I travel alot for One Laptop per Child and frequently meet foreign government officials and university administrators. After discussing the benefits of primary school education through OLPC, the discussion invariably turns to whether OLPC can help to foster entrepreneurship in their country. The discussion turns to entrepreneurship for two reasons:
- Everyone wants to tap into the worldwide open source communities for Linux and Sugar that make OLPC possible and duplicate such programming communities in their countries, universities or organizations
- Everyone wants OLPC to facilitate access to MIT and in particular the MIT Media Lab (from which OLPC started) and the MIT Entrepreneurship Center, perhaps the leading academic entrepreneurship program in the world (Disclosure: I taught a course in social entrepreneurship at the MIT Sloan School of Management in January 2011.)
As I read Daniel J. Isenberg's article in Harvard Business Review "How to Start an Entrepreneurial Revolution" I find that I agree with some of his findings but generally I disagree with his conclusions. Isenberg's conclusions about an environment that fosters entrepreneurship in foreign economies are:
- Stop emulating Silicon Valley
- Shape the Ecosystem Around Local Conditions ("foster homegrown solutions—ones based on the realities of their own circumstances, be they natural resources, geographic location, or culture")
- Engage the Private Sector from the Start
- Favor the High Potentials (support and foster companies with world class potential)
- Get a Big Win on the Board (entrepreneurship is viral and a successful example will spawn further successes )
- Tackle Cultural Change Head-On (entrepreneurship needs to lose its stigma and become something supported by society)
- Stress the Roots (encourage resourcefulness by rationing capital)
- Don’t Overengineer Clusters; Help Them Grow Organically (“pave the footpath by gently encouraging supportive economic activity to form around already successful ventures")
- Reform Legal, Bureaucratic, and Regulatory Frameworks
My conclusions to foster entrepreneurship are based on ten years working in Indonesia (a hot bed of entrepreneurship despite a then authoritarian government), eleven years of working with entrepreneurial clients in the Caribbean and Central America, five years of teaching entrepreneurship to many foreign university students and eighteen months representing OLPC. My conclusions are:
1. Capital is King. Many entreprenurs around the world can build $3-10 million companies through Isenberg's "stress the roots" approach, but they cannot achieve "world class" status for lack of access to capital. I was lucky to build a billion dollar publicly traded company in Indonesia, but the reason, in large part was that I was better able to access capital than my competitors. I recently lectured a group of Haitian entrepreneurs through a program spons0red by Digicel Group, Dennis O'brien's telecommunications company. This very optimistic group of Haitian business owners cited access to capital as their biggest problem despite the total devastation of their country by an earthquake. Financing techniques for entrepreneurs was the subject of the lecture.
Isenberg cites the successful Israeli example of combining government funds with management of the monies through professional venture capital and private equity funds. I like this example, which has been used in Florida where some government pension monies are under the management of Hamilton Lane to invest in early stage companies. (Florida, a state with a population of almost 19 million, at last count had less than ten "real" venture capital firms.) I would encourage a portion of the monies in such approaches to be specifically earmarked for "seed" investments and for the VCs not to be disguised private equity investors.
In Indonesia one of the largest untapped pools of capital was the reserves of the local insurance companies. Within reasonable and appropriate asset allocation and risk profiles perhaps insurance reserves in some developing countries could be directed to local investments in secured loans to provide medium term growth capital.
2. Integrate Foreign Investment into the Entrepreneurship Initiative. Foreign multi-nationals provide many benefits to foreign countries, not the least of which is hands on training in professional management to local staff. Due to weaker education systems in many countries, most entrepreneurs have only limited access to the thinking and processes of modern management. This lack of experience is a major factor in limiting the emergence of world class companies.
Perhaps foreign investors must have social responsibility programs that support local entrepreneurship. Programs in education, local suppliers and services and sabbaticals for employees to work for a year in a local company all would qualify. Preferential tax rates might encourage this activity. The Digicel workshops for Haitian entrepreneurs is an example of such a program (albeit with no particular tax incentives).
3. Education is Critical. Several academic studies have shown that a part of the success of Silicon Valley and Boston as entrepreneurship centers is their proximity to great universities. Mayor Bloomberg's recent initiative to attract a world class engineering school to New York City as a means to foster greater entrepreneurship there points out the need for education in certain subjects that tend to produce more entrepreneurs. Of course, if we provide good engineering universities, access to capital and professional venture capital investors, a country would be well on its way to duplicating the critical success factors that explain Silicon Valley or Boston.
Based on conversations with many government officials around the world, the development of intellectual property is going to be the engine of economic growth in the 21st century. This concept is a basic tenet underlying the philosophy of OLPC, which in part explains the success of the program and the approximately 2 million computers distributed to children. Improved education, and in particular science, math and engineering, is a necessary part of any sustainable entrepreneurship program at the country level. Procter & Gamble's social responsibility program in Latin America focuses on education, which suggests that they share my view on the importance of education in emerging markets.
4. Focus on Entrepreneurship. Isenberg cites the example of Malaysia's program to foster entreprenurship in the idigenous population as a failure and support for his concept of "stress the roots" by encouraging resourcefulness. I agree but I think Isenberg fails to draw the more important conclusion. The indigenous population in Malaysia is not some small tribe of nomadic Indians but rather the majority of the population. Malaysia has a history of failed programs to support the indigenous majority while the Chinese minority thrives. Malaysia's entrepreneurship program failed because it did not focus on entrepreneurship but rather addressed a wider range of social and political issues. I see many governments starting good projects only to fail because they have too many social or political objectives. If governments would refrain from discrimination on the basis of culture, race or religion and not try to solve all the problems with one solution, their programs would be much more effective.
An example that supports this view of focus is the Uruguay program to implement OLPC. Uruguay is the first country in the world where every child in primary school (450,000) has a laptop computer (from OLPC) and the program has garnered worldwide acclaim for the country. The reason that this program succeeded, in large part, was that the government had one simple goal--include every child in Urugauy with no exceptions--rather than adopting discriminatory programs or complex, multiple social goals.
5. Liberalize the Legal System. The structure and philosophy of the U.S. legal system has been a major factor to explain the scale of entrepreneurship. The U.S. system is built on the concept that if something is not prohibited by law, it is permitted. Many countries adopt the contrary approach--if it is not permitted by law, it is prohibited. This later controlling view of legal systems greatly inhibits entrepreneurship. I have thirty years of stories where entrepreneurs were stopped by government bureaucrats from expanding their businesses because a law did not permit something. What countries need to do to foster entrepreneurship is to change the philosophy of their legal systems to make them permitting rather than inhibiting.
Professor Isenberg should be applauded for this important article on the importance of entrepreneurship in developing economies. Perhaps our differences of opinion will foster further debate and research on this important topic.