‘Scaling deep’ to boost entrepreneurial ventures in impoverished communities

When it comes to building a hub for innovation, Silicon Valley in northern California stands as the gold standard. Computer tech giants took root in the area in the 1980s, leading other companies to move there and be part of the thriving tech ecosystem, and the surrounding community boomed. As business flourished, so did the local economy.

But that model has been nearly impossible to replicate in impoverished communities, notes Johns Hopkins Carey Business School Assistant Professor of Management and Organization Suntae Kim.

“The next Google or Facebook has yet to emerge from places plagued by chronic poverty,” says Kim. “All too often, entrepreneurial initiatives fail to address urgent local issues, and high-tech growth in poor regions tends to enlarge income gaps rather than create much-anticipated trickle-down effects.”

Based on field research Kim conducted in Detroit over a two-year period, which focused on two entrepreneurship-nurturing organizations in declining urban centers, he recommends re-thinking the traditional entrepreneurial strategy.

“Rather than the traditional approach of ‘scaling up,’ by growing quickly and broadly to attract and retain venture capital, we found it more effective to ‘scale deep’ — an approach that involves building slowly and relying on local resources for growth,” he says.

Kim outlines this model in “Going Viral or Growing Like an Oak Tree? Towards Sustainable Local Development Through Entrepreneurship,” co-authored with Anna Kim, of McGill University. The paper, published in the Academy of Management Journal, was recently honored by the Academy of Management Fellows with a 2024 “Responsible Research in Management” Award.

Relying on local resources

Kim’s qualitative research, conducted from 2012 to 2014 as part of his doctoral dissertation at the University of Michigan’s Ross School of Business, involved embedding himself within two incubators in Detroit. “It was truly a journey,” Kim recalls — one that involved driving back and forth almost daily between Ann Arbor and Detroit, where he attended idea development meetings (148 in all) and interviewed founders and mentors (67 in-depth interviews). Once the data gathering was complete, he subsequently tracked the development of all 27 ventures that emerged, until 2020. He found, he says, “that the scale of growth matters.”

One incubator, known as ACCEL, was designed to maximize financial growth. It focused on helping companies to secure venture capital investment — to scale up.

Kim notes ACCEL’s impact on the local community was explosive but relatively short-lived. “While many created substantial local employment opportunities at first, they ultimately tended to leave Detroit for greater access to capital, talent, and industry-specific knowledge to secure larger rounds of funding.” It was rapid expansion “at all costs,” with companies eventually “decoupling their success” from that of their home regions, he says.

More effective in improving local fortunes was the second incubator, GREEN, which encouraged founders to develop their ventures through what Kim describes as local “bricolage” — i.e., repurposing, and recombining resources that are already available rather than seeking out funding from external sources. “This meant that their venture ideas became embedded in the Detroit ecosystem, growing deeply and slowly rather than broadly and quickly,” Kim says.

GREEN’s ventures rarely expanded beyond Detroit. Instead, company leaders focused on implementing “location-specific solutions to location-specific problems,” Kim says. One company, for example, turned corner stores and gas stations into fresh food distribution hubs to address the city’s food desert problem. Another mobilized local residents to collect waste tires in their neighborhoods, then worked with local design schools to upcycle the tires into art projects.

One of GREEN’s founders described the incubator’s growth approach this way: “I want us to be like an oak tree that takes all of its energy for the first 20 to 50 years to set deep, deep roots, and then produces a lot of deep, rich offspring and becomes the anchor of the ecosystem.” 

Lessons for policymakers

Kim believes his findings have important public policy implications. Many business incubators in underserved areas receive significant funding from local government agencies, he notes. But accelerators that are motivated by the traditional model of securing a return on their investments “push founders to pursue ‘scale-up’ strategies that are less likely to help their local economies.”

“To avoid this, policymakers should explicitly focus on supporting ventures that will create novel solutions to local problems by repurposing local resources — that is, ventures that scale deep,” says Kim. “The scaling deep model is one that can really harness the innovative potential of entrepreneurs to support local communities and the people living in those communities.”

Kim, who joined the Carey Business School faculty two years ago, says his findings are attracting interest from community development leaders from around the world, including the U.S., Asia, Europe, and Canada.

Buoyed by that interest, he’s begun conducting interviews with minority entrepreneurs in Baltimore and is in the process of building relationships with their organizations to identify an alternative to the dominant Silicon Valley model, similar to the GREEN model, “that would work well in the context of Baltimore.”

“It’s been fruitful and inspirational,” he says.