New Technology-Based Firms in the New Millennium: Volume 8

In Chapter 2, providing a contextual introduction to the issue of university spin-offs, Hogan and Quan Zhou seek to construct a better definition of what the term ‘spin-off’ should consist. After a wide-ranging review of previous attempts to define and classify aspects of the spin-off process, the authors offer their own ‘three-point’ checklist which seeks to clarify and define the ‘spin-off’ process. In conclusion, their paper seeks to assess the advantages and drawbacks of the system they recommend. This initial paper in this section is welcome since it illustrates that not only do academics differ over how to assist the ‘spin-off’ process, but they also often do not agree on how this process is to be defined.

The role of the university in the 21st century is rapidly changing, reflecting a growing interest in the commercialisation of university knowledge among scholars and policymakers. University spin-offs (USOs) represent one mechanism for commercialising knowledge that are attracting considerable attention because of their potential to (a) enhance local economic development, (b) assist universities in their major mission of teaching and research and (c) generate high-performance firms (Shane, 2004). Indeed, one study by Bray and Lee (2000), based on a small US sample, found that on average, technology transfer offices earned a higher return from equity stakes in their USOs, even allowing for a 50% failure rate, than from the average licensing agreement.

The so-called ‘Third Mission’ of the university is under debate for the last 20–30 years (Laredo, 2007) and this mission has received a wide variety of interpretations. In this chapter we adhere to execution of activities that contribute to the economic and social development of its territory. This new idea of the university as an entrepreneurial one requires a reorientation of its strategy to cope with the challenges imposed by its new task towards society. In this sense, the Entrepreneurship Support Programmes (ESPs), as university services, are a central element in the fulfilment of the aims and objectives of any entrepreneurial university, as those that combine and integrate the traditional activities of education and research with the contribution to the economic and social development (Etzkowitz, 1998; Goddard, 1998). The ESP services consist, for example, of programmes that promote entrepreneurship in all the fields; they support the creation of new innovative companies with a scientific or technologic base; they support the development of university spin-off and training related to the creation and management of companies; and they promote university–company relationship and interaction between other factors (Arroyo-Vázquez & van der Sijde, 2008). The reorientation of the strategy of the university into an entrepreneurial one involves also a strategy with regard to the university's ‘entrepreneurial’ services, which have to adapt to the new demands and needs of the university's ‘new’ users, entrepreneurs and companies as well as university staff members.

This chapter focuses on Swedish university students studying entrepreneurship and establishing new firms. It is well known that the establishment of new firms is important for economic growth, innovation and job creation. For quite some time, public debate and policy initiatives, as well as research, have focused on how to improve growth of new firms. More than 30 years of entrepreneurship research reveal, however, that differences in personality traits provide little explanation of why some entrepreneurs are more successful than others. Instead, it is suggested that it is the behaviour of individuals that make them entrepreneurial, and that this behaviour is influenced by experience and learning (Gustafsson, 2004; Politis, 2005). The question is thus whether entrepreneurship education will influence the entrepreneurial behaviour of students.

Policymakers have long supported the development of venture capital markets on the basis that venture capital fills a perceived gap in the availability of early stage seed capital funding for new technology-based firms (NTBFs).¹ Support from policymakers, however, has not been matched by academic research on NTBF financing. This is a major concern because NTBF financing is not well understood. The theoretical focus of this chapter is the life cycle or stage model of financing, which has proved the dominate paradigm in the analysis of financing in NTBFs. It is particularly relevant to this study, as the stage model is explicitly endorsed by venture capitalists who structure deals in phases in order to effectively monitor the investee firm's progress (Sahlman, 1990).

The existence of adequate financial capital at start-up as well as during the lifetime of a firm is considered to be vital not only for its survival but also for its effective trading and growth, as it can act as a buffer against unforeseen difficulties (Cooper, Gimeno-Gascon, & Woo, 1994; Chandler & Hanks, 1998; Venkataraman & Van de Ven, 1998; Cassar, 2004). Inadequate or inappropriate capital structure is often the most common reason for a large proportion of small business failures (Chaganti, DeCarolis, & Deeds, 1995).

In the international arena, there is an ongoing debate over the lack of newly started businesses in general and over how to obtain sustainable growth in these businesses in particular. Policy-makers in Europe have sought to ease this problem of paucity of new firm's start-ups, which is mainly caused by a lack of financial resources for new innovative ideas as problematic (European Commission (2007–2013); Groen, Jenniskens, & van der Sijde, 2005). Consequently, during the latest decade, there has been an increase in the number of public sector financial schemes designed to promote entrepreneurship in very early-stage businesses (COM, 2005, 2006). These efforts have, however, escaped criticism. Those who promote public financing believe that with the right tools and governance this type of support is an important complement to the private sector financial market (Oakey, 2003). However, bankers and venture capitalists often state that the main issue is not the lack of available capital but the inability of entrepreneurs to convince investors of the merits of their business ideas (Mason & Harrison, 2002). There have also been arguments against the socioeconomic efficiency (Storey, 1994).

The buyers' perspective of mergers and acquisitions (M&A) has been heavily researched, yet it has produced surprisingly few prescriptive findings. Given the limited amount of prior research from the sellers' perspective, inductive methods appear to be the most appropriate to research this phenomenon (Eisenhardt, 1989; Yin, 2003; Miles & Huberman, 1994). Using the model outlined by Carlile and Christensen (2005), the overall goal of the project reported here is to build a theoretical framework based on empirical observations. This will eventually facilitate the examination of this phenomenon and enhance knowledge as well as theory building for further research.

To enhance the understanding of entrepreneurial communication strategies in the start-up phase of the business, a resource dependence perspective is presented. Resources can be categorized in several ways. Penrose (1959), one of the pioneers in the resource-based view, and the subsequent work of, for example, Wernerfelt (1984) and Barney (1991), have brought the individual, the entrepreneur and especially resources within the business into focus. The process school of the resource-based view focuses on processes and activities and internal strategic capabilities (Tucker, Meyer, & Westerman, 1996). Furthermore, capabilities are based on developing, carrying and exchanging information through the business's human capital (Tucker et al., 1996). Grant (1991, p. 122) defined such capabilities as ‘complex patterns of coordination and cooperation between people, and between people and (tangible) resources’. Baum, Locke, and Smith (2001) and Lee, Lee, and Pennings (2001) found that new businesses’ internal capabilities are the primary determinants of the businesses’ performance. One of the intangible resources could be a business reputation (Deephouse, 2000). A positive reputation creates advantages in order to obtain, for example, financial capital.

The founder of paperbackswap.com, Bobby Swarthout, developed the idea for his venture while he was a college student. As a student on a limited budget, he had become tired of paying high prices for textbooks. So he developed and launched an online textbook swapping service. Along with a small group of students, he managed to assemble a group of 12 colleges and universities across the United States to participate in textbook swapping. However, after a few months, very few students had used the site. By listening to the potential customers who chose not to participate, Bobby found out that there were too many easy substitutes for the swapping service (e.g. bookstore returns, half.com, efollett, etc.). These alternatives offered either greater convenience or cash in return for used books (especially appealing to students who did not pay for their books themselves), or other appealing features. However, Mr. Swarthout believed in his concept and also listened to the ‘voice-of-the-consumer’ (VOC) and moved his business idea into different consumer/product space: that of paperback books. Along with a few lead users attracted to his original idea, he refined the original idea, gathered resources (an angel who invested in the business) and added technological capabilities. One year later he launched paperbackswap.com. From inception, the firm embraced the VOC as the key tool in driving product development and improvement efforts. For paperbackswap.com listening to the VOC has become part of a closed-loop system where inputs from consumers are analysed and product improvements developed in response and where the loop is closed by listening to how consumers respond to product changes.

The success of a firm is usually characterized by a constant re-thinking of its strategic model. Considerable entrepreneurial tension is involved in achieving competitive excellence, and the achievement of a right balance between the different elements that form a corporate strategy (e.g. economic perspective and social acceptability) (Coda, 1988).

Technology is defined by Krajewski and Ritzman (2000, p. 17) as ‘the know-how, physical things, and procedures used to produce products and services’. Over the past two decades, the development of high-technology-based firms has been actively encouraged by governments and development agencies (Westhead & Storey, 1994) as a source of competitive advantage. In many cases, small high-technology-based firms have effectively exploited market opportunities. This has been helped by the emergence of generic technologies, most notably information technology that is knowledge intensive rather than capital and labour intensive (Rothwell, 1994, p. 12). Such technologies have been effectively used to open up new market niches for small- and medium-sized firms (SMEs). Accordingly, high-technology firms have become well established as sources of both competitiveness and employment creation (Oakey, 1991).

Innovation is an increasingly distributed process, involving networks of geographically dispersed players with a variety of possible, and dynamic, value chain configurations (Fraser, Minshall, & Probert, 2005). ‘Open innovation’ is one term that has emerged to describe ‘[…] the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively’ (Chesbrough, Vanhaverbeke, & West, 2006). This is contrasted with the ‘closed’ model of innovation where firms typically generate their own ideas which they then develop, produce, market, distribute and support.

The complicated environment surrounding high-technology firms, involving a high degree of market uncertainty, a high degree of technological uncertainty, a high degree of competitive volatility, high R&D expenditures and the rapid obsolescence of products, creates a great need for sophisticated marketing (Mohr & Shooshtari, 2003). Yet these firms continue to have underdeveloped competencies in marketing (Mohr & Sarin, 2009).