Fueling Accelerated Scale-up: Trust and Community Keys to the Innovation Ecosystem

As I listen to thought leaders in the area of entrepreneurship and consider implications for women’s empowerment, I naturally connect the dots with my own experience. One concept that particularly resonates with my experience is scale-up.

The best discussion of this issue that I have seen recently is David Isenberg’s November 30th 2012 post, “Focus Entrepreneurship Policy on Scale-Up, Not Start-Up,” on the HBR Blog Network. Provocatively, he challenges:

“Would you allocate more of society’s resources to giving birth to more babies or to raising children well? Now, think about enterprise creation and the challenge of economic growth. Societies’ leaders need to rebalance entrepreneurship policy towards scale, not start.”

Isenberg laments the overemphasis today on start-up at the expense of scale-up. He characterizes scale-up as a greater challenge and more beneficial from an economic development standpoint. I could not agree more.

I am much more of a scale-up person than a start-up person (although I have certainly been involved in my share of startup ventures, too). During the first year I managed an agribusiness development fund in rural Russia in the early 1990s, we achieved an astounding success: all 100% of the SMEs we nurtured and funded repaid the loans we guaranteed on their behalf. I would like to be able to say that I had established a team of financial wizards that could pick winners flawlessly. But honestly, that wasn’t the case. The “secrets” of our success were the following:

  • Trusting relationships. We were building on entrepreneurs’ success and focusing on building a trusting relationship with each and every one of the SMEs. The mutual trust was critically important, because it enabled us to encourage and support businesses to help them thrive.
  • Community linkages. Also important were the linkages we had in the community: Our operations were firmly embedded in the region. Although this wasn’t a formal, legally accountable association like the funds established by Muhammad Yunus, the renowned microfinance pioneer in Bangladesh, we nurtured a community network, which played a significant role.

The most important role wasn’t compliance with repayment terms, of course. We helped to seed an ecosystem through interactions fostered by our program and our partnerships with the local government; infrastructure partners like banks, law firms and established businesses, as well as the entrepreneurial ventures themselves.

When faced with a challenge, an entrepreneur would come to us because we fostered trust. We were then empowered to leverage our relationships to help resolve some of our clients’ problems. Business deals were struck among our clients, as a new, market-based, quality-driven system emerged. Through those linkages, processors eventually entered the lucrative but hard-to-navigate Moscow market, which posed significant barriers to entry. 

None of the projects that we funded and nurtured, started up from scratch. We funded the scale-up of ventures that had already begun to establish a track record. We were in the business of empowering and enabling those entrepreneurs to achieve the next level of success at an accelerated rate of scale-up.

We had a strong technical and management team that leveraged the relationship we had nurtured with the entrepreneurs to add real value to their enterprises. As an “aid” program, we were an alternative source of funding to more traditional investment schemes. But that doesn’t change the fact that already successful entrepreneurs met us more than halfway, having identified market opportunities and taken the initiative to build businesses in the quickly changing environment of post-Soviet Russia.

Works Discussed

Isenberg, David. (2012, November 30). “Focus Entrepreneurship Policy on Scale-Up, Not Start-Up,” HBR Blog Network.  http://blogs.hbr.org/cs/2012/11/focus_entrepreneurship_policy.html

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