On Saturday and Sunday, March 16th and 17th, I had the good fortune to run a two-day seminar on “Introduction to Disciplined Entrepreneurship” at the University of Luxembourg. In the process of this and the following Monday, I had a chance to directly experience what was happening with entrepreneurship in the Grand Duchy of 600,000 inhabitants, or more specifically, in its dominant city, the City of Luxembourg. These types of experiences always generate interesting data points to refine my worldview of entrepreneurship and this was no exception.
First of all, my preconception of Luxembourg being a sort of neutral and non-threatening country that people from many nationalities would mix was actually confirmed. It reminded me of the Dubai of Europe. It is a country of great (but not over the top) wealth. There was a lot of activity and new construction was everywhere. It has the second highest GDP per capita ($125K per year) in the world after Qatar. This is due to a vibrant banking system and the presence of the European Union, which pays extremely well. The question of why the banking system is so vibrant – is it because the Swiss are starting to crack down on anonymous bank accounts and Luxembourg has not? – I will not address nor should I with my expertise, or lack thereof. In any case, there is a lot of wealth around as evidenced by the omnipresent very high-end automobiles. As a side note, it is also very nice to see a strong commitment to making urban transportation be less impactful to the climate. This is demonstrated by the city’s plan to provide free transportation to everyone on the city’s rapidly expanding tram systems. Back to the real topic of this post…
Focusing on the entrepreneurial lessons of Luxembourg, I think there are four major factors that I took away above all the others that are worthy of comment here:
- Heterogeneous population.
- Great wealth but with a low-risk population.
- A new (founded in 2003) university.
- Desire to move from banking to an entrepreneurial driven economy.
With the first three factors can they achieve the fourth?
While I was there for only three days and am no expert on the country, I do have some observations that will hopefully be helpful and stir up some productive dialogue.
- Heterogeneity: This is always a good thing for entrepreneurship and bodes well for entrepreneurship in Luxembourg. Entrepreneurship feeds off different perspectives, skills sets, and networks. This creates communities that thrive from the hybrid vigor resulting from different thoughts, products, and implementation. Even though the program had only approximately 35 participants, in addition to native Luxembourgers, we had representatives in the program across Western Europe, North and South America, the Middle East, Eastern Europe, and Asia. It is truly amazing.
- Commercial Bankers’ Risk Profile: Entrepreneurs often complain that bankers don’t make their vast treasure chests available to them. This, however, is not a bankers role. Their job is to loan against hard assets and when they veer off this path, economies can really suffer, see the American banking meltdown of 2008. As such, entrepreneurs should understand that commercial bankers are risk averse by design. Commercial bankers’ job is not to loan to entrepreneurs who have few or no hard assets. That is the job of risk capital – business angels, venture capital and private equity. Bankers are trained to be risk averse and we want them to be. They are guarding our money after all!
- Risk Reduction – 4 Dimensions: So how can the entrepreneurs get some of the significant amount of money in Luxembourg? There is always plenty of money around to invest but people want to invest in good investments where they can add value and not risky ones. Financial investors of all varieties are willing to invest if they can see the risk reduced in areas they cannot control or effect. Any new venture has four dimensions of risk: technology, market (which includes timing), execution, financial. It is the job of the entrepreneur to demonstrate that she has “de-risked” the first three elements to the potential investor. Then the rational financial investor will be most interested to become a financial participant in the venture. That is the one dimension they can most control, fix and add value.
- #BeDisciplined: Since this is the case and there is plenty of money in Luxembourg, but not much risk capital, entrepreneurs need to respond accordingly. To accelerate the development of this sector it will take two things. First, and most obviously, it takes some success stories, which end with exits. Secondly, and less obvious, it takes the current generation of entrepreneurs to be more disciplined to make these successful exits and make it easier for investors to invest. Being disciplined means showing potential (now timid) investors that the entrepreneurs have dramatically reduced the first three risk elements and the final constraint is the financial risk. In this way, they will attract investors, which will get the process started and then generate the success stories.
- Innovation = Invention × Commercialization: It is amazing how this simple equation comes back repeatedly. It is also amazing how helpful a prism it can be. The aforementioned very impressive new University of Luxembourg appears, not surprisingly, to be well funded. They are already drawing high-quality talent from all over the world to pursue undergraduate and advanced degrees with very, very low cost (free in some cases) tuition. They are also attracting top faculty. The challenge, however, is that this is generating “invention” which is intellectual property in the form of patents, papers, technical talent, and new ideas. Invention does not equal Innovation on its own, however. Invention costs money and Innovation makes money. What is missing is the “Commercialization” part of the equation. Apple is a great example of the power of commercialization. Apple took inventions of others (e.g., Xerox, Fraunhofer) who were unable to commercialize them and commercialized them to the great benefit of not just their customers but also their shareholders, employees, and communities. Most regions and organization go through this stage of overvaluing invention relative to commercialization (note, BOTH are important) and Luxembourg is no exception.
- Next Steps for Commercialization: The University of Luxembourg has recognized this and implemented a very aggressive and effective program under Dr. Pranjul Shah in their “incubator” (I don’t like that specific term, hence the quotes, but this is much more than a traditional incubator) program. In this program, it takes PhDs and others with great inventions or invention potential through a program based on the Translational Fellows Program and the Venture Mentors Program at MIT. The simple goal is to give them more commercialization/entrepreneurial mindset and skills. The Luxembourg customized version is also combined with a special one-week fully immersive boot camp run by the great Professor Ted Zoller (University of North Carolina) with inventors across Europe. This program sets out to and effectively achieve the goal of building the PhDs’ ambition, confidence, and capability on the business side of the equation.
- Missing Player: I am very impressed with what has and is being done in this model but I am also a bit troubled by a structural shortfall in their plan. The University of Luxembourg is missing a school of management to not only help support and continually enhance these educational efforts and entrepreneurship education in general but also to attract the talent necessary to make these new ventures successful in the long term. MIT is successful because it has both a world-class school of engineering and science that is coupled and integrated with the world-class MIT Sloan School of Management. Research has shown that entrepreneurship is not an individual sport. Heterogeneous teams dramatically enhance the probability of success (see point #1). Heterogeneity means more than nationality. It also refers to functional expertise. These teams should have both invention (including technical and development) expertise as well as commercialization (i.e., business) expertise. It is also important to have design expertise, which focuses on the customer experience but for now, the sources of talent and knowledge for the first two need to be built in Luxembourg and then focus can be put on the third. The lack of an integrated school of management/business is a structural concern going forward.
- Collaboration Across Stakeholders: Let me end with a positive note in that while I was there, I saw close collaboration between the government, the academic institution (with a new rector who is very interested in entrepreneurship which is a good sign), risk capital and the corporations. Much like entrepreneurship is a team sport, building entrepreneurial ecosystems is a team sport and the players were present and active to make the adjustments and investments needed … and seem invested themselves.
Have you been to Luxembourg? What would you agree with or disagree with?
Does this have any relevance to your region or your situation at a more micro-level?
Thanks to the following people who hosted me in my visit but I should say first, the opinions expressed are mine alone and I alone am responsible for any misperceptions or controversial observations/recommendations/etc.
The Disciplined Entrepreneurship Toolbox
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Bill, I’m so happy you had the opportunity to spread the gospel of Disciplined Entrepreneurship to the innovators and entrepreneurs at the University of Luxembourg. I have been privileged to be part of developing an amazing “bootcamp” program with Dr. Pranjul Shah and the senior academic leadership at ULI for PhD students, post-docs and research scientists with entrepreneurial ideas. But what makes your story SPECIAL is that Luxembourg is a progressive and mighty sovereign nation tucked in between Belgium, France and Germany that as you point out is the home of the European bank. But the story behind the story is that Pranjul and the scientists, investigators and researchers that he brings together come to Luxembourg as ex-pats along with the majority population of ex-pats who outnumber the native Luxembourgers. Another wrinkle is that with other Western countries, once expats come to Luxembourg to study, once their studies end, their visa status ends. This new program seeks to reverse the “braindrain” of scientifically and technically-trained researchers from Luxembourg by supporting them to build new ventures around their discoveries. While there, I was completely floored by the quality of the innovations — from advanced brain scanning algorithms to new high-throughput screening strategies for biotech innovations. By pursuing entrepreneurship for the most advanced innovators, Luxembourg is leading the pack in retaining novel and world-changing scientific leaders by supporting their transition into entrepreneurship. This is a model for all western innovation-based economies to follow! I believe Luxembourg will leapfrog others in Europe. They will advance translation and commercialization of needed social innovations, thanks to the leadership there.
Your contribution Ted has been long lasting there and clearly impactful. It seems they are developing a model that would be relevant (with customizations – always with customization to fit to the specific context of a situation) in other regions. I just referred KAUST to them for the same challenge. How do you attract, develop and retain technical talent for the economic and social benefit of a region? It has to do with not just the invention side of the equation but more today with the commercialization side.
The Visa aspect of this is crucial that reminds us that we do not operate in a vacuum and while government can’t drive entrepreneurship, they can help facilitate it with supportive and aligned policies.
By the way, I should have also mentioned the long term work that Jeff Skinner from the London Business School, where he is the Executive Director, Institute of Innovation and Entrepreneurship, has been doing in Luxembourg. Getting international experts to invest their time and effort not only build knowledge & capability in Luxembourg but it also provides inspiration and builds networks for ongoing dialogue. Entrepreneurship never stands still so the latter two are very important as well. Ted, Jeff and myself all have different experiences, areas of expertise, networks and, ultimately, perspectives which is very helpful.
But in the end of the day, it is people who reside in Luxembourg who have to tip our hatr hats to Pranjul and his team, as well as the other committed stakeholders there, to make the plans a reality on the ground.
Very glad to see more global entrepreneurial activity coming to Luxembourg, this time in the form of a Venture Capital conference https://luxtimes.lu/luxembourg/37025-global-start-up-summit-comes-to-luxembourg – Excellent news!
Just need to make sure there is a pipeline of good entrepreneurs for them to invest in – and hopefully many of them will be based in Luxembourg. I would argue that the shortage is almost always not money (there is tons of that) but rather excellent, disciplined entrepreneurs who have derisked their new venture in the other 3 dimensions (product/technology, market (including timing), execution) and the only remaining risk is financing. Then the money knows exactly what to do and can add the value that it is best at.
One thing you don’t mention that Luxembourg has done well is their Proof-of-Concept – created by Andreea Monnat at the FNR. The fund that enables those initial steps out of the laboratory. I’ve been on the panels that determine which commercialisation projects do – and do not – receive this funding and followed through many of those putative ventures.
My three main observations are that:
• Researchers are often very effective commercial leaders – but it’s an apprenticeship and can be accelerated hugely with training on a few simple entrepreneurship frameworks (including Bill’s 24 steps!) They emerge a lot more savvy than they enter but that is what ‘capacity-building’ and culture change is all about (as someone once said, venture are like pancakes, the first one is a throwaway).
• Most researchers need encouragement to ‘get the hell out of the building’ and talk to some of those who they’ll later need as part of their value chain or customer. Too many plans are really extensions of the science programme, second-guessing what a user needs rather than discovering the most important features and barriers to adoption and basing their proposals on these insights. In research the laboratory can be their world – when it comes to commercialisation the world is their laboratory.
• The ecosystem is immature in a way that it used to be in London. Few of the complementary assets (risk capital, space, itinerant CEOs etc) that you need to build a venture. But London was like that once. A business school is just one element of the ecosystem. The brilliant thing about Luxembourg is that it is willing to import any skills and other resources it doesn’t have – and it is such a lovely place that folk love to go there! The danger is that they lose the best opportunities as their best technologies flow in the other direction!