Needs of Global Start-up companies (Deliverable 2) GlobalStart wp1 Studies Deliverable 2 Needs of Global Start-up Companies Table of contents p

Sources of Data

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For the new cases interview reports and the final case study reports were sent to the entrepreneurs for validation. They were asked to review the case study report to confirm factual information and discuss the findings and conclusions. All entrepreneurs indicated that these reports were accurate. The reports of the existing case studies were also sent to the manager of the companies for approval, with the exception of Heartware whose manager could not be traced. However, so far no responses have been obtained. Further copies of the reports were also sent to the authors of the existing case studies for comments.

Findings

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Towards an empirical definition

The name global startup suggests that these firms begin to globalise their activities while still in the startup phase. The data shows that these global startups are certainly involved in global activities from as early as the opportunity recognition phase. The companies presented in Table 3 initiated many different types of cross border activities in multiple regions prior to commencing production and/or sales activities. For instance, the founders of both Ecofluid and of Illice Biotech realised that a successful venture launch would require external financial investments and since these could not be obtained domestically they sought funding elsewhere. The founders of Micronit and Sound Inc. presented their technologies at several international conferences and fairs prior to launching the ventures. The founders of Sci-Tex and Logitech realised that the opportunities they recognised had applicability in countries other than those in which they resided and they subsequently set up operations in these countries. From these examples two propositions are formulated.

P1. The startup process and the globalisation process of a global startup process are highly integrated and cannot be seen in isolation

P2. Global Startups begin in international activities even before the start of their opportunity exploitation

According to Oviatt and McDougall (1994) a global startup engages in a variety of cross border activities in order to develop a competitive advantage. Although the companies all strive to become the market leader in their industry, the term competitive advantage does not really apply to these firms, as a competitive advantage can only be achieved vis-à-vis competitors. Several of the case companies are so highly specialised that they are in fact the sole providers of the technology, product or application in the entire world. Competition comes mainly from incumbents that provide more traditional products; for example, Nedclad competes with companies using ‘traditional’ laser technologies. Also, it seems that if multiple players are active in a similar field (e.g. both Micronit and ChipIdea are engaged in the development of the lab-on-a-chip) the market is not yet governed by traditional competitive rules. Some of the global startups had to create new markets rather than compete in existing ones, for example Micronit, Lionix, Sound Inc. and perhaps even ChipIdea.

P3. Global Startups engage in international activities in pursuit of opportunities instead of achieving a competitive advantage directly

According to Oviatt and McDougall global startups are involved in the co-ordination of multiple value-creating activities across national borders. A wide variety of international activities are evidenced in each of the cases; international sales are the most formalised and important value-added activity because they yield revenue. Several firms are involved in some class of cross border R&D, if only by including potential foreign customers in the development of the product or service offering as is done by Micronit. Other companies, e.g. Logitech, Ecofluid and Sci-Tex locate their R&D activities abroad to benefit from the potential of innovative industrial clusters and skilled personnel. The literature mainly discusses outward (export, foreign subsidiaries) and downstream (marketing, sales) types of international activities, whereas many of the case companies are also using foreign (tangible and intangible) resources. For instance, Lionix obtained international human resources and ChipIdea set up operations in China.

P4. Global Startups are involved in a wide range of formal and informal value-added activities across national borders

P5. Global Startups use a variety of network entry modes

The case companies are globally rather than internationally active. All of the companies are at least active in Europe and North America, while a considerable number of the case companies have markets in Asia, the Middle East and Latin America. For example, ChipIdea set up wholly owned facilities within a few years of its inception and Heartware and ChipIdea were involved in activities in the Middle East. Nedclad has not yet been able to set up concrete business activities outside Europe, nevertheless the company engages in informal exchanges of ideas and knowledge with counterparts from Australia and North and South America. Also, their discussions with the insurance company are aimed at entering global markets. This supports Oviatt and McDougall’s suggestion that the number of countries in which such firms operate is unlimited (1994). Cultural, technological, political and legal differences do not seem to restrict global startup firms in their activities, the presence of resources, partners and customers (or in other words the pursuit of opportunities) determine where global startups undertake their activities. This leads to the following propositions.

P7. Global Startups internationalise their activities following the presence of opportunities

The pursuit of opportunities is central in entrepreneurship (Shane & Venkataraman, 2000, 2001; Singh, 2001; Zahra & Dess, 2001; Van Der Veen & Wakkee, 2004); and, indeed, as many of the cases illustrate, this pursuit drove the globalisation process. Yet, the entrepreneurial nature of firms has also been associated with growth. Indeed it is often suggested that entrepreneurial firms seek high growth (e.g. Harveston, 2000). Such high growth rates are also often mentioned in relation to global startups and other types of international new ventures (e.g. Jolly, et. al., 1992, McDougall & Oviatt, 1994, 2000; Zahra & George, 2000). This would suggest that global startups are high growth companies but the evidence from the case studies does not necessarily support this. Some of the cases, particularly Logitech and ChipIdea, have indeed experienced rapid growth, whereas most of the Dutch global startups remain small in terms of employees. The founders of both Lionix and Micronit suggested that growth (in term of employees) is not their main goal. They indicated that they were not interested in running large (multinational) firms and that they would rather use a strategy of cooperation in order to avoid having to grow too quickly. For instance, Lionix is involved in a number of (international) strategic alliances enabling them to attract extra customers and orders while remaining small. Other global startups prefer spinning-off new business units to grow, for example, the entrepreneurial team of Nedclad realised that it would be best to separate the company’s more standardised activities from the more innovative research-oriented activities and consequently set up two different firms. The lack of rapid growth in cases such as Illice Biotech seems to be the result of the research-intensive nature of the business where the period between startup and the actual generation of profits may be extensive, here and in similar cases growth might only start after ten or even fifteen years. From this it can be seen that growth in the traditional sense is not inherent in the nature of global startup firms and that in this respect they are no different from other entrepreneurial ventures. As Wikund (1998) found, entrepreneurship and growth are not necessarily inseparable.

P9. Global Startup firms are characterised by relatively high levels of entrepreneurial orientation³

From the entrepreneurial process model it can be seen that in every enterprise the entrepreneur is the driving force in the company. Looking at the data from the case companies, it is clear that each of the companies are founded and directed by entrepreneurs who strongly dominate the development of the company. The global vision that is often associated with global startups was apparent in all entrepreneurs. From day one, they were aware of the global nature of their company’s opportunity; they realised that their products would offer added value to customers on a global scale and that global activities were essential in setting up these activities.

Considerable variety exists with respect to the actual international experience of the founding entrepreneurs. The founders of Sci-Tex and Logitech certainly have considerable experience in living and working abroad. Yet, the direct effect of this international experience is questionable. In the case of Sci-Tex this international experience enabled the founder to obtain international venture capital to finance his venture. Alternatively, the founder of Sound Inc. remarked that his work experience in Germany is not the main reason why the firm is globally active and it does not determine (or limit) the location(s) where international activities take place. Some of the other founders did not have such hands on international experience yet they were able to set up global operations. An explanation for this may be found in their background though. With the exception of the founders of Nedclad, all had a background in academia. Universities are typically highly international organisations where students, staff and faculty from foreign countries visit regularly. Also, scientists are used to participating in international conferences. This international culture may give these entrepreneurs sufficient confidence to operate internationally.
Several entrepreneurs indicated that some foreign markets were perceived more difficult to enter and were therefore avoided as much as possible. For example, one of the entrepreneurs suggested that Japanese companies were more difficult to do business with because of their culture and because of a worry that they might ‘steal’ the concept. Despite such difficulties, none of the entrepreneurs felt that doing business internationally was truly more complicated than doing business domestically. Generally, all of the Dutch entrepreneurs indicated they felt confident doing business in other cultures. This suggests that the entrepreneurs’ perception concerning their international skills is as important as formal education, training, or experience in international business when founding a global startup.

P10. Global startup firms are typically founded by internationally skilled and confident entrepreneurs

Even though the importance of the network in internationalisation has been widely acknowledged (e.g. Coviello & Munro, 1995; Blomstermo & Deo Sharma, 2002), the embeddedness of global startups in a global network has not yet been included in any of the definitions identified in the literature. However, in each of the cases the presence of a domestic or international partner with international network contacts were factors for success. This partner was either a university or research institute (as was the case for Micronit, Sound Inc. and Heartware) or a financial investor (e.g. Ecofluid) and Illice Biotech relied on both a university research institute and a financial investor. In each of the cases this partner played an important role in providing the companies with access to various resources (finance, research facilities, Intellectual Property Rights etc.) without which it would have been very difficult or even impossible for the companies to exist. For instance, access to a fully equipped clean room is critical to the development of the sensors produced by Lionix and without their contact with the research institute they would not have had such access. Further, these partners often helped the companies in setting up their organisation and their initial customer base. For example, Micronit enrolled in a university spin-off programme, which provided them with access to a business coach who helped them avoid some of the major pitfalls a startup usually makes. The German investor of Illice Biotech served as a mentor to the founder who had no business experience. Finally, the partners also helped the startups in creating some level of credibility; for instance the founder of Lionix indicated he often used his alliance with the University of Twente/Mesa+ Institute (nano-technology) to gain a foothold at his customers.

P11. Global startups often rely on the relationship with strong partners; this may be commercial partners or research institutes

P12. Global startups are embedded in international networks from the start
Table 4 summarises the findings of the cases.

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In this contribution we have positioned the discussion on the global startup company in the context of the entrepreneurial process. As Table 5 shows the components of the entrepreneurship model are related to the characteristics of the global startup companies we identified in the literature and in the cases. Interestingly most the general characteristics, as mentioned in Table 5 (age, technology intensity, international intensity and company size), although researched extensively, cannot be considered as core characteristics of global startups; some of the general characteristics however, can be reformulated into characteristics of the entrepreneurial process of global startups.

---------------------insert Table 5 here --------------------
At the end of the literature review we formulated the following definition of a global startup:
A Global Startup is a new venture that from its inception (“opportunity recognition”) seeks to pursue opportunities wherever they arise (i.e. global or in an unlimited number of countries around the world), it coordinates multiple activities in the value chain through the interaction with network actors around the world. The firm is led by (an) internationally experienced and skilled entrepreneur(s).
After studying and reviewing 10 cases we modify this preliminary definition and formulate a new definition of a global startup which reflects both the theory and the empirical reality of such ventures:
A Global Startup is a new venture in which the startup and internationalisation processes are intertwined. Global Startups begin international activities even before the start of the actual exploitation process and they are driven by the global pursuit of opportunities. Global startups are embedded in international networks and engage in a wide range of formal and informal value-added activities across national borders.

This definition means that five propositions (P1, P2, P4, P6, and P12) are part of the definition and as such not real propositions. The other seven propositions should be explored further in research of both quantitative and qualitative nature.

This new definition is more closely rooted to the meaning of the label global startup, it is based on theoretical and empirical consideration and as a result represents the concept in a richer and more meaningful way than previous definitions which only applied to established ventures or only included a limited range of activities. It is suitable for identifying global startups much earlier in their development process than previous definitions have, as a result of the focus on the pursuit of opportunities and the inclusion of formal and informal cross-border activities and network entry modes. Therefore, this definition allows us to study global startups truly from inception, enabling us to gain a better understanding of how such ventures come into existence, at the same time, this also allows us to provide them with specific support that helps them reach their global potential. Further research should focus on the operationalisation and empirical test of the concepts formulated in the propositions, especially those concerned with the role of the entrepreneur and the role of the network. Studying these concepts will enrich the development of entrepreneurship theory and practice.

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