Entrepreneurial Innovation and Leadership

Preparing for a Digital Future

Nancy Richter, Paul Jackson, Thomas Schildhauer, Nancy Richter, Paul Jackson, Thomas Schildhauer

• Publisher: Palgrave Pivot
• Year: 2018
• Print ISBN:
  9783319717364
• eBook ISBN:
  9783319717371
• Topic: Business
• Subtopic: Business General
• Index: Business

Taking the themes of entrepreneurship, start-ups, innovation and collaboration, this book seeks to answer the urgent question of how countries and companies can stay competitive in an ever-changing digital environment. The authors determine which entrepreneurial processes will work for whom and under what circumstances, presenting methodological implications for business research, start-ups and policy making. Examining the success of Germany as an innovation powerhouse, and comparing this with the USA, this edited collection provides valuable ideas for improving practice, facilitating start-up activity, and ultimately ensuring a country's competitive edge.

© The Author(s) 2018

Nancy Richter, Paul Jackson and Thomas Schildhauer (eds.)Entrepreneurial Innovation and Leadershiphttps://doi.org/10.1007/978-3-319-71737-1_1

Begin Abstract

1. Entrepreneurial Behaviour and Startups: The Case of Germany and the USA

Nancy Richter¹ , Paul Jackson² and Thomas Schildhauer¹

(1)

Alexander von Humboldt Institute for Internet and Society, Berlin, Germany

(2)

Edith Cowan University, Joondalup, WA, Australia

Nancy Richter (Corresponding author)

Paul Jackson

Thomas Schildhauer

Abstract

Entrepreneurship is crucially important for the introduction of disruptive and radical innovation. However, in Germany entrepreneurship and disruptive innovation are consistently low whereas the USA, for example, performs very well in these areas. This chapter offers insights into the relevance of entrepreneurship for a national innovation system. It illustrates the effects of policy interventions on potential entrepreneurs and shows pathways to encourage entrepreneurial behaviour and startups.

Keywords

Entrepreneurial behaviourNational Innovation SystemGermanyUSARadical innovationIncremental innovation

End Abstract

Entrepreneurship and Innovation at the National Level

Within the framework of a national innovation system (NIS ),¹ startups are a source of new ventures, products and services and therefore a crucial driver of innovation, economic development and renewal. The German government regards startup businesses as an important source of economic growth (Audretsch, Dohse, & Niebuhr, 2009) and has initiated multiple programmes to encourage entrepreneurial behaviour (e.g. EXIST scholarships or, since 2015, ERP Venture Capital Fund investments for growth or follow-up financing). According to the Berlin Investmentbank (IBB), in Berlin a new startup is founded every 20 hours (IBB, 2017/2018). The multitude of startup events and the rise of incubators illustrate the increasing professionalism of the Berlin startup ecosystem . The rest of Germany is a different story, however: the rate of new business establishment in the country is consistently low (Jackson, Dobson, & Richter, 2017).

These numbers are worrying because startups are new market entrants that are very often responsible for radical and disruptive innovations (Ahuja & Lampert, 2001; Schumpeter, 1994). Radical and disruptive innovation is important for the long-term success of a NIS because it provides technologies, business models and rapid growth in new areas, and therefore supports a country’s competitiveness (Jackson, Runde, Dobson, & Richter, 2015).

Recent reports by Cornell University, INSEAD, and the World Intellectual Property Organization (WIPO, an agency of the United Nations) (Cornell University, INSEAD, & WIPO, 2015), the Organisation for Economic Co-operation and Development (OECD 2015a, c) and the Global Entrepreneurship Monitor (Kelley, Singer, & Herrington, 2015) show that Germany performs well in innovation but poorly in entrepreneurship. The performance has even decreased over the past few years.

Political interventions should create supportive conditions that enable the emergence and expansion of startups. However, policymakers need comprehensive information about entrepreneurial behaviour to develop effective policy initiatives. This guide explains the relevance of innovation in startups to the NIS, gives an overview of the situation in Germany, provides reasons for its performance and proposes next steps for policymakers .

Startups and Their Importance for Radical Innovation

Startups are newly founded companies with a high degree of innovation and significant growth potential. Very often they are active in the area of new digital technologies . The promise of rapid growth in areas of the new economy explains the increased interest of both investors and policymakers in startups.

The former Internet startups Facebook , Uber , Airbnb and Amazon show an exceptional market capitalization, often without possessing their own physical infrastructure. For example, Airbnb offers rooms all over the world without owning hotels and Uber has needed no cars of its own to turn an industry on its head. This ability to exploit the Internet to achieve universal reach without large capital investment, combined with business models which allow those with assets (a car, a spare room, their creative works or their labour) to commercialize them, is leading to significant disruption in many markets of the world.

Startups disrupt existing industries with digital products , services and innovative business models. Facebook uses a ‘free model’, allowing free use of its services , but gaining its revenue by making the customers’ data their product . Facebook creates revenue by offering customers an attractive social network for staying in touch with friends all over the world and by selling the personal data of these customers to the advertising industry. The music sales business model of Spotify, Apple and Google has changed the landscape completely and is now built on ‘lock-in’ effects. Users pay a subscription fee for unlimited access to an almost universal library of music instead of buying music on an ad hoc basis, as was practised in the music industry for decades. Amazon uses its market power and scale to disrupt competition by selling below cost price.

These and other Internet startups follow Joseph Schumpeter’s (1994) principle of creative destruction, which is fuelled by innovation, entrepreneurship and competition:

The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers’ goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates. (Schumpeter, 1994, pp. 82–83)

Startups and their digital business models change our economy in the long term, disrupting value creation processes , offerings and customer relationships.

We can differentiate between radical and disruptive innovation (Christensen, 2011). From a company’s point of view, radical and disruptive innovation bear high risks . Radical innovation focuses on accessing new markets: such offerings are either world first in performance and function or include huge cost reductions. Disruptive innovation goes even further by directly substituting competitive offerings: LPs were replaced by cassette tapes, tapes were replaced by CDs, CDs by iPods, iPods by streaming; land lines have become secondary to mobile phones; and so on. Disruptive innovation often starts in niche markets or by testing products and services with lead users .² A good example is the short message service such as WhatsApp, which challenge the established SMS world, or cloud computing services such as Dropbox that enhance usability and sharing of data storage and have lowered access barriers. Incremental innovation in contrast makes smaller, step-wise improvements, i.e. adding new features to existing products or services in order to improve or maintain a competitive market position. Incremental innovation is favoured by large established companies, which use their ‘core competencies’ to improve products one step at a time and focus on efficiency, utilizing scale, scope and management techniques to deliver reliably within a set budget and timeframe. Whilst very strong in this mode of innovation, particularly in leading-edge high-tech manufacturing, car manufacturing, chemicals and pharmaceuticals, Germany cannot continue to rely solely on incremental innovation.

Schumpeter emphasizes that capitalism is built on a permanent and continuous...

Table of contents

• Cover
• Front Matter
• 1. Entrepreneurial Behaviour and Startups: The Case of Germany and the USA
• 2. What Drives Internet Startups in Berlin? A Qualitative Analysis of the Facilitating and Inhibiting Factors
• 3. Startup Clinics: Applied Research and ‘First Aid’ for Early Stage Startups
• 4. Regulation as a Facilitator of Startup Innovation: The Purpose Limitation Principle and Data Privacy
• 5. Do You Have What It Takes to Become an Internet Entrepreneur? The Key Competencies of Successful Founders
• 6. Startup Financing in Berlin
• 7. Why Business Model Innovation Matters to Startups
• 8. How Established Firms Can Profit from Working with Startups
• 9. Radical Innovation Using Corporate Accelerators: A Program Approach
• 10. Meeting the Innovation Challenge: Agile Processes for Established Organisations
• Back Matter