Risk and Innovation The Role and Importance of Small, High-Tech Companies in the U.S. Economy (1995) / Chapter Skim
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4. OPPORTUNITIES FOR SMALL TECHNOLOGY-ORIENTED COMPANIES
4. OPPORTUNITIES FOR SMALL TECHNOLOGY-ORIENTED COMPANIES
Pages 40-55
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From page 40... ...
· Fragmented, technically dynamic, and rapidly growing mar · Low barriers to entry. · An adequate regional and national technical and business infrastructure.
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From page 41... ...
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.
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From page 42... ...
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.
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From page 43... ...
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 company founders are often themselves intense users of the innovations.
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From page 44... ...
who are constantly developing insights into better ways to do things as a function of their daily clinical experience. The business and technical infrastructure for most small implantable and surgical medical devices is clustered primarily around the nation's teaching hospitals and is supported by substantial federal research funds.
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From page 45... ...
Small Business Administration loan programs, certain bank regulatory changes, and proposals 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 development, however, small technologically oriented companies depend heavily on equity financing for development of new products and services and for market development.
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From page 46... ...
For example, venture capital financing 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 substantially because of changes in device approval processes.
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From page 47... ...
, 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 venture 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 technically dynamic markets.
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From page 48... ...
The industries addressed in this study illustrate how the characteristics of a product or service market are key determinants of small business technological opportunity; the demands of successfu} commercial innovation in different markets differ, leading 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.
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From page 49... ...
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 companies are relatively low and opportunities tend to be small or highly fragmented.
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From page 50... ...
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 better than larger companies at developing initial business opportunities in new technologies or applications that demand high creative content, such as software development or the design of a new medical device or sporting goods.
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From page 51... ...
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 companiesexcept in unusual circumstances do little research.3 The importance of spin-outs of technology, personnel, and business opportunities from large company expenditures and efforts at research and development should not be underestimated as a source of opportunity for small companies.
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From page 52... ...
and William Bygrave and leffery A Timmons, Venture Capital at the Crossroads (Harvard Business School Press, 1992~.
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From page 53... ...
. · 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.
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From page 54... ...
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 William Hewlett and David Packard tract decided 40 years ago to move their fledgling company to Ann Arbor, Michigan, or PortIancl, Oregon, in search of lower labor rates?
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From page 55... ...
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)
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