What makes some nations more entrepreneurial than others?
Our recent study, published in the Strategic Entrepreneurship Journal, explores how the strength of cultural norms—whether they are strict (“tight”) or flexible (“loose”) —shapes entrepreneurial ecosystems. We collected data from multiple sources, including national business registries, statistical bureaus, the Kauffman Foundation, and the Global Entrepreneurship Development Institute, to examine how cultural norms, individual and institutional determinants, and economic factors influence new firm formation rates across 156 nations and 50 U.S. states over 26 years.
Findings reveal that a culture’s “tightness” or “looseness” plays a powerful role, explaining 56% of the variation in new firm formation rates globally and 71% across U.S. states. In culturally “looser” nations and states, where norms are more flexible and individual discretion is encouraged, there is significantly higher new firm formation, early startup survival, and innovation. On the other hand, “tight” nations and states, which rigidly enforce norms, tend to see less innovation and lower entrepreneurial activity.
Findings from this study go beyond individual motivations, showing that looser cultures don’t just encourage people to start businesses—they create an environment where these businesses can thrive. People in looser cultures are not only more likely to take risks and embrace new ideas, but also are more likely to be met with social support for these ideas. In contrast, the emphasis on conformity in tight cultures can stifle new ideas and entrepreneurial ambitions and reduce the legitimacy of such endeavors. However, tight cultures can still foster entrepreneurship when they offer supportive spaces for entrepreneurs, such as accelerators and incubators that encourage experimentation and lend legitimacy and resources to new ventures.
A surprising insight challenges conventional wisdom: while looseness in cultural norms is often linked with social disorder, our study finds it actually fosters conditions ideal for entrepreneurship. Rather than assuming strict rule enforcement is essential for economic progress, these findings suggest that greater social flexibility can encourage creative, out-of-the-box thinking and new business creation.
The implications of these insights are significant for both entrepreneurs and policymakers. Entrepreneurs in tight cultures may find it challenging to gain social legitimacy, yet by leveraging supportive spaces like incubators and accelerators, they can still thrive. For policymakers, encouraging entrepreneurship in tight cultures may require easing restrictive norms or strengthening institutional support for risk-takers and innovators. Financial incentives and policies promoting early-stage entrepreneurship can create a more open environment for business creation. In looser cultures, the goal should be to balance flexibility with regulatory protections that prevent excessive risk while supporting startup activity.
This research sheds new light on the impact of culture on startup ecosystems. While looser cultures offer fertile ground for entrepreneurship and innovation, tight cultures hold entrepreneurial potential that can be unlocked with strategic support. These insights provide valuable guidance for entrepreneurs and policymakers aiming to cultivate thriving startup ecosystems in varied cultural contexts.