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Entrepreneurial Infrastructure

There is a romantic appeal about the single entrepreneur or small group of entrepreneurs labouring away in a garage or university laboratory to produce a completely new technological innovation and the subsequent launch of a world-beating product or service proposition. Although such events will continue to occur, in today’s world the frequency can be expected to remain somewhat low. This is because as technology becomes more complex, it is increasingly difficult for an individual or small group of individuals to have the knowledge and resources that are demanded during the development and commercialisation of radically new technology-based propositions.

Two of the world’s wealthiest companies in terms of market value are Apple and Google, both of which are based in Silicon Valley, California. The importance of this region as a leading source of entrepreneurial wealth generation is illustrated by the fact that in 2010, the ZIP code 95054, in the heart of Silicon Valley, produced more industrial patents than any other

ZIP code in the USA. This small geographic area is ranked 17th in the world for patent production when compared to all other nations (Engel and del-Palacio 2011) and is the world’s leading ‘cluster of innovation’, resulting in the ongoing success of firms located there. Within this cluster new technologies are being developed at a much higher rate than elsewhere in the world, reflecting an environment containing the capital, expertise and talent able to support the development of new industries and new ways of doing business. The cluster’s ecosystem is composed of start-ups, professional service firms that support the start-up process and mature enterprises which remain focused upon sustaining long-term growth through ongoing emphasis upon technology-based entrepreneurship (Fig. 1.2).

In commenting upon the Silicon Valley ecosystem, Engel and del- Palacio (2015, p. 38) noted that ‘resources of people, capital, and knowledge are highly mobile and the pace of transactions is driven by a relentless pursuit of opportunity, staged financing, and short business model cycles’. These researchers posited that Silicon Valley, along with other centres of innovation elsewhere in the world, are critically reliant upon entrepreneurs being supported by an infrastructure constituting venture capital investors, mature corporations acting as strategic investors, universities, government, R&D centres and specialised service providers. They also

Fig. 1.2 Inputs and outputs within the technological entrepreneurship ecosystem identified the following key behaviours within such ecosystems that favour the development of high-potential technology-based entrepreneurial ventures:

  • 1. A heightened mobility of resources such as people, capital and intellectual property (IP)
  • 2. An entrepreneurial process involving the relentless pursuit of opportunity without regard for resource limitations
  • 3. Increased velocity of business development
  • 4. A strategic global perspective
  • 5. A culture of alignment of interests and transaction structures that reinforce the alignment
  • 6. Incentives and goals that lead to an affinity for collaboration
  • 7. The importance given to the development of global ties and bonds with other technology-orientated entrepreneurs elsewhere in the world.

Developing and exploiting new technology usually demands massive expenditure. In the case of start-ups a critically important aspect of Silicon Valley infrastructure is the presence of venture capitalists who have both the expertise and ‘deep pockets’ to fund the activities of new, emergent entrepreneurial firms. The key influence of these venture capitalists in Silicon Valley is to drive start-ups towards rapid value creation, upscaling businesses and making an early exit. Venture investors also help accelerate innovation through active involvement in governance, recruiting and the creation of compensation policies to help align the economic interests of all employees with the economic interests of the investors.

Engel and del-Palacio (2015) noted that the large companies in the area recognise the importance either of investing in new technology internally or of providing collaborative support for smaller firms. This scale of expenditure is only possible because large companies such as Apple and Google have accumulated huge cash reserves that can be made available to fund the commercialisation of new technologies (Kristoff 2011). Other infrastructure components which Engel and del-Palacio considered important within a cluster of innovation are the presence of leading research-orientated universities, research centres and government funding for new technology development programmes. In the case of Silicon Valley, Stanford University plays a key role both in undertaking research and in educating the knowledge workers required by high-tech firms. The other key sources of new knowledge are federally funded and commercial research centres. These latter have been established either because they are headquartered in the Valley (e.g. Hewlett-Packard or Cisco) or because they wanted their researchers close to others who are engaged in innovation and commercialisation of new technologies (e.g. IBM, Xerox and Samsung).

Engel and del-Palacio concluded that of equal importance to the components of Silicon Valley’s cluster of innovation are the behaviours and interactions among these components. Critical behaviours include mobility of resources, entrepreneurial processes of opportunity seeking, innovation and experimentation, and taking a global strategic perspective building upon international linkages with entrepreneurs based elsewhere in the world.

A key aspect of resource mobility is that individuals are willing to move between companies. As a consequence knowledge and technological understanding are shared as people move from one venture to another. The mobility of new technology is protected by intellectual property rights but is often assisted through licensing agreements with universities and corporations via spin-outs and out-licensing to harvest value from non-core technology assets. Many major enterprises in Silicon Valley have also established corporate venture centres which engage in start-up acquisitions and support open innovation processes to promote enhanced mobility of ideas and inventions.

International linkages have a significant role within clusters of innovation. Interpersonal networks are the driving force facilitating critical resource acquisition, including raising capital, recruiting talent and attracting customers. In dealing with a resource-constrained environment, entrepreneurs are often hampered by information asymmetry in competition with larger firms. Strong interpersonal networks overcome this problem by providing access to information, accelerating learning, facilitating exchanges, and reducing transaction frictions and development costs (Cohen and Fields 1999). These are achieved by trust established through relationships. In Silicon Valley there are parallel networks within immigrant communities, especially among the Indian, Chinese and Israeli engineers and scientists who have moved to California. They are connected into their home countries’ networks through alumni associations and family ties. These weak ties can lead to the formation of long-distance business relationships, such as contracts or employment relationships, which permit frequent and fluid mobility of assets and people across borders, providing avenues for rapid sharing and adapting to new knowledge and technologies.

Where connections between different clusters are strong, the pursuit of shared projects and utilisation of resources go beyond efficiency to mutual dependency. Such communities are often linked by individuals who establish and maintain a presence in more than one cluster. The individuals involved enhance trust and accelerate information exchanges. In some cases this may lead to firms in one cluster becoming embedded in the business and processes of others, manifesting unified values, tighter interrelationships and business integration (Malairaja 2003).

 
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