About 12 years ago, one of my World Bank Group colleagues told me that his team had just launched an incubation program and I should join the unit. “Incubation?” I asked. “What does that mean?” I’ve always believed that a strong domestic private sector is the key to a sustainable development path for developing countries. So I decided to make the leap and, fast forward 12 years, terms like SMEs, start-ups, incubation, acceleration, and business development services have become part of my daily vocabulary.
Over the past 10 years, I’ve had the chance to meet many entrepreneurs, policymakers, and investors. I saw them succeed, and I saw them fail. Most importantly, from their experiences, I learned a few important lessons.
1) Growth aspirations
We should never forget to distinguish between entrepreneurs who have a small business to sustain their families — necessity entrepreneurs — and those who have ambitions to become market leaders — opportunity entrepreneurs. Why? Because they are driven by different incentives, face different challenges, and have different chances to scale their companies.
2) The lifecycle of an enterprise
The lifecycle of an enterprise refers to different stages that define the evolution of a business — from idea to prototype, from initial sales to profitability, expansion, and growth. This sounds very linear but it is, in fact, a roller coaster. And unfortunately, as opposed to real roller coasters, which are usually pretty safe, many firms fall off the ride and, among those who stay on, most don’t grow. In OECD countries, out of 100 firms that start, only seven actually grow.
Your project or program can target either segment of entrepreneurs but you need to be clear about which one you are targeting so you can manage effectively your — and your stakeholders’— expectations.
3) Unconscious incompetence
How do you know what will unlock the company’s ability to grow? How does the entrepreneur know what the company needs to scale?
The challenge with approaches that wait for the entrepreneur to identify the problem and ask for assistance — the business development services model — is what psychologists call “unconscious incompetence.” Basically, you don’t always know what you don’t know. Think about it: what do entrepreneurs always answer if you ask them what they need? ...finance! How about customers?! How about management and processes? I’m not saying finance is not needed, but it is an over-stated need …or perhaps as marketing professionals would say – a “want,” not a “need.”
A comprehensive diagnostic of the enterprise would identify the correct pain point. In many cases, the “need” is actually not finance, but rather “profitability” and “growth.” It may be external finance, or it may be more customers or higher efficiency that gets you there.
4) Business plans
How much does a business plan tell you about whether or not an enterprise has what it takes to grow? Very often, not much. In many cases, it says little about entrepreneurial capabilities since the entrepreneur doesn’t “own” its content. Besides, most of the challenges associated with starting or growing a business come after the business plan has been produced. That is when challenges become real for entrepreneurs and they need support and guidance.
This is why business plan competitions and boot camps – which are quite popular and have their time and place – cannot be stand-alone interventions.
5) Focus on securing customers
For the “after-care” programs, when I’ve seen them fail, the services were not tailored to the need of the business and the focus on securing customers was missing. Perhaps, because it’s tricky — there’s a lot of trial and error involved. This is also why the “lean start-up” approach became such a big hit. It changes the thinking around when and how to introduce a product or service to the market. This is not a silver bullet – there are critiques of this approach too — but the point is to not forget the customers.
The accessibility of the support services is another key factor that can make or break the success of the various forms of “business know-how support.” Where’s the incubator’s office space? Is it centrally located and easy to get to? Are its services available after business hours and on weekends when entrepreneurs work on their new business idea? Are they available continuously throughout the year or only around annual calls for entry into a program?
Last but not least, you need to build trust. Who provides the advice? Who runs the program? Many programs I’ve come across have problems recruiting entrepreneurs. Meanwhile, entrepreneurs say they need guidance and support. What’s the issue? If you were putting all your savings at stake to grow a business, whom would you trust for advice? A professor? A government official? Another business owner? Who do entrepreneurs learn from? They can learn from peers, from other business owners, from their customers, their financier; any opinion leader that entrepreneurs look up to needs to be involved.
These are some of my reflections on nuances to be aware of when designing entrepreneurship support programs. More to come soon!