From the negative headlines casting a pall over Central America’s Northern Triangle of Guatemala, Honduras and El Salvador, it would be normal to imagine a region overwhelmed by failure and despair. Yet far from the public eye, in the city of Quetzaltanango a coalition of private sector leaders (under the umbrella of the Guatemala business association FUNDESA) has partnered with the Babson Entrepreneurship Ecosystem Platform (BEEP) to accelerate the pace of growth of dozens of local firms.
The plan hinges on helping local small businesses to productively scale up to expand, and by doing inspire other local firms to also create greater growth and employment opportunities. The family-owned driving school with two locations, Marsa, is an example of potential beneficiaries. The firm currently employs over twenty people and is known locally for its excellent service and professionalism. Ambitious to grow throughout the region and country, to scale up and compete with other schools, Marsa has developed virtual driving classes, and is using the BEEP “Scalerator” to hone its marketing and sales, organization and use of financial resources.
Former Harvard professor Daniel Isenberg and colleagues developed the Scale Up® methodology to support vibrant entrepreneurial growth across a range of economies and tested the model in Colombia, the Midwest United States and Denmark. At its core are a few simple principles. The first of these is that instead of the now-fashionable “unicorns,” real, sustained economic growth is the cumulative effect of hundreds of small growth engines. A second is that rather than planting a thousand seeds to help multiple startups, helping existing companies scale up promotes both their growth and creates its own momentum for further growing firms of all sizes and ages. Helping more local firms get new growth is more important than growing the number of new firms. If you take care of helping existing companies scale up, breeding successful startups will largely take care of itself. Third, growth is not and should not be limited to counting on the top 1 percent of elite firms. Rather, fostering a broad base of local firms—our rule of thumb is 15 to 25 percent of existing firms—is a far better way to spur growth. Fourth, communicating success of other businesses is essential, not just to demonstrate success but also to stimulate ambition among other would-be entrepreneurs. And last, growth is its own incentive, not just for the scaling entrepreneurs, but for many of the local stakeholders, be they banks, government, educational institutions, or larger corporations. More local firms growing more rapidly helps many stakeholders better achieve their own unique objectives, which are inherently different from each other.
To demonstrate that a broad base local firms in Quetzaltanango (locally referred to as Xela) can increase their growth, this month we launched our six-month Scalerator® program for the owners of eighteen local cohorts and their teams. The firms range from three to thirty years old, and include family owned firms, manufacturers, and service companies.
If the past is any gauge, based on sixteen similar programs we have run in Colombia, Milwaukee, Ohio, Canada, and Panama, all of the Scale Up participants in Xela will have already started to expand within the first month. And again, if past is precedent, by the end of 2019 over 75 percent of the participants will have seen their revenue and profit grow and be hiring new talent. Starting in 2020, other Guatemalan cities will start their own Scale Up projects as part of Guatemala’s National Competitiveness Policy. Meanwhile in Xela, we will help expand the number of newly scaling companies from dozens to hundreds by developing partnerships with existing partners and new firms.
Scale Up is already inspiring engagement beyond the Scalerator participants themselves. Over 200 of the city’s private, public and educational leaders participated in three preparatory workshops to build support and tailor the Scalerator to local realities. The enthusiasm is tangible, as local organizations, companies and universities are lining up behind Scale Up to provide project financing and donate professional services.
The success of Scale Up Guatemala does not depend on any macroeconomic or geopolitical improvement. Success is not conditioned upon any particular election outcome next month. To the contrary, we assume that Guatemalan companies must and can grow profitably in less than ideal circumstances, without international aid and without public sector support. By allowing local firms and local leaders to take their economic fate into their own hands, Scale Up will contribute to a broad base of prosperity, and, incidentally, make macro social and economic challenges easier to face. At least that’s what our experience across a range of economies has shown.
Daniel Isenberg was formerly a professor at the Harvard Business School, and is currently an adjunct professor at Columbia Business School and Babson College. Juan Carlos Zapata is the executive director of Fundesa in Guatemala.