Innovation speed in startups
Research-based start-ups are new business start-ups that develop and market new products based on proprietary knowledge or skill. Such startups form the basis of technopreneurship, which has received a great deal of attention from academics in the last couple of years. Although considerable research has been done in the field of resources, strategy and industry environment of new firms, little attention has been paid to the factors which control the speed of innovation in startups.
Innovation forms the heart of every technopreneurial venture and hence it is essential to study the forces which affect it. It is widely accepted that tangible assets such as starting capital and the stage of product development at founding and intangible assets such as team tenure, experience of founders, and collaborations with third parties are important antecedents for innovation speed in startups. Intuition suggests that starting capital and stage of product development encourage innovation speed. Moreover, its understood that team tenure and experience of founders lead to faster product launch. And of course, alliances with third parties should also affect innovation speed positively. But research says otherwise.
Now why is innovation speed so important?
Innovation speed is directly related to the time required to market or time between firm founding and product launch. This might seem strange but it takes months to market the product even after product creation. Especially for new ventures, time to market is a crucial factor for these reasons
(i) gaining early cash flow for greater financial independence,
(ii) gaining early market share, and
(iii) to increase the likelihood of survival.
Moreover slow product development leads to increasing costs and no immediate financial returns. There are several ways in which a firm may obtain the required financial resources, such as selffinancing, loans, obtaining angel-investments and venture capital, and of course grants. It is seen that most firms which have to expand quickly go for venture capital. However, surveys indicate starting capital has no significant affect on innovation speed. This discrepancy is best described by the following reasons,
(i) venture capitalists may push firms to ramp up their commercialization efforts, diverting attention and investments from R&D toward marketing and sales, which may delay product completion, and
(ii) venture capital and high amounts of initial investments might be associated with more ambitious projects, which inherently face longer development times.
Higher stage of product development significantly reduces the time to market the product but this is true
only for non-software firms. Surprised? For software firms, it is seen that the launch of a beta version considerably delays product launch. This is obvious because customer involvement leads to repetitive modifications to the product which ends up delaying product launch. This situation does not apply to non-software products probably because for such products repetitive modifications are often impossible or pricey and hence customers don’t get to dig in their noses too much!
Thankfully, team tenure and experience counts and assists innovation as predicted by common sense. A better team shall always lead to more efficient product development. But alliances with third parties may hinder innovation speed. Collaborations with private firms show no effect on innovation speed. Collaborations with universities slow down innovation speed but this must not be taken as a setback because such collaborations can be considered a long term investment and may show profitable results in the long run.
