Technology Entrepreneurship

Wolfgang Runge

Technology Entrepreneurship

A Treatise on Entrepreneurs and Entrepreneurship for and in Technology Ventures

VOLUME 1

Technology Entrepreneurship

A Treatise on Entrepreneurs and Entrepreneurship

for and in Technology Ventures

VOLUME 1

by

Wolfgang Runge

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Copyright Acknowledgements

Acknowledgements are due to the Zentrum für Europäische Wirtschaftsforschung

GmbH, Mannheim (ZEW) for permissions to reproduce a large number of figures

and tables from its publications.

Permission to use figures from the Global Entrepreneurship Monitor (GEM) 2008

Global Report, which appear here, has been granted by the copyright holders. The

GEM is an international consortium and this report was produced from data collect￾ed in, and received from, 43 countries in 2008. Our thanks go to the authors,

national teams, researchers, funding bodies and other contributors who have made

this possible.

Print on Demand 2014

ISBN 978-3-7315-0107-7 (Set)

DOI: 10.5445/KSP/1000036457

ISBN 978-3-7315-0108-4 (Band 1)

DOI: 10.5445/KSP/1000036459

ISBN 978-3-7315-0109-1 (Band 2)

DOI: 10.5445/KSP/1000036460

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Dedication

To my spouse Gisela and our daughters Diana and Sarah recognizing their enrich￾ments, stimulations and support for my life.

Acknowledgements

I thank Professor Dr. Stefan Bräse and Dr. Thierry Muller of the Institute of Organic

Chemistry of the Technical University of Karlsruhe branch of the Karlsruhe Institute of

Technology (KIT) for their continuous interest, support and time spent in many discus￾sions to make the Technology Entrepreneurship curriculum continuously happen.

For discussions and support thanks are also due to KIT Professor Dr. Orestis Terzidis

of the Institute for Entrepreneurship, Technology Management and Innovation

(EnTechnon).

The curriculum could not start and “survive” without the generous financial support of

our sponsors, the firms Altana AG, BASF SE, Evonik Industries, Henkel AG & Co.

KGaA, LANXESS AG, the Chemical Industry Association (VCI) and Zweibrüder

Optoelectronics GmbH.

I am indebted to the active roles taken by the technology entrepreneurs presenting

guest lectures as part of the Technology Entrepreneurship course. Additionally, these

entrepreneurs gave me the opportunity to discuss personal, emotional, procedural and

background matters of their firms in a very open and intimate atmosphere on the day

of their guest lectures and during telephone conversations which influenced writing my

book considerably.

Acknowledgements are also due to the intrapreneurs or managers of large existing

firms who provided guest lectures for the KIT Technology Entrepreneurship curriculum

on the research or innovation processes or new business development strategies,

respectively, of their firms.

Finally I appreciate also the contributions of those students of the curriculum who

asked tough questions and raised discussions whose answers and conclusions could

add to shape this book’s content.

About the Author

Wolfgang Runge is an independent scientist and consultant for various areas of inno￾vation and research in the chemical industry. He is a chemist by education with a

doctoral degree from the Free University of Berlin (Germany) and subsequently the

additional particular German degree of a “Habilitation” (Dr. rer. nat. habil.) from the

Technical University of Munich (Germany), which is usually one prerequisite to be￾come a professor in a science discipline at a German university.

After working for eight years in academic research, he turned for eleven years to ap￾plied research in the “Society for Information and Documentation” (in German

Gesellschaft für Information und Dokumentation – GID), a governmental research or￾ganization which eventually was incorporated into the “Fraunhofer GMD National

Research Center for Information Technology,” and then he worked for eighteen years

in industrial research in a German Research Center and in Corporate Research of

The Dow Chemical Company as “R&D Operations Manager,” “Information Project

Leader” and “Specialist.”

He published widely in leading scientific journals and books in Germany, the US and

UK in organic and physical organic chemistry, physical chemistry, chemical physics

and quantum-chemistry, information science and sociology of science.

Technical reports in the organizations he worked for included topics in chemical infor￾mation and computer science, innovation research, “electronic publishing,” document

architectures and markup languages, General Systems Theory (GST), information

economy and information systems development.

Major recent thrusts with Dow included “intellectual asset management” (IAM), “com￾petitive intelligence” activities for R&D and new business development, the XML

computer (markup) language and its use for Web services, development and imple￾mentation of a “technology intelligence” system having a “patent system” as a core.

Simultaneously, he further developed and applied “Knowledge Discovery in Text Data￾bases” (KDT) methodologies and techniques for various “intelligence activities.”

Since several years he fills the role of an adjunct (in German Gastdozent) at the

Karlsruhe University branch of the Karlsruhe Institute of Technology (KIT) leading the

Technology Entrepreneurship Curriculum. 1

Table of Contents iii

CONTENTS

PREFACE .....................................................................................................................vii

How to Read and Use this Book..................................................................................xvi

APPROACH................................................................................................................xvii

1. CONTEXTUAL SETTINGS........................................................................................ 3

1.1 Setting the Stage ................................................................................................. 3

1.1.1 Technology Entrepreneurship and New Technology-Based Firms ............. 3

1.1.1.1 Entrepreneurship and Technology Entrepreneurship ............................... 8

1.1.1.2 New Technology-Based Firms and Research-Based Startups............... 15

1.1.2 The Conceptual Skeleton of Entrepreneurship .......................................... 20

1.2 Systems, Change, Innovation and the Future ................................................... 32

1.2.1 General Systems Theory and Systems Thinking....................................... 32

1.2.2 Outlining Relevant Systems for Technology Entrepreneurship ................. 78

1.2.3 Systems, Intelligence, and Learning .......................................................... 94

1.2.4 The Technology Entrepreneur in Capitalistic Systems ............................ 100

1.2.5 Innovation, Technology, Competition and Growth................................... 109

1.2.5.1 Innovation, Its Adoption and Technology Classes ................................ 109

1.2.5.2 Aspects and Perspectives of Value....................................................... 130

1.2.5.3 Industry, Markets, Growth and Competition.......................................... 137

1.2.6 The Science & Technology System, the Innovation System and New

Technology-Based Firms .................................................................................. 156

1.2.6.1 Differentiating Groups of Technology Entrepreneurs............................ 188

1.2.6.2 Technology Incubation, Science or Technology Parks and Clusters.... 197

1.2.6.3 Technology Transfer to Small and Medium-Sized Enterprises............. 207

1.2.7 The Financial Subsystems in the US and Germany ................................ 210

1.2.7.1 Financial Sources for Technology Entrepreneurship ............................ 210

1.2.7.2 The Components of the Financing Subsystem for Technology

Entrepreneurship............................................................................................... 223

1.2.7.3 Options for Financing New Technology Ventures................................. 244

2. THE ENTREPRENEUR AND THE ENTREPRENEURIAL TEAM......................... 255

2.1 The Entrepreneurial Personality...................................................................... 256

2.1.1 Personality and Systems Theory ............................................................. 256

2.1.2 Personality and Behavior ......................................................................... 257

2.1.2.1 Psychometric Approaches to Entrepreneurial Personality and Problem￾Solving............................................................................................................... 272

2.1.2.2 Creativity, Imagination and Inspiration for Entrepreneurship................ 280

2.1.2.3 The Culture Factor ................................................................................ 283

iv Table of Contents

2.1.2.4 Education, Age and Work Experience of Technology Entrepreneurs...297

2.1.2.5 Foundation Motivations – Technology Entrepreneurs and Entrepreneurial

Teams as Systems ............................................................................................311

2.1.2.6 The Gender Factor for NTBFs...............................................................347

2.1.2.7 Visions, Missions and Values................................................................352

2.1.2.8 Ethics in Technology Entrepreneurship.................................................356

2.1.2.9 Conceptual Particulars of Applied General Systems Theory for

Observation, Measurement and Practice ..........................................................374

2.2 The Corporate Entrepreneur – the Intrapreneur..............................................382

2.2.1 Corporate Culture, Shaping Elements and Processes for Intrapreneurship

...........................................................................................................................388

2.2.2 Large Firms’ Problems with Disruptive Innovation ...................................398

2.2.3 Bootlegging in Large Firms ......................................................................403

3. IDEAS, IDEATION AND OPPORTUNITIES ..........................................................407

3.1 Business Ideas and Problem-Solving..............................................................408

3.2 The Idea and the Opportunity..........................................................................427

3.2.1 Hierarchies for Segmenting Macro-Trends for Revealing Opportunity ....454

3.2.2 Opportunity Evaluation and Feasibility.....................................................478

3.3 Ideation ............................................................................................................488

3.3.1 More on Principles of Ideation: Technological Paths, Combinations and

Transfer .............................................................................................................495

3.3.2 The Fuzzy Front-End of Ideas..................................................................513

3.4 Specifics for Software Firms and Technology-Based Services.......................515

3.4.1 Entrepreneurship in Video and Computer Games ...................................531

3.4.1.1 Gameforge AG and Zynga, Inc. ............................................................542

3.4.2 Special Entrepreneurship in Professional Social Networks .....................551

3.4.2.1 Xing AG and LinkedIn Corp...................................................................551

4. ENTREPRENEURIAL SUCCESS AND VENTURE GROWTH.............................557

4.1 Perspectives of Success of Entrepreneurship.................................................559

4.1.1 Hidden Champions – a German Business Success Configuration..........575

4.2 Entrepreneurial Risk-Taking and Decision-Making ........................................583

4.2.1 Risk Taking...............................................................................................590

4.2.1.1 Risk-Taking by Customers and Suppliers .............................................602

4.2.2 Decision-Making.......................................................................................603

4.2.3 The System of Failures and the Pitfalls for the Start-Up and Early Growth

Phase.................................................................................................................617

4.3 Approaches to New Technology Venture Growth ..........................................635

4.3.1 Life-Cycle Models and Stage-Based Views .............................................641

4.3.2 The Initial Architecture and Initial Configuration.......................................659

4.3.3 Resource-Based Views ............................................................................684

4.3.3.1 Bootstrapping a Technology Startup .....................................................690

4.3.4 Cybernetic Principles and Concepts for Technology Entrepreneurship...695

4.3.5 A Bracket Model of New Technology Venture Development ...................708

4.3.5.1 The Bracket Model ................................................................................718

4.3.5.2 The Bracket Model for Framing Empirical Observations and Explaining

NTBF Development ...........................................................................................735

4.3.5.3 Selected Quantitative Applications of the Bracket Model.....................770

4.3.6 Expectations of Growth of Technology Ventures .....................................783

Table of Contents v

5. PATHS OF TECHNOLOGY ENTREPRENEURSHIP ........................................... 819

5.1 Firm’s Foundation as Systems Design............................................................ 822

5.2 The Startups’ Evolvements for Growth............................................................ 831

5.3 Some Concluding Remarks............................................................................. 845

REFERENCES........................................................................................................... 847

NOTES....................................................................................................................... 924

APPENDIX A.............................................................................................................. 935

A.1 Entrepreneur, Company and Market Cases ................................................... 935

A.1.1 The Biofuels Bubble and the Related Outburst of Entrepreneurship and

Intrapreneurship ................................................................................................ 935

A.1.1.1 The Origins and the Drivers.................................................................. 936

A.1.1.2 The Technologies and Products’ Situation ........................................... 943

A.1.1.3 Intrapreneurship and Entrepreneurship in Biofuels: The Biomass-to￾Biofuels Boom ................................................................................................... 951

A.1.1.4 The Special Algae-to-Biofuels Boom .................................................. 1002

A.1.1.5 Structuring Entrepreneurship in Biofuels ............................................ 1051

A.1.1.6 The Shift from Biofuels and Co-Products to Biobased Chemicals as the

Primary Target of Entrepreneurship................................................................ 1112

A.1.2 William Henry Perkin and Industry Genesis in the Last Third of the

Nineteenth Century ......................................................................................... 1133

A.1.3 Structures and Issues of Current University-Industry Relationships ..... 1138

A.1.4 Foundation and Development of SAP AG in Germany ......................... 1146

A.1.5 Entrepreneurship Cases Referring to Ionic Liquids............................... 1150

A.1.6 Formalization of Structures of Founder Teams and Architectures of New

Firms................................................................................................................ 1171

A.1.7 Special Networking Effects for Entrepreneurship: The “PayPal Mafia”. 1182

APPENDIX B............................................................................................................ 1191

B.1 Background Information on the NTBF Selections........................................ 1191

B.2 List of NTBFs and Other Companies Surveyed by the Author ..................... 1193

B.3 Publicly Available Case Documents of Companies ...................................... 1199

Glossary................................................................................................................... 1200

Acronyms ................................................................................................................. 1218

INDEX ...................................................................................................................... 1225

Company Index.................................................................................................... 1225

Subject Index ....................................................................................................... 1236

Preface and Approach vii

PREFACE

Theoria cum Praxi

Gottfried Wilhelm Leibniz (1646 - 1716)

The current effort to grasp, organize and present knowledge and thinking about the

special phenomenon of “technology entrepreneurship” has practical origins. Intelligent

questions and controversial discussions with students during corresponding courses

over the last six years and discussions with the technology entrepreneurs who gave

guest lectures as part of the related course let me re-assess what I think to under￾stand about the topic. The result was disillusioning – not with regard to common

knowledge. But my conclusion was: I have to dig deeper into the subject.

Entrepreneurship means change in many facets of society. And as technology is ubiq￾uitous in modern societies and represents a large portion of the “real economy,” tech￾nology entrepreneurship contributes significantly to national and global economic

wealth and growth.

In a recent book of the author [Runge 2006] on the German and US chemical industry

some history of the industry, significant contributing firms and entrepreneurship was

dealt with in a restricted context of industry dynamics, innovation and research. Fur￾thermore, new technology-based firms (NTBFs) were discussed essentially with re￾gard to the roles they play currently for innovation by existing large companies. Con￾cerning innovation the emphasis was on people, change, uncertainty and risk and on

“innovative” behavior in the context of individuals founding innovative endeavors or

firms and innovation in organizational and inter-organizational contexts.

Even more than in the previous book the present treatise relies on principles and con￾cepts of Applied General Systems Theory (GST) [Van Gigch 1974; Skyttner 2005]. In

particular, GST has turned out to provide the proper concepts to consistently treat

entrepreneurship in existing firms (“intrapreneurship”) as a specialization of entre￾preneurship to found new firms within the same theoretical framework.

Since the “discipline” of entrepreneurship is a young one (relative to many other fields)

with contributions from many scientific disciplines, we are not seeing rapid conver￾gence towards a unified theory of entrepreneurship, and seeing even less agreement

on competencies required to do so.

Due to their many connection points to different scientific disciplines or sub￾disciplines, respectively, entrepreneurship is not a homogeneous field of research and

inquiry. And the entrepreneur and his/her decisions, actions and practice are embed￾ded into situations which do not allow caring how mankind has spread the require￾ments of “homogeneity” over various heterogeneous disciplines.

Moreover, corresponding incumbents and the public opinion take for granted that en￾trepreneurship is essentially a domain of business administration (mapped to “Be-

viii Preface and Approach

triebswirtschaft” in Germany) or economics. However, we share the opinion of A. Gibb

who is cited by Faltin [2007:33]:

“It seems that the importance of intense work on an idea has been subsumed

by the dominance of teachings of business knowledge. What is necessary is

to remove entrepreneurship from this narrow confine and the often close as￾sociation with business administration, a too narrow paradigm for entrepre￾neurship.”

Bhidé [2000:5-9] has focused the role of economics for entrepreneurship by the state￾ment: “Many of the variables studied in this book lie outside the domain of modern

economics.” And Johnson [2011] provides a harsh critique of professional economists

“They purport to know about trade and finance, about markets and credit, but I

struggle to identify the actual benefits of all their expensive advice and esoteric de￾bates. The only response I know to this nightmare is to encourage entrepreneurs to

start new companies.”

Bhidé [2000:xiii] cites the opinion that “education in business administration [was], at

best, a minor factor in successful business start-ups.” We hear also that business

schools providing training in entrepreneurship “usually succeed in imparting only the

skills of the manager.” [Bhidé 2000:9] And Schramm [2006a] added:

“The curriculum in most MBA schools is all about skill sets – there’s very little

that’s taught about the larger economic context. The degree has become

exactly what it is named, training in the administration or management of busi￾ness as opposed to the generation of business.”

Over the last decade entrepreneurship has become “big business” driven considerably

by policy, in terms of for-profit consulting and training – and higher education by uni￾versities or schools with business administration or economics grasping the opportu￾nities and grabbing university chairs and related departments. This is a perplexing

situation which has been spelled out recently:

“Considering that, as the present study has shown, a large proportion of foun￾ders of high-tech ventures have an engineering- or natural science-based

education, it is astonishing that education of founders in Germany is targeted

primarily at economists.” (Translated from [Gottschalk et al. 2007:65])

And in the US even the role of “green” MBAs for venture capital firms has been criti￾cally assessed (Box I.6).

And what do we hear in this regard from successful technology entrepreneurs, such

as (the German) Niels Fertig, the founder of Nanion Technologies GmbH who is highly

rewarded by several prestigious German entrepreneurship and innovation prizes?