Do-It-Yourself Silicon Valley: Using Business Plan Competitions to Spur Innovation
Ansgar Dodt, Lothar Stein, Sigurd Strack · The McKinsey Quarterly · 1999
In much of the world, the networks of entrepreneurs, venture capitalists, and service firms needed to create flourishing concentrations of high-tech businesses don't exist I How can they be created? A scientist or inventor working in Silicon Valley can't fail to be aware that all of the venture capital, entrepreneurial, legal, accounting, and other commercial resources needed to turn promising notions into lucrative products lie close at hand. But elsewhere in the world, scientists and inventors often don't realize that help in building successful enterprises exists in their communities as well. As a result, potential business innovators remain in their universities, hospitals, and research institutes, and the engine of wealth creation is never ignited. To address this problem, McKinsey is working with regional governments in Europe and in the United States and with private-sector entities--business associations, service providers, universities, research institutes, and companies--to coax into the open not only the Andrew Groveses of the future but also the latent networks of advisers and financiers on whom they depend. Business plan competitions are the catalyst. Inspired by a visit to the Massachusetts Institute of Technology, where student-run competitions have been held for a number of years, a McKinsey team developed a blueprint for a competition to foster entrepreneurialism within the broader community and to help individual start-ups get off the ground. Early results have been promising. The first competitions, held in Munich and Berlin in 1996, gave birth to at least 30 new companies, which have raised a total of more than $65 million in venture capital. Each company employed an average of ten people in its first year of operation. McKinsey has since sponsored further competitions in Amsterdam, Cologne, Dallas, Gothenburg, and Zurich, among other cities. Each has launched dozens of high-tech companies. (See boxed insert, Some winners.) A third wave of McKinsey-sponsored contests is now reaching India, South Africa, and a number of cities (besides Dallas) in North America. Meanwhile, large companies such as Hoechst, Siemens, Swedish Rail, and Volkswagen have set up their own competitions to create businesses, either internally or in related research communities. (See boxed insert, Competitions within companies.) The business plan competitions have four aims: to motivate people (mainly researchers and developers in the academic and business communities) to come forward with their ideas, to build their commercial skills by bringing them together with business talent, to attract venture capital, and to identify service providers (such as patent attorneys, headhunters, and accountants) who are willing to support entrepreneurial activities. In addition, the organizers of each competition arrange networking events bringing participants together with successful entrepreneurs and facilitating access to a supporting infrastructure of inexpensive office space and local patent-licensing offices. Getting out of the lab The experience of Dr. Olaf Wilhelm, a physician and cancer researcher at the Technical University of Munich, shows how a business plan competition can promote these aims. Dr. Wilhelm, who won first prize in the 1996-97 Munich competition, is now the CEO of Wilex Biotechnology, the company that emerged from his winning idea. One day in November 1996, Dr. Wilhelm opened his mailbox and found a flyer, sent by the organizers of the Munich competition to students and professors at local universities and research facilities, asking if he had ever contemplated starting his own business. Having often toyed with that idea, Dr. Wilhelm, along with several hundred other people, decided to attend the launch event, arranged by university deans and local sponsors. After hearing the testimonials of chief executives who had not long before been working in universities, he began to think seriously about becoming an entrepreneur. …