Knowledge based
Entrepreneurship
by John Heebøll
NOTE: This is a pre-release version for students at DTU 42435, DTU 42705, Copenhagen University SCIENCE and KU-HUM/DTU Summerschool 2007. For your personal use only.
Preface
What is entrepreneurship? Think about it, and you will probably come up with several sensible definitions by yourself. Google it and you will find that the definition has intrigued scholars, economists, politicians and the like overwhelmingly. Summer 2006 gave 3.3 mills. hits on “entrepreneurship definition”. Google itself suggests this short one from the Government of Saskatchewan website: Entrepreneurship is "the process of looking at things in such a way that possible solutions to problems and perceived needs may evolve in venturing." This is a good one, indicating that entrepreneurship is about creating business out of problems. Hence, an entrepreneur is an opportunity-driven person, seeking value-creating solutions to needs and problems and turn them into money and positive cash flow.
Now, can entrepreneurship be taught and learned? The question was raised at an international conference in Vienna, July 1993 addressing universities’ education of entrepreneurs and it triggered a heated debate between the academia present. The English were against and found that entrepreneurs arise by themselves just like fluff. The Germans were for and found that entrepreneurs are created through goal-oriented and hard work in well-structured courses. The French discussed the question from a more sophisticated point of view and found both pros and cons. The conclusion landed somewhere in the middle: business start-up with success is conditioned by the ability to spot the potential for a business combined with factual knowledge about how to capitalize on it. Teaching and training entrepreneurship probably cannot change a person’s inherited entrepreneurial drive, but it certainly improves a person’s capacity for identifying and managing a complex business venture.
Let’s elaborate a bit on that one. With the acquired capacity comes some self confidence, based on a personal belief that you are able to sort realistic ventures from dream work, and that you are capable of mastering the process of getting a business up and running. What better preconditions for entrepreneurship can one imagine? So the author is a firm believer in the significance of good entrepreneurship teaching and training: it creates more and better entrepreneurs and as an inherent part of that: more and better companies.
The rest of this book is dedicated this purpose.
Being a kind of Mr. Pickwick within entrepreneurship in Denmark for quite some years, I report on what we may call the emergence of an academic entrepreneurial culture. Being also an observer of the American endeavours in this field, I report on similarities and differences. Since this is a preface: here are the digests. Consider them the axioms on which this book rests:
· During the late nineteen nineties and early third millennium, a Danish academic entrepreneurship culture has emerged out of universities and the knowledge based industries, driven mostly by political incentives and venture capital plus some inspiration from the outside world.
· This is in parallel to what happened in USA from late nineteen seventies, and basically we are just some twenty years behind. Hence, study the American high-tech entrepreneurial culture, and you will get a fairly good idea of what is going to happen here in Denmark in the coming decennia.
· In the nineteen eighties, entrepreneurship in US was spurred by concerns about the national twin deficit and the loss of global economical leadership. The buzzword was globalization to increase income from exports and decrease expenditures on import. Entrepreneurs were encouraged to develop internationally competitive products and start exports. To day, 2007, globalization still ranks high as a political goal for promoting entrepreneurship. However, much concern is also raised on the issue of finding strategic countermeasures to the fierce competition on classic industrial production from newly industrialized countries, particularly in Asia. Entrepreneurs are encouraged to join in the development of a completely new wing of highly competitive knowledge based industries, capable of gaining foothold on the international markets and expand, and we cannot get enough of them: the quicker the better!
· The academic entrepreneurial culture deals with complex commercialization processes, where the presence of capital, advanced specific knowledge and wideband interdisciplinary skills and resources combined, create the preconditions for success. In the start-up phase, the skills and experiences of the founding team are mission-critical, and venture capital is prudent. Capital is invested in teams capable of executing. Hence, you better get to know what execution is about before you launch your own venture.
High tech business start-up is a complex project to run. Apart from a mandatory technical knowledge within the core business, it takes an array of legal, economical and managerial skills and experiences. The task is also demanding both physically and mentally; you are quickly whirled into a chaotic and committing working life, which will absorb almost any free time. During the critical years of gaining your commercial foothold, it is never off your mind. To some, this is a rich and rewarding lifestyle. To others it is devastating. And you are probably somewhere in between. One of the purposes of this book is to introduce you to this kind of working life so that you can prepare yourself mentally and professionally - or opt out of it if your priorities are somewhere else.
This book differs as a textbook in that it treats the specific fields in a holistic approach. You will not be able to find that much specific information and tools, but you will be introduced to entireties and interrelations to enable you to acquire and maintain an overview of your own situation plus an appropriate set of priorities.
It is not bookkeeper qualifications that make you a successful entrepreneur. Success depends far more on your ability to maintain control of a complex situation, your ability to weed out the essential from the non-essential and your capacity for strategic thinking combined with energetic tactical execution, a continous focus on serving your customers’ needs while maintaining a sense of urgency. These abilities do not unfold unless you keep an overview of your project, and this is again is preconditioned by your ability to think in entireties and interrelations and to grasp a complex and highly detailed project.
The failure rate of new businesses is appalling, and it can be argued that no wise man or woman should ever engage in a business start-up. Observations however indicate that with methodical preparations, common sense, some intelligence, good customer relations, and good advisors with networks and managemeent experience, only few ventures flop. Quite a high proportion of them never really expand, though. Some even close down again, but the entrepreneurs get on, unhurt, to new endeavours – and with increased capabilites. This viewpoint, admittedly, does not rest on firm data and research, rather than the surprizing staying power of companies, started together with the Danish semi-public preseed investors: the innovation environments (innovationsmiljøerne), which methodically pick and choose the winning teams from their deal flow. Darwin at work, and the sorting criteria are management competencies and value creation perspectives combined.
This book aims at qualifying the reader’s capacity for identifying and pursuing perspective business ventures. You are introduced to the business plan, which is a mandatory compilation of your considerations, analyses and calculations. The business plan is your personal basis for your kick-off decision. It is also the indispensable precondition for acquiring capital and human resources. In appendix 1 you will find a commented recipe on how to make a business plan. Use it with a bit of imagination; include all the wisdom contained in this book plus a lot of common sense. Then your start-up project will not fail although no guarantees are given.
Many classic errors are repeated by one entrepreneur after another. It is senseless to fall into well-documented pitfalls. Turn to chapter XX and find them before you fall into them yourself. Equally, successful business start-ups have common features, which can also be studied in chapter XX.
Business start-up with success takes efficient resource management, the right kind of ressoruces (like money) at the right time, plus qualified business management. Read about how to manage your business in chapter XX, how to raise capital in chapter XX, and how to build up a competent management in chapter XX.
This textbook is first and foremost designed for the students that sign up at the entrepreneurial courses at graduate- and PhD-level at Technical University of Denmark and Copenhagen University. Thus, it addresses our darling: the knowledge-based high-tech entrepreneur and it takes you all the way through a venture-backed ambitious and growth-oriented internationally focussed start-up project. If you can do this, you can do anything. So if you are more attracted by a less ambitious and probably less risky concept, creating a sustainable, controllable and highly awarding working life for you and your co-founders and employees, you will also find most of what you need in this textbook.
The visiting lecturers at the entrepreneurial courses at Technical University of Denmark since 1993 have provided a substantial part of the input used in this book. They are successful and skilled entrepreneurs, they come from pre-seed and venture capital companies, they come from the Danish and Southern Swedish business community, from other institutions of higher education, or from industrial development programmes. It is a group of more than 35 competent and experienced consultants, investors, teachers, and entrepreneurs, all of whom I wish to thank dearly for their contribution since 1993. None mentioned – none forgotten.
It is not possible to write a practically oriented book about business start-up without involving the entrepreneurs themselves. From 1987 to 2000, Technical University of Denmark ran a centre for start-up companies: Innovationscenteret. In 2000 Innovationscenteret was acquired by The Hoersholm Research Center, which again was acquired by Technical University of Denmark and split into a research park, a pre-seed investor: SCION-DTU A/S and an innovation environment : DTU Innovation A/S. This system naturally is being swarmed with entrepreneurs and their start-up companies. They are an inexhaustable source for inspiration, information, experiences and knowledge – and visiting lectures. Thank you for letting me watch from the sideline and thank you for joining us in the lecture room.
Three major Danish industrial foundations initially funded the first and second edition of this book:
Tuborgfondet
Karl Pedersens og Hustrus Industrifond
Thomas B. Thriges fond
The foundations’ charters aim at supporting the development of Danish industry and business. I hope that this book will help to promote this purpose, and thank you very much for the economical support from these great institutions within Danish industry.
The third edition of the book has been funded in a collaborative effort between the International Danish Entrepreneurship Academy IDEA, Socialfonden (EU Foundation for the Improvement of Living and Working Conditions) and Erhvervs & Byggestyrelsen through grants to the Technical University of Denmark, Greenhouse+. (Greenhouse+ delivers entrepreneurship teaching and training as well as pre-start consultancy at the DTU campus in Lyngby, Copenhagen.) Thus, these three major promoters of entrepreneurship together with Technical University of Denmark, Department of Manufacturing and Management have enabled a long needed update of the textbook for which I – and hopefully also my future students - and the reader - are grateful.
Snekkersten, August 2007
John Heebøll
Summary
The focus of this book is the knowledge-based business: a company, which to a considerable extent is based on advanced technical specialist knowledge.
The first chapter concludes that there is a great need for knowledge-based entrepreneurs in our society. They stimulate the knowledge diffusion from research to business. They revitalize industry by filling gaps and by capturing technology-driven business opportunities. They are important drivers in the continous adaption of industry and businesses to the ever-changing conditions on national and global markets. Some of them succeed in creating stunning ventures that surpass the community of well established, well run companies on valutation and shareholder value to underline the importance of a vibrant community of start-ups as the breeding ground for future large and globally competitive companies. Together, they impact the gross domestic product (GDP) visibly, and whether big or small, growing or stationary, they provide exiting and challenging working lives for founders and employees.
The following chapters XX - XX deal with the fundamentals of starting a new business. The classic question about how you identify a business opportunity is discussed. Opportunity-driven creativity as an adaptable skill as well as some appropriate commercialization strategies for bringing the ideas via products or services to the market are introduced. So is the working life in a newly established knowledge-based business. Observations on the entrepreneur’s background, personality, and motivation are quoted, the classic startup process is introduced, and last but not least, the classic doctrine of success and failure of the startup is reviewed.
Then we turn to the mysterious art of creativity. A relative short chapter explains the origin of ideas, and concludes, that opportunity–driven creativity can be acquired and perfected. Once the idea is there, action must be taken to commercialize – but how? For this, the difficult but important art of developing appropriate business strategies is introduced..
In chapter XX, the business plan, which is the synthesis of the preliminary surveys and analyses, with an execution plan and some budgets on top of that, is introduced. Appendix 1, which is an extension of chapter 6, is a recipy for business planning, designed as a tool for systematically analysing and planning a new venture.
The remaining XX chapters dig into classic fields within economy and law, in order to highlight problems, essential to a knowledge-based business start-up process. The idea is to provide the reader with operational and practical solutions to problems and challenges that are generic to high-tec start-ups. This should remove any excuse for staying behind your desk for too long. New companies are not created in the office, at the desk. Hiding among your books, notes and computers for fear of the real world, where your ideas are put to the test, is one of the most classic entrepreneurial pitfalls. You need to go out and do it.
The last chapter deals with intellectual property rights (IPR) such as patents and critical know-how from the start-up company’s perspective.
Hopefully, at the end, the reader has acquired an overview of how to handle a complex commercialization process, which again can be turned into a realistic business plan, a sound and well founded decision and, at the end: a successful new business venture, based on good business management and entrepreneurship.