Adrian Magendzo W. Entrepreneurship Policy
Countries that were able to develop and started even lower than us 48% 60% Corea Portugal 10% 20% Jamaica: US$5.600 / US$59.200 = 10%
Can we make the jump? The World Bank (2012) estimated that out of 101 countries with middle income economies in 1960, only 13 of them became high income countrieso (>40% of USA). Equatorial Guinea, Greece, Hong Kong SAR (China), Ireland, Israel, Japan, Mauritius, Portugal, Puerto Rico, Republic of Korea, Singapore, Spain, and Taiwan.
Productivity is key to growth • Technology • Efficiency • Climate Product Capital Labor Growth Growth Growth Total Factor Productivity Igal Magendzo, Informe productividad 2012
Escape Velocity 1) Right and sufficient Human Capital. 2) Technological Innovation and the ability to step up in the value chain. Countries that overcame the middle income trap did it through Innovation. 3) Infrastructure 4 ) Right business environment 5) Demography Viktor Shvets, Credit-Suisse, 2012
INNOVATION
R&D is not Innovation R&D $$ Knowledge Innovation
Innovation is value Creation Incumbents Transfer Corporate entrepreneurship Invention R&D Start-Up Innovation Creates Value
Innovation in four categories according to the challenge. § Level the field: Challenge to adopt best practices. Basic digital adoption, communication, accounting, etc. Low commercial impact. Extensionism. Efficiency § Efficiency: Challenge is to do be more efficient. Very important but short term Implications advantage, Technological Absorption. Incumbents Win. ROA Commercial § Sustaining : Challenge is to retain or include higher demanding customers Implications through products and services that are more convenient, simple or lower cost. ROI Incumbents Win. § Disrruptive: Challenge is to market a new product or Service that targets a market segment not served by incumbents. Disrupts the market and may leave incumbents out of the game. Start-Ups Win. Adaptación de Clayton Christensen, Innovations Dilemma, 2004
Garajes Famosos Steve Jobs Jeff Bezos 1976 1995 Steve Wozniak 10704 NE 28th in Bellevue, Washington. 2066 Crist Dr. in Los Altos, California Larry Page and Sergey Brin 1998 Walt y Roy Disney 1923 232 Santa Margarita Ave in. Menlo Park, California. 4651 Kingswell Ave. in Los Angeles, California
Why is it important to support entrepreneurs ?
Why? Entrepreneurial “CHURNING” à productivity gains. “ Young establishments have higher productivity levels and higher productivity gains than more mature establishments”, Aporte a Kaufmann Inst. Productividad 1,0 0,5 Department Net entrants All General stores Retail -0,5 Incumbents Retail Manufacturing Churning and productivity gains. Kaufmann Institute, 2010
Start-Ups generate more new Jobs. • 5% of new companies create 67% of new Jobs in the US. • 1% of new companies create 40% of new Jobs in the US. Kauffmann Foundation, 2008
Entrepreneurs who are they?
Some Definitions “Entrepreneurship is the pursuit of an opportunity without regard to resources currently controlled.” Howard Stevenson, Harvard University. “An entrepreneur is someone who creates a new company from scratch,” Brad Feld, TechStars. “Someone who sees an opportunity to create value and is willing to take a risk to capitalize on that opportunity; some elements of this are opportunity spotting, risk taking, and value creation.” John Hagel III, Harvard Business review.
Typical Micro and Small Enterprise Traditional Non- Micro-Small Company Scalable Start-Up • Product is known • Graduates when it has positive cash- • Customers are known flow. • Founders don't want to eat the world • Gives a life to its owners • Team are the founders and few employees. • Initial investment by owner and FFF • Growth is financed by revenue flow and bank. Don't require venture capital. Examples • Cleaners • Coffee Shops and restaurants • Grocery stores and small supermarkets Intervention • Individual consulting companies - Small Seed Capital • Graphic designers - Technical Advice, marketing, finance • Small farmers and accounting, legal, etc. - Co-Work space
Social Entrepreneurship Social Impact Sustainable Company Start-Up • Double or triple bottom line • Graduates when it is sustainable. • Very difficult for sustainability • Social Impact and Profitability • Innovative business models are very important Usually requires grants or corporate financing as social responsibility, Impact Funds Examples • B companies • Social entrepreneurs farmers Intervention - Grants - Social entrepreneurship incubators - Networks and government goodwill - Corporate Social responsability
Open Innovation Innovación continua o de procesos Spin-Offs Start-Up Incumbent Company Corp. Venture Innovación Corporativa Disruptiva Corporation Support Intervention - Skills for corporations - Corporate Venture Capital - Corporate Accelerators - Open Innovation Strategies Steve Blank, 2011
Dynamic or High Potential Execution Discovery High Growth Potential Established Company Transition Start-Up • Discovery of Business model • Fast growth • Unknown Product • Require large markets • Unknown Customer Typically requires some type of venture capital Intervention - Mentorship - Tech Transfer and seed capital funds - Angel and risk capital funds - Experimentation and prototyping - Internationalization capabilities
Start-Ups v/s Incumbents Discover Execute Start – Up Established Company Transition • Chaos • Efficiency • Discovery • Processes • Failure • Founders many times leave. • Economies of scale • Dysfunctional • Professional management. • Replicable • Experimentation • Scaling begins • Key issues • Prototypes • New focus is efficiency ü Financial Statements • Key issues ü Balance Sheet ü Burn Rate ü Profits ü Team ü CEO-Board of Directors ü Client acquisition cost Steve Blank, 2011 Steve Blank, 2011
We are here to discuss why and how to support this spaghetti Incumbent Discovery
Serendipity is in the essence of Start-Ups Start-Ups are like the rain forest. Weeds are Incumbents are like farmed land. No weeds desirable. They are part of serendipity. allowed. They look for efficiency. Hwang, Horowitt: Rainforest
Important conclusions about Start-Ups Temporal organization used to discover a scalable and repeatable business model Start-Up are not small versions of established companies. Start-Ups discover, established companies execute. Start-Ups are not the typical SME Steve Blank, 2011
Start-Ups are vehicles to look for a Product-Market Fit Pivot Transition Fit Fit MVP Scale Solution / Market Problem / Solution Pivot Incubation Eric Riese, Lean Start-Up
Value of the Risk Zone C Company Scaling Higher Private Interest V4 Risk Capital in a immature ecosystem Risk Zone B V3 Discovery and Incubation Relative private interest V2 Risk Capital in a mature ecosystem Risk Zone A V1 Ideation No private Interest V0 Total I2 I4 I1 I3 Investment Adrian Magendzo
Uncertainty = Risk U n c e r t a i n t y Controlled Risk Private Interest Time R.G. Cooper and B. Little
Challenges
Culture
Inputs are not enough. A Culture that facilitates interactions is essential Classic economic model. The invisible hand Land Land Work Technology In reality it happens in an environment of interactions and trust Work Investor Engineer Capital Technology Land Entrepreneur Scientist
Innovation happens when there is a culture that facilitates free and systematic interactions between different types of people, resources and talents . Those who do it are heroes Failure is part of the game.
Trust in other people (%) OECD, 2011
Everything happens in an Ecosystem
Human Capital
Human capital A new science. If you don't have the language its hard
Early Stage Financing Who would like to finance this?
Early Stage Financing
Scaling
Regulatory Environment
Policy
It is a wicked problem!! HC x RE x Ecosystem x Culture x $$ x SC = 0
General Entrepreneurial Model Governme Entrepreneurs nt Proceso Financial institutions Incumbent Incubatio Companies R&D Business model Scaling n Human capital Financing Enterprise Associations Intermediaries Universities Regulatory Environment Inputs Ecosystem Intermediarie Mentors s Culture Elaboración propia
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