Founding team, firm, and contextual characteristics associated with knowledge- intensive young business ventures Yannis Caloghirou, Aimilia Protogerou,

Founding team, firm, and contextual characteristics associated with knowledge-

intensive young business ventures

Yannis Caloghirou* , Aimilia Protogerou*, Aggelos Tsakanikas* and Nicholas Vonortas**

*LIEE/NTUA** George Washington University

T2S 2013 Conference, 8-9 November 2013, Bergamo, Italy

Laboratory of Industrial & Energy Economics, National Technical University of Athens

What is this session about?• Studying and measuring E’ ship in Europe• Three surveys:

– GEM (1999- ), early-stage entrepreneurship, general population survey, 68 countries

– The KfW/ZEW Start-up Panel, Germany, CATI, 6000 newly founded firma (2008-)

– The AEGIS SURVEY (2011), Knowledge-Intensive, newly established firms (4000 firms in 10 European countries).

• Two studies on academic entrepreneurship– Spin offs in Sweden and the UK (different institutional settings)– The external impact of University Research in the context of a

complex metropolitan region : The case of London’s Colleges of Higher Education

T2S 2013 CONFERENCE, Bergamo, Italy

Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey 2

What kind of animal do we study?

• Entrepreneurship is a very heterogeneous concept and entity.

• Focus on a particular kind of ‘business animal’ i.e. Knowledge-Intensive Entrepreneurship (KIE).

• Approach: You can study Entrepreneurship from different perspectives and at different levels (individual, organisational,..). The unit of analysis is the firm, the newly established firms in the first decade of the 21st century and survived the three years survival test.

T2S 2013 CONFERENCE, Bergamo, Italy 3Y. Caloghirou et al, LIEE/NTUA, The AEGIS

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A definition of KIE • Knowledge intensive entrepreneurship (Malerba

and McKelvey, 2010) is associated with four basic characteristics: – it concerns newly established ventures; – new ventures that are innovative (different types

and degrees of innovative performance); – new ventures (with considerable knowledge assets)

engaging in activities that are knowledge intensive; – new ventures that are not to be found solely in

high-tech industries (they may well be active in industries with medium-tech or low-tech characteristics).


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The particular aim of this paper

• The aim: Examine the characteristics of– Founders (personal)/ founding teams,– Firm (organisational)– Context (national system of innovation, sector,

variety of capitalism)associated with newly established business ventures that incorporate different levels of knowledge intensity and innovative performance (knowvation)in their activity.


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A three-step analysis1. Build a firm taxonomy based on the characteristics of

KIE (i.e. translation of theoretical concepts into measured empirical variables),

2. Explore how new ventures of different knowledge intensity (and innovative performance) are distributed across different contexts:• institutional (National Systems of Innovation), and • industrial/ sectoral (HT, LT, KIBS),• Socioeconomic configuration (VoC).

3. Examine in which ways (in terms of founding motives, dynamic capabilities, strategic considerations, and performance) and to what extent, KI new ventures differ from “less KI” ones.


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Why a taxonomy of newly established firms in terms of KIE might be useful

• Dealing with heterogeneity is a challenge for entrepreneurship research and the diversity among young firms cannot be easily reduced into a general model.

• New firms are heterogeneous in terms of both their innovative performance and knowledge assets (“knowvation”).

• Taxonomies of new entrepreneurial ventures that display different degrees of “knowvation” might provide: – an empirically based framework to test the theoretical concept

of KIE (operationalisation of the KIE concept),– a specific classification scheme that labels different items into

separate groups with common KIE characteristics.– useful policy guidelines.


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Two main Objectives of the AEGIS Survey (conducted in 2011)

• Make the concept of KIE empirically operational (main instrument of the AEGIS project)

• The AEGIS survey: A pilot for developing a new tool- with high research potential and strong policy impact- for monitoring and studying KIE in different contexts (sectoral, country and socioeconomic) in Europe through a regular Community Entrepreneurship Survey.


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The AEGIS survey design• Newly established firms– Established from 2001 to 2007 with a primary

activity in pre-selected sectors• Actually new firms but not new legal entities

resulting from any type of legal transformation of already existing firms

• No subsidiaries of existing companies, or mergers acquisitions and joint ventures


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The AEGIS survey arithmetic (numbers)

• 10 countries (Sweden, Denmark, UK, Germany, France, Italy, Greece, Portugal, Czech Republic, Croatia), conducted in the first half of 2011

• Group of Sectors: a) HMT manufacturing sectors, b) LMT manufacturing, c) KIBS

• 4,004 completed questionnaires


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Sample distribution by Country and sector

Country Completed interviews

High tech Low tech KIBS

Croatia 200 50 100 50Czech Republic 200 50 67 83Denmark 330 46 57 227France 570 95 169 306Germany 557 91 136 330Greece 331 45 161 125Italy 580 120 253 207Portugal 331 51 150 130Sweden 334 43 99 192UK 571 74 165 332Total 4,004 665 1,357 1,982


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Selected findings

• Size of the new venture.• The founding team (size, age, cognitive

foundations, background ..)• The profile of the new venture: What

kind of animal KIE is? How it operates?


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Firm size the majority of firms (more than 6 out of 10) are micro enterprises

• Almost 9 out of 10 are small firms.

• Practically non existing large firms.

• 4 out of 10 with part-time employees.

• Only 116 firms have exclusively part-time employees.


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Most important drivers of firm formation

• Work experience, • Market and engineering knowledge,• Networks built during previous career, …and, New firm formation funding: Own and

family sources


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Founding team size: small average size (2 persons) and male dominated (8 out of 10)


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What is the Founders background?

but relative limited number of PhD founders: 1 out of 100 have at least one PhD founderT2S 2013 CONFERENCE, Bergamo, Italy 16Y. Caloghirou et al, LIEE/NTUA, The AEGIS

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The educational level of Human Capital in new ventures

• High– 2 out of 3 of all new companies have employees

holding a University degree. – On average, these firms have 6 employees holding a

University degree. – Half of all the new companies employ people with a

postgraduate degree (PhDs included).• Higher Educational Level in Knowledge Intensive

Business Services (KIBs) compared to high and low-tech manufacturing,


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Sources of funding for setting up a company on average 80% of funding came from the founders’ own

resources


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How innovative they are?

• 2 out of 3 firms have introduced or improved new goods/services into the market during the last three years.

• The majority of firms report that they have also introduced at least one of either process (production and delivery methods) or organizational innovation.

• 1/8 (14,2%) of firms present new to the world product innovation


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Market and Business Environment• On average, 86% of their sales comes from the

domestic market (HT: 24%, KIBS & LMT 13%)• The most important obstacles of their growth are

market risk/uncertainty and funding • Continuously changing taxation regulations and high

tax rates are also important barriers for the firm operation and growth, but differences exist across countries

• The most important factor for achieving competitive advantage is related to addressing market and customer needs.


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The empirical taxonomy: Clustering variables

Groups of variables used from the AEGIS survey to determine innovative ventures:•Introduction of new or developed goods/services•Degree of novelty-innovation (new to the firm, market, world)•Introduction of process and organizational innovation•Intellectual property protection methods (patents, trademarks, copyrights, confidentiality agreements, secrecy, lead and advantages on competitors, complexity of design)

Groups of Variables used from the AEGIS survey to determine the firm’s knowledge assets:

• Knowledge-seeking activities (industry, science, in-house R&D, open sources, participation in research collaborative activities)

• Average educational attainment of the founding team

• Percentage of funding coming from venture capital (proxy).

• Human capital & innovation input (% of full time employees with Graduate and PhD degrees, employee training, R&D intensity)


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Cluster analysis results (1/2)


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Cluster analysis results (2/2)


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The empirical taxonomy: Classification of KIE ventures

KIE variables

Type

All-around KIE(22.6% of the

sample)

World-class KIE (15.1% of the

sample)

Less KIE(62.3% of the

sample)

External knowledge seeking (industry, science, open sources, participation in research collaborative activities)

√Industry (clients,

suppliers, competitors)

In-house R&D √ √

Founding team edu attainment √

Capital from VC √

Human capital & Innovation input Employee training- Graduate degree,

Ph.D.- R&D intensity

Product innovation - New-to-firm- New-to-market New-to-world

Process & org innovation √ Close to average

Intellectual property protection methods (patents, trademarks, copyrights, etc) √


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Distribution of venture types across different types of context (1/2)


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Distribution of venture types across different types of context (2/2)

• World-class KIE ventures, are mostly concentrated in leading economies (leading in the sense of having developed an advanced innovation system).

• All-around innovators are basically found in countries with modest and moderate innovation systems.

• KIE is only partly industry specific.– Knowledge-intensive firms can also be found in KIBS and

even low-tech manufacturing sectors.– Less-knowledge intensive firms (at least in terms of the

proposed taxonomy) can also be found in high-technology sectors


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Comparative analysis of venture types


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Comparative analysis of the more KIE groups against the ‘mixed-bag’ of less KIE

• Firms in the in the two more KIE groups (i.e. WcKIE, AaKIE) compared to firms of the third “mixed bag” “less KIE” group– have built more strongly their R&D and product related

capabilities, their dynamic capabilities (i.e. their ability to exploit market and technical opportunities), they engage more strongly in networking and participate more heavily in various types of collaborative arrangements, and of course, spend significantly more on R&D,

– tend to pursue differentiation and focus strategies more than “less KIE” , who show more emphasis on low cost,

– are heavily geared towards international markets, presumably based on their more innovative profile,

– seem to enjoy higher performance (average profits and average growth rates in sales),


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Concluding remarks• Our proposed taxonomy of newly-established firms derived

three groups of firms, two of which can be interpreted as distinct varieties of KIE ventures.– The first of these, termed “all-around KIE”, shows a more

balanced emphasis on different dimensions of innovation and relies both on internal and external knowledge-activities to explore and exploit new business opportunities.

– The second, labelled “world-class KIE”, emphasizes new-to-world innovation drawing from in-house knowledge which in turn draws from high quality human capital (both in terms of founders and workforce).

– The third, a residual “mixed bag” or “less KIE” group clearly lags behind in all dimensions of knowledge-intensive activities and innovation.


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Concluding remarks

• This taxonomy of young firms taking into account their knowledge intensity and innovation performance may provide an empirically based framework that helps to further build a theory of knowledge-intensive entrepreneurship and to guide related policies.


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Concluding remarks

• Our results confirm that taxonomies of young firms based on their knowledge intensity and innovative performance can be extended to map their differences in variables such as factors affecting firm formation, organizational factors (dynamic capabilities), pursued strategies and performance.

• These variables are important not only because they help us test the validity of our proposed taxonomy but also to understand the different aspects of young firms with varying degrees of KIE.


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Thank you very much for your attention!


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Documents

Founding team, firm, and contextual characteristics associated with knowledge- intensive young business ventures Yannis Caloghirou*, Aimilia Protogerou*,

Founding team, firm, and contextual characteristics associated with knowledge- intensive young business ventures Yannis Caloghirou, Aimilia Protogerou,