Supporting Entrepreneurial Leadership: What works?

1. Supporting Entrepreneurial Leadership: What works?
“MANAGEMENT AND LEADERSHIP SKILLS IN HIGH-GROWTH FIRMS”
OECD LEED Programme and Poland’s Ministry of Economy
Warsaw, May 6, 2013
Erkko Autio, Imperial College Business School
and UK Enterprise Research Centre*
erkko.autio@imperial.ac.uk
* UK ERC is supported by ESRC, BIS, BBA and TSB

2. Erkko Autio
Our work on high-growth firms
 High-growth entrepreneurship policy instruments review 2006
 Europe Innova ”Gazelles” working group 2006 - 2008
 GEM Report on High-Aspiration Entrepreneurship
 UK Enterprise Research Centre (BIS, TSB, ESRC): meta-analysis of the
effects on and of high-growth aspirations (April 2013)
• http://enterpriseresearch.ac.uk/
 Evaluations of accelerator programmes in Finland (Vigo, NIY)
• NIY: longitudinal analysis since 2008
 Global Entrepreneurship and Development Index GEDI
• National Systems of Entrepreneurship
• Platform for policy analysis and design
» Scottish Enterprise: series of policy engagement workshops around GEDI
Scotland analysis
» Spain: Regional GEDI analysis
• EU Regio contract to put together GEDI data for EU NUTS II regions
» EU 2014 Cohesion Report

3. Illustration of Northern Ireland data
Ranking against 28 ”Innovation Driven” countries
(Note: up to 2011 data used)
(Note: blue indicates top quartile, red indicates bottom quartile)
Northern Ireland
Rank
(28 IDCs + N.I.)
Market Agglomeration 0.315 Opportunity Perception 0.153 Opportunity Perception 0.075 28
Education PostSec 0.485 Skill Perception 0.417 Start-up Skills 0.353 23
Business Risk 1.000 Nonfear of Failure 0.144 NonFear of Failure 0.547 24
Internet Usage 0.825 Know Entrepreneurs 0.318 Networking 0.413 22
Corruption 0.971 Career Status 0.503 Cultural Support 0.658 11
Economic Freedom 0.931 TEA_Opportunity 0.836 Opportunity Startup 0.656 9
Tech_Absorption 0.724 TEA_Technology 0.539 Tech Sector 0.527 15
Staff Training 0.767 TEA_Education 0.517 Quality of Human Resources 0.441 20
Domestic Market 0.865 TEA_Competition 1.000 Competition 0.725 5
Technology Transfer 0.777 TEA_NewProduct 0.389 Product Innovation 0.473 22
GERD 0.364 TEA_NewTech 0.120 Process Innovation 0.169 27
Business Strategy 0.857 TEA_Gazelle 0.239 High Growth 0.404 16
Globalisation 0.806 TEA_Export 0.590 Internationalisation 0.473 22
Venture Capital 0.908 Informal Investment 0.244 Risk Capital 0.397 18
Aspiration
Institutional Variable Individual Variable Pillars
AttitudesActivity

4. Erkko Autio
What do we know about leadership
 Leadership is about behaviours
• Transformative
» Proactive, inspirational, motivating,
appealing to higher ideals, transforms
existing culture
• Transactional
» Reactive, operates through rewards and
sanctions, reinforces existing culture
• Instrumental
» Goal-oriented, task-specific, team-centric
 Context matters for leadership effectiveness
• Entrepreneurial contexts are different from
corporate contexts
• Different stages in firm life cycle are different
from one another
 Different contexts require different leadership
styles

5. Erkko Autio
What do entrepreneurs do and how do they do it?
Opportunity Cloud
•Technology
•Market
•Demographics
•Regulators
Resource Cloud
•Financial capital
•Human capital
•Intellectual capital
•Social capital
Stakeholder Cloud
•Collaborators
•Customers
•Competitors
•Resource providers
Observing
Discovering
Shaping
Creating
Accessing
Mobilising
Building
Ringfencing
Convincing
Influencing
Visioning
Circumventing

6. Erkko Autio
Supporting leadership and management development in HGFs
Learning, development
Transfer, execution
Instrumental
Task-oriented
Strategic
Visionary
Networking,
peer learning
Management
participation
Board planning
and control
Board mentoring,
visioning, momentum
building

7. Erkko Autio
Finnish accelerator programme Vigo
 Launched March 2009
 Concept: attract individuals with HGF
experience to start accelerator businesses
that invest in potential HGFs
• Take equity stakes
• Accelerate growth and internationalisation
• Help attract equity funding (both Finnish and
foreign)
• Create a network of new venture accelerators
 Selection criteria
• Private, profit-seeking firms
• Investment capability (own funds; also raised
funds)
• Solid HGF experience
• Invest at least €30k per firm

8. Pre-seed stage
- Investment size 20k€ – 200k€
- Used in R&D
- Large idea pool should exist
- Goal: rapid development of NIY acceptable firms
- Gap: demanding to organise funds
Seed stage
- Funding sources: NIY; VERA; Private equity
- Investment sizes +/- 2meur
- Sigificant incentive for private equity through NIY and Vera
- Works well
- No gap here
Before round A
- Investment size : 2M€– 5M€
- Target: increase in A-round cases
- Now: 2-4 firms per year
- Future: 10-20 firms per year
- Gap: More finance for cases that are not
able to develop rapidly enough
A Round
Financial flow
from idea to A round
Idea
Source: Mikkola (2010)

9. Erkko Autio
Public incentives
 Priority processing of funding
applications with Tekes, Finnvera
• Usual eligibility criteria have to be met
• Agencies and not accelerators decide
 NIY funding can be used to pay
management fees for the accelerator
companies
• Management fee limited by equity stake
size
• Greater the stake, smaller the fee that
can be charged
• Fee payable only up to 2 years

10. Erkko Autio
Vigo ecosystem dynamic

11. Erkko Autio
Governance structure of the Vigo Programme

12. Erkko Autio
Use of management and consulting fees
Eur
Mean
Eur
Min
Eur
Max
Eur
Sum
Management fee + consulting fee (23 firms) 43 600 0 198 000 1 002 000
Management fee + consulting fee (fee paying 12 firms) 83 500 3 000 198 000 1 002 000

13. Erkko Autio
Funding flows catalysed (summer 2012)

14. Erkko Autio
Vigo portfolio: example
Liikevaihto Bruttovoitto Liikevoitto
Kiihdyttämö/yritys 2008 2009 2010 2011 2008 2009 2010 2011 2008 2009 2010 2011
Lifeline Ventures Oy 523 305 468 281 68 26
Oncos Therapeutics Oy 157 360 258 144 310 217 5 -289 -1 011
MediSapiens Oy 11 0 79 12 -136 62 -69 -442 -316
Valkee Oy 15 7 495
1
429 15 -35 342 1 314 -4 -86 -557 -580
ZenRobotics Oy 107 55 59 207 82 66 91 -66 -89 -354 -455 -958
Enevo Oy 2 2 -155
Applifier Oy 0 1 591 -436
Sofanatics Oy 4 7 106 143 -439 -216
Grey Area Oy 29 18 196 44 11 469 4 -56 -873
Thinglink Oy 3 5 -76 91 -234 -496
Playmysong Oy 3 3 -112
Uplause Oy 163 171 139 260 10 -363
NonStop Games Oy 31 31 -38
Tinkercad Oy 0 0 -1 0 -16 -431
Supercell Oy 0 151 -43 521 -315 -1 849
GrandCru Oy
Somia Reality Oy 0 0 -6
MakieLab Oy
Somia Dynamoid Oy (IRC
Galleria) 5 436 4 377
2
207 726
4
411
3
638 2 035 607 263 -359 -1 831 -215
Ductor Oy 0 15 -2 15 -50 -234
Summa 5 558 4 636
3
309
3
280
4
508
3
869 2 776 5 260 170 -859 -4 674 -8 289
Yrityksiä 3 6 12 17 3 6 12 17 3 6 12 17

15. Erkko Autio
Vigo leadership support model
Learning, development
Transfer, execution
Instrumental
Task-oriented
Strategic
Visionary
Networking,
peer learning
Management
participation
Board planning
and control
Board mentoring,
visioning, momentum
building, door opening

16. Erkko Autio
NIY programme in Finland
 NIY = Young Innovative Firms
 Programme seeking to incentivise
and effect growth in YIFs in Finland
 Started in 2008
 Funded by Tekes

17. Erkko Autio
NIY ongoing evaluation
Base population: Tekes funded new ventures
Comparison Group
2001 Tekes customers
2004 Tekes customers Applicants (300 ventures)
Pre-selected (200 ventures)Early rejects
1st stage (50-100 p.a.)1st stage rejects
2nd stage (10-20 p.a.)1st stage (some 70 p.a.)
NIY (NIY)
Evaluation
2008-
2010
(follow-up
until 2013)

18. Erkko Autio
NIY funnelling
Application round
- Interview screening
- High-potential idea
- Growth motivation
- Up to 50 k€
- 200 firms per annum
Business plan
- Panel interview
- High-potential plan&team
- Team, plan viability
- Up to 250 k€
- 50 firms per annum
Growth
- Panel selection
- Promising growth
- Market validation
- Up to 750 k€
- 10 firms per annum
Milestone: Develop
viable, credible business plan
Milestone: Start execution, meet
growth and funding milestons

19. Erkko Autio
NIY cohort evolution
2006 2007 2008 2009 2010
N 33 33 33 33 33
Missing 0 0 0 0 0
Mean 316 644 922 1530 1880
Mean, annual change 104 % 43 % 66 % 23 %
Mean, change 06-10 495 %
Median 170 271 423 732 1079
Median, annual change 59 % 56 % 73 % 47 %
Median, change 06-10 535 %
Std dev 481 876 1085 2262 2484
Min 5 5 4 12 1
Max 2346 3780 4377 10838 10766
Cohort 10422 21260 30438 50477 62028
Cohort, annual change 104 % 43 % 66 % 23 %
Cohort, change 06-10 495 %

20. Erkko Autio
Comparison group evolution
2006 2007 2008 2009 2010
N 93 93 93 93 93
Missing 0 0 0 0 0
Mean 436 588 983 932 912
Mean, annual change 35 % 67 % -5 % -2 %
Mean, change 06-10 109 %
Median 256 314 400 405 415
Median, annual change 23 % 27 % 1 % 2 %
Median, change 06-10 62 %
Std dev 512 667 1752 1736 1827
Min 2 2 4 3 1
Max 2358 3204 11505 13674 15942
Cohort 40516 54729 91425 86707 84844
Cohort, annual change 35 % 67 % -5 % -2 %
Cohort, change 06-10 109 %

21. Erkko Autio
Outcomes: NIY effect controlling for selection

22. Erkko Autio
NIY leadership support model
Learning, development
Transfer, execution
Instrumental
Task-oriented
Strategic
Visionary
Networking,
peer learning
Management
participation
Board planning
and control
Board mentoring,
visioning, momentum
building, door opening

23. Erkko Autio
NIY and Vigo combined outcome
2011 sales: €150k

24. Erkko Autio
Targeted (hands-on) technology programmes
 ”ProMuovi”, ”Kenno”, and ”Pigmentti”
 Concept
• Bottom-up need identification
• Seek to address and rectify a specific need or a gap in a given industry’s value
chain
• Hands-on active supervision and coordination with active industry participation
» Participant selection
» Creation of linkages between participants
» Networking services
» Participant monitoring
• Foster a community of practitioners and peer learning through hands-on facilitation

25. Erkko Autio
Programme concept

26. Erkko Autio
Example ProMuovi (injection molded plastic parts)

27. Erkko Autio
Effects on community identity

28. Erkko Autio
Mediating learning effects (Autio et al, 2008)

29. Erkko Autio
Networking leadership support model
Learning, development
Transfer, execution
Instrumental
Task-oriented
Strategic
Visionary
Networking,
peer learning
Management
participation
Board planning
and control
Board mentoring,
visioning, momentum
building, door opening

30. Erkko Autio
Mentoring programmes (several)
 Idea: support the participation of
senior managers in the boards of
directors of willing SMEs
 Managers provide their experience
and mentor strategic planning and
decisions
 (Several programmes)

31. Erkko Autio
Mentoring leadership support model
Learning, development
Transfer, execution
Instrumental
Task-oriented
Strategic
Visionary
Networking,
peer learning
Management
participation
Board planning
and control
Board mentoring,
visioning, momentum
building, door opening

32. Erkko Autio
Impact (anecdotal)
”Board professionals, go to work”
”Regular work is dull...”
”Much more fun to tell others what to do...”
”Teflon suits...”

33. Erkko Autio
Lessons
 Leadership and managerial support requires active
hands-on involvement over a prolonged period
 Selectiveness pays
 Dealing with the ’Picking Winners’ problem
• Progressive selection based on milestone achievement
• Require participation in upside potential and downside
risk
• Avoid the ’living dead’ and ’milking and harvesting’
problems
 Small numbers game: few successes pay for the
rest
• Supercell: ”We will not engage in tax planning”
• (read: there will be no holding company in Switzerland)
 As for mentoring, type of experience matters.
• Transfer of knowledge from large corporate contexts
does not always work

34. Erkko Autio
Questions?

35. Erkko Autio
About growth breakthroughs...
(%)
We have already achieved a growth breakthrough 12
We expect a breakthrough during the next 1-2 years 66
It will take at least 3 years or longer to achieve a breakthrough 11
Talking about a breakthrough is not meaningful in our case 3
N=90 NIY companies, Fall 2012
(%)
A realistic prospect of a breakthrough stands between 0-50 % 26 %
A realistic prospect of a breakthrough stands between 50-75 % 39 %
A realistic prospect of a breakthrough stands between 75 -100 % 35 %
(%)
Breakthrough size less than 5 M€ 23 %
Breakthrough size between 5 M€ - 20 M€ 47 %
Breakthrough size between 20 M€ - 100 M€ 20 %
Breakthrough size more than 100 M€ 10 %