Part IV: The Quest for Growth—the Startup of Start-up Communities

Thomas Nastas was in Silicon Valley, California, most of August, mentoring a large group of entrepreneurs from 36 countries in selecting, developing and shaping their business models to investors' behavior to risk. (By the way, he has promised to share with the Marchmont readers what experience he gained from the event.) That's why we had to wait a little bit for the continuation of his series of postings about Russian and international start-ups. But now Tom's back with us, and here's part 4 of his in-depth study. 



Subjects in this Part IV post include:

1.)   Clonentrepreneurship or Alternative Paths to the Startup of Start-up Communities?

2.)   Change the Culture & Amazing Things Happen

In Part III, the Power of Clones, subjects presented:

1.)   Drive Growth and Innovation in the Supply Chain

2.)   Sidestep the Obstacles that Impede Scaling Up

3.)   Controversy of Clonentrepreneurship: Cloning the Idea or Hatching a Start-Up?

4.)   The Spread of Clonentrepreneurship

Read Part III here

Read Part II

Read Part I

Read Introduction to the series

The take-away from Part III:

Cloning and Clonentrepreneurship is belittled since many criticize it as being incremental and not creative, a waste of time, money and energy.  While cloning is neither gamechanging nor disruptive, the results it achieves to drive forward more entrepreneurship and investment validates its contribution to the startup of start-up communities around the world.

Given the contributions of clones to spark the startup of start-up communities, are they a panacea to growth? Do alternatives exist in the quest for growth? And what lessons can we apply from clones and Clonentrepreneurship to impact investor DNA for more seed and early stage investment?

Clonentrepreneurship or Alternative Paths to the Startup of Start-up Communities?

Brazil and China like Russia are large population countries with a growing middle class that is ripe for more consumer-facing clones, clonentrepreneurs and Clonentrepreneurship.  Certainly the selective transfer of some cloned business models to low-medium population countries like Costa Rica, Chile, Argentina, Kenya and Ghana have merit as consumers in these countries seek products and services to save money, to have more choice, to enrich the quality and joy in their lives with clonentrepreneurs, investors and Government all benefiting.

Clones are not the same. The ones with the best chances of survival in the emerging markets against the innovator globalizing are those which require localization for the domestic economy and not just for language(s) spoken: but product sourcing, logistics, payment systems, merchandising and other business practices to satisfy conditions on the ground and to comply with the huge number of local regulations that impact how e-commerce is transacted.

Cloning Western business models is only one direction for entrepreneurs and investors to pursue for profit.  Israeli entrepreneurs and venture investors took a different approach to create a start-up nation through the development and commercialization of disruptive and gamechanging technology for global markets, directly primary toward enterprises.

The Israeli Government pushed success forward through a variety of initiatives which sped Israeli tech to market including but not limited to the transfer of military technology to the private sector and its open door policy to immigrants (many were scientists from the Soviet Union). Other success factors include an Israeli industrial policy that funded R&D to create deal flow and the unplanned creation of entrepreneurs through military training in the ‘8–200’ intelligence unit.

Government policy makers and their sovereign wealth funds can catalyze the start-up communities in other ways.  Riches earned from oil and other natural resources funded Russian initiatives like the $10 billion Russian Corporation of Nanotechnology, the $1 billion dollar fund-of-funds called the Russian Venture Company and the Russian Government’s multi-billion dollar Skolkovo program—to seed development of gamechanging tech, investment and the creation of a new set of entrepreneurs.

While small population countries may not have the sovereign wealth of oil, natural assets like Costa Rico’s location to America creates advantages for its ICT entrepreneurs to scale its start-up community.  Costa Rican entrepreneur Manrique Ulloa Steinvorth of ieSoft created a consortium of companies (IT Innovation Group) to expand access to the US; “Instead of competing for the same opportunities, we get together and offer a whole solution. If a project needs ten developers and I only have five, I will search within the consortium for a partner that can provide the other five, and the company that brings the project will manage the project” he says.

Croatia is another small country with ambitions for more start-up communities.  Its location on the Mediterranean is an ideal spot to transform selected coastline into logistics, transportation and warehousing tech start-up centers to serve Central and East Europe. Investors and the Croatian Government might collaborate to co-create ‘deal flow funds’ which invest in the technologies required to transform this underutilized asset into wealth.

Entrepreneurs and venture investors ask me “Which path should we choose; the road of disruptive technology or Clonentrepreneurship (or something in between)?”

My answer is that it’s not an ‘either…or’ decision.  It’s a combination of all with the percentage blend influenced by:

1.)   Your natural and technology assets

2.)   The sources and amount of money you have or can raise for the execution of your business model

3.)   The types of investors in your country, their sources of capital and their behavior to risk

4.)   The time, patience and determination you and your investors have to continue in the face of disappointment, risk, false starts, failure and forces working for your demise.

As you execute, your specialties and expertise will shine to guide your footsteps forward.

In Russia and in other countries clonentrepreneurs are sensitizing local investors to the rewards and risks of investing in technology.  Over time expect that some investors whom financed clones will develop the confidence and risk appetite to selectively invest in technology that will be more innovative at first—disruptive later—vs. cloning.  These investors and entrepreneurs will be the ground-breakers that establish the precedence for investment in new thinking thereby attracting co-investors from around the world to their home country.

One never knows:  Perhaps the next Facebook-type success is hatching right now in some Russian laboratory?

Change the Culture & Amazing Things Happen

Is this actually possible?  Change the culture—investors’ DNA—for more seed and early stage investment, leading to the startup of start-up communities?

Yes it is, but to change the culture one must first impact it, with investors earning money to their requirements and tolerance for risk.

As I detailed in Part I, Russian entrepreneurs deployed business models which generated quick revenues after their market launch, solutions which matched the behavior and attitudes of Russia investors to risk.  Impacting the culture came about not through grand ambitions to create gamechanging technology but practical steps to generate immediate revenues and execute quickly.

So what are the small but meaningful steps you can take to impact the culture for more investment, entrepreneurship and innovation?

For Next Time, Part V:  Scaling Up Investment for More—Impact & Outcomes

In Part V, I answer this question and suggest initiatives for entrepreneurs, investors, Government staffers and investment officers at development finance institutions to ‘Scale Up Investment for More—Impact and Outcomes.’

You're welcome to send comments, opinions and questions directly to Tom at mailto:Tom@IVIpe.com . We also encourage you to visit his personal website.