Entrepreneurial Ecosystems Around the Globe and Early-Stage Company Growth Dynamics January 2014 Project Team Steering Committee World Economic Forum: Members: Michael Drexler, Senior Director, Head of George Foster, Konosuke Matsushita Investors Industries, World Economic Professor of Management at the Graduate Forum USA School of Business, Stanford Maha Eltogby, Director, Head of Private University (Project Co-Leader) Investors, World Economic Forum USA Dan Isenberg, Professor of Entrepreneurship Practice, Babson Stanford University: Executive Education, Babson College George Foster, Konosuke Matsushita Habib Haddad, Chief Executive Officer, Professor of Management at the Graduate Wamda School of Business, Stanford Calvin Chin, Chief Executive Officer, Transist University (Project Co-Leader) Randa Ayoubi, Chief Executive Officer, Carlos Shimizu, Project Manager and Rubicon Group Holding Instructor at the Graduate School of J. Michael Cline, Managing Partner, Business, Stanford University (Project Accretive LLC Co-Leader) Linda Rottenberg, Co-Founder and Chief Steve Ciesinski, Vice President of Strategic Executive Officer, Endeavor Business Development at SRI International and Lecturer at the Graduate School of Thomas Speechley, Partner, The Abraaj Business, Stanford University Group, United Arab Emirates Antonio Davila, Professor and Head of the Arvind Sodhani, President, Intel Capital and Entrepreneurship Department and Executive Vice-President, Intel Corporation Entrepreneurship and Innovation Center at Maria Pinelli, Global Vice Chair – Strategic IESE Business School Growth Markets, EY Syed Zahoor Hassan, Professor at Suleman Dawood School of Business at Lahore University of Management Sciences Ning Jia, Associate Professor of Accounting and Associate Director of the China Business Case Center at Tsinghua University, School of Economics and Management Diane Lee, Technical Resource Analyst at the Graduate School of Business, Stanford University (Project Editor) Sandy Plunkett, Advisor and thought leader in entrepreneurship and innovation ecosystems Disclaimer The viewpoints expressed herein attempt to reflect Ernst & Young: the collective opinion of various individuals who have Maria Pinelli, Global Vice Chair of Strategic contributed to the research and development of this report; they do not necessarily imply an agreed Growth Markets for EY Global position among them or institutional endorsement by John Cunningham, Manager, Strategic any participating company or organization involved in the work or mentioned in the report, or of the World Growth Markets Economic Forum. Rebecca Hiscock-Croft, Senior Strategic Analyst Published by World Economic Forum, Geneva, Switzerland, 2014 Michelle McLenithan, Strategy and Operations Consultant All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, Endeavor: in any form or by any means, electronic, mechanical, Linda Rottenberg, Co-founder and CEO photocopying, or otherwise without the prior permission of the World Economic Forum. Rhett Morris, Director of Endeavor Insight World Economic Forum 91-93 route de la Capite CH-1223 Cologny/Geneva Switzerland Tel.: +41 (0) 22 869 1212 Fax: +41 (0) 22 786 2744 [email protected] www.weforum.org REF060114 Contents 4 Executive Summary 6 1. Focus of the Report and Information Sources Underlying the Analysis 9 2. Entrepreneurial Ecosystems: Similarities and Differences Around the Globe 21 3. The Relative Importance of Entrepreneurial Ecosystem Pillars to Entrepreneurs: The Big Three of Accessible Markets, Human Capital/ Workforce and Funding & Finance 33 4. Growth Accelerators and Growth Challenges for Early-Stage Companies 56 5. Large Companies as Scaling Leverage for Early-Stage Companies: Navigating through the Pitfalls 68 6. The Growth of Entrepreneurial Ecosystems: Lessons from Buenos Aires, Amman and Istanbul 76 7. Government and Regulatory Policies in Entrepreneurial Ecosystems: Growth Accelerators or Growth Inhibitors? 86 8. About the Authors and Acknowledgements 91 Annex: Executive Case Studies 1. 9F Group-China 22. NEP-Malaysia 2. Abacus-Pakistan 23. NetSol Technologies-Pakistan 3. Aemetis-USA and India 24. NEXON-South Korea 4. AMC Juices-Spain 25. OpenDNS-USA 5. Arteris-France 26. PCH International-Ireland 6. Brochas y Productos and China (BYP)-Mexico 27. Pintar International-Philippines 7. Bubbly-Singapore 28. Polyera-USA 8. Capillary Technologies-India 29. Pronto Promo-Pakistan and Singapore 30. QC-Mexico 9. Cupola-UAE 31. Qualtrics-USA 10. Delicious Bakery-Egypt 32. Reputation.com-USA 11. Digitouch-Turkey 33. Saham Finances-Morocco 12. d.light-USA 34. SinoCare Group-China 13. Freelancer.com-Australia 35. SouthWestern-Ireland 14. Galaxy Desserts-USA 36. TaKaDu-Israel 15. Green Biologics-UK 37. Taste Holdings-South Africa 16 Hangzhou Guodian Dam Safety 38. Tough Mudder-USA Engineering-People’s 39. United Security Services Republic of China (China) (USS)-Argentina 17. Heartland Payments Systems-USA 40. Victoria Seeds-Uganda 18. Inspirato-USA 41. ViiCare-China 19. Interpark-South Korea 42. Wildfire Interactive-USA 20. LoopUp-UK 43. ZheJiang HuiFeng Warp 21. Movile-Brazil Knitting Co.-China Entrepreneurial Ecosystems around the Globe and Company Growth Dynamics 3 Executive summary Entrepreneurs are key drivers of economic and Summary of Key Findings social progress. Rapidly growing entrepreneurial 1. For entrepreneurs, major differences in entrepreneurial ecosystems exist from one region to the next. When enterprises are often viewed as important entrepreneurs consider expansion opportunities beyond sources of innovation, productivity growth and their country or region, there is a potential alignment issue employment (small and medium-sized with governments that often adopt a strong “within country/ region” focus in their entrepreneurial ecosystem policies. enterprises account for a high percentage of all 2. According to entrepreneurs, three areas of an jobs in emerging economies). Many entrepreneurial ecosystem are of pivotal importance – governments are therefore trying to actively accessible markets, human capital/workforce and funding & finance. This report is the first large-scale study that promote entrepreneurship through various systematically examines which pillars of an ecosystem forms of support. matter most to entrepreneurs when it comes to the growth of their companies. A potential alignment issue can arise The World Economic Forum, in collaboration with Stanford between the time horizon of an entrepreneur and that of a University, Ernst & Young and Endeavor, surveyed over 1,000 policy-maker or politician, with the time horizon of the latter entrepreneurs from around the globe with the goal of better two typically following the electoral cycle. understanding how successful entrepreneurial companies 3. In most regions, only a small number of breakout speed access to new markets and become scalable, companies are the main contributors to a healthy, growing high-growth businesses. Executive case studies for 43 early-stage company sector. There are also substantially early-stage companies from 23 different countries were more similarities than differences in the issues facing developed to enrich the feedback from the survey. entrepreneurs around the globe. These similarities appear in all regions and have an impact on the major growth accelerators and growth challenges for early-stage companies. 4. Large companies in the overall business ecosystem have the potential to provide important leverage for early-stage companies in their growth and development. However, there are potential pitfalls to navigate through in the relationship. The report highlights areas for productive relationships as well as areas where relationships can inhibit growth or be the source of revenue and job destruction in an early-stage company. 5. Entrepreneurs themselves can play multiple important roles in the build-out of an entrepreneurial ecosystem. Using case studies from Endeavor, five important roles are illustrated – mentorship, inspiration, investment, new founders and new employees. 6. Government and regulatory policies are viewed by entrepreneurs as both potential growth accelerators and growth inhibitors. The report highlights examples of case studies from different geographical regions that reflect the positive and negative impact economic policies can have on entrepreneurs. In some cases, entrepreneurs believe that government/regulatory policies aimed at supporting economic growth can actually be counterproductive to the growth of their early-stage company. 4 Entrepreneurial Ecosystems around the Globe and Company Growth Dynamics Entrepreneurial Ecosystems around the Globe and Company Growth Dynamics 5 Section 1: Focus of the Report and Information Sources Underlying the Analysis Two questions on entrepreneurial ecosystems are central to Exhibit 1-1: The Eight Pillars of an Entrepreneurial this report: Ecosystem - Question 1 – What do entrepreneurs see as differences among entrepreneurial ecosystems around the world with regard to the ready availability of the pillars making up an Entrepreneurial Ecosystem ecosystem? - Question 2 – Which pillars of an entrepreneurial ecosystem do entrepreneurs view as most important to the growth/ success of their companies? Exhibits 1-1 and 1-2 of the report illustrate the eight pillars considered to make up an ecosystem and the individual components of each pillar.1 By jointly examining these two questions, this report advances the debate on