Leaders in many places facing economic decline—be they post-industrial cities in the Rust Belt or depleted communities in former coal mining towns—are increasingly looking to entrepreneurship as a means of revitalization. And when they do so, the model that dominates their thinking is the high-tech growth model best exemplified by Silicon Valley.
Business leaders, community organizers, and local policymakers in these places have attempted to replicate the success of Silicon Valley by attracting venture capital, creating business incubators and accelerators, and building an entrepreneurial ecosystem. Yet, these attempts have not significantly reverted economic decline. The next Google or Facebook has yet to emerge from places plagued by chronic poverty, and even when a high-tech sector sets foot in low-income regions, it often exacerbates income inequality.
Why does the method that worked in Silicon Valley, Boston, Austin, Seattle, or Boulder not work for places like Detroit? Anna Kim at McGill University and I pursued this question through in-depth fieldwork in two Detroit-based business incubators, which sought to revitalize Detroit through entrepreneurship but employed contrasting approaches.
Between 2012 and 2014, we immersed ourselves in the workings of these incubators then followed their nascent organizations through their growth trajectory until 2020 (see published articles out of the project here and here). Our research revealed compelling reasons why trying to replicate Silicon Valley in places like Detroit may not be feasible. Perhaps more importantly, it suggests an alternative that may better nurture self-reliance in low-wealth communities.
A Misplaced Focus on Scaling Up
Our years-long journey to track the birth and growth (and for most, ultimate demise) of the Detroit ventures led us to an important discovery: the scale of venture growth matters.
Scale is not equivalent to size. Instead, scale refers to the temporal and spatial properties of an ecological (and social) process. For example, while tornadoes in general have a short temporal scale (days) and a relatively narrow spatial scale (a few states), climate change unfolds over a long temporal scale (centuries) and covers a broad spatial scale (the entire globe). We found this concept of scale useful in capturing the difference between the two incubators we studied as the incubators’ ventures grew at contrasting scales.
This difference was imprinted on ventures from the very beginning, at the stage of business model design. One incubator, which we called ACCEL, had the goal of “turning Detroit into the next Silicon Valley” and mentored each of its ventures to become “a unicorn” that would attract venture capital.
Regardless of their original vision, ACCEL founders—like many who seek venture capital financing—changed their ideas (or pivoted) so that their ventures could reach a national, if not global, market in three to five years, following a typical venture capital timeframe. This resulted in ventures that scaled up, expanding nationally (broad spatiality) in a short time (short temporality).
However, because scaling up required infusion of financial capital at an increasing rate, as well as easy access to industry talent and knowledge, the more successful ACCEL’s scaling-up ventures became, the more likely they were to leave Detroit for wealthier regions that could satisfy these needs.
Furthermore, the design process, which focused on designing ventures to quickly go global, radically reduced their connection to Detroit (because relying on the local ecosystem in Detroit would make the businesses “not scalable”). This had unintended consequences: ventures might succeed at scaling up, but their success was increasingly decoupled from local employment and the local Detroit economy.
Most often, ventures that succeeded were either bought out by big businesses headquartered elsewhere, or they migrated out of the city. Initial investors and founders reaped some financial rewards, but impoverished communities in Detroit gained little.
Why Scaling Deep Can Build Self-Reliance in Communities
While the scaling-up ventures mimicked the much-celebrated growth trajectory of Silicon Valley’s high-growth ventures, the ventures of another incubator, which we called GREEN, grew differently in terms of time and space. Following their mentors’ unconventional guidance to avoid the financial risks of early fundraising, GREEN’s founders sought to develop business that could grow by relying on locally available resources. Through this process, which we called local bricolage, they scaled deep, rather than up.
Because the resultant ventures grew by creatively repurposing and recombining the resources that other local actors possessed, the more successful the ventures were, the more deeply embedded they became in the local economy.
Spatially, their growth was increasingly anchored to Detroit—none of the ventures we observed expanded beyond the city, but they extended their reach to different parts of the city. Also, because successful collaborations with local actors benefited all collaborators, one success bred another, creating a chain reaction of more local bricolage that extended the ventures’ duration.
As a result, the ventures’ growth was not fast, but steady and durable. While most scaling-up ventures from ACCEL “failed fast” in a year or so (a popular Silicon Valley term), most of GREEN’s scaling-deep ventures remained in operation for years. While some ACCEL ventures “went viral,” GREEN ventures grew “like an oak tree.”
This different scale of venture growth impacted the city in different ways. While scaling-deep ventures never resulted in lucrative initial public offerings (IPOs) or million-dollar acquisitions, they created stable employment, unleashed the productive potential of underutilized local resources, and most importantly, provided new solutions to local problems, such as the lack of access to fresh food, a stray dog epidemic, and rampant waste tire pollution.
A How-to Guide for Scaling Deep
In our contemporary economy obsessed with unicorns, there is no shortage of guides for scaling up. However, the concept of scaling deep is a novel one, and there is little publicly available knowledge on how to create a venture that scales deep into its impoverished place of origin.
Here, I address this shortcoming by summarizing some key insights we garnered from Detroit about how to develop a venture that scales deep. This is not the guide for scaling deep, but a first step towards building practical knowledge about the process.
- Start from your community’s resources: One common misunderstanding we faced with local bricolage is equating it with merely replicating existing business models using locally available resources. In fact, successful scaling-deep ventures originate from business model innovation, yet not through lean startup or customer validation (popular methods for scaling up), but through local bricolage.
We have learned from Detroit that building scaling-deep ventures that have a more profound impact on the locale for a longer duration requires innovation, albeit not the version that is taught in most business schools. In most cases, when people start a new business, they tend to begin with a known business model, make a list of required resources, then find ways to mobilize those resources. For business model innovation, the sequence should be reversed: not from a business model to resources, but from resources to a model.
Bricolage is an anthropological concept that refers to addressing an urgent problem by making do with resources at hand. Local bricolage involves repurposing existing local assets and recombining them through a community’s existing social relations to generate viable solutions to the locale’s urgent problems. As such, an entrepreneur who wants to build an impactful scaling-deep venture should have rich knowledge of the resources available in the local community and how those resources can be creatively combined to address local problems.
We observed that founders of successful scaling-deep ventures began with a clear focus on local problems and canvassed Detroit’s landscape to identify actors who have resources that can be used to address those problems. Novel business models emerged out of an iterative process of putting these resources together in different ways.
For example, we followed a team of founders who were committed to supporting “cottage” food entrepreneurs—mostly women of color who had excellent cooking skills but lacked business skills and ready access to fresh ingredients and licensed kitchens. The founders addressed this problem by organizing a series of collaborative projects that creatively combined various local resources: underutilized kitchens in churches and daycare centers, excess produce from the city’s urban farms and community gardens, restaurant spaces during their downtime, and the customer exposure and business support capacities provided by the local farmers’ market. As successful projects became routinized and new businesses spun off from them, the incubator helped establish a new business model that could be readily utilized by local entrepreneurs. This business model innovation enabled enduring impact in the city: the incubator grew to support over 200 food entrepreneurs of color in Detroit, who collectively generated $7 million of revenue in 2019.
- Focus on honing entrepreneurial imagination: Although local bricolage places strong emphasis on local contexts, individual founders are still at the heart of scaling deep for they creatively discover novel usages of existing local assets and weave repurposed assets into new solutions to local problems. Innovative entrepreneurs’ unique perspectives turn the seemingly barren landscape of a depleted community into fertile ground of underutilized resources.
To unlock this creativity, GREEN devoted its first weeks to deep reflections on the founders’ identities, passions, and competencies. These discussions led to discovery of the emerging venture’s “seed,” a succinct articulation of the founders’ aspirations that is rooted in their personal identities. For example, one founder who initially wanted to open a store for reclaimed pet products came out of weeks of reflection sessions with a clear vision for her venture: a service that helps her customers address relational problems with their animal companions.
The seed serves as a lens through which to identify local problems. By seeing the Detroit landscape through the lens of the seed described above, the founder discovered that her venture could help address the city’s stray dog epidemic, which was intensifying as more residents abandoned their pets along with their homes. Packs of abandoned dogs were roaming city blocks, attacking pedestrians, and even killing a child.
The seed not only helps identify the locale’s challenges, but also reveals local resources. When seen through the lens of relational problems between human and animal companions, the city’s animal shelters offered an opportunity to prototype and refine the founder’s consulting/training services. Neighborhood book clubs were repurposed as platforms with which to educate pet owners. The city’s animal rights organizations and municipal government became channels through which the founder’s unique approach could reach all city residents by shaping city regulations to ban animal abuse.
As shown in this example, a seed that reflects the founder’s unique vision, rooted in addressing previously overlooked local problems, reveals new solutions when it feeds on local resources. Of course, a central authority engages in local bricolage when it mobilizes local resources to address local problems. Yet, our experience tells us that a higher level of creativity and effectiveness can be achieved when local bricolage is driven by a “seed” rooted in an individual founders’ idiosyncratic imagination.
- Align capital with the right scale: Fundraising matters for scaling deep, but founders must choose financing sources that tolerate or even encourage spatially anchored and temporally durable venture growth. Crucially, for scaling-deep ventures, securing financial resources does not drive business model design but complements local bricolage. The scaling-deep ventures that we observed in Detroit raised funds from various sources, most prominently value-aligned grants from nonprofit organizations.
Different sources of funding come with different expectations for how ventures grow. If one receives venture capital investment, the venture’s growth should be able to create a 10-fold return on investment in three to five years. Yet not all funding sources impose the same pressure. Alternative sources of funding, such as patient capital and slow money, have different scale implications. Because scaling-deep ventures typically address urgent issues in local communities, they can be more readily eligible for grant money from local foundations and government agencies.
These alternative sources typically do not match the size of venture capital investment, but they may be adequate for scaling-deep ventures because by design such ventures’ primary resources come from local collaborators, not investors. When raising funds, founders of scaling-deep ventures should ask if the scale of growth that their potential funders expect matches the scale of growth that they intend.
Given the recent history of remarkable successes by high-growth ventures, there is no doubt that ventures that scale up can bring about regional prosperity. At the same time, our research indicates that scaling up alone would not turn a Detroit into a Silicon Valley.
Just as healthy ecosystems have a diversity of species, healthy entrepreneurial ecosystems may require scale diversity among its ventures, wherein scaling-deep ventures enhance the region’s self-reliance and ensure that scaling-up ventures stay put. To increase scale diversity, more efforts have to be made not to attract more financial investment to the region, but to stimulate more entrepreneurial imagination to unlock the productive potential of what is already there.