In pursuit of the bigger picture

Roots

In a way, James Thompson’s work in Africa is bringing him back to his roots.  James is originally from Zimbabwe and grew up in South Africa.  He has an MBA from the University of Cape Town Graduate School of Business and spent some years climbing the corporate ladder in South Africa.  But an exchange programme to the US morphed into a research fellowship at the Wharton School.  There he researched technology commercialisation while managing Wharton’s incubation centre.  An offer from the Wharton Entrepreneurial Programs kept him in academia.  Today he teaches in Wharton Executive Education Programa and leads a programme that is helping entrepreneurs in Africa. 

Putting technology to work, quicker

James is a scientist.  While most entrepreneurs will happily impart their wisdom on the ‘art’ of entrepreneurship, knowledge that is grounded in personal experience and common sense, James tends to see things through a scientific lens.  This matters because good validated knowledge about entrepreneurship should translate into serious economic and social gains.  Take Wharton’s research on technology commercialisation.  It is well documented that there can be tremendous delays in the successful commercialisation of technology.  In fact, many ‘killer applications’ rely on technology that was developed for something completely different.   For example, carbon reinforced fibre was conceived for the US space programme.  It took decades for people to figure out that it could be used for sporting equipment and a huge range of other applications.  Although those NASA scientists might have discovered those applications had they looked (they had likely played or watched sport) they clearly had their heads in space.  

Now if it were possible to accelerate that process of technology commercialisation there obviously would be tremendous gains, not only for the developers of the technology but also for society more generally.  James and his colleagues are looking at this question from an academic perspective and are coming up with some startling conclusions.   For example, when they surveyed the management teams of technology companies, they found that many management teams didn’t even consider the possibility that their technology might have applications other than the one they originally had in mind.  A minority did consider the possibility of alternatives, but did nothing about it. And only a small proportion of teams actively looked for and evaluated multiple applications for their technology and based their subsequent investment decisions on those objective evaluations. Critically, the Wharton researchers found that these companies, the ones that “looked before they leapt,”(1) on average earned twice as much revenue during the first two years of the technology’s launch as those firms that did not.  That’s quite something.

The next obvious question concerns the optimal composition of those founding teams.  It is a well known guiding principle among Tech Transfer departments that you shouldn’t let the engineers or scientists manage their start-up alone.  On the contrary, make sure there is a manager onboard.  But the Wharton research is showing that management experience is not the same as entrepreneurial experience.   Founding teams that have management experience on board do appear to do somewhat better at alternative market identification than teams composed of specialists only.  But the best performing teams at market identification have experienced entrepreneurs on board.

James is insistent that good research can be tremendously useful for government policy too.  For example, many governments invest their scarce financial resources into start-up programmes such as incubation centres, pre-seed venture funds and subsidies.  But if we know that start-ups have a high failure rate and that simultaneously many successful companies grow themselves into insolvency, shouldn’t those scarce resources be invested in growth companies, companies that have passed the first market test. Good research can help policy makers invest their scarce resources for maximum societal gain.

Social entrepreneurship

The question of societal gain is the key driver behind Wharton’s Societal Wealth Programs.   Here the Wharton team began with the hypothesis that many social problems, if looked at from an entrepreneurial lens, lend themselves to a commercial activity that could help solve those social problems.  In other words, is it possible to positively exploit entrepreneurship to solve social problems?   Since the program’s launch in 2001, the Wharton team has been active in about eight projects in Africa and several in the U.S. (the programme doesn’t have a geographic focus—there are market failures everywhere).   

One of their successful projects in Zambia illustrates the concept well.   Wharton got involved with a small animal feed production company in 2001.   Back then the company had six members of staff equipped with shovels.  Today they’re buying capital equipment from Switzerland and are an increasingly important player in the Zambian market.   Wharton’s input is two-fold.  On the one hand, the participating company agrees to comply with a number of operating principles (e.g. aim for profit and societal gain) and to participate in Wharton’s research programmes (recall, the Wharton group is an academic institution, not an NGO).  On the other hand, specialists at the University of Pennsylvania are used for discrete interventions where useful.  In this project, the university developed a linear programming model for calculating optimal animal feed production.  Using this technology, the Zambian company found a viable way of serving and creating many small farmers in Zambia and thus managed to create a new market.  The benefits of this project are thus not only confined to the project itself.  The entire market benefits as new customers are served.  Also, the regional  animal feed industry in Zambia seems to be lifting its game in response to the emergence of this new competitor with higher quality feeds at lower prices.  

Operating principles

While these projects can deliver real economic and societal benefit, they’re also research projects and thus are designed to improve the knowledge Wharton has about what works and doesn’t work in these contexts.  James sums it up; “We don’t like to rely on luck.”  This is important because many of the traditional management concepts are typically prescriptive and therefore irrelevant in this type of early stage entrepreneurship.   By treating each project as a field experiment, the Wharton team has come up with a number of useful principles.  For example, if you’re in a situation where you know very little about the market and your chances of success, then it’s useful to define a number of early checkpoints that will help you decide whether to carry on or pull the plug.  Too often, governments keep pumping money into a bottomless pit because they don’t know when to pull the plug.  Do a proper socio-political analysis.  It may be unwise to start something if the political social-context won’t allow it   Design a low-cost pilot project, but with a hypothesised path to scalability.   Before you start have a plan ready about how and when you will disengage, so that you don’t get trapped into something or cause a social disaster.  There is a cost to disengagement—and many ventures fail.   Assess what the possible second-order effects could be, both positive and negative effects, and plan accordingly.  Assume upfront that you know very little, but that you will learn as you go—and hence adapt.  Therefore initially don’t write a business plan but a ‘proto-plan’.  It’s futile to plan if you know nothing.  A proto-plan is a first attempt at describing the business model and the market.  Subsequently you launch a pilot project and learn.  That’s when you decide to stop the project altogether or start applying what you learned—time for a proper business plan to get to scale.  

Tolerance of failure

James makes it clear that not all their projects are a success.  Sometimes the conditions just aren’t right for entrepreneurship.  And sometimes they just cannot figure out a viable business model.  Failure is inherent to the process.  Fortunately, most failures are small and hence end up being opportunities to learn about the local market; that way they’re able to move on better equipped.  In a way James and his team are trying to follow the mindset of serial entrepreneurs.  Serial entrepreneurs are the really interesting entrepreneurs.  These are the people who get it right time and time again.  But they’re also typically the first to tell you that failure is simply part of the game; it is a very real aspect of entrepreneurial life.  Hence a good ecosystem for entrepreneurship will actually encourage failure (the honourable type, obviously).   This is what has so impressed James about the US as a place to do business, its tolerance of failure.   It’s an impression that many visiting entrepreneurs have.  And strikingly, the tolerance of failure is a common thread that runs through the research conclusions being formulated by the Wharton Entrepreneurial Program.  Whether you’re in Silicon Valley or in Zambia, it seems wise to question your initial assumptions, to acknowledge that you may be wrong or simply know very little.  Failure is likely, but learn from it, and success will be a step closer.

(1)Gruber M, MacMillan IC, Thompson JD (2008). Look Before You Leap: Market Opportunity Identification in Emerging Technology Firms.  Management Science, Vol. 54, No. 9, September 2008.