When Big Companies Fall, Entrepreneurship Rises

When a whale dies, the 30-100 ton body — or "whale fall" — slowly, silently sinks to the ocean bottom where it becomes the wellspring of a complex new microcosm of seabed flora and fauna that can thrive for well over half a century. These new ecosystems with their hundreds of species from flesh-eating sharks to sulphur-metabolizing worms also include "innovative startups" — previously undiscovered new sea animals that have naturally selected to flourish in the unique ecosystem.

There are many ways that live "corporate whales" can cultivate entrepreneurship ecosystems — as investors with capital for ventures to grow, as customers who buy innovative products, or as marketing partners to give the small dynamic firms global reach. I am a big believer of the symbiotic necessity of large companies and entrepreneurial ventures living side by side: You simply cannot have a flourishing entrepreneurship ecosystem without large companies to cultivate it, intentionally or otherwise.

But one of the deep dark secrets of the flourishing of entrepreneurship in parts of the world as diverse as Israel, India, Colorado, and Denmark has been "corporate fall" — the death or shrinkage of large corporate incumbents whose detritus feeds the entrepreneurship culture. We don't have far to look for current examples: today Finland is witnessing an upsurge in entrepreneurship now in part because corporate giant Nokia is in the midst of shedding ten thousand high-quality jobs. As it happens, the "Nokia Bridge Program" is a socially-minded strategy for both easing the pain of layoffs, and intentionally supporting the more talented.

A similar drama is taking place in aptly-named Waterloo Canada as RIM's BlackBerry smartphones have become overripe. Initially fueled by RIM's success, Kitchener-Waterloo's "Quantum Hub" is now being fed by its turbulent ups and downs, with thousands of highly trained people flooding the small region.

Whereas superficial accounts of the rise of entrepreneurship in societies selectively glorify government interventions, few tell the story of death. In August 1987, for example, under severe United States pressure, the Israel government abruptly and controversially cancelled the Lavi fighter development project that was to be Israel's answer to the F-16 and the societal equivalent of NASA's moon program. Estimates of jobs eventually lost from the closure of the multi-billion dollar project range from 1500 to over twice that many. But it is no coincidence that Israel's entrepreneurship skyrocketed in the late 80s and early 90s just after the Lavi was grounded. Many of the thousands of highly qualified engineers either started companies or joined growing startups — it did not take too many talented people with experience in developing advanced technology products to turbocharge Israel's entrepreneurial revolution. Less glitzy than start-up glam perhaps, but the reality in this case is that it took the death of a once-promising project to generate the life of many new ventures .

In India in the late 1970s there was a similar story. Until 1977, IBM — in those days the first-choice mainframe supplier to governments, enterprises, and armies — operated freely in India. When the government passed a law requiring foreign companies to transfer 60% ownership to local shareholders, IBM's management said, "Not on my watch," and unceremoniously closed shop. The result? Thousands of IBM-trained Indian executives helped to feed the emergence of a number of young BPO services providers, and some started their own software companies. Whatever quips we might have heard about IBM's corporate bureaucracy, it has always been considered a premier training ground for computer sales, service, and engineering. As one local computer services start-up advertised, "IBM May Not Stay but IBM Talent is Here to Stay."

Another IBM story, different setting: Boulder, Colorado, that vibrant entrepreneurship ecosystem, continues to remain true to its rocky, turbulent past: Waves of downsizings of IBM in the past three decades (as recently as 2010) in the small Boulder community have been highly correlated with the burgeoning of this vaunted start up community. As some have observed, "In the Boulder area, the early layoffs of talented IBM employees played a large role in supplying individuals to start ventures or to be hired by other startups." Ditto for Boulder's Storage Technology (which went bankrupt), as did Necton Bylinnium.

In 2008, financial services firms, primarily in and around New York City, dumped hundreds of thousands of people into the ranks of the unemployed (26,000 alone at Lehman Brothers). Lo and behold! New York City is undergoing an entrepreneurial revolution, now the second or third biggest deployment of venture capital in the world (depending on which mayor you believe, New York's Bloomberg or Boston's Menino).

"Corporate fall" is an important component of "entrepreneurship rise" (one component of many, it should be noted). What happens to entrepreneurship ecosystems when corporations fall? The reality is, they almost always adapt and grow in creative and novel ways. I make this observation fully cognizant of, and sympathetic with, the pain of being tossed out into the street, as so many people are when corporations fail, downsize, or restructure. The practical implication here is obviously not to encourage or applaud corporate death, just as recognizing the ecosystem renewal after a the loss of a whale is obviously not a call to go out and kill whales. But in an ever more complex and volatile world, business leaders and policy makers would be well served in allowing nature a little more rein in playing out its course.

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