Case Study Dream_Deferred[1]

Dream Deferred: The Story of a High-Tech Entrepreneur in a Low-Tech Worldby Monique Maddy Reprint r00307 NOVAK CARL SHAPIRO R00307 THINKING ABOUT… Balancing Act: How to Capture Knowledge Without Killing It BEST PRACTICE R00309 How to Acquire Customers on the Web BOOKS IN REVIEW R00305 Will E-Commerce Erode Liberty? R00310 . SUTTON WARREN BENNIS AND JAMES O’TOOLE R00301 R00312 R00304 R00302 PAUL NUNES. DIANE WILSON. MICHAEL KETZENBERG. CARR The E-Business Frontier: Syndication: The Emerging Model for Business in the Internet Era E-Hubs: The New B2B Marketplaces Get the Right Mix of Bricks and Clicks On the Edge: An Interview with Akamai’s George Conrades Cracking the Code of Change Lessons from Master Acquirers: A CEO Roundtable on Making Mergers Succeed Building an Innovation Factory Don’t Hire the Wrong CEO FORETHOUGHT R00311 R00306 R00313 R00303 MICHAEL BEER AND NITIN NOHRIA MODERATED BY DENNIS CAREY ANDREW HARGADON AND ROBERT I. Mom and Pop Exploding the Self-Service Myth Biogen Unchained Mapping the World of Customer Satisfaction HBR CASE STUDY F00301 F00302 F00303 F00304 F00305 F00306 The Ghost in the Family Business MONIQUE MADDY R00308 FIRST PERSON Dream Deferred: The Story of a High-Tech Entrepreneur in a Low-Tech World JOHN SEELY BROWN AND PAUL DUGUID DONNA L. AND GEORGE GILLEN YOUNGME MOON AND FRANCES X. FREI DAVID BOVET AND JOSEPH MARTHA REGINA FAZIO MARUCA WARREN D.MAY – JUNE 2000 Reprint Number KEVIN WERBACH STEVEN KAPLAN AND MOHANBIR SAWHNEY RANJAY GULATI AND JASON GARINO NICHOLAS G. MILLER The All-in-One Market E-Procurement at Schlumberger Welcome Back. AND AJIT KAMBIL A CONVERSATION WITH ALAIN-MICHEL DIAMANT-BERGER RICHARD METTERS. HOFFMAN AND THOMAS P. . but its founder learned four essential lessons that will PHOTOGRAPHY BY TONY RINALDO guide her when she ventures forth again. All rights reserved. Adesemi was a tough little American start-up in Africa that many believed would ultimately blanket the third world with affordable wireless telecommunications. would blanket the entire developing world with affordable wireless telecommunications services. it could not overcome the built-in obstacles to doing business in emerging markets. I thought. My company. . Ivory Coast. “My company can succeed here. to take me to a meeting in Seattle with potential investors. I looked down at the continent where I was born.” Then. my heart was still filled with hope. for the rest of the flight. I remember the moment clearly: as my plane lifted off from Abidjan. In the end. I played a mind game quite common to entrepreneurs – I allowed myself to imagine what that long-sought-after success would actually look and feel like. but my dream is still attainable. bringing desperately needed communications to billions Copyright © 2000 by the President and Fellows of Harvard College.FIRST PERSON Dream Deferred The Story of a High-Tech Entrepreneur in a Low-Tech World by Monique Maddy he last time I saw Africa. Tough times are ahead. Adesemi. I was left with an Adesemi that was a shadow of the third-world powerhouse we had envisioned. Sending young children. It had such a noble mission. Two more years went by. One week after graduation in 1986. But I know now that such a goal takes nothing short of a deep-pocketed. when I was growing up. yet by my second year there. negotiating with mistrustful local partners. and eventually started a small restaurant in a mining town.9 million people and a gross national product of $2. And I would be rich and famous. That was a goal I would gladly devote my life to. Soon after. six months after Adesemi’s demise. the seeds of which were sown in a violent military coup in 1980. earning only $250 a year. Losing Adesemi was something of a public death. It did. Six months later. I’m convinced that if we – Adesemi’s core group – could somehow bring about the sustained convergence of those elements while applying the lessons we’ve learned. I started at the UN’s New York headquarters. I attended a private high school in New Jersey. I would have to venture out on my own. I continued to believe in the UN’s mission.and middle-income people in emergingmarket countries. She now lives in Cambridge. and I was beginning to get the sense that to do that. a rare breed in Liberia. thrown together countless lastminute deals with recalcitrant suppliers. Even more. Even my mother wasn’t entirely at peace with the idea. I don’t regret my experience. But after that. 6 starting a business. So off we went. That doesn’t mean I’m happy about what happened to my company. HBS gave me ample opportunities to learn about the hazards of entrepreneurship. So I’m not ready to say my dream is dead. we could achieve our goal of bringing the benefits of digital communications to emerging-market countries. My family was one of the lucky few. pagers.8 billion. where I worked in the general management department for two years. an event that was as shocking as it was personally and financially devastating. I would have to venture out on my own. particularly girls.FIRST PERSON • D re a m D e fe r re d of people. But still. away to boarding school was almost unheard of in Liberia. And yet. Graduate school in management seemed like a good first step. I was more convinced than ever that I could most effectively spread economic prosperity to the third world through my own efforts. at the time of Adesemi’s downfall. he sent us to boarding school in England. at least before its bloody civil war. Liberia was one of Africa’s less troubled nations. but she trusted his judgment. I was transferred to the Central African Republic. My father had high hopes for me and my siblings. I was off to the UN’s office in Angola. I firmly decided that I wanted to work for the United Nations. of course. But it was worth it for what I learned about Monique Maddy was the founder and CEO of Adesemi Communications International. then received my master’s in international development and economics at Johns Hopkins University. It had all been too little. we had raised more than $15 million in venture capital and launched the world’s first fully integrated “virtual” phone system – incorporating voice mail. then worked as an accountant. hoping it would propel me quickly to a job with the UN. I was gone for good. After six years of begging for money from investors who were terrified of emerging-market risk. I had grown frustrated by its lack of tangible impact. I had flown across the Atlantic and back more than 200 times. Massachusetts. with $2 million in annual revenue. others thought he was cruel. a country with about 2. Next. And so. today. I chose Georgetown University. It was shocking because we had come so far and achieved so much. In fact. My father first drove a taxi. It’s only deferred. I briefly returned to Liberia for middle school. I thought: peace and economic prosperity for everyone. in 1968. however. and endured the Kafka-esque bureaucracy of the third world. I was assigned to Indonesia for a training program. In the time it took our board to vote for liquidation – two hours – our dreams were history. the average Liberian was extremely poor. For college. when I was six and my older brother eight. and constantly smoothing and soothing a culturally divergent workforce. I wanted to make a real difference. In many ways. Tanzania. One month later. that’s for sure. and hundreds of wireless pay phones – in one of its poorest nations. visionary investor and the political commitment of the emerging “I knew that in order to make a real difference. and we were finally on the verge of explosive growth. A Dream Is Born I doubt that anyone wakes up one day and just decides to be an entrepreneur. I enrolled at Harvard Business School. but I had grown weary of the organization’s bureaucracy and politics. a company launched in 1993 to bring information technologies to lower. too late. No entrepreneur wants to fail. I knew too well what economic privation looked like. and he was convinced they could be realized only if we were well educated. I was born in Liberia. Those accomplishments. I began to hammer out a business plan. In fact. but it is part of the bargain when you opt out of a traditional career. That made us middle class. I still believe it is possible to do good in the world and do well at the same time. Many people thought my father was crazy. weren’t enough to save us. my company – and my dream – crashed to earth. I didn’t. so the next fall. where I managed UN projects that were intended to promote entrepreneurship. when I was ten. We had even come close to hitting breakeven. After I finished elementary school abroad.” markets themselves to economic change – not to mention a generous portion of good old-fashioned luck. particularly in an emerging market. My company would create the May–June 2000 harvard business review . he it would be a lot more costly to build. I bumped into company called Landmark Commuanother HBS classmate at a Newnications in Norfolk. which the customer would retrieve by telecommunications or en. Using HBS’s alumni network. A customer’s beeper would go off whenever he had a voice mail message. gineering. Specifically. investors. including those allocated to business. We did. Virginia. desperate and hopeWe resolved to act fast: we started ful. I decided to focus Adesemi’s initial efforts on pay phones for customers on the lower rungs of the economic ladder.000 in seed money. by going back to the HBS Côme and I returned to Tanzania. what kind of technology I should buy. The he invested $200. Because of the he was on safari in Africa. Our immediate challenge was Through an old friend. there were only 120. it was aggressively privatizing its economy and vigorously courting foreign investors. Sprint. and at first it came quite easduced to a private communications ily. company offered to invest $750. company. My research also suggested that I needed to narrow the focus of my strategic plan. I called Côme Laguë. 7 May–June 2000 . I used the money to launch a research project. but would have to be completely wireone day he took a long walk around less to ensure reliability. He The overseas start-up process has a great analytical mind and an afmade us realize that we needed more fable. he would retrieve the message by dialing in from the nearest Adesemi pay phone. where we expected to use our cash to close a deal with a local partner who already had eight pay phones up and running. I was already in pany like ours. Adesemi would install pay phones throughout the country and sell beepers connected to individual voice mailboxes. Everywhere he looked. including Motorola. I talked my way into a number of telecommunications companies and ended up getting a $50. Best of all. That figure was matched by a grant from the UN. Tanzania when.using an Adesemi pay phone. we gave him 20% of the if we could raise $250. While consulting firms and investment-bank recruiters crawled all over campus. GE.000 grant from several. saw long lines at phone booths. He happened to be mark saw an investment in Adesemi looking for ways to invest his famas a relatively inexpensive means of ily’s money.000 elsewhere. and Lockheed. Landbury Street café. We were on our own. and Internet services to lower. capital – a lot more.D re a m D e fe r re d • FIRST PERSON first continentwide communications network in Africa. One little start-up simply could not afford to offer a wide array of communications services at once. I had to start in one country only – more than that would be prohibitively expensive. That meant the city. I was intromoney. may seem painfully circuitous by the standards of developed nations. I started raising money for Adesemi (the name means “of royal descent” in various West African languages).and middle-income people. I conmajor deficiencies of the telecomvinced him to visit me in Dar es munications infrastructure. Therefore.000 phone lines. I just did would alert a customer to the arrival of a voice mail not know enough about message. A few weeks later. relaxed personality. But while we had been off looking for money. This system harvard business review My research also told me Adesemi’s phone system was aimed at people on that I could not start my the lower rungs of the economic ladder. so I talked his ear off learning more about doing business about Adesemi. and how much it would all cost. First. the strategy other local staff with general manconsulting firm. our enSalaam. Côme had been a telecommunications engineers and consultant at Monitor. But it offered a brave new world for millions of Tanzanians who had no way to quickly communicate with people at a distance. providing phones. a sectionapplying for licenses and hiring mate from HBS. what competitors I could expect. Back in Boston. gineers insisted that our network At first he had no plans to stay. After Africa. At the time. specializing in the agement capabilities. Growth would have to be incremental. our “partner” had joined forces with another com- ILLUSTRATIONS BY ELIZABETH ROSEN Wake-Up Call The research project made a few things clear very quickly. in emerging-market countries. A beeper company alone. In a country with almost 30 million people. He It was time to look for big-league was in. particularly to help improve the telecommunications infrastructure. television.000 In return. the company would go on to conquer the rest of the third world. Tanzania seemed like a good choice. telecommunications industry. I needed to know where I should start Adesemi. There will. Entrepreneurs can change the world as long as they don’t try – as I did – to do it on a shoestring. however. The rest came from the British Commonwealth Development Corporation and the Dutch Development Finance Corporation. Many other speakers there boldly asserted that technology was sure to revolutionize communications and hence the economies of those countries. We knew we had to move quickly to other countries where the regulatory environments were more favorable. HarbourVest and Landmark agreed to put up several million dollars. Response from the public was swift and extremely positive. they decided they wanted out. the company was generating $1. But no matter how much we pleaded or cajoled. Tanzania Telecommunications Company Limited (TTCL). Anyone thinking about – or in the process of – May–June 2000 harvard business review .” parate as India. We identified several options. Our chief technology officer concluded that it would take an additional $3. thanks to the Internet and the impact it was already having on the global economy. we landed a favorable $1 million lease of our wireless equipment from the manufacturer. I simply underestimated the sheer magnitude and complexity of what I was getting into. First. we decided to quickly launch the voice mail services and expand our network across the country. At first. At last we were set to go. To accomplish that. and launch Adesemi’s fully integrated virtual phone service to the rest of Tanzania. you must accept responsibility for its fate. It all sounded very simple. the high returns we had forecast wouldn’t materialize for a long time. Hard Lessons Not long ago. After almost a year. Such an arrangement is the industry norm throughout the world. and we were soon bombarded with requests for the Adesemi virtual phone service from countries as dis- “We were bombarded with requests for our phone service. I believe. and that we run countless financial scenarios in the hopes that we could find a way to use “profits” in Tanzania to transform Adesemi into a $100 million company without any additional investment. There would be no more third world in the twenty-first century.5 million per year in revenue. Over the course of a year. Unfortunately. But in what was now becoming a familiar scenario. I wish I could say that were true. by the way. I didn’t know whether to laugh or cry. In the final analysis. government-owned enterprises devoted to economic development in emerging markets. I was asked to speak at a conference on the role of technology in emerging-market countries. Brazil. But it will take time. And there were immediate opportunities for good returns elsewhere. Côme and I therefore rededicated our efforts to full-time fund-raising. finance a global marketing campaign. only 2% of the world’s 6 billion people have access to the Internet. But the two quasi-government agencies stalled. Fast-forward a year. I will do so applying the hard lessons I learned during Adesemi’s rise and fall. some said. But when I return to the emerging markets as an entrepreneur. and numerous and very intense meetings. Now I know better. change may come to emerging-market countries thanks to technology. we ended up raising half the amount from the venture capital firm HarbourVest Partners in Boston. forcing Adesemi to surrender its Tanzanian assets. that we relocate to the basement of my apartment. We were in a better position to go hunting this time. we needed to raise an additional $7 million. The fact is. we were processing more than 50. if ever. But when you decide to start a company and run it.FIRST PERSON • D re a m D e fe r re d classmate who was our first investor and turning to another HBS friend as well. Those lessons. strategic investor who would provide an additional $10 million to $15 million. Yes. they insisted that the management team be scaled back to Côme and myself.000 calls a day. be a next time for me. our infusion of money only allowed us to see that we needed more. We hoped that once we had operations in at least three countries. The rest was raised in the form of equity capital from two Boston-based angel investors whom we had met through yet another HBS contact. Central to our business model had been the assumption that Adesemi would receive a commission on the thousands of additional phone calls it generated each day on the network of the national phone company. Almost immediately. Finally. what went wrong with Adesemi was lack of experience. To pursue the opportunities in those two countries and one other would necessitate $20 million more. we had 75 employees and revenue of about $2 mil8 lion. we could attract an external. Russia. the future was not to be. The revolution has hardly begun. We realized that in Tanzania. may leave the impression that I believe I share none of the blame for what happened to Adesemi. But venture capital was not particularly fast in coming. A glowing article about Adesemi appeared in the Wall Street Journal. Adesemi had successfully launched 400 wireless pay phones throughout Dar es Salaam and developed an intricate distribution channel for its phone cards. and Ivory Coast. TTCL refused to pay us any commission. To capitalize on our first-mover advantage. it appeared that our existing investors would invest enough money to allow us to expand immediately into at least one new country. The future looked bright. Licensing problems that had plagued us for years in Tanzania began to spin out of control. of which Ivory Coast and Sri Lanka were the most promising. By 1998. and the future looked bright. and to liquidate. against which the loan was secured. we were able to buy our beepers from Taiwan. By then.5 million to complete the first phase with 400 wireless pay phones. Commonwealth Development Corporation called its original loan. are likely to generate new. Diversity is a tremendous strength. it was obvious that each of Adesemi’s employees had to show a great deal of initiative. it is said. the company was in its early stages of growth and nothing was routine. Because of their limited experience in emerging-market countries. But the do-wellers are patient and willing to pour money into investments that look as though they might score big. may be less inclined to give the VC more money to invest. exciting solutions. But they are terrified of risk and deeply enmeshed in bureaucracy and their own rigid methods of investment and analysis. The do-gooders understand emerging markets – they know the competition and how consumers act – and they are familiar with government rules and regulations. In hindsight. and accept the fact that they are separate and unequal. there’s very little chance of high reward. Adesemi. They understand neither the concept of risk nor the concept of the long run. It also had to hire under intense time pressure and financial constraints. those were the people – or so I thought – who shared my dream of changing the world. Do-wellers are another animal entirely – they’re your classic. although we were an American company. do-good VCs are staffed by career bureaucrats who stand to gain nothing if their agencies’ investments do well. and New Zealand. and compensation packages May–June 2000 . and I was constantly on the road talking to investors. there was not one American among our overseas staff. Do-Gooders and Do-Wellers Understand that there are two breeds of emerging-market venture capitalists. Tanzania. therefore. Of course. 9 The Challenge of Diversity Every smart. more specifically. to name a few. They see untapped opportunity in the third world. the company needed about eight managers and dozens of staff people who would eventually be assigned to various locations throughout Tanzania. In recent years. Dogood investors and lenders are typically quasi-government agencies (though some are multinational banks) that provide equity capital and loan capital for ostensibly idealistic purposes: generating economic prosperity in emerging-market countries and stimulating further influx of capital from other investors. but “doing good” is not a front-andcenter concern. Those firms are staffed by savvy financiers who understand that high risk is par for the course. do-wellers frequently are not as well versed in the intricacies of doing business in these areas. To me. I myself believed such a notion – back in the comfort of my HBS classrooms. Moreover. An agency may even be penalized if one of its startups shows a huge return: the government. Adesemi’s diversity was also a huge headache. and they want to join forces with the first companies to seize it. housing. and we ended up with a crew of highly skilled and very talented adventurers from countries all over the world – Norway. They are not necessarily looking for big paybacks on their investments. management gurus and business academics have heralded the creativity and innovation spawned by heterogeneous teams. who believe business is a high-stakes harvard business review game. I wanted – and needed – people to act like miniCEOs themselves. The lesson I learned. I was wrong. And I never would have guessed that Adesemi would be brought down by the very investors – the do-gooders – that I intuitively trusted to act in the best interests of our target markets. its operations were farflung. I was blissfully unaware of the critical differences between venture capital sources. and such a heterogeneous workforce should have been a real boon to Adesemi. hungry. had to pick its managers and staff from a very small pool of people. Often they have trouble understanding how horrendous the bureaucratic morass in certain emerging-market countries can be. and they want to promote growth at their own pace –putting little money into enterprises like Adesemi and therefore allowing little opportunity for real return. Money was money – I was happy to get any. We also hired 50 people in Tanzania. Côme and I hired people mainly through word of mouth and advertising. In the first phase. One “I never would have guessed that Adesemi would be brought down by its do-good investors. For several years. Adesemi raised money from two kinds of sources – VCs who are do-gooders and VCs who are do-wellers. To complicate matters. Without it. Do-gooders generally don’t embrace the fundamental idea of reward for risk that underlies entrepreneurism. In other words. Britain. offered by large multinationals. But in practice. But I would say that taking money from do-good quasi-government institutions simply isn’t worth it in the long run. After all. And high reward is what they are after. People who come at a business problem with different mindsets. toward the concept of empowerment. or whoever is funding the agency. Czech Republic. sadly. They are more preoccupied with adhering to their established procedures. Eventually.” reason was that people on our staff had different attitudes toward work – or. After all. it’s easy to see the distinction between – and implications of – the two kinds of capital available to emerging-market companies like Adesemi. They tend to see third world countries as their turf. “show me the money” investors. ambitious MBA today wants to work for a start-up. few entrepreneurs have the luxury of turning down money. Those who do usually want and expect the kind of generous relocation. They may like worthy causes. but very few want to work for a start-up in Dar es Salaam. is that start-ups in the third world should stay away from do-good investors. dogooders lend money to start-ups but don’t necessarily trust them to do the right thing with it.D re a m D e fe r re d • FIRST PERSON launching a high-growth business in an emerging market should consider the following points. The Scandinavians were regarded as cold and aloof. Adesemi’s balkanized employees made an art of flinging stereotypes at one another. reason that cultural diversity wreaked havoc among the Adesemi team: call it balkanization. Every company that launches a business in an emerging market hears that local alliances will be central to its success. we discovered he wasn’t nearly as connected as he had claimed to be and couldn’t really help us. There was another. even though we had signed a memorandum of understanding with him. It did not help that in societies where age and seniority still matter substantially more than individual merit or accomplishment. We moved quickly to land yet another local partner who would keep our name clean in the eyes of the public and the government. and identify local staff. I was constantly called upon to settle disputes or simply to smooth feathers. The Tanzanians were called inept. I am convinced.” The British woman gasped. such comments about weight are considered complimentary. helped us learn quickly that local harvard business review . You may not always like them. These partners would give us direct access to decision makers. in short. In her culture. and the two employees rarely spoke again. The British boss did not understand. but often it only resulted in a temporary calm before another storm. he began to speak against our company publicly. Luckily. in fact.” knowledge of customer habits and key government and industry players. Sometimes it worked. But by that time. I will never forget when one of our British employees returned from vacation and a Tanzanian employee remarked. nail down tax exemptions. we had not yet awarded him any equity in exchange for the services he was supposed to provide. After our relationship with him fell apart. They were. “Madame. I was considered an American – despite my African birth – and therefore arrogant and bossy. Côme and I were younger than most of the people we were managing. our investors all advised the same thing. and we began to worry about our reputation in the local market. Local partners would give Adesemi an intimate partners can give you as much pain as gain. in a class entitled “Management in Developing Countries. My main method was to reinterpret people for each other and to remind them of Adesemi’s higher purpose. few things are what they appear to be. He was supposed to help us secure operating licenses. Moreover. but you will definitely need them. whose attitudes had been shaped by colonial rule and then socialism. people made little effort to learn about or accommodate other employees’ cultural sensitivities. insurance against the vagaries of doing business on unfamiliar turf. just as frustrating. But next time I will create an extremely high-level position for a person who will focus on helping employees overcome or work around cultural misunderstandings. and as someone who had lived in many countries. Then they did just that and no more. expected to be told exactly what to do every minute of the day. Marriages of Convenience Think of local partners as next-door neighbors. The partner who replaced him was a businessman in Dar es Salaam who sold computers and telecommunications equipment. Employees of the same nationalities formed cliques that disliked and frequently disrespected the other nationalities’ cliques. The British were accused of being snobby and of withholding information. But that first partner of ours. that today North Americans are the only people who practice political correctness. Ultimately. Ours was no exception. the one who ran off with another suitor. Our heterogeneity was part of our strength. As the CEO. but the Tanzanian woman only smiled. The misunderstandings spawned by the cultural diversity of the Ade10 semi team caused a huge drain on my time and energy. Political correctness – with its rhetoric about honoring differences – was nowhere to be found. we had given him 5% of the business and a seat on our local board of directors.” Later. cultural habits got in the way. And it was not uncommon for some of our employees from Scandinavia to take off for five weeks at a time – the typical length of a vacation for their friends at home.FIRST PERSON • D re a m D e fe r re d Instead. Our Tanzanian employees. A start-up does not have the luxury of waiting for the ingredients in its pot to melt. He was an elder statesman who was highly respected because of May–June 2000 “In many emerging-market countries. I was forever placating warring factions. I first heard this imperative in business school. you have put on a lot of weight. When seeking a partner. the parties need each other most in the very beginning. the phone company told us the license had to be issued and signed by the regulatory agency. usually by contract. local partners should be required to invest their own money –otherwise they won’t have long-term stakes in the success of the venture. but once they’re in. Entrepreneurs should concentrate instead on do-well investors who are looking to make money and who understand risk. It begins in 1995. It’s very difficult to explain to an impatient investor what it’s like to be an entrepreneur in the third world. A diverse workforce is a strength for a company in an emerging market. Also. 3. But the truth is. Appoint a seasoned HR guru to improve crosscultural tolerance and understanding. His presence on our board protected us from rumors. dealing with officials who stonewall and dissemble. Though these lenders understand emerging markets. There are a thousand stories from Adesemi’s six years that could illustrate the numbing effect of bureaucracy on business in emerging markets. which are generally imported by consultants. Côme and I sprang into action. the relationship can easily lose its purpose and utility. But they’re stuck together forever. And governments are mired in a bureaucratic quicksand that you cannot escape unless you are willing to engage in corruption and bribery. few things are what they appear to be: the real decisions in government agencies are rarely made by the people who are officially said to make them. Officials at the communications regulatory agency told us that the national phone company had to sign our license. The back-andforth went on for almost two years. The matter should have been easy to resolve. but all we got was a runaround. Both sides can feel as if they are in a marriage that doesn’t make sense anymore. customers. Then a letter arrived from TTCL saying our license was not valid because it had been signed by the wrong authority within the phone company. and printed regulations are infrequently followed or enforced. It’s difficult – particularly in the high-technology industry – to find someone who actually understands the policies and regulations. A local partner should always be required to invest his own money in a new venture so that he has a longterm stake in the business. Ideally. Start-ups in the third world should steer clear of do-good lenders – organizations that provide equity capital and loans to companies in order to generate economic prosperity in impoverished areas. which we were not. There are scads of local businesspeople eager harvard business review to join forces with credible foreign entrepreneurs and investors. we installed $3 million worth of equipment. Here are four of the most significant: 1. not long after our second partner obtained an operating license for us from TTCL. The do-wellers may be difficult to attract at first. A new venture in an emergingmarket country needs local partners. With that piece of paper in hand. Everyone in the company will benefit.000 a month – a 11 May–June 2000 . And entrepreneurs should be careful to conduct serious due diligence on potential partners. 2. both for legal and ethical reasons. a start-up should conduct serious due diligence on the local partners it plans to marry. the role his family had played in gaining Tanzania’s independence. In many emerging-market countries. established marketing channels. but one story stands out because of the significant role it played in the company’s downfall. but it came at a cost – a small stake in the company. But once the venture is established. remember you are in the driver’s seat. I believe that Adesemi would have been a success if it had found the right investor. It’s the story behind the Tanzanian phone company’s refusal to pay us commissions.Four Hard-Earned Insights on Third-World Start-Ups My experience with Adesemi taught me a number of lessons that apply to any entrepreneur considering launching a highgrowth business in an emergingmarket country. We were bleeding cash at about $50. they’re committed to the enterprise. but cultural misunderstandings can also drain a CEO’s time and energy. often they’re terrified of risk and deeply enmeshed in bureaucracy. Wanted: A Visionary Investor Don’t discount the exhaustion factor of doing business in the third world. A new venture in the third world needs a patient and visionary investor with deep pockets who is willing to ride out the bumps that will inevitably appear in the road. That’s when the local partner has a lot to gain in the form of capital and technology and the start-up needs political contacts. calling everyone we knew in the government to track down exactly who was supposed to grant our operating license. literally preventing us from launching our operations. even though such lenders tend to be perplexed by the intricacies of doing business in emerging-market countries. Remember the rules of supply and demand. services. Don’t get stuck with local partners who can’t deliver the goods. I still believe that people doing business in emerging-market countries need local partners. and new employees. 4. a World Bankfinanced consultant arrived to negotiate a settlement between Adesemi and the gover nment. I quickly described our problem. When I do. by Richard Bode. one should resist the urge to fight the prevailing winds. I am also working on my next project. the former dean of HBS. call 1-800-988-0886. the solution provided only temporary relief. In other words. but several weeks went by without a word from the World Bank. was that the World Bank. It was at that point that we knew we had to take our business to other countries. Jim Wolfensohn. Until you’ve had to live with those things. and behind-the-scenes hustling. making it impossible for me to proceed as I had planned. To make matters worse.FIRST PERSON • D re a m D e fe r re d fatal rate for a company of our size and resources. Tanzania’s biggest lender. As for Adesemi. I still believe that if we’d had someone with deep enough pockets and deep enough patience. I am also reading a lot. but the government still refused to pay us a commission on the traffic and revenue we were generating for its network. While I was back in the United States in 1996 trying to raise new capital. Jim Wolfensohn called. I said. I have been regrouping and reflecting. to build its own network of pay phones. and they sent another consultant to Tanzania to ask the government to give us an equitable deal. My Little Boat In the months since Adesemi was liquidated. as entrepreneurs are wont to do. 12 harvard business review May–June 2000 . It was. I have taken great solace in Bode’s observation that in the effort to reach an intended destination. were subsidizing our competition. Just as my goal of bringing telecommunications to emerging markets seemed nearly within reach. Adesemi was my little boat. My hopes surged. And you can’t imagine how hard it is explaining all that to investors anxiously awaiting their payback. Perhaps our only hope for resolution. one should sail the wind. The next week. dollars. and he offered to mention Adesemi’s dilemma to him. Connections and pure luck saved us temporarily. Instead. After all. the social impact in those areas and the payback to that investor would have been huge. it’s hard to imagine the dissembling and stonewalling that go on as part of day-to-day operations. essentially. Adesemi’s licensing saga is paradigmatic. cajoling. I will continue to sail the wind in the hope that with the lessons I’ve learned over the past six years. the wind shifted. The government refused. First You Have to Row a Little Boat. which means the infrastructure will gradually disintegrate and operations will eventually cease. which exists as a shell and still holds a significant interest in the secondlargest telecommunications company in Ghana (founded by Adesemi during its fourth year in business). on highly concessionary terms. While extremely welcome.S. U. describing how we had successfully installed the wireless pay-phone network and placed booths throughout Dar es Salaam that were ready to be activated. in a steadier craft. Reprint r00307 To place an order. where would the president of the World Bank find the time to worry about a tiny start-up in Tanzania? Then. I had breakfast with John McArthur. might step in on our behalf. But I did tell him that we were having serious problems with our license and that Côme and I were getting nowhere with our appeals to the government. one day when I was sitting at my desk in Cambridge. Desperate to appear optimistic. That’s why every entrepreneur doing business in the third world needs a patient and visionary investor – a person or institution willing and able to wait out the turbulence and frequent political obstructions. with luck. Soon I’ll be ready to resume the journey as a more seasoned sailor and. We contacted the World Bank to point this out. we would have made Adesemi a success in Tanzania and in the other countries we were targeting. and return again and again to one book in particular. And if we had succeeded. we soon found out that the World Bank had recently lent the local phone company money. which partially fund the World Bank. Commonwealth Development Corporation now operates what is left of Adesemi Tanzania Limited and apparently intends to invest no more capital in it. We were allowed to turn our system on. pushing. he assured me it would be taken care of promptly. Doing business in the third world takes a lot of waiting. Côme and I are serving as part-time consultants to the company. I tried to put a good face on Adesemi’s situation. and I began to despair. I will be able to chart a new route to my ultimate destination. It just so happened that John was doing consulting work with the president of the World Bank. taking money from the World Bank with one hand and brushing off the World Bank with the other.