Entrepreneurship contagion: how it spreads

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Entrepreneurship spreads thanks to a network, and that network pushes each player in three different ways. (Image via Mancef.org)

This is part two of an edited crosspost from Knowledge@Wharton. The first part is here.

The pattern of entpreneurship contagion in Buenos Aires, Istanbul and Mexico City is remarkably similar.

The first phase is what we call the role-model effect, where the success of early pioneers like Buenos Aires entrepreneur Wences Casares, founder of online brokerage Patagon.com, inspires others.

Pablo Orlando, the co-founder of GoodPeople, a rapidly expanding online community for action sports lovers based in Buenos Aires, remembers hearing about Casares’ $750 million Patagon exit when he was still a teenage skateboarder. It convinced him that being an entrepreneur could be a “real, sustainable career — a life choice,” Orlando said.

“I thought, ‘If Wences could do it, I could do it too.’”

As powerful as role modeling can be, the influence of high-impact entrepreneurs runs much deeper.

Their early success gives them the capital — human, social, financial — to reinvest in aspiring entrepreneurs. That powers the next generation and inspires those leaders to invest in the generation after that. The network helps entrepreneurs in three distinct phases of their careers, periods we call “Get Going,” “Go Big,” and “Go Home.”

‘Get Going’

Entrepreneurship doesn’t just spread on its own.

It spreads because more experienced entrepreneurs actively cultivate the growth of those around them. 

First-generation entrepreneurs help aspiring founders recognize the cracks in their businesses and how to address them with a revamped revenue model, a customer acquisition plan or an effective human resources strategy.

Casares sets aside an hour a day to help others, usually in the late afternoon when he’s transitioning from work to home.

The founders of Officenet, Andy Freire and Santiago Bilinkis (below, image via Perfil), set the goal of helping three new companies a year by making introductions, reviewing business plans and helping with fundraising.

Often what they tell aspiring entrepreneurs is not what they want to hear. Blunt talk is highly valued.

As young students in Buenos Aires, Frank Bujaldon and Franco Silvetti sent many unsolicited emails to Officenet’s Bilinkis requesting a meeting. Eventually Bilinkis accepted.

He met the pair 10 more times before they showed up unannounced one day and pitched him an idea to start an online restaurant reservation system called Restorando.

Bilinkis liked the concept but not their approach. “They were young, hungry and smart,” he said. “But they were engineers, so they didn’t know how to start a company.” He and Freire nonetheless gave them $500,000 in seed capital to tweak their model and build a prototype.

They also introduced the pair to Nicolas Szekasy, an early MercadoLibre executive who had co-founded a $135 million venture capital firm called Kaszek Ventures.

Szekasy in turn introduced the Restorando founders to Niklas Zennstrom, the co-founder of Skype and leader of the global VC fund Atomico, who helped them complete a Series A round of more than $3 million – a rare sum in Latin America.

‘Go Big’

One of the biggest misconceptions about how entrepreneurship spreads is that it’s all about that first leg up.

That’s critical, of course, but young entrepreneurs also need help managing the treacherous process of scaling a fast-growing enterprise.

Our research clearly indicates that one reason entrepreneurship has blossomed in these communities is that older entrepreneurs didn’t just sprinkle some goodwill and angel investing and then disappear.

They stuck around to help their younger colleagues navigate tricky growth decisions.

Columbians Andres Rodriguez and Juan Carlos Vera (left, image via El Tiempo) developed a proprietary technology that helped companies use artificial intelligence to communicate more efficiently with customers.

Their company, BlueMessaging, got off to a promising start, growing at more than 100 percent annually in its first three years. But when growth slowed, Vera and Rodriguez knew they needed help.

They turned to a community of entrepreneurs around Mexico City who were eager to lend a hand.

One issue: all the employees at BlueMessaging were young and green.

Alonso Carral, an established entrepreneur who started Mexico’s first internet service provider and sold it to CompuServe, told the founders they needed more grown-ups around the office.

“He explained to us we did not have a finance or marketing problem, we had a people problem,” Rodriguez said.

Carral helped the BlueMessaging duo find a headhunter, and the two hired a CFO, COO and others, including an experienced hand from Boston Consulting Group.

Sometimes, the most critical advice is as much about eliminating options as creating them.

When Firat and Fatih Isbecer founded Pozitron, an Istanbul-based mobile money business, for instance, they met Wences Casares through Endeavor.

At the time, Pozitron had some traction in mobile solutions but was tempted by other adjacent businesses.

“Wences encouraged us to move away from other services we were offering such as [customer relationship management] and focus solely on mobile solutions,” Firat said.

The advice paid off. The Isbecers sold Pozitron in 2014 in an exit worth $100 million.

Helping founders decide when to exit and how to do so gracefully is invaluable.

In the mid-2000s, Globant, one of the fastest-growing IT companies in Buenos Aires, faced a tricky decision: sell the company to one of several willing buyers or risk holding on amid Argentina’s mercurial economic environment.

Globant’s CEO, Martín Migoya, and his co-founders had been inspired early on by MercadoLibre and turned once again to the Buenos Aires network for advice.

The message was clear: “Your outlook is strong and you have real prospects for growth. Turn down the money.”

Migoya and his partners wavered, but felt buoyed by the support.

“We could have been millionaires at the age of 30,” he said. “It was very tempting. But we decided that we should not sell.”

Instead they continued to expand and Globant, which went public on the NYSE in 2014, is now valued at $1.1 billion.

‘Go Home’

One of the more striking things we found in studying these ecosystems is how willingly entrepreneurs gave back to the network and their communities once they achieved their own success.

When young entrepreneurs get support from first-generation founders, the unspoken message is that it’s their duty to pay it forward to others.

In countries without long histories of business collaboration, this shift in mentality is critical. It helps to create a virtuous cycle in which the mentored become mentors and the students become teachers.

A growing network of tech entrepreneurs in Istanbul shows how this cycle works. Equal parts friendship, business and mentorship bond this group. Members play poker together, go clubbing together and vacation together.

At 39 and 47, Nevzat Aydin and Sina Afra are the senior members of the group.

They met in the 2000s when Aydin was starting Yemeksepeti, an online food ordering company, and Afra was starting Markafoni, a flash-sale website similar to Gilt Groupe.

In 2011, Naspers, the South African media giant, acquired Markafoni at a valuation of $200 million, making Afra an instant rock star in the tech community.

Four years later, Aydin sold Yemeksepeti to Delivery Hero for $589 million, making it the largest tech exit in Turkey’s history.

Having “gone big,” Aydin and Afra turned back to Istanbul, the city that helped them get their start.

As trusted advisers, they helped the Isbecer brothers expand and sell Pozitron. They also became mentors to a new generation of entrepreneurs like Hakan Bas, the founder of Lidyana, Turkey’s leading online jewelry and accessories business.

When Bas made headlines after becoming romantically involved with a model, Aydin called him up. “People now know you as someone dating a model rather than the CEO of your company. Your personal life is overshadowing your professional life.”

Bas was jolted, but grateful. “Lots of people give me advice about business; he’s more focused on coaching me as a leader.”

The mentorship isn’t free, however. Bas pays Aydin back by paying it forward. “Before, I used to say, ‘I will help out if I have time.’ Now I say, ‘I will make time to help out.’”

The Istanbul entrepreneur network. Click here to enlarge. (Image via Knowledge@Wharton)

A virtuous cycle

This is the virtuous cycle in action — one generation helping the next for the good of the entire system.

To MercadoLibre founder Marcos Galperin, these ecosystems mark a generational change in how business is done. “They are shifting people’s thinking from a winner-take-all mentality to one where everyone benefits from the group’s success.”

But for anyone looking to create this kind of dynamic climate for business and innovation, it is crucial to understand that it doesn’t just happen because somebody builds an incubator or creates a seed-financing fund.

It requires seeking out the high-impact entrepreneurs in a given market and helping them scale through the right mix of mentorship, investment, connections and resources.

Once a handful of local scale-ups have succeeded, the multiplier effect can take hold and the ecosystem can begin to sustain its own growth.

That creates a deep reservoir of support and resources that companies can draw on throughout their life-cycle, from startup to maturity.

We’ve seen time and again, even in the most challenging business environments, that high-impact entrepreneurs exist in every market. The key is finding them, helping them scale and encouraging them to let the contagion spread.

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