by Scott A. Shane
The first rule of technology entrepreneurship explained in this book is to select the right industry in which to found a new firm. Some industries are simply better than other industries for the creation of new companies. For instance, fully one-fourth of all the companies listed on Inc magazine's list of the 500 fastest growing private companies since 1982 have been software firms. Moreover, the proportion of start-ups in an industry that experience an initial public offering or are listed in the Inc 500 varies by a factor of over 800 times between some of the more favorable industries and some of the less favorable ones. Chapter 1 identifies the industries that are favorable for founding new firms and explains why those industries are more favorable to new firms than other industries. Specifically, the chapter examines five different dimensions of industry differences that influence the performance of new firms: knowledge conditions, demand conditions, industry life cycles, the presence or absence of a dominant design, and industry structure.
The second rule of technology entrepreneurship is to identify valuable opportunities. One of the ironies of entrepreneurship is that, despite the motivation of the world's entrepreneurs, we do not really need many new businesses. Established businesses are already meeting most market needs quite effectively because, in the absence of some sort of external change, someone will have figured out already how to satisfy the needs of potential customers. Therefore, to be a successful technology entrepreneur, you have to find an external change that creates an opportunity for a new business. Chapter 2 explains why opportunities for new technology companies exist and what the sources of those opportunities are. In general, three sources of change--new technology, political and regulatory shifts, and social and demographic movements--open up opportunities. The chapter also discusses the types of innovations that generate entrepreneurial opportunities, as well as the place within and outside the value chain where those innovations tend to occur. Furthermore, the chapter explains why and how some people and not others identify those opportunities.
The third rule of technology entrepreneurship is to manage technological transitions. Entrepreneurial success is enhanced by starting a firm to transition from one technological paradigm to another because change in a technological paradigm undermines the advantage of established firms. For example, few entrepreneurs have ever been able to start new firms that challenge Kodak's position in traditional film, but the shift to digital camera technology made it possible for many entrepreneurs to enter and compete with Kodak. Chapter 3 explains how you can manage technological transitions to become successful. The chapter explains:
The fourth rule of technology entrepreneurship is to identify and satisfy a real market need. To be successful, you must introduce a new product or service that offers an economical solution to an unsatisfied customer need or that satisfies a customer need better than existing alternatives. Chapter 4 explains how successful entrepreneurs go about identifying customer needs for high technology products and services in ways that go beyond the traditional market research methods of surveys and focus groups. The chapter provides insight into why and how the advantages of successful new firms lie in product development rather than in manufacturing or marketing. Finally, the chapter explains how successful technology entrepreneurs identify the key decision makers in purchasing decisions, as well as how these entrepreneurs price their new products and services to make them attractive to these decision makers.
The fifth rule of technology entrepreneurship is to understand customer adoption and market dynamics. Contrary to the popular conception that evaluating markets is as simple as looking for large markets, evaluating markets for new technology products and services is relatively complicated. In particular, it requires successful entrepreneurs to take a dynamic approach that forecasts the adoption patterns for new technology products and services and explains how markets for these products and services evolve. Chapter 5 explains why new companies have to focus their new product or service development efforts on particular market segments, but why choosing where to focus effort is hard to do. The chapter also explains how successful entrepreneurs evaluate the customer and their reasons to buy as a way to determine where to focus their efforts. Furthermore, the chapter discusses the evolution of markets for new technology products and services, particularly the dynamics of technology diffusion and substitution.
The sixth rule of technology entrepreneurship is to exploit established company weaknesses. Most of the time, established companies succeed when they compete with new firms because of the wealth of advantages in marketing and manufacturing that they have. However, established firms have several weaknesses that hinder their efforts to exploit technological opportunities that new firms can exploit. Chapter 6 identifies what you should do to compete successfully with established firms in high-technology settings. For instance, the chapter explains why you should pursue uncertain, disruptive technologies that demand new architectures, first focusing on niche customers in small market segments, and then expanding up market. The chapter also explains why you should focus on technologies that cannibalize established firms' investments, make established firm capabilities obsolete, and impose large exit costs on firms using the old technology.
The seventh rule of technology entrepreneurship is to manage intellectual property effectively. Introducing a product or service that meets a market need is a necessary, but not sufficient condition to profit from innovation. You must also protect your innovation against imitation. Chapter 7 discusses basic ideas behind appropriating the returns to innovation, focusing on the choice between secrecy and patenting.
The eighth rule of technology entrepreneurship is to create barriers to imitation. Chapter 8 examines how you can create barriers to imitation by controlling resources, establishing a reputation, creating a first mover advantage, exploiting the learning curve, and making use of complementary assets in manufacturing, marketing and distribution.
The ninth rule of technology entrepreneurship is to choose the right organizational form. Chapter 9 explains when you are best off owning the various parts of the value chain, such as product development, manufacturing, and distribution, and when you are best off using market-based mechanisms, such as licensing, franchising, and strategic alliances, to control them.
The tenth rule of technology entrepreneurship is to manage risk and uncertainty effectively. Chapter 10 describes the tools and techniques that successful entrepreneurs use to reduce, reallocate, and manage risk. The chapter also discusses the use of real options and scenario analysis, as well as behavioral techniques for convincing others to bear risk, such as escalation of commitment, bringing together different parties at the same time, and closing skills.
The conclusion of the book returns to the theme introduced in the first chapter about the importance of understanding how to identify valuable opportunities for the creation of new technology companies. Specifically, it summarizes the key actions that you should take to come up with an opportunity that will support, and even foster, the creation of a new high-technology company.
