Mobile Edition
Print
Get the Mag
Weekly UpdatesSUMMARY
This paper first reviews available instruments that might be used by new technology-based small firms (NTSFs) as self-diagnostic tools to assess their positioning and plan their future development strategies. It makes a clear distinction between tools that are for self-diagnostic internal use by such ventures and the more established tools, such as Timmons 'fatal flaw analysis' and Bell-Mason, designed to assist venture capital investors in decisions whether to invest or not in a new company. The paper then analyses the application of the Klofsten Business Platform with its eight Cornerstones as a comparative diagnostic tool in over twenty case studies to the understanding of the early stages of development of new technology-based spin-off ventures from Australian and Scottish universities. The analysis is longitudinal over a period of up to six years for surviving companies. Survival rates for the sample have been compared with overall survival rates of spin-off and other new ventures in Australia.
Key Words
entrepreneurship; innovation; spin-offs; new business survival
INTRODUCTION
The literature on new venture creation and development describes a number of models that might be used for the assessment of new business ventures. Most of these have as their focus helping potential equity investors (friends, family and fools, business angels and venture capitalists) in their decisions as to whether to invest or not in that particular venture (Bell & Mason 1991; Mainprize et al. 2003; Mason & Stark 2002; Timmons 1994). Klofsten (1998) has developed a Business Platform concept that was designed as a self administered diagnostic to assist small and medium sized knowledge based companies to assess for themselves their status in relation to what Klofsten identified as the Business Platform:
From this concept, Davidsson and Klofsten (2003) developed a questionnaire instrument that a firm might complete to evaluate its status in relation to this Business Platform objective. This questionnaire was evaluated by a survey of Swedish knowledge based businesses. Responses were received from 114 firms with a 36 per cent response rate. Of these firms, 58 per cent were providers of services and 35 per cent providers of products. Their average age was 6-7 years and median age 7.0 years (Davidsson & Klofsten 2003: 7). In this earlier research the focus was on helping existing knowledge based companies.
The research reported here involved case studies of newly established companies spun out by universities and other publicly funded research providers, twenty in Australia and two in Scotland. The case studies were based on well established principles (Yin 1994; Miles & Huberman 1994; Eisenhardt 1989). One of the research objectives was to test the validity of The Klofsten Business Platform concept as the basis of a self-diagnostic tool and to explore its relevance for newly established New Technology-Based Small Firms (NTBSF), not just for knowledge based companies with six or seven years' history.
The authors finally reviewed the survival rates for spin-off companies against other new ventures in Australia and elsewhere to provide benchmarks to assess the survival rates of the case study sample and to assess the relevance of Business Platform scores in predicting survival.
Reaching the Business Platform
Sample of companies
The research involved case studies over the period FY 1999-2002 of 22 spin-off companies established in Australia and Scotland, most of which were incorporated in the period FY 1995-2000. The parent research provider organisations included both large (research expenditure greater than A$100 million per annum) and small/-medium research profile universities, CSIRO (the Australian national public research agency), and Cooperative Research Centres (CRCs). CRCs are an Australian Commonwealth Government initiative to bring together in the one cooperative organisational structure universities and other research providers with industry and other users of research (see www.crc.gov.au). The unit of analysis was the spin-off company. The population was theoretically sampled to ensure inclusion of a wide range of technologies and parent research providers, with wherever possible two spin-off companies from each research provider (Yencken 2005).
The individual case studies involved both quantitative data collection using a developed survey instrument (Yencken 2005: 340) and qualitative research based on interviews with researcher inventors, managers, technology transfer staff and first investors.
Survey instrument
The survey instrument included a series of opposed Likert statements designed to test a firm's performance against each of the eight Klofsten Cornerstones. At the time when the research reported here was started, only a Swedish version of the survey instrument was available. This was translated into English in Australia by a fluent Swedish speaker. Inevitably there are small differences in translation between this earlier translation of the original Swedish instrument used here and the later translation of the survey instrument included in Davidsson and Klofsten (2003). However, to avoid any incompatibilities, the same translated-in-Australia version was used both for the initial surveys in 1999-2001 and the re-interviews in 2005. The changes made to the original Swedish questionnaire included deletion of one statement that did not appear relevant in the Australian environment and expansion of the Likert response value scale from 1-5 to 1-7. This latter change was well validated in the responses. Respondents regularly used all scores from one to seven. The Likert seven-value opposed statements used to explore the case study company's status in relation to the eight Cornerstones have been included in the doctoral thesis of one of the present authors (Yencken 2005: 340). The analysis of the data in the comparative data questionnaire, based on the Davidsson/Klofsten Cornerstones and Business Platform (Davidsson & Klofsten 2003), had a similar objective. It measured how close a business was to reaching its Business Platform.
Klofsten (1998: 7) defined the Business Platform as meaning that 'the newly-started firm has achieved a state where vulnerability has decreased to the point that the firm has been able to move on to the next phase of its further development'. The likelihood that a company would generate sustainable growth was determined by its ability to satisfy the eight cornerstones of Klofsten's Business Platform (Klofsten & Davidsson 2001) and how this ability varied over time. A key output or dependent variable in each individual case study was how it scored (on a scale 1-7) on each of these cornerstones and against some average of these scores. The eight cornerstones included:
The firm's development process:
* IDEA--The formulation and clarification of the idea behind the firm.
* PRODUCT--The development of finished products accepted by customers.
* MARKET--The definition of the market (e.g. niche, large enough to be profitable).
* ORGANISATIONAL DEVELOPMENT.
The actors close to the firm, such as the founders, the CEO and board members:
* CORE GROUP EXPERTISE--Market knowledge, marketing and sales expertise, technical expertise.
* PRIME MOVER and COMMITMENT--The actors' driving force and commitment.
The external supply of resources in supplementary areas necessary to the firm:
* CUSTOMER RELATIONS--These relations are important for all firms since they are the source of revenue.
* OTHER FIRM RELATIONS--A variety of different relationships; particularly important are suppliers of financial backing and supplementary knowledge.
The mean scores for the Swedish sample of 119 established knowledge based companies have been shown as Figure 1. A Likert five-value scale was used for this survey.
[FIGURE 1 OMITTED]
For the Australian sample, data on the statements used to assess each of the eight Cornerstones identified by Klofsten were obtained using Likert seven-value opposed statements in the comparative data questionnaire (Yencken 2005: 340). Mean values of these scores for the set of statements relating to each Cornerstone have been shown in Table 1 and Figure 2. The table has only shown scores at the time of questionnaire completion. The individual case study reports also included scores Two years ago (Yencken 2005).
[FIGURE 2 OMITTED]
Comparison between the mean Cornerstone scores achieved by the sample of established Swedish companies (median age seven years) based on a five-value scale (Figure 1) and those for the Australian companies based on a seven-value scale (Figure 2) show very similar results except for the two Cornerstones that related to Established relationships, particularly customer relations. The low scores for Customer relations in the Australian data arose because many of the companies had not yet made their first sale. The low scores for Other relationships generally related to problems with finance availability. By comparison, for a well-established publicly listed Australian pharmaceutical company (Company X in Table 1), the mean Cornerstone score was 6.54 (Figure 3). Only one case came close to this score, Case no. 1 with a mean Cornerstone score of 6.24 (Figure 4).
[FIGURES 3-4 OMITTED]
Interview data were collected from fifteen such companies in Australia and from two in Scotland. Three other companies were included in the qualitative research sample, Case Number Three was included for reference as a typical NTBSF entrepreneurial start-up that had had no direct relationships with a university or other public research agency parent. Two others, Numbers Four and Eight, turned out not to be spin-off companies but rather companies that had used in one case a university and in the other a CRC as their contracted technology source. The key details of this sample of companies segmented as discussed later have been summarised in Tables 2-4.
FEED