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

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

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

Asp

irat

ion

Institutional Variable Individual Variable Pillars

Attitu

des

Act

ivit

y

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

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

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

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

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)

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

Erkko Autio

Vigo ecosystem dynamic

Erkko Autio

Governance structure of the Vigo Programme

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

Erkko Autio

Funding flows catalysed (summer 2012)

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

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

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

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)

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

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 %

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 %

Erkko Autio

Outcomes: NIY effect controlling for selection

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

Erkko Autio

NIY and Vigo combined outcome

2011 sales: €150k

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

Erkko Autio

Programme concept

Erkko Autio

Example ProMuovi (injection molded plastic parts)

Erkko Autio

Effects on community identity

Erkko Autio

Mediating learning effects (Autio et al, 2008)

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

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)

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

Erkko Autio

Impact (anecdotal)

”Board professionals, go to work” ”Regular work is dull...” ”Much more fun to tell others what to do...” ”Teflon suits...”

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

Erkko Autio

Questions?

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 %