Spreading the mantra of Entrepreneurship

Entrepreneurship

Spreading the gospel

Jul 31st 2008 | MEXICO CITY AND NEW YORK

From The Economist print edition

An effort to promote entrepreneurship in the developing world is bearing fruit

EARLIER this year Mario Chady faced a crucial decision. Having built up Spoleto, his chain of casual Italian restaurants, to 150 outlets in Brazil, and opened in Mexico and Spain, the time had come for Mr Chady, based in Rio de Janeiro, to choose between expanding into America or putting the idea on hold for at least 18 months. To help make up his mind, he asked for help from an organisation called Endeavor, which had chosen him as a potential “high-impact entrepreneur” in 2003.

Endeavor is a non-profit group based in New York dedicated to promoting entrepreneurship in emerging economies. It had already supplied three teams of students from the Massachusetts Institute of Technology to help Mr Chady craft a strategy for America. But as he spoke to members of the Endeavor network, ranging from leading Brazilian business tycoons to fellow up-and-coming entrepreneurs, he became convinced that it was the right strategy but the wrong time. Mr Chady decided to concentrate on expanding even faster in Brazil, and leave America for later. “The US economy is not at a very good stage, whereas Brazil is very hot now. Endeavor helped me see this,” he says.

It is routine for entrepreneurs to consult their networks of mentors in Silicon Valley. But in much of the world, such networks are notable by their absence—and so, too, are examples of Silicon Valley-style successful entrepreneurship. Changing this was why Endeavor was created in 1997.

“Why can’t the next Silicon Valley pop up in Cairo or São Paulo or Johannesburg?” asks Linda Rottenberg, who co-founded Endeavor with Peter Kellner, a venture capitalist. Fresh from Yale, she was working in Buenos Aires for Ashoka, an organisation that supports social entrepreneurs—people with innovative, usually non-profit ideas for solving social problems—and concluded that ordinary entrepreneurs needed a similar support system. Much of the difference between countries such as America, where entrepreneurship thrives, and those where it does not is cultural rather than regulatory, she believes. In many emerging economies, business tends to be dominated by a closed elite hostile to new entrepreneurs—and failure is stigmatised, rather than being a badge of honour, as it is in Silicon Valley.

The making of a start-up

Getting Endeavor started required some classic start-up doggedness of its own. At first, the philanthropic foundations Ms Rottenberg courted regarded the project as too elitist. “They complained that we were only trying to build a middle class, not to help the poor, despite all the academic evidence that a strong middle class is essential to prosperity,” she recalls. Eventually Stephan Schmidheiny, a Swiss industrialist who has given away a large chunk of his fortune in Latin America, was persuaded to provide some seed capital, and Endeavor was up and running, initially in Argentina and Chile. Today it operates in 11 countries, including South Africa, Turkey and, most recently, Jordan.

Endeavor’s magic works most powerfully in its selection process. Entrepreneurs are screened first by a national panel of successful businessmen, and then, if they are short-listed, by an international panel. So far over 18,000 entrepreneurs have been screened but fewer than 400 have been chosen. The aim is to identify those who can succeed on a scale that will make them into national role models, and then provide them with every possible support. But the process is designed to benefit all entrants, by helping them define their visions more clearly.

Endeavor’s national boards are rosters of leading tycoons—the founders of InBev in Brazil, Jennifer Oppenheimer in South Africa and Lorenzo Zambrano, boss of Cemex, in Mexico, for example. The international board, chaired by Edgar Bronfman Jr, boss of Warner Music, is even more august. At a selection meeting in Turkey in June, the panel included Daniel Och, a hedge-fund boss, Naguib Sawiris of Egypt’s Orascom Telecom, Brian Swette, the chairman of Burger King, and Ali Koç of Koç Holdings. “It is a lot of fun. You go to all these nice places in the world, find all these young enthusiastic people, who you get to help. Sometimes you invest, maybe make some money,” says Ali Mehmet Babaoglu, a Turkish textile tycoon.

Once the selection process is over, these business figures then become mentors to the entrepreneurs. “Endeavor’s genius has been to get the establishment in these countries together, not to kill these entrepreneurial companies but to support them,” says Bill Sahlman, a professor at Harvard Business School who was recruited as an adviser early on.

Endeavor’s entrepreneurs—who collectively now control companies with combined revenues of $2.4 billion and 91,000 employees, earning on average ten times the minimum wage in their country—rarely say they would not have succeeded without Endeavor. But they all believe they got bigger much sooner thanks to its endorsement and support. Leonardo Shapiro of VeriFone, a maker of online credit-card payment systems, describes as “priceless” the advice he got from Pedro Aspe, a former finance minister of Mexico, before he flew to meet a potential American buyer of his firm, and the legal help Endeavor arranged from White & Case, which although not pro bono “was at a very interesting discount, and pay it when you can.”

One of Endeavor’s earliest successes was Wenceslao Casares, who sold Patagon, his Argentine internet brokerage, to Banco Santander for $705m at the peak of the dotcom bubble. He believes Endeavor has started to change cultural attitudes in the countries where it has been active for a while, mostly in Latin America. “When I said I was going to start a business, it was against everyone’s advice, from my family to my university,” he says. “Now, go to the same university and the same professors will tell you that one of their goals is to produce good entrepreneurs.”

Brazil is perhaps most vibrant of all. Endeavor’s successes include Leila Velez, who grew up in a favela and whose beauty salon firm, Beleza Natural, now has revenues of $30m, and Bento Koike, whose wind-turbine-blade manufacturing firm, Tecsis, recently struck a $1 billion deal to supply mighty General Electric.

Going global

Endeavor has “created islands of hope,” says Mr Casares. Now it must find ways to “change continents, not just little islands.” This has been recognised by Endeavor’s global board, which recently adopted an ambitious plan to expand to 25 countries by 2015. Endeavor is confident that it now knows how to adapt its model to new countries, having learnt from early stumbles in Chile, South Africa and Turkey. Fadi Ghandour, the Jordanian boss of Aramex, a logistics firm, believes there is much potential in the Arab world, which is full of young would-be entrepreneurs who have “discovered the new thing, that it pays to have an idea, not rely on land or investing.”

Funding has long been a problem for Endeavor. As a non-profit, it has to rely on donors—many recruited through a glitzy annual gala in New York—which has been tough at times, as in the months after the terrorist attacks of September 11th 2001. Would it make more sense to be a for-profit operation? Endeavor has struggled constantly with whether to pursue profits, but each time has concluded no, says Ms Rottenberg, who also says she declined the chance to set up a $100m fund focused on emerging-market entrepreneurs. “If Endeavor had been an investor, rather than an independent, objective, non-profit enabler, it would not have been trusted by the business elite, or the entrepreneurs,” she insists. “Trust is everything.”

Happily, Endeavor has high hopes of moving onto a stronger financial footing. In some countries where it operates, starting with Brazil, successful entrepreneurs are signing up to a “give back” programme, donating 2% of their equity to Endeavor. With luck this could soon make the national operations self-sustaining. Moreover, on July 31st Omidyar Network, the philanthropic organisation set up by Pierre Omidyar, who made his money in Silicon Valley by founding eBay, announced a $10m investment to build up the capacity of Endeavor’s global operations. “Endeavor is already having a significant impact,” says Matt Bannick, managing partner at Omidyar Network. “Given capital, it could grow rapidly.” Watch this space.