people, suggests a target of roughly 13–40 high-potential ventures a year in the capital alone – a demanding but measurable goal against which policy could be judged.

05 / RECOMMENDATIONS

Six moves for Lebanon.

1. Define and target IDEs. Lebanon's SME strategy should distinguish innovation-driven ventures from SMEs and self-employment, with separate support programmes, metrics and responsible bodies.
2. Set a national target. Adopt an explicit goal for new high-potential ventures per year, based on Isenberg's rule, and report progress publicly.
3. Concentrate, don't scatter. Build on existing clusters such as the Beirut Digital District rather than spreading limited resources thinly across every region.
4. Fix the scale-up gap. Encourage later-stage funds and regional co-investment so that successful start-ups can grow without leaving.
5. Turn the diaspora into infrastructure. Formalize mentoring, investment and market-access networks with Lebanese entrepreneurs abroad.
6. Create a temporary ecosystem catalyst. Following Isenberg's sixth principle, establish an independent, time-limited body owned jointly by government, universities, investors and support organizations, with a clear mandate and a five-year sunset.

06 / CONCLUSION

Get the definitions right first.

An entrepreneurship ecosystem is not a programme but a living system of interdependent parts – policy, finance, culture, support, human capital and markets. Isenberg's framework shows that what matters is not the number of small businesses a country creates, but whether it consistently produces ambitious, high-growth ventures in concentrated locations with every domain of the ecosystem pulling in the same direction. Lebanon has many of the ingredients – talent, a trading culture, a global diaspora and an early-stage funding base – but lacks the policy clarity, stability and scale-up capacity to turn them into a self-sustaining system. Getting the definitions right, and focusing on innovation-driven entrepreneurship, is the first step.

Postscript (2026)

This article was written in late 2019, just as Lebanon entered a deep financial and economic crisis. The banking collapse froze much of the funding created under Circular 331, and many founders and skilled professionals left the country. The framework above remains a useful lens for rebuilding the ecosystem – and the crisis has made the need for policy clarity, regional markets and diaspora networks even more urgent.

STUDY DESIGN / WORKING DECKS 2019–2020

How the full study was set up.

The article above was the published output. Alongside it, the study was planned as a full diagnosis of Lebanon's ecosystem. Its design is summarized here; the diagnosis, benchmarking results and action plan were not completed.

Objectives

1. Establish a clear, accurate diagnosis of the current state of each of the six pillars of Lebanon's entrepreneurship ecosystem.
2. Define the problem within each pillar and trace the root cause of each problem.
3. Propose solutions through an action plan and recommendations over three time frames: immediate, medium and long term.

Research approach

• The approach is exploratory and causal: the exploratory part examines the ecosystem's elements, while the causal part looks for cause-and-effect relationships between pillars and between problems and their effects.
• Data are collected through desk research, using secondary sources, covering the last decade.
• Reliability and validity are supported by the published frameworks and samples of the primary sources.

Work plan

DEFINE

Set objectives; explain the methodology; choose strategic groups for benchmarking; specify metrics, techniques and the time frame.

MEASURE AND ANALYZE

Plot measurements over time; compare the scores of the strategic groups descriptively; trace the root cause of each high, medium and low score.

IMPROVE

Propose an action for each low score, by time frame; link the productive sectors of the economy to the ecosystem.

Benchmarking

Countries with economic profiles comparable to Lebanon's, grouped by their position on the Global Innovation Index, were chosen to answer three questions: how did they develop their ecosystems over the last decade, how did they deal with their economic problems, and how did they overcome the constraints on becoming knowledge-based economies?

ADVANCED INNOVATORS

Israel, South Korea, Ireland

EMERGING INNOVATORS

United Arab Emirates, Saudi Arabia

DECLINING OR WEAK

Lebanon, Egypt

Diagnosis metrics

Each indicator is assigned to one of Isenberg's six pillars, compared with radar (spider) charts, and traced to root causes with fishbone (cause-and-effect) diagrams.

1. World Bank, Ease of Doing Business: overall rank plus ten sub-indices, from starting a business to resolving insolvency.
2. Global Innovation Index: innovation input and output sub-indices.
3. Global Entrepreneurship Monitor: social, cultural, political and economic context; social values towards entrepreneurship; individual attributes; entrepreneurial activity.
4. WEF Global Competitiveness Report.
5. Technology indicators: ITU facts and figures, and the GCI technology-adoption pillar.
6. Patent statistics (WIPO).
7. Corruption: Transparency International's Corruption Perceptions Index.
8. Lebanon Economic Vision: the McKinsey report for the Ministry of Economy and Trade (2018).
9. Economic indicators: GDP, inflation and unemployment.
10. Real-time updates: news coverage of Lebanon's economic and political crisis (2019).

Proposed next phase

Because the available secondary data were outdated and the problem was not yet clearly defined, the study proposed a mixed-methods second stage: Phase 1 (qualitative), desk research and interviews with entrepreneurs and experts such as economists to identify the key variables; Phase 2 (quantitative), a survey to measure them. Its objectives were to understand the economic crisis from experts and entrepreneurs, determine how it was affecting businesses and especially tech start-ups, identify other challenges facing the sector, and evaluate the sector across the six pillars.

REFERENCES

Sources.

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