TECHNOLOGYBASEDFIRMSINSCOTLANDAReportforScottishEnterpriseColinMason*andRossBrown***ProfessorofEntrepreneurship,HunterCentreforEntrepreneurship,StrathclydeBusinessSchool,UniversityofStrathclyde,GlasgowG11XH.colin.mason@strath.ac.uk

**DrRossBrown,Strategy&Economics,ScottishEnterprise,AtriumCourt,50WaterlooStreetGlasgowG26HQ.ross.brown@scotent.co.ukJune2012

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ACKNOWLEDGEMENTSTheauthorswouldliketothankScottishEnterpriseforfundingtheresearch.TheywouldalsoliketothankMichaelAnyadikeDanesandMarkHartforconductingtheanalysisoftheONSdatareportedinsection4.Theauthorswishtowarmlythankallthecompanieswhokindlyparticipatedintheresearch,withouttheirgenerousinputandcooperationtheworkwouldnothavebeenpossible.TheywouldalsoliketothankthefollowingpeopleinScottishEnterprisefortheirhelpfulcommentsandinputintovariousstagesoftheresearch,especiallyMichaelCannon,NeilFrancis,SuzanneMawson,GerryMcCarron,KennyRichmondandGailRogers.Theviewsinthispaperarethoseoftheauthorsalonehowever.Theusualdisclaimerapplies.

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TABLEOFCONTENTS ExecutiveSummary

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1 Introduction

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2 Defininghightechnologyfirms

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3 Technologybasedhighgrowthfirms:aliteraturereview

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4 AquantitativeanalysisofhighgrowthhightechnologyfirmsinScotland

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5 AnanalysisoftheFAMEdatabase

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6 Interviewfindings

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7 Conclusionandimplications

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References

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Appendices 90

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EXECUTVESUMMARY1.Introduction1.1. Thisstudyexamines thenatureofgrowthof technologybased firms (TBFs) inScotland.

This studywas commissioned to provide amore detailed insight into Scottish TBFs ingeneralandhighgrowthTBFsinparticular.

1.2. A commonassumptionamongstpolicymakershasbeen thathighgrowth firms (HGFs)aredominatedbyTBFs.Indeed,therationalefortheconsiderablesumsofmoneyspenton innovation support in itsvarious forms ispremisedon theassumption that thiswilllead to the emergence of HGFs. However, this assumption is challenged both by ourrecentstudyofHGFs inScotlandundertakenonbehalfofScottishEnterpriseandbythewider literature.The reality is that the representationof technologybased firms in thepopulationofHGFsisbroadlyonaparwiththeirproportionintheeconomyandsomestudiessuggestthattheymayevenbeunderrepresented.Thisclearlybegsthequestionwhether this is the case in the Scottish context andwhat is theperformanceof thesefirmsinScotland?

2. LiteratureReview2.1. Theliteratureonhighgrowthtechnologyfirmsissignificantlysmallerthanthatonhigh

growthfirmsingeneral.However,itisclearthattechnologybasedfirmsaccountforaminorityofhighgrowthfirmsandcertainlynomorethantheiroverallshareofeconomicactivity.Indeed,themajorityofhightechfirmsdonotappeartoseekrapidgrowthalthoughinthisrespecttheyarenodifferenttofirmsinothersectors.Thisunderminesbarrierstogrowthargumentsoftenadvancedbypolicymakerswhentryingtopromotethesetypesoffirmswhichsuggeststhatmanyfirmswillgrowwhenthesebarriersareovercome.Keybarrierstogrowthappeartobethreefold:(i)overemphasisonR&Dledtechnologyandlackofcommercialorientation;(ii)thefinancialstrainsassociatedwithproductlifecycles;and(iii)thechallengesofcrossingthechasmfromthespecialistearlyadoptermarkettothemassmarket.

2.2. Thereisnoconsensusintheliteratureonthecharacteristicsofhighgrowth,hightech

firms.However,factorswhichwouldappeartobeatleastlooselyassociatedwithhighgrowthhightechfirmsareasfollows:(i)highlevelsofhumancapitalamongstthefoundingentrepreneurs,industryrelevantexperience,strongopportunitydrivenmotivation,highlevelsofentrepreneurialorientationandambition;(ii)alargevariedseniormanagementteam,venturecapitalbackingandastrongexportorientation;(iii)firmswhichhaveproductasservicebusinessmodels,offeringsolutionsratherthansingleproducts,withastrongsalesandmarketingfocusandstrongcustomerenduserengagement.

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2.3 ThereappeartobetwokeyfactorswhicharecommoninsuccessfulTBFs:first,founders

ofhightechfirmshavespecialisttechnicalandcommercialknowledgewhichtheyhavedevelopedasemployees,hencewillemergefromexistingtechnologyorganisations;second,thefounderswilltypicallylocatetheirbusinessesinlocationswheretheyalreadylivingandworking.Incombinationthesefeatures,inturn,meanthathighgrowth,hightechfirmswilltendtobemoregeographicallyconcentratedtoamuchgreaterextentthanisthecasewithhighgrowthfirmsingeneral(MasonandBrown,2010).

3.Definitions3.1.Thereisnoidealmethodfordefininghightechfirms.Despiteitslimitations,thisstudy

defineshightechfirmsusinganindustryclassification.ThedefinitionadoptedincludesbothhightechmanufacturingandhightechservicesandisbasedonStandardIndustrialClassification(SIC)categories.Thiscombinationofrigour,derivedbyusingmeasurablecriteria,plusanelementofsubjectivity,hasconsiderableappeal.Italsoallowsforthedefinitiontobemodifiedtotakeaccountoflocalcircumstancesintermsofindustrialstructure.ForourScottishdefinition,itisappropriatetoincludetheenergysectorinthedefinitionofhightechnologyindustries.AfulllistoftheSICcodesusedcanbefoundinTable2.1onpage13.

4.AnalysisofONSdata

4.1. ThefirststageoftheresearchassessedONSdatawhichisheldbytheBusinessStructures

Database (BSD). Thedata from theONS shouldbea reliable sourceof informationonbusinessgrowthowing to the factthat itdrawson theofficialregisterofallbusinessesoperating inScotland from the InterdepartmentalBusinessRegister (IDBR). This is thedatasourcewhichNESTAhaveusedforitsanalysisofHGFsacrosstheUK(NESTA,2009;2011).

4.2. Scotlandhasavery slightlyhigherproportionofHGFs in itsbusinessbase than theUK

average and the second highest regional proportion after Greater London. However,ScottishHGFsarenotasprolific jobcreatorsastheircounterpartselsewhere intheUK.MostHGFsare relatively smallandover10yearsold. Theyare located inavarietyofsectorsandtechnologysectorsdonoaccountforadisproportionateshare.

4.3. Scotlands proportion of all high tech firms in its business base is the second lowest

amongstUK regions. However, theproportionofhightech enterprisesobtaininghighgrowthstatus(18.4percentor188firms)isinlinewiththeUKaverage.AcrosstheUKasawhole,theproportionofhightechfirmswhichachievehighgrowth isgreaterthannonhightechfirms.ThisisparticularlythecaseforScotland.Therefore,contrarytowhatseems to have been reported previously in the academic literature, incidence rates ofHGFsaredetectablyhigherinanumberofhitechandknowledgeintensiveservices.

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4.4. Finally,hightechHGFsinScotlandtendtobesmallerthantheoverallpopulationofHGFs,

andtherearerelativelyfewlargerfirms.Theyarealsoyounger,althoughtheproportionofhighgrowthhightechfirmsover10yearsoldishigherthanthatfortheproportionofHGFsasawhole.

5.AnalysisofFAMEdata5.1.OneofthelimitationsoftheIDBRdatasetheldbytheONSisthattheindividual

companiesareanonymous,henceitisnotclearwhatcompaniesare,andarenot,included.Specifically,itincludescompaniesthatwhileregisteredandheadquarteredinScotlandare,infact,subsidiariesofnonScottishownedcompanies.TheFAMEdatabasewhichisbasedoncompanyaccountsthataresubmittedtoCompaniesHouseovercomesthisanonymityproblem.ThedownsideisthatonlytwomillioncompaniesareincludedinFAMEinadetailedformat,biasingthedatabasetolargercompanies.However,fromourpointofviewthisisnotparticularlydisadvantageousasitgivesusaprofileoftechnologycompaniesthathaveachievedgrowthatsomepointintheirlife.WewillrefertotheseassignificantScottishtechnologycompanies.

5.2.ThisanalysisgivesafurtherperspectiveontechnologycompaniesasawholeinScotland.

First,themajorityaresubsidiariesofnonScottishcompanies,insomecasesreflectingacquisition.Just30%areScottishownedandheadquartered.Second,theyexhibitconsiderablediversityintermsofage,sizeandsector.Only20%arelessthan20yearsold.Manyarelongestablishedengineeringcompanieswithatraditionofinnovation.Technologycompaniesvaryinsizefromunder1mturnovertoover1,000mturnover,butconcentratedintheunder50mrange.Finally,andperhapsthemostsignificantfinding,isthesignificanceoftheenergysector,particularlyoilandgas,bothasadirectsourceoftechnologybusinessesandalsoasamajormarketfortechnologyfirmsinothersectors.

6.InterviewFindings6.1.Thethirdstageoftheresearchinvolvedfacetofaceandtelephoneinterviewswithsenior

managers(usuallytheCEO)of19technologybasedfirms.ThesefirmswereidentifiedusingthebusinessdatabaseFAME.Themajorityofthesefirmswereeitherexperiencingorhadexperiencedaperiodofhighgrowth.

6.2.Thecompaniesexhibitconsiderablediversityintermsoftheirage,sizeandthenatureof

theirbusiness,withmanyfarremovedfromthewhitecoatsstereotypeofatechnologybusiness.Theyarepredominantlysmallandmediumsizedbusinesses,withlessthan10minsalesandlessthan50employees.MostareengagedinB2Bactivities.Avarietyof

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businessmodelsareinevidence.Mosthaveoverseassalesandasignificantproportionderivemostoralloftheirsalesfromexports.SeveralofthelargercompanieshaveinternationaloperationswhichreducestheirScottishfootprint.

6.3.Companiesarecompetinglargelyonthebasisoftheirtechnicalanddomainknowledge,

capabilitiesandofferings.BothIPandformalisedR&Dactivitywerelesscommonthanmighthavebeenexpected.

6.4.Universitiesareofminorimportanceintermsofcompanysource.Justonecouldbe

classifiedasagenuineuniversityspinoutanditnolongerhasanylinkswiththeinstitution.Twoothercompaniesemergedfromfaileduniversityventuresandonlyonehasstrongresearchlinkswithalocaluniversity.

6.5.Mostcompanieshavebeengrowing,manyquitefast,butsomewerehithardbythe

financialcrisisandareonlynowresuminggrowth.Themajorityareanticipatingfurthergrowth,albeitatvaryingrates.However,someareat,oranticipatehitting,growthceilingswhichinsomecasesarisefromfinancialconstraints.Hardwarerelatedinformationtechnologycompaniesaremorelikelytoencountergrowthconstraintsthansoftwarecompanies.

6.6. Themaingrowthconstraintsthatwerereportedarerecruitment,accessingbothdebtand

equityfinance(especiallybysmallerfirms)anddistancefrommajormarkets(especiallybyhardwarecompanies).ThecompanieswerebasedinScotlandbecausethatwaswheretheirfounderwasliving.However,therewerefewsignificantadvantagesofaScottishlocation,exceptforcompaniessellingintotheNorthSeaoilandgassector.Thedistancefromcustomers,restrictedairlineroutesandlackofdomesticmarketswereseenasthebiggestdisadvantages.

6.7.Manyofthecompanieshadbeenapproachedbypotentialbuyersandseveralowner

managersseemedlikelytosellintheforeseeablefuture.ThisraisesimportantquestionsabouttheprosandconstotheScottisheconomyabouttheprocessofbusinessacquisition,

7.0 SummaryandPolicyImplications7.1 Scotland performs well in relation the rest of the UK in terms of the presence of

highgrowth businesses. However, Scotland performs less well in terms of highgrowth,hightech firms. Theprimary reason for thismostprobablyowes to the factthatScotlandsproportionofhigh tech firms in itsbusinessbase is thesecond lowestamongst UK regions. As a consequence, the overall proportion of its high techbusinessesthatarehighgrowthislow.

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7.2 However, the proportion of high tech firms in theUKwhich achieve high growth isgreaterthannonhightechfirms. This isparticularlythecaseforScotland. Therefore,contrarywhathasbeenreportedpreviously,theincidencelevelsofHGFsarehigherinanumber of hitech and knowledge intensive services than the overall population ofbusinesses. On the faceof it, thiswouldappear to justify theemphasiswhichpolicymakersgivetotechnologybasedfirmsasasourceofHGFs.

7.3 Hightechhighgrowthfirms inScotlandtendtobesmallerthantheoverallpopulation

ofHGFs,andtherearerelativelyfew largefirms. Theyarealsoyounger,althoughtheproportionofhighgrowthhightechfirmsover10yearsold ishigherthanthatfortheproportionofHGFsasawhole. Thissuggeststhathightechfirmstaketimetomaturebeforetheycanbecomegrowthorientedbusinesses.TheresearchalsorevealedthattheoilandgasindustryplaysavitalanddisproportionateroleinfuellingthegrowthofScottishhightechHGFs.

7.4 ThequalitativeelementoftheresearchrevealedthatmanyofthesmallerHGFhightech

firmsencountergrowthconstraintsinrelationtorecruitment,accesstobothdebtandequityfinance,anddistancefrommajormarkets.Oneoftheresponsesistoselltoalargerinternationalcompany.And,indeed,manyScottishhightechfirmsbecomeacquiredinrecentyears.Therefore,theissueofcorporateacquisitionanditsimpactontheScottisheconomyseemsworthyoffurtherempiricalinvestigation.

7.5 Theresearchraisesanumberofinterestingandchallengingpolicyissues.Issuessuchas

thenatureofsupporttoTBFs,theroleofpublicprocurementfordevelopingTBFs,theroleofinorganicgrowthwithintheirgrowthstrategiesareallaspectsassociatedwiththesefirmswhichmeritfurtherinvestigation.Fromtheperspectiveofthisstudy,itwasfoundthatcompaniesofscaleplayastrategicroleindevelopingTBFsinScotland,notablyasasourceofmarketpullandimportantsupplyforemergingcompanies.PolicymakersthereforeneedtogiveconsiderationtohowthemajorfirmsintheScottisheconomymightbeencouragedandsupportedtoplayamorestrategicroleintheeconomybothasincubatorsandinvestorsinTBFs.

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1.INTRODUCTION

There is considerable empirical evidence to support the proposition that only a smallproportion of firms, create themajority of jobs in any cohort of new businesses (Kirchhoff,1994; Storey, 1992; 1994; AnyadikeDanes et al, 2009; Henrekson and Johansson, 2010;Stangler,2010).OneofthefirstpeopletodiscoverthisphenomenonwastheeconomistDavidBirchwhochristenedthesehighlydynamicandrapidlygrowingfirmsasgazelles(Brich,1987).Arecentoverviewof the literatureexamininggazellesconcluded thata fewrapidlygrowingfirmsgenerateadisproportionately large shareofallnewnet jobscomparedwithnonhighgrowth firms. This is a clearcut result (Henrekson and Johansson, 2010, p. 240). Otherattributes of high growth firms (HGFs) include above average levels of productivity growth(Masonetal,2009),highlevelsofinnovation(Coad,2009;Masonetal,2009),stronglevelsofexportorientation(ParsleyandHalabishy,2008)andahighlevelofinternationalisation(MasonandBrown,2010a).Moreover,notonlydoHGFscreatejobsdirectly,theyalsohaveimportantspillovereffectsthatarebeneficialtothegrowthofotherfirmsinthesamelocality(Masonetal,2009)and industrialcluster (Brown,2011;Stametal,2009). For these reasons it isnowincreasingly argued that governments should focus on the promotion of high growth firmsratherthanstartups(Shane,2008;2009).PreviousresearchonHGFsinScotland(MasonandBrown,2010)foundthattheyareextremelyheterogeneousintermsoftheirage,size,ownershipandindustrysector.Fewfittedthestrictgazellesdefinitionwhich refers to younghigh growth firms that are less than five yearsold(OECD,2008).Thevastmajorityareover10yearsold,somesignificantlyolder.Moreover,theyarebynomeansallnewstartups.Manyhavebeenpreincubatedinestablishedorganisationsand become independent enterprises as a result of a management buyout (MBO). Serialentrepreneursarealsosignificantasfoundersofhighgrowthfirms.Growthisoftenstepped,particularlywhereitisachievedbyacquisition,animportantmechanismforhighgrowth.Intermsoftheiractivities,mostHGFsselltootherbusinesses,nottoconsumers.TheyareUKandgloballyorientedwithonlyaminoritysellingexclusivelywithintheScottishmarket.Theyhavebusinessmodelswhicharebasedaroundbuildinglongtermrelationshipswithcustomerswhichgeneraterecurringrevenueratherthanoneofftransactionsandtheirbusinesspropositionisasmuchbasedaroundsellingknowledgeasitissellingtangibleproductsandservices.PartneringisatthecoreofthebusinessmodelofmanyofHGFs,buttakesavarietyofdifferentformsandlevelsofformalisation.HGFshaveavarietyofcorecompetencesbutthemostcommononesareassociatedwiththequalityoftheiremployees,innovativeproductsandservicesandtechnical,marketandcustomerknowledge.HGFstendtobelocatedinScotlandbecausethisiswheretheirfounderslive.However,mostareweaklyembeddedinScotlandwithfewbusinesstiesand,becauseoftheirUKorglobalmarketorientationtogetherwilllowlevelsoflocalmanufacturing,theirScottishfootprintisoftenlimitedtotheirHQ.TheirlimitedembeddednessinScotlandisillustratedbythelackofresearchandrecruitmentlinkstolocaluniversities.AnumberofHGFshavehadhadfinancialsupportfromgovernmentwithearlystagefinancialsupportandsupportforoverseasmarket

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entryhavebeenthemostsignificanttypes.Governmentalsohashadimportant,oftencritical,indirecteffectsonHGFs,creatingmarkets(throughprivatisationandderegulation)andexpandingmarkets(regulation,publicsectortenderingandclimatechangepolicy).IncontrasttotheoriginalstudyonHGFsinScotland,themainfocusofthisresearchisspecificallyonthegrowthoftechnologybasedfirms(orTBFs).TBFsareseenaskeygrowthcatalystsintheeconomyandfundamentaldriversofinnovationandnewtechnologicaldevelopment.Thesehighlydynamicfirmsarealsoviewedasakeysourceofdynamisminmoderneconomiesbycreatingnewmarketsanddisplacinglessproductiveincumbents(Schumpeter,1987).Indeed,sincethesecondhalfofthetwentiethcentury,hightechnologyindustrywasthoughttobeoneofthegreatestenginesfosteringeconomicgrowthintheglobaleconomy(Frankel,2012,p.724).Plus,thisfocushasbeenparticularlystronginEuropeowingtothefactthatitlagsbehindtheUSintermsofthenumberoftheserapidlygrowingtechnologybasedfirms(Biosca,2010).Inrecentyears,oneofthekeyassumptions,particularlyamongstpolicymakers,hasbeenthatHGFsaredominatedbytechnologybasedfirms(TBFs)(CoadandReid,2012).Indeed,therationalefortheconsiderablesumsofmoneyspentoninnovationsupportinitsvariousformshasbeenpremisedontheassumptionthatthiswillleadtheemergenceoftechnologybasedHGFs(OECD,2010).However,thisassumptionhasbeenchallengedbothbyourownstudyofHGFsinScotland(MasonandBrown,2010)andbythewiderliterature(e.g.Acsetal,2008;HenreksonandJohansson,2010).TherealityisthattherepresentationoftechnologybasedfirmsinthepopulationofHGFsisroughlyonaparwiththeirproportionintheeconomy.Plus,verylittleasyetisknownabouttheincidenceofHGFswithinthepopulationofTBFs(Brownetal,2012).Thisclearlybegsthefollowingquestions:whatroleisplayedbyTBFswithintheoverallpopulationofScottishHGFsandwhatistheproportionofTBFswhichachievehighgrowth?1.2RESESARCHOBJECTIVESDuringthe lasttwentyfiveyearsthedevelopmentofTBFshasbeenacentralpolicyobjectivewithinScotland. Organisationssuchas theOECDandeconomicdevelopmentagencieshaveforsome timeplacedgreatstoreoncreatingandsupporting technologybasedenterprises inthe hope that they grow and become major contributors to economic growth and wealthcreation. In Scotland, over the last twenty years the Scottish Government and ScottishEnterprisehavedevelopedahighlysophisticatedsuiteofpolicyinterventionstosupportTBFs.Support includesassistancewith funding todevelop technology,entrepreneurialsupportandaccesstofunding.However,thereislittleindepthresearchonthechallengesTBFsface,theirdriversofgrowthandthecontributiontheymaketoeconomicdevelopment inScotlandandhowthesefirmsgrowdifferentlyfromnonhightechfirms.

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Recent research undertaken by Scottish Enterprise suggests that relatively few high growthbusinessesarehightechnologyfirmsinScotland(MasonandBrown,2010).Potentialreasonsinclude:

theimmatureornascentnatureofmanyTBFs(tooyoungtoachievehighgrowth); alackofapropermarketfocus(i.e.technologypushratherthanmarketpull); alackofstrongambitiousleadershipandmanagementambition,orweakmanagement

capabilities; lackofappropriatefunding;& acquisitionsbylargerfirms.

However,thevaryingimportanceandinterplaybetweenthesedifferentfactorsisnotyetfullyestablished. In lightof thisevidencegap,moreresearch isneededtoexaminethenatureofgrowthwithinTBFssothatpolicymakerssuchasScottishEnterprisecanbetterunderstandthekeygrowthconstraintsandconditionsaffecting theabilityof these firms togrow. Themainobjective of this research exercise is to enable Scottish Enterprise to better understand thenature and determinants of growthwithin Scottish high technology businesses and identifyappropriatepolicyresponses. Inordertoprovideacomprehensiveassessmentthe followingissueswillbeexaminedingreaterdepthwithinthisreport:

Definewhat ismeantbyaTBFandprovidea clear taxonomyofdifferentvariantsoftheseenterprises;

Estimatewherepossible the aggregatenumberof TBFs in Scotland andoutline theirsectoralcomposition;

Byexaminingasampleofthesefirms,establishtheirkeydemographiccharacteristicsintermsofsector,employment,averageturnover,degreeofinternationalisation,levelsofinnovationand,geographicallocation;

Examinethefoundingorigins,governancestructuresandleadershipstylesandhowthisaffectstheirsubsequentgrowthpotential;

Assessthedifferentgrowthprocessesandgrowthstrategieswithinthesefirms; AssesshowmanyTBFsarehighgrowthfirms; ExaminethenatureanddeterminantsofgrowthwithinTBFsandhowthisvariesacross

differenttypes(e.g.corporatespinoffs,universityspinoutsandcorporateventures); Explore how foreign acquisition of indigenous TBFs affects their growth and

development; Assess the main barriers to growth evident within TBFs such as technological

development, leadership and management skills, absorption capacity constraints,managementcapacity,funding,salesandmarketinganddegreeofcustomerfocus/enduserengagementetc;

Articulate theeconomic contribution these firmsmake to theScottisheconomybothdirectlyandindirectly;

Providepolicyrecommendations forScottishEnterpriseandstakeholderorganisationstohelppromotethegrowthanddevelopmentofTBFsinScotland.

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1.2 RESEARCHMETHODOLOGY

Theresearchreportedinthispaperisbasedonanextensive,multimethodprogrammeofresearchonHGFswithinScotlandconductedbetweenJanuary2011toApril2012.Wehaveadoptedamixedmethodsapproachcomprisingquantitativeelementsbasedonfirmdatabasesandaqualitativeinterviewbasedstudy.Recentassessmentsofmixedmethodsstudieshavefoundthembeausefulmethodologyforundertakingbusinessrelated,entrepreneurshipresearch(MolinaAzorin,etal,forthcoming).Theworkincludedthefollowingcomponents:

AnanalysisoftheInterDepartmentalBusinessRegister(IDBR)basedBusinessDemographydataset;

AnanalysisoftechnologybasedfirmsontheFAMEdatabase;& Amixtureoffacetofaceandtelephoneinterviewswithasampleofhighgrowth

technologybasedfirms.Theworkinvolvedamajorcollaborationbetweentwouniversities(StrathclydeandAston)andScottishEnterprise.AstonUniversityundertooktheanalysisoftheONSBusinessStructuresDatabase(seesection4)andtheUniversityofStrathclydecollaboratedwithScottishEnterpriseonalltheotheraspectsoftheresearchincluding:theliteraturereview,sectoraldefinitions,FAMEanalysis,companyinterviewsandfinalreportwriting.Thereportbeginswithanoutlineofwhatismeantbyahightechnologyfirmandhowsuchfirmscanbedefined.ItthenundertakesanextensivereviewoftheliteratureonTBFstosetthecontextandraisesomelinesofenquirytobefollowedupintheempiricalwork..Thefollowingchaptersreportonthefindingsfromeachoftheselinesofenquiry.Thefinalchapterdiscussestheconclusionsfromtheworkandhighlightssomepolicyimplicationswhicharisefromthestudy.

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2.0DEFININGHIGHTECHNOLOGYFIRMS

Itiscriticalattheoutsettodefinewhatismeantbyhightechnologyandhowhightechfirmscanbeidentified.Thisisnotastraightforwardtaskandthereislittleconsensusabouttheprecisecharacteristicsthatsuchfirmsshouldpossess.Moststudiesadoptasimilarapproach,defininghightechnologyindustriesonthebasisofparticularcharacteristics,notablyR&Dspend,employmentinscientificoccupationsandpatents.Forexample,theOECDuseR&Dintensityasthemainmeasurementcriteria(OECD,1997).However,theuseofdifferentcriteriahasresultedinawiderangeofdefinitionsandlistsofhightechindustriesovertheyears.ApioneeringapproachintheUKwasundertakenbyButchart(1987)whichidentifiedspecificfourdigitcategoriesinthe1980StandardIndustrialClassification(SIC)asbeinghightechnology.Thislistwassubsequentlyconvertedintotheequivalentcategoriesinthe1992SIC.However,thisdefinitionisnowratheroutdated.AnalternativedefinitionhasbeenproducedbyOECD(Hatzichronoglou,1997)butthisislimitedtomanufacturing.Eurostatdataincludesbothhightechmanufacturingandhightechservices.TheUSAhasseveraldefinitionsofhightech.However,thesevariousapproachesallultimatelyrequirejudgementonwhatconstitutesahighleveloftheparticularcharacteristicsusedinthedefinitionforexample,whatconstitutesahighlevelofR&Dintensity?Moreover,evenatthemostdetailedlevelofdisaggregationSICcategoriescanbeverybroad.Moreover,mostemergingindustriesareinitiallycapturedinthenotelsewherecategorisedgroupings.And,ofcourse,industrieschangeovertimeintermsoftheirtechnologicalcharacteristics.Anindustrybaseddefinitionofhightechindustryalsohasoperationaldifficultieswhenappliedatthefirmandestablishmentlevels.Specificallyanindustrydefinitionassumeshomogeneitywithintheindustrywhereasinrealityfirmsarelikelytodisplayconsiderablevariabilityintheextenttowhichtheyarehightech.Afurtherproblemisthatthecriteriausedindefininghightechareweightedtowardslargefirms,whereasR&Dexpenditureandtechnologyoccupationsareoftenunderrecordedinsmallfirms.Anotherproblemisthatsuchdefinitionsemphasiseproducttechnologyratherthanprocesstechnology.But,ofcourse,manylowertechnologyproductsaremadeusingsophisticatedprocesstechnologyandmanyhightechproductsaremadeusinglowlevelsofprocesstechnologies.Afurthercomplicatingfactoristhespatialdivisionoflabour,orcorporategeographies,ofbusinesseswherebyfirmsmayundertaketheirhightechfunctionsandactivitiesinseparateestablishmentsandlocationstothoseoftheirlowertechactivities.ThisproblemwasmanifestinScotland(andotherperipheralregions)inthe1970sand1980swithmultinationalcompanies,particularlyintheelectronicssector,establishingbranchplantswhichfocusedonmorematureproductsandusedroutineproductionmethods(BrownandMason2012).Althoughsuchplantswereclassifiedashightechfromanindustrybasistheywerelesslikelytomeetsuchadefinitionusingafirmbasedclassification.Thealternativeapproachisonethatisbasedonfirmorestablishmentcharacteristics.However,thisisimpractical.First,thiswouldrequireahugeamountoffirm/establishmentlevelinformation,whichsimplydoesnotexist.Seconditwouldbehighlysubjective.For

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example,theSundayTimesFastTrackdefinesahightechcompanyasonewhosebusinessgrowthandsuccessisdependentonthedevelopmentofoneormoretechnologies.Thisbegsvariousquestions:forexample,whatisdependentandwhatisatechnology.Despitethedrawbackshighlightedabove,thisstudydefineshightechfirmsusinganindustrydefinition.OnethatdoeshaveconsiderableappealisthedefinitionusedbyGlassonetal(2006)intheirstudyofhightechindustryinOxfordshirewhichisbasedonanextendedButchartdefinition.Thedefinitionincludesbothhightechmanufacturingandhightechservices,inlargelybasedonSICcategoriesbutalsoincludesarangeofnonSICbasedactivities(Appendix1).Thiscombinationofrigour,derivedbyusingmeasurablecriteria,plusanelementofsubjectivity,hasconsiderableappeal.Italsoallowsforthedefinitiontobetweakedtotakeaccountoflocalcircumstances.TheinclusionofMotorsportandautomotiveengineering/designactivitiesisparticularlyappropriateinOxfordshirewhichisthefocusofthemotorsportclusterintheUK(HenryandPinch,2001)butislessappropriateinScotland.ForaScottishdefinitionitwasappropriatetomakesomeadjustmentstotakeintoconsiderationthenatureoftheeconomyinScotland.AfulllistingoftheSICcodesadoptedareoutlinedbelow3.ThemaininclusionstotheoriginaldefinitionbyGlassonetal(2006),areoutlinedbelow:

Extractionofcrudepetroleum(SIC11.2)andancillaryservices(11.2).ThiswillcapturethemajorityofTBFsintheoilandgasindustry.

UnderElectronicpublishing,reproductionofcomputermedia(22.33)hasbeenaddedtocapturecomputergamesactivities

NewSICcodesforlifescienceshavebeenaddedthatcorrespondwiththeScottishGovernmentdefinitionofthesector(24.4,33.1)

Replacedautomatedmachineryandrobotics(nospecific1992category)withmachineryandequipmentnotclassifiedelsewhere(SIC29all).Thiswillincludealotofcapitalequipment,pumps,valves,airconditioningequipmentetc.Thisalsoincludesrenewableindustrycompaniesandanumberofotherhightechmanufacturingcompanies.SIC29alsoincludesdefencerelatedmanufacturing(e.g.29.6).

IntheelectricalequipmentcategorySIC31.40hasbeenaddedwhichcoversprimarycellsandbatteries.

Themanufactureoftransportequipment(34.10)andpartsandaccessories(34.3)havebeenadded.

TheSICcodesformanufactureofgamesandtoys(36.5),whichincludesdomesticelectronicgames.

Securityandrelatedactivitieshasbeenadded,thatincludesmonitoringbymechanicalorelectricaldevices(74.60/2)

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Table2.1.HIGHTECHSECTORSBYSTANDARDINDUSTRIALCLASSIFICATION(BASEDONSIC2003)HighTechManufacturingActivities11.1,11.2 Energy22.1,22.3 Electronicpublishing24.4,33.1 LifeSciences25.24,26.15,26.82 Compositesandotheradvancedmaterials28.52 PrecisionEngineeringandprecisioncomponents29(all)

MachineryandEquipmentnotclassifiedelsewhere

30.01,30.02

Computerequipment&officemachinery

31.1,31.2,31.4,31.62

Electricalequipment

32.1,32.2,32.3 Electronicequipment&components33.1,33.2,33.3,33.4 Medical&surgicalequipment34.10,34.3

TransportEquipment

35.3 Aerospace&relatedactivities36.5 ManufactureofGamesandToysHighTechServiceActivities64.2

Telecommunications

72.2 Softwaredevelopment&consultancy72.6

Web/internetservices

72.1,72.3,72.4,72.5,72.6

Othercomputer

73.1

R&D(naturalsciences&engineering)

74.2 Architectural&engineeringactivities74.3

Technicaltesting&analysis

74.60/2

Securityandrelatedactivities

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3.TECHNOLOGYBASEDHIGHGROWTHFIRMS:ALITERATUREREVIEW3.1INTRODUCTIONHighgrowthfirms(HGFs)arenowwidelyacceptedtobeakeydriverofeconomicdevelopmentinadvancedcountries(OECD,2010).BasedonareviewofpriorstudiesHenreksonandJohansson(2010)foundthatasmallnumberofrapidlygrowingfirmsgenerateadisproportionatelylargeshareofallnetnewjobs.IntheUKintheperiod20022008HGFsrepresentedabout6%ofthetotalnumberofbusinesses(NESTA,2009).Theyhavebeenresponsibleforaroundhalfofthenetjobcreationbyfirmswith10ormoreemployeesinthisperiod.ThemajorityofHGFstendedtobesmall(lessthan50employees)butwellestablished(overfiveyearsold)(AnyadikeDanesatel,2009).UpdatingthisresearchtocovertherecessionfoundthatthenumberofHGFswasverysimilartoboththe20022005and20052008periodsandthat,asbefore,theygeneratedmorethanhalfofallnewjobscreatedbyfirmswith10ormoreemployees(NESTA2011).ThissuggeststhatHGFsareequallysignificantinperiodsofeconomicgrowthandrecession.AstudyofHGFsinScotland,undertakenonbehalfofScottishEnterpriseconfirmedtheirimportanceinaggregatetermstotheScottisheconomy(MasonandBrown,2010;BrownandMason,2010).IndepthinvestigationofasampleofHGFshighlightedtheirheterogeneityintermsofage,size,sectorandorigins.Theyweretypicallyknowledgebased,innovative,stronglycustomerorientedandhaddistinctivebusinessmodels.Mostwereinternationallyorientedwithastrongphysicalpresenceinforeigncountries.However,forthemostparttheywerenotdeeplyembeddedinScotlandintermsoftheirproductionandlinkstosuppliers.TheywerelocatedinScotlandbecausethatwaswheretheirfounderswereliving.OneofthemostsurprisingconclusionsfromthevariousstudiesofHGFsthathavebeenundertakeninrecentyearsisthattheyarenotoverrepresentedinhightechnologysectors.AsHenreksonandJohansson(2010,p.240)observe,HGFsexistinallindustries.Ifanything,theyappeartobeoverrepresentedinservices.TherecentNESTAstudy(Bioscaetal,2010,p.8)similarlyobservesthatHGFsaredistributedacrosstheeconomy,fromminingtobanking.TheyfurthernotethatwhileHGFsinhightechnologysectorsarenotunimportant,suchfirmsareonlyonepartofanoverallgrowthpicturethatdependsjustasheavilyonbusinessesthatinnovateinotherways:newservices,newbusinessmodels,andnewprocessesareoftenjustasimportanttogrowthbusinessesasnewtechnology.NoristhereconclusiveevidenceofastronglinkbetweenR&Dexpenditure,innovationandhighgrowth(OECD,2010).Hereagain,theScottishstudymirrorstheseconclusions.Althoughinnovationwasacharacteristicofmostofthesefirms,bynomeansallHGFswereinhightechnologysectors(MasonandBrown,2010).ThelimitedoverlapbetweenHGFsandTBFsisanextremelyimportantconclusion.ItchallengestheassumptionamongstthepolicymakingcommunitythatsupportinghightechnologysectorswillgenerateHGFs.Indeed,oneofthekeyconclusionsfromtheScottishstudywasthatpolicymakersmaybeoveremphasisingtheroleofTBFsasasourceofHGFs(MasonandBrown,2010;2011).

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Moreimportantly,giventheamountoffinancialsupportthatisdirectedtoTBFs,tohightechclustersandtothecommercialisationofuniversityandpublicsectorresearch,thisraisesthequestionwhythissupporthasnotgeneratedmorehighgrowthTBFs?ThisintroductorysectionofthereportreviewstheliteratureonHGFsandhightechnologysectorsinordertosetthecontextandtoidentifyappropriateresearchquestions.Itisstructuredasfollows.WebegininSection2.2withabriefexaminationofthetheoryoffirmgrowthandhowthisrelatesspecificallytohightechnologyfirms.InSection2.3welookattheevidenceonthesuccessofTBFsandwhetherthesebusinessesgrowrapidly.InSection2.4weexaminetheempiricalresearchsurroundingthekeygrowthcharacteristicsofTBFs.WethengooninSection2.5toreviewtheliteratureontheobstaclestogrowthconfrontingTBFs.Inthefinalsection,wedrawtogethersomeconclusionsfromourliteraturereviewandidentifythemainthemestobeaddressedintheempiricalwork.3.2 THEORIESOFFIRMGROWTHWestartwithareviewoftheoriesoffirmgrowth.Thisprovidesaframeworkformakingsenseofempiricalstudiesoffirmgrowth(Garnseyetal,2006).OneoftheearliestandmostimportantconceptualcontributionstothisdebatewasmadebytheeconomistEdithPenrose(1959).InherseminalcontributionTheTheoryoftheGrowthoftheFirm,Penrosechallengedthedominantneoclassicalviewofthetimewhichprimarilyviewedfirmsasablackboxcomprisedofsupplyanddemandfunctions.UsingacasestudyoftheHerculesPowderCompany,Penrose(1960)suggestedthattraditionaleconomictheorieswereinadequateatexplainingtheintricatecomplexitiesofthegrowthwithinreallifefirms.Incontrast,Penroseviewedfirmsasbundlesofhumanandnonhumanresources.Inherview,growthisgovernedbyacreativeanddynamicinteractionbetweenafirmsproductiveresourcesanditsmarketopportunities(1960,p.1).Sheclaimedthattherearetwomaindriversoffirmgrowth:internalandexternalfactors.However,theformerwerethemostimportantbecauseexternalfactors,suchastheabilitytoraisecapital,wereoftenshapedincertainwaysbythefirmsinternalcapabilities.WithherinsightfulanalysisPenrosehighlightedtheimportanceofinternalresourcesindeterminingthegrowthofthefirmbecauseexpansionrequiresplanningandthedeploymentofmanagerialresources.Thepioneeringnatureofthiswork,ledincreasinglevelsofinterestfromvariousacademicfieldsinthefactorsfuellingthegrowthoffirms.Interestingly,itwasbusinessandmanagementresearchersratherthanPenrosesfelloweconomistswhomosteagerlyembracedhertheoreticalideasandbegantoempiricallyinvestigatethekeydeterminantswhichdrivethegrowthoffirms(Coad,2009;Pitelis,2007).ThePenroseanperspectiveonfirmgrowthwasinstrumentalinthedevelopmentofresourcebasedview(RBV)ofthefirmwhichwasdevelopedduringtheearly1990s(Barney,1990).ResearchbyBarney(1990)andAlvarezandBarney(2000)classifiedresourcesintofourmaincategories:

1. Physicalcapitalresources:includinggeographiclocation,premises,capitalequipment,technologyandaccesstorawmaterials.

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2. Humancapitalresources:includingtraining,experience,judgement,intelligence,relationshipsandinsightsofindividuals.

3. Organisationalcapitalresources:includingthefirmsstructureandsystems,informalrelationsamonggroupswithinthefirmandbetweenthefirmandtheenvironment.

4. Entrepreneurialcapabilities:includinglearning,knowledge,creativityandleadership.

TheRBVviewoffirmquicklybecametheacceptedorthodoxywithinthemanagementandentrepreneurshipliterature.However,thereweresomewhotookissuewithcertainelementsofthistheory.OnefocusforcriticismwasthebeliefbytheRBVthatcertainresourcesmerelyexist.Considerationsofhowresourcesaredeveloped,howtheyareintegratedwithinthefirmandhowtheyarereleasedhavebeenunderexploredwithinthisperspective.AnothercriticismofRBVhasfocusedonthestaticnatureofthetheory,particularlythefactorswhichgiverisetothecreationofcertainresources,especiallyincertaindynamicmarkets(EisenhardtandMartin,2000).Thesecriticismsledtothedevelopmentofanalternativeperspectivebasedaroundthedynamiccapabilitiesoffirms(Teeceetal,1997).Thisapproachemphasizesthedevelopmentofmanagementcapabilities,anddifficulttoimitatecombinationsoforganizational,functionalandtechnologicalskills(Teeceetal,1997,p.510).Themainstrengthofthisperspectiveisthatitdrawsonanumberofsourcesofafirmscompetitiveadvantage.ItthereforeintegratesanddrawsuponamultidisciplinaryresearchagendainsuchareasasthemanagementofR&D,productandprocessdevelopment,technologytransfer,intellectualproperty,manufacturing,humanresourcesandorganizationallearning.Inrecognitionofthefactthatfirmsincreasinglyconfrontrapidtechnologicalchange,thedynamiccapabilitiesviewstresseshowfirmsexploitexistinginternalandexternalfirmspecificcompetencestoaddresschangingenvironments(Teeceetal,1997,p.510).ThispointseemsparticularlyrelevantinhelpingtoexplaintheimportanceoftheexternalenvironmentforfirmgrowthandtherapidlychangingenvironmentwhichconfrontsTBFs.WhilethesetheoreticalconceptsprovidesomeinterestinginsightsintofirmgrowththeyseemquitebroadbrushmechanismsforhelpingusfullyunderstandrapidgrowthwithinTBFs.TheRBVhasbeenakeywayofillustratinghowafirmsresourceshelpshapethegrowthofthefirm.Howeveritsayslittleabouthowfirmsgoaboutmarshallingtheseresources.Adynamiccapabilitiesperspectiveoffersamorenuancedwayofunpickingthevariousindividualcomponentsoffirmgrowthandstressestheimportanceofrapidtechnologicalchange,howeveritsayslittleaboutthemostimportantfactorsunderpinninggrowthofsuccessfulfirms.Neitherdoesitsaymuchaboutthefactorsexplainingthedeclineandeventualdemiseofsomefirms.3.3. DOTECHNOLOGYBASEDFIRMSGROWRAPIDLY?Intandemwithmountingtheoreticalinterestinfirmgrowth,fromthe1970sonwardsresearchersbegantotakeastronginterestinthegrowthoffirmsparticularlyinhigh

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technologysectorsoftheeconomy(Little,1977;MoweryandRosenburg,1989).Theemergenceofnewtransformativesectorssuchasthemicroelectronicsindustrywasconsideredtobeakeydriverfuellingincreasinglevelsofacademicinterestinhightechindustriesandtheirpowerfulroleinpromotingandshapingeconomicdevelopmentwithinadvancedeconomies(Dicken,2003).Atthesametime,researchduringthe1970sbegantopointtowardsthestrongroleplayedbysmallfirmsintheeconomicgrowthprocess.TheearlyworkofDavidBirchinparticularwasimportantinpromotingwidespreadinterestintheroleplayedbysmallfirmsandnewbusinessstarts.InhisfamousreportTheJobGenerationProcess,DavidBirch(1979)pointedoutthatgiantcorporationswerenolongerthemainsourcesofjobcreationintheUSandthatthemajorityofnewjobswerecreatedbysmallfirms.Thecombinationofthesetwothemeshightechandsmallfirmsresultedinanupsurgeofpolicymakerinterestinthepotentialrolefornewhightechnologybasedfirms(orNTBFs),especiallyintermsofthenewemploymentopportunitiesthesefirmscouldpotentiallyproduce.1Thelevelofinterestwasparticularlystrongduringthe1980sineconomieswhichwereundergoingseverestructuralchanges(AlmusandNerlinger,1999).Asaconsequence,thewidespreadperceptionwhichgainedprominenceduringthelate1970swasthatnewandsmalltechnologybasedfirmsarecentraltothecreationoffuturewealthandemployment.(Tether,1997,p.91).Innovativeandtechnologybasednewandsmallfirmshavethereforebeenthefocusofrapidgrowthexpectationsfrompolicymakersaroundtheworld.RecentresearchstudyconductedintheUScertainlyseemstosupportthisfocus(EckhardtandShane,2011).Thisstudyusedadatabaseof201industriesovera15yearperiod(19831997)toexaminewhysomeindustrieshostmorenewhighgrowthfirmsthanothers.Theresearchdiscoveredthatoverhalf(52%)ofnewhighgrowthfirmsarelocatedinjusttenindustries.Thestudyalsodiscoveredthatincreasesintheproportionofemploymentofscientistsandengineersinindustriesispositivelyassociatedwithcountsoffastgrowingnewfirms.Thefindingsstronglysuggestthattechnologicalinnovationisanimportantdeterminantofhighgrowthentrepreneurialopportunity.ThefindingsfromthisstudycontrastmarkedlywithrecentresearchonHGFsintheUK(AnyadikeDanesetal,2009;Masonetal,2009;MasonandBrown,2010).Thesestudies,incommonwiththebulkofresearchinthisfield(seeHenreksonandJohansson,2010),allfoundconsiderablediversityintermsofthesectoraldistributionofHGFs.ThismaysuggestthattheUSeconomyismarkedlydifferentfromEuropeaneconomies(Bioscaetal,2011).Alternatively,itmaycallintoquestionthechoiceoftheInc500databaseasthestudysmaindatasource.Itsrelianceonfirmssubmittingthemselvesforinclusionontheselistingsmayoverrepresenttechnologybasedfirmswhicharetryingtoraisetheirprofiletoobtainfurtherroundsofventurecapitalfunding.

1AlthoughthetermNTBFwasfirstcoinedbytheArthurLittleGroup(Little,1977)usingaveryvaguedefinitionoffirmslessthan25yearsold,inthispaperthetermNTBFistakentorefertoyoungfirms(lessthanfiveyearsold)operatinginhightechnologysectors.

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Indeed,thereappearsalackofdefinitiveempiricalevidenceespeciallyfromaEuropeancontexttojustifyapolicyfocusontechnologybasednewandsmallfirms(StoreyandTether,1998).Oneoftheproblemswithresearchinthisareaisalackoflongitudinalanalysiswhichspecificallyfocusesonthesurvivaloftechnologybasedfirms.Intheirreviewoftheempiricalevidencebaseduringthe1990s,StoreyandTether(1998)concludethatthedirectandindirectemploymentgenerationeffectsfromNTBFsaremixed.Theyclaimthattwokeyconclusionscanbedrawnfrompreviousstudies:

Comparedwithstartupsingeneral,NTBFsexhibitfasteraverageemploymentgrowthrates.

TheabsolutegrowthinemploymentofNTBFsismodest.Forexample,innoneofthestudiesexamineddidtheaverageemploymentofthefirmswhichsurvivedfor10yearsexceedtheiremploymentatstartupbymorethan20employees.

OneoftheearlieststudiesexaminingthegrowthtrajectoriesofhightechnologyfirmswaslongitudinalresearchundertakeninSanFranciscobetween1969and1976(CooperandBruno,1977).ThisstudydiscoveredthatthefailurerateofTBFswaslowerthanthatfornontechnicalbasedfirmsandthattheirgrowthlevelwashigher.ItalsofoundthatthelevelofacquisitionofTBFswashigh.However,onlyasmallproportionoffirmsgrewrapidly(only12percentachievedaturnoverofmorethan$5milion).ThestudyalsofoundthatthelevelofacquisitionofTBfswashigh.Afollowupstudy(Brunoetal,1992)notedtherisingdiscontinuancerateovertime,duebothtofailureandacquisition,andthesmallproportionoffirms(18%)whichremainedindependentafter20years.AUKstudyofhightechnologyfirmsfoundthatthesurvivalrateinthe1986to1992periodwaslowerthanthatrecordedbybusinessesingeneral(WestheadandCowling,1995).ThisstudyalsorevealedthatmeanabsoluteemploymentgrowthintheirsampleofTBFswasmarkedlyhigherthanthatrecordedinagroupofsurvivingindependentfirmsinmoreconventionalsectors.Interestingly,fromaregionalperspective,firmslocatedinlesseconomicallyprosperousnorthernandassistedareasinBritainrecordedlowerlevelsofemploymentgrowth(WestheadandCowling,1995).ThiswouldsuggestthattheroleplayedbyTBFsandNTBFsvariesgeographicallyandthatadditionalsupportforfirmsinperipheralregionsmaybeneeded(WestheadandCowling,1995).Theauthorsalsoclaimthatpoliciestoencourageallfirmstogrowrisksbeingineffective,andinstead,policiesmustbetailoredtosupportexistingTBFswhichalreadyhavedemonstratedtheinclinationandabilitytogrowinemploymentsize.Withinmuchoftheresearchliteraturethereisastrongpresumptionthatgrowthwasacentralobjectiveforthesetypesofbusiness.However,inanimportantcontributiontothedebatesurroundingtheroleplayedbyTBFsineconomicgrowth,Tether(1997)discoveredthatasmallnumberoffirmsareresponsibleforprovidingthebulkofthenewemployment.Contrarytothebarrierstogrowthperspectivethatarguesthatthesefirmswouldgrowifcertainbarrierswereovercomebyfirms,suchasfinanceormanagementexpertise,TetherclaimsthatthereisalargeamountofdiversitywithinthepopulationofTBFsandthatthelargemajorityofthesefirmsdonotseekrapidgrowth(Tether,1997,p.92).Inparticular,firmsvaryconsiderablyin

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termsoftheircompetenciesandinterpretationofmarketneedsandopportunities(Tether,1997).FromhisempiricalresearchheclaimsthatthevastmajorityofinnovativeTBFswhichsurvivebecomeestablished,nichemarket,technologybasedSMEs,ratherthangrowintolargefirms.UsingevidencefromCambridge,GarnseyandHeffernan(2005)similarlyreportthatsubstantialgrowthisunusual.Moresignificantly,theyobservetwofurthercommonfeatures:firmsoftenfailtosustaintheirearlygrowth;andsecond,interruptionstogrowth,andevengrowthreversals,evenamongstfirmswithalargelysuccessfulgrowthrecord.Theyexplainthisintermsofacombinationofbothinternalandexternalfactors.Fromaninternalperspectivefirmsoftenlacktheresourcestowithstandsetbacks.Thepaceofgrowthmayoutstripthesynchronisationofspecialisedresourcesandthetime,competenceandknowledgeofthemanagementteam.Theexternalenvironmentinanemergingindustryislikelytobevolatile.Givenhowcommongrowthsetbacksare,thisunderlinestheneedtoviewnewfirmgrowthasanunfoldingprocessinwhichthefuturecannotbeextrapolatedfromthepast(GarnseyandHeffernan,2005,p.695).This,inturn,needslongitudinalstudiesoveraperiodoftimetoproperlytrackthegrowthoffirms.Insummary,theempiricalevidencebaseonthegrowthpotentialofnewandyoungtechnologybasedfirmsismixed.Itsuggeststhatthesefirmsgenerallyexhibitfastergrowthratesthanbusinessstartupsasawhole.Theyalsohaveahighersurvivalrate.Recentresearchalsoshowsthattheemploymentmultipliersfromhightechfirmsaremuchhigherthanthosefoundinmoretraditionalsectorssuchasmanufacturing(MorettiandThulin,2012).However,theaveragerateofdirectemploymentcreationamongstTBFshasbeenmodest.Ingeneral,theaveragerateofdirectemploymentcreationhasbeenmuchlessthantennewjobsperfirmperyear(Tether,1997).Animportantfindingfromapolicyperspectiveisthefactthatthemajorityofthesefirms(aswithmostfirmsingeneral,seeHenreksonandJohansson,2010)donotseekrapidgrowthwhichunderminesthebarrierstogrowthargumentsoftenadvancedbypolicymakers.3.4BARRIERSTOTHEGROWTHOFTECHNOLOGYBASEDFIRMSTheemphasisintheUKandEuropeanliteratureonTBFsanduniversityspinoffsisonthelimitedgrowththatsuchfirmsachieve.Forexample,asignificantthemerunningthroughOakeysworkinthe1980sand1990swasthatTBFsintheUKexhibitedanunimpressivegrowthperformance.TBFsintheUSgrewmuchmoresignificantlyinaggregate(StoreyandTether,1998).Moreover,intheUK,andmoregenerallyacrossEurope,thereisanabsenceofextremelyfastgrowingfirmsthatisfoundintheUSA(StoreyandTether,1998).MuchoftheliteratureattributesthelimitedgrowthofTBFstothelackofaccesstofinance,especiallyventurecapitalwhich,inturn,isattributedtotheshorttermismandlackofriskappetiteamongstinvestors.However,thiscanbeinterpretedasaconvenientexcusetocoverupforthefailuretogeneraterevenueordemonstratecustomerdemand(Planys,2008).Othershavefocusedonthecharacteristicsofthefoundersofhightechfirms,notablytheir

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prioremploymentexperiencewhichistypicallyinresearchorganisationsandtheirlackofcommercialexperience.Wediscussthisfurtherinthenextsection.However,OakeyandMukhtar(1999)arguethattheproductlifecycleimposesparticularstrainsonhjghtechfirmsthroughouttheirexistence.Inmostcasesasubstantialamountofproductdevelopmentworkhastobeperformedbeforeanyincomeisderivedfromincomefromsales.Theproductlaunchislikelytobeatatimeofmaximumfinancialstress,whenR&Dcostshavebeenincurred,marketingneedstobefundedandnoincomehasbeenachieved.Firmsarevulnerableintheeventthatproductdevelopmenttakeslongerthananticipated.Moreover,asfirmsarelikelytobeabletodeveloponeproductatatimetheseperiodsoffinancialstresswillrecurasresearchanddevelopmentexpenditureforthenextproductoccursattimeswhenprofitsfromthecurrentproductaredeclining.ShouldthesalesofaproductbelowerthananticipatedandthusunabletocoverthecostsoftheR&D,thesurvivalofthefirmisatrisk.Thesecharacteristics,inturn,makethemtoohighriskformanyfunders.GeoffreyMoore(1991)hasaratherdifferenttakeontheeffectoftheproductlifecycleontheabilityofTBFstogrow.Thismodeldistinguishesseveraldifferenttypesofcustomer:

Innovatorsarepassionateabouttechnologyandsopursuenewtechnologyproductsaggressivelyevenbeforetheyhavebeenformallymarketed.

Earlyadopters,likeinnovators,alsobuynewproductsbecauseoftheirbenefits. Theearlymajorityarecomfortablewiththetechnologybutwaituntiltheyseeother

peopleusingtheproductsbeforebuyingthemselves. Thelatemajorityarenotcomfortablewiththetechnologyandsowaittopurchaseonce

ithasbecomeanestablishedstandardandsupportisavailable. Finally,thelaggardsarenotinterestedinthetechnologyandwouldonlybuysucha

productifitisembeddedinanotherproduct.

Theearlyandlatemajorityeachconstituteaboutonethirdofthemarket,soarekeytoafirmsgrowthandprofitability.However,whereasthebasicproductmodelassumesthatovertimefirmscanmoveseamlesslybetweenthesedifferentcustomersegments,Moorearguesthattherearediscontinuities,particularlybetweenearlyadoptersandtheearlymajoritywhichcancreateasignificantbarriertogrowth.Earlyadoptersarebuyingtogetasignificantadvantageovertheircompetitors.Theyexpectaradicaldiscontinuitybetweentheoldandthenew,butbeingthefirstcustomersarepreparedtobearwiththeinevitablebugsandglitchesthataccompanyanyinnovationjustcomingtomarket.Theearlyadoptersontheotherhandarebuyingforaproductivityimprovement.Theywanttechnologytoenhance,notoverthrowestablishedwaysofdoingbusiness.Aboveall,theydonotwanttodebugsomeoneelsesproduct.Bythetimetheybuyittheywantittoworkproperlyandintegrateappropriatelywiththeirexistingtechnology.However,crossingthechasmtothemainstreammarketrequiresbothasignificantincreaseinthescaleofoperationandchangeintheprinciplesandpracticesofmanagingfinances,organisationandproductdevelopment.

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Analternativeperspectiveforexample,voicedinapaperbyPlanys(2010),aScottishbasedtechnologyconsultancyisthatthemajorityofTBFsadoptatechnologypushapproach.Oftenledbyacademicswithverylimitedindustrialandcommercialexperience,theyareverydistantfromsalesandfewcanarticulatethenatureoftheirofferintheformavaluepropositionforthetargetcustomer.Theystruggletodifferentiatebetweenindividualprojectopportunitiesandscaleablemarketopportunities.Theyhavelittleinthewayofmarketinformationoftenbecausetheyareengagedinleadingedgeactivitythatrequiresthecreationofamarket.However,theyhavelittleornosalesandmarketingresource.Salespeople,ifemployed,tendtobemisused.Thesebusinessesarelikelytohavepublicsupporttodeveloptheirproductsandreceiveadvicefrompublicsector.TheyareoverfocusedonIPprotection.Theirmajorobjectiveistoattractfunding.PlanysarguesthatthisdiagnosisappliestoScotlandsearlystagetechnologybusinesses,whichtheydescribe(p.10)asbeingexceptionallyunderdevelopedinthecruciallyimportantcommercialareasandaresignificantlyunderinvestingintheircommercialcapabilities.Theyhighlighttwomaincauses.First,assistancewithsalesandmarketingisoftennotpartoftheportfolioofpublicsupportsectorsupport.Interventionsareprimarilyfocusedontechnicaldevelopments,IPprotectionandaccesstofunding.Totheextentthatsalesandmarketingsupportareprovideditisintheformofgrantsfortradeshows.Second,investmentisfocusedontheearlystageverificationoftechnologyprimingthepumpforlargerinvestmentsorearlyacquisitions.Inotherwords,theScottishinvestmentenvironmentiseffectivelyatransactionmechanismforgettingScottishresearchthathasbeenpubliclyfundedintotheglobalmarket,ratherthanadriverfordevelopingindigenousbusinesses.Planysarguethattheemphasisisontechnology,IPgenerationandtransactionsratherthanoncompanybuilding.Salesandmarketingdoesnotfitinthismodel.Thekeybeneficiariesaretheinvestorswhoreapthebenefitsofpubliclyfundedresearch,IPprotectionandcoinvestment.Thislackoffocus,understandingandinvestmentinsalesandmarketingfunctions,Planyssuggests,hasvariousconsequences:uninformedinitialspecificationsoftheproduct/service;lackofawarenessanddemandinthetargetcustomerbase;expensiveredevelopmentafterinitialmarketengagement;andlackofsalesrevenuetodemonstratemarketacceptance.This,inturn,condemnsmanytechnologystartupstotheshortlifeofstuntedgrowthandunfulfilledexpectations(Planys,2008,p.15).Bhid(2008)offersanotherperspectivewhicharguesthatonlysometypesofTBFsarelikelytogrow.Moreover,thesearenottheonesmostheavilyinvolvedinR&D.Hisargumentisthatfirmswhichareengagedinmakingbasicscience,engineeringortechnologyadvancesareunattractivetoventurecapitalfirmsforanumberofreasons.Theirtimescaleistoolongforinvestorswhoneedexitwithinfivetosevenyears,theyhavetocreatemarketsinordertogrowandtheirprospectsaretoouncertain.ItisthereforetoodifficultforVCstoevaluate.VCsprefertoinvestinfirmsthatareexploitinghighlevelknowhowthathasalreadybeendevelopedbyalaborinventorwhathecallsmidlevelknowledgewherethereisclearevidence(atleasttotheexperteye)oflargepotentialdemandandwhererapidexpansionisbothpossibleandofferssubstantialpayoffsintermsofcompetitiveadvantage.

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UniversitySpinOffCompanies(USOs)Universityspinoffs(USOs)areanimportantsubsetoftechnologybasedfirms.Forexample,inlifesciences34%ofstartupsbetween2005and2009wereuniversityspinouts(Crocker,2010).ItisarguedthatUSOsnotonlyfacethedifficultiesassociatedwithNTBFsingeneralbutalsofacesomeadditionalspecificobstacles,notably,thelackofcommercialskillsofacademicentrepreneursandtheconflictingobjectivesofthekeystakeholders,notablytheuniversity,theacademicentrepreneur,themanagementteamandinvestorsinthebusiness(Vohoraetal,2004).ThechallengesexperiencedbyuniversityspinoffcompaniesingrowinghavebeenexploredbyVohoraetal(2004).TheyarguethatUSOsgrowinanonlinearway,movingfromonedevelopmentphasetoanother.Thesediscretedevelopmentphasesareseparatedbyvariouscriticaljunctureswhichhavetobeovercomeifthefirmistoprogress.Thesephasesareasfollows:

Researchphasetheprioracademicresearchundertakenbythefoundingteamoveranumberofyearspriortostartup

OpportunityframingstagerecognisinganopportunityandtakingtheformativestepstocreatingaUSO.

Thepreorganisationphasehavingcommittedtocommerciallyexploitingtheopportunity,themanagementteamstartstodevelopandimplementstrategicplans.Thisincludestheestablishmentofcredibilityandtheacquisitionofthenecessaryresourcetostartthebusiness.

Reorientationphasethisinvolvestheattempttooffersomethingofvaluetocustomers.Theinformationandknowledgethatisacquiredfrominteractionswithcustomers,competitors,suppliersandpotentialinvestorsleadstochangesintheapproachofthebusiness.

SustainablereturnsphasetheUSOattainssustainablereturns.Thisislikelytoinvolveaweakeningofthelinkswiththeuniversity,forexample,movingoffcampus,recruitmentofprofessionalmanagers.However,atleastoneoftheacademicinvestorsislikelytocontinueastechnicaladviserwhileremainingattheuniversity.

VoheraetallarguethatfortheUSOtodevelopitsfullpotentialandbecomeanestablishedfirmgeneratingsustainablereturnsitmustsuccessfullyovercomethevariouscriticaljunctureswhichseparatethesevariousphases.Thesecriticaljuncturesare:Opportunityidentification.Theacademicshavetobeabletoidentifyasolutiontoamarketneed.Theproblemhereisthatwhilepossessingsignificanttechnologicalknowhow,academicstypicallyhaveinsufficientknowledgeofhowtoservemarketsandunrealisticexpectationsoftheprofitsthatcanbederivedfromthetechnologiestheyhavedeveloped.Academicentrepreneursoftenlackthenecessaryhumancapitalandpriorbusinessexperiencetoconceptualisehowatechnologicaldiscoverycanbebestappliedtomeetrealhumanneed.Abusinesswillnotsucceedunlessthiscriticaljunctureisovercome.

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Entrepreneurialcommitment.Intentionprecedesaction(tostartanewbusiness)andentrepreneurialcommitmentisnecessaryforapotentialentrepreneurialventuretobetakenforwardfromavisiontoabusiness.Thisinvolvestheacademicentrepreneurtakingvariousactionswhichinvolvemakingsignificantcommitmentssuchashiringamanageranddisengagingfromtheuniversityinsomeway.Academicswhoareuncomfortablewiththecommercialworld,lackfaithintheirownabilitiestocopeinacommercialworld,lacksocialnetworkstoidentifycommercialstaffandhaveaninabilitytodelegatecanpreventthiscriticaljuncturefrombeingovercome.Universitycultures,structuresand(lackof)policiesmaydiscouragethevariousactors(academicentrepreneur,hiredmanagers,investors)frombecomingsufficientlycommittedtotakethebusinessforward.Credibility.Theentrepreneurhastobeabletogainaccesstoandacquireaninitialstockofresourcesthatarenecessaryforthebusinesstofunction.Finance,particularlyseedfinance,iscritical.However,alackofcredibilityconstrainstheentrepreneursabilitytoaccessandacquirekeyresources.Meanwhile,achievingcredibilitywithexternalactors(e.g.potentialinvestors,potentialmanagers)arehamperedbytheintangibleassetsoftheUSO(e.g.patents)andthefoundingentrepreneurslackofacommercialtrackrecord.Certaintiestotheuniversitymightbeseenbyinvestorsasaliability.Sustainablereturns.Achievingsustainablereturnsafterthebusinesshasbeguntocommerciallyexploititstechnologicalassetsrequirestheabilitytocontinuouslyreconfigureexistingresources,capabilitiesandsocialcapitalwiththenewinformation,knowledgeandresourcesthatisobtainedfromengagementwiththemarket.Thisinvolvesaddressingresourceweaknesses,inadequatecapabilitiesandsocialliabilitiesandturningthemintostrengths.Forexample,informalstructuresneedtobereconfiguredintoformalstructuresandroutines.ThestudyofScottishUSOsbyTargetingInnovation(2008)identifiedanumberofcommonfeaturesofsuccessfulfirms.Management.Perhapscontrarytoexpectations,inalargeproportionofthemostsuccessfulspinoutstheinitialmanagementteamwasabletotakethecompanyfromstartuptomaturity.Moreover,bynomeansallhadpriorcommercialexperiencealthoughtheyallhadatleastonceexperiencedcommercialmanager.MarketsandCustomers.Mostsuccessfulcompaniesdivergedradicallyfromtheiroriginalplan.Relativelyfewsuccessfulcompanieshavedevelopedabusinessbasedontheiroriginalproductorserviceidea.Theyoftenendedupsellingdifferentproductstoadifferentsetofcustomersthantheyhadintended,usuallyoutofnecessity.Thisreflectsthatmosttechnologieshaveaverywiderangeofpotentialapplicationsanditcanbedifficulttoworkoutwhichisthebestmarket.Finance.About30%ofUSOsinScotlandreceivedsomeformofprivateinvestment.However,onlyafewhadbeenabletoraisethefundsneededtocreateasubstantialcompany.Thelesssuccessfulcompanieshavehadtostruggleasbesttheycanwithanirregularsequenceofsmall,

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suboptimalinvestments.Somecompanieshavebeenabletogenerateearlyrevenuesandsogrowwithoutsignificantexternalinvestment,butsuchfirmstypicallydonotgetbeyondtenemployees.SowhathasbeenthegrowthperformanceofUSOs?Onthewholetheevidencesuggeststhatthesefirmshavenotgrowntothelevelexpectedbypolicymakers(HarrisonandLeitch,2010).Aslongagoastheearly1990s,studiesofuniversityspinoffsinSwedenhighlightedtheirlimitedgrowth(e.g.OlofssonandWahlbin,1993).ArecentreviewofthegrowthofUSOsconcludedthatthevastmajorityofuniversityspinoffcompaniesaresmalltechnologybasedfirmssetuptoexploitlimitedportfoliosoftechnological/intellectualassets,andwithlimitedgrowthaspirationsorpotential(HarrisonandLeitch,2010,p.15).Intheirview,thebeliefthattransferringtechnologyfromuniversitiestothemarketviaspinoffcompaniesisbasedontheatypicalexperienceinSiliconValleyandtheRoute128area(HarrisonandLeitch,2010,p.7).ThisisconfirmedinastudyofuniversityspinoffsinScotlandbyTargetingInnovation(2008).Itnotedthattherehavebeenaround200spinoutsfromScottishuniversities,mostlysince1997.Ofthese,30percentarenolongertrading(whichisprobablyalowerfailureratethanforsmallbusinessingeneral),55percentemploylessthan10peopleandjust15percentemploymorethan50people.Ofthelatter,whichnumber17,justsixhavedevelopedtobecomesubstantialbusinesses,allofwhichhaveraisedbusinessangelorventurecapitalfundingandfivetookmorethantenyearstorealisetheirpotential.3.5.1CHARACTERISTICSOFGROWTHORIENTEDTBFSThisdiscussionofbarrierstogrowthraisesthequestionofwhatisdistinctiveaboutthosefirmsthatdoexhibitgrowth.Inrecentyearstherehasbeenagrowingliteratureonhighgrowthfirms.Indeed,onerecentreviewofthesestudiesidentified34empiricalstudies(DoddsandHamilton,2005).However,theoverwhelmingmajorityofthesestudiesdonotspecificallyexaminetechnologybasedfirms.Accordingtoobservers,broadlyspeaking,themaindeterminantsofsmallbusinessgrowthfallintofourmaincategories(DoddsandHamilton,2007):

1. Characteristicsoftheentrepreneur;

2. Characteristicsofthefirm;

3. Managementstrategies;

4. Environmental/industryspecificfactors.

UsingthisclassificationsystemwecanreviewtheliteratureofthenatureofgrowthinTBFsandNTBFs.

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3.5.1 CharacteristicsoftheEntrepreneurLevelofhumancapitalOneoftheissueswhichhasbeenmostinvestigatedisthelevelofhumancapitalthatthefoundersofnewhightechfirmspossess.Clearly,theknowledgeandskillsoftheentrepreneurwillplayasignificantpartinshapingthegrowthofafirm,especiallygiventhecomplexnatureofinnovationprocesseswithinNTBFsandTBFsmoregenerally.Forexample,longitudinalresearchundertakeninBritainbetween1986to1992foundthatacorrelationbetweenhightechfirmsizeandthegraduateleveleducationofentrepreneurs(WestheadandCowling,1995).Elsewhere,researchonNTBFsintheformerWestGermanybetween1989and1996foundthatpositivegrowtheffectswerederivedfromthehumancapitalofthefounder(s)(AlmusandNerlinger(1999).Thisholdsespeciallyforentrepreneursfromtechnicaldisciplineswhereasgeneralbusinessknowledgewasfoundtoplayalessimportantrole.Withrespecttononinnovativeyoungfirms,acomparablylowerinfluenceofthehumancapitalofthefounder(s)canbeassumed(AlmusandNerlinger,1999).Morerecentresearchonasampleof439Italianhightechstartupsalsoconfirmsthathumancapitalhasadirectpositiveeffectonfirmgrowth(ColumboandGrilli,2005).CorroboratingthefindingsfromAlmusandNerlinger(1999),thisworkshowsthatfirmsfoundedbyindividualswithselectedhumancapitalcharacteristicsspecificallyuniversityleveleducationandpriorworkexperienceintechnicalfunctionscanleveragethedistinctivecapabilitiesandknowledgetogrowmorethanotherfirms(ColumboandGrilli,2005).However,whilestronglyconnectingfirmgrowthtohumancapital,theproblemwithsomeofthesequantitativestudiesisthattheyfailtoshowpreciselyhowhumancapitalandskillsenableanentrepreneurtonavigateacompanytowardsahighgrowthtrajectory.ExperienceofFoundersCooperandBruno(1977)alsodiscoveredthathighgrowthTBFsweremorelikelytohavebeenstartedbyindividualsfromlargercorporatebackgroundswhosenewventureswereincognatetechnologicalareas.Laterresearchbyoneoftheauthorsconfirmedthatentrepreneursintechnical,growthorientedfirmstendtoemergefromrelatedincubatororganisations(Cooper,1985).Interestingly,thelatterstudyfoundthatexistingbusinessesratherthanuniversitiesorresearchinstitutesweretheprimarygeneratorsofgrowthorientedTBFs(Cooper,1985).TheunderstandingoftheoriginsofhightechentrepreneurswasextendedbyHarrisonetal(2004)inastudyofhightechentrepreneursinOttawa.Theirstudymakestwoimportantobservations.First,entrepreneursarenotlocal.Rather,theyareattractedtotechnologyclusters,orincipientclusters,byarangeofmagnetorganisations(talentattractors).Second,entrepreneursdrawontheirexperienceandthenetworksestablishedduringtheirentirecareer,workingindifferentorganisationsandplaces,andnotjustonthoseresultingfromtheirimmediatepastemployment.Thischallengestheconceptofanincubatororganisationasbeingtoosimplistic.Thesefactors(theimportanceofnonlocalentrepreneurs

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attractedbymagnetorganisations,andmultiplesourcesofemployment)isconfirmedinstudiesoftheCambridgecluster(Keeble,etal,1999).Theyarealsoconsistentwithmorerecentresearchwhichsuggeststhattheprobabilityofbecominganentrepreneurincreaseswiththenumberofdifferentprofessionsandindustriesanindividualhaspreviouslyworkedin(AstebroandThompson,2011).ResearchonthegrowthexperiencesofdifferenttypesofentrepreneursinScotland,notallofwhomareinhightechbusinesses,alsoconfirmsthebenefitofamultiplicityofbusinessexperiences(Westheadetal,2005).Threetypesofentrepreneurswereexamined:noviceentrepreneurs,serialentrepreneurs(thosebeginningnewbusinesseshavingsoldanexistingbusiness)andportfolioentrepreneurs(thosewithmultiplebusinessongoinginterests).Drawingondataon354privatefirmsinScotlandthisresearchdiscoveredthatportfolioentrepreneurshavemorediverseexperiences,andmoreresources,thanserialornoviceentrepreneurs.Theauthorsofthestudyconcludethat,onaverage,portfolioentrepreneursappeartogeneratemoreattractivegrowthprospectsthanotherentrepreneurs.Thisisbecauseportfolioentrepreneursaremorelikelytobemotivatedbywealthgenerationanddisplayhigherlevelsofgrowthinthebusinessestheyownthantheothercategoriesofentrepreneurs.Interestingly,theresearchfoundthatthetopfourpercentofthefastestgrowingfirmsownedbyportfolioentrepreneursgeneratedoverhalfofgrossnewjobscreatedbyportfolioentrepreneurfirms(Westheadetal,2005),confirmingthedisproportionateroleasmallnumberoffirmsplayinthejobcreationprocessfromentrepreneurship.EntrepreneurialMotivationRecentresearchhasrevealedthatstartingabusinesstoexploitabusinessopportunity(asopposedtostartingabusinessoutofnecessitysuchasthosemadeunemployed)isanimportantdriverofbusinessgrowthambitionsfortechnologyentrepreneurs(VerheulandMil,2008).Similarly,opportunitydrivenentrepreneurs,suchasthosewholeaveajobtostartanewventure,aremorelikelythannecessityentrepreneurstoexpectthattheirventurescreatemorethan20jobswithinfiveyears(Reynoldsetal,2002).Thelevelofambitionseemstobeconnectedtothelevelhumancapitaloftheentrepreneur.Forexample,ithasbeenfoundthatindividualswithahigherhouseholdincomeandgreaterlevelsofsupervisoryskillsexhibitagreaterdesiretogrowtheirfirm(Cassar,2006).Consistentwitheconomicmotives,theimportancethattheindividualentrepreneurplacesonfinancialsuccesswasalsofoundtobeakeydeterminantexplainingthegrowthpreferences,theintendedsizeoftheventureandtheactualgrowthachieved(Cassar,2007).Inotherwords,thosedrivenbymakingsubstantialmaterialgainsfromabusinesstendtogrowtheirbusinessmorethanthosewhomayviewabusinessasalifestyleorcareerbreakoption.Theweakgrowthencounteredbyuniversityspinoutsisoftenattributedtothefactacademicsviewbusinessasalifestyleoptionratherthananopportunitytomakesubstantialfinancialreturns(HarrisonandLeitch,2010).

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EntrepreneurialOrientationOverthelastthirtyyearstherehasbeenasizeableamountofresearchconductedonentrepreneurialorientation(EO)andtherolethisplaysinshapingthedynamismofentrepreneursandbusinesses(seeCovinandWales,2011).AccordingtoCovinandWales,EOreferstotheorganisationaldecisionmakingproclivitygeneratingentrepreneurialactivities.ThehistoryofEOresearchcanbetracedtotheworkofMintzberg(1973)whoconceivedEOasamanagerialdispositioncharacterisedbyanactivesearchfornewopportunitiesthroughwhichstronggrowthmightbeachieved.AccordingtoLumpkinandDess(1996,p.136137)EOhasthefollowingdimensions:apropensitytoactautonomously,awillingnesstoinnovateandtakerisks,andatendencytobeaggressivetowardcompetitorsandproactiverelativetomarketplaceopportunitiesThesetypesofcharacteristicsseemtofeaturestronglyinfirmswithhighlevelsofEOcomparedtolessentrepreneurialentrepreneursorfirms.AsaconsequenceofthisresearchanumberofdifferentmeasurementapproacheswereproducedtomeasuretheextentofEOwithinafirm(CovinandWales,2011).InTable1oneoftheearliestattemptsatmeasuringandassessingEOwithinfirmsisoutlined.ThisworkhasbeendevelopedandappliedtoalltypesofbusinessesandnotmerelyTBFswhichlimitstheusefulnessoftheseapproachessomewhat.Thistypeofmethodologyenablesresearcherstoteaseoutthelevelsofentrepreneurialorientationwithinfirmsbasedontheentrepreneursoutlookandbehaviouralcharacteristics.Thefindingsofametaanalysisof51studies(comprisingmorethan14,000companies)ofEOfoundthatthereisastronglinkbetweenEOandbusinessperformance(Rauchetal,2009).ThiswouldsuggestthatcompanieswithstronglevelsofEO(asdefinedabove)doachievesuperiorgrowthperformance.Table1:ACompositeMeasurementofEntrepreneurialOrientation

Ifanentrepreneurialfirmisoperationallydefinedasonethatengagesinproductmarketinnovation,undertakessomewhatriskyventures,andisfirsttocomeupwithproactiveinnovations,beatingcompetitorstothepunchthenmyfirmisanentrepreneurialfirm.

Ifthefirmcharacteristicallyexhibitshighlevelsofrisktaking,innovativenessandproactiveness.

Ifthefirmoftentakescalculatedrisksbypursuinginnovativeinitiativesbeforepotentialrivalsrecognizetheopportunitiesatwhichourinitiativesaretargeted.

Whetherrisktaking,innovativeness,andproactivenessareequallyinherenttothefirmsoverallbusinessorientation.

Whethertheinnovativeinitiativespursued/fundedbymyfirmareoftensomewhatriskyandindustryleading(i.e.choseninadvanceofotherfirmspotentiallysimilarinitiatives).

Whetherthefirmconcurrentlymanifestsrisktaking,innovativenessandproactiveness.

Whetherthefirmoftenpreemptsitsrivalsbybeinganearlyleaderwithinnovations

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whosesuccess Ingeneral,whetherthefirmisonthecuttingedgewhenitcomestoexploiting

entrepreneurialopportunitiesbecauseofourdesireanddemonstratedabilitytoembracenovel(andoftenrisky)innovativeinitiativesaheadofitsrivals.

Source:Miller(1983)GrowthAmbitionIncontrasttothelargevolumeofresearchwhichhasbeenconductedonentrepreneurialorientation,therehasbeenrelativelylittleresearchspecificallyontheimportanceofentrepreneurialgrowthambition.Atpresenttherehavebeennosystematicattemptswithintheacademicliteratureatcapturingdataongrowthambitionlevelswithincompaniesandhowthisaffectscompanygrowth.Littleinthewayofofficialsurveysarecurrentlyundertakenwhichexplicitlyattempttoelicitinformationonthisimportantindicatorofbusinessgrowth.Notwithstandingthis,however,certainproxiesexisttoassesscurrentlevelsofentrepreneurialambitioninScotland.Forexample,datacollectedbytheGlobalEntrepreneurshipMonitor(GEM)asksstartupentrepreneursandowner/managersfortheircurrentandexpectedjobsinfiveyears.DuetoitswidespreadcoveragethisenablesustocomparegrowthaspirationsinScotlandandotherpartsoftheUK.FromthisevidencethereisverylittleoveralldivergencebetweenjobcreationambitionlevelsbetweenScotlandandotherpartsoftheUK.Ontheotherhand,JohnsonandConway(1977)questiontheabilityofsmallbusinessownerstopredicttheirfutureemployment.Theirevidenceisthatverysmallfirmstendtosystematicallyoverestimatetheirprospects(p385).BasedonGEMdata,ScotlandcanbedifferentiatedfromtherestoftheUKintwoimportantrespects:

First,Scotlandcomesouttopforthenumberofrespondentswhoexpecttogeneratenonewemploymentfromtheirbusinessinthenextfiveyears(19%);

Second,comparedtoEngland(11%)andWales(11%),respondentsinScotland(6%)andNorthernIreland(7%)aremuchlessoptimisticaboutcreatingsizeablebusinesseswithinfiveyears(i.e.enterpriseswith250plusemployees).

Therealsoappearstobequitesignificantvariationsinambitionlevelsbetweendifferenttypesoffirms.Forexample,thereappearstobeevidencethatsomeyoungfirmshaveverylimitedgrowthambitionsandtendtobemorefocusedonfirmsurvivalratherthangrowth(Freel,1998).ArecentevaluationoftheSMARTinnovationprogrammeinScotlandappearstoconfirmthisassertion(PACEC,2009).Theevaluationdiscoveredthat81%ofsuccessfulSMARTapplicantswantedtoeithergrowmoderatelyorstaythesamesize.Only19%ofthefirmsactuallywantedtogrowrapidly.DynamicleadershipisakeyfactordrivingsuccessfulbusinessesinScotland(MasonandBrown,2010).Leadershipisdifferentfrom,butcomplementaryto,management.Kotter(2001)identifiesthreekeyrolesofleadership.First,leadershipisconcernedwithcopingwithchange,incontrasttotheroleofmanagementwhichistocopewithcomplexity.Second,leadershipis

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aboutarticulatingthevisionoftheorganisationinwaysthatarerelevanttothevariousstakeholdersintheorganisation.Anthird,leadershipisaboutmotivatingpeople.Leadershipisthereforecrucialtohelpovercomethemajorchallengesconfrontingrapidlygrowingbusinesses.Inparticular,thestudyfoundthatstrongleadershipandpersonalambitionwerecentralelementspropellingthegrowthofthesehighgrowthbusinesses.Insummary,whilerelativelylittleisknownabouttheoveralllevels(andkeydeterminants)ofambitionincompanies,itappearsthatstronglevelsofentrepreneurialambitionmaybeimportantforenablingbusinessestotakethenecessarystepstowardsactuallygrowingabusiness(MasonandBrown,2010).However,moreevidenceisneededbeforethisrelationshipcanbeproperlyvalidated.3.5.2 CharacteristicsoftheFirm

SizeofManagementTeamsThevastmajorityofresearchintothesizeofthefoundingteamsacrossalltypesofbusinesseshasproducedcompellingresultsshowingthatlargerteamshaveanadvantage(DobbsandHamilton,2007).Indeed,teambasedventuresaccountforadisproportionatelygreaternumberofrapidlygrowingfirms(Kammetal,1990).Inmanyways,thisfindingseemstobequitelogicalandcorrespondswiththeviewthatlargerteamshavemorefinancialresources,greaterlevelsofhumancapitaltodrawuponandlargernetworksthanasingleindividualentrepreneur.Moreover,teambasedstartupsneedtopursuebiggeropportunitiesifthebusinessistofinanciallysupportmultipleowners.Ofcourse,themanagementteamofabusinessespeciallyagrowingbusinessisunlikelytoremainstaticovertime.Itisoftenarguedthataprerequisiteforgrowthistheremoval,orsidewaysmove,oftheleadentrepreneurandreplacementwithaprofessionalmanager.Thisactionmaybeundertakenbyventurecapitalists.Indeed,ithasbeensuggestedthatthedefaultpositionofVCsisthatfounderCEOwillneedtobereplaced(Pollock,etal,2009).However,researchsuggestsamorenuancedconclusion,withfounderreplacementbeinglinkedtolevelsofsectoruncertainty,theVCsownrelevantindustryexperienceandthecharacteristicsofthefounderCEO(Pollock,etal,2009).However,thepropositionthatfoundermanagedfirmsperformlesswellthanprofessionallymanagedfirmswasnotsupportedbyWillardetal(1992)althoughthisstudywasnotconfinedtohightechfirms.Asfirmsevolve,boardsofdirectorsmayalsobeimportantinguidingtheirstrategicdirection.Zaharaetal(2009)suggestthatboardsenhancetheabsorptivecapacityofsciencebasedfirmsthataremovingbeyondtheirinitialstagesofdevelopment.Technologyintensivefirmsneedtolearnnewskillsandtoassimilateandexploitnewsourcesofknowledge.Therefore,effectiveboardscansometimessubstituteforpoorabsorptivecapacitywithinyoungTBFs(Colombo,2010).VCBackedFirms

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Thereisconsiderableevidenceofapositiverelationshipbetweengrowthandventurecapitalfunding.Venturecapitalinvestmentspeedsthedevelopmentofcompanies,enablingthemtotransformideasquicklyintomarketableproductsandbecomeindustryleadersthroughfirstmoveradvantages(Zhang,2007).Venturecapitalbackedcompaniesaimatmoreradicalinnovations,aresignificantlyfasterinintroducingtheirproductstothemarketandpursuemoreaggressivemarketstrategiesthanotherstartups(HellmannandPuri,2002).This,inturn,meanstheyareyoungerwhentheyachieveanIPOcomparedwithcompaniesthatwerenotventurecapitalbacked,andtheysustaintheirsuccessformuchlongeraftertheirIPO(GompersandLerner,2001).AstudyofVCbackedstartupsinIsraelalsofoundthattheyhadsuperiorperformancethannonVCbackedfirms(Avnimelechetal,2008).Therearetwoimportantqualificationsthisconclusion.First,venturecapitalistsarehighlyselectiveinthetypesoffirmsthattheywillinvestin.Specifically,theyseektoinvestinbusinessesthathavethepotentialtogeneratealargereturnontheirinvestmentsinafivetosevenyeartimeframethroughaninitialpublicoffering(IPO)orsaleoftheirinvesteebusinesstoacorporatebuyer.VCsthereforeinvestinmanagementteamsthatarecapableofrapidlybuildinganenterprise,andinbusinessesthathaveadurablecompetitiveadvantage,whererapidexpansionhassignificantpayoffs,andwhichoperateinmarketsthatalreadyhavesizeablesalesinconjunctionwithalargenumberofpotentialuserswhohavenotyetbecomecustomers(Bhid,2008).Thus,thesuperiorperformanceofVCbackedcompaniesmaypurelybedowntothefactthattheyhavebeensubjecttointensiveprescreeningandindepthduediligencewhichensuresthatthemostcapableonesreceiveinvestment,ratherthantotheaddedvaluethatVCsprovidetotheirportfolioofcompanies(Avnimelechetal,2008).However,inanimportantpaper,Peneder(2010)findsthatventurecapitalbackedfirmsgrowsignificantlyfasterthanotherfirmsandfurtherdemonstratesthatthepositiveimpactofventurecapitalinvestmentongrowthremainsaftercontrollingfortheselectioneffect.Second,VCinvestingfocusesonmaximizingthereturnstothefund,notinmaximizingthereturnsfromeveryinvestment.WhileVCsinvestonthebasisofexpectingeveryinvestmenttobesuccessful,therealityisthatthesuccessofthefunddependsonhavingoneortwoverysuccessfulperformers,whereastheotherinvestmentswilleitherperformmoderatelyorwillfail.Thus,thoseVCbackedcompaniesthatachievehighgrowthareonlyaminorityofallVCbackedcompanies.Afurtherproblemwithmanyofthesestudiesistheuseofcrosssectionalratherthanlongitudinaldatasourcesmeanswelacktheinsighttoseehowthesefirmsperformoveralongerperiodoftime.AccordingtoColomboetal(2010),recentstudiesusingtimeseriesdatatendtoshowacorrelationbetweenVCbackingandstrongersalesandemploymentgrowthinhightechstartups(seeBertonietal,2008).ExportorientationThereappearstobesomeevidencethattheinternationalisationprocessoccursdifferentlyaccordingtofirmtype.Onestudywhichcomparedbothtechnologyintensiveandtraditional

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firmsinthreedifferentregionsintheUKdiscoveredthatthereweresizeabledifferencesintheinternationalisationprocesses(Belletal,2004).Traditionalfirmsviewtheinternationalisationprocessfromamuchmorecautiousandincrementalperspective.Incontrast,knowledgeintensivefirmsarefarmoreopentorapidinternationalexpansionwithinternationalisationoftenoccurringconcurrentlywithdomesticexpansion.Moreover,technologyfirmshaveastrongercommitmenttointernationalmarketsintermsoftheirinternationalentrymechanisms.Inthisinstancetechnologybasedfirmsmayadoptamuchmoreaggressiveapproachtointernationalisationwhichinvolvesrapidanddeepengagementininternationalmarketsandsimultaneousdomesticandoverseasexpansion(Belletal,2004).Theconceptofbornglobalhasnowbecomecloselyidentifiedwithhightechfirms(Belletal,2004).Whiletherecanbedifficultiesdistinguishingbetweenknowledgeintensiveandtraditionalfirms,thisbasicdichotomyhelpstomakedistinctionsbetweenthebusinessinternationalisationprocessesofeachtype(seeTable2).Rapidinternationalisationhastobeviewedasaholisticprocessratherthanalinearorincrementalapproachastypicallydepictedbythoseadvocatingastagedapproachtobusinessinternationalisation(Jones,1999).Owingtothenatureofmosthightechnologyindustries,thereisastrongassumptionthattheirgrowthwillprimarilyarisethroughthepenetrationofinternationalmarkets.Indeed,researchTable2:DifferentInternationalisationStrategiesbyfirmtype KnowledgeIntensiveFirms TraditionalFirmsMotivation Proactive

EvidenceofstrategicthinkingandplanningNicheofferings/smallhomemarketInternationalfrominceptionActivesearchCommittedmanagement

ReactiveAdversedomesticmarketconditionsUnsolicited/enquiriesordersReluctantmanagementCostofnewproductionprocessesforceexportinitiation

Patterns ConcurrentNearsimultaneousdomesticandexportexpansion(insomecasesexportingprecedesdomesticmarketentry)LeadmarketsStrongevidenceofnetworks

IncrementalDomesticexpansionfirstPsychicmarketsLimitedevidenceofnetworks

Pace RapidFastinternationalisation(largenumberofexportmarkets)ManymarketsatonceNewproductdevelopmentofglobalofferings

GradualSlowinternationalisation(smallnumberofexportmarkets)SinglemarketatatimeAdaptationofexistingoffering

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MethodofDistribution/MarketEntry

FlexibleUseofagentsordistributors,butalsoevidenceofintegrationwithinclientschannels,useoflicensing,jointventures,overseasproduction,etc.

ConventionalUseofagents/distributorsorwholesalersDirecttocustomers

SubsequentInternationalisation

StructuredEvidenceofaplannedapproachtointernationalexpansionExpansionofnetworks

AdhocEvidenceofcontinuedreactivebehaviourtoexportopportunitiesUnrelatedtonewcustomers

Source:Belletal(2004)showsthatthereisastrongconnectionbetweenbusinessinternationalisationandrapidfirmgrowthwithinhightechstartups(Burgeletal,2000).Intheircomparativestudyofmorethan600hightechstartupsintheUKandGermany,Burgeletal(2000)discoveredthatfirmswithoverseascustomershadfastersalesgrowththanthosewhoonlysolddomestically.Thisrelationshipwasstrong:theeffectofinternationalisationonsalesgrowthwasquiteremarkableinitssize(Burgeletal,p.6).However,thestudydidnotfindthatsalesgrowthhadanimpactontheoverallgrowthofthesefirmsintermsofemployment.MorerecentresearchundertakenbyBIS(2010)alsoconfirmsthatbusinessinternationalisationisstronglyassociatedwithrapidfirmgrowth.BusinessModelsBusinessmodelsareacriticalcomponentincompetitiveness,yetarenotgiventheimportancetheydeserve.Inessence,abusinessmodelisthemethodofdoingbusinesstogeneraterevenue.Thebusinessmodeldescribeshowacompanymakesmoneybyspecifyingwhereitispositionedinthevaluechain2.Theacademicliteratureonhightechnologyfirmsmakesadistinctionbetweentwodifferenttypesofbusinessmodels:hardandsoft(ConnellandProbert,2010).Companieswithhardbusinessmodelsarethosewhodevelopaphysicalproductorserviceoffering(e.g.anewpieceoftechnology,equipmentorsoftware).CompanieswithsoftbusinessmodelsarescienceortechnologybasedwhosebusinessmodelistoprovideR&Dbasedservices(e.g.technicalconsulting,contractR&D)andwhichdrawsonitsexpertiseand/orproprietarytechnologiestoprovidebespokeofferingsforarangeofcustomersandapplications(ConnellandProbert,2010:3).Manysoftcompaniesfallintothetraditionaldescriptionsofsupport,orancillary,companiesratherthanthecorepartofanindustry.

2SeeMasonandBrown,2011,forexamplesfromtheirstudyofHGFsinScotland)

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Thereisevidencethatsomecompaniesfollowastrategyinwhichtheystartassofttogeneratecashwhichsubsequentlyenablesthentofliptobecomehard.ConnellandProbert(2010)provideevidenceofthisfeatureinaninvestigationof52softcompaniesinCambridgeshire.Theyfoundthatanumberoftheoldersuccessfulhardtechnologyfirmsintheregionhademergedfromsoftcompanies.Forexample,CambridgeProcessing,whichwastheprecursortoAcornComputersandARMPlc,initiallyfollowedthesoftmodelofprovidingspecialistbusinessservicestocustomers.Thesesoftcompaniesbuiltdistinctivecustomerfocusedbusinessmodelstoovercometheheavycapitaldemandsofdevelopingproprietarytechnology.Byusingbootstrappingfinancing(moneyfromfamily,friendsetc)thesefirmswereabletoremainingreatercontroloftheirdestinyandstaylocallybasedformanyyears(ConnellandProbert,2010:2).Byworkingwithmultipleclientsinthesametechnologicalareas,anddrivenbytheirmarketneeds,thesefirmsgraduallydevelopedauniqueknowledgebasearoundwhichtocreatetheirownIP.ThisstudybyConnellandProbert(2010)revealedthatsoftcompaniesemployed3,500people.Aswellasthisdirectemploymentcontribution,thesefirmsalsohelptogerminatehardcompanies.Theyalsoactasanimportantsourceofcomplementaryexpertiseforotherlocalhardcompaniesintheformoftechnologicalandproductivityspilloverswiththeirlocalclients.Theauthorsclaimthatthesoftcompanybusinessmodelbringsvariousbenefitstofirmsatdifferentstagesoftheirdevelopment:

Asastartupmodel:itrequireslimitedcapitalinvestmentorequipment;easytomanage;accesstoawiderangeofclients.

Asagrowthmodel:itallowsagradualbuildupofcapabilitiesandmarketunderstanding;facilitatesprogressivelylargerprojectsasresourcesincrease;permitsmoreorlessselffundedgrowth.

Asaplatformfortransitionintoproduct:providesmechanismsforongoingintelligencegatheringaboutemergingcustomerneeds;canturnmodestinvestmentsinIPintoadditionalrevenuestreams(e.g.viaorphanIPobtainedfromclients)

Asamechanismforexploringapplicationsofplatformtechnologies:enablesdifferentcommercialapplicationsofscienceorengineeringbreakthroughstobeexploredwithavarietyofdifferentcustomers;helpsaddresstheproblemsassociatedwithfundinglengthydevelopmenttimeframes.

Whileveryinsightful,moreworkisneededtobetterunderstandthetransitionfromsofttohardcompanies.Itisalsoimportanttonotethatsomefirmsmovefromthehardcategorytoprovidesofterelementsasasolutionprovider.3.5.3.ManagementStrategiesofTBFsStrategicConfigurations

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HavinglookedatvariousindividualandfirmlevelcharacteristicsunderpinningthegrowthofTBFswenowmoveontoexaminetheroleofbusinessstrategyinthegrowthprocess.Clearly,notallTBFsfirmswilladoptthesamestrategieswhentryingtoachievegrowth.Todate,therehasbeennospecificstudiescomparingtheexactdifferencesinmanagerialstrategiesbetweenTBFswhichgrowrapidlyfromthosethatarelesssuccessful.However,previousresearchhasexaminedthemanagementstrategiesofgrowingandnongrowingfirmsacrossallsectors(HansenandHamilton,2011).Thisworkidentifiedcertainfactorsthatwerepresentingrowingsmallfirmsthatwereabsentinnongrowers.Fourfactorswereinevidenceinthegrowingbusinesses:opportunisticperceptionsoftheexternalenvironment;controlledambitionoftheownermanagertogrow;abusinesscultureofinnovationandflexibility;anduseofextensiveprivatebusinessnetworks,includingportfolioentrepreneurship.Lookingspecificallyathightechfirms,thereissomeevidenceonthestrategicdifferencesbetweenthosethataresuccessfulandlesssuccessful.Forexample,MeyerandRoberts(1986)studiedtheeffectivenessofnewproductstrategiesintensmallTBFs.Theyfoundthathighperformingfirmsavoidexcessivetechnologicaldiversityintheirproductlinesandinsteadconcentratedonleveragingexistingtechnologieswhenintroducingnewproducts.Similarly,astudyofhightechfirmsinBelgiumfoundthathighperformancelevelsweretypicallyassociatedwithfeaturessuchasmarketingoffensiveness(proactivemarketingapproaches),technologicaloffensiveness(suchasheavyR&Dandlevelsofnewproductdevelopment)andtheextentofproductspecialisation(VandenAbeeleandChristiaens,1986).Anotherstudyattemptedtomapthestrategicconfigurationsof162adolescentTBFs(512yearsold)intheUS(Bantel,1998).Thestudyfoundthatsixmainbroadcategoriesorclusters:

Cluster1:Focusonnarrownicheofspecialisedinfrequentlypurchasedlargeinvestmentprojects.Thesefirmsdodirectsalesandsupport;

Cluster2:Spinoffswithrelativelystrongtechnology.Reliantonmajorprojects,oftenwithoriginalemployer;

Cluster3:Marketingandsalesexpertisetargetedatnarrowmarket; Cluster4:Technologyleaderswithahighdegreeofspecialisation,qualityandservice; Cluster5:Lackinginanyclearstrategicfocus; Cluster6:Broardproduct/marketreachwitharelativelyhighqualityandservice.

Bantelfoundthatfirmsinclusters1,2,4and6hadmoderatetostrongtechnologypositionswithgoodgrowthperformance.Incontrast,firmsinclusters3and5wereweakonthetechnologysideandperformedpoorly.However,oneoftheproblemswiththiskindofsnapshotofafirmsstrategicconfigurationisthatfirmstrategyevolvesovertime.Indeed,Bantelacknowledgesthatlongitudinalexaminationofthosefirmsthatsurvivedtoexaminetheirprocessesofstrategicreorientationmightprovidesomevaluableinsightintohowyoungfirmscontinuallyreviseandredirecttheirstrategiestocreateaviablefitwiththeirenvironment.

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AmajorinternationalstudyfortheWorldEconomicForumonthegrowthstrategiesofearlystagecompaniesidentifiedaslightlydifferentrangeofcategories(WEF,2010).Again,whatisstrikingisthediversityinthestrategiesdeployedbydifferenttypesoffirms:

WaveVenturesfirmscreatingnewwaveswhichinturncreateanentirenewindustry(e.g.Microsoft);

NewProductinNewCategoryVenturesinnovativedesign,newbusinessmodels,newdistributionchannels;

NewProductinExistingCategoryinnovativedesign,newbusinessmodels(e.g.NETAPORTER);

RedesignofBusinessValueChainVenturesfaster,cheaper,redesignofvaluechaindelivery(e.g.EasyJet);

DiscoveryandResearchKnowledgeVenturesfundamentalresearchanddiscovery(newdrugs)andexplorationanddiscovery(newoilfieldexplorationtechniques);

AggregationofExistingPlayersVenturesUsingbusinessacquisitiontogrow(e.g.WPPgroup);

Government/Regulatory/PoliticalChangeVenturesChangestotheregulatoryenvironmentprovidehugeopportunitiesforbusinessestocapitalise(e.g.FirstGroup);

IdeaTransferorTransplantVenturesexportingexistingideastonewgeographiesornewsectors(e.g.AirArabiaadoptedthelowcostbusinessmodeltotheMiddleEast).

Whilethisclassificationsystemaboveisinterestingandrevealsthediversityofdifferenttypesofnewearlystagecompanies,ithasanumberofflaws.First,somefirmsmayincorporatedifferentelementsofthesestrategieswithintheiroverallbusinessofferingandsodonotfallneatlyintoone.Second,itisastaticclassificationandsofailstocapturefirmswhichhaveshiftedentirelyfromonecategorytoanother.Third,itdoesnotdistinguishbetweenthestrategicbehaviourofTBFsrelativetoallfirmsasawhole.Evidenceseemstosuggestthattherearequitesubstantialdifferencesinmanagementstrategiesbetweenfirmsinhighandlowtechnologyindustries.Forexample,astudyconductedintheUSlookingatthesetwogroupsoffirmssomeinterestingdifferences(Covinetal,1990).Growthseekingfirmsinhightechindustries,relativetothoseinlowtechnologyindustries,tendtoplacemoreemphasison:

productrelatedissues(suchasnewproductdevelopmentandsuperiorproductwarranties);

formalplanningactivities; customerservice/support; externalfinancing; premiumpricingstrategiesandadvertising; entrepreneurialstrategicpostures.

ProductOfferings

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Productsareatriskofcommodificationwhich,inturn,forcesfirmstocompeteonthebasisofprice.Manyfirmshaverespondedtothistrendbyrepositioningthemselvesassolutionproviderstotheircustomersratherthanofferingasingleproductorserviceoffering.Indeed,forsomehightechcompaniesitisnowessentialtoprovetocustomersthattheyarebuyingaqualityproductsupportedbytheprovisionofthewholesolution(GilmanandEdwards,2008,p.540).Thepredominantviewofasolutionintheliteratureisacustomizedandintegratedcombinationofgoodsandservicesformeetingacustomersbusinessneeds(Tulietal.,2007:1).DosterandRoegner(2000,p.51)describeasolutionproviderasonewhopackagesandintegratescomponentstodeliveracomplex,turnkeysolutionthatmeetsaspecificbusinessneed.However,asseveralauthorshavenoted,suchclaimsmaymerelybefashionablestatementsofintent,ratherthanactualpractice(Cornetetal.,2000;Johanssonetal.,2003;NordinandKowalkowski,2010).Indeed,theseselfstyledsolutionsproviderscancausegreatharmtothemselvesbysendingoutthewrongmessageabouttheircapabilities.This,inturn,damagesrelationshipswithcustomerswhodonotreceivethefullsolutionsthattheywereexpecting(DosterandRoegner,2000).However,thosefirmsthatdosuccessfullydeliverontheirpromiseofdeliveringsolutionsareabletodifferentiatethemselvesfromcompetitorsandthereforechargepremiumsfortheirservices.This,inturn,givesthemasignificantadvantageovercompetitorsintermsofgrowthpotential.Indeed,previousresearchexamininghighgrowthbusinessesinScotlandnotedthatmanyweresolutionprovidersofferingcomplexbespokeproductsandservicestotheircustomers.Thistypeofbusinessmodelofteninvolvedrecurringorongoingincomestreamsfromcustomersandseemedtobeacommonstrategybothwithintraditionalandhightechbusinesses(MasonandBrown,2011).EndUserEngagementAcriticalimplicationofthissolutionsapproachtobusinessistheneedforcloseengagementwiththecustomer.ThisisillustratedinquotesfromthreerespondentstoBhids(2008)studyofventurecapitalbackedtechnologycompanies:

Weneedtotouchandfeeleverycustomerandgetadetailedunderstandingofexactlyhowtheyareusingtheproductanditsotherpotentialapplications.Weneedtohearoffthecuffremarkstheycanrevealagreatdeal.Whenyouaregettingyourinitialproductout,youwanttoberightthereonthecustomersite,helpingthedeploymentandlearningaboutmissingfeaturessoyoucanfeedthatbackintoyourproductandsalespitch.Itsveryimportantthatthepeoplewhoaredevelopingoursoftwareareinregularcommunicatio