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4 Opportunities for Small Technology-Oriented Companies Technological entrepreneurial opportunities often depend on the ability of companies to tolerate high risk of financial failure, to be technologically creative and flexible. Further, the opportunities for small companies are intimately related to the activities of large companies and are heavily depenclent on local or regional resources and business environment. Each of these determinants of the op- portunity set for small technically oriented companies is discussed in this chapter. HOW THE MARKET DETERMINES OPPORTUNITIES AND RISKS Small companies exist in most industries, but they exist in abun- ciance In industries that share the following characteristics: Lets. Fragmented, technically dynamic, and rapidly growing mar Low barriers to entry. An adequate regional and national technical and business infrastructure. try. Good access to potential customers. Availability of financing. A culture (recent history) of entrepreneurship in the indus 40

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OPPORTUNITIES FOR SMALL TECHNOLOGY-ORIENTED COMPANIES 41 Where these conditions exist, they are often accompanied by a predicable set of business and technological risks. Business failure is common among start-ups, but it is the ability to identify and address opportunities while managing the characteristic risks that determines the success of new ventures. Fragmented, Technically Dynamic, and Rapidly Growing Markets Fragmentation of an industry into many markets, especially small and rapidly growing markets, generally means that there is limited competition from larger companies, few standards, and constantly changing opportunities for companies that can take a new approach. The software industry and the network services and devices industries are excellent examples of fragmentation in technically dynamic and rapidly growing markets. While there is agreement that software and network services have tremendous potential, there continues to be a high degree of uncertainty about what ap- plications consumers are willing to pay for and the features that will make or break those applications. Indeed, the high degree of uncertainty has seen almost all larger competitors adopt a "fast follower" strategy that avoids the high costs of developing a new market (and the potential cost of product failure). Instead, demand for the overwhelming majority of new software and network ap- plications is likely to be discovered by innovative new companies and entrepreneurs. Large companies and universities are often part of the business environment that creates and drives technically dynamic and frag- mented industries. Larger companies are often inadvertently the source of start-ups in such industries in that they both create new niches and leave them unaddressed. Larger competitors also may have difficulties maintaining their intellectual capital as opportu- nities are perceived for entrepreneurs to go out on their own. En- trepreneurship in advanced displays and network devices, for ex- ample, is driven largely by spin-outs of corporate (and academic) talent. In some industries, such as biotechnology, university-based re- search is a large portion of the total technical work in the area and therefore a prime contributor to the technical dynamism of the

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42 RISK AND INNOVATION industry. However, even those sectors where there is little interac- tion between start-ups and universities often depend on academic research in engineering or basic sciences that have an indirect im- pact on industrial technology. Universities are important as a source of ideas and talent in the most technically dynamic industries. For example, small software companies (as well as large companies) benefit from extensive net- works of universities and research facilities, especially in Boston and the San Francisco Bay area. Small companies are the beneficia- ries of the talent and intellectual capital that is concentrated in these areas, and they are often the incubators for further develop- ment and application of advanced concepts developed at universi- ties, usually through graduates and faculty who join the firm. In sum, technically dynamic, fragmented, and rapidly growing markets attract technical entrepreneurs. Large companies and uni- versities help fuel those markets with technological ideas and tal- ent. Low Barriers To Entry Traditional barriers to entry, such as high up-front capital costs or a proprietary technology held by a competitor, are critical prob- lems for small high-tech companies. industries and industry seg- ments in which barriers to entry are low attract entrepreneurs. For technically oriented start-ups low barriers to entry can simply mean that one or two technical professionals can lead a team to make a potentially useful incremental technical contribution. in outdoor sporting goods, for example, most products are "personal" or small-scale one-user products. The characteristics of these prod- ucts in contrast to an automobile, an airplane, or a microproces- sor are that product and process design and development can be handled by a small team. A single, talented individual can execute the market and technical research, product development and de- sign, prototyping, field testing, and redesign of products in a way that is not possible for larger, more complex products. Low barriers to entry are often associated with a marked ab- sence of economies of scale in some high-value-added aspect of the business. in environmental testing, for example, the economics appear to oppose consolidation. Virtually all companies in the environmental testing sector are small. This is because market

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OPPORTUNITIES FOR Sail TECHNOLOGY-ORIENTED COMPANIES 43 demand is generally local and economies of scale in environmental laboratory services appear to be minimal. In these instances, spe- cialization in a focused geographic area may realize substantial economies, but the absence of larger economies of scale (or per- haps even diseconomies) precludes larger competitors from con- solidating the industry. A type of diseconomy of scale arises from the difficulty of large organizations in exploiting fragmented markets. Small companies enjoy a comparative advantage in opportunities that demand rapid product changes or style changes, as in outdoor sporting goods or medical devices. Outdoor sporting goods and implantable and surgical medical devices are similar in that the inventors and com- pany founders are often themselves intense users of the innova- tions. Product development is also similar in that it is usually iterative and experimental, it directly involves the user, and there is often little benefit to larger size or organization for product de- velopment. An Adequate Technical and Business Infrastructure Small companies and start-ups rarely "go it alone." in general, small companies need to draw on technical and business resources outside the company. With regard to business matters, technical small companies and start-ups often depend for advice and di- rect help on an infrastructure of business services such as legal, accounting, and banking services. With regard to technical mat- ters, small companies rarely do any self-supported research (though the biotechnology industry is an exception in this regard). Small technical companies almost always depend on technical ad- vances made in large company laboratories or in universities and the importance of that infrastructure is most clearly revealed when it is unavailable.) Further, much of the technical talent that small companies draw on is trained in larger companies or universities. 1For example, access to materials technologies used in medical devices and sporting goods is increasingly restricted in response to fears of liability litigation. A case in point is DuPont's Dacron polyester. The total market for this product is approximately $9 billion per year, but the cost of polyester used in a popular medical device is often only several hundred thousand dollars per year. As a result, the major suppliers of polymers used for medical devices have severely restricted the use of these materials.

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44 RISK AND INNOVATION innovation in implantable and surgical medical devices is an interesting example of this. Most of the enabling technical ad- vances that make small-company product innovation possible (new materials or electronic controls, for example) migrate into medical devices from other industries or applications. The products are often conceived, developed, and tested by a sophisticated cadre of clinical professionals (physicians, often university-based) who are constantly developing insights into better ways to do things as a function of their daily clinical experience. The business and techni- cal infrastructure for most small implantable and surgical medical devices is clustered primarily around the nation's teaching hospi- tals and is supported by substantial federal research funds. Good Access To Potential Customers A technologically oriented small company or start-up needs early customers as a way of learning about actual use of a product or service as part of the product development process. Beyond early customer trials, customer access, and the cost of that access, is a key determinant of success and growth rate. Even clearly supe- rior products will rarely succeec! unless they can get "shelf space." The market for home network services, for example, is highly frag- mented and unsettled, but access to the customer depends on a few large companies, primarily cable companies and telephone compa- nies. Small technically oriented companies, therefore, depend on arrangements with these large companies to test the viability of services and products. For small companies, good access to cus- tomers often has a great deal to do with their relationships with large companies either directly as customers or as vehicles for reaching the ultimate customer. In the medical device industry, there is a revolution in cus- tomer access that is challenging the industry's ingenuity. Histori- cally there was a decentralized system for testing and adoption- individual physicians made most of the decisions. With the increasing consolidation of health care providers and the move- ment toward health care reform, the customer is increasingly a health care company or insurance provider. The methods of cus- tomer access for device innovators either for product develop- ment and refinement or for post-refinement sales is changing in a way that may disadvantage small, thinly capitalized companies.

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OPPORTUNITIES FOR Sail TECHNOLOGY-ORIENTED COMPANIES 45 Availability of Financing Small companies depend on both debt and equity financing. Debt financing, and its availability from banks or finance compa- nies, is an issue of almost chronic concern for both small business advocates and government policymakers. Small Business Admin- istration loan programs, certain bank regulatory changes, and pro- posals for a federal role in creating a secondary market for business loans are all driven by concerns about small business access to debt financing. Because of the nature of much technological develop- ment, however, small technologically oriented companies depend heavily on equity financing for development of new products and services and for market development. Many technology-dependent ventures are poor candidates for debt financing. The investments are illiquid, slow to mature, and hard to manage. The risk/return profile of such investments more closely matches the interests of a certain category of equity inves- tors. in most cases equity financing is provided by savings or by family and friends, but in some cases outside venture investors play a key role. For both the entrepreneur (operator-investor) and the outside investor, the willingness to invest depends on a variety of factors, not the least of which are the four industry conditions described above. in addition to the initial conditions of the oppor- tunity, equity investors are deeply interested in potential return at exit. In industries rich in opportunities for small companies and start-ups, the interest of entrepreneurial talent and outside inves- tars depends on the likelihood of getting a good "liquid" return in a time frame determined by the investor's interests. Although owner-operators and their close associates provide equity in virtually all industries, the availability of equity financing from professional venture capital investors is directly related to expected growth rate of a venture, the expected potential market, and the perceived ability of a company to capture share in this market. These factors and recent experiences In the industry determine the anticipated liquidity of equity investment. In this context, liquidity is relative: Can an investor's interest in a com- pany be sold relatively quickly and at a good price? The large number of start-ups and small companies in network devices and in software is an example of this. Organized venture capital is currently often available to companies in these sectors,

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46 RISK AND INNOVATION because quickly increasing or nascent opportunities create liquid- ity; initial public offerings of the stock of companies in these indus- tries are often well received because of expectations of rapid growth. These opportunities that small companies exploit are also attractive to larger competitors once the opportunity is demon- strated, creating liquidity through acquisition and encouraging the formation of new companies. In environmental testing laboratories and outdoor sporting goods, on the other hand, the story is quite different. In environ- mental testing labs, for example, poor liquidity creates barriers to exit for entrepreneurs. Because the economics of environmental testing appear to discourage consolidation (by acquisition or ex- pansion), there is effectively no market clearing function, so some competitors will stay in the industry simply because they cannot exit at what they consider to be a fair price. Such limited near-term opportunity precludes venture capital financing. As a conse- quence, equity financing for start-ups or expansion in environmen- tal testing labs is most likely to come primarily from owner-opera- tors, not from external sources. Similarly in sporting goods, branding can create liquidity for even small companies, but sport- ing goods markets are often small and with limited growth possi- bilities. Indeed, even if the liquidity is good, the potential market needed to justify an investment increases as the requirements for resources and capital increase. For example, venture capital fi- nancing of implantable and surgical medical devices, historically quite active, has deteriorated dramatically as the time (and cost) for moving from start-up to successful company has increased sub- stantially because of changes in device approval processes. In many cases, this shifts the burden of financing innovative invest- ments to larger companies that may be able to reduce the risk (through their experience with the regulatory system) and can jus- tify a slower or lower device-specific return because the invest- ment is part of an overall plan for corporate growth and develop- ment. In advanced displays, liquidity is also a concern. The number of small technology-intensive companies in advanced displays re- flects technological issues and the fact that companies do not have access to the capital required to grow through large-scale produc- tion.

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OPPORTUNITIES FOR SMALL TECHNOLOGY-ORIENTED COMPANIES 47 A Culture (Recent History) of Entrepreneurship industries are also differentiated by the degree of social accep- tance of entrepreneurship. In some cases the social acceptance of entrepreneurship is created by example: entrepreneurial dreams are most prevalent in industries in which there are visible suc- cesses, in which a few individuals have built big companies from scratch or become fabulously wealthy. In other cases, the accept- ability of entrepreneurship is more ambiguous. Medical device innovation, for example, reflects a relatively new currency of aca- demic values in the life sciences, where the profit motive was pre- viously seen as antithetical to academia. in recent years it has become much more acceptable for academically oriented life sci- ence professionals to be involved In start-ups. Entrepreneurship may also be a lifestyle decision based on do- ing what you enjoy, and being your own boss, as in outdoor sport- ing goods, where many companies are founded by enthusiasts. Entrepreneurship in software is often similarly a lifestyle decision, usually in the negative sense ("T could never work for a big com- pany"), and fueled by the fact that many people in the industry believe it is fairly easy to start a company that may not become large but can quickly create significant equity value because of its technical sophistication. Software and services attracted more ven- ture capital financing than any other sector, 22 percent of venture capital invested in 1992, or $562 million in 214 different compa ,, mess Characteristic Risks Technological and market acceptance risks the usual risks of any commercial technological development are important in tech- nically dynamic markets. Will a particular application of new tech- nology gain adequate market acceptance? How long will it take to develop market demand for a product or service with unusual characteristics or function? The typical risk is heightened in frag- mented, technically dynamic, and rapidly growing markets by the 2Venture Economics, The National Venture Capital Association 1993 Annual Report (Washington, D.C.: National Venture Capital Association, 1994~.

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48 RISK AND INNOVATION fact there are often few firm standards and little customer experi- ence with the product or service. it is easy to develop a product or service that becomes rapidly obsolete in these markets because of changing standards. Similarly, without good customer feedback on product development paths, it is easy to bring out products or services for which there is little demand. Although low barriers to entry provide opportunity for start- ups, they also make it difficult for small companies to establish much durable competitive advantage- either against other new entrants or against larger companies. industries in which perceived barriers to entry are low (the software industry, for example), are often characterized by fierce competition; perhaps the dominant risk for small companies in Tow-barrier-to-entry markets is the risk of chronic exposure to high levels of direct competition. The industries addressed in this study illustrate how the char- acteristics of a product or service market are key determinants of small business technological opportunity; the demands of suc- cessfu} commercial innovation in different markets differ, lead- ing to varied levels of expenditures on research, development, demonstration, and to variation in the organization of company technical effort. Small companies have inherent advantages in fragmented, technically dynamic, and rapidly growing markets in which there are low barriers to entry. The rapid pace of change in such business environments often creates nascent or rapidly growing markets where a small company may establish an early position by luck or skill simply because the opportunity is new. THE LARGE-COMPANY ROLE The interactions between new, technology-intensive companies and larger companies are myriad, diverse, and critical to the growth of many industries. There is an excellent analogy to the biological concept of coevolution; populations do not exist in isolation, but interact with other populations, and these interactions shape the opportunities for each population. Small companies, equally, do not exist in isolation but interact with larger companies. Extending the biological analogy, it is easy to see a variety of economic or organizational rationales for the interdependence of large- and small-company technological opportunities. First, in some technological areas, there are no large companies that can

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OPPORTUNITIES FOR Salt TECHNOLOGY-ORIENTED COMPANIES 49 reasonably exploit a radical new technology, often still in the pro- cess of emerging from basic science. The biotechnology industry, for example, has been driven mainly by advances in university research environments. In the early days of the industry, large pharmaceutical companies did not have the competence in bio- technology to drive research and development. Start-ups bridged the zap and, simultaneousIv captured a large portion of the avail 0 - -A ~ J ~ - ~~r ~ -~- - -~ ~~ ~~~- 0 ~ r able talent. In other industries, the breadth, depth and uncertainty of tech- nological advance drive large companies to accept that much of the development and market testing will be done by small companies and technological start-ups. For example, even large telecommu- nications companies see too many potential growth markets and too much uncertainty to exploit the full range of network product and service markets. The expectation that agile, small companies will explore markets, some of which will become large, is probably the source of the large numbers of joint ventures between large and small companies in this industry. Large companies also quite in- advertently leave gaps and ignore technological opportunities. For example, the dominant computer companies in the early 1980s failed to see the opportunity in personal computers and left the pioneering of that market to a number of start-ups, including Apple Computer. Second, in many cases technological and market opportunities are simply not attractive to large companies. The opportunities in several sectors examined in this study- medical devices, sporting goods, environmental testing labs are not necessarily attractive to larger companies. Barriers to entry for start-ups and small com- panies are relatively low and opportunities tend to be small or highly fragmented. In these circumstances, a small company's comparative advantage is the willingness of owners to be happy serving a small market. Lack of economies of scale- or the existence of diseconomies of scale can preclude entry by larger companies. In environmental testing, for example, the economics appear to discourage consoli- dation. Although the total opportunity is large, virtually all com- panies in the environmental testing sector are small. This is be- cause market demanct is generally local and economies of scale in laboratory services appear to be minimal. In these instances, spe- cialization in a focused geographic area may realize substantial

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50 RISK AND INNOVATION economies, but the absence of larger economies of scale precludes larger competitors from consolidating the industry. High product differentiation, especially if based on image, also creates opportunities for small companies. If product differentia- tion is high and based on image ~ in snorting ~1~ it con ~ff~- , ~-r~~~~--~ ~~~~~' . ~ ~ ~ . .. .. . ~ .. '. ,. . . .~ ~ lively 1lmlt tne size ot tne firm (larger size may not be compatible with the image or exclusivity of the product) and create an oppor- tunity for inefficient smaller competitors to survive. Based on the industries considered in this study, it is clear that, with regard to certain opportunities, small companies appear to enjoy several advantages over larger companies. - ~ .. . . For example, small companies may enjoy a comparative advantage in techno- logical development opportunities that demand rapid and fairly fundamental changes in direction. indeed, the size of the most able organization may be simultaneously determined with the charac- teristic of the opportunity. Companies in rapidly growing, frag- mented, technically dynamic markets must be able to change direc- tion quickly. Organizationally, it is simply easier to change direction in an organization with fewer controls or traditions of practice. Additionally, small high-tech companies also appear to be bet- ter than larger companies at developing initial business opportuni- ties in new technologies or applications that demand high creative content, such as software development or the design of a new medi- cal device or sporting goods. it is hard for large companies to nurture creativity and innovation, and the ratio of reward to risk in new product development is typically low. individual or small team creativity seems easier to manage in small companies, per- haps because it is easier to invest the creative individual or team directly with the rewards of accomplishment, whether those re- wards are money or recognition. This is by no means universally true, as some large companies have a reputation for the small-scale innovativeness and rapid market testing that is more typical of high-tech start-ups. Also, many large companies cannot or do not pursue technolo- gies discovered or developed in-house. In many cases the technol- ogy does not fit naturally with their current product line, or the ultimate market does not appear large enough to warrant further investment. As a result, many successful new companies spin out of these larger technology-driven companies entrepreneurship in

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OPPORTUNITIES FOR Sail TECHNOLOGY-ORIENTED COMPANIES 51 advanced displays and network devices, for example, is driven largely by spin-outs of corporate (and academic) talent. This, in turn, is forcing adaptations in larger companies. in some instances the spin-out is encouraged and financed by the larger company. Three points emerge from these considerations of small com- pany and large company interactions. First, it does not make sense to consider the comparative advantage of small companies with- out embedding that discussion in the context of a specific market sector or technology. Small companies can exploit certain oppor- tunities, but that set of opportunities is often at least nartialIv de- term~ned bv the actions of larder companies. , ~ ~ Second, the opportunities for small companies in a sector or technology are not static; the importance of entrepreneurial inno- vation in developing new technologies depends on timing. Typi- cally, as an industry and its technology mature, the uncertainty decreases (as does risk), enabling larger companies to assess the attractiveness of the opportunity. As a result, larger firms become increasingly involved with small companies in driving innovation beyond a certain point. Third, it is important to remember that small companies- except in unusual circumstances do little research.3 The impor- tance of spin-outs of technology, personnel, and business opportu- nities from large company expenditures and efforts at research and development should not be underestimated as a source of oppor- tunity for small companies. THE IMPORTANCE OF GEOGRAPHY Much high-tech, small company activity is regionally reinforc- ing. The ability of some regional economies to spawn new busi- nesses is well recognized. The economic contributions of "Silicon Valley" in northern California and "Route 128" around Boston are legendary. The success of those two regions has spawned a host of 3Small biotechnology firms are exceptional in that a significant number do a great deal of true research. The industry employs a disproportionate number of scientists, and in the aggregate (i.e., including the several larger firms) expends upward of $5 billion annually for R&D. The exploratory nature of this research underlies the high failure rate of experimental biotech drugs in clinical trials.

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52 RISK AND INNOVATION studies aimed at uncovering the key contributing factors. More important, it has stimulated many regions to experiment with dif- ferent methods of regional economic development in the hope of emulating the success In California and Massachusetts. The literature on what causes a region to become a center of high-tech entrepreneurship is both broad and deep,4 and there is general agreement about the basic contributing factors: Regional Sources of Entrepreneurs and Ideas Technology-intensive universities, federal research laborato- ries, and nonprofit research institutes. Technology-intensive activities of existing larger corpora- tions. Factors Affecting the Start-ups in a Region Availability of cheap and functional space. Quality of relationships between start-ups and techndlogy- intensive institutions. 4The literature on regional development and technology addresses two major questions: (1) what makes a region a particularly successful locus for high-tech start-ups? and (b) what technology-oriented regional development activities are effective at "modernization," or the diffusion of new technology and good prac- tices to existing firms? The question about high-tech start-ups has been recently addressed in a book by AnneLee Saxenian, Regional Advantage: Culture and Com- petition in Silicon Valley and Route 128 (Harvard University Press, 1994) and from different perspectives by Edward Roberts, Entrepreneurs in High Technology: Les- sonsfrom MIT and Beyond (Oxford University Press, 1991) and William Bygrave and leffery A. Timmons, Venture Capital at the Crossroads (Harvard Business School Press, 1992~. The question about modernization is comprehensively addressed (for rural areas, at least) by Stuart Rosenfeld, Competitive Manufacturing: New Strat- egiesfor Regional Development (Center for Urban Policy Research/Rutgers Univer- sity, 1992~. While the two issues are often treated separately, the two economic activities are obviously closely related. This is illustrated by the policy-oriented publications that blend approaches to both activities, for example, Christopher Coburn, editor, Partnerships: A Compendium of State and Federal Cooperative Tech- nology Programs (Battelle Memorial Institute, 1995) and Carnegie Commission on Science, Technology, and Government, Science, Technology and the States in America's Third Century (Carnegie Commission, 1992~.

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OPPORTUNITIES FOR Sail TECHNOLOGY-ORIENTED COMPANIES 53 Quality, availability, and entrepreneurial orientation of the technical workforce. Quality and experience of support professionals (lawyers, accountants, worId-cIass technical and business consultants). Availability of a venture capital network that acts to winnow start-ups, fund companies, and reduce the risk of innovation by providing information and guidance to funded companies. The entrepreneurial culture and resources created by a suffi- cient density of technolLogy-basecl start-ups in a region. Quality of life available to entrepreneurs, including resources for families such as good primary and secondary schools. Factors Affecting the Ability of a Company to Grow in a Region Transportation infrastructure. Availability of long-term equity investors and willingness and experience of banks to lend to growing technology-based com- panies. Quality, availability, and entrepreneurial orientation of the technical management workforce. Labor costs, energy costs, unionization and a host of tradi O ~ , _ _ _ _ tional "industrial location" criteria such as the cost of housing. Furthermore, there is increasing awareness of both the predict- able anc! unpredictable dynamic characteristics of regional, high- tech economic growth. Predictably, many of the resources that a region needs develop simultaneously, and success breeds success. For example: Much regional investment capital for an industry comes from individuals who live in the region and succeeded in a related in- clustry a few successful high-tech companies will help create lo- cat sources of finance. The willingness of individuals (including university faculty and stuclents) to take the risks of starting a new company in the region will be profoundly affected by the visible successes (or lack thereof) of similar ventures over the course of the last couple of decades. The local support professionals (especially lawyers and ac- countants) will have the necessary expertise in high-tech start-ups

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54 RISK AND INNOVATION only if there are enough high-tech start-ups to justify the develop- ment of such expertise. As a company grows out of an inventor's garage, the ability to attract management talent to the still risky venture depends somewhat on the local economy for such talent. That is, if the venture fails, is there another job of comparable quality likely to be available? The system is also unpredictable or, perhaps, accident prone. Because of the predictable synergies, a small, unpredictable event the decision of a single founder to move a new business out of a region for personal reasons, for example-can have a profound impact on the long-term development of the region. What if Will- iam Hewlett and David Packard tract decided 40 years ago to move their fledgling company to Ann Arbor, Michigan, or PortIancl, Or- egon, in search of lower labor rates? What would Silicon Valley look like today without the business "children" of the Hewlett- Packard Company and the technical and management infrastruc- ture that is continually re-created by the ongoing presence of this and other such companies? What if William Shockley had been a better businessman and founded a stable company and not one that, through its dissolution, created a pattern of spin-outs and start-ups that created the semiconductor industry in the United States? For all its sunshine and the presence of Stanford Univer- sity, the Santa Clara Valley still depended on some happy acci- clents for its success and entrepreneurial character. In summary, the vigor of entrepreneurial activity is deter- mined in large measure by local and regional characteristics: sources of people and ideas, such as research universities and large corporate labs; supportive infrastructure, such as incuba- tors, seed capital, entrepreneurial networks, and advisory ser- vices; and resources for company formation and growth, such as a strong technical and managerial workforce. SUMMARY AND CONCLUSIONS The premise of this chapter is that certain technological busi- ness opportunities can best be exploited by small technically ori- ented companies. The changing topography of a complex economy, such as the U.S. economy, will include market opportu

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OPPORTUNITIES FOR SMALL TECHNOLOGY-ORIENTED COMPANIES 55 nities that ciraw technical entrepreneurs. In particular, technical entrepreneurship thrives in fragmented, technically dynamic, and rapidly growing markets with low barriers to entry. Additionally, though the catch phrase of the 199Os may well be "global" economy, it is often local or regional characteristics and resources that determine the number and success of small high-tech ven- tures. Some opportunities for small companies are the product of single events an unusual technical breakthrough or a policy change that dramatically alters the business landscape. More often such opportunities emerge from a set of interrelated factors that determine or circumscribe the opportunity set for small technically oriented companies irrespective of their internal motivations or capabilities. These factors include primarily (a) market and tech- nological characteristics that determine the shape of individual venture opportunities and the nature of business and technological risk, and (by the existence and action of larger companies as suppli- ers, buyers, and competitors.