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Strategy Seminar

Friday January 31, 2014

Time:

3:15PM - 4:45PM

 

Description

ED EGAN, National Bureau of Economic Research

Notes

How Start-up Firms Innovate: Technology Strategy, Commercialization Strategy, and their Relationship

A successful start-up firm makes two important strategic innovation choices during its early life. It must decide upon a technology strategy - whether to specialize or generalize in the allocation of its research and development efforts - and a commercialization strategy - whether to cooperate or compete with incumbents to secure the investment it will need to commercialize its inventions. In this paper, I advance a system vs. components theory of innovation, which supposes that technological products are based on systems of complementary components. A pattern of specialize-and-cooperate and generalize-and-compete then occurs naturally as entrepreneurs maximize their expected profits given both the available technological opportunity and the state of technology in their industry. I derive measures of technology strategy for patent-holding start-up firms, and use the choice to sell the firm in an acquisition or to raise investment through an initial public offering (IPO) as prototypical examples of cooperate versus compete commercialization strategies. I then show that measures of technology strategy Granger-cause commercialization strategies in cross sectional analyses. I also address the endogeneity issue that arises because forward-looking start-up firms chose their technology strategy in anticipation of their commercialization strategy by using the introduction of the 2002 Sarbanes-Oxley Act (SOX) as a shock to the relative costs of an IPO. I provide evidence that successful start-up firms altered their technology strategies to favor component specialization following the introduction of SOX.

Event URL

www.fuquaworld.duke.edu/www/fsc/poster.jsp?number=19040

Contact Name

Barbara Baxter

Contact Email

barbara.baxter@duke.edu