Chapter Two

Starting Technology Based New

Venture

Outlines:
Introduction
Important aspects of Technology in Business
Formation, development, and growth of technology-based
new enterprises
Technology transfer for business development
Innovation in Technology based business
 Starting Technology based new
venture
Introduction
• Advances in technology are the only source of
permanent increases in productivity.
• Technological changes are basically the
results of innovations which in turn are the
outputs of innovative Entrepreneurs.
• Firms become innovative when they
successfully incorporate a technological
change new to enterprise as well as to the
economy, and a change has diffused into the
economy in addition to being adopted by the
firm.
 Important aspects of Technology in Business
Technology Intelligence for Business
• The role of technology in the development of new
products and processes and its contribution to
productivity enhancement has not gone unnoticed by
firms. Additionally the role of technology for business
processes is a multi-fold factor for its success.
• Technology intelligence is technology-related
information that is useful and utilized by firms during
strategic decisions.
• Intelligence gathering may be deployed at the macro
level, industry or business level, and/or at the program
or project level. The process of gathering external data
and analyzing it to derive intelligence for major
strategic decisions is referred to as mapping the
technology environment.
 Important aspects of Technology in Business …
Conceptually, this process consists of four interlinked steps:

 (1) scanning the environment,

 (2) monitoring specific environmental trends,
 (3) forecasting future environmental changes, and
 (4) assessing current and future environmental changes for
their impact on organizational strategy.
 Con’t
Technology and Competition
• Technological change includes both the processes of
innovation and diffusion. Although technological change
results in the emergence of new products and processes
into the marketplace, it simultaneously results in the
eradication of the existing order. Competitive rivalry is
dynamic and is constantly being influenced by
characteristics of competitive domains.
• Resource requirements, collateral assets, institutional
milieu/setting, and speed are all important characteristics
of competitive domains that frequently influence the
development of technological strategies. Just as
technology evolves over time, these characteristics also
change with the evolution of the innovation.
 Con’t
Appropriation of Technology
• The appropriation of technology refers to the acquisition of technology in both of
the following two ways: in-house research and development and from external
sources by acquisition or strategic alliances. Technology appropriation serves
the function of creating new businesses, altering the rules of rivalry in existing
competitive domains, or supporting existing businesses.
• Choosing to adopt a portfolio of technology appropriation projects involves some
basic principles.

First, technological opportunity and appropriability of the project are

determined by the competitive impact of technology.

Second, firms should undertake projects only in areas where they are
competitively strong.
 Con’t
 Third, risks and rewards need to be considered in terms
of the portfolio.
 Finally, external sourcing needs to be considered as an
alternative implementation mode. However, external
sourcing should only be used when it is a speedier or a
less-costly alternative for the appropriation of a
specific technological capability relative to internal R&D,
without compromising the competitive advantage of the
firm.
 Important aspects of Technology in Business …
Deployment in New Products
• The development of new products has always been a
considerable generator of sales and profits for businesses.
New products range from products that are entirely new to
the world to repositioning of already-existing products.
• The process of developing new products is characterized by
two phases: the strategic phase and the operational phase.
The strategic phase is critical in the process in that it
determines the profit potential and ultimate success of the
product.
• Furthermore, the strategic phase offers top management
greater leverage in influencing the success of the
development process. The operational phase is just as
crucial in that it results in the actual production of the new
product.
Con’t
 Formation, development, and growth of
technology-based new enterprises
Introduction
• The innovative capacity of an entrepreneur and more
accurately, of companies operating in that field, is a key
determinant of its capability to enhance the economic
development and to upgrade the standard of living of a
country. It is widely accepted that one of the indicators of
this innovative capacity is the rate of creation of New
Technology-Based firms (NTBF).
 Con’t
• The nurturing of small firm formation and growth has
become increasingly important to the health of
developed economies in general, and to the creation of
new innovative industrial sectors in particular.
• Technology incubators, which play a role in
accelerating the commercialization of R&D outputs and
the transfer of technology, have contributed to startups
of high technology-based enterprises in the newly
industrializing economies of developing and developed
economies of the world.
• Strengthening and promoting technology based
ventures through incubation programmes for new
technology based enterprises is necessary for them to
survive in a competitive society.
 How to form and develop Technology based ventures?

• Entrepreneurship studies have identified three critical factors

linked to successful creation of technology ventures:
technology,
 talent and
capital.
• The strategic focus of new ventures is to facilitate the effective
fusion of innovative technology, strong scientific, entrepreneurial
and management talent, and investment capital to create a
successful venture. However, these by themselves will not be
sufficient for the successful development of technology based
ventures; sound national policies and strategies are always at the
heart of such development programs.
 Con’t
• Government policies:
• Credit programmes with State-subsidized rates
• Share programmes by Government venture-capital
companies
• Grants by the Government, especially for creating jobs
and for research
• Security programmes by the Government for taking over
part of the risk of the credit institutions for enterprises
• Advisory services.
• Other support activities for enterprises with both public and
private sector involvement, include:
* Business consulting services: Assistance with business
development, developing business plans, tax advice, and so
forth;
*Technical consulting services: More specialized services are
provided such as networking assistance between enterprises
and science and technology organizations, technology transfer,
the exchange of similar experiences and the identification of
potential for cooperation
 Con’t
• Financing support activities: Offer optimal conditions to
enterprises, especially SMEs, in terms of rent and costs
of spaces, infrastructure and services. Offer also
assistance with accessing and using financial sources
such as corporate financing, business angels, venture
capital, and so forth;
• Intellectual property assistance: Assistance with
developing and patenting new and improved technology,
including bringing it to the market for profit;
• International assistance: Assistance with the global
networking of incubation and innovation centres for
information exchange and technology transfer

The focus in all the assistance is to increase the self-

reliance of the enterprises so that they can survive
SUSTAINABLY.
Factors contributing to the Success of High Technology
based Enterprises
The main catalytic factors for the success of high
technology-based enterprises are :
• national policies,
• research and development institutions
• technological entrepreneur development
• innovative finance support systems & protecting intellectual
property
• science and technology parks
• promoting and developing strategic business alliances and
networking
• standardization, quality control and marketing.
 Factors to success of TBNE …
Some methods of ensuring such catalytic factors for developing
economies are:
a. Technocratic leadership should be given, a national vision on
the creation of knowledge-based enterprises should be boldly
articulated and incentives for innovation and risk-taking should
be provided;
b. The microeconomic framework, together with a master plan
prepared in consultation with local communities, entrepreneurs
and stakeholders, should stimulate innovation and markets for
new goods and services;
c. Commensurate investments should be made in scientific
research and technology development, engineering and
management consultancy, technical education and continuous
learning, entrepreneurial development, quality assurance and
environmental preservation, transport and communications
infrastructure;
d. Long-term plans should be formulated for developing
convergent enterprise support systems encompassing the full
range of small business development services, anchored
possibly in a business incubator and technology park;
How to form and develop Technology based ventures?
…
How to form and develop Technology based ventures?
…
• Although there are different ways to formulate the formation
and development process of a NTBF, there are four
fundamental growth stages that most entrepreneurs should
focus on:
Stage 1: Conception and development
• The primary focus of the entrepreneur is on the product
development, the securing of adequate financial backing and
the identification of market opportunities.
• Dominant problems of NTBF at this point include construction
of a product prototype and selling of the business idea to
investors.
• In this stage, there are many problems or barriers related to
conception that reduce the chance for new ventures. Barriers
related to: Lack of opportunities , Lack of well qualified
entrepreneurs and Lack of entrepreneurial culture
 Con’t
• Developing the new idea includes writing a business plan
that evaluates all aspects of the economic viability of the
business venture including a description and analysis of the
business prospects.
Stage 2: Commercialization
• In this stage, the major focus of new ventures is on
commercializing the product itself. The dominant problems
at this point include
 acquiring adequate facilities
 establishing a vendor network
 developing product support capability. All this ends at a
series of typical problems as the following ones:
• Some of the programs carried out by the different
administrations are oriented to:
 Simplify proceedings for the creation of a new company
 Con’t
 Accessibility to different resources (financial and
facilities) and services in advantageous conditions.
 Training entrepreneurs to enable them its new
challenges
 Creating incubators which are organized in order to
support and facilitate processes of enterprise
creation.
Stage 3: Growth
• This stage is characterized by high growth in both
sales and employees. The major problems of the firm
at this stage are to produce, sell, and distribute the
product in volume while attaining profitability.
• Important barriers are related to the lack of financial
resources to maintain the rapid growth of the
enterprise and difficulties in managing internally the
effects of the growth
 Con’t
Programs to overcome above-mentioned problems have to do
with:
 Training entrepreneurs in new managing techniques; special
attention to internationalization.
 Processes of clustering companies of the same industry in order to
facilitate the interchange of experiences and best practices
 Access to financial resources

Stage 4: Stability
• The growth rate of the firm slows to a level consistent with
market growth. The major problems of the firm at this point
are to maintain growth momentum and market position.
Therefore, the entrepreneur should focus on the introduction
of second-generation product for acquiring new
opportunities and the expansion of the business into new
geographic territories and markets. Therefore the programs
that can be carried out have to do with:
 Enhancing the innovative capacity of firms.
 Facilitating their internationalization
 Technology transfer for business development
• Technology transfer is the process by which existing
knowledge, facilities or capabilities are utilized and
marketed to fulfill public and private needs.
• It is the process by which basic science research and
fundamental discoveries are developed into practical and
commercially relevant applications and products
• Technology transfer processes constitutes
 technology transfer, technology promotion,
 technology deployment, technology innovation,
 technology development, technology assessment,
 technology information and communication, technology
investment,
 technology collaboration and technology commercialization
 Drive for Acquisition new technology

• Acquisition of technology and knowledge involves the

purchase of external knowledge and technology without
active co operation with the source.
• This external knowledge can be embodied in machinery or
equipment that incorporates this knowledge. It can also
include the hiring of employees who possess the new
knowledge, or the use of contract research and consulting
services.
 Con’t
• Cost: Technology can cut costs in many ways: reducing
material, labor or distribution costs. Example: material
costs can be reduced by replacing lower cost material
or by reducing the material required to make a product.
• Speed of delivery: The key competitive priority may be
the speed of delivery, as measured by lead time
required to deliver a product. Example, Automated
guidance vehicle(AGV), Electronic Data Interchange(EDI)
• Quality: Technologies help to improve the quality and
reduce the production costs.
• Flexibility and customization: The global market place
of 1990s is characterized by short product lifecycles,
increased product veriety, and extensive customization.
To retain and increase market share in such competitive
environment, firms have to be more flexible in their
operations.
* Increased production volume
*Higher living standards
 Examples:
Technology in manufacturing Technology in service
Numerically controlled (NC) Office automation
machines Image processing system
•Industrial robots Electronic data interchange
Computerized Aided Design (CAD) Decision support system and
Computer Integrated Mfg (CIM) expert system
Automated Materials Handling Networked computer system
(AMH) and expert system
Flexible Manufacturing System
(FMS)
• Successful innovation depends on the development,
acquiring and integration of new knowledge in the
innovation process. In order to successfully
innovate, a firm usually combines different
innovation activities. In addition to doing own
research and development, firms typically are
engaged in the acquisition of knowledge on the
technology market and cooperate actively in R&D
with other firms and research organizations.
 Steps in Technology Transfer
• It is clear that any technology transfer process has three
parallel components that need to be taken into
consideration.
 Science and Technology: which is responsible for
ensuring that a particular idea or invention is assessed for
its technological feasibility and translated into a
marketable product for commercialization.
 Marketing: The marketing component covers the
business angle, assessing the market conditions and
developing a business plan. It is also concerned with the
business planning in terms of developing a
comprehensive marketing strategy - to ensure a clear
market capture for the new product.
 Financing: This is the third component that identifies and
procures funds for seed capital, expansion, market
penetration etc. in order to make sure that the return-on-
investments is good.
 Steps in Technology Transfer…

• Each of the above components requires the inputs of

different organizations in a market, bringing to the process
different resources and skills that will eventually lead to the
success of the technology and product being developed.
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 Innovation in Technology based Business
• Innovation refers both to the output and the process of
arriving at a technically feasible solution to a problem
triggered by a technological opportunity or customer need.
Innovation process is driven by the exchange of technical,
market, and other environmental information in the face of a
high degree of uncertainty. Innovations are new ways to
achieve tasks.
• It is useful to distinguish between process innovations and
product innovations
 Product innovation: results in new or improved products. An
example of this might be a new type of razor blade that is
sharper and lasts longer than previous blades.
 Con’t
 Process innovation: occurs when the manufacturing
processes are improved to make the production of
existing products cheaper, or when new processes are
developed specifically for making a new or improved
product.
 Service innovation: occurs when new ways of delivering
services are developed e.g. the use of automatic telling
machines (ATMs) in banks to replace human tellers,
drive through take-out lines.
• The innovation process, which leads to useful
technology, requires:
– Research
– Development (up-scaling, testing)
– Production
– Marketing and – Use
• Experience with a product results in feedback and leads
to improved innovations.
 Con’t
• The process of innovations can also be classified as
Market-pull and Technology-push innovation:
a. Market-pull innovations: advancement of technology
oriented primarily toward a specific market need
• a) Occur when customers are technologically
sophisticated
• b) Occur more frequently with older technologies
• c) Tend to be incremental innovations
b. Technology-push innovations: advancement of
technology oriented primarily toward increased
technical performance
• a) Require that the firm’s scientists, engineers, and
inventors have direct experience with users
• b) Occur more frequently with new and emerging
technologies
• c) Tend to be the major source of breakthrough
innovations
 Innovation in Technology based Business …

• The

Figure 2.6 Market-pull and Technology-push innovation processes

 Summary on Technology, Products, and Markets

Technology Push

Technology

Market Feedback
Modifies Products
Technology and
Products

Markets

Market Pull
 Promotion and Commercialization of technology-
based innovation

• The process of taking an invention from idea to business concept

and then to market is called technology commercialization.
• Consequently, products must be developed faster, prototyped
earlier, and brought to market in record time.
• The promotion of technology appears to be essential to the
process of industrialization. Though transfers of technology can
temporarily be beneficial, potentialities of technology promotion
are believed to lie in a systematic utilization of research and
development.
Entrepreneurship and Technological Change