"Impressive dear colleague, but does it also work in theory?"

Yesterday I gave a presentation to 50 students at the University of Groningen. The subject of the lecture was startups and the differences between the Netherlands and Silicon Valley. I was hoping to share knowledge with student entrepreneurs about running businesses, motivation, acquiring resources, stimulating and obstructing factors, etc.

But when I asked who was an entrepreneur there was no response. And when I asked who thinks of becoming an entrepreneur I counted 5 hands. Few students could give examples of entrepreneurs in their direct surroundings. And nobody knew the difference between a new entrepreneur and a startup.

This was not a Cultural Anthropology class. These students were 3th year Business Studies following the minor Entrepreneurship. I was amazed… and unfortunately my presentation was more like a one-way lecture than the interactive discussion I was hoping for.

I do not believe that all students in this class are averse against entrepreneurship or lack the ambition. I think it is because they don’t have examples. The majority of the students in this class do not have young entrepreneurs in their network.

After class a student approached me. He told me he has the ambition to do more with entrepreneurship but he doesn’t know how. When I asked him why he was interested he told a story about his brother being active in the startup scene of Amsterdam. There you go…. examples of energetic, cool and innovative entrepreneurs in your direct surroundings make students interested in entrepreneurship.

For a University you have to ask the question: Do you follow the minor “Entrepreneurship” to taste the practical part of entrepreneurship or are you going to study the theory of entrepreneurship? I think you can catch best of both worlds.

Entrepreneurship is an economical concept of the destabilizing factor in an economic equilibrium. The entrepreneur introduces innovations to produce at lower cost or to bring new products and services that change the market (Schumpeter called this creative destruction). The entrepreneur is the agent that makes this change happen and his actions are the foundation of economic growth.

As well the economics of entrepreneurship and the psychology of the entrepreneur is interesting material to study. But by studying these theories alone you do not experience entrepreneurship.

My advice to the University is to send the students to as many entrepreneurs as possible during a couple of weeks. They can learn from their motivation, observe their behavior and see what impact entrepreneurs have on their employees, customers and other stakeholders. After this the students studies the economical and psychological theories of entrepreneurship and relate this to the observations. Voila… a perfect combination of a practical and theoretical minor Entrepreneurship.

To kick start this I invite all the students to come to the Launch Cafe www.launchcafe.nl and have a lunch with the entrepreneurs.

I am now finishing my second Uganda blog at the Entebbe airport. I call it a week… I have visited many places all over Uganda and I met a lot of great people. My experiences of the first days are already described in my previous blog. So I’ll start from there.

Challenges for small scale bakeries

On Monday morning I had a nice discussion about the “small scale bakeries” with Marjon and Matano (managers of Bbrood). The ladies of the small bakeries buy flower for 150k Shilling (about 40 euro) while Bbrood can buy it in bulk for 96k Shilling. Besides the expensive raw materials, the small scale bakeries also have problems because of their limited production capacity and their low selling price. We did some calculations and concluded that they must make a severe loss. But we found different ways to overcome these challenges.

Later that day sister Veronica, local manager Bake for Life, took me to the bakery campus at Tororo (200 km east of Kampala). After a 5 hour drive (on a road full of potholes) we arrived at the location where we were welcomed by the others Sisters and the staff of the bakery.

The campus of Bake for Life in Tororo

The Little Sisters

The sisters at the bakery are member of the Little Sisters of St. Francis. Over 600 nuns work on various projects all over the world with one objective: “Empower the disadvantaged”. The selection criteria to become a Little Sister are strict. The will to make the world a better place is not enough. It is also essential to have a degree in a certain area. Among the Little Sisters you find docters, lawyers, accountants, econimists, etc. The Little Sisters is a charity organization managed by professionals.

The Little Sisters of Tororo

On Tuesday I got a tour on the bakery campus and I talked to the bakers. It was very interesting to see how it works. A couple of years ago Bake for Life donated the bakery facility to the Little Sisters. The sisters have the responsibility to run the bakery and now manage to make a small profit. It looks good at the first place. But it is important to mention that the sisters do not get a salary. It is possible (and necessary) to improve the performance of the bakery to make it “real” sustainable. I think the sisters should look at the possibility to increase/differentiate the production and increase sales.

But it is not all about making bread on the campus. At the end of May the Sisters start a bakery school. At this school young people learn how to bake bread and how to run a bakery business. Starting this school is very smart and lucrative. It will become one of the few bakery schools in East Africa. I looked at the curriculum and I was impressed by the professional outline. After some discussions about the IT and entrepreneurship courses the Sisters even offered me a job as a lecturer.

A young, proud baker at Tororo

It is about infrastructure

After a warm goodbye at the Sisters I took a local mini bus to the city Jinja on Wednesday morning. Jinja is known for the source of the river Nile. It was nice to see where this mighty river starts. I was also hoping to see the famous Bujigari Falls. But unfortunately the new dam made the waterfalls disappear. Hopefully this dam will give sufficient electricity in return….

Everyday I was reminded about the importance of infrastructure. The roads, electricity, water supply, etc. in Uganda are poor (worse than other African countries I’ve visited). The frequent power cuts in Uganda destroy business. I looked into the financials of the Tororo bakery. Almost 25% cost saving is possible with a better infrastructure. The bakery has an expensive generator (running on diesel) to cover for the daily powercuts. And because of the horrible roads (the traffic and high fuel prices) the logistic costs are very high. As long as the Ugandan government does not invest in sustainable infrastructure the growth potential of Uganda remains limited.

Construction of a small scale bakery

On Thursday morning I returned to Kampala for a meeting with the engineers. Last Saturday the engineers joined our visit at the small scale bakery. I was surprised they were able to make a proposal that fast. The proposal was very complete, but at a high price (probably negotiable). I was glad with the information because it gives me a good overview of the total investment to make this project work.

Discussing the proposal of the engineers

Local hero

Later that day I had a meeting with Barbara. Barbara is a successful result of the work of the Little Sisters. She started as a student at one of the bakeries and worked herself up as manager of one of the Bbrood shops in Kampala. Next to her busy job she studies and takes care of 15 orphans. She is a real hero, an example for young women!

Barbara (right) and her Bbrood team

Sun oven and rain

Time flies….. Friday again. For the afternoon I planned a demo for the Sun oven. But a few hours in advance it was called of. According to the supplier the weather conditions made a demonstration impossible. This was strange to me because it was all sunny. But an hour later it was raining cats and dogs. Uganda has two rain seasons (March – May and September – November) so I now have my doubts if the Sun oven is a serious alternative.

Heavy rain in Kampala

So what is next?

To conclude: I think that sustainable small scale bakeries in rural areas are possible. But it is not easy and it needs a professional approach. I’ll finish the report next week. I hope that my analyses and recommendations give Bake for Life sufficient information and confidence to upscale the project.

I really enjoyed being in Uganda, meeting all the wonderful people and work on this great project. Hopefully I can come back soon!

In Jinja where the Nile starts

Crossing from one place to another in and around Kampala in a 4×4 or boda boda (motorcycle). My first day in Uganda was overwhelming.

Boda boda in Kampala

Sustainable bakeries in Uganda

For the coming week I am going to investigate how we can setup a (small scale) sustainable bakery concept in local villages in Uganda. The main goal of these bakeries is to empower the women (who run the bakery) and to create business and jobs in rural areas.

These bakeries are sponsored by the Dutch foundation BakeforLife. Almost three years ago the first local bakery was constructed and four women where put in charge. Supported by a microcredit program, the women were responsible for making the bakery financially sustainable. BakeforLife had the ambition to open more bakeries throughout Uganda (and other African countries). But before expanding the concept they wanted to evaluate the results of their first bakery. Based on the experiences and lessons learned the goal was to get a blue print for a sustainable bakery that can work in an environment like Uganda. And that’s where I came in.

Bbrood and the potential of the bread in the world

I arrived on Entebbe airport on Friday evening. After an 1,5 hour drive in a non stop traffic jam I arrived in a mansion south east of Kampala (the capital of Uganda). I was welcomed by Renee, one of the initiators of the project. Renee is also owner of 8 Bbrood bakeries in the Netherlands and two in Kampala. Bbrood is a hip and modern looking bakery providing nutricious, sustainable and high quality bread products. Renee is a strong entrepreneur with large ambitions. Bbrood is already a successful concept and further international expansion in the rest of Africa and Asia is already in the pipeline.

For me it is enourmously interesting to get involved in the bread business. Bread is a huge industry in the Netherlands and bread has a central place in the Dutch food culture. The Dutch are probably one of the biggest bread consumers in the world. But in other parts of the world consuming bread (in this case nutricious bread) is not common. There is still a huge market to serve considering that consumers all over the world are getting more interested in tasty and healthy bread products.

Bbrood located in the center of Kampala

Bbrood: Hip, modern and orange

How to setup a sustainable bakery in rural areas

The first rural bakery is about 50km north of Kampala. We got a warm welcome of the baker women and they proudly showed us the facility. But since two months they stopped making bread because of reconstruction. They have built an extra room next to the bakery for a guard. Many of the materials in the bakery got stolen during the night. The women hope that a permanent guard would prevent that in the future.

But there are more problems worth mentioning. The women were trained by professional bakers. They have the necessary skills to make bread. But these women have health issues (I was told that some had HIV). Mixing and molding dough is a process that requires strength. This was often problematic and as a result their production capacity was only around 240 buns a day. Sometimes there was no production at all. The production was too low to make profit. The limited production capacity is also due to little awareness of the market. The women have no idea how much buns they can sell to consumers, wholesale (shops) or schools. And there is an issue concerning the procurement of resources. One of the baker women told me that every week she buys flour and other resources. This takes her almost a whole day and she pays around 150k shilling (around €40,-) for 50kg of flour. This is a high price considering it can be 2/3 of the price when bought in larger quantities.

So to summarize the areas were the challenge are: security, production capacity, market awareness and procurement.

Discussing the issues like security, production and market

One of the baker women

The sustainable “sun oven”

A special visit was the demonstration site of the sun oven. An American company developed a device that captures the heat of the sun and boils the air in the oven. This sun oven is able to create temperatures up to 250 degrees (more than enough to bake bread). I have to say that it looked too good to be true. This oven only uses sun energy, has a life time of at least 15 years and requires almost no maintenance. Compared to wood heated ovens (causing deforestation and emissions) this is the most sustainable solution imaginable. But there are also disadvantages. The oven doesn’t work when there is no sunlight, it is hard to adjust the temperature and the investment is severe. Unfortunately we had little time to get all questions answered. Hopefully I can have another visit later this week and get a real demonstration.

The sun oven

Next steps

During my first day we also visited other small and large bakery facilities. In only one day I got a good impression how bread and Uganda works. The information was overwhelming and it is still hard to digest everything. Luckily I now have the time to capture most of my impressions in this blog.

I am going to visit several other locations this week. Tomorrow I have interviews with other people involved in the project. In the afternoon I’m heading to the town Tororo for two days. BakeforLife realized a facility in Tororo that is a combination of an orphanage, (baker) school and a bakery. Handicapped children get the opportunity to learn to become a baker and to get a job in the bakery. I’m looking forward to visit this place.

… and after Tororo there are still a lot of other places I want to visit and people I want to talk to. But I also want to see more of Uganda. For Wednesday I’m planning to spend a day in Jinja. This town is famous because it is the source of the Nile river. I was also told that this was a beautful place with lots of waterfalls and wild water rafting.

Keep you posted…..

Business Incubator

This week I was at the NW University in Vanderbijlpark again to assist in the incubator project. When I arrived on the campus I entered the (almost) finished incubator facility. It was impressive and I was excited to see that the facility had the same style as our new Launch Cafe in Groningen.

Last august we designed the facility on paper and the whole facility needed to be build from scratch. For African measures (also for Dutch) a realization period of 8 months is very fast. We are glad the first milestone is reached.

Before

Now

Next milestone: student entrepreneurs

A fancy facility is nice, but of course it is about the student entrepreneurs in the facility. At first I thought this was a hard job. The popularity of entrepreneurship in South Africa is modest. I was told that students are not aware or see a job as more attractive.

But since the beginning of the project we encouraged lecturers and other University staff to promote entrepreneurship. Every student needed to hear the message “you can get a job, but it is better to create jobs”. The last months rumors started on the campus that the University was building a place where students could start a business. It was bearing fruits. Last week dozens of students approached us to get more information. Their dream: Setup a successful business. Wow!!

Business competition

To get the most ambitious students in the incubator we decided to start a business competition. I proposed to use the format of the Business Match Groningen. My colleague Koen Atema was chairman of this competition and was awarded a national price as best initiative to stimulate student entrepreneurs . The idea was to select around 25 students in May. We train the students to conceptualize their idea and pitch it. The top 10 wins a spot in the incubator. Early June we organize a cocktail party with important people from the public and private sector in this part of South Africa. During this event the 3 best students give a pitch to get attention, build up their network and try to get finance.

Funding

After the competition the entrepreneurs also have to opportunity to apply for funding. I was inspired by the TOP program of the University of Twente and I used their successful format. We already have € 50k in our fund and we hope that business angels and banks are willing to chip in.

Students already wanted to start

Social entrepreneurship

“Is it all about business?”. That was a question of an ambitious student that approached me. He takes disadvantaged children off the street. He puts these children in a soccer team and after soccer practice he teaches them values and helps them with school. He was so passionate about it that he almost cried telling about it. He wanted to professionalize and expand his project but he didn’t know how to do it.

I explained him that setting up a business equals the creating value. His project does create value: it gives disadvantaged children a chance for a better life. Also in “social” entrepreneurship the important question is: “who is willing to pay for the value created?”. So I learned him to think about customers (like NGO’s, government, SCR departments), how he has to approach these customers and what the revenue streams are. I also told him to think about the resources he needs to build his organization. He became more and more excited and directly applied for the business competition. I hope his idea make it to the finals!

Social entrepreneurship is creating value

Next time

Late May I’m returning to the NW University to train the finalists. I am going to help them to setup a realistic business model and to give a mind blowing pitch during the grand opening of the incubator. I’m looking forward to it!!

Thanks

Unfortunately I’m here only a couple of times a year so I can not experience the daily process. But every time I’m here I see that huge steps are taken. The local team working on this project is great. Herman, Ruan, Clarise and Tumi thanks for your enthusiasm and passion! See you again at the end of May!

Clarise (marketing), Ruan (incubator manager)

Tumi (office management)

Next stop for me

Uganda: Helping to setup a business model for sustainable bakeries in villages.

At this moment of writing this blog I’m waiting for the good old KLM606 flight to bring me back to the Netherlands, where it is wet and cold… Talking about the weather. There may be a positive relation between the weather climate and the business climate. Many SV entrepreneurs I’ve interviewed mentioned the positive effects of 25 degrees and sunshine all year round.

Silicon Summit

My study in SV started seven weeks ago. I attended countless events and I officially interviewed about 30 entrepreneurs, investors and professors. During my study there was an intermezzo from 14th to 23rd of October when a group of 16 Dutch entrepreneurs came over to participate the Silicon Summit. The Silicon Summit was intensive and inspiring. We had a lot of presentations, workshops, pitch events and company visits at Google, Blackbox and Mozilla. The summit is organized every year by the Dutch Consulate in San Francisco. The goal of the summit is to inspire Dutch startups and show them the possibilities of doing business in SV. The local newspaper from Groningen published a nice article about the experiences of the entrepreneurs from Groningen.

Entrepreneurship is a lifestyle

So what did I learn? Well I am still in the process of digesting all the information but to make a start: in SV entrepreneurship is everywhere. You are surrounded by entrepreneurs while drinking a latte in the Starbucks (the Starbucks is actually the first office for many early phase startups). The density of entrepreneurs is very high and you always meet people who are involved in startups. Whether you are at a Jazz festival or a Halloween party, there is a high chance you meet entrepreneurs and end up with a great conversation. SV is designed for startups. Even the billboards and commercials along the roads are focused on startups. Entrepreneurship is a lifestyle, a lifestyle that is desired by many people.

My observations

So why is entrepreneurship a lifestyle, why are there so many startups and why do most big IT companies have their roots in SV? According to my interviews and observations there are several reason. I’ll try to sum them up:

Nothing to lose, everything to win
To start a startup you have nothing to lose and everything to win. The flexible labor market makes it easy to hire and fire. Employees are not familiar with job security so why not start for yourself. When you are young and talented you can choose to work at Google and make 200k a year. With your own startup you can change the world and hope for a successful exit that makes you a multi millionaire. However the chances of that to happen are small, it is always worth a try. And if you fail, you have lost nothing but gained a lot of experience. You can always go work for Google, but many “failed” entrepreneurs just start something new.

Local heroes
Entrepreneurs have a high social status in SV. Steve Jobs (Apple), Larry Ellison (Oracle), Larry Page (Google), Mark Zuckerberg (Facebook) and many others are considered as true heroes. These heroes are not unreachable Hollywood stars but actual people living in the Valley you can meet at Starbucks in Palo Alto. Young entrepreneurs identify themselves with them and are motivated to become just like them. I was in San Francisco when Steve Jobs died. During that week the Apple store was like a pilgrimage. Thousands of people brought flowers and posted messages to show their last respects.

No entry barriers
The barriers to start a business are very low. Setting up an IT startup is very cheap. You only need a laptop (MacBook), a mobile phone (Iphone), a workspace (Starbucks) and some cloud services (Google Docs, Amazon Cloud) to build your online product. There are no administrative or legislative obstacles to start a business. And you don’t have to worry about taxes because you are not making any money yet. The government doesn’t obstruct nor stimulate entrepreneurship, they are invisible and let things take their course.

Availability of resources: finance, knowledge and network
I divide the resources in three categories: 1) financial capital (money), 2) human capital (knowledge) and 3) social capital (connections).

1. There is a lot of investment capital available from informal investors and VC’s (40% of all VC investments of the USA are made in SV). These investors act pro active and very professional in their search for the best ideas, teams and entrepreneurs to invest in. An investment is considered as essential (sometimes it is a goal). In the competitive Internet business it is all about speed and money accelerates your business.

2. Silicon Valley is a hotspot for talent. The world’s best engineers, marketers and managers can be found here. Some educated at Berkeley or Stanford, but many are from outside the USA. The financial, legal and other supporting industries are specialized in startups. It often happens that these service providers do not get paid but get a stake in the startup.

3. Having the right connections is essential. It is easy to build a strong network because there are a huge numbers of network events and possibilities to have valuable unexpected meetings (serendipities). In this competitive environment it is remarkable that people are very open and willing to share knowledge and relations.

Accelerator programs play an important role to combine these resources. Ycombinator, 500 Startups and Techstars provide startups with office space, money, coaching, management and a huge network. In return they get a share of around 5%. Startups participating in an accelerator program have a huge competitive advantage. Although most of them fail, some become a big hit that compensates the losses of all others. For example Ycombinator’s Dropbox, founded in 2007, is now valued at 5 billion USD.

And most important…. culture
I want to finish with the most important factor and that is the mentality of the people. People are positive and have expectations. When they see an opportunity, they are willing to take a risk to make something of that opportunity. Young talents start or join a startup instead of working for a big firm, advisors of startups get paid in stock, investors invest in a many startups because they expect there is a billion dollar hit among them, and people are open because they know: when you do good, you receive good. This mentality is described as the pay it forward culture.

To conclude

It is very clear why there are so many startups in Silicon Valley (people say about 20.000 a year). People want that lifestyle and they want to become the next big thing. But it is far from easy and the competition is very strong. The competition is not in products or markets but in getting the best resources. There are more startups looking for an investment than there is capital, the demand for skilled people is higher than the supply and to get the right connections you need some networking skills. Ultimately the best ideas, the best teams and the best-connected entrepreneurs get the best resources. So looking at the high number of startups combined with the high competition for resources it is just logical that the next wave of big IT companies will sprout from SV.

The next step

So what’s next for me? Well, my study is not finished yet. As you probably read in my earlier blog I’m looking at the factors that influence firm growth and what the differences are between SV and the Netherlands. For the coming two months I’m going to have the same interview with Dutch entrepreneurs and experts. It is not my intention to give recommendations to copy-paste SV in the Netherlands. Vivek Wadhwa (I was privileged to interview him) published an article where he explained why it is not possible to top-down implement an ecosystem like SV.

The goal of my study is to get more understanding about the factors that are important for startups to grow their business. The availability and intensity of these factors are related to the environment and together form an ecosystem. With this study I hope I can add something to the discussion what the best ways are to stimulate and facilitate Dutch startups to grow in ecosystem called the Netherlands.

Niek Huizenga

Vanuit Silicon Valley las ik met enthousiasme de berichtgeving over de toekenning van extra overheidsgelden (15 miljoen) om onderwijs en ondernemerschap beter op elkaar te laten aansluiten en om studenten te stimuleren en ondersteunen in het opzetten van een bedrijf. Ondernemerschap wordt steeds populairder en tegenwoordig ziet maar liefst 60% van de studenten ondernemerschap als een serieuze carrière optie. Dat is goed want ondernemende mensen zijn creatief, zelfredzaam en hebben doorzettingsvermogen.

Echter heb ik een kritische noot. Mijn grote vraag is of dit geld ingezet gaat worden om nog meer studenten enthousiast te maken voor ondernemerschap of dat het geld gestoken gaat worden om betere startende ondernemingen te krijgen?

Er heerst op dit moment een halleluja stemming dat Nederland het meest ondernemende land is omdat wij zoveel starters hebben. Er zijn weliswaar erg veel starters, maar volgens diverse onderzoeken blijkt dat Nederland erg weinig groeiende bedrijven heeft. En het zijn juist de groeiende bedrijven die zorgen voor werkgelegenheid en innovatie. Een overgroot deel van de starters (dus nieuwe kvk inschrijvingen) zijn zzp’ers. Ik ben zeker niet tegen de opkomst van zzp’ers. In tegendeel. Ik denk dat dit een erg goede ontwikkeling is om de Nederlandse arbeidsmarkt flexibeler te maken. Maar zzp’ers ontwikkelen en verkopen (meestal) geen producten, zijn niet schaalbaar en nemen geen personeel in dienst. De zzp’ers zitten in persoonlijke dienstverlening. Dit is een alternatieve vorm van een dienstverband.

Ik heb veel te maken met (student) ondernemers en dan vooral in de IT. Veel van deze ondernemers zijn actief in de persoonlijke dienstverlening. Dit is ook logisch. Er is een grote vraag naar talentvolle mensen die op flexibele wijze werkzaamheden kunnen verrichten. Die flexibiliteit wordt via de zzp constructie geboden. Een KvK inschrijving is erg makkelijk en het heeft “status” om ondernemer te zijn. De drempel om ondernemer te worden is daarom erg laag voor studenten die goed zijn in programmeren of in grafisch ontwerp.

Deze ondernemers voegen veel waarde toe en verdienen, afhankelijk van hun kwaliteit en de vraag vanuit de markt, redelijk goed. Maar in mijn ogen zijn deze ondernemers niet bezig met een startend bedrijf. Een startend bedrijf, of een startup is wat anders. De term startup is eigenlijk iets wat vanuit Silicon Valley is komen overwaaien. Kort gezegd is een startups een team dat een idee omzet naar een product of dienst dat schaalbaar de markt ingezet kan worden. Met schaalbaarheid wordt bedoeld dat de afzet niet 1 op 1 is gerelateerd is aan het aantal medewerkers zoals bij uurtje-factuurtje bedrijven.

Schaalbare bedrijven zijn bijvoorbeeld het Groningse IT bedrijf Paylogic. Zij hebben een online payment systeem dat verkocht wordt aan organisators van evenementen. Dit bedrijf is begonnen als een echte startup en maakt een succesvolle groei door. Paylogic heeft een aantal jaar hard gewerkt om het product te maken en om market-fit te krijgen. Dit traject is deels gefinancierd met extern kapitaal. Na de lancering van het product kreeg het traction. Het product sloeg aan en ze konden snel marktaandeel in Nederland veroveren. Dankzij een extra financieringsinjectie kunnen zij nu de rest van Europa veroveren.

Er zijn niet zoveel bedrijven als Paylogic (althans niet in het Noorden van Nederland). De maatschappelijke waarde van Paylogic is enorm. Het bedrijf biedt meer dan 60 arbeidsplaatsen en heeft een innovatief product waar de markt goed voor betaalt. Paylogic levert daarmee een flinke bijdrage aan de economische ontwikkeling.

De ondernemers achter Paylogic zijn niet te vergelijken met een ondernemer die zelfstandig werkzaamheden verricht. De drempels om “ondernemer met een bedrijf” te worden zijn vele malen hoger. Productontwikkeling, markt-fit zoeken, een team bouwen, financiering krijgen, etc.. Dit vereist enorm veel doorzettingsvermogen en brengt flinke (financiële) risico’s met zich mee. Veel zzp’ers zullen zich waarschijnlijk niet comfortabel om een dergelijk bedrijf op te zetten (maar ze zouden er wel graag voor willen werken).

Dus naar mijn mening hoeven er geen stimuleringsmaatregelen getroffen te worden om meer “ondernemers die zelfstandig werkzaamheden verrichten” te creeren. Er moet juist gestimuleerd worden om ondernemers een echt bedrijf te laten starten. Omdat de ontwikkeling van producten vaak begint bij technische kennis is met name stimulering bij technische opleidingen belangrijk. Andere maatregelen kunnen zijn om de  financieringsmarkt in Nederland toegankelijker en professionelerer te maken voor startups. Ook kan er nog een hoop gewonnen worden om de bedrijven te ondersteunen in het vinden van markt-fit en (internationale) opschaling.

Dus mijn mening is dat een groot deel van de 15 miljoen gebruikt wordt om echte startups te creëren. Ik heb daar geen draaiboek voor klaarliggen en een Silicon Valley nabouwen kan natuurlijk ook niet. Maar dit moet wel de basis zijn om deze publieke investering echt rendement op te laten leveren.

I’m in Silicon Valley for two and a half weeks now. While I’m writing this blog in a coffee shop in Cupertino, people right and left from me are talking about setting up a new business. Life in Silicon Valley is all about startups, innovation and business. I like it here.

In this blog I’m going to discuss one of the topics of my research: the importance of growing firms and the relevance of the number of starting firms.

The path of the startup

What is a “startup”? In the Netherlands most people see a startup as a new registration at the Chamber of Commerce. According to the latest figures, 70% of these “startups” are individuals that are active in personal services or retail (most of them part-time). In Dutch they are called zzp’er (self-employed without employees). In the Valley they are called contractors and are not seen as entrepreneurs or startups.

There are many definitions of startup. Steve Blank (one of the startup gurus in the Valley) uses: “a startup is an organization formed to search for a repeatable and scalable business model”. Eric Ries (writer of the bestseller “The Lean Startup”) defines startup as: “a human institution creating a new product or service under conditions of extreme uncertainty”. Based on these definitions I use the important elements: a small team, scalability of the business model and uncertainty. To scale you need to have a product. A startup converts and idea in a product and wants to introduce this to the market. At this moment a business angel or VC (venture capitalist) appears. The VC plays a big role in the new strategy and restructures the management where necessary (it is very normal that they install a new CEO). Millions are invested in product optimization, marketing and sales. In a period from 2 to 5 years the firm needs to proof its potential. The exit scenarios of the firm are to be sold or to go public. A return on investment of 500% or more is not unusual.

Many startups try to follow this ideal path and many fail. At least 9 out of 10 do not get funded and a same percentage of the funded startups do not make it. The probability of success is minimal. So why do investors put millions of dollars into these startups? It is all about portfolio management and spreading risks. An investor accepts the high chance of failure because 1 of the 100 startups is going to be a billion dollar company. That big hit compensates the losses by far. This is the way how entrepreneurs and investors deal with risks and returns. It is all about numbers and this makes it important that there are a high number of startups.

The more startups the better?

In the last years the Dutch government and Universities initiated different programs to stimulate entrepreneurship. This had effect. The number of new entrepreneurs (subscribers at the Chamber of Commerce) is one of the highest in all OECD countries. The minister of Economic Affairs proudly Twittered and Youtubed about this. But compared to the OECD countries the Netherlands scores very low when it comes to growing firms. That means that many new entrepreneurs don’t survive, grow or innovate. And if the zzp’ers were excluded as entrepreneurs the figures would look very bad.

The impact of starting and growing firms on an economy also has the attention of the academic world (Henderson, 2009; Shane, 2009; Van Praag, 2010). Empirical evidence shows that more entrepreneurs in a developed country do not create more jobs, innovation and wealth. The political statement “the more entrepreneurs, the better” is under fire. To summarize some of the points in these studies:

• The majority of entrepreneurs falls into the category “common entrepreneurs” and do not have the ambition or capabilities to develop products and scale a business.
• Common entrepreneurs cost money because their use of (public funded) subsidies, programs and fiscal benefits.
• The common entrepreneur creates more value if he was an employees.

The overall conclusion of these studies is that the common entrepreneur does not contribute to job growth, innovation and wealth. They have a high probability of failure or limited ambition and/or capabilities to realize a growing firm. This sound very negative and implies that entrepreneurship is a bad thing. But this is not the whole story because a positive relation was found between firm growth and the level of education of the entrepreneur. Capable entrepreneurs are more likely create jobs and innovate.

Given these conclusions some recommendations were made. The first is reallocating resources and only stimulate and support high potential entrepreneurs. The second is to reduce incentives that make it easy for the common entrepreneur to start a business.

So what about Silicon Valley?

The conclusions of the studies above measure the issue on a macro scale. It does not make a distinction between industries and types of entrepreneurs. In my research I take a look at the IT industry. In the Silicon Valley case there are a lot of startups but also a lot of growing companies. These growing companies are responsible for ground-breaking innovations and a huge number of new jobs. But do the small or failed startups fall into the category “common entrepreneurs”?

An important observation I’ve made is that almost all of the entrepreneurs have an academic (and often technical) background. This may explain the high number of growing firms. But that is not the only reason. Silicon Valley is an entrepreneurial environment with a highly developed infrastructure and culture. The presence of incubators, entrepreneurial Universities and professional VC’s make it possible that talented entrepreneurs have the opportunity to grow their business. The entrepreneurial culture also plays a big role. Networks of entrepreneurs are easy accessible and people are willing to share knowledge and contacts. Role models (like Steven Jobs, Bill Gates, Mark Zuckerberg and many more) gives everybody the idea that their startup can be the next big hit.

So the incentives to start a business are strong, but the habitat is also perfect for talented entrepreneurs to grow their firm. The high number of startups makes it possible that the best startups can go sky high.

– More to come –

For the coming six weeks I’m going to work on a research project in Silicon Valley.

Silicon Valley is renown for its IT innovations and the high number of entrepreneurs. Almost all famous and successful IT companies are founded and located on a strip of 50 km stretching form San Francisco to San Jose.

The name Silicon Valley comes from the early semiconductor industry that was concentrated in this area in the seventies. Companies like Intel produced microchips based on silicon (the basic components of computers). The growing demand of computers resulted in a boom of related industries like software, user interface design and at a later stage the Internet. There are many stories and movies about the rise of IBM, Apple and Microsoft during the eighties/nineties (the movie “Pirates of Silicon Valley” is a must-see). After 2000 (the Internet period) giants like Google, Yahoo and Facebook appeared out of nothing. The next champions are already waiting for their era of world domination.

It is not a coincidence why almost all disruptive IT innovations have their origin in Silicon Valley. The innovation guru Paul Graham describes the main reason for this. He explains that when there is a critical mass of like-minded creative people working on similar problems it sets off a chain reaction of innovations. Silicon Valley can be compared with Florence during the Golden Age. At that time Florence was a hotspot that attracted artists and scientists from all over the world. Florence was an excellent environment for geniuses like da Vinci and Michelangelo to develop. As is Silicon Valley for today’s geniuses Steve Jobs, Bill Gates, Mark Zuckerberg and many more to come.

Starting an IT company in Silicon Valley means that you have the ambition to become big. But the journey from an idea to a multi billion-dollar company is a very complex rollercoaster ride. The successful stories are known, but 99% never makes it to serious growth and died trying. Many academics are trying to explain why some companies become successful while others don’t. Is this a black box or can the genome of success be decoded? The ambitious Startup Genome project is trying to do it.

In my research I am going to make a comparison between young growing IT companies from Silicon Valley and the Netherlands. Growing IT companies are defined as companies that are in the transition of becoming a professional organization and experience a significantly growth in numbers of employees and customers. This phase is often accompanied with venture capital (VC) and the recruitment of experienced specialists.

The main objective of my research is to understand what an entrepreneur drives to make a business grow, what the role is of financial, human and social capital and what other elements obstructs or stimulates growth. I am going to conduct interviews with several growing entrepreneurs and VC’s in Silicon Valley and the Netherlands. The two datasets are compared and I hope to find differences in the area of personality, culture, availability of resources and other external factors that affects growth. This knowledge may explain why the Netherlands I lacking behind in the number of growing firms.

During my stay in Silicon Valley I will publish a new blog every week on my latest findings and experiences. Please feel free to contact me for information, suggestions or critique.

Mail: n.huizenga@gmail.com / Twitter: @nhuizenga

I was privileged to work on a project in South Africa for the last two weeks. I am assisting the faculty Economics and IT of the North West University in Vanderbijlpark to realize a business incubator on their campus.

The project

The faculty has over 5500 students and offers degrees in Economics, Accounting and IT. The ambition of the faculty is to become more entrepreneurial and to strengthen the relations and alignment with public and private organizations. Headed by their ambitious dean the faculty’s mission is to realize an incubator facility, an office for professional services for startups and local sme’s, a strong (international) network and a portfolio of short courses and minors on entrepreneurship and innovation. This project has a time span of four years and I will return several times. The project is very interesting and it is exciting to work with ambitious experts from South Africa, the Netherlands, Denmark and the UK.

Contradictions

But it is not only the project that intrigues me. It was my first time in South Africa and I am fascinated with the many opportunities this country offers. But South Africa has also many challenges to overcome. I have visited several countries in the world but I have never experienced an economical and social gap as big as I have seen here. While driving form Vanderbijpark to Johannesburg and Pretoria I have seen a Western country located in a development country. South Africa is a country with two societies. The sceneries of luxurious shopping malls, fastfood chains and villa parks are interchanged with views of slums, beggars and heaps of garbage. The poverty among the black population is still very high and most of them are clumped into slums or the so-called townships.

Black Economic Empowerment

When the dark chapter of apartheid was closed in 1994 several methods were undertaken to create more equality between the (rich) white and the (poor) black. Many blacks now have entered the middle and upper class and are strongly represented in politics, universities and businesses. This was made possible because of the Black Economic Empowerment act (BEE). This acts forces organizations to meet certain quotas for black employees, managers and owners. But this act has also a big disadvantage. Normally the most qualified person gets the job, but because of the BEE it regularly happens that unqualified blacks are preferred for qualified whites. This often leads to poor organizational performance or may even lead to severe damage or bankruptcy of an organization.

The BEE did not yet result in a fair distribution of wealth between blacks and whites and did not yet lead to a prosperous and unified nation. There is still a huge gap between the “haves and have nots”. And most (or maybe all) of the “have nots” are black. The reason for this gap can be explained by the fact that before the apartheid the infrastructure and wealth of South Africa was built for 6 million white people. After the apartheid this infrastructure suddenly needed to be shared among 50 million people. Logically this didn’t work and only a couple of million blacks were able to join, the rest of the black population is still excluded.

Crime

The poverty and economic inequality combined with a failing and sometimes corrupt police force has lead to unacceptable crime rates. Johannesburg is known as crime capital where murders, rape, armed robberies, carjacks are commonplace. But also in smaller towns people suffer from crime. In a middle class suburb the houses look like fortresses with fences, barbed wire and dogs. Everybody has their own horror story and people are really afraid. This threat is very serious and the number of highly educated people that are migrating to America, Europe or Australia is growing. People want to live a saver life for themselves and their children which is very understandable. But the result is that South Africa is loosing their capital and competencies while the country needs it so hard.

The opportunities

Nevertheless South Africa is a potential superpower. The country is rich on natural resources, many multinationals have their offices in Capetown or Johannesburg and there is a huge young population (black and white) with ambition. The positive effects of the BEE may become visible after one or two generations. The BEE now causes problems of underperformance and creates legitimate anger among qualified white people. But eventually an unqualified black person with a good paid job can send his children to a good school so the children becomes better qualified than their parents.

Back to the project

Based on the analysis above the role of education is essential to overcome the challenges of social inequality, poverty and crime. Skilled and entrepreneurial young people will improve performances of organizations and  they will create new companies and jobs. More educated people, better organizations, more entrepreneurs and more jobs will lead to economic growth. If the South Africans are able to distribute this welfare fairly between whites, blacks, rich and poor than I expect we will see some really nice things from this beautiful country the next decades.

I really hope that our project will contribute to that mission.

Today we’ve visited the largest and one of the most successful business incubators in Silicon Valley: Plug ’n Play Center. www.plugandplaytechcenter.com

PnP is founded five years ago by and is known as the colloseum for startups. The entrepreneurs are gladiators and as in the old Rome most of the gladiators die but some will gain eternal fame. Success is the driver of this incubator and its entrepreneurs.

PnP offers high quality facilities in the form of cubicles and offices. Above all, the 300+ startups in the incubator inspire each other heavily. But this incubator is much more than facilities. They invest in startups or connect VC funds to the startups; they are an intermediate between financed startups and highly qualified managers for C-level positions; it organizes various events and networking summits and it owns a top tier data center.

The ground floor is populated by startups from countries like Spain, Austria, Czech Republic, (no Dutch cubicle unfortunately). Local chambers of commerce rent a cubicle for their national champion-startups to expand to Silicon Valley. We talked to an Austrian entrepreneur who started a video 2.0 concept. He came to Silicon Valley because his ambitions didn’t match with the environment back in Vienna.

To be clear, startups in Silicon Valley differ a lot from startups in the Netherlands. The level of ambition and the willing to take risks is incomparable what we are used to. The incubator thinks in the same way. The requirements to enter PnP are simple: you need a product (not a service!), it needs to be scalable and the ambition is to create a 100 million + company within 5 years.

Another big difference is the way a startup is financed. People here only think in scalable products with global market potential. VC’s are willing to invest heavily. After an investment (which can be of 10 million +) the startup is in the transition phase. C-level functions are assigned to experienced managers to support the entrepreneur in growth. This is a big difference with Dutch startups. They normally finance their product and business development with the cash flow earned from services. There is too much focus on service deliveries that the product never gets to the market.

There is a lot more to tell and visiting PnP was a huge inspiration. YEAH! can learn a lot from this incubator. We will keep the relationship close and we will certainly encourage Dutch entrepreneurs to go to PnP if they have ambitions to do business in Silicon Valley.

At PnP, but everywhere in Silicon Valley, there is a passion for entrepreneurship and success! Hopefully we have the opportunity to realize something like this in Groningen for our local entrepreneurs!!