Scale up - to drive economic growth by catalyzing entrepreneurship ecosystems
 

By Professor Daniel Isenberg

The conviction that entrepreneurship creates jobs and produces economic growth has become deeply entrenched in our economic development strategies and drives significant policy and program activity.  To a great extent, those policies and programs are designed to facilitate and foster venture creation and early venture growth, increasingly in the context of an entrepreneurship ecosystem.  Evidence of this activity is seen in the bourgeoning number of Start-up encouragement programs world-wide (e.g., the Start-up America partnership; Start-up Chile) - all based on the foundational tenet that "entrepreneurship" is exclusively embodied in new companies  and entails financial risk and innovation, and that therefore entrepreneurship-based growth requires creation of new firms, especially those in innovation-centered sectors such as ICT.     

In spite of this increasingly-held belief and the substantial public and private investment in a plethora of new venture programs, there is scant hard evidence that supports the connection between start-ups and economic growth.  In fact, some evidence points in the opposite direction: startup activity is often negatively correlated with firm survival and regional competitiveness.  In short, while starting up new, innovative companies has significant appeal, if one wants to drive economic growth efficiently and effectively an essential part of the policy mix should focus on rapidly scaling up businesses of all ages and sectors, a meaningful number of which (our rule of thumb is 10-20%) can be stimulated to new growth.

In 2010, I created the Babson Entrepreneurship Ecosystem Project (BEEP) to develop methods for creating entrepreneurship ecosystems as a tool for regional economic development.  Using intervention and action rather than mapping and research, BEEP launches and manages regional projects that focus on enabling locally based companies to grow rapidly and on fostering an aligned ecosystem to systemize, sustain and scale that growth.

The core concepts of BEEP include the following:

  • Entrepreneurship: Rather than focusing on firm age or sector, BEEP focuses on the common denominator of creating significant economic value for customers.
  • Scale up: Consistent and sustainable growth (e.g., 20 percent revenue growth per year) for firms that already have significant market acceptance (i.e. revenues).
  • Entrepreneurship ecosystem: In contrast to conventional conceptions of the term, which focus on incubators, angel investor networks and other institutions designed to foster startups, BEEP adopts a usage based on the original biology metaphor:  ecosystem as the holistic interaction of all elements required to sustain a system that promotes increasing numbers of companies growing at an increasingly faster pace.  Exhibit 1 shows the six core "domains" of the entrepreneurship ecosystem.
  • Stakeholders: Each domain of the ecosystem is populated with actors who have a real or potential stake in the regional growth.  Although they may not have an intention to foster regional scale up growth, they benefit from that growth and thus become invested in enriching the local support of growth.
  • Demonstration effects: Demonstrating the effects of scale up encourages stakeholders to increase their investment of resources, further promoting growth and eventually reducing the need for external intervention.
  • Spillovers: Spurred on by demonstration effects and benefits to themselves, stakeholders are likely not only to increase their own investments but to broaden their impact and encourage investment by others, extending growth beyond those firms originally included in the project.

By 2016, BEEP has conducted entrepreneurship ecosystem projects of varying scale and duration on four continents, including two major long-term initiatives in Manizales, Colombia (Manizales-Mas) and Milwaukee, Wisconsin (Scale Up Milwaukee).

Manizales Mas

Cree, Crea, Crece – Believe, Create, and Grow

In 2010, the city of Manizales, Colombia, decided to seek help to boost entrepreneurship and create job opportunities.  Located in the mountainous coffee-growing region, with a population of 450,000, Manizales is Colombia's sixth largest industrial city and home to seven universities.  Although it ranked high on "quality of life" and "business friendliness" metrics, Manizales was seen as offering limited employment opportunities for college graduates, who often moved to Bogota and other cities to look for jobs.  Led by the Luker Foundation ("Luker"), a non-profit created by Casa Luker, a fifth generation chocolate company, Manizales civic leaders approached Babson College, due to its reputation as a leader in teaching entrepreneurship.  Over the course of several visits they made to Babson, I and other Babson leaders met with representatives of Luker and discussed their goals and objectives.

We launched BEEP in 2009 with a pilot ecosystem program in Puerto Rico and were eager to engage with Manizales in a larger-scale, extended initiative.  Following a 2-month proof-of-concept pilot, in which I conducted interviews and held workshops to discuss BEEP's philosophy and approach, the city's public, private and civic leaders invited us to partner with the city's institutions to create fundamental change.  Moving from that initial invitation to the launch of BEEP activities took almost two years of difficult negotiation due to significant gaps between our proposed approach to entrepreneurial growth and the expectations of local leaders. 

To many in Manizales, including the university's leaders, "entrepreneurship" meant "start-ups."  Convinced that fostering startups, particularly by students, would take many years and failures to bear fruit before an impact was achieved, we pushed hard for a "scale-up" approach.  Instead of start-ups, the Manizales project would focus on "quick wins," such as quickly helping companies with existing business to grow more rapidly within months. Once growth "demonstrations" were established, BEEP would expand its activities to startups, university spinoffs, and larger companies. This approach contradicted much of the conventional wisdom the stakeholders had received from publicized projects such as Start Up America, Start Up Chile, and the new Colombian innovation agency, Innpulsa. 

In spite of continuing challenges and sometimes heated disagreements among the partners about project governance, need for venture funding, and lack of attention to start-ups, we were able to forge consensus on a number of key early activities for the second phase of the project:

  • Branding: "Manizales-Mas," name and logo
  • Leadership training: a 3-day session at Babson College for 22 prominent community members that proved critical to coalescing stakeholder alignment and an understanding of what the project – and entrepreneurship - was about.
  • The High Potential Company (EAP) Program. An EAP[2] program (also called Scalerator) for existing businesses consisting of five 1.5 day training sessions on sales, sales management, human resources, and finance, taught by Babson faculty.

By the end of the phase, many EAP companies indeed demonstrated significant sales growth and growth-related events (e.g. new hires, new contracts, new financings, expanded facilities), and Manizales-Mas had received substantial local and national media attention.  Over the following three years, Manizales-Mas has significantly expanded its programs and reach within the community, with tens of thousands of residents attending Manizales-Mas events. All told, more than a dozen programs touching all domains of the ecosystems have been conducted successfully.  Examples include:

EAP/Scalerator expanded to six months, with seven 1.5 day workshops, and including systematic peer-to-peer mentoring and interactions with ecosystem stakeholders (e.g. bankers). 

AddVenture-Mas and Start-Up Mas:  With the EAP program well established, the project introduced two programs devoted to student-based startups.

Mentoring program, established under the guidance of MIT Venture Mentoring, in which trained, experienced executives and professionals spend several hours monthly with EAPs.

Global Affiliates Program (GAP). To facilitate reduced reliance on Babson faculty, in August 2014, the program created a 3-month residency program at Babson for Manizales faculty.

Outcomes

EAP companies involved in the Scalerator programs recorded substantial gains:

  • Average 55% increased sales growth within a year of participating in the program
  • More than 1000 new business contracts
  • 80% reported newly accelerated growth
  • 703 new hires
  • Five companies with new exports
  • Six new bank financings and 3 equity investments

More broadly, Manizales Mas generated significant media attention and produced strong regional impacts:

  • YouTube channel with 160 videos and more than 15,000 views (3/16)
  • Web visitors 4,263; Facebook followers, 2,888; Twitter followers, 5, 1114 (3/16)
  • Over 20,000 attendees at events
  • >100% increase in Total Entrepreneurial Activity (as measured by GEM)

In addition to the quantitative results, an important measure of the success of the program has been its impact on other members of the ecosystem and on the culture of the region, as one observer described. 

These EAP companies have inspired a change in ambition among others so there's been increased motivation toward greater economic growth. People are trying to do things that before this they thought were impossible to do. This is a model for economic development that impacts people's perceptions of themselves and the region and what is achievable. It has changed aspirations and expectations.

Scale-Up Milwaukee

We launched Scale up Milwaukee in 2013 with a proof-of-concept phase that involved 12 Scalerator companies, followed by two additional cohorts totaling 45 companies with combined sales of over $200 million and over 1100 employees. While many of the programmatic elements of Scale-up Milwaukee have been similar to Manizales Mas, the context is significantly different.  Milwaukee itself has three times the population of Manizales, 20 times the economic activity, and a history of manufacturing and business excellence.  The region is home to many leading multi-national companies, including Johnson Controls, Manpower Group, GE Healthcare, Briggs & Stratton and Rockwell Automation.  From the outset, Scale Up Milwaukee enjoyed strong state government and corporate support from the Wisconsin Economic Development Corporation, the Greater Milwaukee Committee, and initially, American Express Open, in addition to private foundations and individual donors who joined the effort with local financial support soon after Scale Up Milwaukee had generated tangible initial results.

Similarities between the Milwaukee and Manizales programs include:

  • Governance, execution, advisory and outreach structures
    • Small dedicated project team reporting to key execution partner
    • One lead local partner involved in project development, funding and execution
    • Advisory council representing a broad cross-section of industry and civic sectors
    • Committees responsible for engaging larger groups of stakeholders
  • Comprehensive communication campaigns that have generated national and global media attention
  • Nearly identical Scalerator programs using same faculty, content and cohort size

Selected Principles of Scale-up Ecosystems

The experience of the Milwaukee and Manizales programs in fostering regional ecosystems offer a number of hypothesized general principles for launching and running entrepreneurship ecosystem projects.

  1. Maximize "re-use" of project elements:  Governance structures, project team organization, Scalerator program design and content, stakeholder alignment and other elements can be re-used with appropriate, but often minimal, modification in different regions
  2. Identify a region with a moderately dense population: hypothesized to be approximately between a few hundred thousand to 1.5 to 2 million; small enough to enable ecosystem domain leaders to meet face-to-face and to be able to impact and hold responsibility for project outcomes.
  3. Identify and engage influencers in each of the six entrepreneurship ecosystem domains to secure their alignment with project objects.
  4. Secure funding from a cross-section of local funders.  Although time-consuming, the process of securing local funding serves to galvanize a broad cross-section of stakeholders to support EE projects.
  5. Generate "quick wins" by focusing on firms with existing revenue base.  Showing the ability of firms to have significant growth within a few months generates rapid demonstration effects that catalyze stakeholder commitment and encourage elevates the activities, aspirations and expectations of other ecosystems members. 
  6. Communicate from the outset that BEEP will have a time-limited presence and that local stakeholders will eventually develop and execute all of the local programming.

[1] This article is based on:  Daniel Isenberg and Vini Onyemah, "Fostering Scale Up Ecosystems for Regional Economic Growth: The Cases of Manizales-Mas and Scale Up Milwaukee," to appear in Innovations: Technology Growth Globalization, MIT Press, 2016

[2] "EAP" – Emprendedores de Alto Potentiales, or high potential ventures.