Local champion...

I have been in Belarus again recently and plan to go again this summer. Since then I have been in an ICT related mission in Romania and I am going now in Mauritius for a mission to support the Government innovation & entrepreneurship systems toward ICT companies (and their internationalization).

(It is my usual “lame” excuse not to be more active on this blog)

Anyhow, to come back on the subject of interest here, the message I wanted to give and discussed is this one.

A part from some noticeable exceptions (e.g. truly born-global start-ups; e-bay sellers; companies coming from tiny countries; etc.), time and time again I have noticed that many entrepreneurs in the region focusing toward international market (because it is more lucrative) and failing to breakthrough, often, at the expense of the survival and local development of the business.

The two main reasons I have identified so far are:

- Lack of proper internationalization process

- And lack of competitiveness!

Internationalization processes are multiples but they do require to be planned and properly executed to be sustainable otherwise successes are often more due to luck than anything else. Luck is OK and even welcome but it is not sustainable!

But the biggest trouble is not an immature internationalization process but the lack of competitiveness. Companies jump-start their international business often before to know if they are competitive locally. It is however highly unlikely that the global markets will be less competitive than the company own local market. In turns it means that even if the international process has been well prepared and executed, it will most likely fail because of the lack of competitiveness.

Hence the advice, that before to go international, young companies should compete locally sometimes (however unglamorous). This will avoid the reverse 20-80 scale result in which 80% of total effort goes toward internationalization and only 20% of results come from it!

How an investor should look at an (young) entrepreneur?

Of course, the quality of the proposed investment idea and the quality of the ensuing due diligences are vital to evaluate the deal proposed by the innovator BUT above all, an investor invests in an individual, an entrepreneur!
Yet, an important due diligence part, the human side, is often not done or only partially.

We, all, ought to know that there are 3 important parts in the human side due-diligence to be done from a Business Angel or Venture Capitalist perspective:

1. That the chemistry factor is high between the investor and the entrepreneur. This means that they trust each other, they believe in each other, but even more importantly, they appreciate each other.

2. That the entrepreneur has a strong support from his/her close surrounding (family, friends, etc.), otherwise the bumpy road of launching a new venture might become even bumpier…

3. That the entrepreneur is really motivated to the success of the new venture and not just in search of a fantasy or a (first) great job…

About the last one, I often hear students to say that they are ready to sacrifice time (that they will be working for nothing). Although, time is the most expensive of all commodities, to offer to work for “free” is not a real show of motivation. It is undeniably a strong indicator but this is not just good enough nowadays. This is true, for many reasons but here are some:

- No investors would like to see the “investee” of an opportunity to be attracted by another more rewarding one.

- No investors would like the entrepreneur to burn the potential by lurching on other opportunity each time the entrepreneur has a change of situation (got diploma, got married, got a new child, got retired, etc.)

- It is common knowledge that most entrepreneurs work for very little at start (except the lucky ones working for well-funded start-ups) and thus making this kind of “sacrifice” quite a common place.

Of course students (poor by definition) cannot put much cash on the table but there are ways for them to raise their stake (and not necessarily cash wise).

A well-advised investor will require from the entrepreneur a more substantial motivation evidence. Something to be put on the deal table which would “really hurt” the entrepreneur in case of failure (something more than “Well… I lost one / two years of my life but I have learned greatly anyway!”)

How should an Entrepreneur approach an investor?

The attitude I meet the most from entrepreneurs of the Eastern Baltic region toward fund raising is fear. Mostly, the fear to be unable to raise the much-needed cash to seed their start-up.
There is also greed of course and many other feelings including founded or not variations of fear such as that investors are going to copy the business idea.

This, in turn, makes them poor seller and negotiator during the investment presentation and negotiation rounds.

Actually, a completely different attitude is required. I recommend them –almost every single time – that they should approach the investment process not as a beggar but as someone who is allowing investors a great investment opportunity.
In other words, it is not me - the entrepreneur - who needs you most; it is you – investors – who need me the most!

Money is actually plentiful contrary to lucrative investment opportunities around here. And this is a powerful argument if not use with too much greed or pride.

Change management and entrepreneurship

Sometime ago I had a conversation with an Eastern European would-be entrepreneur about if his change management skills could be utilized in the launch of a new company. In my own opinion both are very related.
Applying the management change stages to the entrepreneurial phases (of the creation of a new entity), it is possible to draw a match.

Change management stages
1. Anticipation of the change
2. Identifying the change
3. Selling the change
4. Mobilising the resource
5. Breaking down the comfort zone
6. Reinforcing change success
7. Continuous learning of change

match nicely with

Entrepreneurial phases
1. Environmental awareness (passively, reactively or proactively)
2. Vision (identification of an opportunity)
3. Sharing the articulated vision and strategy
4. Mobilising resources
5. Operation pre-launch
6. Operation launch
7. Running the operation

To complete the match it is perhaps necessary to "translate" each stage/phase into concrete entrepreneurial actions.

Entrepreneurial Interpretation
1. Networking, monitoring markets, being close to real life (close to people/organisations to identify and forecast their needs).
2. Vision and articulation of the idea. Matching with the entrepreneur capabilities.
3. Introducing the idea to one-self (first) and then to potential partner, customers, team members, etc.
4. Gathering the resources (financial, technical, etc.) as well as gathering personal support (from founders’ families, etc.). Creation a founding team!
5. Inception of the new enterprise (in the larger sense of the term). Leaving existing routines (family life ones, previous job ones, etc.) to jump into the unknown.
6. Get early success fast such as first sales, first prototype, first partner. This could also include formalisation of a still informal enterprise (legalisation).
7. Acknowledge the rapid transformation (change) and establish mechanism for further growth. Contrary to larger/older organisation, this stage is of little trouble for a start-up organisation since (big) repeated changes are fully part of the early life cycle of an organisation.

This is actually straight forward. However, it is also important to be aware of matching conditions for both a change management project and the ones from an entrepreneurial project.

6 similar conditions are to be evaluated:
- Is there leadership commitment toward the change?
o Is there a highly motivated and convinced entrepreneur?
- Is there a true understanding of the need of change?
o Is there a clear understanding of the entrepreneurial vision? (Why am I doing this? Money? Recognition? Passion? Etc.)
- Is there a mobilization of commitment within the organisation?
o Is the entrepreneur supported by his/her entourage (and society at large)?
- Is there a common understanding of the new vision?
o Is the vision clearly understood, shared and agreed upon by all involved parties?
- Is there a resource commitment toward the change?
o Are most needed resources available to successfully execute the entrepreneurial launch?
- Is there a change management expertise present?
o Is there an entrepreneurial team compensating the weaknesses and the insufficiencies of the entrepreneur?

Failing to meet these 6 conditions endangers the chance of success of an entrepreneurial plan.

Natural French-Belarusian IT cluster!

If there is a buzzword in the world of promotion of innovation, it is the concept of cluster (Sofia Antipolis in France, the Silicon Valley, Rd 128, Cambridge shire in the UK, etc.). Despite that nobody really knows why things are working sometimes and sometimes not (such as the IT Fornebu in Oslo), clusters are so over-rated that you have public and private initiatives all other the place and Eastern Europe is no exception.

All these initiatives in the Eastern Baltic are of course welcome but unfortunately often inadequate and over-optimistic, sometime they are even misguided. According to the OCDE definition on what is a cluster, there is no to my knowledge any ICT cluster in the Eastern Baltic region despite some marketing noise from Riga.

Knowing this, I was very surprised to discover a natural and real “baby-cluster” in Minsk. It involves 3 independent IT companies working mainly for the French market! This is more than just a punctual collaboration. It is actually quite a cluster for many reasons and one of them is a high-level of interaction between those companies, which have a separate ownership (one is owned by a Belarusian entrepreneur, another is affiliated to IBM, and the last one is the result of a French international entrepreneur). They collaborate on several levels (project level, HR level, etc.). The last reason is essential and missing in most so-called clusters in the region.

This cluster, naturally, established to answer the need of each other and the one of very large customers. It was completely spontaneous (the result of the initiative of one actor) and is sustaining and developing without the help of external / public support.

And, that, is remarkable on its own right!

The Belarusian Paradox

I have again been to Minsk early last month before to fly to France for Xmas (thus my lack of posting in December). After several new meetings in Belarus, it confirmed the particularity of the Belarusian ICT sector, especially linked to the international entrepreneurship issues; a particularity that I decided to call the Belarusian Paradox.

This paradox goes that way: how come in a country frozen in a stage of post-communism, highly bureaucratic, with a relatively poor service culture and having diplomatic rows with western neighbours, how come Belarus is so successful in exporting its IT services?

With an industry, which has already reached by mid-2005 over 100M USD of export (according to the government, a number which can be seen as under-estimated since many businesses do not declare fully or at all their income to the Belarusian administration) and forecasted by experts to be reaching 250 M to 400 M USD within the next few years, Belarus is the little India of Europe for the ITO market!

Partial answers can be found in several facts:
- A government keen on promoting an IST society and thus a strong ICT sector (this can be seen by several presidential decrees in recent years)
- A freedom of movement for people which allow easy international business links (although at a prohibitive cost)
- An historic country background of high-technologies and a high proportion high education graduate

However these factors are only structural and several issues could counter-effect them (such as the insufficient number of IT graduate nowadays or the relative high cost of the IT labour in the capital Minsk, higher than in the neighboring new EU member states, etc. ).

In my humble opinion 2 factors are key explanations for the successful Belarusian ITO sector:
- The local IT market was unattractive to the private sector due to very low contract / tender pricing from governmental/public projects (public sector still represents around 80% of GDP).
- A latent entrepreneurship spirit, which have succeeded to emerge truly because of lucrative global opportunity.

And thus the quite high rate of successful international entrepreneurs in Belarus (in ITO).

Saying that, these 2 factors are only partial explanations and I am still looking for more clues to explain questions such as is this unique to the ITO industry in Belarus (as it seems) and if so why?

Business Angel Network in CEE

I have been very busy the last few weeks and this explains the lack of input in my blog. With the coming Xmas season, I do not hope to do any better!

Anyhow, one of the big issues for entrepreneurs (from East or West) is to pass through the equity gap (the so called “Valley of Death”). The Valley of death is the time when a start-up deeply needs to raise funding between 25K to 500K Euros.

One “new” investment tool to in Europe address the problem is the development of BAN (Business Angel Network). However, the east-west divide is strongly felt on the subject. In 2005 there are a registered around 240 BAN in Europe (according to EBAN, the European association of BAN). There is only an estimated 10 in CEE countries. To make the matter worse these 10 BANs are concentrated in 3 cities: Moscow (4), Warsaw (2) and Prague (2).

So for entrepreneurs and innovators of Central and Eastern Europe access to this essential tool to pass over the Valley of Death is extremely difficult. This was discussed last week in an international conference on Entrepreneurship in Vilnius (link)

In the Eastern Baltic region there is no known BAN. However, a glimpse of hope exists in 2 initiatives. Connect Latvia is reportedly preparing to set-up the first BAN in Riga. In Lithuania, the Sunrise Valley (in Vilnius) with the help of my organisation (e-coventure) will be launching early 2006 the first BAN in this region.