Most countries, and indeed most regions, have a positive view of entrepreneurship in terms of its ability to foster local development. As such, there are numerous programs designed to promote and encourage entrepreneurship. The impact of these schemes is largely mixed.
For instance, entrepreneurship training aimed at the underprivileged doesn’t seem to help, whereas they can also fail to adequately address key issues in the local area. Indeed, research has found that attempts to tackle poverty via entrepreneurship have generally failed, with what successes that have emerged typically doing so in areas that are more developed to begin with.
Entrepreneurial growth
A recent study from Boston College’s Carroll School of Management examined why this might be so via the lens of Detroit’s attempts to revitalize itself through entrepreneurship. The study analyzes two organizations, who while generally pursuing the same goal, did so in very different ways.
The first of these was a traditional accelerator program, which identified seemingly high-growth startups that they thought would attract investment and scale quickly. The second organization was a more alternative incubator whose philosophy was that startups should evolve like a living organism. They encouraged companies to leverage the resources that were already present in their local community to aid their growth.
To explore how these two approaches played out, the researchers sat in on every idea development meeting had at both organizations, while also interviewing both the founders and mentors. They also tracked the progress of each of the 27 ventures that emerged from the programs during the two years of their research.
Scaling deep
The analysis revealed that a key problem with the common Silicon Valley model was that it focuses heavily on scaling up, whereas what impoverished communities need is “scaling deep”. The study found that the traditional accelerator focused its efforts on securing venture capital funding, with these investors usually demanding a quick return on their investment. This heavily influenced the direction any startups included in the program took.
This resulted in most of the startups included in the traditional accelerator significantly reducing the scope of their business in order to achieve rapid growth. This did produce a short-term impact in the local area, they ultimately had to leave in order to continue their growth path as bigger markets provided them with the talent and capital they needed.
As such, while Detroit did indeed generate high-growth startups, those startups didn’t really make a lasting impact on Detroit itself as they became decoupled from the region in their pursuit of growth.
Creating deep connections
By contrast, the more alternative accelerator used a style of entrepreneurial bricolage to support the growth of startups. This is where entrepreneurs recombine and repurpose resources that are already available rather than automatically seeking funding support externally.
As such, the founders in this program were encouraged to develop deep and meaningful relationships with various local partners so that they could creatively leverage the resources already available to them to address real problems in their communities. This meant that the ventures became deeply embedded into Detroit and its economy, with growth often slower but much deeper as a result.
Few of the ventures in the second accelerator expanded beyond Detroit, but they nonetheless became successful members of the Detroit economy, and provided services that were sorely needed. The findings are interesting, as founders from both accelerators expressed a desire to help revitalize Detroit when they joined, yet the different approaches of each accelerator significantly impacted their chances of being able to do so.
The startup world is awash with breathless talks of unicorns, which runs the risk of creating an orthodoxy whereby the desires of investors run roughshod over those of not only the entrepreneurs themselves but also the wider community of stakeholders who very much have an interest in how startups grow. While it’s unlikely that the venture-backed approach will go away anytime soon, the research does remind us that it’s not the only game in town and that a different approach could help to revitalize some of the more impoverished areas that have so dominated political discourse in recent years.
