Global Entrepreneurship and the Successful Growth Strategies of

380 Pages·2011·16.82 MB·English

Global Entrepreneurship
and the Successful Growth Strategies
of Early-Stage Companies
This publication has been prepared for general guidance on matters World Economic Forum USA Inc.
of interest only, and the views expressed in this publication have been Copyright © 2011
based on workshops, interviews and research and do not necessarily by the World Economic Forum USA Inc.
reflect those of the World Economic Forum, the World Economic Forum All rights reserved.
USA or any of the contributing Companies or Institutions, nor does
it constitute professional advice. The reader should not act upon the World Economic Forum USA Inc.
information contained in this publication without obtaining specific 3 East 54th Street
professional advice. The information in this report, or upon which this 18th Floor
report is based, has been obtained from sources the authors believe to New York, NY 10022
be reliable and accurate. However, it has not been independently verified Tel.: [phone]
and no representation or warranty (expressed or implied) is given as Fax: [phone]
to the accuracy or completeness of the information contained in this E-mail: [email protected]
publication, and, to the extent permitted by law, the authors and www.weforum.org/usa
distributors do not accept or assume any liability, responsibility, or duty
of care for any consequences of the reader or anyone else acting, or World Economic Forum
refraining to act, in reliance on the information contained in this publication 91-93 route de la Capite
or for any decision based on it. The World Economic Forum CH-1223 Cologny/Geneva
undertakes no obligation to publicly revise or update any statements, Switzerland
whether as a result of new information, future events or otherwise. Tel.: [phone]
Fax: [phone]
E-mail: [email protected]
www.weforum.org
All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, including photocopying and recording, or
by any information storage and retrieval system without explicit written permission from the World Economic Forum USA and the respective authors.
Cover photographs: Getty Images
Global Entrepreneurship
and the Successful Growth Strategies
of Early-Stage Companies
A WORLD ECONOMIC FORUM REPORT
In collaboration with
STANFORD UNIVERSITY, GRADUATE SCHOOL OF BUSINESS, SPRIE and STVP
The World Economic Forum would like to thank Endeavor for their contribution to this project and the report.
A full list of contributors can be found on pages 370-375.
Global Entrepreneurship and the Successful Growth Strategies of Early-Stage Companies World Economic Forum 1
Core Project Team and Authors Steering Committee Members
Lead Academic, Calvin Chin,
Professor George Foster, Chief Executive Officer, Qifang,
Stanford University, USA People’s Republic of China
(Technology Pioneer and Young Global Leader, World Economic Forum)
Professor Antonio Davila,
IESE, Spain Kevin Comolli,
Partner, Accel Partners,
Professor Martin Haemmig,
United Kingdom
CeTIM (Centre for Technology & Innovation Management),
Germany and Stanford University, USA Howard Cox,
Advisory Partner,
Professor Xiaobin He,
Greylock, USA
Huazhong University of Science and Technology,
People’s Republic of China Dan’l Lewin,
Corporate Vice-President for Strategic and Emerging Business,
Professor Ning Jia,
Microsoft Corporation, USA
Tsinghua University, People’s Republic of China
Bernard Liautaud,
From the World Economic Forum General Partner,
Balderton Capital, United Kingdom
Max von Bismarck,
Linda Rottenberg,
Director and Head of Investors Industries,
CEO and Co-founder,
World Economic Forum, USA
Endeavor, USA
Kerry Wellman, (Social Entrepreneur and
Senior Community Manager, Investors Industries, Young Global Leader Alumni, World Economic Forum)
World Economic Forum, USA
Jean-Bernard Schmidt,
Founding Managing Partner,
Sofinnova Partners, France
Project Administrator
Helmut Schühsler,
Diane Lee, Managing Partner,
Stanford University, USA TVM Capital, Germany
David Spreng,
Founder and Managing Partner,
From Endeavor
Crescendo Ventures, USA
Shaun Young, Niklas Zennström,
Senior Manager, Founder,
Endeavor, USA Atomico Ventures, United Kingdom
(Young Global Leader Alumni, World Economic Forum)
David Wachtel,
Senior Vice-President, Marketing, Communications and Research,
Endeavor, USA
2 World Economic Forum Global Entrepreneurship and the Successful Growth Strategies of Early-Stage Companies
Contents
4 Preface
6 Executive Summary
10 Section 1 – Alternative Strategies of High-Growth New Ventures
30 Section 2 – The Early-Stage Entrepreneurial Company Journey
50 Section 3 – Early-Stage Company Growth and Decline: Creation and Destruction Evidence for Revenue
and Jobs from 10 Countries
70 Section 4 – Early-Stage Company Growth: Evidence and Analysis from “Fast Growth Company”
Published Rankings
82 Section 5 – Early-Stage Company Growth: Management Systems Adoption as a Growth Accelerator –
Evidence from CEO and CFO Surveys
92 Section 6 – Venture Capital Investment Activity for Early-Stage Companies Around the Globe
108 Section 7 – Executive Cases: Interviews with Senior Executives of Early-Stage Companies
370 Acknowledgements
374 About the Authors
Global Entrepreneurship and the Successful Growth Strategies of Early-Stage Companies World Economic Forum 3
Preface
The World Economic Forum is proud to release this report from our Building on the prior work, the purpose of this report is to provide further
“Entrepreneurship and Successful Growth Strategies” project. insight into how to successfully foster entrepreneurship with the
The project was initiated in Spring 2009 as part of the World Economic ultimate goal of improving economic growth, prosperity and quality
Forum’s Investors Industry Partnership programme to provide a better of life. The report is the culmination of an 18 month-long partnership
understanding of the genesis of early-stage entrepreneurial companies, among leading international scholars, Endeavor, industry practitioners,
to compare their growth paths across different geographies, and other distinguished experts and stakeholders, and the Forum. The core
to further explore the impact of these companies on employment research team, led by George Foster, Wattis Professor of Management
and innovation. and Dhirubhai Ambani Faculty Fellow in Entrepreneurship at the
Graduate School of Business and SPRIE/STVP Faculty Affiliate
After avoiding a collapse of the global financial and economic system, at Stanford University, included:
governments around the world are now focused on building a
foundation for future growth. In addition to safeguarding the economic - Professor Antonio Davila, IESE, Spain
recovery, the world is facing a number of transformative challenges - Professor Martin Haemmig, CeTIM (Centre for Technology &
such as an increasing scarcity of natural resources, significant Innovation Management), Germany and Stanford University, USA
demographic shifts, and the environmental and social implications - Professor Xiaobin He, Huazhong University of Science and
of climate change. Technology, People’s Republic of China
- Professor Ning Jia, Tsinghua University, People’s Republic of China
In dealing with these challenges, governments across the world have
taken an increasingly strong interest in entrepreneurship. Entrepreneurs In a matter of only 18 months, this group oversaw 70 executive
are recognized as important drivers of economic and social progress, case studies2 from 22 countries, 110 surveys from 17 different
and rapidly growing entrepreneurial enterprises are viewed as important countries and the analysis of revenue and headcount data for over
sources of innovation, employment and productivity growth. Some 380,000 companies.
of the most influential enterprises of our time began relatively recently as
small entrepreneurial ventures. Many governments are therefore trying Intellectual stewardship and guidance was provided by an actively
to actively promote entrepreneurship through various forms of support. involved steering committee, including:
The World Economic Forum has been actively engaging early-stage - Calvin Chin, Chief Executive Officer, Qifang, People’s
and later-stage high-growth companies for many years through its Republic of China
Technology Pioneers programme and its community of Global Growth - Kevin Comolli, Partner, Accel Partners, United Kingdom
Companies. Furthermore, in February 2010, the World Economic Forum - Howard Cox, Advisory Partner, Greylock, USA
published a paper based on the analysis of over 28,000 enterprises - Dan’l Lewin, Corporate Vice-President for Strategic and Emerging
in 126 countries examining the record of government support for Business, Microsoft Corporation, USA
venture capital in terms of value creation, employment and innovation.1 - Bernard Liautaud, General Partner, Balderton Capital,
The study found that modest levels of direct government venture capital United Kingdom
support and indirect encouragement (through subsidies and tax - Linda Rottenberg, CEO and Co-founder, Endeavor, USA
concessions), in conjunction with private financing, can augment the - Jean-Bernard Schmidt, Founding Managing Partner,
performance of young companies. At the same time, excessive Sofinnova Partners, France
government support seemed to be counterproductive. - Helmut Schühsler, Managing Partner, TVM Capital, Germany
- David Spreng, Founder and Managing Partner,
Crescendo Ventures, USA
- Niklas Zennström, Founder, Atomico Ventures, United Kingdom
4 World Economic Forum Global Entrepreneurship and the Successful Growth Strategies of Early-Stage Companies
The opinions reflected in the analyses and executive cases are solely the
views of the authors or the interviewees and do not necessarily reflect
the opinions of the steering committee or the World Economic Forum.
We trust that the World Economic Forum’s “Entrepreneurship and
Successful Growth Strategies” project and this publication will both
provide relevant input and catalyse important further dialogue
among governments, entrepreneurs, investors and other stakeholders e
c
a
regarding the role and potential of entrepreneurship. Moreover, Pref
we hope that the report will specifically be useful to:
1. Governments seeking to better tailor their initiatives to create thriving
entrepreneurial regions/industries/cultures.
2. Young entrepreneurs looking for guidance from successful past
experiences of growth companies during their first decade.
3. Financial and other partners of early-stage ventures wishing to
better understand how they can promote the growth of companies
with which they are partnering.
4. Educators on entrepreneurship seeking further empirical studies
and cases on which to base their curriculum.
On behalf of the World Economic Forum and the full project team, we
wish to thank the members of the steering committee, the academic
team, the interview and workshop participants, and Endeavor for their
invaluable support. 
Max von Bismarck Kevin Steinberg
Director and Head of Investors Industries Chief Operating Officer
World Economic Forum, USA World Economic Forum, USA
1 Brander, J. , T. Hellmann and Q. Du (2010), ”Governments as Venture Capitalists: Striking
the Right Balance”, in Gurung, A. and J. Lerner (eds.) Globalization of Alternative Investments
Working Papers Volume 3: Global Economic Impact of Private Equity 2010, New York:
World Economic Forum USA, 2008, 27-52.
2 Of the 70 executive case studies, 40 appear in the print version of the report. All 70 case
studies are available for review in the online version of the report http://www3.weforum.org/
docs/WEF_Entrepreneurship_Report_2011.pdf. The 40 cases in the print version of the
report represent a cross section of industries and geographies.
Global Entrepreneurship and the Successful Growth Strategies of Early-Stage Companies World Economic Forum 5
Executive Summary
Entrepreneurs are important drivers of economic and social progress and Key Insights
change. Much of our daily lives is greatly influenced by entrepreneurial
companies. Many such companies in their first 10 years launch new Section 1: A new framework of eight different growth strategies that
ideas or new products that transform society and the way people live, early-stage companies from around the globe are adopting. These include
work and play. Recombinant DNA, the desktop computer revolution, the wave ventures, new product in new category ventures, new product in
Internet, mobile telephony and social networking are examples of areas existing category ventures and idea transfer/transplant ventures. The
where sea changes have occurred in the lives of billions and still occur “wave strategy” reflects the incredible dynamic forces that can come out
in all parts of the world. In each of these areas, early-stage companies of the early-stage company sector. Companies like Microsoft, Genetech,
have been a key stimulus to the discovery, development or broadening Google and Facebook not only have their own rapid growth, but also
of impact surrounding the new idea or new product. The last decade stimulate (and benefit from) a broader ecosystem of related companies.
has seen a heightened global interest in early-stage entrepreneurial Another important growth strategy in our framework, from a global
companies. Increasingly, the examples of successful early-stage companies entrepreneurship perspective, is the idea transfer/transplant strategy.
that are changing society come from around the globe. Countries Many successful idea transplant ventures engage in substantive
continue to increase their efforts to develop hot spots to promote the adaptation of the idea developed in a different geography as part of their
starting and growing of such entrepreneurial companies in their own growth strategy. This new strategy framework adds more structure to
cities and regions. There is growing venture capital activity in countries the seemingly large amount of diversity in the stream of new ventures
such as China and India and other areas of Asia, as well as in Latin that start in many countries.
America, the Middle East and Africa. It is against this backdrop that the
research underlying this report was conducted. Section 1: A new framework of eight different opportunity/risk factors
associated with the different growth strategies. Examples include
market size, market value creation, market value capture, management
Global Dimensions of Report team and execution/scaling. Many prior discussions in this area
over-emphasize the risk dimension of such factors. This report highlights
The report presents a rich and diverse set of evidence and analysis the importance entrepreneurs from around the globe place on taking
pertaining to early-stage companies from all continents. The evidence a perspective of proactive opportunity. The report includes extensive
base includes: quotations from many entrepreneurs, including those who encountered
substantive difficulties. These quotations highlight that viewing the
• Individual company information developed by the project team: (a) 70 business world through an opportunity lens is part of the DNA of many
executive cases from 22 different countries, and (b) surveys from the successful entrepreneurs. Starting and building a new venture typically
CEOs and CFOs of 110 companies from 17 different countries; there requires an enormous amount of optimism, stamina and ability to survive
is a minimal overlap of seven in the companies in (a) and (b) some very rocky seas.
• Public databases and published rankings pertaining to early-stage
companies and high-growth companies: (a) revenue and headcount Section 2: A systematic look inside the growth engine of early-stage
data for over 380,000 companies from 10 different countries, and companies from around the globe. Using a database of 70 executive
(b) high-growth company rankings from 13 different countries cases, we highlight the rankings key early company players attribute to
• Extensive interviews and meetings with entrepreneurs, investors, and different growth accelerators and different growth challenges.
government and industry representatives from all continents Factors related to (a) market opportunity/customers/competitors, and
(b) human resources/people/organization culture dominate both the
In many countries, there is a dearth of detailed evidence on the growth accelerators and challenges. A key finding is that the similarities in
paths and growth determinants of early-stage companies. By examining early-stage companies around the globe are far greater than their
a diverse set of different types of evidence, more reliable insights into differences. An aspect of the report that attracted high interest
global entrepreneurship can be obtained than are currently available. in interviews is the dark moments that entrepreneurs reported
encountering along their journey. These dark moments include major
customers departing, failed research projects, living through the
dot-com meltdown with dramatic reductions in demand and heavy
cutbacks in headcount, and financial difficulties with high debt levels.
Of much interest is that the dark moment quotations include many
comments about “never giving up” and “a deep belief in their ability
6 World Economic Forum Global Entrepreneurship and the Successful Growth Strategies of Early-Stage Companies
to overcome even extreme obstacles”. Sir Martin Sorrell’s (WPP) Some early-stage companies may open up new markets but are unable
comment is illustrative: “In those dark moments I never ever thought to defend those initial gains when the big players come to town.
that we were going to go down. Not even for one second.” We introduce two new related concepts in Section 3 – we call them
the Mountain of Creation and the Valley of Destruction. These two
Sections 3 and 4: Extensive evidence on the growth paths of concepts highlight how the net revenue and net job creation that we
early-stage companies from over 380,000 companies covering report for this early-stage sector mask the larger gross creation by some
10 different countries is presented in Section 3. The norm of most companies and simultaneous large destruction by other companies ary
m
m
companies in their early years is a combination of up years and down (who were the creators in prior years). u
S
years. We label this a ladders and snakes growth path. For example, ve
uti
c
42% of companies have a pattern of two positive revenue growth Section 5: Systematic analysis of the importance of companies adopting e
x
E
years and one negative growth year in their Year 2 to Year 5 eras management systems in their early years. An extensive database was
(either +/+/- or -/+/+ or +/-/+). We also present systematic evidence built on the speed of adoption of 13 management systems by 110
in Section 4 from surveys of high-growth companies in 13 different companies from 17 different countries. Our Section 5 database enables
countries. This evidence highlights the low probability that companies analysis of whether differences in the rate of management system
with high growth rates in their early years will sustain those growth rates adoption are associated with differences on their concurrent or subsequent
over even a subsequent two- to three-year period. Being labelled a growth. Companies that had the highest adoption of management
high-growth company in many of the published rankings of high-growth systems by either Year 2 or between Year 2 and 5 had the fastest
companies is a de facto label of “likely very short-run, high-growth increase in headcount in their first five years. These findings are of
company”. Key aspects of successful growth management of special interest to understanding how management of early-stage
early-stage companies around the globe include: (a) taking early companies can take actions that increase or decrease the likelihood
actions to reduce the magnitude of down years, including reducing that they will experience subsequent sustained growth. Failing to
the likelihood of a subsequent downward spiral, and (b) taking lessons systematically adopt management systems when high growth is
from the down years to build a stronger engine for future growth. occurring is what we label a self-inflicted wound. These companies
are reducing the likelihood they will become high-growth companies
Sections 3 and 4: Documentation of the dominant contribution played in their first five years.
by a small percentage of companies as regards both (a) total company
growth in the early-stage company sector, and (b) total company decline Section 6: Up-to-date evidence on global trends in venture capital (VC)
in this same early-stage sector. The simultaneous analysis of growth and investment. We analyse these trends using data on VC investments
decline is an important contribution that highlights the sizeable instability made in companies based in North America, Europe, Israel and Asia.
in this sector. We present the first extensive evidence that covers both There are dramatic differences in the types of VC investments being
revenues and headcount growth in Years 2 to 5 of early-stage companies made in different parts of the world. For example, venture money
across multiple countries (Year 2 is our start year as it is often the first full invested in Chinese companies is more likely to be at later stages in
year of operations). For example, the top 1% of all companies ranked by their development and more likely to be in the consumer segments
the level of revenue (job) creation contributes 44% (40%) of total sector of the economy vis-à-vis VC-backed companies in North America,
revenue (job) creation. The top 1% of all companies, ranked by the level Europe and Israel.
of revenue (job) losses, accounts for 53% (46%) of all sector revenue
(job) losses. Our results here have multiple implications. One area is Entrepreneurs are people who have ideas, have vision and are willing to
government policy. The potential impact on reduced early company challenge the status quo. They play a vital role in society and the global
sector growth contributions from possible policies should be a factor to economy. On the basis of extensive quantitative data analysis and
be considered in policies that target the highly successful companies 70 case studies, including some of the most iconic entrepreneurial
(such as the introduction of “super profits tax” or reduced tax deduction success stories of our time, the following six sections of this report will
offsets for income and payroll taxes). A second area of implication is hopefully not only provide in-depth insights into the phenomenon of
in company decision-making. Understanding the root causes of the global entrepreneurship, but also help to encourage and foster further
sizeable revenue losses and job losses we document in the sector is high-impact entrepreneurs around the globe. The work highlights the
important. One explanation is self-inflicted wounds due to poor diversity of the topic and is meant as a first step in an area that is still
company management (such as not investing in management systems in need of far more examination and analysis. 
that scale). An alternative explanation is that the initial large gains by
some early-stage companies are transferred to larger companies.
Global Entrepreneurship and the Successful Growth Strategies of Early-Stage Companies World Economic Forum 7
8 World Economic Forum Global Entrepreneurship and the Successful Growth Strategies of Early-Stage Companies