Scale Up Milwaukee, Aided by $350K From WEDC, Aims to Prove Itself

3/12/14Follow @XconomyWI

State officials are pouring a lot more cash into Scale Up Milwaukee, the entrepreneurship program that tests a college professor’s theories by helping existing businesses push for more rapid growth.

For its second year, Scale Up is getting $350,000 from the Wisconsin Economic Development Corp., officials told Xconomy. That represents a big increase in support from the state’s lead economic development agency, which contributed just $50,000 in Scale Up’s first year.

Scale Up is also getting a second grant from American Express Open, said Brian Schupper, policy director for the Greater Milwaukee Committee, the local nonprofit organization overseeing Scale Up. The size of the American Express donation has not been disclosed publicly.

It’s far too early to tell whether Scale Up will be successful in meeting its goals, which range from specific to abstract: by 2020, helping to spur 60 “scale-ups”—businesses that consistently increase sales an average of 20 percent annually—and changing the local culture to create a “self-sustaining environment that embraces regional entrepreneurship.”

WEDC CEO Reed Hall said the first year of Scale Up showed plenty of promise—hence the new round of cash. “I think there’s some real jobs that can be created by this,” he said. “That’s why we’re willing to invest.”

There are critics, too. While the current era of American business seems enthralled with the promise of fast-growing technology startups that sprout from dorm rooms and weekend hackathons, Scale Up is taking a decidedly old-school approach to growing the local entrepreneurship scene.

Note that we’re talking about “scale up,” not “startup.” Part of Scale Up’s mission is to broaden the local concept of entrepreneurship to include later-stage businesses, particularly companies that have a proven business model and a clear market, but need an extra push to reach the next level and grow rapidly.

For example, the two-month “Scalerator” program of mini-MBA courses focuses on companies with annual sales between $500,000 and $10 million, regardless of their industry or age. Pilot participants included a 14-year-old branding and social media consulting firm, a 24-year-old contract screen printing and embroidered clothing producer, and a more than 60-year-old headcheese and sausage manufacturer.

The 12 participating businesses from Scale Up’s first year are projecting, on average, an additional 25 percent sales growth this year thanks to the program, Schupper said. That’s easier said than done, of course, but Scalerator has led business owners like Visual Impressions’ Todd Richheimer to think differently about how his company generates sales and to form a more aggressive plan to achieve revenue goals.

“It’s more the mindset that Scale Up gives us,” Richheimer said. “Our eye is on growth, versus the day-to-day business and watching the dollars come in.”

This year, Scale Up aims to hold a second, more intense Scalerator program with a new crop of companies, form a mentorship program, create a website with resources for entrepreneurs, and host more workshops.

Scale Up’s focus definitely runs counter to much of the broader public discussion about U.S. entrepreneurship and innovation, particularly the kind of high-growth, technology-driven startup companies that interest venture investors and have been championed by leaders around the country, from the White House on down.

Brad Feld, a well-known venture capitalist with Boulder, CO-based Foundry Group, suggests that getting a strong startup community in any given region depends first on a core group of active entrepreneurs. Other entities, including governments, investors, and big companies, can play a role as “feeder organizations,” Feld says, “but in the absence of a critical mass of entrepreneurs, the startup community won’t ever develop into anything meaningful.”

And as the Milwaukee Journal Sentinel noted in an article on Scale Up last year, the program’s focus on existing businesses contradicts an often-quoted study by the Kauffman Foundation indicating net job growth comes from startup businesses.

At the heart of this conceptual friction is Dan Isenberg, a professor of entrepreneurship at Babson College, just outside of Boston. He argues that high-growth firms are actually older (15 years or more, in many cases), and more often found in legacy industries like manufacturing, food services, and construction, rather than information technology and life sciences.

Scale Up is based on a model for stimulating business growth developed by Isenberg, which he’s employed in similar initiatives in Colombia, Brazil, and Denmark. Milwaukee is the first U.S.-based test city.

Scale Up’s focus on existing businesses, some in not-so-sexy industries, will have a greater impact on company revenue, job creation, and the local tax base in a relatively short amount of time, Isenberg said.

“It’s saying, where can we get the fastest and most tangible return on the social investment?” he said.

Scale Up Milwaukee logoScale Up is meant to complement existing initiatives in Milwaukee trying to nurture startups, such as gener8tor, Startup Milwaukee, and BizStarts Milwaukee, Schupper said. Scale Up supporters think the Milwaukee region needs an “all of the above” strategy, not an “either/or” mentality.

“Those startups, once they get going, they’re going to need an ecosystem that is going to help them grow,” Schupper said, comparing it to professional baseball’s farm system. “Ideally, [the initiatives are] going to feed off one another. Ultimately they’re all going to help contribute to this sense of, Milwaukee’s a great place where I can build my business, I can grow my business, and I can impact the community.”

Outside observers are interested to see how the Milwaukee experiment plays out. The Kansas City-based Kauffman Foundation, Ohio-based JumpStart, and U.K.-based Nesta all have contacted Scale Up to learn more about the initiative, Schupper said.

Yasuyuki Motoyama, a senior scholar in research and policy at the Kauffman Foundation, said it’s virtually impossible to accurately calculate Scale Up’s direct impact on companies’ sales. But Scale Up’s public-private partnership structure is encouraging because it brings business minds to the table, and it’s a better approach than having government invest directly in companies, which Kauffman research has concluded rarely achieves strong returns, Motoyama said.

Milwaukee’s entrepreneurial climate won’t change overnight, but it can be boosted within several years, Motoyama said.

“Silicon Valley spent 20 to 30 years forming their version of a regional ecosystem,” Motoyama said. “In that sense, in five or six years can you completely transform Milwaukee? I don’t think that should be the expectation.”

[WEDC, the Greater Milwaukee Committee, and gener8tor are all Xconomy Wisconsin underwriters.]

Jeff Engel is the editor of Xconomy Wisconsin. Email: jengel@xconomy.com Follow @XconomyWI

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