Kickstarting global entrepreneurship

Category: Business & Economics
Published on Nov 18, 2010

This week is Global Entrepreneurship Week and rightly so. Entrepreneurship is the lifeblood of a dynamic economy and society and the key to solving some of the world’s toughest challenges. Indeed as the global economy continues to sputter, it’s clear that we need entrepreneurialism more than ever.

A study done last year by the Kauffman Foundation shows the extent to which job creation depends on new business creation. Using Census Bureau data, the Foundation examined net new job creation in terms of firm age rather than firm size. From 1980 to 2005, nearly all net job creation in the United States occurred in firms less than five years old. Without start-ups, net job creation for the American economy would be negative in all but a handful of years.

Estimates from the Panel Study of Entrepreneurial Dynamics samples suggest there are about 12.6 million U.S. nascent entrepreneurs.  “Add to this the swelling ranks of the unemployed and there is substantial latent entrepreneurial job creation potential in this country,” says Kevin Kimberlin, Chairman of Spencer Trask – the Venture Capital company that has supported some big job creators dating back to Thomas Edison.  “We need to help these budding companies achieve liftoff.  Failure to launch need not be the norm.  With the proper incentives and platforms in place, we could quickly create hundreds of thousands of new jobs.” It’s the same story in most countries around the world.

The good news is that wikinomics provides a potent set of principles and approaches to help unleash entrepreneurship on a global scale. Thanks largely to the Internet, individuals and small businesses can harness world-class capabilities, access markets, and serve customers in ways that only large corporations could in the past. Small and medium size enterprises can make and sell products to a global market without having to manufacture anything themselves. Thanks to new services such as Ponoko, based out of New Zealand, you can arrange to have your products manufactured and delivered direct to the customer, virtually anywhere in the world. Upload your design to the website, select the materials and Ponoko does everything else. Entrepreneurs who are just getting started can even post their products to Ponoko’s marketplace. Chief strategy officer Derek Elley says, “It’s a bit like low-cost global manufacturing and peer-to-peer commerce straight from your living room.”

Of course, a key issue for entrepreneurs is money. Start-ups can’t breathe without a steady supply of oxygen in the form of investment capital. Surprisingly, only 0.2% of start-up firms are funded by venture capital firms.  Instead, it’s angels, friends, family and the founders themselves that fund most new companies.  This makes them, and not venture capitalists, the primary source of new jobs.

Kickstarter.com, an online community designed to help artists, musicians, athletes, inventors, and filmmakers raise small sums of money from a large number of patrons, taps into and amplifies this DIY funding trend. A band might upload audio and video of itself, submit a description of expenses for recording an album, and watch the money roll in. The only catch: users must set a deadline, ranging from a day to a few months, by which they must raise the entire amount they ask for. If they miss their goal, they don’t get the money. Since Kickstarter’s launch in April 2009, roughly 100,000 people have contributed to 1,000 projects, ranging from rock albums to documentary films to technology ventures.

Kickstarter focuses on finite projects, like collecting enough funding to enable an aspiring writer to self-publish a novel. Funders typically contribute because they are inspired by someone’s creative vision and because they usually get something in return. By giving a writer $15, for example, you may get a book in the mail. But using similar collaborative venture funding models such as Y Combinator, TechStars and Vencorps, entrepreneurs often get more than just short-term funding. They can find encouragement in the form of a supportive environment, access to resources, mentoring and connections, and even customers.

Every year, for example, Y Combinator invests a small amount of money (an average of 18K, or just enough to hatch a promising idea) in a large number of early stage ventures. But rather than end the relationship there, the startups move to Silicon Valley for 3 months, during which founder Paul Graham and his team works intensively with young innovators to whip their companies into shape and refine their pitch to investors. Each cycle culminates in a Demo Day, when the startups present to a large audience of investors. For all its effort in coaching and mentoring, Y Combinator takes a small slice of equity in each company (an average of 6 percent).

Five years ago, when the tech incubator first started, the Demo Day consisted of eight companies and an audience of 12 friendly investors. Today, the events take place over two days and are considered a must-see for hundreds of angel and venture investors, including celebrities such as Ashton Kutcher and Demi Moore.

As with all things spawned in bulk, some companies hatched by Y Combinator will die, some will flourish and some will eke by. But the overall track record is promising. To date, the innovation incubator has spawned successful ventures such as Reddit, Scribd, Disqus, Dropbox, Justin.tv, DailyBooth, WePay and some 200 others.

So how might this new form of collaborative entrepreneurship play out globally? Arguably, the largest well of untapped entrepreneurial energy can be found  in the developing world, where the reason for stalled growth is not a shortage of good ideas, but a chronic lack of capital to fund them. Unfortunately, the international community, with its focus on funding big infrastructure projects, has largely overlooked the potential to accelerate economic development by fostering a dynamic and competitive small and medium size business sector in poor countries.

So if international institutions aren’t rising to the challenge, is there a platform or approach that can ignite new businesses and help fight poverty at the same time? Look no further than Kiva.org, a Web-based marketplace where people invest their philanthropic dollars directly in business opportunities in the developing world that can transform not only the lives of the entrepreneurs running them, but also the fortunes of a broader community.

This is not your typical charity. Nor is it your typical bank. Rather, Kiva appeals to people who relish the opportunity to engage more purposefully in the fight against poverty. Co-founder Matt Flannery calls Kiva “a platform for collaboration and a chance to develop genuine business relationships between lenders and the loan recipients.” Flannery points out that most lenders take the opportunity to dig into the business plan, provide advice, and monitor the progress of the recipients. Once the loan is repaid, lenders can re-lend to another entrepreneur, donate their money to Kiva, or withdraw it. Over 90% of participants choose to reinvest it.

Today, just five years after being founded, just shy of half a million people, aged 1 to 101, have used Kiva to channel over $172 million to more than 449,000 entrepreneurs across not just Africa, but the world. This impressive track record suggests that a largely self-organized, system of peer-to-peer lending not only works, it provides a sustainable way to lift millions of people out of poverty. Indeed, Kiva represents much more than a philanthropic initiative or even a new collaborative approach to banking. It points to something much more profound – a new, more entrepreneurial model of global problem solving.

Co-founder Jessica Jackley says “This human-to-human connection and collaboration is the most powerful force for change on the planet.” To her, Kiva blurs the boundaries that keep people separated—boundaries between rich and poor, donors and beneficiaries, the developed and developing world, us and them. “These boundaries prevent us from solving the big problems of our time,” she says. But through communities like Kiva all this could change. “It would represent a pretty profound shift in how we see and believe in each other,” says Jessica, “but it’s the kind of transformation that can change the world.”

Of course, Kiva, Ponoko, Y Combinator and Kickstarter are just a few testaments to the power of collaborative entrepreneurship.  Around the world, countless social entrepreneurs are creating wealth and enriching society at the same time. With some 400 events in over 100 countries, Global Entrepreneurship Week provides the spotlight that these innovators deserve.

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