entrepreneur

Modern Times 2.0

Changemaking through the 21st century

I’ve been writing about the role of entrepreneurship in the creation of value and prosperity for many years. This is a natural deduction for me, having spent about half my career working as an economist and the other half starting and running businesses.

In fact, looking back in history, there is enough evidence to support this. The countries that have prospered the most – Netherlands in the XVII-XVIII centuries, nineteenth century England, twentieth century U.S. and, more recently, places like South Korea and Israel – were the ones where people with good ideas had access to capital, under systems that promoted accountability (see here for full discussion).

That said, in today’s world, I’m convinced this vision needs refinement.

Recently, I’ve had the privilege of spending a few hours talking to Bill Drayton, the founder and CEO of Ashoka. Bill enlightened me with his vision of “frame change” and “everyone a changemaker” (EACH) world. During our conversation, it became clear to me that the original model of “entrepreneurship + access to capital” alone is no longer sufficient to promote wealth and prosperity.

In the twenty-first century, the success of people, organizations and countries alike depend on the understanding and implementation of a new framework.

The new model for problem-solving at all levels requires a rupture with the old way of doing things. From the Industrial Revolution through late twentieth century, value was created with efficiency gains, mostly through specialization and repetition. The roles of leadership and innovation were confined to a handful of people, who also benefited disproportionately from the system. The majority of the workforce was limited to dully specialized labor.

As satirized in Charles Chaplin’s “Modern Times” (1936), depicted above, a typical worker would spend most or all of his time doing the same job. Each person would have a defined task, compatible with the education and training received, and would follow orders according to a strict hierarchy. Decisions were made from the top down, by those who controlled information and knowledge.

Nowadays, there is a new game, which is driven by change, not repetition. And everyone wants to be a player.

Information is no longer the privilege of few. Enabling technologies are cheaper and more accessible. Almost anyone, anywhere, has the ability to gather the resources needed to be a changemaker – in their communities, institutions, and country. In this context, the rate of change becomes exponential.

Twenty-first century problems are increasingly being solved by (social) entrepreneurs, who are strategically positioned to come up with the best solutions. People no longer wait passively for others to solve their problems. As the changemaker mantra goes: “everything you change changes everything”, and that’s contagious and unstoppable.

What does this mean for businesses? In such scenario, old structures are doomed. Companies that are not able to adjust will lose relevance and eventually die.

There is no coming back. Institutions must reform and embrace the new world. Leading firms can no longer expect people to work in silos, perform monothematic jobs, take orders at face value, remain detached from the organization’s vision and decision making. Walls must come down.

Teams need to be formed – and dissolved – quickly and seamlessly in order to tackle problems and innovate continuously, under a fluid “team of teams“. This requires embracing a new framework, where every person is offered the resources, networks and tools to become a co-leader in the respective team. Leadership and innovation are no longer the privilege of few, but the responsibility of all.

The EACH framework and the team of teams system reinforce each other and bring the best out of each player.

The new paradigm relies on pro-activeness, empathy and collaboration. Top-down leadership, rigid hierarchies, and aggressive behavior towards others become liabilities. The same values one applies at home, with family and friends, become vital in the work environment. Measures of character and success at work and life are no longer distinguishable. Empathy, teamwork, and leadership become the norm. Those who don’t embrace these values will fall behind.

Make no mistake: changing the way societies think and operate is one of the greatest challenges imaginable.

However, we live in a historical moment. We have the resources to take on this challenge, transforming mindsets and behavior. How exactly? Well, that’s the “seven-billion-people question”. Breaking this code, however, I’m convinced is the key to a more prosperous and peaceful world.

Like Chaplin in the 1930s, Bill Drayton is telling us that there is something fundamentally wrong with our current values and system. And this is no laughing matter.

Andre Averbug is an entrepreneur and economist.

The Benjamin Button Startup

baby startup

Guest post by Suhail Kassim

A new startup is like a baby

A startup needs to be cradled and nourished. Even so, there is no certainty that the baby will grow up to be a lean mean fighting machine. In this post, I begin to investigate the phenomenon of some exciting startups which then refuse to grow up — the “Benjamin Button” startups.

Introducing the Benjamin Button startup

A very small minority of entrepreneurs seem to be amazing at finding the right sort of help in their early days. They join rock-solid incubators, find top-notch mentors, maneuver their way into active university forums, win famed business plan contests, know where the hungry angel investors sit. These entrepreneurs are obviously off to an awesome start. Destined for greatness, right?

Not necessarily. Many (if not most) of these startups struggle to fulfil their potential. They stubbornly refuse to scale-up, linger on until they lose relevance, then meet a slow yet inevitable demise. The internet is littered with outdated websites of nascent ventures that never monetized. The chrysalis never transforms into a butterfly. 

I call such ventures “Benjamin Button Startups”, named after Benjamin Button children who refuse to show signs of growing up.

Startups fail all the time, what’s the big deal?

In my personal experience, there is a growing trend of highly promising startups running into the ground. This trend is disturbing for at least two reasons. 

Firstly, this sends a hugely discouraging signal to all other startups: if these poster children fail, despite everything going in their favor, what hope is there for the rest of us?

Secondly, outside startup hotbeds like the Valley, the early stage ecosystem is typically not vibrant. It often has limited resources that can only support a few chosen entrepreneurs at a time. Hence their imperative to succeed — and thereby to return more to the ecosystem than they took out of it — is higher. When they do not, it causes a small ripple. Just a few such ripples could shake up the already fragile ecosystem. The already wary seed investor will turn away, LP funding will ruthlessly re-route to greener pastures, incubators will be left with tarnished reputations, the Fortune 500 executive will politely decline to mentor the university business plan winner. 

What makes a startup a Benjamin Button?

Sometimes it seems to me such startups are victims of their own early success. The founder confuses the “first big win” with the ultimate destination. He/she gets caught up in all the attention, the award ceremonies, the media buzz, the blogosphere hype. Some entrepreneurs succumb to the heady temptation to become celebrities today instead of business moguls tomorrow. They end up doing a ton of calorie-burning activities like giving guest lectures, mentoring other startups, speaking at jazzy forums. As a result, they stay stuck in the “successful-student-startup” mode instead of growing up. And if the founder does not grow up, the startup won’t either.

There is also an element of hubris. Entrepreneurs sometimes think the same skills needed for early wins will carry them through scale-up. This is almost invariably not the case. Early stage success can happen through blue sky thinking, strong personal and professional networks, hyperactive multitasking, good mentors, and a couple of passionate co-founders. There is adrenaline rush after adrenaline rush. Scaling up, on the other hand, needs grit, patience and the ability to fight boredom. It needs long nights out working on a particularly stubborn piece of code while dining on ramen noodles. It needs the founder to hyper-delegate and decentralize or risk falling into the “Founder’s Trap”. It needs a different kind of mentor and adviser — not someone who can ideate but someone who has actually implemented. 

Also, for VC-stage companies, the VC is always more demanding — and less polite — than the angel investor. Unlike a basement startup with three high school friends who are bootstrapping off their pocket money savings, here the money runs out quicker: the VC-stage venture needs to pay its “employees” (it’s no longer just the co-founders) market-pegged salaries (and, gosh, benefits!) — and I’m not even including joining bonuses and annual bonuses and small stock options to the first 100 employees… . In some ways, starting a venture is akin to a part-time Masters program, while scaling up is like a full-time PhD program. Not every MBA gold medalist is suited to do a doctorate in business administration.

Finally, there is the culture of failure. Some ecosystems reward failure — the Valley places a premium on “fail fast, fail early, fail often” — which reduces the tolerance level needed to slowly but surely cultivate a fledgling startup, leading to premature demise of ventures that should have succeeded. Other cultures punish failure — and in such places, the founder is tempted to grab whatever minor victories he/she can — whether it be to speak at a forum or give a newspaper interview — at the cost of focusing on the core business itself.

See also Time To Start a Business – or Not. Illustration: covenant-harvest.org

Have you witnessed instances of Benjamin Button startups? If yes, do you agree with the reasoning above? What are the other explanations as to why this happens? Leave us a comment and let us know your thoughts!

5 Bad Excuses Not To Start a Business

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Lame reasons to give up before you even start

I often hear people claim to have good ideas for a business, but say they can’t pursue them for one reason or another. Some of course are valid, but others are misconceptions that deserve to be revisited. Here are the top five from my experience.

1. I don’t have the business skills

Not having business experience is not necessarily a problem. There are several ways for a person with a good idea for a product or service to develop it into a business, regardless of his/her background. First, you can look for a business savvy co-founder, someone you trust and that can take the lead on the business side while you focus on developing your product. Second, you can look for structured initiatives that support startups through mentorship and guidance, such as business incubators and institutional programs, like I-Corps and others. Third, you may join an accelerator, like Y-Combinator, TechStars and dozens of others, where mentorship and funding come hand-in-hand. (However, as I point out in another post, you do have to bring something to the table other than just an idea.)

2. I don’t have the technical skills

This is the other extreme to the excuse above: not having the technical skills to develop your product or concept. This is even less of a problem because, if you have the business skills and can articulate the commercial value of your idea, finding engineers or coders to build a prototype or MVP should not be so hard. You might engage them by offering equity (even bringing someone in as co-founder and potential future CTO), royalty payments, or raising a little seed capital to pay consulting fees. You can also explore partnerships with universities and other research centers. If you got something big and present yourself properly, finding the right resources to build your product should not be a deterrent. (Note: In my companies we have built software and websites without previously knowing much about coding – we simply mobilized the right resources).

3. I don’t have the time

Well, you don’t have to immediately quit your job or drop out of school to launch your startup. Most entrepreneurs begin to develop their ideas working a few hours at night and on weekends. If you are really passionate about your idea, you can certainly put on 30+ hours a week even if you are working full-time or going to school. You can also involve people who would put a few hours of their own. After 6-12 months in this “part-time” fashion, you should be able to at least reach a point where you can make an educated decision about betting the next couple of years full-time on it.

4. I don’t have the money

Raising funds for early stage is certainly not easy. But nowadays, building a prototype or MVP is much cheaper than it used to be, so funding needs are much lower on average than say 10+ years ago. There are several free or cheap tools for building products (open source software, Wix.com and others for websites, 3D printers for hardware, CrowdSpring and the like for design etc.) and marketing them (Salesforce, Facebook pages, blogs etc). Similarly, funding has become a bit easier with tools like Angel.co, that match angel investors with entrepreneurs, crowdfunding websites like Kickstarter, and the angel clubs and networks that sprout all over the place. Also, don’t be shy to approach family and friends for seed capital or loans, they will likely appreciate your efforts (as long as you are transparent about the risks). Finally, you may be able to get a lot done without any funding at all, just by bootstrapping and involving the right partners, who would work for equity or success-based returns.

5. I don’t have connections (nobody knows me)

Today it is easier than ever to make your voice heard and connect with people. Even if you don’t know anyone in the industry and don’t have a track record to show for, if you build something that people care about, you will be able to reach the right persons. Check your LinkedIn connections (if you don’t have a LinkedIn account, get one yesterday!) and see if anyone in your network (2nd and 3rd levels included) knows a person you need to reach: ask for an intro. Sign up for all relevant Facebook/LinkedIn groups and take part in discussions. Participate in industry events, meet people, shake hands, network. Cold-call if you have to, just make sure you do it with taste. Start blogging/tweeting about your product or industry. In other words, if you don’t have connections, just make them.

If you believe you have a winning business proposition, as well as the drive and guts to pursue it, none of the issues above should deter you from going for it!

See also Time To Start A Business – Or Not. Picture: ThinkingForward (Tumblr).

Are you sitting on a good business idea? Leave us a comment!

7 Reasons to Join a Business Incubator

business incubator, startup incubator

Business incubators are great for startups

The definition of business incubator (or startup incubator), according to Entrepreneur’s Encyclopedia, is an “organization designed to accelerate the growth and success of entrepreneurial companies, through an array of business support resources and services that could include physical space, capital, coaching, common services, and networking connections”. They are often sponsored by private companies or municipal entities and public institutions, such as colleges and universities.

I spent over three years in two different incubators – Brazil’s Genesis Institute, part of PUC-Rio’s university, and US’s Rockville Innovation Center, run by Montgomery County’s Economic Development Department – and can personally attest to their benefits. They played an important role in leveraging my businesses and providing valuable support in the early stages of my startups. In fact, according to the US Small Business Administration, 87% of incubator graduates stay in business, in contrast to 44% for all firms. To be fair, it is hard to know how much is due to good selection of companies versus good resources and counseling – but you still want to be among the 87%, don’t you?

7 reasons to join business incubators (no particular order)

  1. Seal of approval. When you’re nobody, it’s good to be associated with somebody! As an incubated company in a prestigious institution, when you go out to look for partners, clients, or capital, you can at least show some credentials. People will know that you have gone through a selection process and were capable enough to enter the incubator. While hopefully understanding you’re still a startup, they will have more confidence in your ability to commit and deliver than if you were unknown and unaffiliated.
  2. Administrative support. May not seem as much, but when you’re only a couple of people (or worse, a lone wolf) it is very important to have accessible support to mundane – and not so mundane – tasks, so you have more time to focus on the important stuff. You want to spend as much time as possible developing your business. Admin help usually comes in the form of a common assistant, interns (especially if the incubator is related to a university), affordable bookkeeping, CPA and legal services, as well as access to basic office gadgets and supplies.
  3. Facilities. Good incubators offer you a nice-enough office, with common meeting rooms and a professional atmosphere – certainly much more than your bedroom or garage! This comes in handy when you need to meet with clients and partners, or interview candidates. It is also good for the entrepreneur’s moral. I was able to get much more work done after walking into a decent office, in a nice building, surrounded by other entrepreneurs, than working from home. Also, incubators usually offer flexible and affordable rent and utilities, which you won’t find elsewhere on your own.
  4. Cross fertilization. Being close to other entrepreneurs is great. You are able to interact with like-minded people, most of whom are going through some of the same issues you are facing. You share tips and experiences. Startups in incubators tend to help each other out, and often engage in partnerships and become each other’s clients. I did business with two fellow incubated companies. At the very least, at the end of the day, you feel you’re not alone. Also, if your incubator is affiliated with a university or company, you may develop fruitful R&D partnerships and have access to great talent.
  5. Mentorship and professional services. Incubators are catalysts for mentors and consultants. I was often approached by people wanting to help: some for free, some for equity, others for fees.  Not all help is the same, of course, and in most cases I passed; but one can find specialized help more easily than if working alone. Incubator managers usually have a Rolodex with contacts of  designers, marketing specialists, biz dev folks, engineers, coders etc, who worked for previous incubated companies and are just one phone call away.
  6. Access to capital. All types of early stage investors – angels, seed funds, venture capital – have their radars on incubators, especially the ones with a successful record of spinning good companies. Incubated businesses are often approached by investors, either one-on-one or at pitching or entrepreneurship events. Also, incubators usually do a good job of opening your eyes to funding opportunities you never knew existed, including government and small business grants and subsidized loans. My first company earned a large government grant from the Brazilian government thanks to the hint we got from Genesis and their help in filling out the forms.
  7. Connectivity. Besides connecting with fellow incubated companies and adjacent resources, there are several national, regional and even global incubator networks and programs, such as Brazil’s Anprotec and World Bank’s global infoDev. This means that if you need to internationalize your business, find strategic partners in different countries, or benchmark experiences, being in an incubator can also be useful.

Of course, don’t expect miracles. The success of your business ultimately depends on your company developing products and services people care about, and your ability to adapt and innovate. Also, if you join an incubator, don’t necessarily take all advice you get at face value; people are just people, some are more insightful than others, and not all incubators attract the best talent. But if you’re starting out, that’s definitely a good place to consider.

See also Not All Angel Investors Are from Heaven. Illustration: shutterstock.com

Do you have experience in a business (startup) incubator? Leave us a comment!

Not All Angel Investors Are From Heaven

angel investor

On Angel Investors

As entrepreneurs, in the initial stages of the startup, we often think that the answers to our problems will come in the form of an angel investor. By definition, angels are high-net-worth individuals who get involved early in the company’s life, bringing capital, sector knowledge and network, and relevant expertise.

Angel investors usually invest anywhere between $20k-$300k and take on 10-30% ownership. They spend some of their time coaching entrepreneurs, opening doors, helping the company build the team and product, participating in strategic decisions.

Not all angel investors are the same

However, not all angel investors are the same. Reality has “expanded” the definition of an angel and many times what we see is well-off folks with no particular value-add (beyond the dough) playing the angel role almost as hobby. This is particularly true in less developed markets, such as Brazil (which I know from experience) and the rest of LatAm. Being rich and successful doesn’t necessarily make someone a good angel.

As an example, a retired C-level executive from a large pharmaceutical company may easily have a couple of hundred thousand dollars to spare and decide to invest in a startup. Why not help a couple of smart kids with a brilliant idea for a new technology or web business? What better way to stay busy and motivated!

The problem is that often these investors often have no idea what they are getting into. They just don’t know the real challenges and risks of starting a company. As time goes by, the product doesn’t launch as planned, the bank account gets thinner, and the investor gets nervous.

Entrepreneurs also get frustrated because they had expected miracles from this angel. After all, he is the older, successful mentor, who’s been there, done it all.

But it turns out the guy you looked up to actually doesn’t know much more than you when it comes to building a tech company from the ground. His rolodex only has contacts of retired people from irrelevant sectors. And as he sees his investment going down the drain, he doesn’t think you’re that cute and inspiring anymore.

Of course, I’m painting a pretty extreme scenario here. But the point is that you shouldn’t necessarily accept the first person who’s willing to invest in you. If the angel investor is not a good fit, it’s better to hold your horses, bootstrap the business a bit further, until you find someone who can actually add value to the company.

Originally posted on the Entrepreneur Academy (NEN). Image: nenonline.tv. See also Time To Start a Company – or Not.

What’s your experience with angel investors? Leave us a comment!

An Idea Is Just That – Not Yet An Innovation

Innovation idea new business

Innovation and new ideas

I am frequently approached by people who want to share a new business idea with me. Some are actually good, others, well, you know. Usually the pitch is accompanied by a good amount of mystery and secrecy: “Andre, I’m telling you this because I trust you, but don’t tell anyone; this could be big”. So let me summarize what I tell friends who approach me like that.

Turning an idea (hopefully) into an innovation

First, don’t worry too much about secrecy. Your new idea is likely not as much of an innovation as you think, it has probably come up before in one way or another. And even if it is (almost) that great, you will only be able to go somewhere by sharing it with other people who can give you useful feedback and leads. The chances of someone stealing your idea are probably slimmer than you turning it into a business without sharing it with others. Competent people are busy and know how time consuming and risky it is to start something new.

Second, ask yourself what YOU would bring to the table. Are you business savvy? Have the relevant technical skills? Money to invest? An amazing network in the industry? Lots of time to spare (on top of at least a bit of one of the former)? If you answered “yes” to one or more of the questions, then great, you should move forward. Try to find the people and resources needed to complement your skill-set and hit the road. But if the answers are straight “no’s”, I need to say you should probably let go and try to think of another idea.

To illustrate this, once a friend came to me with a pretty good idea for a mobile app. However, he didn’t know a thing about starting a company or building an app, didn’t have money to invest, didn’t know anyone in the industry, and was not willing to invest a good chunk of his time on it. Seriously? Don’t expect that someone will start a company with you just because you had a decent idea, especially because the idea will evolve/change as the business matures. You need to bring something concrete to the table. Ideas are just ideas… We all have tons of them.

See also Not All Angel Investors Are From HeavenImage: shutterstock.com

Have you ever had a business idea? What did you make of it? Leave us a comment!

MBA For Entrepreneurs Can Still Matter

mba for entrepreneurs

MBA and entrepreneurs

At times it seems MBA programs are passed their glory days. Every so often we see articles saying that they can be a waste of time and money, especially if your goal is to become an entrepreneur. My two cents: if you have no business background and you can afford it, a good MBA is still a great thing! My background is in economics and I wouldn’t have started my first company without the skills and confidence I acquired in business school.

MBA for entrepreneurs

If your undergrad is in the sciences or the arts and you want to start your own company, an MBA can be a good idea. Some will say that all you need is a business-savvy partner; but you know what, it’s not ideal to rely solely on others. Of course you will not become a management guru overnight (you don’t want that anyways), but by going to business school you at least learn the basics, the jargon, and know where to find the answers. You can sit down in front of an investor or Board and not look like a big question mark when they start talking about P&Ls, financial ratios, or SWOT analyses.

In a good business school you also meet interesting people, from different countries and sectors, expanding your network and perspective on things. You can bounce off ideas with smart people and potentially find the partner you’re looking for. You become part of an alumni group that can be of service in the future. Hey, even some of your professors might not be as dull as you think and give you good advice and open doors for you.

Depending on your age and where you currently stand professionally and financially, it might be that a two-year full-time program doesn’t make sense anymore. The opportunity cost can be too high. But you can do a one-year program, there a great ones in Europe, Canada and a few in the US. Or do a part-time executive program. If you can afford it, it’s never a waste to learn new skills and meet good people.

See also Entrepreneurship, Innovation and ProsperityImage: linkedin.com

Are you an entrepreneur and attended business school? Leave us a comment!

Time to Start a Business – or Not

new venture new business startup

What to ask yourself before starting a company

Before launching a startup, an entrepreneur must ask him or herself the following question: Can I support myself for the next 18-24 months? This is specially important if you’re in your late twenties or early thirties.

It doesn’t matter where support comes from. It could be your parents, your own savings, your partner’s job, or a liquid asset you’re willing to sell at some point. It could even come from your first investor, such as an angel, although very rarely outside investors are willing to pay you a (decent) salary, especially in the early days of a startup. The important thing to remember is that it will take longer than you think before your company is making money to pay you, or an institutional investor joins in with a paycheck.

Don’t expect short-term returns when starting a company

Drawn into the excitement of launching their ventures, entrepreneurs usually underestimate the sacrifices to come. Optimists by nature, they assume that something great is going to happen within a year: a successful pilot or beta launch, an investor, even a first client. Not gonna happen. Success stories about entrepreneurs who dropped out of college or left a job to support themselves on credit card debts are very sexy but incredibly rare. They do however get all the media attention. You won’t read a piece on TechCrunch about the entrepreneur who ran out of steam, shut down his company, broke up with his girlfriend in the process, and had to go back to his parents house.

The concept of time is very different for bootstrapping entrepreneurs and… well, the rest of the world! While you’re bleeding and resources are drying up, potential investors and clients will tell you comfortably: “Come back in six months or when you have more clients”. It’s a brutal catch-22 and it will drive you crazy unless you can’t support yourself and get into real world’s time.

If you’re in the early twenties or otherwise can afford it, screw it, take all risks! Starting a company – successfully or not – will be a great school anyways. If that’s not you, by all means, do also go ahead and pursue your dreams. But make sure you first do some planning on the personal front, soldier.

See also MBA For Entrepreneurs Can Still MatterImage: fotolia.com

Have you ever launched a new venture? How did you support yourself? leave us a comment!

Entrepreneurship, Innovation and Prosperity

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Entrepreneurship and economic development

What is the common ground between the economic prosperity of the Netherlands in the XVII-XVIII centuries, nineteenth century England, twentieth century U.S. and, more recently, countries such as South Korea, Singapore and Israel? Although the question could be answered from different angles, fundamentally it can be inferred: in their own time, these countries promoted economic systems where resources were efficiently channeled to the most competent entrepreneurs and endeavors.

Canadian economist Reuven Brenner summed it up perfectly: “Prosperity is the result of matching talent with capital and holding both sides accountable”. The “capital” can come from one or more sources: capital markets, government, savings or inheritance. The “talent” may be fostered internally – through education, incentives for innovation and entrepreneurship, development of a risk-taking culture – and/or imported, with the opening of borders to skilled and entrepreneurial immigrants. Finally, “accountability” is constructed through solid institutions (political, economic, regulatory, legal, social) that promote a stable business environment, where contracts are honored and a long-term perspective is installed.

Back in time, on entrepreneurship and prosperity

In the XVII-XVIII centuries, the Netherlands had the most developed capital market in the world. It operated the forefront of financial instruments, both debt and equity, which enabled people and companies with good business ideas to grow their ventures. Therefore, at a time when most societies were divided essentially into castes – with royalty, nobility and aristocracy keeping their wealth generation after generation – the Dutch popularized the access to capital and implemented a socioeconomic system that was (by the time’s standards) more democratic and meritocratic. Moreover, in addition to having effective institutions, it opened its doors to immigrants from diverse backgrounds, welcoming for example Spanish Jews and French Huguenots, who brought innovations from their countries and who, by definition, were mostly entrepreneurs (what is more enterprising than venturing oneself into a new country?)

A century later, England became the engine of the Industrial Revolution within the same logic: capital-talent-institutions. Innovations, both technological (e.g., steam engines) and of process (e.g., revolutionary management techniques) were only possible due to an economic system where risk was properly rewarded and the process of trial and error was stimulated. In the second half of the twentieth century, the United States, in turn, established itself as the major economic superpower based on: capital (Wall Street, Silicon Valley and its angel investors and VC/PE funds, R&D subsidies); talent (Americans and immigrants educated in universities such as Stanford, Harvard and MIT); and institutional climate (pro-business laws, efficient legal system, overall social fabric etc.)

Immigration was especially important in the U.S. As proof, 40% of Fortune 500 companies were founded by immigrants or their children, including giants such as Intel, Google, eBay, Apple and GE. Furthermore, ¾ of patents developed in American universities had the participation of immigrants. It is no wonder that immigration reform is constantly brought up within the debate for promoting American competitiveness and sustained economic growth.

Recently, the most successful cases of economic development were the Asian Tigers. The political, economic and institutional reforms that occurred in these countries, combined with investment in education and the development of capital markets, enabled a flurry of investments and skilled immigration, driving the growth and development of these countries. Another interesting case is Israel, a nation created just over half a century ago, in the middle of the desert, and that thrives due to skilled immigration and education, dynamic access to capital (private and public), a culture conducive to risk taking, and solid institutions.

Traditionally, the quest for prosperity has been driven by top-down policies, often based on unrealistic economic models. Looking at economies through the lenses of “capital-talent-accountability” gives us a clearer view of the issues at hand, from the bottom up. It provides better grounds for understanding the underlying factors that build an economy and allows for more factual and entrepreneurship-friendly policy making.

Andre Averbug is an entrepreneur and economist.

See also An Idea Is Just That – Not Yet An InnovationImage: source unknown (anyone?)

What’s your opinion about the link between entrepreneurship and prosperity? Leave us a comment!