Lectures Flashcards
Advantages of start-up
- Resources: Flexible, inventive ability, novel knowledge
- Legitimacy: Novelty as an asset
- Organizational form: Flexible structure, new structure
Advantages of incubent innovation
- Resources: Deep pockets, manufacturing capabilities, internal knowledge, recombined and incremental innovation
- Legitimacy: Established reputation and network
- Organizational form: Ambidextrous, consolidated form
–> Competitive advantage, but! Burden of knowledge
Burden of knowledge
Harder to find new ideas, more resources required and therefore the age of entrepreneurs is increasing
Entrepreneurial process (5 steps)
- Opportunity
- New information
- Customer need identification
- Generation of the idea
- Resources
Challenges of entrepreneurial process
The ROI is widespread, some get a lot, some lose a lot.
No idea on what will be sufficient, even professionals have no idea.
Knighterian uncertainty
No information on potential alternative outcomes (trial-and-error)
3 Manners to tackle Knighterian uncertainty
- Calibration of judgement (market experience, knowledge, past experience)
- Risk-based data collection (i.e., customer focusgroups)
- Risk-based decision-making (i.e., discounted present value techniques)
3 Phases of innovation
- Pre-formation (alternatives, unconstrained)
- Formation (dominant patterns seem to rise, not predictable)
- Lock-in (clear pattern, bound to path)
Resources
Barney: Human (opportunity), physical, and organizational capital
Grant: Adds financial and technological capital & reputation
Morris (profit): Adds relational capital
Valley of death (5 steps)
- Research (NSF/Research): Patent/prototype
- Concept/invention
- ESTD (angel investers): Business validation
- Product development (VCs/commercial debt): New firm/viable business
- Production/marketing –> profit
Legitimacy (challenges)
Can be perceived as asset, but is dependent on social evaluation
- Few assets, often intangible
- Hard to evaluate projects ex-ante (technical complexity)
- Hard to monitor entrepreneurs
Moral Hazard & Adverse Selection
Signaling strategy (legitimacy)
- Increasing personal wealth
- Social investments
- Alliances
–> Product certification + prominent customer OR social proof
Mark-up
Ratio of the unit price over marginal costs, must be higher than the unity when the profit is not perfectly competitive
MECE
Mutually exclusive, collectively exhaustive
Choosing one of the options, but at least consider all of them (e.g., set of dice)
Exploration contract
Tolerate early failure and reward long-term success
Coginitive legitimacy
Knowledge about the new activity?
Sociopolitical legitimacy
Does the general public accept this as appropriate and right?
Venture uncertainty is captured by: (4 types of characteristics)
- Product service
- Market
- Management team
- Investment
Traits valued by VCs
- Founding experience
- Recruitment of executives from own social networks
- Recruitment of persion with doctoral degree
Experiment-based strategy (legitimacy)
- Evaluate intermediate results (real option value)
- Explore out of reach options
- Improve the prototype, reduce costs and constraints before showing prototype
5 dimensions of product innvoation success (Hulting & Roben, 1995)
- Product char. (advantages, demand)
- Strategy char. (market synergy, dedicated HR/R&D)
- Process char. (launch, market orientation)
- Marketplace char. (competitive response, market potential)
- Organizational char. (organizational design, centralization/formalization)
Levels of product innovation success
Product level
Customer acceptance
Financial performance
Innovation value chain (3 steps)
- Idea generation (inhouse, cross-pollination or external)
- Conversion (selection, development)
- Diffusion (spread)
4 types of innovation
- Product innovation
- Process innovation
- Organizational innovation
- Business model innovation
Gaining legitimacy (Rao et al., 2008)
- External (alliances) –> increase rewards
2. Internal (market, scientific, historical) –> needed when external is low; & location
Coginitive legitimacy (4 types)
- Organizational (symbols; tradition vs. visual)
- Intra-organizational (convergence of design)
- Inter-organizational (third party actors)
- Institutional (linkages via education)
Sociopolicitcal legitimacy (4 types)
- Organizational: Trust by internal stories
- Intra-organizational: Reliability via collaborative actions
- Inter-organizational: Reputation via negotiations
- Institutional: Legitimacy via collaborative marketing
4 Decisions for entrepreneurs
- Number of founders (solo vs. team)
- Split of shares
- Joint CEO position/decision-making approach
- Founders on board
Egalitarian
+ trust/equal
- time consuming
Hierarchical
+ quick/accountable
- less specialized decisions
Powell’s (1990) transactions (3)
- Market (contracts & price) + flexible, - learning
- Network (resources & relation) + learning, - complex
- Hierarchy (relation & routines) + control, - inflexible
