XXXV CONFERENZA ITALiANA DI SCIENZE REGIONALI
New ventures and the development of marketing capabilities: the role of business innovation ecosystems
Marco BETTIOL[1], Valentina DE MARCHI[2], Eleonora DI MARIA[3], Roberto GRANDINETTI[4]
SOMMARIO
The paper aims at pointing out how new ventures develop the capabilities they need to compete, focusing particularly on marketing capabilities that, although are usually overlooked in favour of technical capabilities, are important for the survival of the firm. Literature on new ventures has explained the characteristics and dynamics of firm birth, but additional knowledge is needed to understand how new ventures learn new competences considering that they suffered from an initial gap. Based on an original dataset of more than 400 Italian new venture firms specializing in the mechanics and KIBS sectors, the paper investigates the drivers of marketing capabilities development by new ventures starting with an initial marketing gap. Empirical result suggest that mixing heterogeneous competences, being both internal to the firm (when founders are experiences in different sectors) and external to the firm (developing external relationsand an effective eco-system) is key to fill in the marketing gap, whereas structural characteristics such as size and industry do not play a role. Interestingly, the factors supporting the development of competences after foundation are not the same affecting the probability to have high capabilities at foundation.
1Introduction
As several streams of literature pointed out, capabilities play a crucial role for sustaining firm’s competitive advantage (e.g. Teece, 1986). Those capabilities refer to knowledge acquired by the firm in different ways (learning by doing, formal training, entrepreneurs background, external partners, etc.). This process is particularly critical in the formation of a new venture where the firms is fragile because is in the process of developing and refining its capabilities.
Literature on new ventures explored the processes of formation of a new firm and described how the new venture can start with a certain stock of capabilities at its birth (e.g. Helfat and Lieberman, 2002; Klepper, 2002). However, little attention has been given to describe and explain the following development of new ventures internal capabilities, beyond foundation. Further knowledge has to be provided to explain how a new venture can improve its capabilities and the drivers of such process. Specifically additional research should focus on considering the sources the new venture may rely on in order to cope with perceived capability gaps.
Our paper aims at pointing out how new ventures fill their capabilities gap with a particular attention to marketing capabilities. Even though many studies focused on technical capabilities, in our view even marketing ones are important for the survival of the firm. In order to address this question, we analysed data gathered from an original survey of more than 400 new ventures based in North Italy specializing in high tech industries. The results of our research points out the relevance of the business innovation ecosystems in which the firm is born and evolves.
The paper is organized as follow. Section 2 presents the theoretical framework and the research question related to how new ventures cope with capability gaps they suffer at their birth. Section 3 focuses on how data were gathered and the methodology used to address the research question. In section 4 we present the results of our analysis. Section 5 and 6 refer respectively to discussions of the results and conclusions.
2Theoretical framework
2.1The birth of capabilities
As far as the new venture literature is considered, one of the most discussed topic is how they can form the capabilities needed to operate in the market or 'the birth of capabilities', to quote the title of the seminal contribution by Helfat and Lieberman (2002). In that paper, the authors analyze several types of mechanisms that drive the formation of new firms[5], which they group into two broad categories: i) the parent-company ventures (joint ventures, franchises and parent spin-offs), which born as a decision of the existing company; and ii) the de novo ventures, which are not connected with an existing company, nor proprietary nor quasi-proprietary-wise, which can take on different forms including spin-offs founded by employees of existing firms. Helfat and Liebermann define de novo spin-offs in a restrictive manner – requesting that the emergent entrepreneur belonged from an incumbent firm in the same industry of the one he is creating – whereas other authors adopted a broader definition including both intra-industry and inter-industry instances (Klepper, 2009).
The most interesting aspect of the typology proposed by Helfat and Liebermann is the link between the birth of capabilities and the resources that they entail. The authors, in fact, highlight that the pre-entry resources and capabilities vary by type of new venture and that such differences have important implications, in particular they affect the likelihood of entry success. For example, the initial resources and capabilities of parent spin-offs depend on the extent to which the parent firms transfer personnel, organizational systems, physical assets and brand names to the new entities at the time of founding. Even if new ventures receive no assets other than initial financing from the parent companies, the ventures frequently access to parent-firm resources such as infusions of capital, and management advice (e.g. from board members who are executives in the parent firms) (Helfat and Lieberman, 2002, p. 734). The other types of parent-company venture can count on the fact that the resources are not coming from a sole company but from two or more, so that their initial resource base is likely larger and more diverse. As far as joint ventures are considered, the strategic importance of their hybrid nature was highlighted already by the seminal study by Kogut (1988): through their establishment, partners may combine resources and capabilities being diverse and complementary.
Moving to de novo ventures, they initially hold, on average, lower resources and capabilities of parent-company ventures. However, it is important to highlight that the de novo category is a rather heterogeneous one. More precisely, intra-industry spin-offs are favored with respect to the other de novo firms that at foundation are facing a market situation with which they are less acquainted. Moreover, spin-offs founded by a team of entrepreneurs (coming from the same or different firms) pool different complementary stocks of resources and capabilities (Vyakarnam, Jacobs and Handelberg, 1999; Agarwal et al., 2004) and are therefore favored as respect to spin-offs created by a single entrepreneur.
Among the resources that a firm need at foundation, knowledge necessary to develop the product so as to produce and market it (Teece, 1986) deserves a special attention, considering that this pool of knowledge translates into results useful for the company just if adequate capabilities are present (Amit and Schoemaker, 1993). Beyond the birth of a new company, being it a parent-company venture or a de novo one, there is a more or less sizeable stock of knowledge that it inherits. The heritage process has been analyzed mostly in the studies on de novo spin-offs (which from now on we will name simply spin-offs), where it gets a precise configuration: within a company, which can be interpreted as a knowledge repository, one or more employees and future entrepreneurs use their absorptive capacity (Cohen and Levinthal, 1990) to learn at least part of the knowledge embedded in the firm; by leaving the parent company such people apply the knowledge absorbed/inherited by creating a new firm (Klepper, 2001; Agarwal et al., 2004; Camuffo and Grandinetti, 2011). Tacit knowledge – which employees acquire largely through processes such as learning by doing and learning by observing (Nonaka and Takeuchi, 1995), and which they keep when they leave to start new ventures (Agarwal et al., 2004) – is of particular importance at this regard. The more the parent firm is rich in terms of knowledge, the larger the potential initial stock of inherited knowledge in the spin-offs that generated from it. For example, studying the new entries in the automotive industry in the United States between 1895 and 1966, Klepper (2002) discovers that the most competitive firms are those founded by people having a long experience within the industry leader firms. Such results support that the generalization suggested by Helfat and Liebermann (2002) has to be considered with caution, as the authors themselves suggests; a spin-off coming from one of the leading company of the industry can enter the same market having an important cognitive advantage as respect to a parent spin-off from an incumbent firm being far beyond the leaders.
The formation of the capabilities of a new venture does not occur just because of a heritage process, irrespectively to its link with a parent firm. Another, relational, factor plays an important role too. As far as de novo firms are considered, as suggested by a wide literature, the interpersonal relations are a key factor. These relations are those the founder or the founding team have managed when developing the new-firm idea (incubation phase) and/or around birth time (resource assembly phase, in the wording by Stuart and Sorenson, 2007). The incubation phase can be considered as a period of learning and preparation for the entrepreneurial activity. The future entrepreneur, through the network of relationships that he develops in the course of time, i.e. his social capital, acquires knowledge that may have an equal relevance than that absorbed within an established firm (Garnsey, 1998; Furlan and Grandinetti, 2014). Even in the phase of resource assembly, interpersonal relationships play a crucial role (Birley, 1985; Starr and MacMillan, 1990; Hansen, 1995; Elfring and Hulsing, 2003). For instance, the new entrepreneur can manage to recruit an expert technician that he knew during his previous professional life, taking him away from an incumbent firm. Considering that the social capital gained by people is, on average, higher within geographical clusters, they have been considered elective places for the birth of new firms (Lechner and Dowling, 2003; Sorenson, 2003).
2.2Capability gaps and their bridging in the start-up phase
To sum up our literature review on the birth of capabilities it is useful to position it with respect to two precedent theoretical approaches: the theory of liability of newness and the resource-based view.
New firms, at birth and in the subsequent period, suffer a disadvantage with respect to older firms in terms of resources and capabilities. This aspect depends on the so-called liability of newness, a phenomenon discovered by Stinchcombe (1965) that depends from factors such as the fact that new firms operate inefficiently as long as organizational routines have not been developed. Stinchcombe theory is still valid (Abatecola, Cafferata and Poggesi, 2012) because it explains the high average mortality of new ventures compared to older companies. However, whereas liability affects new venture in generals, studies on the birth of capabilities suggests that firms are not all equal as far as resources and capabilities are concerned. Basically, they confirm and complement what the resource-based view discovered for established firms, i.e., that the distribution of resources and capabilities among firms is clearly asymmetrical (Rumelt, 1984; Amit and Schoemaker, 1993). Such an asymmetry at birth can be explained by different factors: the type of enterprise creation mechanism; the differential capability of employees to absorb knowledge relevant for the future business at firms where they develop their business idea; the personal capabilities of the potential and then emergent entrepreneurs to use their interpersonal relations in the formation of resources and capabilities of the new firm; the relative advantage of entrepreneurial projects rising within firms with abundant knowledge and/or in geographical contexts with a dense web of relationships, i.e. geographical clusters.
The literature reviewed open up an important research question, that has not received adequate answers yet: if the firm suffers, at its foundation, of an important capability gap, how can it fill it in a short time, i.e., within the start-up phase? Such a question can be further specified considering for functional capabilities and more specifically adopting the traditional dichotomy between technological and marketing capabilities (Teece, 1986; Day, 1994). Several studies suggest that such a dichotomy is relevant even in the case of new ventures. For example, in the case of a peculiar category of spin-offs, i.e. academic spin-offs, studies highlight that many of them show a great disproportion in favour of technological ones (Chiesa and Piccaluga, 2000; Lockett et al., 2005). Considering spin-offs founded by former employees of an incumbent firm, the study by Agarwal et al. (2004) hypothesizes and tests that organizations with high technological capabilities and low marketing ones, or being in the opposite case, are the ones that generate more spin-offs. The reason behind such evidence is that asymmetrical organizations tend to create frustration among their employees, who perceive their organization as systematically missing out on either value-creating or value-appropriating opportunities (p. 504). As a consequence, new firms born in the first or the second situation have or, better, inherit a capability gap that the emergent entrepreneurs may try to fill in the more or less short phase that precedes the creation of the new firm or have to do it in the start-up one.
Leveraging on the insight described we propose the matrix reported in Fig. 1. If the new venture has an adequate stock of both types of capabilities its survival probability will be quite high, whereas the opposite situation leads to higher mortality rate. Intermediate situations, when firms lack just one of the two types of capabilities, are the most interesting one. Indeed, the object of our study is to understand how such a gap can be filled in by new ventures in order to increase its probability to continue its activity over time.
Fig. 1 - Capability gaps at the birth of a firm
3Empirical analysis
The data for the analysis are drawn from an original survey that addressed specifically new-ventures and was conducted between February and June 2013. The universe considered for the purpose of the analysis consists of all the companies registered within the business register of the Italian Chambers of Commerce that comply with all the following characteristics. First, they are born between 2005 and 2007 – the years preceding the great recession. Second, they are shared capital companies being still active in 2013. This choice allow to focus just on ‘successful’ new venture – firms that have accomplished to survive more than five years after the foundation, resisted the recession, and that settled into more complex legal forms. Third, they are located in North Italy, namely within any of the following regions: Emilia-Romagna, Friuli-Venezia Giulia, Trentino Alto-Adige and Veneto (North-East) or Liguria, Lombardia, Piemonte, Valle D’Aosta (North-West). The Northern part of Italy is a perfect fit for such an analysis. It is characterized by a diffuse entrepreneurship (on average one firm out of 100 inhabitants) and high birth rates (De Marchi and Grandinetti, 2012). The presence of industrial districts specialized in several industries so as of important research institution support the presence of important competences and high innovation performance. Some of its regions, Veneto, Piemonte and Lombardia in particular, are among the most innovative in Italy, with almost half of the SMEs having introduced innovation and 60% performing R&D on a continuous basis (De Marchi and Grandinetti, 2013), even if still slightly underperforming with respect to European leaders such as Baden-Wüttemberg and Catalunia (Accetturo and Menon, 2011). Four, firms are specialized in advanced sectors, in terms of the technology and the knowledge embedded – being i) knowledge intensive business services (KIBS); ii) mechanics and iii) life science[6] – all considered med-high technological industries according to the European classifications of industries. Such sectors are interesting also because of their relevance for other industries, considering that their output, being a service or a product, supports the innovativeness and performance of the clients. Table 1 reports the specific ATECO 2002 codes (the Italian version of the NACE rev.1 industry codes) used to identify each the sectors mentioned.
Table 1 - The industry considered for the analysis
Industry / ATECO 2002 code / ATECO 2002 descriptionKIBS / 72 / Computer and related activities
73 / Research and development
74.20.1 and 74.20.2 / Architectural and engineering activities and related technical consultancy
Mechanics / 29 / Manufacture of machinery and equipment n.e.c
31 / Manufacture of electrical machinery and apparatus n.e.c.
34 / Manufacture of motor vehicles, trailers and semi-trailers
35 (excluding 35.1) / Manufacture of other transport equipment
Starting from such a universe, we created a stratified sample based on industry specialization and geographical locations (region). From the 2,341 firms initially contacted, we collected 504 valid responses, being 221 KIBS, 209 mechanics and 74 life-science firms. A specialized survey company conducted the interviews with the assistance of the CATI (Computer Assisted Telephone Interview) and CAWI (Computer Assisted Web Interviewing) procedures, targeting firm’s entrepreneurs. The questionnaire was 6 pages long and included questions inquiring on firm’s structural characteristics and market strategies, on the characteristics and motivations of the founders and on the firm’s competences, innovation and networking activities both at foundation and in the following years. In order to be sure that companies were effectively born in the years considered and exclude from the analysis possible cases of older firms being registered in the business register of the Italian Chambers of Commerce with a different year than the true one because of phenomena such as transformations, merge and acquisitions and the like, a specific filter question was administered to firms at the beginning of the interview. Subsequently, we added in the dataset information about the financial performance of the firms, with information coming from the AIDA Bureau Van Dijk dataset and from the Chamber of Commerce databases.