(Article) Woolthuis, R. K., Lankhuizen, M., & Gilsing, V. (2005). A system failure framework for innovation policy design. Technovation, 25(6), 609-619.
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A system failure framework for innovation policy design
The first key insight the article highlights is that innovation needs a specific policy framework and highlights the benefits of a System of Innovation (SI) approach compared to the traditional market failure approach. Interactions between actors are crucial to innovation to happen and succeed, but the traditional market approach does not take them into account. By identifying them, the SI approach allows to justify and identify where public intervention may be necessary and for which actors. A second key insight is that a clear distinction between players and rules’ definitions needs to be made to clarify the SI-approach and its ecosystem. It is in this second category ‘rules’ that most system failures occur as regimes in which firms struggle to interact are real systemic failures, while concerning the actors’ side, it is about missing actors rather than systemic failure. The third key insight concerns the categorization of four different types of failures. This categorization aims to provide a detailed description of the causes, which allows to analyze the bottlenecks are to design policy measures accordingly.
The first implication for managers is that they should use the SI-policy framework. The traditional market failure approach doesn’t provide a comprehensive method as it doesn’t consider the interactions between actors and institutions. The SI-policy framework provides a clear distinction between system failures and actors, which should allow managers to analyze policy actions, to evaluate and justify the success of those measures. The second implication is that managers should be able to identify each of the four types of failure. Each of them involves a different part of a company’s business and the different issues at stake. It will help to put the priorities in the right place. The third implication is that managers should identify and mobilize the right actors. Systemic failures are highly complicated combinations that affect different players across various domain. The framework should allow managers to identify the right combination of actors, to mobilize them together and to visualize where bottleneck occur.
Concerning the limitations, we identified three situations where the key insights or implications identified would not apply. The first one is because using a failure framework can be in contradiction with the firm’s corporate culture of innovation. Indeed, many companies as Google reward the failures of their employees. The second limitation is about the pressure a firm can be under for example when it is in a race or when the environment is too uncertain; the demand, IP and actors. For example, the first Belgian start-up failed to effectively launch the system for vaccine registration, partially because the company was under a lot of pressure. The last implication is about the identification of the right actors to solve the bottlenecks. Globalization or international matters make it hard for managers to identify and involve the relevant actors. The international feature of the pandemic makes it hard to identify actors, the stakes were also high with a lot of conflict of interests and change sides which complicated it.
We chose three different additional sources. The first one offers a deeper view on transition failures and on the different biases. It also exposes a new type of failure, the failure to learn and offers a more optimistic and complete perspective of failures. The second is useful as it points out the national and supra-national dimensions of innovation and the turn of innovation policy from fixing market failure and system failure to solving societal challenges and explores market and transformational failures. For the last source, the TedTalk offers the opportunity to link what has been learned in Knowledge management classes and enterprises’ failures. It explores the differences between failures due to enterprises’ focus strategies (exploiters, explorers, …) and offers useful tips.
References
Haanaes, K. (n.d.). Two reasons companies fail—And how to avoid them. Retrieved 29 April 2021,
from https://www.ted.com/talks/knuthaanaestworeasonscompaniesfailandhowtoavoid them
Turnheim, B., & Sovacool, B. K. (2020). Exploring the role of failure in socio-technical transitions research. Environmental Innovation and Societal Transitions, 37, 267–289. https://doi.org/10.1016/j.eist.2020.09.005
Wanzenböck, I., & Frenken, K. (2020). The subsidiarity principle in innovation policy for societal challenges. Global Transitions, 2, 51–59. https://doi.org/10.1016/j.glt.2020.02.002
Woolthuis, R. K., Lankhuizen, M., & Gilsing, V. (2005). A system failure framework for innovation policy design. Technovation, 25(6), 609-619.
Autio, E., Kenney, M., Mustar, P., Siegel, D., & Wright, M. (2014). Entrepreneurial innovation: The importance of context. Research Policy, 43(7), 1097-1108.
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This article is intended to help answer the following question : “How do contexts regulate the process of entrepreneurial innovation?”. The first key point of the article related to this question is that it is necessary to distinguish 6 different types of contexts when considering contextual influences on entrepreneurial innovation : the industry and technological context, the organizational context, the institutional and policy context, the social context, the temporal context and the spatial context. The second key point is about realizing how the different contexts interact with each other and thereby influence entrepreneurial innovation. The authors have also identified the characteristics of entrepreneurial behavior which basically consists in mobilizing and coordinating resources and capabilities of the environment to create the intended organization. The type of entrepreneurial innovation chosen may depend on the degree of experience of the entrepreneur as well as the ecosystem and resources needed for that particular innovation. The last key insight focuses on the important role that policy makers have on entrepreneurial innovation. On the one hand, they can act in a general way through the development of entrepreneurship education or by facilitating the registration of new businesses. On the other hand, they can act in a targeted way by helping specific populations such as women, students, immigrants, etc. In addition, policy makers need to be aware that a “context mix” requires a “policy mix”.
The first implication of this paper is that managers should carefully consider the interrelation between the 6 types of contexts to better foster innovation in their organization. Assessing separately the influence of each context on entrepreneurial innovation is not sufficient as there are interaction between them. A good approach to link them all together is to use a narrative perspective that considers the relational, temporal and performative facets of entrepreneurial innovation. Secondly, the manager should primarily take into account the temporal context when doing entrepreneurial innovation because it has a strong influence on the other contexts. As a matter of fact, it is not uncommon to see an innovation that is great but for which the manager never succeeds in getting it off the ground or in convincing people. Thirdly, a practical advice for managers is to know what their source of knowledge within the organizational context is. It has been observed that the different organizational contexts empower entrepreneurs with different types of knowledge. For instance, academic and user-founded compagnies are more likely introduce product innovation, while employee-founded firms would introduce both product and process innovations. The last implication is that managers should work hand in hand with policy makers to identify their needs and how best to meet them. This teamwork can be done at the global, national, regional or local level.
Regarding the limitations of this article, we will mention two of them. Firstly, managers and policy makers do not always have a particular advantage in working together because of their diverging interests in the innovation. Some politicians could be influenced by lobbies, which could hinder the development of certain innovations. For example, we think about the oil lobby with the democratization of electric vehicles. Finally, it is said in the paper that contexts have an influence on innovation, but the opposite is also true. For instance, if a country creates a new weapon that surpasses all others already known, this could change the spatial context in place by giving this country a non-negligible bargaining power.
Further references
Audretsch, D.B., Cunningham, J.A., Kuratko, D.F., Lehmann, E. E., & Menter, M. (2019) Entrepreneurial ecosystems: Economic, technological, and societal impacts. The Journal of Technology Transfer, 44(2), 313–325.
Guerrero, M., & Urbano, D. (2019). Effectiveness of technology transfer policies and legislation in fostering entrepreneurial innovations across continents: An overview. The Journal of Technology Transfer, 44(5), 1347–1366.
Show lessGuzman, J., & Stern, S. (2015). Where is silicon valley?. Science, 347(6222), 606-609.
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Key points
The question raised by the article is about the roles and patterns of entrepreneurship. The article offers tools for estimating entrepreneurial quality and mapping entrepreneurship.
The article focuses on the quality rather than the quantity. To achieve its goal, it is based on a sample of for-profit business registration in California between 2001 and 2011. Their estimations are based on 3 characteristics: the firm name (short name or long name, eponymous or not), how it is registered (corporation or noncorporation) and finally, whether it establishes control over IP rights during the year following the registration. Those characteristics have a real impact on the potential growth of firms. Indeed, firms with shorter and noneponymous name, registered as corporations and that have trademarks and patents are more likely to have a higher growth than others. The entrepreneurship quality is defined in the article as “the probability of achieving meaningful growth outcome as a function of start-up characteristics”. The algorithm developed by searchers do not take care of the location characteristics aims at characterizing independently entrepreneurship quality and location. This algorithm allows then to identify which areas and even which companies are more likely to record a meaningful growth now and in the coming years.
To map entrepreneurship, the study first assesses the entrepreneurial quality of the firms of the sample and sort them by ZIP code to estimate an average quality of firms according to their location. They find out that the locations with a larger average estimated entrepreneurial quality are cities (here, San Fransisco) but it does not mean that the location influence the quality as the example of Los Angeles given in the article shows that the level of entrepreneurial quality around the city was lower. Moreover, when firms are located in the surrounding of research centres such as universities and laboratories, the average estimated quality calculated is significantly higher (around Berkley, UCLA or Stanford which is in the centre of the Silicon Valley).
Implications
Although this new method is able to estimate the likelihood of successful growth of a company depending on its type and has shown the existence of several characteristics of start-ups influencing the probability of growth, these conclusions can’t be directly applied on the companies. Indeed, these characteristics common to high-growth companies are not guidelines for maximising the chances of a higher growth for the companies. Even if firms with eponymous name are 70% less likely to grow than other firms or firms with smaller names are 50% more likely to grow, it is not by choosing a short and noneponymous name for your company that you will suddenly be successful and record astonishing growth. The implications of this research, of this analysis of the entrepreneurship quality in California are not really applicable to the managers of the start-ups in order to increase the likelihood of growth of their firm.
The results of this study are however more interesting for the policy makers and regional stakeholders. Indeed, it is very interesting for the local authorities to be able to cartography the entrepreneurial quality of their territory and so identify which places are the most performing now and in the coming years, and which types of start-ups are likely to record the best growth. Regions aiming to manage and increase entrepreneurship need to have a clear overview of the situation on this area, they need to understand the entrepreneurial dynamics of their territory. This tool provides therefore the policy makers with the ability to track and assess their efforts to improve their entrepreneurial ecosystems. With this cartography, they can better manage their territory and they know now where to put their efforts, where to invest and where to provide support. This tool could be used on other regions than California in order to identify the actual but also future best entrepreneurial quality areas and start-ups and offer them the support they need to develop themselves and maximise their potential. We can for instance think of the Walloon Region and its large delay compared to Flanders in terms of entrepreneurship, either in quantity or in quality. This cartography could then help Wallonia to better identify, to better spot the most promising areas in terms of entrepreneurship quality and to bring them the support they need, to make them more attractive and more performing.
This study has also shown the important role of research institutions in the development of entrepreneurial quality. Indeed, there is a higher concentration of successful companies in areas around the research institutions such as universities and labs, and with good reason, these areas represent the places where the knowledge is with numerous researchers and future talents. It is therefore a strategic place for firms, allowing them to benefit from the proximity of these knowledge sources thanks to collaborations and partnerships with these institutions or by hiring the freshly graduated students. With this new information, policy makers and regional stakeholders could therefore foster the installation of new companies around these research centres by for instance building new facilities, inaugurate scientific parks nearby or create incubators, … They should maximise the opportunities of interactions between universities and companies. We can for instance talk about the city of Louvain-la-Neuve that has succeed to create a real entrepreneurial ecosystem thanks to its scientific park surrounding the university and gathering more than 200 firms. The city offers the possibility to buy or rent a land or a building in order to establish its company or to use incubators at proximity of the UCL. The policy makers and local authorities could also soften the structures and constraints in these strategic areas in order to allow both companies and universities to develop themselves. The creation of this kind of entrepreneurial ecosystems around research centres allowing to attract companies, connect them with these research institutions and make them grow is beneficial for both the start-ups, the universities and also the region.
Limitations
The relation between entrepreneurial quality and scientific research activity. Indeed, the need for intellectual property depends on the sector. Some companies do not need to invest as much and create as much intellectual property as others in order to reach their objectives as each company has different ones. These objectives also vary strongly from an industry to another. For the Silicon Valley, most companies are in the technology sector so using scientific research as an indicator seems to cause less trouble, but this limit should still be considered and it should be notified to the reader.
The indicators taken for the research are very simple. Indeed, the ones taken into account by the algorithm are all external characteristics of the companies which do not show what happens inside it. A good example is the one that is chosen to assess entrepreneurship quality is the firm name. Even if relations can be found between these two and it can be assessed easily by an outsider, these do not really take much of what happens in the company into account. Also, correlation doesn’t imply causality, if companies with a same type of name tend to have more success, it doesn’t necessarily come from the name itself. And readers could think that it implies it.
The estimates introduced in the article must be balanced. Every sector and industry can be reinvented thanks to the innovative mind of a small group of people. In future work, it would be interesting to define more precisely the conditions needed for achieving positive results that should be considered by policy-makers and stakeholders.
Further refs
– Guzman, J., & Kacperczyk, A. O. (2019). Gender gap in entrepreneurship. Research Policy, 48(7), 1666-1680.
– Fazio, C., Guzman, J., & Stern, S. (2019). The Impact of State-Level R&D Tax Credits on the Quantity and Quality of Entrepreneurship (No. w26099). National Bureau of Economic Research.
– Szerb, L., Lafuente, E., Horváth, K., & Páger, B. (2019). The relevance of quantity and quality entrepreneurship for regional performance: The moderating role of the entrepreneurial ecosystem. Regional Studies, 53(9), 1308-1320.
(Article) Wasserman, N. (2008). The founder’s dilemma. Harvard Business Review, 86(2), 102-109.
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THE FOUNDER’S DILEMMA
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KEY INSIGHTS
Key Insight 1: Most founders won’t be CEO in the long term.
In the long term, most of the founders won’t achieve both success and management control. According to the paper; 50% of founders have to give up on their CEO role only 3 years after their venture was launched. And only a small 25% lead their companies’ IPO.
Key insight 2: Founders might not be the right person to be the CEO.
Founders tend to be passionate, overconfident about prospects and naïve about problems they will face. At the start, these characteristics, may be necessary to get new ventures up. But these emotions later create problems. The dramatic broadening of the skills that the CEO needs at a certain stage stretches most founders’ abilities beyond their limits. Success makes founders less qualified to lead the company.
Key Insight 3: myths about entrepreneurs’ earnings
In reality, entrepreneurs make as much money as if they had been employee, even accounting for the value of equity each person held. If accounting for the higher risk, we can conclude they make less. More precisely, 51% of entrepreneurs made the same money as -or made less than- at least one person who reported to them.
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IMPLICATIONS
Implication 1: Determine the motivation: ‘Rich’ vs ‘King’
A founder has to be honest about his motives for getting into business. Wasserman makes a distinction between founders that wish to be Rich and founders that wish to be Kings. The first category would rather raise the financing needed to capitalize their company appropriately and cede control to investors. Hence, they may lose their CEO position. The second category would want to retain control over the company and board, at the cost of under-resourcing the company. Thus, limiting its growth potential.
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Implication 2: Stay consistent : Launch the business accordingly
KING: Those desiring control should restrict themselves to businesses where they already have the skills and contacts they need or where large amounts of capital aren’t required. RICH: Founders who want to become wealthy should be open to pursuing ideas that require resources. They can make the leap sooner because they won’t mind taking money from investors or depending on executives to manage their ventures.
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Implication 3: Investors: Controlling risks, controlling the board
Investors, to minimize risks, want to take control over the board (and by doing so, have a strong position to decide on the CEOs appoint). Some venture capital firms will require a 50% share early on while others may demand for a lower share at the first stages but, knowing that the company will host other funding stages, will incrementally increase their share in the venture, thus acquiring more control over time and letting the CEO-founder lead the venture for a longer time.
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LIMITATIONS
Limitation 1: Binary thinking
The reality is oversimplified to being King or Rich. For the purpose of interpreting the reality, Wasserman simplifies the motivation of founders to money and control.
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Limitation 2: Defending personal values
We believe an ethical dimension is missing. Some entrepreneurs launched a business wanting them to reflect and respect their personal values. In order to preserve those values inside the company, the CEO-founder may be less tempted to step out of his CEO post.
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Limitation 3: Time span of the transition?
At which moment in time does it become urgent to change the CEO? The paper does not clearly assess how to identify the right moment. On one side it seems important to anticipate the situation (thus dismiss the CEO before problems/lack of skills become flagrant) but at the same time you can not dismiss a CEO without having observed a lack of skills or committed errors.
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FURTHER REFERENCES
Tjan, A. (2011). The Founder’s Dilemma: To Sell or Not to Sell?. Harvard Business Review. Retrieved from https://hbr.org/2011/02/the-founders-dilemma-to-sell-o.
Ning Gao,Bharat A. Jain (2011). Founder CEO management and the long-run investment performance of IPO firms. Journal of Banking & Finance. 35(7),1669-1682.
Show lessKremer, M., & Williams, H. (2010). Incentivizing innovation: Adding to the tool kit. Innovation policy and the economy, 10(1), 1-17
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Today, firms can protect their innovations with intellectual property rights, regulated by institutions. IPR can either hinder innovation or provide incentives for it. This article discusses alternative mechanisms to intellectual property rights to spear innovation.
The first key insight of the article is that R&D can be promoted either through up-front support for R&D inputs or PUSH programs (for example: Patents) or through commitments to reward successful products or PULL incentives (for examples: Prizes, Advance Market Commitments, Medical Innovation Prize Fund). The second key insight is that public policies can play a role in providing incentives for innovation. And finally, incremental experimentation can help to test and refine new mechanisms to encourage R&D to provide incentives for innovation.
This article has three implications. First, managers should implement innovation thesis, to align the innovation with the overall strategy and the goal of the firm. It would help the company to fix his view for the future, his strategic objectives concerning innovation and to fix boundaries for which the company would invest or not in the innovation. Second, managers have to create an innovation framework to implement its innovation thesis. The framework can be summarized into three basic steps which are creating ideas, testing ideas and scaling ideas. The framework shows each phase of each product and therefore help the company to manage its investments and product development practices. Finally, managers have to fix innovation practices, which means that the teams who develop the products have to be aligned with the innovation framework. The principle of innovation practices is that no product can be taken to scale until its business model has been validated.
In terms of limitation, it is important to have clear identification. Indeed, if you wish to incentivise innovation as a policy maker, you must pay attention to the criteria of choice. If you decide to commit in a specific market or a certain prize, the objectives must be clear and defined. Then, the classic problem is: Should you give the reward to someone that will try to make the best use of the prize money or give it to the more innovative idea? The jury’s decision may be biased. Also, you have to pay attention to the transferability of incentives. AMC is stuck in a social and medical environment and are often offered by government or social oriented financial entity (e.g. Melinda and Bill Gates foundation). Their scope is limited. Because if you look at the competition a company that signs an AMC is supposed to offer a product that is better than what is already in the market. It means that a government could offer an opportunity that would disrupt the competition on the drug market. Finally, incremental experimentation is one way to improve the mechanism, but when you are dealing with an innovation ecosystem, there are outside actors in the loop that you have to convince. Those people represent their company, and for them it would be hard to accept a mechanism that is not “mature” yet. In theory, it can be rational to adopt that, but in practice you want to lower risks for your belongings.
Further references:
1) Moser, P. (2013). Patents and Innovation: Evidence from Economic History. Journal Economic Perspectives, 27(1), 23–44. This article questions the existence of patent laws and their impact on innovation.
2) Williams, H. L. (2013). Intellectual Property Rights and Innovation: Evidence from the Human Genome. Journal of Political Economy, 121(1), 1–27. This article questions the IPR on existing technologies and if that hinder subsequent innovation in the medical field.
3) Grootendorst, P., Hollis, A., Levine, D. K., Pogge, T., & Edwards, A. M. (2011). New approaches to rewarding pharmaceutical innovation. Canadian Medical Association Journal, 183(6), 681–685. This article is about the pharmaceutical industry and raises questions about the effectiveness of patents about innovation activity.
Molina‐Morales, F. X., & Martínez‐Fernández, M. T. (2009). Too much love in the neighborhood can hurt: How an excess of intensity and trust in relationships may produce negative effects on firms. Strategic Management Journal, 30(9), 1013-1023.
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The authors aim to provide a better understanding of the effect of social networks on innovation through the analysis of territorial agglomerations of firms.
They attempt to propose a particular shape of the relationships between representative variables of the social capital and innovation within the context of an industrial cluster.
They have used social interactions and trust as indicators of social capital, and they have analyzed their impact on the innovation of firms that belong to a territorial cluster.
They argue that beyond a certain point, further increases in the intensity of social capital produce no additional benefits, or even decrease returns in terms of innovation and value creation for the firms involved.
In the literature, we find several articles that show the positive effect of social capital on the company’s performance and innovation. However, social capital can become a resource with paradoxical effects.
On one hand, people in a firm need to spend time cultivating relationships by frequent visits and meetings with other firms, and processing their incoming information from direct contacts.These costs can become high and reduce the number of interactions with others. Indeed, these costs may result in neglecting potentially interesting opportunities, in favor of maintaining old relationships. This can lead to too little diversity in economic relations.
Social interaction relations, often established for other purposes, constitute information channels that reduce the amount of time and investment required to gather information. It also facilitates the transfer of “difficult-to-transfer” information like tacit knowledge by intensive and repeated interactions.
In the case of trust, it has been found to be important to innovation since it lessens the need for rigid control systems. Enhancing creative thinking and allowing people to devote additional time to beneficial actions and endeavors are just a sample of the benefits of trust within and between organizations. It also facilitates the transfer of high quality information as well as the exchange of confidential information.
On the other hand, several studies show that strong links can lock in routines and reduce the innovative capabilities of businesses.
Excessive trust can be a factor that blocks access to various external sources of resources. Indeed, the comfort provided by the existence of privileged partners leads to neglecting or ignoring new opportunities.
Moreover, we can add that trust needs time to establish itself and it’s difficult to determine what the right balance is. Indeed, it is not easy to determine when we are in excess. The saturation stage is sometimes subtle to distinguish.
In conclusion, the purpose of the study is to better understand the effects of social networks on innovation within companies. The curvilinear relation may be the reason for the limitations of the use of social networks. This indicates the actions that companies must take. The clusters are traps in their own network. The success of before can be the threat of today. Thanks to the study, we have observed that some companies that invest more are less innovative.
Further reference
Suire R., Vicente J. “Théorie économique des clusters et management des réseaux d’entreprises innovantes” Revue française de gestion (2008), n°184, 119-136.
Birley S. “The role of networks in the entrepreneurial process” Journal of business venturing, volume 1, 2002,107-117.
[video] BusinessTown (2017). 10 Myths About Entrepreneurs. Retrieved from https://www.youtube.com/watch?v=6TJK-Ddx-xU.
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Those myths are false.
1st myth :: “Entrepreneurs are high risk takers”.
(i) They weigh the risk and the reward and they calculate things : they accept risk is part of the game.
(ii) They try to throw things in their favor. To create business plans, strategies and think about their marketing.
(iii) They think, but try also to find safe ways to experiment. They try things as in real situation and test them in small quantities.
The main implication is that there are two major ways to reduce risks. To make business models, and to focus on the core-questions you need to answer in advance to increase the chance to be a successful entrepreneur and prototyping : entrepreneurs should (test their idea on a small scale before the launch of the project)
Limitation : by prototyping, you need all the team to agree on the strategy. This may take a lot of time, and you may miss an opportunity
Second myth: “Entrepreneurs are born” ⇒ They are made.
Third myth: “Entrepreneurs are mainly motivated to get rich” ⇒ . They also have a need for archievement, proactivity, opportunity-oriented.
Fourth myth: “Entrepreneurs give little attention to their personal lives” ⇒ Entrepreneurs work hard, but still usually have a good personal life.
Fifth myth: “Entrepreneurs are often high tech wizards” → most of the people making successful businesses have not anything to do with technology.
6th myth: “Entrepreneurs are loners and introvert” ⇒ But there are also plenty of entrepreneurs which are outgoing and extrovert
Implication : There is no right profile to be an entrepreneurs.
Limitation : some characteristic nevertheless best fits to be entrepreneurs in specific areas.
7th myth: “Entrepreneurs are job hoppers” ⇒ most entrepreneurs have a steady job history
8th myth: “Entrepreneurs financed their business venture capital” → People usually use personal savings, you know friend and family.
9th myth : “Entrepreneurs are often ruthless and deceptive” → Ruthless and deceptive entrepreneurs will have difficulties to keep “talented” employees.
Implication for managers is that they should take into account the HR issues (and for example implement holacracy
Limitation is that it could be very difficult to implement such management style for companies which have already a significant size with change management issues.
10th myth :”Entrepreneurs have limited dedication” → you have to be really dedicated.When managers get bored, they tend to drift in directions that don’t make any sense.
APPENDIX : FURTHER REFERENCES
Marcati, A., Guido, G., & Peluso, A. M. (2008). The role of SME entrepreneurs’ innovativeness and personality in the adoption of innovations. Research Policy, 37(9), 1579-1590.
→ Theoretical analysis of personal traits influencing innovation, linked with the Five Factor Model
Carland, J. W., Hoy, F., Boulton, W. R., & Carland, J. A. C. (2007). Differentiating entrepreneurs from small business owners: A conceptualization. In Entrepreneurship (pp. 73-81). Springer, Berlin, Heidelberg.
→ Highlights the differences between entrepreneurs and small business owners, which is not clear in the video
Delmar, F., & Davidsson, P. (2000). Where do they come from? Prevalence and characteristics of nascent entrepreneurs. Entrepreneurship & regional development, 12(1), 1-23.
→ Results : good understanding of the characteristics associated with men, but limited ability to predict nascent entrepreneur status for women.
Shane, S.A. (2009) Why encouraging more people to become entrepreneurs is bad public policy? Small Bus Econ (2009) 33:141–149
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Authorities often think that creating more start-up companies will transform depressed economic regions, generate innovation, and create jobs. This belief is limited because the average start-up is not innovative, creates few jobs, and generates little wealth. Indeed, the vast majority of people founding new businesses are founding businesses that have more in common with self- employment instead of people building companies that grow, generating both jobs and wealth.
Currently, governments help entrepreneurs with loans, subsidies, regulatory exemptions, and other advantages if they start businesses. The issue is that they do it for any kind of business. Some people tell that it might seem illogical to go against massive entrepreneurship. After all, companies like Google in Internet search and Genentech in biotechnology, are examples of start-ups that had a huge success.
Looking at the relationship between firm productivity and firm age, we can show that firm productivity increases with firm age. But it’s not sure that the typical start-up makes up for its poor productivity when it gets older because typical U.S. start-up is dead in five years. If we look at the correlations between rates of new firm formation and economic growth over the medium-to-long term, we see that firm formation declines as economic growth increases. So as we see, there are some contradictions.
There is one big issue: When governments use their money to encourage the creation of new businesses, they stimulate more people to start new companies mainly in industries with lower barriers to entry and high competition and rates of failure. That’s because the typical entrepreneur has trouble picking the right industries and often chooses the ones that are the most accessible, not the ones that are best for start-up. (Johnson 2004) It is like this because unemployed people are more likely to start businesses than people who have jobs, as the latter have more to loose.
We also have to have in mind the job creation myth behind start-up creation: According to Acs and Armington (2004), companies with at least one employee that are less than two years old provide a total of 1 % of all employment in the US. And concerning the job quality: Wagner (1997) showed that jobs in new firms pay less, offer worse benefits and less job security than jobs in existing firms.
The solutions proposed by the article are the following: First stop subsidizing the formation of the typical start-up and focus on a reduced amount of businesses with growth potential and secondly, looking at the capital of the founder and his motivations, the industries in which companies are founded, their business ideas and strategies, and their legal forms and capital structure to predict if the start-up might have good chances to be successful.
The implications for policy makers could be the following: First, reduce the incentives that we give marginal entrepreneurs to start businesses by reducing the transfer payments, loans, subsidies, regulatory exemptions, and tax benefits that encourage more and more people to start businesses, and they should also reallocate resources to programs that support high growth companies. Moreover, governments should organise contests to be able to target start-ups that are promising, instead of funding start-ups in general. They should also give financial incentives for R&D in order to foster companies planning to grow. Another implication could be to hire former entrepreneurs to become business angels. Furthermore, as we seen during the course, it isn’t only about financial help, it can also be coaching or logistic help. And finally, firms that receive financial support from VC’s get better results, so policies should follow this trend in order to recognize in which type of sectors to subsidize.
Of course, some limitations have been found: For instance, reducing the number of start-ups that are funded could lead to many people staying unemployed. For some people, being self-employed is the only solution. Even if the start-up they launch won’t create many new jobs, at least those people are able to work in a setting that corresponds to them. Moreover, there is a weak evidence for the assumed link between technology-based firms or R&D intensity and high growth firms. We can also highlight the fact that most high growth firms are often part of another company (pre-incubation) and that politicians who would reduce subsidies to any firm creation will get a rather bad image, meaning not everyone can benefit from the fund and that not everyone is capable of building a successful start up. Thus, they may have no political incentive to do so.
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Nelson, R. R. (2008). What enables rapid economic progress: What are the needed institutions?. Research Policy, 37(1), 1-11.
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While economists recognize the importance of institutions in economic growth, they often neglect the role of technological progress. To truly understand economic progress, one must understand how institutions and institutional change are linked to technological change. Social technologies are social practices that facilitate coordination and interaction, while physical technologies are material objects or systems used to produce goods or services. Institutions refer to the factors and forces that shape and maintain social technologies and ensure effective coordination between them. Economic growth involves the co-evolution of physical and social technologies, as well as the institutions necessary for their functioning and progress. Institutional change is much more difficult to direct and control than technological change, and existing institutions can often hinder productivity and progress in the economy. Therefore, institutions must be connected to technological advancement to better understand their role in economic growth.
Now let’s talk about managerial Implications. On the one hand, physical technologies such as machines or infrastructures allow to be more productive, to produce more, to reduce costs which can improve competitiveness and profitability.On the other hand, social technologies such as knowledge and skills enable employees to develop and adopt new technologies, products, and services and thus create new industries and job opportunities.Overall, it stimulates economic growth. According to the third key idea of the paper, institutions need to be connected to technological advancement to better understand their role in economic growth. Firstly, it is necessary to build a network and partnerships between institutions or between institutions and organisations. This allows knowledge, expertise, and resources to be shared and institutions to be aware of technological trends and opportunities. Secondly, by providing funds for research and development, technology transfer, and innovation activities, institutions will be engaged, feel more involved and follow closely the activities of companies, which will allow them to be closer to technological advancements.
About limitations sometimes it may be difficult to establish and maintain institutions in practice, particularly in countries with weak governance and institutions. Secondly, Institutions may be resistant to change, which could limit their ability to leverage technology for economic growth. Small businesses or non-profit organizations may not have the financial resources or skilled personnel to invest in the latest technology (data analysis tools) even though such tools could help them better understand their target audience and improve their fundraising efforts. Finally, Government agencies responsible for regulating emerging technologies may struggle to keep up with the latest developments. Furthermore, Institutions with outdated infrastructure may struggle to incorporate technology into their operations.
The first article highlights a significant link between the institutional context and entrepreneurship. Institutions can provide the social technologies and frameworks that enable or constrain entrepreneurial activity. Understanding the institutional context of entrepreneurship is essential for studying the development and diffusion of physical technologies and overall economic progress. This underscores the importance of policymakers creating a supportive environment that encourages collaboration, trust-building, and the development of well-defined governance structures. By exploring the relationship between social technologies, institutions, and entrepreneurship, researchers and policymakers can gain valuable insights into how to foster sustainable economic development. Ultimately, entrepreneurship is not just about making money, but also about collective action and collaboration, which can help promote economic progress and improve the lives of people around the world. The second article reviews the relationship between institutions, entrepreneurship, and economic growth. Good institutions, such as property rights facilitate entrepreneurship, innovation, and investment, which are essential drivers of economic growth. Entrepreneurship and economic growth are mutually reinforcing Entrepreneurship creates new firms, products, and markets, which lead to job creation and productivity growth. Economic growth, in turn, generates new opportunities for entrepreneurship and innovation. The effectiveness of institutions and the impact of entrepreneurship on economic growth depend on the social, cultural, and economic context in which they operate. Therefore, policymakers should tailor their policies to the specific of their region.
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Letaifa, S. B., & Goglio-Primard, K. (2016). How does institutional context shape entrepreneurship conceptualizations ? Journal of Business Research, 69(11), 5128 5134. https://doi.org/10.1016/j.jbusres.2016.04.092
Urbano, D., Aparicio, S., & Audretsch, D. B. (2019). Twenty-five years of research on institutions, entrepreneurship, and economic growth : what has been learned ? Small Business Economics, 53(1), 21 49. https://doi.org/10.1007/s11187-018-0038-0