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Wednesday, January 11, 2012

Commercialisation of innovation is a necessary part of the entrepreneurial process. What are the five (5) most important elements of entrepreneurship as they apply to commercialisation ?

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Abstract


It is very difficult to survive, sustain and build a new venture. Entrepreneurship requires more than just coming up with a new idea. It requires that the entrepreneur is able to use their experience to identify a window of opportunity into the market place, be able to know how to enter the market, how to meet and satisfy the unmet need, identify a point of competitive advantage and create a profitable venture. These are the five crucial elements of entrepreneurship if a product or service is to be successfully commercialized.


Entrepreneurship is not simply coming up with an idea. This approach is the stage associated with invention. The true test of an entrepreneur is their ability to take the idea to market in a commercial manner. “A good idea is not necessarily a good opportunity.” (Timmons, 1 8) Whether a good idea becomes a commercial proposition is determined by market demand, market structure and size and profit margin analysis. “The greater the growth, size, durability of the gross and net margins and free cash flow, the greater the opportunity.” (Timmons, 1 8) For an entrepreneur to take a product successfully to commercialization requires an understanding of the business process including financing and marketing.


The entrepreneur needs to understand the process that produces the successful adoption of a product into the marketplace. The level of innovation in a product or service will impact on the process of commercialization. There is a continuum of innovation that extends from radical to incremental innovations. (Hage, 180) The commercialization of an incremental innovation will be easier than a more radical innovation. Innovation is considered a fundamental component of entrepreneurship (e.g. Covin and Miles, in press) Innovation is a critical activity that is vitally important for most firms to embrace in order to create and sustain a competitive advantage. Drucker (185) describes innovation as the most critical success factor.


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The degree of newness in a product and service provides the basic building block for commercialisation. It is this newness that must form the focus of the marketing and the approach adopted for the commercialization of the product. It provides the source of competitive advantage and must form the defining feature of the new product or service. (Barney, 11).


The success of an innovation is determined by the extent of its adoption than by who originates it or how technologically advanced it is. (Miller, 10). For innovation to get to market there must be an infrastructure that supports the commercialization of the innovation. This infrastructure can be provided through venture capitalists, entrepreneurs in their own right, or through a government that is prepared to be entrepreneurial in its approach. In the commercialization process, the idea needs to be protected through patents. Sufficient venture capital must be available for the commercialization of the product and the political and economic environment must support innovation. ( Rimmer, 001)


Under the Schumpeterian model of the entrepreneur, the entrepreneur must “ reform or revolutionize the pattern of production by exploiting an invention or, more generally, an untried technological possibility for producing a new commodity or producing an old one in a new way, by opening up a new source of supply of materials or a new outlet for products, by reorganising an industry and so on (Schumpeter, 176, p. 1). To do this, the commercialization must be financially viable. It must have the potential to realize profit. The manufacture of the product or the delivery of the service must be configured such that the outputs of the process must exceed the inputs. Entrepreneurs as new entrants are assumed to respond to the perceived profit opportunities of different industries within the barriers to entry framework set by Bain (156).


The success of the entrepreneur is dependant also upon the market and the mode of entry. How successfully the entrepreneur does this will depend on the market that is targeted. The entrepreneur might be seeking to introduce a new good. Consumers are not yet familiar so the marketing and creation of a unmet need in the consumer’s mind is an important precursor to commercialization. (Chandler, 10) The relationship of the level of innovation and the market situation is an important factor in the determination of commercialisation. Yeoh (14) has posited that in uncertain environments, entrepreneurial firms, unlike conservative firms, are more likely to be innovative in terms of entering new markets.


Commercialisation requires a level of risk management. To commercialise the entrepreneur must manage the risk. The entrepreneur is not afraid to engage in risk. To successfully commercialise they must also manage the risk.


Involved in successful commercialisation is the need to incorporate the innovation in the product and the service in such a manner that the costs make a product commercially viable.


Product design contributes 80 percent of cost (Allen, 1) Product design determines marketability quality and the product reliability determines the time to market. The entrepreneur must seek to shorten lead times so that the time from the idea to commercial release is such that the entrepreneur can take advantage of first mover opportunities and ensure that the market has not changed.


Because of the complexity of the task at hand in commercialising a product, the entrepreneur needs to be able to access professional advice from those with experience and form a team that combines different personalities, knowledges, skills and backgrounds. This will increase the chances of commercialization success than a team of one or a team that is homogeneous. (Vyakarnam et al., 17)


In a study done of Queens Award winners, (Winterscheid and McNabb, 14) it was found that where innovative ideas had translated into commercial success it was due to two key factors. The first was that there was a match between the innovation and the unfulfilled market need or niche and the capability to design and deliver the product to the market. Successful commercialization involves matching needs with the benefits that the product provides and ensuring that the product design, marketing and the distribution strategies are such that the innovation is delivered to the market. It is absolutely paramount that the entrepreneur understand the importance of marketing in the delivery of a product to the market.(Dougherty, 10) The entrepreneur must understand the market.


Crick and Jones (1) approach this in a more specific manner highlighting the need for certain features if successful commercialization is to be realized. This requires that the product or service provides superior performance, is functional , technically reliable, profitable, fit for purpose, safe, differentiated from existing products and durable. The innovative feature or aspect will most likely need to be incorporated within existing structures or features.


Successful commercialization is dependant upon successful marketing, finance (through attracting venture capital), managerial strategy and risk management. Entrepreneurs must understand the legal environment that they function in and ensure that patents are secured (Deakins, et al., 17), and the product complies with the Trade Practices Act. Patents may be used both as signals and to provide information in marketing, offering a signal of credibility to customers. The common statement of “patents pending”, stamped on products may be seen as signaling credibility and information to potential customers. In addition joint-venture marketing strategies will also assist in maximizing success. (Boussouara and Deakins, 1)





In an important study done by Boussouara and Deakins (1) it was found that innovators and entrepreneurs use an existing commercial business to generate income and capital to finance the R&D. In all the cases, the original start-up business/operations are still continuing and still being used to provide income and capital to fund the technology-related development. This approach has the advantage of generating seed capital, provides security and a track record for the bank and act as a distraction for competitors (Boussouara and Deakins, 1)


Undoubtedly after product and service configuration, marketing orientation has the most critical impact on commercialization. (Cooper, 17) Kreuger(18) highlighted the need for entrepreneurs to understand the feasibility of opportunities in the environment so that the entrepreneur can see what is desirable and what is feasible as commercial opportunities.


An entrepreneur must encapsulate the innovation in a package that is guaranteed to gain market acceptance. To do this requires that there is a window of opportunity in the market that an entrepreneur can identify and take advantage of, understand and configure the product so that it matches the market, understand about marketing and distribution and be familiar with the need satisfaction of the market opportunity into the market place, be able to know how to enter the market, ensure that the product design supports profitability and that there is a point of competitive advantage. These are the five crucial elements of entrepreneurship.


Allen, K.R., 1, Growing and Managing an Entrepreneurial Business,


Houghton Mifflin Company, Boston


Bain, J.S. (156), Barriers to New Competition, Harvard University Press, Cambridge, MA.


Boussouara, M. and Deakins, D.1, ‘Market-based learning, entrepreneurship and the high technology small firm.’ International Journal of Entrepreneurial Behaviour & Research, Vol. 5 No. 4, pp. 04-.


Chandler, Jr., A.D. 10, Scale and Scope The Dynamics of Industrial Enterprise, Harvard University Press, Cambridge, MA.


Cooper, R.G., 17, “The dimensions of industrial new product success and failure”, Journal of Marketing, Vol. 4, Summer, pp. -10.


Covin, J.G. and Miles, M.P. (in press), 1, ``Corporate entrepreneurship and the pursuit of competitive advantage’’, Entrepreneurship Theory & Practice.


Crick, D. and Jones, 1, ‘Design and innovation strategies within ``successful


high-tech firms’, Reader in International Business, De Montfort University, Leicester, UK.


Dougherty, D.10, “Understanding new markets for new products”, Strategic Management Journal, Vol. 11, pp. 5-78.


Drucker, P.F.185, Innovation and Entrepreneurship Practice and Principles, HarperBusiness, New York.


Hage, J. and Dewar, R. 17, ``Elite values versus organizational structure in predicting innovation’’, Administrative Science Quarterly, Vol. 18,


pp. 7-0.


Krueger, N., 18, ‘Encouraging the identification of environmental opportunities’, Journal of Organizational Change Management, Vol. 11 No. , pp. 174-18.


McCraw, T.K., Joseph A. Schumpeter, 001, Creative Destruction, and


Entrepreneurship, Harvard Business School, Boston.


Rimmer, J., 001, Speech - Address to the National Press Club, National Office for the Information Economy, Canberra, 4 April 001.


Schumpeter, J.A. 176, Capitalism, Socialism and Democracy, 5th ed., George Allen and Unwin, London.


Timmons, J.A., 1, New Venture Creation, Entrepreneurship for the 1st century, Irwin McGraw �Hill, Boston.


Vyakarnam, S., Jacobs, R.C., and Handelberg, J. 17, ``Formation and development of entrepreneurial teams in rapid growth business, in Reynolds et al. (Eds), Frontiers of Entrepreneurship Research 17, College Babson, Wellesley, MA.


Winterscheid, B.C. and McNabb, S. 14, ``Technology development and transfer across national and organisational borders the case of AT&T network systems in Europe, International Business Review, Vol. No. 4, pp. 45-4.


Yeoh, P.L. 14, ``Entrepreneurship and export performance a proposed conceptual model, in Axinn, C.N. (Ed.), Advances in International Marketing,


Vol. 6, JAI Press, Greenwich, CT, pp. 4-68.


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