[What's addressed in this article is in no way experimental practically, but by expanding the mainstream definition of capitalist enterprise - widening our vision and deepening our memory, perhaps - we open the way for more opportunities for ourselves and others.]
[Totally disconnected but entirely relevant: Today I decided that I will not buy mass produced products anymore. Or at least as much as possible, cause I don't want to starve, either. And really, it's as easy as that to support real people building real things that they CARE about! It is those hand to hand transactions that make the real, tangible economy move.]
The High-Intensity Entrepreneur
by Anne S. Habiby and Deirdre M. Coyle, Jr.
World-class entrepreneurs have reached critical mass in some surprising places—and their number is growing quickly. These innovators just might revive the global economy.
Artwork: Josh Keyes, Shadow, 2010, acrylic on panel, 30" x 40"
[Been here before...]
The story of entrepreneurship in the twentieth century was about individuals who got access to sophisticated capital in a few advanced markets and created massive economies of scale. That’s how AT&T, Home Depot, and Microsoft swiftly made their way onto the Fortune 500. But in the twenty-first century, a very different story is unfolding.
Today entrepreneurs anywhere can create value with relatively little capital. Barriers to entry in almost every industry have come crashing down, opening vast opportunities for small companies. These developments are especially apparent in emerging markets, where we’re seeing signs that an entrepreneurial economy is ready to bloom. We’ve spent the past two years studying entrepreneurship in the Middle East, Africa, and South Asia, and we’ve found hundreds of world-class ventures poised for significant growth there. Most people’s assumptions about entrepreneurship in the developing world—that entrepreneurs either don’t exist there or are microentrepreneurs—are wrong. High potential ventures are surfacing where no one is looking for them—in Beirut instead of Boston, in Cape Town instead of Silicon Valley—among people who have historically been outside the economic power structure.
What’s surprising is that so many of these companies aren’t in the fast-growing markets the world is already watching, such as India or Brazil. They’re cropping up in places like Jordan, Saudi Arabia, and Africa—whose economies have been driven by top-down government policy, large business groups, multinational corporations, and even social elites, such as local royalty. Until relatively recently, such places were thought to have a critical shortage of businesspeople who could build companies.
The ventures that we uncovered in our research generate far more jobs and wealth than typical small businesses do, and they often create new industries or open new markets. They include companies like the UAE’s Bayt.com, the leading Middle Eastern job search site, which attracts 4.5 million job seekers; Jordan’s Aramex, the FedEx of the Middle East, which has honed its edge by making deliveries to places global distribution companies avoid; Airblue of Pakistan, the first paperless airline in the world, which quickly acquired a 30% share of that country’s domestic market; and Meeting Point, launched by Christine Sfeir, who at 22 opened the first Dunkin’ Donuts store in Beirut and 10 years later runs 30 stores that, unlike any Dunkin’ Donuts you have ever seen, are elegant hot spots for young professionals. These businesses are scaling up at dramatic rates and introducing exciting new product-market combinations. A case in point is Rumman, the first events and publishing company focused on Saudi Arabia’s large youth market. Operating with a team of 30 recent college graduates, it has become so successful that brands such as MTV now work with it to market to young Saudis.
Countries that want to play in the global economy need companies like these, which are building and redefining industries that satisfy domestic demand and generate export income—not to mention create employment for the rapidly growing younger population. For multinationals, these ventures can be a path to accessing the new ideas, customers, suppliers, and talent of emerging markets. Finding and investing in them may be one key to reenergizing the global economy.
The Great Economic Detour: A Focus on Small Companies
The world at large urgently needs to ramp up the pace of job growth and new value creation. According to the World Bank, the Middle East alone must create 80 million more jobs by 2020 just to absorb new entrants to the labor market without lowering living standards. This issue is graver in parts of Africa and Asia, where job creation is imperative to lift millions out of crushing poverty. The question is how to make it happen.
Almost all government economic development and entrepreneurship programs tend to focus on a wide swath of small to medium-size firms. To explain this approach, they often quote statistics about how the overwhelming majority of job creation comes from these enterprises.
But their broad efforts may be misdirected. In 2009 the Global Entrepreneurship Monitor (GEM), which looks at 54 countries in the emerging and developed markets, concluded that only 14% of all start-ups expect to create 20 or more jobs. The zone for significant job growth is very small—and it’s especially hard to find in developing countries that have yet to identify their own entrepreneurial communities.
But those communities are out there, and they have great ambitions. The GEM data, the only global data on entrepreneurship, show that the incidence of entrepreneurship is twice as high in emerging markets as in the developed world. Out of every 100 people GEM interviewed in developing countries, 10 were launching businesses. Four of those 10 firms were “necessity driven” and six were “opportunity driven.” In developed economies, only five out of every 100 people were launching businesses, and of those firms, one was “necessity driven” and four were “opportunity driven.” Although there are many more necessity-driven entrepreneurs in emerging markets than in the developed world, what is often overlooked is that those markets are home to even more opportunity-driven entrepreneurs.
Opportunity-driven entrepreneurs tend to create larger enterprises, but only a small percentage of them will build high-growth companies—so-called gazelles. Gazelles have a disproportionate impact. They consistently create new products, new supply or distribution channels, and new customers, and generate economic value. But they can be hard to see when they are in the making—especially if they’re in markets such as the Middle East and Africa, which are largely unscrutinized by investors, multinationals, and the business media.
Looking for the Market Movers
At the invitation of the Saudi Arabian General Investment Authority (SAGIA), we started our research in Saudi Arabia. The country is arguably one of the most unlikely markets for entrepreneurs; its economy is dominated by the state-controlled oil industry and large family-run business conglomerates. It urgently needs to diversify. When we began, SAGIA and our other partners (the news organization AlWatan, National Commercial Bank, Siraj Capital, and real estate developer Sukoon International) were hard-pressed to name more than a handful of entrepreneurial growth companies.
Nine months later we announced a list that we call the Saudi Fast Growth 100. These 100 rapidly growing companies had provided audited statements to document their performance and met the same criteria as the Inc. 500—considered by many to be the gold standard of entrepreneurship. Without the benefit of attention from either the government or the media, these companies had grown an average of 40% a year for three or more years—10 times the national private sector growth rate—collectively creating 30,000 jobs. They represented a wide range of industries, including IT, telecommunications, media, public relations, publishing, health care, and education. But almost everyone in the country had assumed that such competitive entrepreneurs didn’t even exist.
More recently, when we compiled fast-growth listings for Lebanon and Jordan, we found a similar base of competitive entrepreneurs. Judging by our initial research for the Arabia 500, we expect to find comparable growth companies throughout the Middle East and North Africa. (Our findings will be public in 2011.) We’ve seen a similar pattern in Pakistan and India (starting points for our list of the 500 fastest-growing entrepreneurial companies in Asia) and when compiling the South Africa 100 (the starting point for the Africa 500).
Until now, emerging markets have mostly been seen as sources of new revenue for large Western companies or homes for emerging giants in finance, construction, and the extractive industries. What we’ve found changes the way we should be looking at the potential of emerging markets. It suggests they are home to a growing community of latent gazelles. In fact, the company founders we encountered there are as sophisticated as their Western counterparts—and, some might argue, perhaps have more potential.
Entrepreneurial DNA.
If you took away their national identities, it would be impossible to distinguish entrepreneurs from Saudi Arabia, South Africa, and the United States. (Our American reference point is the Inc. 500.) On paper, entrepreneurs from these three countries look the same with respect to their educational and professional backgrounds. Most of them have undergraduate degrees, and many have master’s degrees. Most have five or more years’ worth of experience in industry with a top firm like Procter & Gamble, Pepsi, Unilever, Toyota, or HSBC. The average age of the founders at start-up is even the same in each country: 33. Entrepreneurs of all three nationalities form companies in the same new-economy industries and have similar inspirations and mind-sets. Most are self-financed at start-up.
Consider Osama Natto, formerly an executive at P&G. At the age of 32 he established Jeddah-based Innovative Business Solutions, a strategy consulting firm with expertise in markets from Kazakhstan to Casablanca. To raise cash for operations, Natto sold his house and moved his family into an apartment—just as many U.S. company founders do—and since then, IBS has grown 280% a year to reach revenues of close to $3 million.
Entrepreneurial intensity.
One notable characteristic distinguishes emerging-market entrepreneurs, our research shows. They demonstrate higher levels of “entrepreneurial intensity”—a measure we created to capture the volume of successful companies they form. Historically, entrepreneurs we’ve identified in emerging markets have started 25% more companies than their U.S. counterparts on the Inc. 500 have. The emerging-market start-ups have a higher survival rate, and when asked about their future plans, an amazing 80% of their founders said they intended to launch another business within the next two years.
What explains the higher entrepreneurial intensity? In our interviews with more than 100 entrepreneurs, a pattern surfaced. In emerging markets there are many undefended niches to occupy. The other side of the coin is that to grow, new ventures there often have to fill in missing parts of the market. For example, Eye-2-Eye Optical, a high-end eyewear chain founded by a Saudi woman, Aisha Natto, had to create a lens-manufacturing plant to keep up with demand and to tailor products for its stores. Emerging entrepreneurs often have to grow the spaces adjacent to their business—effectively building out the industry cluster—so that their initial company can succeed. And in the process, they become more adept entrepreneurs.
Growth momentum in 2009.
Another surprising finding related to performance in 2009, which we looked at in the audited statements of hundreds of ventures from the Middle East, Africa, and South Asia that had grown rapidly from 2006 to 2008. While the global economy contracted 2%, most of these companies picked up their pace in 2009—in the majority of cases, growing 20% to 50% faster than they had in 2008.
What this suggests is that emerging entrepreneurs’ business models have staying power; their firms don’t just hang on to the global economy’s coattails. In fact, they may be uniquely designed to thrive in a new global economy that favors leanly financed, adaptable companies—and could be turning the ability to execute in the challenging business environment of emerging markets into a competitive advantage. Look at Qanawat, a Saudi 100 telecommunications company, which rapidly scaled up to $1 billion in revenue in its first four years by serving rural areas of Saudi Arabia that were difficult to reach and untapped by industry leaders. With that experience behind it, Qanawat is well positioned for a move into Africa and other Middle Eastern markets.
We believe these high-intensity entrepreneurs could be among the gazelles of the emerging markets. They are skilled at identifying opportunities that others don’t see and executing amid the uncertainty, scarcity, and risks that characterize the business landscape in most of the world.
Forces for Global Entrepreneurial Expansion
As we look across companies and countries, we see three trends that will accelerate high-growth entrepreneurship in the emerging world.
Migration of talent.
Entrepreneurial talent is being distributed around the world as the best and brightest leave the West and return to their home countries to start companies. These entrepreneurs have developed core market skills and international networks while studying and working in the U.S. and Europe. A perfect example is Amjad Aryan, a former CVS executive in the U.S., who returned to Jordan to launch Pharmacy 1, the country’s first drugstore chain, which now has more than 40 stores and is rapidly expanding throughout the Middle East.
A pent-up supply of entrepreneurs.
As political and economic conditions relax in emerging countries, and as more entrepreneurs from Africa, Asia, Latin America, and the Middle East become household names, we expect to see entrepreneurship take off as it has done in India and China. Surveys of youths in emerging countries often find that more than 25% of them want to become entrepreneurs.
Relatively low seed-capital requirements.
The dearth of banks and venture capital and private equity firms in emerging markets used to be a significant constraint on company formation there. Among firms that have applied to be part of our fast-growth rankings, however, the average first-year investment was $200,000. Most midcareer entrepreneurs have little trouble raising that amount from their own savings or from their first round of customers. The opportunity to enter industries without significant bank and venture financing has never been greater.
High-Intensity Entrepreneurship Is the Future Growth Engine
The high-intensity entrepreneurs we have come across in our research don’t just build companies that scale up quickly from 20 to 200 employees or from 200 to 2,000. They create jobs that develop people. They establish work environments that motivate employees, investing heavily in on-the-job training and providing a wide range of benefits, from health care to profit sharing. Their companies are chronically searching to fill positions and often promote from within to keep their culture strong and reduce hiring and training time and costs.
A good example is Saudi-based SecuTronic, a high-tech security company that grew an amazing 2,500% in five years. It has a flat management structure, according to cofounder Ihab Elsamannoudi. “There is no boss—just 200 entrepreneurs working together,” he says. Adds cofounder Jawad Ali, “This creates an energy that benefits the entire company, as well as our clients and shareholders. Behind any leader at SecuTronic there are many trained and prepared minileaders. This is the only way to grow very fast.”
These entrepreneurs’ ventures are proficient incubators of other entrepreneurs. Fully a third of the companies we looked at in emerging markets actively supported employees who were creating new companies. One Lebanon 25 company, World of Light & Electricity, has already helped 10 employees launch their own start-ups. And one Saudi 100 winner, the founder of the high-end fashion design house Lomar, worked at another Saudi 100 winner, 3Points Advertising, where he was encouraged to start his own business.
Unleashing the Next Century of Entrepreneurship
It’s time to redefine the relationship between entrepreneurship and the developing world. What holds developing countries back is not a lack of world-class entrepreneurs but a lack of awareness about them, which artificially suppresses growth and keeps value trapped. Building systems to identify growth companies and put them on the economic map will have an immediate impact. When nascent gazelles get on the global radar screen, customers, talent, and global capital come to them. We call this phenomenon “visibility economics.” Visibility can give high-potential companies many of the benefits of going public. But without it, they stall out at a small size.
Our research to date suggests that every region in the developing world has a hidden community of potential gazelles. We estimate that after we identify the Africa 500, Arabia 500, Asia 500, Eurasia 500, and Latin America 500, and they gain worldwide recognition, those companies will be able to create one million jobs in five years. But this is just the first installment. The firms on those lists have the potential to be massive-force multipliers, smoothing the way for new industries and inspiring thousands to expand markets as entrepreneurs.
We may be on the verge of a global entrepreneurial heat wave. High-intensity entrepreneurs are beginning to flourish in unlikely places, generating new product-market combinations with unbounded potential. For multinationals and investors, they present immediate channels for growth. For governments and foundations, this new breed of innovators provide the path to progress and prosperity.
Copyright © 2010 Harvard Business School Publishing Corporation. All rights reserved.
Written By
Anne S. Habiby (ahabiby@allworldlive.com)
Deirdre M. Coyle, Jr. (dcoylejr@allworldlive.com), are cofounders, with Harvard Business School professor Michael Porter, of the AllWorld Network, an organization in Boston that works to advance entrepreneurship in emerging markets.
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