The startup that not only created itself, but its environment – Georgina Campbell Flatter

Georgina Campbell Flatter, Executive Director at MIT Legatum Center, Senior Lecturer in Technological Innovation, Entrepreneurship, and Strategic Management

From Forbes Mexico

Entrepreneurs are increasingly vital change agents in the developing world. Not only do they take on vexing social challenges like access to better healthcare and cleaner water, they’re also the engine propelling the economy and the potential antidote to a looming jobs crisis.  According to the United Nations, we’ll need 470 million jobs between now and 2030 to support new entries into the labor market. Those jobs won’t come from established companies, but rather entrepreneurs who are creating high-growth businesses.

To build a sustainable and scalable venture, entrepreneurs must innovate to compete within their market, but some will go much further than that to maximize their impact. Some will transform—even help create—the very ecosystem in which they operate.

A great example is Play Business, Mexico’s first equity-based crowdfunding site. The founders were motivated by the knowledge that Mexico was emerging as an innovation hub for Latin America, with up to 110,000 new engineers graduating from colleges every year. Moreover, Mexico’s 4 million small and medium enterprises (SMEs) constituted 72% of the country’s new job creation. And yet this critical economic engine had little access to capital—nearly 80% of SMEs were completely self-financed.

This lack of capital meant that potential innovations, which might create jobs and improve lives, were being lost. Play Business, launched in 2014, offered a solution. As Play Business cofounder and MIT Sloan alumna Fernanda de Velasco put it, “We would enable common people to invest in uncommon startups.”

Since there were no laws in Mexico around equity crowdfunding, Play Business was at first able to operate with few restrictions, but the founders also knew this could quickly change, especially as fintech grew and new governments (potentially more aggressive toward the financial industry) were elected. Fernanda’s team decided to be proactive and approach Mexico’s government about creating new regulations. This was a gamble, to say the least. The prevailing wisdom among emerging market entrepreneurs was that it was best to develop your venture while staying under the government’s radar. Concerned naysayers warned Fernanda that working with the government could result in requests for bribes, or worse, a set of intractable regulations that would kill her business.

But the Play Business team had already determined that staying under government’s radar, though it had short-term advantages, would never allow them to achieve their desired impact. “We wanted to fund more than just 10-15 companies,” Fernanda said, “We wanted to fund thousands. Our goal was to systematically create startups in Mexico.” By creating protections for consumers and a set of rules for honest businesses to follow, sensible regulatory laws could effectively create and stabilize the crowdfunding market.

Because Play Business demonstrated transparency at the outset and was able to show that its interests aligned with the government’s, the company was allowed to collaborate in drafting the new legislation. This proved vital when, for example, legislators planned to include a provision that would have forbid Play Business from accepting even a partial equity fee.

Once Fernanda’s team explained how this would render incentive-based models like Play Business’ useless, and would hurt the industry generally, the legislators revised it. The government appreciated that her team was seeking to change the legal system not just to benefit their own business, but to create an entirely new funding stream for entrepreneurs.

After two years, the collaboration between Play Business and the Mexican government finally paid off. Last February, a bill to regulate the fintech sector including crowdfunding was approved by Mexico’s lower house of Congress, the final step in becoming law. It will serve as the industry’s foundation. The benefits include reduced operations risk for businesses, more transparency for digital platforms, higher security and protection for consumers, and increased confidence in alternative financing models. It also reduces uncertainty, which could attract higher capital investments in the sector.

More recently, in recognition of their legislative leadership, Play Business was one of six private sector representatives—and the only startup—invited to join the Mexican government’s newly formed Financial Innovation Group.

Today, Play Business has 55,000 users (adding nearly 1,300 users each month) with 15,000 active investors and 3,500 startups on the platform. Of those startups, 180+ have raised capital and 105 have been successfully funded. This means that $7.5 million in venture investment has been delivered. Play Business has also enabled the formation of over 1,500 new jobs.

According to Fernanda, the new market will certainly create competition, and in fact a few of the startups Play Business has helped fund are potential competitors. Yet that’s all part of the plan, and the Play Business team is confident they are poised to compete in the fair and healthy marketplace they helped create.

The maxim “A rising tide lifts all boats” is often invoked to defend controversial economic policies, but perhaps it’s more aptly applied to the Play Business mindset, and to similar entrepreneurs who actively work to raise the water level even as they build the best boat.

Read the original post at Forbes Mexico.

Georgina Campbell Flatter is Executive Director of The Legatum Center for Entrepreneurship and Development at MIT and a Senior Lecturer at MIT Sloan School of Management. She mentored Fernanda de Velasco, who was a Legatum Fellow, during her time as an MBA student at MIT Sloan.

Using System Dynamics to disrupt Nonprofits and help children in poverty – Chris Penny

From Africa-OnTheRise

Chris Penny, MIT EMBA 17

MIT Sloan’s mission is to develop innovative and principled leaders who will improve the world. This resonated with me, as I’ve always had a desire to help impoverished children, especially in the developing world. However, it wasn’t until I started this program that I was able to turn my good intentions into an actionable plan, much less a plan that might even disrupt the nonprofit world.

The key was utilizing the EMBA network, going to ‘see and assess,’ conducting small experiments, and learning from mistakes. In other words, I followed the MIT Sloan method for affecting change. Today, Broken Crayons has opened 15 businesses, which has positively impacted the lives of more than three dozen children in Ghana. Now, we’re scaling our approach to impact entire communities with plans to turn Broken Crayons into a self-sustaining organization.

Look for the root cause

The first step involved Systems Dynamics, which taught me to model the relationships in all parts of a system and how those relationships influence the behavior of the system over time. Applying this knowledge, I built models to identify the root cause of youths and poverty. The overarching question centered on how I could use simultaneous interventions to break the system of poverty.

Go see and assess

Another MIT principle is understanding the importance of observing the ecosystem you seek to impact. After connecting with a friend and former colleague Carl Dey, I decided to focus my efforts on the ecosystem of Ghana. The next step was going to ‘see and assess’ the ecosystem in Ghana. Read More »

Making the Middle Matter – Trish Cotter

MIT Sloan Entrepreneurship Lecturer Trish Cotter

From Xconomy

Call it the problem of the middle—the middle states and the middle class—two groups that have struggled with problems that, while they are inexorably linked, are different all the same.

Historically, most of the venture capital in America has been active on the coasts, leaving a vast portion of the country without seed money for innovative new startups. At the same time, the Midwest has suffered from a loss of manufacturing jobs and, as a result, has in some ways failed to flourish in the same ways as other parts of the country. And, of course, there is no shortage of news articles outlining the many struggles facing the middle class, in general, in America.

“We live in a fractured society,” argues MIT economist Peter Temin in an MIT News article on America’s two-track economy. “The middle class is vanishing.”

According to Temin, America now features two sectors: an FTE sector, where people who work in finance, technology, and electronics tend to thrive, and a low-wage sector, where workers often struggle. The middle class, traditionally an area of national strength, is starting to disappear. Moreover, the FTE sector, overwhelmingly focused and fixated on both coasts, has for a long time neglected investment opportunities in the Midwest.

Venture capital—specifically venture capital aimed at the oft-ignored middle states—could be part of the solution. The central part of our country is often ignored as an ideas hub. Most accelerators, venture capitalists, and startup programs are focused on a few key cities on the east and west coasts. The Kauffman Foundation, known for its emphasis on education and entrepreneurship, recently published an article focusing on both the middle class and the middle states, asking: “Is the Middle the New Edge?”

It states: “The middle ground is too often dismissed as unremarkable, when it is truly necessary. The middle should be appreciated as an admirable place to be – where people work together to solve big problems and move our nation forward.” Read More »

The average age of a successful startup founder is 45 – Pierre Azoulay

MIT Sloan Assoc. Professor Pierre Azoulay

From Harvard Business Review

It’s widely believed that the most successful entrepreneurs are young. Bill Gates, Steve Jobs, and Mark Zuckerberg were in their early twenties when they launched what would become world-changing companies. Do these famous cases reflect a generalizable pattern? VC and media accounts seem to suggest so. When we analyzed founders who have won TechCrunch awards over the last decade, the average age at the time of founding was just 31. For the people selected by Inc. magazine as the founders of the fastest-growing startups in 2015, the average age at founding was only 29. Consistent with these findings, Paul Graham, a cofounder of Y Combinator, once quipped that “the cutoff in investors’ heads is 32… After 32, they start to be a little skeptical.” But is this view correct?

Our team analyzed the age of all business founders in the U.S. in recent years by leveraging confidential administrative data sets from the U.S. Census Bureau. We found that the average age of entrepreneurs at the time they founded their companies is 42. But the vast majority of these new businesses are likely small businesses with no intentions to grow large (for example, dry cleaners and restaurants). To focus on businesses that are closer in spirit to the prototypical high-tech startup, we used a variety of indicators: whether the firm was granted a patent, received VC investment, or operated in an industry that employs a high fraction of STEM workers. We also focused on the location of the firm, in particular whether it was in an entrepreneurial hub such as Silicon Valley. In general, these finer-grained analyses do not modify the main conclusion: The average age of high-tech founders falls in the early forties.

These averages, however, hide a large amount of variation across industries. In software startups, the average age is 40, and younger founders aren’t uncommon. However, young people are less common in other industries such as oil and gas or biotechnology, where the average age is closer to 47. The preeminent place of young founders in the popular imagination may therefore reflect disproportionate exposure to a handful of consumer-facing IT industries, such as social media, rather than equally consequential pursuits in heavy industry or business-to-business sectors. Read More »

What Blue Apron needs to do to survive the threat of Amazon – Sharmila Chatterjee

MIT Sloan Senior Lecturer Sharmila Chatterjee

MIT Sloan Senior Lecturer Sharmila Chatterjee

From MarketWatch

For a while, it looked as though Blue Apron was destined to become a culinary juggernaut in the American kitchen.

Founded in 2012, the company APRN, +1.89%  carved out a clever business model by mailing perfectly portioned, pre-packaged ingredients and recipe cards to home cooks in need of handholding. It’s not yet profitable, but growth is impressive. Last year, the company had $795.4 million in 2016 by delivering about 8 million meals per month to customers.

Recently, though, there have been challenges. Shares that the company had hoped to sell between $15 and $17 apiece in June were priced at just $10, hurt in part by Amazon’s AMZN, +0.23%   announced acquisition of Whole Foods WFM, -0.02% earlier that month. They now trade for less than $6, pummeled in part by Amazon’s plans to launch its own meal kits.

The twin revelations about Amazon are no doubt unnerving to Blue Apron’s executive leadership team and investors. And yet, they should also see them as encouraging signs. That Amazon sees so much potential in the industry is proof positive that the meal kit represents a new American staple, and not just—pardon the expression—a flash in our collective pots and pans.

True, Amazon is a formidable rival. And yes, the meal kit business is increasingly crowded. (Current contenders include: Plated, HelloFresh, Purple Carrot, and Sun Basket.) But Blue Apron has an opportunity to differentiate itself. To do so, it must focus on the needs, wants, and values of its target audience: mainly millenials.

Read More »