Professor Daniel Isenberg, Babson Executive Education (Open Innovation in the Food Industry)

EntrepreneurshipPolicyAdvisors
Copyright © 2011, 2012 , 2013 Daniel Isenberg
Entrepreneurship Policy Advisors
Fostering Entrepreneurship
Ecosystems
Daniel Isenberg
May 28 2014
1
All materials © 2014 Daniel Isenberg

Assumption:
One of the reasons you have a food
cluster organization is to foster
dramatically more food-related
entrepreneurship

1903
2013

SodaStream
• HCS Invented in 1903 in UK
• Peter Wiseburgh established Soda-Club competitor 1990 in
Israel
• Grows big markets in Germany, Sweden, France, Israel, NK, CH
• Acquires SodaStream, lots of debt, law suits
• 2006 huge losses, Wiseburgh tossed out
• Fortissimo PE acquires control for $16 million in 2007
• Brings in CEO with about 5% of shares
• CEO takes SODA public in 2010, $109 million raised
• Market value $367 million -> $1.46 billion in 18 months
• Revenues $100mio (2006) -> $436 (2013)

Is this entrepreneurship?

Examples
• Tough Mudder
• Studio Moderna (Slovenia)
• Actavis (Iceland)
• SABIS (Lebanon)
• Cinemex (Mexico)

9
Robert Wessman and Actavis
Iceland and Generic Drugs

Actavis (Iceland)
A growth story
• #5 generic co. WW
• Over 11,000 employees
• Present in close to 40 countries
• 26 acquisitions
• €1.6 billion 2007
• 22% EBITDA
• 650 products
• 412 product pipeline
• 24 billion tablets/capsules capacity
low cost / high quality
Actavis 2007
• 99 employees
• Present in 1 country
• EUR14 million in sales
• Illiquid
• Wessman is 29 years old
Actavis in 1999
ICELAND WORLD
10

Example
Cinemex
La Magia del Cine

• small
• union-controlled
• poor service
• single-movie
• unpleasant
• bad food
• cheap
• large
• reservable
• multi-movie
• A/C
• good food
• expensive
The Problem in Mexico – 1990s

13
They raised $21.5 million!!!
and then came the crash

• 50% market share by year 2000
• 48 cinemas 2005
• Created entirely new market
• Sold for $300 mio in 2002 (founders made
$30mio)
Outcomes

15
5/29/2014
More about growth than about start

Empirical findings on high growth firms are
different from our stereotypes*
• Rare – anywhere from .75% (Denmark) to 6% (UK)
of startups enter into minimal growth
• Old – most studies show that the bulk of high
growth firms are 15-30 years old
• Basic industries – the large majority of high
growth is in food, retail, manufacturing etc and NOT
in ICT, life sciences
• Sporadic growth – growth is not linear, easily
predictable
References include Acs et al. (2008), Audretsch (2012), Brown et all. (2014) , Danish Business Authority and OECD
(2011)

17
5/29/2014
As much about mature ventures as young ones

18
5/29/2014
More about execution than innovation

19
5/29/2014
Amazingly difficult to know the
opportunities until after the fact

21
Entrepreneurship:
5/29/2014
The Creation & Capture
of
Extraordinary Economic Value
Which is usually contrarian in
nature

Support professions
• Legal
• Accounting
• Investment bankers
• Technical experts, advisors
Non-Government Institutions
• Entrepreneurship
promotion in non-profits
• Business plan contests
• Conferences
• Entrepreneur-friendly
associations
Educational Institutions
• General degrees (professional and
academic)
• Specific entrepreneurship training
Networks
• Entrepreneur’s networks
• Diaspora networks
• Multinational corporations
Government
• Institutions
e.g. Investment, support
• Financial support
e.g. for R&D, jump start funds
• Regulatory framework
Incentives
e.g. Tax benefits
• Research institutes
• Venture-friendly legislation
• e.g. Bankruptcy, contract
enforcement, property rights,
and labor
Early Customers
• Early adopters for proof-of-
concept
• Expertise in productizing
• Reference customer
• First reviews
• Distribution channels
3/12/2014
© 2009, 2010, 2011 Daniel Isenberg
Leadership
• Unequivocal support
• Social legitimacy
• Open door for advocate
• Entrepreneurship strategy
• Urgency, crisis and challenge
Societal norms
• Tolerance of risk, mistakes, failure
• Innovation, creativity, experimentation
• Social status of entrepreneur
• Wealth creation
• Ambition, drive, hunger
SuccessStories
• Visible successes
• Wealth generation for founders
• International reputationLabor
• Skilled and unskilled
• Serial entrepreneurs
• Later generation family
Infrastructure
• Telecommunications
• Transportation & logistics
• Energy
• Zones, incubators, co-working, clusters
Financial Capital
• Micro-loans
• Angel investors,
friends and family
• Zero-stage
venture capital
• Venture capital funds
• Private equity
• Public capital markets
• Debt
Entrepreneurship
Policy
Finance
Culture
Supports
Human
Capital
Markets

Important messages:
A lot of things have to happen
In non-linear, “chaotic” path
Causality is very complex
(in fact never know what causes what)

Support professions
• Legal
• Accounting
• Investment bankers
• Technical experts, advisors
Non-Government Institutions
• Entrepreneurship
promotion in non-profits
• Business plan contests
• Conferences
• Entrepreneur-friendly
associations
Educational Institutions
• General degrees (professional and
academic)
• Specific entrepreneurship training
Networks
• Entrepreneur’s networks
• Diaspora networks
• Multinational corporations
Government
• Institutions
e.g. Investment, support
• Financial support
e.g. for R&D, jump start funds
• Regulatory framework
Incentives
e.g. Tax benefits
• Research institutes
• Venture-friendly legislation
• e.g. Bankruptcy, contract
enforcement, property rights,
and labor
Early Customers
• Early adopters for proof-of-
concept
• Expertise in productizing
• Reference customer
• First reviews
• Distribution channels
3/12/2014
© 2009, 2010, 2011 Daniel Isenberg
Leadership
• Unequivocal support
• Social legitimacy
• Open door for advocate
• Entrepreneurship strategy
• Urgency, crisis and challenge
Societal norms
• Tolerance of risk, mistakes, failure
• Innovation, creativity, experimentation
• Social status of entrepreneur
• Wealth creation
• Ambition, drive, hunger
SuccessStories
• Visible successes
• Wealth generation for founders
• International reputationLabor
• Skilled and unskilled
• Serial entrepreneurs
• Later generation family
Infrastructure
• Telecommunications
• Transportation & logistics
• Energy
• Zones, incubators, co-working, clusters
Financial Capital
• Micro-loans
• Angel investors,
friends and family
• Zero-stage
venture capital
• Venture capital funds
• Private equity
• Public capital markets
• Debt
Entrepreneurship
Policy
Finance
Culture
Supports
Human
Capital
Markets
Beware: This pretty picture is
potentially misleading

Fostering Entrepreneurship Ecosystems
Don’t confuse the snapshot and the
feature length film

Easy for Bostonians to see this:

And conclude all you need are these:

So Fostering Entrepreneurship
Ecosystems
A cultivation problem, not an
engineering problem

Don’t confuse the tangible “hardware”
and intangible “software”

The Hardware
Accelerators?
Angel
networks?
Government
VC
fund of funds?
Crowd
funding?
Angel tax credits?
Incubators?Technology
transfer?
Clusters?
SME
policies?
SME loan
guarantees?
Startup Weekends
Mentor corps?
Startup
Visas?

“Soft”ware
• Engagement
• Alignment
• Learning
• Experimenting
• Mutual interest
• Assessment
• Mindset/attitudes
• Commitment
5/29/2014 31

These “hardware” solutions can all
work, and they can all fail
Depends on what else you do, and
how it is done, and who does it

Whose responsibility is it?
(Easy to get confused)

Not government’s job
Not education’s job
Not corporations’ job
Not the entrepreneurs’ job
Not the VCs job
Not the banks’ job
SO WHOSE JOB IT IS?

You need a committed coalition of local leaders
Entrepreneurship centers
Shared work spaces
Cluster leaders
Educators
Media leaders
cultural icons
Entrepreneurs
Corporate execs
Elected and appointed
Public sector leaders
Investors, VC bankers etc

Entrepreneurship Ecosystems
Need to focus on high growth
(which has no single definition)
Encourage, support, observe,
record, and COMMUNICATE
growth events, small, large, big

A few words to policy makers

Avoid the trap of second guessing where
entrepreneurial success will emerge
Can be retail, trade, construction,
manufacturing, bio, events, etc.
Almost always happens where even the
“experts” least expect it

Beware of tangible incentives for
entrepreneurs based on size,
industry

Get and stay off ventures’ balance
sheets (public sector)….

Get and stay off ventures’ balance
sheets (public sector)….
That does NOT mean the public
sector doesn’t have an essential
and unique role

Focus on the off-ramp of value capture
at least as much as the on-ramp of firm
creation

Don’t protect entrepreneurs
too much
Mistakes are normal
Death is normal
Failure is normal

Balance your “portfolio” of social
investment in scale ups and start ups
Quick wins:
Easier for one scale up to go from €10 mio- €100
mio
Than for nine startups to go from €1 - €10 mio
(in reality, not either-or)

Two different languages
Best practice words
• Create
• Establish
• Make
• Design
• Copy
• Blueprint
Best process words
• Foster
• Facilitate
• Foment
• Catalyze
• Support
• Enable
• Encourage
• Empower5/29/2014 47

“Fostering entrepreneurship
ecosystems” is a wicked
problem, with no clear causality

“Fostering entrepreneurship
ecosystems” is a wicked
problem, with no clear causality
To impact an under-determined
system, need to “over-
determine” the solution

Entrepreneurship Ecosystems
Need to focus on high growth
(which has no single definition)
Eradicate the term small
business

Don’t eradicate adversity
(as a policy goal)
Regulatory adversity – make appropriate
Infrastructure adversity – reduce
Market adversity – leave and even foster

Some wrap up thoughts

“Food for thought”
• No “recipe”: lots of interest ideas, but it often “boils down” to
specifics (even people)
• Big & small: how to mutually benefit? (Arla, Findus)
• Reverse “menu”: tell us your problems to solve” in addition to
“here is what we have to offer.”
• “Bread and butter:” execution (making AND selling)
• Food innovation: “Red Bull” and “Nespresso” – drugs
• “Where’s the beef?” : value creation for customer
• “The sizzle and the steak”: How to put sizzle in food industry?
• Have amazing “steak”
• Be a little bolder: You are really cooking: “Nordic Inside”

To en·gage :
To pledge or promise, especially to
marry; to draw into; to involve; to
enter into conflict with

Professor Daniel Isenberg, Babson Executive Education (Open Innovation in the Food Industry)

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