Articles Flashcards
Opportunities in factor markets (Shane & Venkatarn, 2000)
- Creation of new information (new technologies)
- Exploitation of market inefficiencies, information assymetry.
- Reaction to the shift in relative costs and benefits
Incorrect decision-making
Based on hunches, heuristics and (in)accurate information
Information corridor
The information necessary to recognize any given opportunity is not widely distributed across the popoulation because of the specialization of information in society
Skewed outcomes of opportunities/innovations
- Skewed distribution of returns
- Only small group will actually distribute the idea
- Risk-seeking is one of the reasons why many will try to distrbute idea without success
- Unrealistc optimism
- Skeweness lovers (high value, only happens once in a lifetime)
Pooled return
The return an investor pools which diversifies risk among inventions
Prequisitive for VCs
Want large information acquisition (high costs) which are not affordable for small inventions
Exogenous shocks
To preexisting market, discovered and exploited by entrepreneurs (discovery process)
- Competitive imperfection (e.g., changes in technology)
Endogenous actions
Entrepreneurs that seek to exploit them (creation process)
Evolution of creation process (3)
- Social constructionism
- Evolution theory
- Evolution of the evolutionary realism
Macro level (Kerr et al., 2014)
Underlies the Schumperian notion of creatie distruction
Micro level (Kerr et al., 2014)
Continuous decisions, are not also made in competitive Darwinian contests.
Two types of entrepreneurship experimentation (Kerr et al., 2014)
- Exonomic experimentation (new ideas are continually tested and either displace existing technologies)
- Process of bringing new ideas to the market (less popular)
Darwinian sense
Ventures compete with existing products and technologies (survival of the fittest)
VCs will only invest if: (3)
- It is not too risky
- Own a large share of the firm
- Will try to make structure and contractual choices (staging approach)
Staging process (VCs)
Describes phases over time, changes in the functions
MVP-approach
Rapid rise of angel investors and crowd-funding platforms
Cost-experimentation
- Differences across industries in the ability and costs to learn about the final outcome of the experiment
- Pace of the technological process
Manner to feel less insecure in financial markets
- Go less often to the capital market by asking a bigger amount of money each time
- Not fund during hot markets (high failure rate)
- Legal factors reduce downsides of failure
Hot Market
Financing risk is low for all projects in that economy
VCs interest in entrpreneurs is driven by (2)
- Sourve of productive commersialisation of ideas and technologies
- Providing angel investment is an important resource for future entrpreneurs
Technology based ventures
Financial capital constraints are most visible here. Higher social capital will help to increase the chances of gaining VCs and improves the bargaining power
New product success factors (NPS)
Are most determined by process and strategy characteritics
Dedicated human resources (especially in technology markets)
Culture (new product development, NPD)
Idea-poor company
Lot of time and money in developing mediocre ideas (problem in idea generation, not execution)
Conversion-poor company
Good ideas, but the managers do not screen and develop them properly (requires multichannel funding and safe havens)
Diffusion poor company
Trouble with monetising the good idea in adequate networks (need an external network) –> idea evangelist
Idea evangelist
Someone who preaches the good word about an emerging product or business
Improve the weakest link in the innovation organisations
- Develop a solution network
- Build a descovery network
- Management must keep the innovation value chain in mind
Pay-for-performance (P4P)
Can undermine performance, not explore new approaches.
Depends on the performance of the first period
Standard performance pay
Works well for certain tupes of tasks (physical), not for others (creativity)
Should be willing to explore (no failing costs)
Termination contract
Experiment will end after half of the periods have expired and income is below a certain threshold
Golden parachute treatment
Similar rules as the termination contract, but the payment will still be received afterwards
Agent-prinicpal theory
Agent minises costsly and time-consuming contemplation and deliberation efforts since payment does not depend on obtaining a better position in the experiment.
Sufficient intrinsic motivation could move some subjects under the fixed-wage contract to exert effort
Consequences of the threat of termination
Adverse effect on innovation success and exploration activities (can be alleviated by the golden parachute) –> risk aversion
Four levels of social contexts of legitimacy (only for start-ups)
- Organizational
- Intraindustry
- Interindustry
- Institutional
Result o flack of instiutional support for knowledge difussion
Will undercut the industry’s efforts to secure socio-political approval
External means of legitimacy
Association with successful and established external entities (gaining access to their internal legitimacy)
Internal means of legitimacy
- Historical
- Scientific
- Market
- Location
Consequences of alliances
- May result in a los of decision-making control and flexibility
+ access to resources and capabilities which are needed for success
+ May attract attention of bigger firms
Internal and external legitimacy in new firms
New ventures that acquire external legitimacy gain more from their products than new ventures who do not form alliances (these should invest more in historical, scientific and market legitimacy to compensate this)
Historic success on legitimacy
Has the biggest effect on the gains from product introduction, just as the presence of executive (market) and respective academics (scientific)
Bounded rationality
Inability of economic actors to write contracts that cover all posible contingencies
Opportunism
Rational pursuit of economic actors of their own advantage
Strategic alliances
Combine strengths and overcome weaknesses in a collaboration that is much broader and deeper than the typical marketing joint ventures and technology licensing as previously used
3 failures plaguing vertically integrated firms
- Inability to respond quickly
- Resistance to process innovations
- System resistance to the introduction of new products
Network
Should have a common background, which increases trust and sustain network-like arrangements.
