Ethiopia is one of the countries with a large potential for renewable energy. Due to its proximity to the equator, the annual average irradiance is projected to be around 5.2 kilowatt-hours per square meter per day (kWh/m²/day). Furthermore, groundwater irrigation has enormous potential. Studies reveal that the country possesses 11 million hectares of irrigable land. Groundwater can be used to irrigate around 48% of this land area. However, about 80% of its rural population has relied on rain-fed economic activity for years. The status quo of rain-fed farming could be changed by promoting rural entrepreneurship. This, in turn, could be accomplished through a variety of approaches. For example, a living lab approach, which is regarded as one of the most innovative approaches for solving large-scale societal problems, could be appropriate. For this reason, the living lab approach was implemented in one of the rural villages of Ethiopia. Precisely, solar energy was generated in order to pump groundwater for farming purposes. After receiving entrepreneurial training, smallholders were stimulated to produce income-generating crops. The objective of this study was to assess the effect of the living lab on smallholders. As a result, the economic activity of smallholders facilitated by a living lab, established by the Bahr Dar Institute of Technology (BiT) in collaboration with the Technical University of Munich, was considered. To achieve the study objective, both primary and secondary data were collected employing different data collection methods. After analyzing the data, the study finds that (i) during the project’s initial trial, all smaller holders earned an average net profit of Birr 2,612, and (ii) the best smallholder among project users enjoyed a net profit of Birr 15,250. From this, we conclude that a large-scale activity on utilizing solar energy for irrigation purposes could promote rural entrepreneurship in Ethiopia, which is a different way of doing farming. As a result, more research is needed to investigate how the Living Lab is scaled up on a larger scale, as well as the challenges of implementing the Living Lab in rural areas of the country.