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) machines Office automation
• Industrial robots
 Image processing system
Computerized Aided Design (CAD) Electronic data interchange
Computer Integrated Mfg (CIM) Decision support system and
Automated Materials Handling (AMH) expert system
Flexible Manufacturing System (FMS) Networked computer system
and expert system

• 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