NOTE
5. Processes at the fi rm level: phases and models of development 1
5.2 PHASES OF DEVELOPMENT
In this section we discuss the different phases in spin-off development, drawing on evidence from the nine cases. These phases we identify as the:
(1) research phase, (2) opportunity-framing phase, (3) pre-organization phase, (4) reorientation stage and, finally, (5) sustainable returns phase.
Each phase is intended to characterize a specific group of activities as well as strategic focus that the firm must accomplish before it can move to the next phase of development. The analysis indicates that spin-offs move through a number of successive phases in their development in an iterative non-linear way. However, for expositional purposes, we analyse each phase along the development continuum in turn.
5.2.1 Research Phase
The main focus for all the academic entrepreneurs (or academic innovators) interviewed, prior to the commercial opportunity being recognized, was on perfecting academic research and publication of their work towards a par- ticular scientific community. Within this research phase valuable intellectual property (IP) is created, which then generates the potential opportunity for commercialization. Consistent with existing research (Shane, 2004), the aca- demic inventors involved with the cases we studied were at the forefront of
research in their chosen fields and had created valuable know-how and tech- nological assets.
5.2.2 Opportunity-Framing Phase
During this phase, the academic and the TTO worked independently or together towards examining whether the recognized opportunity had sufficient underlying value to warrant further effort in pursuing commer- cialization. This process involves evaluating whether the technology works and shows sufficient promise for applications outside the laboratory. If the result of this exercise was positive, attempts were made to ‘frame’ the tech- nology within a commercial opportunity.
This process poses considerable challenges, with opportunities being defined imprecisely, targeted ambiguously or proving to be impracticable.
There was a lack of understanding and experience regarding how best to maximize returns from commercial exploitation. Problems in identifying suitable applications of the technology, how these would perform com- mercially and the routes available for accessing those markets raise major barriers for the commercialization of university technology. There is a need to acquire relevant experience and capabilities in framing opportunities in order to overcome these problems.
Evidence from the cases indicates that the initial opportunities were not the best means of exploiting the potential commercial value of the technology. These opportunities did not identify which complementary resources would be required as the venture developed or where and how to acquire them. Those entrepreneurs who made more progress were those who spent significant amounts of time scrutinizing the potential risks of opportunities alongside potential investors, customers and others in their industry. This analysis may lead to the reframing of the opportunity in response to factors such as industry’s lack of desire to license or co-develop early stage technologies but a preference to market later stage technologies with a higher probability of generating commercial returns. This may indi- cate that the best route to market may be for the academic entrepreneur to acquire the necessary resources and capabilities to exploit the IP through a spin-off venture.
5.2.3 Pre-organization Phase
The pre-organization phase represents the stage where the management of the spin-off venture can develop and start to implement strategic plans.
This involves taking decisions about which resources and capabilities to develop and acquire, and when and how to do so. Decisions taken at this
early stage had an important influence on the development trajectory and on the future alternatives available to the firm. For example, failure to select engineers with sufficient experience for the product development team and not relocating to premises away from the university campus may slow progress (Silicon Microchip). The importance of these early decisions emphasizes the importance of having access to prior entrepreneurial expe- rience, human capital and networks of expertise.
Among our cases, the entrepreneurs in Optical, Biomedical, 3G Wireless and Stem Cell used their own networks and those of the university and investors to gain the commitment of key individuals who would supply the initial capital and knowledge to enable the venture to commence business operations. For example, the TTO’s venturing experience and social capital helped the entrepreneur in Optical to secure resources and expertise. This activity was absent in the other cases that attempted to launch their spin- off ventures with inadequate levels of relevant resources.
5.2.4 Reorientation Phase
During the reorientation phase, when the ventures were attempting to gen- erate returns, the entrepreneurial teams faced the challenges of continuously identifying, acquiring and integrating resources and then subsequently reconfiguring them. Reconfiguration was especially evident where the busi- ness had little capital and inexperienced management at formation.
However, a learning process was evident in those ventures that had reached the reorientation stage of development. The academic entrepreneurs identified how to develop resources, information and knowledge and assem- ble new capabilities.
Interactions with customers, competitors, suppliers and potential investors were central in generating the information and knowledge required. In some cases, this learning process may mean changes to previ- ous key decisions regarding how the value is to be created from the oppor- tunity in terms of the nature of the product offering and the likely customers. For example, Human Genome came to realize after a year that they were focusing on a market that was too small and that they were mar- keting their technology in the wrong way. They subsequently completely transformed their business with the continued financial backing of a busi- ness angel and the acquisition of a new chairman and CEO to help com- mercialize the technology in the newer, larger, markets they had identified.
In other cases, entrepreneurs and TTOs either placed too much emphasis during the opportunity-framing phase on developing the technology rather than on identifying key customers, or were less competent in accessing the right resources, information and knowledge during the pre-organization
phase. The result was numerous adaptations concerning how the technology was applied to meet previously unrecognized customer needs, how to gain access to markets and how to access and acquire further resources. This process of learning from previous mistakes enabled the entrepreneurial teams to reassemble stocks of resources and internal capabilities, and to develop the technology. These changes had the beneficial effect of enabling the ventures to keep ahead of alternative technologies and competitors.
Where spin-offs appeared to be more successful in making adaptations to internal resource constraints and external environmental changes, the requisite resources, social capital and capabilities related back to the oppor- tunity framing and pre-organization phases. This suggests that the success of spin-offs in progressing from this phase of development into the next is largely dependent upon the preparatory work done during these earlier phases by the entrepreneur and the TTO.
5.2.5 Sustainable Returns Phase
In arriving at this phase of development, the spin-off will have overcome numerous obstacles to demonstrate that sufficient returns can be generated from productive activities. From the cases, key dimensions were the need for professionally managed development of the technology platform and new IP being created, the development of a management team with solid commercial experience and the development of an identity for the business that is separate from the university, which may be emphasized by relocation away from the university campus. This may be within a university-affiliated science park or incubator, emphasizing the need to retain close links with the university.