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How a professor is trying to spark an entrepreneurial revolution across America

For the first 17 years, RBK Health Care Marketing in Milwaukee grew at a respectable pace, reaching more than $3 million a year in revenue in 2016.

Daniel Isenberg
Daniel Isenberg

This year, founder Carl Brown says the firm will grow by 50 percent to 60 percent and hit $4 million to $5 million in revenue. He expects to add two more employees, giving the firm a total of about 18. One of the factors behind its growth spurt: Brown participated in a six-month program called Scale Up Milwaukee, part of a larger movement to encourage established entrepreneurs in second-tier cities — and it's beginning to take off worldwide.

The goal of Scale Up: to offer a support system for more mature, small companies with proven business models so they can increase sales and boost job growth in local communities. While there's no shortage of incubators and accelerators to help fledglings get off the ground, there's not much mentoring being offered to established small businesses.

"For many years, we didn't have access to something like this," Brown said. "If I'd known some of this stuff five years ago ..." His voice trailed off. "I'm glad I know it now."

The scale-up movement is the brainchild of Babson College professor Daniel Isenberg. In previous lives he was an entrepreneur and venture capitalist in Israel and a professor at Harvard Business School. These days he runs the Babson Entrepreneurship Ecosystem Project, which he founded in 2010. Its mission: to create growth and jobs outside the huge hubs, like Silicon Valley or Singapore, that we usually think of as entrepreneurial hot spots. Scale-up programs so far have worked in Milwaukee and Manizales, Colombia (a city suffering from a brain drain). Next up: launching a program in Akron, Ohio.

Isenberg argues that while much of the thinking and funding in recent years has gone to tech start-ups, it's much easier to produce economic development — if that's the goal — by teaching entrepreneurs at already established small businesses in any industry how to grow. The program offers workshops led by Babson professors on topics such as sales management and operational financing as well as mentoring sessions. That might involve, say, talking to a marketer like Brown about how to broaden his customer base, helping a small manufacturer access a bank loan or setting up a mentorship program that turns the executives of larger businesses into cheerleaders for the smaller ones.

Downtown Milwaukee: small businesses are rising in this Midwestern city
Davel5957 | Getty Images
Downtown Milwaukee: small businesses are rising in this Midwestern city

"We wanted this to be fast, cheap, measurable and self-sustaining," he said. It takes about $5 million, usually supplied by a combination of public and private entities, to get a five-year program up and running.

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The scale up movement — which embraces every kind of company, from computer networking firms to bike shops — takes a step away from the hype and glamour of the VC-funded start-ups embodied by shows like Shark Tank, high-profile efforts like Steve Case's Rise of the Rest, and accelerators and incubators springing up around the globe.

A multiplier effect

Scale up programs aim to reach companies in any old prosaic line of work, from computer networking to marketing, giving small businesses access to mentors and training in three areas: marketing and sales, financing and management — three areas the program calls customers, cash and capabilities. In the United States, companies typically have revenue of a million dollars and up; in global growth markets, companies could have several hundred thousand in revenue.

RBK Health Marketing's Brown, who was in the Scale Up Milwaukee program for six months, said RBK's participation in the program led to the company pitching an energy producer that works in the health-care vertical. "I don't think we would have defined our market that way without the program," he said.

The idea of cumulative gains across many businesses seems firmly rooted in the community-minded ethos of places like Milwaukee. "I love it here," said Brown. "You can always get a restaurant reservation or a ticket to a show. We have the largest musical festival in the world here."

Two scale-up programs are showing success. In Milwaukee, 57 companies — in industries ranging from computer networking to security to manufacturing — have participated in the program since 2013. They have added a total of about 500 jobs, and 47 of the 57 companies reported an average revenue increase of 28 percent in 2016 compared with 2015, according to the program's executive director. In Manizales, Colombia – the program aims for cities around the globe — the companies that participated had 55 percent average revenue growth, comparing the year before and year after participation. Some 703 new jobs were created, companies acquired 1,351 new enterprise customers, and six participants began exporting.

Myths about start-ups

In contrast, there is little systematic evidence that programs that encourage VC-backed start-ups produce jobs, though there is anecdotal evidence, and evidence that young firms across all industries in general do.

Tech start-ups have been oversold as a tool for economic development and may be drawing policy resources that could be better spent elsewhere, said Isenberg. "The whole equity-driven model is a limited tool for economic development," he said. "There has been an assumption that start-ups create jobs. Why do people say that? Because the White House said it or the Kauffman Foundation said it."

But some strong advocates for tech start-ups say even one big success story can create tens of thousands of jobs indirectly.

"Those who think these entrepreneurs aren't creating jobs do not understand platform and network effects technology drives," said Christopher M. Schroeder, venture investor and author of Startup Rising: The Entrepreneurial Revolution Remaking the Middle East, by email.

"Souq.com, the largest e-commerce player in the Arab world, is being acquired by Amazon. It also created 3,000 jobs directly. On its platform, tens of thousands of small and medium-sized businesses who never had digital reach now have new customers, creating thousands of more jobs. And assuredly, it will spin off dozens if not hundreds of a new generation of entrepreneurs who are now experienced to succeed."

The debate over jobs

Isenberg says that many cities like Milwaukee can get more jobs out of growing many existing companies.

Start-ups, of course, draw private investor dollars — Schroeder is a venture capitalist and said the primary reason he invests in start-ups is because they're good investments.

Nick Ginster grew his bike manufacturing business with the help of the Scale Up program.
Source: Nick Ginster | Fyxation Bicycle Co.
Nick Ginster grew his bike manufacturing business with the help of the Scale Up program.

But the start-up movement has begun to pull public or quasi-public money, like that from foundations and universities, even though there's been little evidence of successful economic development, Isenberg points out. (It's worth noting that older forms of economic development, like offering big tax breaks for companies, aren't terribly successful, either — General Electric, for instance, recently received $143 million to relocate 800 jobs to Boston.)

The gains in places like Milwaukee may not make headlines, but they're solid. And once a business starts to grow, the gains compound over the years.

An eight-year-old bicycle manufacturer called Fyxation doubled its number of employees to 12 after it participated in the Scale Up program. "Participating ... provided the tools, connections and tuned our strategy to focus on growth that has pushed our business to the next level," said founder Nick Ginster.

One of its new products: a bicycle that displays the Milwaukee flag, "Sunrise Over the Lake." Milwaukee's cycling culture is huge, and Fyxation has drawn media attention and become a standard bearer for the business community.

Tech start-ups may have their platform effects; scale ups' success can be infectious, too.

— By Elizabeth MacBride, special to CNBC.com