Competitions Work:Catalysing Entrepreneurship
Perhaps it’s in my American DNA. Or, perhaps, it’s because I am enticed, like many, by the lure of a shiny prize. And it doesn’t even have to be a big one. Just last summer, for example, I signed my six-year-old up for the annual cherry pit spitting competition here in Zug. Why put the poor kid through such agony? It certainly wasn’t the prize (there was, ahem, no prize) but rather the process of stepping forward, trying your best, and seeing if your cherry pit can beat that weasley kid right behind you.
The bottom line is that I simply love competitions.
And, judging from trends in the development world, it seems that others do too. Since their start in the early 1980s at the University of Texas, business plan competitions, for example, have proliferated throughout the world. There is even a website dedicated to tracking all open business plan competitions (82 and counting…) The X Prize Foundation (“Revolution through Competition”) takes competition to a new level, with high stakes and serious investment by the applicants. McKinsey & Company published an interesting (and early) analysis of this trend in 2009, with its report on “Using Prizes to Spur Innovation.” And, with the rise of crowdsourcing, the use of competitions becomes even more creative. Even the U.S. government is jumping into the game with its challenge.gov initiative. Interestingly, with challenge.gov, it’s not so much the prize that entices the would-be competitors. The website is fairly vague on the booty to be had: “Your ideas will help improve government, and you may even win prizes and recognition.” Could it be that the competition itself – and the adrenaline, the pressure, and the recognition – is sufficient to attract applicants?
And, if so, can competitions really resolve those complex issues that keep many of us up at night?
I wanted to find out.
As the director of a private foundation focused on catalyzing entrepreneurship, I have learned a lot from our implementing partners around what it takes to grow small business in what could be termed severely “disabling” environments. Unfortunately, we have more experience on the “disabling” than “enabling” side. In the past four years, two of our six focus countries have suffered military coups. That’s simply not good for business.
Yet, those persevering entrepreneurs who still manage to build something extraordinary in such harsh circumstances, are often stymied by lack of finance. Too big for microfinance and too small (or risky) for the commercial banks, this is the forgotten group, whose growth is compromised by continued market failure.
This, I felt, is certainly a challenge fit for a competition. Earlier this year, I reached out to Randall Kempner at the Aspen Network of Development Entrepreneurs to discuss how Argidius Foundation and ANDE could partner on a new challenge aiming to unlock finance for small and growing businesses. ANDE, I felt, was an ideal partner as its reach went beyond the usual suspects of the development world. In designing this competition, I wanted to hear from organizations (companies, academia, investment funds, market-oriented NGOs, etc.) that could bring fresh ideas, different perspectives, and sustainable solutions. The bar was set high.
We launched the Argidius-ANDE Finance Challenge in March 2012. The two-stage competition aimed to support innovative ways to provide capital to small businesses in emerging markets that require $20,000-$250,000 in early stage capital, ideally establishing models that can be replicated. The first stage awarded grants of EUR 200,000 each to five applicants, the Round 1 Winners, to pilot their concepts. The second stage will award EUR 1,000,000 to one of the Round 1 Winners, based on its success during the 12-18 month implementation phase. While it is too early to determine if AAFC is an effective approach to new solutions in small and growing business (SGB) finance, I already see three clear benefits of this methodology.
1) It does spur innovation. We received almost 70 quality applications, many of which presented new ideas. Many were risky. Many were bold. Few were “business as usual.”
2) It can bring additional resources to the table. We like to ensure that our contribution can have a catalytic effect in sourcing additional support (both cash and in-kind). The applicants brought much more than expected, showing a creative ability to use the AAFC (or the prospect thereof) to interest other donors (and in some cases, investors) to jump on in.
3) Despite the competition angle, it can lead to more sharing and collaboration. Although we have just kicked off the implementation phase, I am already seeing a fascinating development within the Round 1 Winners. They are actively sharing approaches, learnings, and in-country knowledge, which is very much in line with the learning agenda behind AAFC. This is unexpected. Yet extremely compelling.
So, stay tuned as we track the progress of the fabulous five. I will be back in one year’s time to share our experiences, lessons, and, hopefully, successes. And, true to form, I will probably use that time to announce our next competition…
Argidius Foundation works to catalyze economic growth—and mitigate poverty—in West Africa, Central America and Eastern Europe by supporting small- and medium-sized enterprises and improving the business environment. Supported activities include business incubators, business plan competitions, loan guarantee funds, and mentorship. For more information, please visit: http://www.argidius.com.
Leslie A. Johnston is the Executive Director of Argidius Foundation and a board member of C&A Foundation, Good Energies Foundation and COFRA Foundation.