This study analyses Estonian entrepreneurial environment and performance of Estonian businesses. It aims at identifying reasons for low productivity of the entrepreneurial sector and proposes recommendations for policy changes that would lead to increased performance and international competitiveness of Estonian companies. Although Estonia has a well-developed business environment, it has not led to emergence of high-growth international companies. The paper suggests that Estonian entrepreneurs have insufficient entrepreneurial skills, expressed in low level of opportunity recognition and inexperience in managing international businesses. Government's entrepreneurship policy does not focus on supporting development of Estonian established industries. The study compares performance of the Estonian business sector to Nordic and CEE countries and benchmarks Estonian entrepreneurship policy against global best practices. Prior research is studied in order to identify drivers of entrepreneurial performance. Additional insight into challenges and opportunities for Estonian businesses is provided in conclusions from interviews with Estonian entrepreneurs and entrepreneurship experts. Finally, changes to the current entrepreneurship policy are proposed. The study concludes that Estonian government should focus on supporting companies in established industries. Development towards higher value-adding activities represents the best opportunity of achieving a rapid increase in productivity.