Chile teaches the world a lesson about innovation

June 11, 2014

Start-Up Chile’s successful formula brings in entrepreneurs from around the world. (Start-Up Chile)

Chile launched a grand innovation experiment in 2010: it paid foreign entrepreneurs to come and visit for six months. It offered them $40,000 plus free office space, Internet access, mentoring, and networking. And, by the way, they would get to live in one of the most beautiful places on this planet, where housing was relatively cheap and corruption and crime were almost nonexistent. All Chile asked in return was that the foreigners interact with local entrepreneurs and consider making the country their permanent home.

It seems too good to be true, doesn’t it? Indeed, many people thought that the idea was crazy. But Chile was making a bet — that the foreign entrepreneurs would transform its entrepreneurial culture by teaching the locals how to take risks, help each other, and form global connections.

The experiment, called Start-Up Chile, was such a runaway success that, in an Oct. 2012 story, The Economist dubbed it “Chilecon Valley.”

Santiago is today buzzing with entrepreneurial activity; university students often look to join start-ups rather than big companies; Start-Up Chile has gained brand recognition in innovation circles worldwide; and local entrepreneurs are becoming more ambitious and looking for opportunities abroad. This is what I have personally observed during my trips there.

Start-Up Chile has also been flooded with applications—more than 12,268, from 112 countries. According to Start-Up Chile’s executive director, Sebastian Vidal, 810 startups from 65 countries have so far been admitted into the program. The first 199 companies that visited Chile and returned home reported that they had raised a total of $72 million in funding. A batch of 132 companies that chose to stay there reported that they had raised $26 million. Several start-ups have had successful exits, and hundreds of others expect to make it big.

Nicolas Shea, Start-Up Chile founder, giving a speech to entrepreneurs (celebrating 1000 entrepreneurs of the program) Nicolas Shea, Start-Up Chile founder, gives a speech to entrepreneurs. (Start-Up Chile)

This is pretty good by entrepreneurial standards, considering that Chile has invested only about $35 million in this experiment. Other countries have spent hundreds of millions — even billions — of dollars in their efforts to create technology hubs.

Legions of consultants have been advising regions to build science parks next to research universities and to offer financial incentives to selected industries to locate there, touting Harvard professor Michael Porter’s cluster theory. Porter had observed that geographic concentrations of interconnected companies, specialized suppliers, and service providers gave certain industries a productivity and cost advantage. His followers postulated that by bringing these ingredients together into a “cluster,” regions could artificially foment innovation.

They couldn’t. The formula doesn’t work. The top-down industry cluster is a modern-day snake oil.  Chile proved that it is people, not industry, who power innovation.

Tens of billions of dollars have collectively been invested by hundreds of regions all over the world in top-down cluster-development efforts. Consultants have reaped hundreds of millions of dollars in fees. Yet there is not one proven success anywhere in the world. Clusters form naturally on a basis of a region’s inherent geographical and economic advantages — and of entrepreneurs’ hard work. Innovation springs not from industry but from motivated risk-takers — from people. The Start-Up Chile experiment’s purpose was to learn whether a technology hub would follow from importing entrepreneurs and providing them with the right networking support and mentorship.

I helped design the Start-Up Chile program and serve on its advisory board. My involvement with Chile began in 2008, when the Chilean government asked my research team at Duke University to review Chile’s engineering-education system and its I.T. outsourcing cluster. I told the government that the cluster would not create the innovation or employment it hoped for, because Chile lacked the numbers of engineering graduates. Instead, I advised it to focus on entrepreneurship and emulate Israel and Finland: small countries with highly skilled, highly motivated innovators.

The challenge Chile faced, however, was that — like most regions other than Silicon Valley — it didn’t have an entrepreneurial culture that tolerated failure and encouraged information-sharing and experimentation. So I suggested that the country import what it needed; that it take advantage of America’s foolishness in turning away the world’s most innovative entrepreneurs. Because of flawed immigration policies, the U.S. is experiencing an exodus of highly skilled entrepreneurial talent. Chile’s Minister for Economy, Juan Andrés Fontaine, to whom I pitched it, was skeptical of the idea that these foreigners would come to Chile. But he sanctioned an experiment and had his innovation chief, Nicolas Shea, lead it.

Start-Up Chile has survived two government changes and is going to form the basis of major new innovation initiatives, according to Eduardo Bitran, recently appointed to head Chile’s economic development agency, CORFO. In a Start-Up Chile advisory-board meeting at Stanford University, he said that the project was of national importance and a model for the rest of the world.

There surely are lessons for regions all over the world in Start-Up Chile’s success. To foster economic growth and innovation, the focus needs to be on people. They need to be empowered, enabled, and connected.  There is also an important lesson for America: it needs to wake up and fix its immigration policies before Chilecon Valleys sprout up all over the world — powered by the people it has turned away.

Vivek Wadhwa is a fellow at Rock Center for Corporate Governance at Stanford University, director of research at Center for Entrepreneurship and Research Commercialization at Duke, and distinguished fellow at Singularity University. His past appointments include Harvard Law School, University of California Berkeley, and Emory University.
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