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BUILDING HIGH-IMPACT ENTREPRENEURIAL ECOSYSTEMS

CREATING CAPACITY Comparison of Organizations Supporting Entrepreneurship Across the World

a report from:

supported by:


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written by Ashley Eberhart & Ioana Niculcea Endeavor Insight


Endeavor Insight Creating Capacity: Comparison of Organizations Supporting Entrepreneurship Across the World

I. II.

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Introduction

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Types of Entrepreneurs Supported

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III.

Services

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IV.

About

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I. Introduction Entrepreneurs leading small- and medium-sized enterprises (SMEs) that can grow into larger companies are critical sources of job creation for countries across the world. A SME, defined as a company with 10-249 employees, will typically employ 20-35 people.1 On average, a single SME that grows to become a large enterprise with more than 250 employees will create 100 times more jobs than a newly launched micro-enterprise, and almost ten times more jobs than a new SME with no plans to expand.2 The creation of new jobs at high-growth SMEs is particularly important in places with high poverty rates. These countries often face double-digit unemployment, and the lack of stable, formal employment is one of the best predictors of poverty.3

Figure 1: ANDE Member Organizations Classified as Capacity Development Providers By Year Founded Source: Surveys and Interviews. n=59

70 60 50 40 30 20 10 0

96

19

97

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1 98 999 000 00 002 003 004 005 006 007 008 009 010 9 1 1 2 2 2 2 2 2 2 2 2 2 2

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1 20

Over the last fifteen years, a number of organizations have been founded to support entrepreneurs who lead SMEs in emerging markets. Key reasons for supporting entrepreneurs include poverty alleviation, job creation, and economic growth. These entrepreneurs require more than just investment to thrive. However, there is very little literature identifying how organizations outside of the investment world can leverage training programs, mentorship, and technical assistance to contribute to the growth of SMEs. To fill this gap, this report will share the results of interviews with and surveys of organizations that provide non-monetary services to entrepreneurs. 1 Why Becoming Large Matters, Endeavor Insight 2012 2 Why Becoming Large Matters, Endeavor Insight 2012 3 Poverty Reduction through Job Creation and GDP Growth, Endeavor Insight 2012


Endeavor Insight Creating Capacity: Comparison of Organizations Supporting Entrepreneurship Across the World

The 42 organizations included in this research were identified through their membership in the Aspen Network of Development Entrepreneurs (ANDE), a leading global network of organizations that invest money and provide expertise to propel entrepreneurship in emerging markets. All 42 of these organizations are classified as “capacity development providers” within the ANDE network, meaning that they provide business development and advisory services to entrepreneurs and do not offer direct investment as a primary service. Examples of capacity development providers within ANDE include Endeavor; TechnoServe, which works with enterprising people in developing countries to build competitive farms, businesses, and industries; and Root Change, a socialchange organization driving innovation in social, economic, and environmental development. In 2011, ANDE members spent $112.6 million providing capacity development services to entrepreneur-led businesses.4 This report seeks to address three questions: • Which entrepreneurs and businesses are targeted by these support organizations? • What types of services do organizations supporting entrepreneurs typically offer? • What are the characteristics and methods of the organizations that work primarily with high-growth entrepreneurs? METHODOLOGY: Data for this report was collected in July and August of 2012. ANDE member organizations classified as capacity development providers were surveyed or interviewed to provide data regarding the three questions above. For the purposes of this research, organizations whose primary purpose was something other than direct support of entrepreneurs were removed from the sample, leaving 42 organizations in the analysis. In a handful of cases, organizations that did not provide direct responses to survey questions were accounted for by collecting publicly available data from the websites and annual reports of these organizations. KEY FINDINGS: Several high-level conclusions can be drawn from this research: • Organizations that targeted SMEs are more likely to go smaller than larger. In addition to their work with SMEs, 67 percent of the organizations surveyed also work with micro-enterprises, which have less than 10 employees. Only 26 percent of organizations also worked with large enterprises employing at least 250 people. • Target populations are very common. Target industries are less common. A majority of organizations surveyed work with a specific population of entrepreneurs, such as women or bottom-of-the-pyramid focused entrepreneurs. Only 26 percent of organizations, however, worked with entrepreneurs in a specific industry vertical. 4 2011 ANDE Impact Report

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• Improving entrepreneurial capabilities and access to finance are the two areas where organizations are most likely to build programs. Only two of the 42 organizations surveyed did not work in either of these two areas. • Close to 50% of organizations working with entrepreneurs report significant growth among the majority of their clients. Forty-seven percent of the organizations in the survey reported that a majority of the businesses they support could be classified as high-growth companies - i.e. 20 percent or more average annual growth measured by either revenues or jobs. Organizations that do not target specific populations or work with socially-focused entrepreneurs were even more likely to see their clients’ firms achieve high growth rates.


Endeavor Insight Creating Capacity: Comparison of Organizations Supporting Entrepreneurship Across the World

II. Types of Entrepreneurs Supported SMEs are the primary target of the organizations that participated in this survey. Two-thirds of the organizations surveyed also targeted micro-businesses. Support of large enterprises, however, remains relatively limited, with only 26 percent of organizations directly targeting these companies in their work. Anecdotally, several respondents noted that many of the large enterprises their organizations support were companies that had originally received support as SMEs and that had grown to become large while taking part in their organizations’ programs.

Figure 2: Size of Enterprises Served by Organizations in the Survey Source: Surveys and interviews. n=42.

Micro SMEs

Large 0%

20%

40%

60%

80%

100%

The entrepreneurship-support organizations included in this survey are more likely to target a specific type of entrepreneur than a specific type of industry. While a slight majority work primarily with a targeted population, such as women, bottom-of-thepyramid businesses, or young people, only about 25 percent of organizations target a particular industry. Among those organizations that do target specific industries, the most common sectors of focus are technology, agriculture, and clean energy.

Figure 3: Percent of Organizations in the Survey that Focus on Target Populations or Industries Source: Surveys and interviews. n=42.

Focus on Target Population Focus on Target Industry 0%

20%

40%

60%

80%

100%

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III. Services Figure 4: Areas of Focus for Organizations Included in the Survey Source: Surveys and interviews. n=42

Entrepreneurial Capabilities

88%

Access to Finance

86%

Market Conditions Culture R&D and Technology Regulatory Environment 0%

10%

20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of ranking each area as a primary or secondary focus

The 42 organizations examined for this study work in a wide range of countries and under several different structures. Seventy-one percent are registered as NGOs or non-profits, while 24 percent are private/corporate entities and 5 percent classified themselves as public-private partnerships. To learn more about how these organizations work with entrepreneurs, each respondent was asked to list where they were active within the entrepreneurship ecosystems of the countries in which they operate. The term “entrepreneurial ecosystem” is frequently used to describe the way that individuals, companies, and organizations in a specific location interact to influence the development of entrepreneurs. According to the Organisation for Economic Co-operation and Development (OECD), the components of an entrepreneurial ecosystem can be classified into six categories:5 • Access to Capital: Finance options available to entrepreneurs • Culture: Awareness of and attitudes towards successful entrepreneurship • Education & Capabilities: Availability of human and social capital • Market Conditions: Macro-economic factors affecting competitive openness in a country • Regulatory Framework: Legal regulations and administrative burdens affecting business development • Research & Development and Technology: Level of market-driven R&D and commercial innovation in a given country 5 Measuring Entrepreneurship: A Digest of Indicators, OECD 2009


Endeavor Insight Creating Capacity: Comparison of Organizations Supporting Entrepreneurship Across the World

Respondents were asked to rank the areas within the ecosystem where their organizations are most active. Entrepreneurial capabilities and access to finance were top priorities for almost all the organizations working to support entrepreneurs. Only two organizations in the entire sample did not work to address these areas. This is consistent with the high-priority needs identified by a broader sample of ANDE member organizations polled for this research. Over 125 ANDE member organizations, including capacity development providers, accelerators, government agencies, and other institutions, were asked, “If you could do anything to help entrepreneurs grow faster, what would it be?” The top three words included in their responses, in order of frequency, were finance, capital and connections. Agora Partnerships’ accelerator, which provides access to mentors, consulting services, and entrepreneurship education materials to selected companies, is an example of a program designed to improve entrepreneurial capabilities. In the area of access to finance, example programs include Bid Network’s program to facilitate the establishment of angel networks; New Ventures’ work to create research designed to spur investment in the industries it supports; and the Investor Network program at Endeavor, an initiative designed to connect US-based venture capitalists with high-impact entrepreneurs and local investment partners across Latin America, the Middle East, and Africa.

Figure 5: Percentage of High-Growth Entrepreneurs* Supported by the Organizations in the Survey Source: Surveys and interviews. n=42 *High-growth is defined as an average of 20% or more annual growth in revenues or headcount.

11% (Almost None)

31%

47%

(Less than 25%)

(Half or More)

11% (25-49%)

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GROWTH OUTCOMES Almost half of the organizations surveyed reported that a majority of the companies they support can be classified as high-growth enterprises, meaning that they average 20 percent or more annual job or revenue growth. Conversely about 42 percent of respondents reported that less than one-fourth of the companies they support have achieved these growth rates. This suggests that the organizations surveyed place differing levels of emphasis on targeting entrepreneurs with high growth potential. Certain types of organizations are even more likely to see high growth rates among the clients they serve. For example, more than 70 percent of organizations that do not focus on social entrepreneurs or target populations reported that the majority of companies they support could be classified as high-growth enterprises. Organizations that support social entrepreneurs or target populations were less than half as likely to see a majority of their clients classified as high-growth businessess.

Figure 6: Percentage of Organizations with a Majority of High-Growth Clients Source: Surveys and interviews. n=42

Focus on social entrepreneurs

36%

Do not focus on social entrepreneurs

0%

75%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Figure 7: Percentage of Organizations with a Majority of High-Growth Clients Source: Surveys and interviews. n=42

Focus on specific populations

27%

Do not focus on specific populations

0%

71%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Endeavor Insight Creating Capacity: Comparison of Organizations Supporting Entrepreneurship Across the World

RECOMMENDATIONS Many of the organizations included in this survey have identified poverty alleviation, job creation, and economic growth as key reasons for their support of entrepreneurs in emerging markets. In order to impact in these areas, Endeavor Insight has identified the following recommendations based on the research in this report and other publications. • More organizations should consider working with larger enterprises in addition to SMEs. Larger companies may have high potential for future job creation and poverty alleviation since they have already reached scale and have demonstrated a record of previous success. Organizations that choose not to work with these companies are likely passing up valuable opportunities. • Additional programs and services that target cultural change should be developed. Studies on the development of entrepreneurial ecosystems have identified cultural dynamics, such as attitudes toward failure, as some of the most important determinants for the development of successful entrepreneurial networks.6 The majority of organizations in this survey reported that this area was not a focus of their work. Organizations that can leverage their direct work with entrepreneurs to influence the local cultures where they operate are likely to significantly multiply their impact. • Organizations should recognize tradeoffs between target populations and high-growth. Organizations that target social entrepreneurs or specific populations are half as likely to report that the majority of their clients’ firms are growing at high rates. This suggests that there are often tradeoffs that must be accounted for when designing programs and services for these groups.

6 Paths to Prosperity, Monitor Group 2009.

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IV. About About Endeavor Endeavor is leading the global high-impact entrepreneurship movement to catalyze longterm economic growth. Over the past ten years, Endeavor has selected, mentored and accelerated the best high-impact entrepreneurs around the world. To date, Endeavor has screened more than 30,000 entrepreneurs and selected 726 individuals leading 455 highimpact companies. These entrepreneurs represent over 200,000 jobs and over $5 billion in revenues in 2011 and inspired future generations to innovate and become entrepreneurs too.

About Endeavor Insight Endeavor Insight is the research arm of Endeavor that seeks to deepen understanding of how high-impact entrepreneurs contribute to job creation and long-term economic growth in order to educate key constituencies, such as policy makers. In addition, Endeavor Insight seeks to serve as a knowledge center for high-impact entrepreneurs, VCs and others in order to provide useful information and tools that assist high-impact entrepreneurs as they grow their business.

About Omidyar Network Omidyar Network is a philanthropic investment firm dedicated to harnessing the power of markets to create opportunity for people to improve their lives. Established in 2004 by eBay founder Pierre Omidyar and his wife Pam, the organization invests in and helps scale innovative organizations to catalyze economic and social change. As of October 2012, Omidyar Network has committed more than $580 million to for-profit companies and nonprofit organizations that foster economic advancement and encourage individual participation across multiple initiatives, including entrepreneurship, financial inclusion, property rights, government transparency, consumer Internet and mobile. To learn more, visit www.omidyar.com


Endeavor Insight Creating Capacity: Comparison of Organizations Supporting Entrepreneurship Across the World

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Endeavor Insight January 2013 Copyright Š Endeavor Global www.endeavor.org/insight facebook.com/endeavorglobal @endeavor_global

Creating Capacity  

Comparison of organizations supporting entrepreneurship across the world.

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