2020 Book WorkbookForEntrepreneurshipAnd

Springer Texts in Business and Economics
Tim Mazzarol
Sophie Reboud
Workbook for
Entrepreneurship
and Innovation
Theory, Practice and Context
Fourth Edition
More information about this series at http://www.springer.com/series/10099
Tim Mazzarol • Sophie Reboud
Workbook for
Entrepreneurship
and Innovation
Theory, Practice and Context
Fourth Edition
Tim Mazzarol Sophie Reboud
University of Western Australia Burgundy School of Business
Crawley, WA, Australia Dijon, France
ISSN 2192-4333 ISSN 2192-4341 (electronic)

ISBN 978-981-13-9415-7 ISBN 978-981-13-9416-4 (eBook)
https://doi.org/10.1007/978-981-13-9416-4
3rd edition: © Tilde Publishing and Distribution 2017
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Contents
1 Work Book: Entrepreneurship as a Social and Economic Process �� 1

1.1 Learning Objectives�� 1
1.2 Chapter Review�� 1
1.3 Learning Activities�� 2
1.4 Key Lessons from the Chapter�� 2
1.5 Exercise: Profiling Activity�� 3
1.6 Case Study Analysis�� 3
Questions/Tasks�� 3
1.7 Case Study: Small Entrepreneurial Firms in the Asia-Pacific
Region �� 4
Unirex Kabushiki Gaisha, Japan�� 4
Boots Online, Australia�� 5
Electrical Components, Malaysia �� 6
Vjandep Pastel Bakeries, Philippines�� 7
References�� 8
2 Work Book: The Entrepreneur�� 9
2.3 Key Lessons�� 10
2.5 Exercise – Profiling Activity �� 11
2.6 Creativity Journal�� 11
Creativity Journal Framework�� 12
2.7 Individual Assignment – Am I an Entrepreneur?�� 13
Writing the Assignment�� 14
2.9 Case Study: Lessons from Entrepreneurs �� 15
Case Study: Brian �� 15
Case Study: Andrew�� 16
Case Study: Jim�� 17
Case Study: Peter�� 18
v
vi Contents
3 Work Book: The Entrepreneurial Process�� 21

3.5 Group Exercise: Creating Jobs and Economic Growth�� 24
The Problem Outlined�� 24
Your Task Explained �� 25
3.7 Case Studies of Nascent and Novice Entrepreneurs �� 26
Case Study: Malcolm (Non-Starter): The Nascent Entrepreneur �� 26
Case Study: Richard (Starter): The Novice Entrepreneur�� 28
Reference �� 30
4 Work Book: Entrepreneurship and Innovation in Large Firms �� 31
4.5 Creativity Journal Entry�� 34
4.7 Case Study: Belmont ‘City of Opportunity’ �� 35
History�� 35
Facing a Crisis�� 36
Seeking Help�� 37
Researching the Market�� 38
Changing Perceptions �� 38
Setting a New Direction�� 39
Imbedding the Vision�� 39
Empowering Management�� 40
Launching the Brand�� 41
Implementing the Change �� 41
5 Work Book: Innovation in Small Firms�� 45
5.6 Case Study: The Stillroom; When Love Is Not Enough �� 48
Love Grows�� 49
From Little Acorns�� 49
A Small Business Blossoms�� 49
Contents vii
Corporate Structure�� 50

Financial Management�� 51
The First Agency�� 51
Success: Gift Fairs and Exports�� 52
New Commercial Premises and Production Methods�� 52
Mother’s Private Investment �� 53
Factoring to Finance Debtors�� 54
The Age of Discontent�� 54
History Repeats Itself�� 55
Taxation�� 55
Accounting Alternatives�� 55
Partners’ Drawings�� 56
Finance for the New House�� 56
Business Improvement Program �� 56
Change from Fixed to Variable Costs �� 57
Accounting Problems�� 57
Export Manager�� 58
Investor Sought �� 58
Business Valuation and Possible Sale �� 58
Direct Marketing and Franchising�� 59
Business Management Pressures�� 59
Repayment of Loans �� 60
Accusations and Mediation�� 60
The Final Cut�� 61
Reference �� 61
6 Work Book: Adoption and Diffusion of Innovation�� 63
6.6 Group Exercise: GENCO and RENKA�� 66
6.8 Case Study: The Owen Gun�� 68
The Australian Patent System �� 69
War Breaks Out�� 69
Submachine Guns �� 70
Evelyn Nearly Gives Up �� 70
A Second Chance�� 71
Trial by Fire�� 71
Owen Gun Versus the STEN Gun�� 72
viii Contents
The STEN Arrives�� 73

Going Political�� 74
Production Problems�� 74
Into the Field and Fame�� 75
References�� 76
7 Work Book: Planning, Business Models and Strategy �� 77
7.5 Individual Research Paper�� 79
7.7 Case Study: Comfort Homes�� 81
Old Hands, New Roles�� 81
Slow and Steady�� 82
Minimise Overheads �� 82
Home from Home �� 82
Better Building, Reducing Risk�� 83
Window of Opportunity�� 83
Marketing and Management �� 83
Four Factors for Financial Success �� 84
Quality Control �� 84
Future Directions�� 85
Reference �� 85
8 Work Book: Risk Management in Innovation�� 87
8.6 Case Study: Robotics Pty Ltd �� 90
Humble Birth�� 91
Dealer Network�� 91
Extended Credit Terms�� 91
Vertical Expansion�� 92
Cash Surplus �� 92
Enhanced Performance �� 92
New Markets �� 93
Costs�� 93
Intellectual Property Protection�� 93
Body with No Brain�� 93
Systems Lagged Behind Growth�� 94
Contents ix
Decreasing Liquidity�� 94

Product Profitability Re-examined�� 94
Inefficiencies and Lost Orders�� 95
Search for Extra Funds �� 95
A New Beginning �� 95
References�� 95
9 Work Book: Disruptive Innovations and the Commercialisation of
Technology�� 97
9.4 Learning Activities �� 100
9.5 Case Study Analysis �� 100
9.6 Case Study: Davies Craig EWP �� 101
Solving the Problem of Engine Overheating�� 101
The EWP as an After-Market Solution �� 102
Racing Cars as an Initial Early Adopter �� 102
Vintage Cars as Another Niche Customer�� 102
Offering Superior Performance�� 103
References�� 104
10 Work Book: Screening Opportunities and Assessing Markets�� 105
10.7 Case Study: Nokia Sells Out: The Rise and Fall of Nokia Mobile
Communications �� 109
Nokia’s Rise to Global Dominance�� 109
Life Goes Mobile�� 111
Enter the iPhone�� 112
Enter Microsoft�� 113
Exit Nokia�� 114
11 Work Book: Team Building, Company Leadership and Strategic
Alliances�� 117
x Contents

11.6 Case Study�� 121
11.7 Case Study: AQ2 Smartaflow�� 121
Going Beyond a Good Idea�� 123
Recognising an Opportunity �� 124
Proving the Technology�� 125
Protecting and Leveraging Intellectual Property�� 127
The Outcomes�� 128
The Role of Design in Commercialisation �� 129
The Organisation of Design and Product Development �� 131
Planning for Product Development�� 132
The Evolution of a New Product Development Process�� 133
The Use of External Design Services �� 134
Strategic Partnering: Baker’s Junction Machinery �� 135
Outsourcing Graphic Design Services�� 137
12 Work Book: Financing the Venture�� 139
12.7 Case Study: Mt. Romance Australia Ltd�� 143
The Beginning of a Relationship�� 144
Structure and Process of the Investment�� 145
How the Venture Capital Process Shaped Mt. Romance�� 147
Lessons Learnt from Both Sides�� 148
Issues for a Regional Business�� 149
13 Work Book: Intellectual Property Management�� 153
13.6 Group Exercise: Professor M’s Dilemma �� 156
Contents xi
14 Work Book: Social Innovation and Enterprise �� 159

Questions/tasks �� 163
14.6 Case Study: Bendigo Bank, Tambellup and Cranbrook �� 163
A Brief History �� 164
The Bendigo Community Banking Model �� 164
Getting It Going�� 165
Working Together �� 166
A Painful Process�� 166
The First Year�� 168
Four Years of successful Operation�� 168
Appendices�� 171
Appendix A – Work Book: General Measure of Enterprising
Tendency (Version 2) �� 171
Introduction�� 171
Instructions for Completing Test�� 171
Questions�� 172
Answer and Scoring Sheet�� 174
How to Score Your Responses�� 174
What Scores Measure �� 175
Calculating Your Score �� 175
Interpreting Your Score�� 176
Appendix B – Work Book: Diagnosing Your Innovation
Management�� 182
The Nature of Innovation Within Your Firm�� 183
Appendix C – Work Book: Action Learning Project in
Commercialisation �� 191
The Action Learning Approach�� 191
Recruiting the Project �� 192
Assessing the Project – The Innovation Diagnostic Report�� 194
Action Learning Task 1: Assessing the Strategy
and Market Case �� 204
Developing the Business Model – A Check List�� 204
Developing the Market Strategy – A Check List�� 206
Action Learning Task 2: Assessing the Resources
and Innovation Case�� 213
Developing an IP Strategy – A Check List �� 214
Work Book: Entrepreneurship as a Social
and Economic Process 1
1.1 Learning Objectives
After completing this chapter, you should be able to:

• Appreciate the importance of entrepreneurship and innovation to a healthy
economy.
• Define the key terms: entrepreneur, entrepreneurship and innovation.
• Understand the difference between managers, entrepreneurs and entrepre-
neurial managers.
• Understand the concepts and key theories relating to entrepreneurship.
• Understand policy tools employed to encourage entrepreneurial activity.
1.2 Chapter Review
This chapter has examined the nature of entrepreneurship and innovation, providing
definitions for both and placing them into context. Note that entrepreneurship is a
major driver of employment and economic growth throughout the world.
Entrepreneurship operates at the individual, organisational and environmental level,
and is a process associated with self-evaluation, opportunity recognition, the active
management of resources, and the capacity to reassess and change. Unlike manag-
ers, the entrepreneur is willing to assume the risk associated with ownership of a
venture, but also enjoys the rewards of success. Innovation is an integral part of
entrepreneurship and involves either product or process innovations that can be
incremental, synthetic or discontinuous in nature. Innovation is a major source of
competitiveness for firms and is essential to success in modern economies.
© Springer Nature Singapore Pte Ltd. 2020 1

T. Mazzarol, S. Reboud, Workbook for Entrepreneurship and Innovation,
Springer Texts in Business and Economics,
https://doi.org/10.1007/978-981-13-9416-4_1
2 1 Work Book: Entrepreneurship as a Social and Economic Process
1.3 Learning Activities
1. Using examples, explain why entrepreneurship and innovation are considered

important to a healthy and growing economy.
2. Define the terms enterprise, entrepreneur, entrepreneurship and innovation, pro-
viding a brief example of each from your own experience.
3. Explain the difference between an entrepreneur and a manager. Is it possible for
there to be such a thing as an entrepreneurial manager? What characteristics
might such a person have?
4. If you were to provide advice to the government about how to foster more entre-
preneurial behaviour and innovation within the economy, what strategies would
you suggest?
1.4 Key Lessons from the Chapter
• Entrepreneurship and innovation are now recognised as being among the key
elements in the process of economic development.
• Necessity entrepreneurs are those who enter self-employment out of a lack of
choice, by contrast, the opportunity entrepreneur is a person who follows a spe-
cific idea or opportunity out of choice that they have identified as delivering
benefits. The opportunity entrepreneur is more likely to be found in developed
economies.
• An entrepreneur exhibits four characteristics:
1. An entrepreneur is an agent of change bringing new ideas or products to mar-
ket with the ability to create wealth and employment.
2. An entrepreneur has individual motivation and the capacity to identify an
opportunity and pursue it to economic success regardless of the resources that
are under their control.
3. An entrepreneur converts opportunities into marketable ideas, often assuming
risks, implementing the idea and realising any rewards.
4. An entrepreneur is often found starting a company of their own (entrepreneur)
or working in an organisation on a new project (intrapreneur).
• The domain of entrepreneurship comprises at least seven elements. The first
three involve the recognition, exploration and exploitation of future opportuni-
ties. The next four comprise the creation of new ventures, the creation of new
products or components, the creation of new markets or even industries, and the
creation of wealth.
• Sources of innovation can come from some or all of the following: unexpected
occurrences, incongruities, process needs, industry and market changes, demo-
graphic changes, changes in perception, new knowledge (Drucker 1985).
• Most National Innovation Systems comprise two broad elements. The first is a
common innovation infrastructure. The second is the cluster specific environ-
1.6 Case Study Analysis 3
ment for innovation with five distinct functions: the creation of new knowledge;
focusing of research processes within the national scientific community;
facilitating access to resources and funding; facilitating the development of posi-
tive externalities; and facilitating market creation and development.
• The OECD (2010) suggests that innovation is a potential key to solving many of
the world’s problems, including climate change, poverty and economic
stagnation.
1.5 Exercise: Profiling Activity
Profile an entrepreneur that interests or inspires you. Many high-profile entrepre-

neurs feature prominently in the media, and you can often find out a lot about them
from published sources. Where possible you might also make direct contact with
them or their business venture and seek information. Consider the personal charac-
teristics of the individual, their background in terms of family, education and expe-
rience, the business environment when they launched their venture, the type of
venture, and their current management style. Your profile should be no longer than
2 × A4 pages in length (approximately 400 words).
1.6 Case Study Analysis
Read the following case studies of small entrepreneurial firms within the Asia
Pacific region, and then address the questions that follow.
Questions/Tasks
1. What are the common lessons emerging from these four entrepreneurial cases?
(a) Analyse their respective success factors and develop a composite list.
2. Can you identify any common barriers to success within these firms?
(a) Consider how many of these are related to managerial, market, regulatory,
financial, cultural, and physical or other factors.
3. What are the differences between these firms and are they based on country,
industry or some other factors?
4. What is the role of the entrepreneur in each of these cases?
5. What do these cases suggest may be a role for government?
6. What do these cases suggest as to the use of technology to assist small firms to
engage in global markets?
1.7 ase Study: Small Entrepreneurial Firms in the

C
Asia-Pacific Region
The following case studies outline examples of small, entrepreneurial firms in the
Asia-Pacific region and how their founders have grown these companies.1 They pro-
vide some evidence of how entrepreneurial activity can operate across different
countries and industry sectors. You should read these cases with a view to identify-
ing the main lessons that they offer about the factors that influence the start-up,
growth and sustainability of small firms. This includes the factors motivating their
founders to start-up such ventures, and the things that must be addressed if a new-
business venture is to survive and prosper. Take particular note of the things that are
common across all these cases and what factors are inherent in the founders, internal
to the ventures, and impacting them within their respective markets, industries and
overall external task environments. Also, take particular note of how technology and
innovation in product, service or marketing activities help these firms to succeed.
Unirex Kabushiki Gaisha, Japan
When Mr. Ryuichi Hiraiwa was made redundant, the 54-year old native of
Hakkodate, Japan, didn’t want to retire, and he felt an obligation to provide work for
many of his former colleagues. So, he founded Unirex Co Ltd. in his hometown,
Sapporo, hoping to capitalise on their accumulated experience by exploiting the
opportunities which the management of their previous companies had failed to take
up.
From the beginning, the focus of Unirex was export, primarily to China but also
to Germany and Hungary. Unirex now has an annual turnover of US $2.96 million,
with overseas sales now accounting for nearly 20% of total revenue. The company
offers a range of products that have been developed through the reworking of exist-
ing technologies for new clients or industries. Several of these have worldwide pat-
ents, and are world best-practice technologies, including:
• Bio Coal technology, which produces clean-burning, high-energy briquettes

from low quality brown coal.
• Cadmium Removal technology, used to remove the cadmium deposits which are
a by-product of the scallop industry.
• Electric Cold Food Smoking equipment, which drastically reduces the duration
of existing methods.
The company sees a wide and growing customer base (currently nearly 100) as
an important feature of its operations, but is also working with the giant Mitsubishi
Corporation on Bio Coal technology, an initiative which may well account for 80%
1
These cases were sourced from the Asia-Pacific Economic Co-operation (APEC) Studies Centre,
Singapore (APEC 2003).
1.7 Case Study: Small Entrepreneurial Firms in the Asia-Pacific Region 5
of all sales if it is successful. Most company employees are of a mature age and have
limited IT experience. The management is aware of the need to both improve staff
computer skills and upgrade the IT facilities. Unirex is keen to develop the IT skills
of its staff and adopt an ecommerce capability.
Factors Attributed to the Company’s Success

• The combined experience and skills of the small workforce. This includes
both engineering expertise and the sales experience and customer network
that Mr. Hiraiwa had developed, particularly in China, over the years.
Similar links with large trading houses and government agencies have also
helped.
• Access to up-to-date technology. Unirex has established fruitful links with
the research departments in several local universities and ploughs most of
its profits back into long-term research and product development.
• The company’s focus on quality and customer-responsiveness. Unirex
relies on unique technologies and a reputation for excellence, and on strong
customer relations rather than price-competitiveness.
Boots Online, Australia
Eight years ago, a small Australian footwear retailer Boots Online ventured into the
export market by offering a local product (R M Williams boots) via the internet.
Today, export sales account for 90% of the company’s internet activity and 40% of
its annual turnover of US $5 million.
The owner-manager, Mr. Barry Michaels, had been running the business for
27 years, and is the only one of his firm’s employees with IT skills to manage the
online export side of the business. He has worked in the IT industry and also runs a
small computer business. Despite his lack of experience in exporting, he saw the
internet as ‘a shop window to the world’.
Prior to its venture into the export market, the firm’s inventories were variable,
with low stock levels carried over the summer. Now, the demand from overseas
customers buffers the local shop from such seasonal variations and allows it to carry
the same level of stock year-round, thus benefiting domestic customers. The carry-
ing cost is obviously greater, but this was more than compensated for by the increase
in turnover. However, it has not all been plain sailing for Mr. Michael’s export ven-
ture, and he has had to overcome a number of real and potential barriers to growth.
These include:
• the imposition of taxes in some purchasers’ home countries;

• high freight costs;
• the use of stolen credit cards; and
• the limited computer skills of his employees, who are only trained in direct cus-
tomer service.
The business uses four computers, with one dedicated to the ecommerce func-
tion. The website currently accepts orders and provides customer service, and is
partially linked with the overall business system. Payments, however, are still han-
dled manually. A customer file is maintained for internet business, but not for local
customers.

• A unique, high-quality product, with a world-wide reputation and not eas-
ily available overseas. The boots are particularly popular in countries
which share a cultural closeness with Australia (viz the UK, the US and
Canada).
• Access to an effective freight infrastructure which virtually guarantees
3-day delivery to customers in the UK or US, and 5 days elsewhere.
• Prompt and efficient customer service. All customer queries are answered
within 24 h, and customers may return boots if they are dissatisfied, pro-
vided they pay for the freight. (Less than 2% of sales are returned.)
• Easy internet access, with competitive service providers offering reliable
support, and acceptable levels of data security.
Electrical Components, Malaysia
Electrical Components (EC), in the state of Selangor, Malaysia, is a typical Chinese,

family-run small business, manufacturing AC capacitors for use in light fittings and
electrical goods. Typical in the sense that its founders ran the business on intuitive
management principles and relatively informal arrangements with customers and
suppliers, while a second generation of family managers have later introduced
information technologies and more professional management techniques. EC,
which was established by two engineers 25 years ago, currently employs a staff of
about 30 predominantly skilled and semi-skilled production workers. EC has been
exporting for 10 years, and just achieved its highest annual turnover of US $1.3 mil-
lion. The initial impulse to export was triggered by approaches from foreign
manufacturers.
One of EC’s greatest problems is procuring and retaining skilled staff, which
often prefers the better wages and conditions offered by larger organizations. The
other major challenge is to build up a distinctive brand reputation for the company’s
capacitors, reinforced by the internationally recognised quality accreditations which
are increasingly demanded by both local and overseas customers. Although declin-
ing from 10% to around 2% of company total turnover in recent years, exporting
remains a key focus for the management, because of the higher margins it generates
and because of a general urge to expand the customer base. Strong and sustained
communication with overseas clients, electronically or preferably face-to-face, is
seen as a crucial platform for such business.
1.7 Case Study: Small Entrepreneurial Firms in the Asia-Pacific Region 7
The company regards itself as a relatively sophisticated user of computer tech-

nology, and has achieved efficiencies in the areas of accounting and inventory con-
trol, production planning and control, and general information management and
communication. The establishment of a company website has certainly improved
communication with suppliers and customers, but as yet no transaction facility has
been incorporated. The high costs of broadband connection represent another hin-
drance to the development of full ecommerce potential.

• Internationally recognised quality certification on certain categories of its
products has generated competitive advantage over local competition.
• Low-interest, long-term government loans for purchase of quality control
testing equipment have assisted this drive for quality.
• A focus on expertise, planning and networking facilitates the rapid deliv-
ery of products to overseas customers.
• Installation of business application software and adoption of internet tech-
nology has increased productivity and efficiency.
• Government-sponsored seminars and trade fairs have provided networking
opportunities and information on overseas manufacturers and customers.
Vjandep Pastel Bakeries, Philippines
Ms. Eleanor Popera-Jose admits to a number of failed small-business ventures

around the Philippines during her early life, as she and her young family followed
her husband’s military postings. Finally, inspired by a series of dreams about her
grandmother’s bun-making, she began baking her first Pastel products and hawking
them around her neighbourhood in the remote Camiguin Island province; she started
with capital of US $2.35, and her first day’s profits amounted to US $0.68. Today
that business, Vjandep Pastel (VP), is worth an estimated US $49,000, employs 39
staff, has just opened its third branch, and boasts gross daily sales of US $1070.
Ms. Popera-Jose and her husband Virgilio Jose are proud of their success, and
readily pay tribute to the external support which has contributed to its growth:
• A series of loans (from the Philippines Department of Trade and Industry, funded
by the Asian Development Bank; a Spanish government development program in
Camiguin; and the Land Bank of the Philippines).
• Various government-sponsored training programs (in entrepreneurship, business
management and good manufacturing practices).
• Government-sponsored trade fairs and exhibits which have generated requests
for distributorship of VP’s Pastel products in other regions.
But such assistance is only beneficial if it is approached with the right attitude.
They have doggedly pursued any potential government-sponsored assistance.
Vjandep Pastel faces several challenges as it contemplates the further growth

which clearly beckons. Only recently has it begun to computerise its financial and
supplies inventory data, as well as establish a website for the business which it is
still trying to link with an integrated website for Northern Mindanao businesses
initiated by the Department of Science and Technology. Expansion, particularly into
the export market, is an attractive proposition, but finance, distribution, technology
and export knowledge and skills would all need to be improved.

• Access to secure sources of finance proved crucial in covering initial start-
up costs and later expansion plans.
• Owner-operators took advantage of government-sponsored training pro-
grams to gain the necessary capacity to successfully manage and develop
their business.
• Government-sponsored trade fairs have proven to be effective networking
opportunities.
• Future expansion into the export market is viewed to be closely tied to
access to finance and technology, as well as to additional training
opportunities.
References
APEC. (2003). Small business and trade in APEC: A report highlighting the contribution
of medium, small and micro enterprises to the Asia Pacific region. Singapore: Asia Pacific
Economic Cooperation (APEC).
Drucker, P. (1985). Innovation and entrepreneurship. Oxford: Butterworth-Heinemann.
OECD. (2010). SMEs, entrepreneurship and innovation. Paris: Organisation for Economic
Co-operation and Development.
Work Book: The Entrepreneur
2
After completing this chapter, you will be able to:

• Examine the psychological and social trait theories of entrepreneurship.
• Consider the environmental factors likely to trigger enterprising
behaviour.
• Complete an entrepreneurial assessment.
• Relate theories of entrepreneurship to individual vocational and profes-
sional contexts.
2.2 Chapter Review
This chapter provides an overview of the characteristics that influence the entrepre-
neur and shape their behaviour. The factors influencing entrepreneurship are found
both internally and externally to the individual, comprising a combination of per-
sonality traits and environmental influences. Entrepreneurs are typically character-
ised by strong achievement drive, high levels of creativity, a desire for autonomy, a
willingness to take calculated risks, and an internal locus of control. These are key
enterprising tendencies that are inherent in all people regardless of their background,
age, ethnicity or personality. Entrepreneurs are not born; rather, they interact with
their environment to apply their enterprise tendencies into entrepreneurial activities.
Entrepreneurial motivation is triggered by the individual’s entrepreneurial orienta-
tion, personal goals and the opportunities available to them in their environment.
The factors that influence entrepreneurial behaviour are the individual’s ability to
recognise opportunities and to act upon them, but also to learn from their experi-
ences and to undertake realistic self-evaluation. Each stage of our lives presents

https://doi.org/10.1007/978-981-13-9416-4_2
10 2 Work Book: The Entrepreneur
different opportunities for entrepreneurial behaviour. Individuals develop personal

theories of what they can achieve, and they then shape these through their active
learning and their pursuit of ambitious goals. Their confidence and self-belief are
critical to entrepreneurial activity.
The GET test is a measure of enterprise tendencies, and can be useful to help
people evaluate their own life history and capacity for entrepreneurship.
Entrepreneurial orientation is a measure of the level of innovativeness, pro-activity
and risk-taking proclivity inherent in an organisation. Managers need to encourage
entrepreneurial orientation within their firms. Finally, while entrepreneurship can
have many benefits, it can also have a dark side, which is characterised by overwork,
stress and risk. There can be risks to career, family and social relationships, as well
as to the psychological well-being of the entrepreneur.
2.3 Key Lessons
• Although some personality related characteristics or traits appear to be strongly

associated with entrepreneurs, they usually need to be placed into an environ-
mental context and linked to a triggering event.
• Following entrepreneurial traits are often mentioned: recognising and taking
advantage of opportunities, resourceful, creative, visionary, independent think-
ing, hardworking, optimistic, innovative, willing to take risks, able to provide
leadership for others. Despite the emphasis on trait theories in entrepreneurship
research, this approach has been criticised.
• Motives for starting a new venture include the desire for autonomy, for feedback,
greater financial returns, the desire for completion of a task, and the identifica-
tion of unexplored opportunities.
• When examining why individuals start new ventures and how they differ from
those who do not, motivation is a critical component to be considered.
• Entrepreneurial behaviour is therefore a personal choice to initiate the process of
establishing a venture and thereby changing the state of the market in some way.
• There is no ideal age for an entrepreneur, or for anyone, to start a new business
venture.
• Research shows that entrepreneurship is not something that you are born with; it
is a choice that lies within the ability of every person. We all have the primary
enterprising tendencies of achievement drive, creativity, desire for autonomy,
risk-taking proclivity, and locus of control. These are not personality traits;
rather, they are orientations that are shaped by our life history.
• It is possible for managers and their organisations to possess an entrepreneurial
orientation, which has been defined as the processes, practices and decision-
making style of an organisation that acts in an entrepreneurial way.
• Not all business discontinuance results in bankruptcy, but entrepreneurs typically
take on significant financial risk where they put a significant portion of their sav-
ings or financial resources at stake, that will be lost if the venture fails.
2.6 Creativity Journal 11
• Other risks facing entrepreneurs are those relating to their career, family and
friends and psychological health.
1. Using examples, discuss whether you think that entrepreneurship is influenced

more by inherited psychological traits or by external environmental factors.
2. Drawing upon the entrepreneurial profiling activity from Chap. 1; form a group
and compare findings, discussing the personality, social and environmental con-
texts and motivation for entrepreneurial activities among the profiled entrepre-
neurs. What does this tell you about the influences of personality and
environment?
3. Complete the GET test (see Appendix A) and score your results. Consider your
results against your own personal situation, and examine what influences family,
career and personality might have played in shaping your profile.
2.5 Exercise – Profiling Activity
Drawing upon the findings from the GET test and any group discussions you have
held, address the following:
• Which entrepreneurial traits do you recognise in yourself and your group?

• Which attributes are valued by your employer or organisation?
• Which attributes do you have little chance of developing in your current
environment?
• How could entrepreneurship be better encouraged in your organisation?
2.6 Creativity Journal
Creativity is a foundation for both entrepreneurship and innovation. To assist you in

understanding the way that creativity works within these areas, you are encouraged
to keep a creativity journal. The purpose of the Creativity Journal is to encourage
regular reflection on the concepts presented and discussed in class. Entrepreneurial
managers are both reflective and action oriented, they are able to critically evaluate
situations and develop creative solutions to problems.
Personal insights, observations and lessons learned provide valuable anchors
during difficult decision-making times for many successful entrepreneurial manag-
ers. The Creativity Journal provides an opportunity for students to practice creative
thinking and explore opportunities and challenges facing them in their own careers.
The Creativity Journal aims to help students arrive at new insights into their entre-
preneurial capabilities.
The Creativity Journal is a semi-structured written assignment that provides evi-

dence that you are able to apply concepts and frameworks presented in the course to
your own work or vocational context. Entries in the Journal must demonstrate appli-
cation of course materials to personal experience and observations, evaluation of
those experiences and lessons learned. The Creativity Journal is not an unstructured
personal journal although it can be written in an informal style.
In the Creativity Journal, you are required to submit up to six self-assessment
activities. Each entry should be two A4 pages in length with the final assignment
limited to about 12 pages in length. The content of the Journal and an outline of the
assessment activities can be discussed in class. The Creativity Journal will normally
be submitted to your lecturer in the final week. An optional review for feedback can
involve students submitting their Journals in the middle of the program or sharing
their entries with others in their class.
Creativity Journal Framework
Entry One Your first journal entry is a statement of your entrepreneurial goals and
your expectations for this course. Consider how entrepreneurship and innovation
relates to you and your vocational experiences; write about how you might gain
from studying these topics. Write about you own entrepreneurial and innovative
experiences and apply your GET test results. For your first journal entry, consider
the following:
• How do you stack up against the five dimensions (e.g. achievement drive, cre-
ativity, desire for autonomy, willingness to take calculated risks, and internal
locus of control)?
• What do you need to develop or improve?
• What is the organisation you work for (or an organisation you have worked for
or know about) doing to attract and keep entrepreneurial talent?
• How would you describe and evaluate the influence your working environment
has had upon your entrepreneurial orientation?
Entries two to five These should discuss the activities set for you during the class
that relate to the concepts, theory or practice from the readings for the topics cov-
ered. What you chose to write about should be meaningful to you and your voca-
tional experience. Personal experiences may be drawn from your current work or
study environment or previous work experience. In preparing these entries you
should make reference to the course materials and the various readings, case stud-
ies, activities and any guest speakers that have been addressed during the class.
Each case study or guest speaker is selected because they provide a relevant lesson
for you in relation to the concepts and ideas being covered in the unit. While you
have only limited space, these diary entries should demonstrate that you have read,
2.7 Individual Assignment – Am I an Entrepreneur? 13
listened and reflected on the material covered in the unit. Higher marks can be allo-
cated to students who can show a synthesis of the information at their disposal, not
just a description.
Entry Six This entry should reflect on what you have learnt during the course,
focusing on issues that were significant to you. This entry should revisit the GET
test and describe any changes that have taken place over the 12-week program. This
entry should also revisit your entrepreneurial goals and identify areas that you need
to learn more about in order to work towards achieving those goals. Your learning
expectations also need to be addressed in terms of whether these were met or not.
2.7 Individual Assignment – Am I an Entrepreneur?
The purpose of this assignment is to enable you as a student to gain first hand
insights into the characteristics of entrepreneurs and to examine your own entrepre-
neurial capacity. The key tasks for this assignment are:
1 . Examine the theory and practice of entrepreneurs.

2. Evaluate your own entrepreneurial orientation.
3. Compare your own entrepreneurial capacity with those of an entrepreneur.
During the first phase of this assignment you will need to complete the General
Enterprising Tendencies (GET) Test (see Appendix A). You will also need to com-
pare you results with others in the class and read the literature disseminated during
the classes to consider the nature of entrepreneurship and entrepreneurs. In the next
phase you will need to identify a person you feel is an entrepreneur, interview them
and have them complete the GET test as well. You will then need to compare their
results and background story to that of your own before preparing a report in which
you ask the question “Am I an Entrepreneur”?
These people may be small business owners, the entrepreneur owner-leader of a
larger firm or even intrapreneurs operating within government, industry or non-
profit organizations. Before you select your targeted ‘entrepreneur’ it is important
that you consider whether this individual truly is an entrepreneur.
Prior to contacting these entrepreneurs, you must register with the lecturer who
it is that you plan to interview. This is to avoid overlaps between students and to
avoid annoying certain people unnecessarily. Having selected your targeted entre-
preneur, you will need to contact them and undertake the preparation of an interview
lasting up to 1 h. In this interview you should prepare an interview protocol to help
guide you through the discussion. This should cover some of the following things
relating to the person being interviewed:
• Personal family and career history;

• Business history and both its highs and lows;
• Motivations for doing entrepreneurial things;

• Personality characteristics, education, age and other individual traits, and
• GET test results and why these might or might not explain their behaviour.
You will need to ensure that sufficient information is gathered to allow meaning-
ful analysis to be undertaken at a later date. Once you have completed your inter-
view you will need to prepare comparative analysis. This will involve examining the
similarities and differences that may exist between the entrepreneur and you. The
GET Test may be used to provide a degree of empirical data to assist your
analysis.
Each case needs to be evaluated against the background of the material presented
in the course. You should look for evidence from within your case as to common
problems facing the entrepreneurs – e.g. raising finance, marshalling resources,
developing capability and seeking to encourage others to join them on their journey
(e.g. leadership). You should also assess whether you might be suitable to try entre-
preneurship for yourself.
Use the literature made available in the unit, along with case studies, to triangu-
late your findings against what the theory and practice of entrepreneurship suggests
might be the behaviour of enterprising people. Your interview with the entrepreneur
should allow you to address the questions: what makes an entrepreneur, and what
would it take for you to become an entrepreneur?
Writing the Assignment
The written assignment should not exceed 2500 words, excluding appendices and
the reference list. Key areas that will be assessed and of equal value include:
• Discuss what entrepreneurship means to you (drawing on theory and frameworks

presented in class and personal experiences);
• GET test for self-assessment – include as an appendix;
• Discussion of your own assessment across the five entrepreneurial dimensions,
social and environmental influences;
• Interview summary with the entrepreneur that you admire (undertake GET test);
• Analysis of the entrepreneur’s traits, family, social, economic and environmental
influences;
• Comparison of GET test results of entrepreneurs with your self-assessment;
• Draw conclusions on entrepreneurship and you.
Read the following case studies of entrepreneurs and consider what lessons these
cases may have for you in understanding the mind and action of an entrepreneur.
Address the following questions:
2.9 Case Study: Lessons from Entrepreneurs 15
Questions/Tasks
1. What common patterns of thought and action emerge from these case studies?
Make a summary.
2. Using the information from these cases, critically assess the conceptual frame-
works relating to entrepreneurial behaviour and entrepreneurial orientation out-
lined in the chapter.
3. What do these cases teach you about the mind and actions of entrepreneurs?
2.9 Case Study: Lessons from Entrepreneurs
Author: Tim Mazzarol
This case study is based on a research project undertaken at the University of

Western Australia (UWA) of the personal experiences of 50 entrepreneurs. What
follows is a summary of the lessons learnt from this research, which provides an
insight into the challenges faced by those who seek to pursue their goals via entre-
preneurial behaviour. You should read these little case examples and make notes of
any common features that they demonstrate about the motivations, attitudes and
mindsets of entrepreneurial people. Make particular note of how they do, or don’t,
demonstrate the characteristics of the “entrepreneur” as outlined in Chap. 2.
Case Study: Brian
Brian is the founder and CEO of a small recruitment and HR services firm. He
claims to have made many mistakes in his business career which involved lots of
financial costs. Despite these setbacks, Brian remains optimistic saying:
… ‘If you are not making mistakes, you are not learning.’
On previous business venture Brian launched ended in failure. He attributes this

to not getting the ‘people fit’. Brian explained that he knew the partners he had gone
into business with were not quite right, but he thought he could solve this by sheer
hard work. This was not the solution because one of the partners lacked the same
level of passion and commitment to the venture that Brian did, leaving him with too
much burden to carry.
The key things he now seeks to avoid in employees and business partners are
selfishness, poor ethics and the tendency to panic in a crisis. Brian’s approach to
business decision-making can be summed up as:
… ‘Know your numbers, know your customers and have the courage to live your dream.’
The key lessons Brian feels he has learnt from his business life are:
• Realise that making mistakes is simply part of the learning process.

• Make sure that you select your business partners carefully to ensure that
they hold the same values as you, particularly their commitment and pas-
sion for the venture.
• Build your company around good people and take care to select those who
are good team players.
• Focus on measuring the performance of the business.
• Focus on understanding what your customers’ needs and wants are.
• Have courage to fulfil your vision.
Case Study: Andrew
Andrew is the founder and CEO of a small property development company special-
ising in property project management. He says he was always passionate about
property. His early career was as a project development manager where he learnt his
technical skills. At the time he launched his venture Andrew said he had,
… ‘a high mortgage and a modest income, two kids and risk averse wife.’
According to Andrew, this combination of financial and family pressures meant

that he missed many potentially good business opportunities. However, he eventu-
ally took the plunge and sunk $10,000 that he had borrowed from a friend into a
property deal. As he says:
… ‘I put my balls on the line and I thought – I am just going for it.’
The investment paid off handsomely and allowed him the capital to establish his
business with partners. Andrew feels that a key to his success is his ability to forge
strategic alliances, plus the way he has set up an innovative business model that
focuses on ‘rezoning’. This seeks to pinpoint sites zoned at lower levels and moves
them up the hierarchy through rezoning. This requires highly developed skills in
negotiation due to the need to deal with local governments planning departments.
Andrew nearly lost his business in the global financial crisis of 2007–2009.
There were massive drops in property values and the banks were refusing to lend.
He had to take up a full-time salaried job for a while to keep the doors open.
However, he has now bounced back with new projects that have paid off and he is
once again focusing on growth.
Andrew likes to formalise his goals as he explains:
… ‘Writing down your goals actually gives you your goals. Just writing it down actually
makes it happen – it is like making a promise to yourself.’
In assessing his own abilities, Andrew feels that his key strengths are clear goal
setting, having a positive frame of mind, forming key strategic alliances, and con-
tinuous innovation. On bankruptcy and business failure, Andrew has a philosophical
view:
… ‘I have self-belief that no matter what happens there will always be opportunities. You
don’t always need money to do them, but it helps a lot.’
The key lessons Andrew feels he has learnt from his business life are:
• Follow your passions.

• Commit your goals to paper and make a promise to yourself to achieve
them.
• Have self-belief.
• Make your own opportunities.
Case Study: Jim
Jim is the founder and Managing Director of small engineering firm specialising in
project management, process plan design, general engineering design and related
consultancies for the minerals and metallurgical processing industries. The business
is headquartered in Australia but services clients such as BHP-Billiton and De Beers
at the international level with operations in South Africa.
Jim’s initial entry into his own business occurred in the mid-1980s in Thailand.
Unfortunately, this venture failed and resulted in bankruptcy. He returned home and
worked as a salaried manager to regroup and rebuild his financial strength. Reflecting
on this early failure, Jim attributes the primary cause to,
… ‘ad hoc or nil business planning.’
Jim launched his existing business out of necessity when he found himself made
redundant in the late 1990s. He wrote the business plan for his new venture ‘over a
single weekend’, but he felt that he now had a clear sense of direction as to where it
was heading. Since founding the firm Jim has sought to involve business partners to
join him. He recognises the need to secure a strong management and technical team
in order to assist with future growth.
The key lessons Jim feels he has learnt from his business life are:
• Planning is valuable.
• Failure in business is nothing more than an opportunity to learn.
• The business model is more important than the documented business plan.
• Have a clear vision for how the business model will work.
• Look to surround yourself with good people who can complement your
skills and share the load.
Case Study: Peter
Peter is the founder and CEO of a software development company that has an inno-
vative range of products that supply mine planning software for open pit and under-
ground mining operations. The company has operations in Australia, India,
Indonesia, Sri Lanka and the Philippines.
Prior to launching his business venture, Peter had a career as a civil engineer
working for the government in road construction as well as for a large coal mining
company.
The impetus for the business venture sprang from a research project Peter under-
took in conjunction with a local university. This aimed at developing a mine plan-
ning software package. The project proved successful and Peter sought initial
assistance from the university, who took him into a business incubator with com-
puter support and rent assistance.
According to Peter, he made no money in the first year of trading as he was
forced to sell his house to raise the capital required to invest in the new venture.
Peter explained that he made this decision because he was passionate about the new
product and believed in its success. His business was an early entrant into the min-
ing software market, which grew rapidly, and he soon found himself up against new
competitors.
Over time, these aggressive new competitors eroded the initial market share that
Peter’s company had built. This loss of his ‘first mover advantage’ was attributed to
his paucity of marketing skills and acumen:
… ‘We were technically far superior … we were so engrossed in it (developing the soft-
ware) that we didn’t see what was happening around the corner.’
Peter’s business steadily lost market share, forcing him to sell his equity to new
owners. They refinanced the business and kept him on as CEO to help make the
transition to a new management team.
As an inventor Peter continues to be active, and was developing new vehicle

tracking systems for public transport at the time of our interview. He explained that
he had ‘nearly gone to the wall’ at least five times over the previous 35 years, but
each set back only served to strengthen his will and make him more determined to
complete the next project. Peter’s Christian faith was a source of strength for him in
stressful times. As he explained:
… ‘Sometimes you just have to believe in the impossible…and you’ve got to have faith to
break through.’
The key lessons Peter feels he has learnt from his business life are:
• Collaboration with research centres such as universities can pay

dividends.
• Innovation offers a first mover advantage, but marketing is more important
than R&D.
• Belief in yourself and faith are crucial.
Work Book: The Entrepreneurial Process
3

• Consider the role of creativity in entrepreneurship and innovation.
• Understand the entrepreneurship process.
• Understand the theory of effectuation.
• Understand the factors likely to trigger or serve as a barrier to entrepre-
neurial activity.
• Understand the new venture screening process.
• Understand the role of creativity and how rich pictures can be used to stim-
ulate creative thinking.
• Understand the application of applied creativity tools to solving complex
problems.
3.2 Chapter Review
This chapter has examined the entrepreneurial process which is comprised of three
distinct stages: (i) opportunity recognition, (ii) marshalling resources, and (iii)
developing capability. The screening of opportunities is a key part of the entrepre-
neurial process, and the reason why some people identify opportunities better than
others may be due to their having access to better information channels and the
cognitive abilities to assess and value them.
When faced with uncertain, ambiguous environments, nascent and novice entre-
preneurs are more likely to use an effectuation process than a causation one. The
theory of effectuation suggests that they will plan forward, not by trying to maxi-
mise profit and return on investment but by assessing affordable loss and acceptable

https://doi.org/10.1007/978-981-13-9416-4_3
22 3 Work Book: The Entrepreneurial Process
risk. They will forge strategic alliances and use these to replace competitive analy-
sis. Their success will be based on the exploitation of contingencies rather than the
exploitation of pre-existing knowledge, and they will seek to control an unpredict-
able future instead of trying to predict an uncertain one.
The business plan or planning process lies at the heart of the entrepreneurial
process but is less a document than a balancing of opportunity, resources and team
capabilities using creativity, communication and leadership skills. The entrepre-
neurial process can be understood as the interplay between opportunity, resources
and the creation of a team that can implement the business plan. When screening
future opportunities a useful tool is the ‘3M analysis’ that examines market, money
and management issues.
The factors likely to trigger new venture creation involve both personal and envi-
ronmental issues. Key trigger factors are likely to be creativity and autonomy, while
major barriers might be fear of risk, lack of finance, and finding the task more dif-
ficult than anticipated. Creativity appears to be a major driver for entrepreneurs and
involves a process of accumulating knowledge, incubating this knowledge, generat-
ing ideas and evaluation and implementation. Creativity within the workplace can
be affected by time pressures. Useful applied creativity tools include the use of ‘rich
pictures’ to stimulate group thinking, and the SIMPLEX applied creativity process
that provides a step-wise approach to addressing complex problems that require
divergent, creative thinking before you can apply convergent planning and
implementation.
3.3 Key Lessons
• The three principal components defining the entrepreneurial process are: oppor-
tunity recognition, marshalling of resources, developing capability.
• The four principles of effectuation theory are: (i) Affordable loss, rather than
expected returns; (ii) Strategic alliances, rather than competitive analyses; (iii)
Exploitation of contingencies, rather than pre-existing knowledge; and (iv)
Control of an unpredictable future, rather than prediction of an uncertain one.
• On the contrary, a causation process implies a clear sense of the variables that
need to be controlled in order to achieve a given outcome in a cause-effect logic
where investment of time and resources in a project will lead to relatively pre-
dictable outcomes.
• Causation processes work well in static, linear environments in which there is an
underlying logic that, if the future can be predicted, it can be controlled. By con-
trast the effectuation process is more suitable where the variables are unknown
or unpredictable.
• 3M analysis focuses on the three M’s and offers a useful checklist for managers
and entrepreneurs:
1. Market: What is the customer need? (product or service, size, structure, mar-
ket growth rate, market share attainable, barriers to market entry?);
3.4 Learning Activities 23
2. Money: What is the investment requirement? (fixed and variable costs, gross
profit margin, profit after tax, time to break-even, cash flow dynamics, ROI
and IRR capital requirements?);
3. Management: Is there potential for value-adding? (control is there over
resources, timing, room for error, exit strategy, composition of the team?).
• The key issues for consideration by anyone launching a new business venture for
their idea are:
1. Does the entrepreneur have the required capability or experience to launch the
business?
2. Why should anyone buy the product or service?
3. What might increase the chance of success and what gives the new venture a
competitive edge (unique selling proposition)?
4. Can the entrepreneur run the venture alone or do they need assistance?
5. Is there sufficient capital for sustained growth?
6. Will the venture yield an acceptable return?
7. Is this really the venture the entrepreneur wants to run?
8. Does the venture have a future?
• Triggers to new venture creation have been identified as: Creativity, Autonomy,
Money, Market opportunity, Investment, Status. Barriers for new venture creation
have been identified as: Hard reality, Lack of resources, Compliance costs.
Analysis of these nine factors found that the most important for both the nascent
and novice entrepreneurs was creativity. Of secondary importance were auton-
omy and money.
• Creative thinking includes four steps: knowledge accumulation, incubation
phase, generation of ideas, evaluation and implementation. Creativity in the
workplace is frequently killed by the everyday organisational structures and
functions designed to maximise business effectiveness, efficiency and control.
• A creativity friendly management would:
1. Give room to divergently search for possibly relevant facts.
2. Encourage several viewpoints and beware of assumptions.
3. Avoid a negative attitude towards problems.
4. Share information and let people say what they think.
5. Look for the truth, not ways to boost egos.
1. How creative are you and how much opportunity do you have within your pro-
fessional life to be creative? List up to five ideas that you can think of to enhance
creativity within your own workplace.
2. Developing a relational perspective can enhance creativity. For example:
• suitcase and trolley = suitcase with wheels;
• copier and telephone = fax machine.
3. Working in a small group, consider all the possible functions for the following
things:
• chair;
• the office ‘gossip’; and
• a wire coat hanger.
4. Working in a group, list as many ideas for new business opportunities as you can
(try to get a good long list). Now sort out the top three from a commercial per-
spective. Justify why these are your best choices.
5. Identify an issue or problem that you are facing at work or in your professional
environment, and apply the SIMPLEX process. Try working within a group and
ensure that you follow each stage. Keep notes on what you do, and identify chal-
lenges and problems you faced from within your organisation, your team or your
own ability to play the role of generator, conceptualiser, optimiser and
implementer.
3.5 Group Exercise: Creating Jobs and Economic Growth
This is a group problem solving challenge that provides you with an opportunity to
review the content from Chaps. 1, 2, and this chapter, and apply their content to
addressing a complex problem. Read the following problem and then in a group of
other students, solve the problem. Further details of the task are found below.
The Problem Outlined
The Global Financial Crisis (GFC) of 2007–2009 impacted most of the world’s
economies. In the United State the unemployment rate reached 9.5%, although it
was much higher in some communities. Over 14 million Americans were out of
work and the economic recovery since the GFC was slow and largely jobless. In
2010, the U.S. President Barak Obama said:
… Workers who are out of work – especially workers who are out of work for a long time –
lose a good deal of their market-relevant human capital. Their networks of contacts that
allow them to easily get and change jobs, their habits of punctuality, their workplace skills,
and their self-esteem all erode. The long-term unemployed; especially, drop out of the
effective labour force – and it is damnably hard to reattach them all to employment absent
a full-scale World War II style inflationary boom.1
According to the US Census Department over the past decades few new jobs were
created within the larger firms and most new jobs were created by new business
start-ups. However, there is a very high rate of business failure or abandonment
amongst these newly created ventures. In other countries, recovery from the GFC
was also slow. However, new enterprise creations, including non-employing nano-
businesses, were growing strongly in countries such as Australia, France and the
“What to do about the unemployed?” The Economist online www.economist.com.

1
United Kingdom, and new small firms were the most important source of new job
creation (OECD 2018).
Policy makers in the United States, as in many countries with similar economic
conditions, want to stimulate the creation of new jobs and therefore reduce unem-
ployment levels. They think that entrepreneurship in the form of small business
start-ups may be the answer. The challenge is to find ways to stimulate the forma-
tion of sustainable new business ventures and to develop policies and strategies that
might foster an entrepreneurial and innovative economy. A concern for policy mak-
ers is how to foster an entrepreneurial society and what strategies they might follow
to stimulate economic growth and job creation via entrepreneurship.
Your Task Explained
Working in groups, undertake a critical analysis of this problem. You should apply
the Rich Pictures and SIMPLEX process for creative problem solving as outlined in
this chapter. The group should follow these steps:
1. Each individual group member draws a picture of the present and future desired
states.
2. Annotate drawings with five priority functions/features to shift from present situ-
ation to desired future state and rank in order of importance.
3. Within the group conduct a ‘round robin’ with each member putting priority
functions/features to the group without evaluation or criticism.
4. Rank functions/features in order of importance.
5. Develop a problem statement that summarises the underlying causes of the
problem.
6. Draw on material from the text, in particular Chaps. 1, 2, and this chapter, and
other readings to help you build an evidence-based argument and follow the
SIMPLEX process in applied creativity.
7. Prepare a final solution (approximately four pages) and present to the class.
Read the following case studies of nascent and novice entrepreneurs Malcolm and
Richard, who either launched or abandoned their plans for a new business venture.
You should consider these cases for what they suggest about the process of entrepre-
neurship and what may serve to make one person start up a new venture and another
not do so. When you have read the case address the following questions.
Questions/Tasks
1. Review these cases against the material covered in this chapter, and relate their
stories to the theories and concepts of new venture creation and the entrepreneur-
ial process.
2. What might explain the reasons why one individual launched their new venture
and another person abandoned their idea?
3. If you were to give advice to Malcolm about how to get a new venture launched,
what would you suggest he do to help him develop the right mental attitude?
4. What recommendations would you give to Richard about what he should do to
ensure the long-term sustainability and growth of his fledgling business?
3.7 Case Studies of Nascent and Novice Entrepreneurs
The following case studies profile the stories of two nascent and novice entrepre-
neurs. The first, Malcolm, is a nascent entrepreneur who planned to launch a new
business venture, but didn’t follow through with his plans. The second, Richard, is
a novice entrepreneur, who did proceed to launch and is now facing the challenges
of keeping his business sustainable. These cases provide you with some insights
into the factors that serve to trigger the start-up of a new entrepreneurial venture,
and also those factors that act as barriers to this. Read each case carefully and con-
sider them in the context of the material outlined in this chapter.
Case Study: Malcolm (Non-Starter): The Nascent Entrepreneur
Malcolm is a 37-year-old who had dropped out of high school at the age of 15 and
began a career in the Fire Department. From the age of 32, he worked as a techni-
cian servicing fire equipment in large buildings. While the hours were good and the
work easier, his salary was low at $25,000 per annum and, despite increased
demands from his employer for him to take on more responsibility, they had not
offered him any substantial increase in wages. Malcolm’s wife Sue is a manager in
a fast food restaurant and was earning more money than him. This bothered
Malcolm, but Sue became pregnant with their second child and was planning to quit
her job. With one small child and a new baby on the way, Malcolm was keen to find
a way to earn more money and replace Sue’s income.
ast Business Failures

P
Malcolm and Sue were not without some previous exposure to new venture creation
and the challenges of entrepreneurship. During the 1990s they had purchased a
small lunch bar which they took over as going concern. Sue managed this business
using her skills in the fast food industry. At the same time Malcolm had become
3.7 Case Studies of Nascent and Novice Entrepreneurs 27
self-employed as the owner-driver of truck. He invested around $10,000 in the vehi-

cle and its on-road costs, and was guaranteed work as a sub-contractor for a large
transport company.
Unfortunately, these early business experiences were not successful. The lunch
bar ran into financial problems, which Malcolm and Sue blamed on the previous
owner who had inflated the annual turnover figures to get a better price at sale. The
sales turnover from the lunch bar was not high enough to cover the overheads, and
the couple were unable to draw an income from the business. With Malcolm’s truck-
ing venture still not breaking even, they decided to close down the lunch bar and Sue
returned to work as a manager for a fast food chain. Shortly after the closure of the
lunch bar, the truck experienced serious mechanical problems. Unable to find the
money to repair the truck Malcolm was forced to abandon his investment in the
trucking venture and to return to work as an employee, taking the fire service techni-
cian’s job.
Spotting the Opportunity
The opportunity that emerged for Malcolm was to start up his own business servic-
ing the fire equipment in commercial buildings. His recent experience of working as
a fire equipment service technician for a large equipment supplier meant that he had
the skills to do this type of work. However, his past experience as a fireman had left
Malcolm with a feeling that the way these systems were being serviced and the way
advice was given to building managers about their operation could be substantially
improved.
Screening the Opportunity
Malcolm felt that his new business venture in fire equipment servicing was feasible
due to his past experience in and knowledge of the industry. This gave him confi-
dence that there would be a large market, and he had already made contact with
many potential clients. He estimated that it would require a minimum of $20,000 to
purchase a small van and set it up with the right equipment and tools. A friend was
also willing to provide him with space, at a nominal rent, for a small workshop and
office in an industrial unit.
Fired up by this idea, Malcolm enrolled in a small business start-up seminar run
by a government small business assistance agency. He also approached his bank for
finance. There were several compliance costs that Malcolm also had to consider,
particularly professional indemnity, public liability insurance, and worker’s com-
pensation cover. Malcolm spoke to his accountant, but did not prepare a formal
business plan.
The seminar for small business start-ups had given Malcolm some new ideas,
including the need to do some market research. He felt he already knew his existing
customers in his current job. He had also identified buildings within the city that
either were not being serviced or were being poorly maintained. His friend, who had
offered him the factory unit space, was also willing to give him all his business and
to refer him to others.
However, the only formal market research Malcolm had done was to ‘bounce’
his idea off one of the clients of the large equipment supplier and ask him if he
would be interested in switching service contractors. The client refused and com-
mented that Malcolm’s idea would not work as large firms would get the bulk of this
type of business. This eroded Malcolm’s self-confidence and made him begin to
question whether his idea was really feasible. Without a ‘big brand name’ backing
him, would he be able to secure enough customers?
Abandoning the Opportunity
Stunned by this early negative reaction from a potential customer, Malcolm began
to experience the hard reality of getting his venture launched. Things finally came
to a head when he went back to the bank to secure a business loan. Despite having
reasonable equity in his house and Sue’s income to keep the family’s needs satisfied,
the bank wanted more planning. The bank manager asked Malcolm to prepare a
cash flow forecast and general business plan for his new venture before they would
consider lending him the $20,000. This, plus the earlier customer rejection, made
Malcolm begin to question the likely success of his planned venture and he became
quite despondent.
Faced with nagging doubts, the worry over the loss of Sue’s income once the
baby was born, and his past history of business failure, Malcolm abandoned his
plan. He now felt that he was not really able to launch his own business. While he
was still planning to quit his fire equipment technician’s job and go back to better
paid work as a sub-contract truck driver, he would not be an owner-driver. Malcolm
felt a lack of self-confidence in his capacity to run his own business and to take on
the risks associated with it.
Case Study: Richard (Starter): The Novice Entrepreneur
Richard is a 32-year-old naval architect who established his own design business
after working with an America’s Cup syndicate in the United States (US). The expe-
rience of working with some of the world’s leading yacht designers in the exciting
atmosphere of the America’s Cup race was highly stimulating for Richard and gave
him exposure to new ideas and innovations.
Richard’s father had been a self-employed architect and a strong role model for
him. This family background had left Richard with a strong desire to be his own
boss and have control over his own affairs and destiny. His international experience
had left Richard with the view that he was personally capable of offering a world
class service. Having benchmarked himself against some of the world’s best design-
ers, Richard wanted to place his own name forward in the market and naval design
community rather than work under the brand name of an employer. He also felt that,
by establishing his own business, he would be able to make more money.
3.7 Case Studies of Nascent and Novice Entrepreneurs 29
he Opportunity Is Triggered
T
The trigger for Richard’s decision to found his own business was the completion of
his contract with the America’s Cup syndicate. Although he was planning to return
to Australia from the US, Richard was offered the opportunity to continue working
with the American syndicate on a design project. This would ensure that he had suf-
ficient work to allow him to make a living once back in Australia.
Richard returned to Australia and set up his new naval architecture firm almost
immediately. He established an office studio in his home in the port city of Fremantle.
This allowed him to keep his overhead costs low and to maintain flexible working
hours. The city of Fremantle was also a good place to keep in touch with local ship
and boat building communities, and gave relatively easy access to Asia where future
clients were to be found.
Marshalling Resources
The initial project work Richard secured from his former employer in the US took
up around 40% of his time. He had been provided with a high-performance com-
puter and internet equipment by the American client to enable him to service their
project remotely. This ensured that Richard had quite low initial investment costs
and was able to devote more time and money to building up the business. An added
benefit was that his American client received his work via the internet and paid him
via electronic banking in US dollars.
Building Capability
Despite his fast start, Richard realised that he could not rely on a single client for-
ever and would have to expand his client base if he was to build a sustainable busi-
ness venture. In building the business, Richard faced several challenges.
First, the market for naval architects in Australia was limited. In his home town
of Fremantle there were few if any jobs, and self-employment was his only realistic
option. However, Richard’s area of expertise was in the design of luxury yachts,
which was a highly specialised area. There was a strong local market for small lei-
sure craft design, but this was already heavily supplied by designers – many of
whom did not possess formal qualifications in naval architecture. This meant that
the local market was generally too small or lacking in sophistication for Richard to
build a sustainable business. Instead he had to look overseas.
If the Australian market was too small for Richard’s future business growth, he
would have to look to clients in North America, Europe and Asia. As a designer of
luxury yachts, Richard would need to target a niche and highly demanding target
client base. Via referrals from his American key client and some personal network-
ing, Richard had secured a few smaller contracts to do projects in Japan and France.
He was able to deal with them on a daily basis via email, but wining new clients
would require him to make long distance trips and hold face-to-face meetings. This
travel would be a major cost for Richard’s new business to carry.
Future Plans
Richard’s new venture survived the first 2 years following its establishment. He was
trading profitably due to the low start up and overhead costs, and he had managed to
widen his range of clients. However, he remained concerned whether he could sus-
tain his business over the longer term.
As a sole operator, Richard found it difficult to complete his project work and
also find the time to make lengthy overseas trips to attend industry events and meet
with current and prospective clients. He had recently attended a major industry trade
show but had not set up a booth there due to the high cost. The need to attend these
large international trade exhibitions and showcase his work was recognised as a key
marketing opportunity, but Richard had to weight up the high cost of such events
against their likely return.
Richard had not undertaken any formal business planning. He had not had to
borrow money from a bank, and his start-up so far had been relatively easy as he had
been so well supported by his former employer. As Richard considered his future
options, he felt he might need to broaden his business into new markets. The design
of large commercial fishing vessels was a field that he thought he might be able to
secure work in. There was also a strong local market for this type of work.
However, commercial fishing vessels are a very different segment of the market
to luxury yachts. While it offered more secure work, the profit margins on such
work were less than in the luxury yacht design market. He had done no formal
research or assessment of this option. Richard also worried about his ability to man-
age a business over the longer term. After all, he was a highly trained specialist in
the field of naval architecture. He felt he lacked the fundamental skills and knowl-
edge of business that would be required to build this venture over time.
Reference
OECD. (2018). Entrepreneurship at a glance 2018. Paris: Organisation of Economic Cooperation
and Development (OECD).
Work Book: Entrepreneurship
and Innovation in Large Firms 4

• Understand the process of intrapreneurship.
• Understand the difference between managers and entrepreneurial
managers.
• Understand the impact of organisational structure and culture on creativity
and enterprise within the firm.
• Examine human resources frameworks for encouraging intrapreneurship
within large organisations.
• Recognise the five key elements that create the innovative organisation.
• Understand the challenges facing innovation in public sector
organisations.
4.2 Chapter Review
This chapter provides an overview of the concept of intrapreneurship or internal

corporate venturing which suggests that managers within large organisations can
behave like entrepreneurs. The ability of large organisations to generate innovations
is contingent on their ability to encourage entrepreneurial behaviour among their
employees. Intrapreneuring is contingent upon an alignment between the individu-
al’s ability to undertake entrepreneurial activities, and also the organisation’s char-
acteristics. Innovative organisations need a strong market orientation, innovative
leadership, non-linear strategic planning, flexible structures and a supportive cul-
ture. The structure and culture should be aligned to ensure that innovation can be
fostered through freedom and creativity, but also implemented through efficient

https://doi.org/10.1007/978-981-13-9416-4_4
32 4 Work Book: Entrepreneurship and Innovation in Large Firms
production and distribution. Intrapreneurship can be risky for managers who need
to behave as if they are risking their own money. Encouraging entrepreneurial
behaviour within large organisations requires attention to be given to human
resource management (HRM) systems with appropriate rewards, resources, man-
agement support, organisational structure and a risk tolerant culture.
Within public sector and non-profit organisations, managers can also engage in
innovative and entrepreneurial behaviour. Managers in these organisations face
increasing pressure to innovate and find new ways to deliver services more cost-
effectively. Innovation can be a useful tool for public organisations in shaping and
implementing policy. In healthy public organisations, employees see innovation as
a normal part of their job and find that new ideas are encouraged and supported.
Senior managers within public organisations must overcome complacency, empower
employees and communicate the virtues of innovation. They need to be willing to
change, to build on firm foundations, have a clear strategic vision, and learn to shift
mindsets as they actively encourage innovation.
4.3 Key Lessons
• Intrapreneurs inside the corporation or agency implement new ideas within the
established organisation. The intrapreneur demonstrates a set of enterprising
attributes in a wide variety of situations.
• Fostering intrapreneurship among managers requires a focus on four key issues:
1. The organisational structure should provide a high degree of autonomy and
discretion over their work, linked to the reward systems.
2. The organisation should have fuzzy boundaries that allow networking between
employees and alliance partners from other firms.
3. The human resource strategies should seek to attract and retain achievement-
oriented people with the ability to set their own goals and value
independence.
4. The senior management of the organisation should be tolerant of failure and
risk.
• Organisations can ‘re-engineer their corporate thinking’ to encourage intrapre-
neurship by focusing on things such as the setting of explicit, mutually-agreed
goals that allow employees to share the vision and align their work with the
broader corporate strategy.
• Failure is a prerequisite to invention, and organisations need to encourage risk-
taking and learning from mistakes. Senior management should seek to tolerate
failure as a natural process of learning. Failure tolerant leaders engage people
and set good examples. They are prepared to admit their own mistakes and are
non-judgemental, while being analytical – neither praising nor penalising.
• Ten principles for the successful management of an intrapreneurial new venture

team within a large organisation:
1. Intrapreneurial team members must share a common dynamic vision.
2. The new venture team should be placed under a corporate advisory board
with clear lines of reporting.
3. Senior management must receive frequent updates of how the project is
going.
4. The venture leader should dedicate time and attention to the interaction with
the larger corporation.
5. The corporation must give freedom to act to the venture team.
6. They should all realise that is both risky and uncertain as to how it will turn
out.
7. Both parties should seek to maintain open and effective communication
channels.
8. The entire venture team must be encouraged to participate in planning the
business’ direction.
9. If a team lacks a ‘passion’ for the business and each other, it rapidly comes
apart.
10. Compensation should be directly linked to venture success.
• Four key problems with intrapreneurial corporate venture activity may appear:
1. Vicious circles in the definition process leading to reluctance to provide ade-
quate resources.
2. Managerial dilemmas leading to friction between maximising growth and
building functional capabilities.
3. Indeterminateness of strategic context and time horizon of ICV development
4. Perverse selective pressures exerted by structural context on ICV

development.
• Innovation and change programs within government agencies and non-profit sec-
tor organisations requires five behavioural attitudes:
1. Be willing to change
2. Build on firm foundations
3. Have a clear strategic vision
4. Shift mindsets
5. Encourage innovation
1. As an intrapreneur and job seeker, draft three questions that you would ask a
potential employer to determine whether their organisation supports entrepre-
neurial behaviour.
2. Examine the organisation where you work or an organisation with which you are
familiar, and then address the following questions:
• How supportive is the organisation of entrepreneurial behaviour?
• Assess the organisation’s strengths and weaknesses in relation to
intrapreneurship.
• How might the organisation change in order to make it more conducive to
intrapreneurship?
4.5 Creativity Journal Entry
For your second journal entry, address the following:
• Describe your approach to creative thinking and problem solving.

• What factors act as barriers and triggers to your creative thinking process?
• Select a problem that interests (or bothers) you or the group with which you
work:
1. Examine the problem using the problem-solving process outlined in the
chapter.
2. Describe the process that you used, how the process differed from your usual
approach, and the outcomes and lesson(s) learned.
Read the case study Belmont ‘City of Opportunity’, which outlines the story of a
local government authority within the inner Perth metropolitan area in Western
Australia during the late 1990s. It describes the challenges facing the city with a
declining population and aging community. However, it also shows how the city’s
mayor, councillors and senior executives, working with the local business commu-
nity and residents, turned around the fortunes of their city by pursuing innovative
and enterprising strategies. The case provides lessons, not just for government agen-
cies, but for any large organisation that needs to undertake a strategic transformation
using enterprising and innovative solutions. After reading the case, and reviewing
Chap. 4, address the questions outlined below:
Questions/Tasks
1. What lessons does this case provide in relation to how large organisations can
undertake transformational change using entrepreneurship and innovation?
2. How might these lessons be applied to your own organisation with respect to
how people and processes can be changed?
4.7 Case Study: Belmont ‘City of Opportunity’ 35
3. Assuming that you are the senior management of the City of Belmont, prepare a
strategy to continue the momentum into the next 5 years. In doing so, consider
the major issues, both internal and external to the local authority, that would need
to be addressed.
4.7 Case Study: Belmont ‘City of Opportunity’
The City of Belmont is located approximately 5.8 km south east of the Perth
central business district (CBD) in Western Australia. Covering a total area of 40 km2,
the municipality encompasses the suburbs of Ascot, Belmont, Cloverdale, Kewdale,
Newburn, Redcliffe and Rivervale. The western boundary of the city comprises
11 km of foreshore along the Swan River.
To the northeast is the Perth domestic and international airport, which is located
within the city’s boundaries. The eastern edge of the city contains the Kewdale
freight terminal, the main railway terminals for Perth. Transport infrastructure
within the City of Belmont is substantial, with 227 km of roads, including many
major highways linking the airport and railway freight terminals to other parts of
metropolitan Perth. Despite this industrial environment, the City of Belmont man-
ages around 238 ha of parks and gardens, including the Ascot Racecourse (57 ha),
which is the main horse racing circuit in Western Australia. In 2000, the city had an
estimated population of 30,400 residents living in a total of 13,306 dwellings.
History
Belmont’s river frontage with close proximity to the Perth CBD proved attractive
from the earliest days of European settlement. In 1830, a parcel of 2000 acres along
the river was granted to Captain F Byrne, who called the area ‘Belmont Farm’. John
Hardey, who owned the adjacent ‘Grove Farm’, subsequently purchased this prop-
erty. Horse racing commenced at ‘Grove Farm’ in 1848, and the area soon became
the centre of Perth’s racing industry.
The low-lying swampy nature of the land in Belmont proved unsuited to pasture
and cropping, but soon attracted many of Perth’s earliest Chinese immigrants who
established market gardens in the area. The City of Belmont traces its history back
to 1898 when it was first identified as a separate municipality under the administra-
tion of a Road Board. In 1907, the Belmont Park Road Board was formed and
remained the management authority until 1961 when the municipality became the
Shire of Belmont.
By 1911, the population of Belmont had reached 1088 people. During the twen-
tieth century, the City of Belmont became associated with horse racing, industrial
development, particularly brick making, and the airport. A predominately ‘blue col-
lar’ community, Belmont attracted a mixture of residents including those associated
with the racing industry, manufacturing, transportation and storage. The official
crest of the City was a shield incorporating a brick kiln stack and cog (representing
industry), wings (representing the airport), and a racing horse on a green back-
ground symbolising the public open space managed by the ‘City of Parks’, as
Belmont was called.
Facing a Crisis
By the beginning of 1994, the City of Belmont found itself facing a crisis. Having
experienced steady population growth from 1898 to the 1970s, an examination of
census data showed an alarming decline in population throughout the 1980s and
early 1990s. From a high of around 35,000 in the mid-1970s, the population of
Belmont had fallen to 26,592 by 1994.
This decrease in population was threatening the closure of schools in the area
and leading to a perception that the City of Belmont was in decline. Coupled with
this fall in population was a growing concern among councillors that the city was
suffering from many other problems including too much low-income housing,
‘scruffy’ streetscapes and high crime rates. There were even calls from some coun-
cillors to hold anti-crime rallies in the centre of town to raise public awareness of
the problems. In addition to these concerns, Council also faced the external threat of
amalgamation and loss of independence, as the State Government was considering
the fate of several municipalities and the possible amalgamation of Belmont with
adjacent municipalities was being mooted. The Council was being asked to demon-
strate its viability with scrutiny of the municipality’s financial status, growth rates,
asset to liability ratios, and debt levels.
Against this background, the Council resolved that they had a problem. The
Director of Planning prepared a report for Council stating that they had an aging and
declining population and they needed to turn their attention to developing strategies
to turn this around.
There were numerous plans ‘on the table’ for major infrastructure projects.
These included the Ascot Waters residential estate on the banks of the Swan River,
the Redcliffe redevelopment, redevelopment of the area known as The Springs, the
Graham Farmer Freeway project linking Belmont to the Perth CBD, and upgrades
of the Great Eastern Highway. However, the Council was experiencing difficulties
in addressing such projects within the overall environment of decline.
Seeking Help
It was recognised that the City of Belmont had many good things to offer, particu-
larly if the major infrastructure projects went ahead. In July 1994, the Council gave
specific attention to the issue of attracting families to the City of Belmont. One of
the many initiatives that were agreed on by the Council was the need for a marketing
strategy which involved Council, the business sector, and the general community to
properly promote the City of Belmont for family living.
It was recognised that local government in general had been slow in recognising
the importance of promotion and marketing. Accordingly, the provision of resources
for such an area of activity had been seen as secondary to other ‘traditional’ priori-
ties – or in fact was ignored.
The city’s management knew that, if there was to be more than a token effort in
encouraging families into the area, it would need to compete with other municipali-
ties. It was also realised that promotion and marketing required specialist expertise
and that getting the right consultant to work with the Council was essential.
A working group comprising senior managers and councillors was formed, and
they spent a considerable amount of time with Council making the case that a sig-
nificant sum of money would be required to get any benefit. Although the Council
was entering ‘unknown territory’, and up until this time had never seriously mar-
keted the city, there was a high degree of excitement and anticipation from this new
challenge.
An initial budget of $200,000 was allocated to market the city, and a tender was
raised. The Council working group took formal presentations from a variety of mar-
keting and advertising companies. This exercise proved particularly difficult. The
Council working group had agreed that selecting the right partner was ‘absolutely
critical’, but they had little experience of what to look for. Some of the firms that
tendered were later likened to an aggressive ‘slick suits and pony tail brigade’ who
claimed that they could ‘sell anything’. What the Council was seeking was a group
they could trust to make effective use of this substantial funding allocation. However,
the Council and management had agreed that they would ‘open their minds’ and be
receptive to suggestions from these marketing consultants. It was recognised that
this may require doing things differently to the usual local government way.
The successful tenderer was finally selected because they had impressed the
Council with the admission that they did not have an ‘off the shelf’ solution, but
were prepared to work with the City of Belmont to achieve the objectives. While the
Council thought that it ‘was in the starting blocks’ and would be soon running to the
community with a new logo and brochure, the marketing consultants advised them
of the need to undertake more preparation. They pointed to the need for an
investigation of the situation, within both the municipal administration and its exter-
nal environment. This required commissioning research to provide ‘hard data’ upon
which to base future strategies, rather than basing them on anecdotes and individual
perceptions.
Researching the Market
The need for research was identified as a first step in the successful development of
a future marketing strategy. Although the Council had experience of using ABS
population statistics, it was less familiar with community perception studies. A team
of university researchers were engaged to undertake a research study to investigate
what the problems facing Belmont actually were.
The research indicated that the key factors people considered when selecting a
place to live, in order of importance, were: (1) crime and safety; (2) the living envi-
ronment, e.g. parks, streetscapes and gardens; (3) shopping facilities; (4) cost of
living, e.g. housing prices and local council rates; (5) provision of local government
services; (6) proximity to other parts of the city; (7) availability of recreational and
sporting facilities; (8) access to entertainment facilities; (9) access to schools; and
(10) ethnic composition.
Public opinion rated Belmont poorly on crime and safety, but well in terms of its
parks. However, analysis of crime statistics showed that the City of Belmont – while
it had crime – was not significantly worse than other inner-city municipalities and
in some years, it was actually better than some more ‘up-scale’ areas. Real Estate
Institute of Western Australia (REIWA) statistics showed that median house and
land prices in the City of Belmont were approximately $10,000 below those of other
inner-city municipalities. Another key finding was that a sizeable proportion of the
community were unaware how close Belmont is both to the Perth CBD and to the
river.
Changing Perceptions
The Council were surprised at the findings of the research study. They had been
under regular ‘attack’ by many interest groups who accused the city of being crime-
ridden and of suffering from serious social problems. Several councillors had
wanted to hold anti-crime rallies in the centre of the city. City management used
these findings to calm down these councillors, pointing out that to hold anti-crime
rallies was ‘like standing on the roof tops, shouting out – we’ve got a crime
problem!’
The possession of reliable research enabled the city management to dispel many
misperceptions as to the reality of Belmont’s situation. It also served to empower
the Council to deal with vocal community interest groups who could now have their
views placed into a more accurate context. When claims were made regarding ‘how
the situation is’, council and management were able to refer to the research data and
point out that such perceptions were incorrect. It also gave both council and man-
agement greater confidence that the situation they faced was not so bad. For the staff
of the council, the research offered encouragement and hope.
Despite the difficulties facing the council, there were several positive develop-
ments on the horizon. The first of these was the planned construction of the Graham
Farmer Freeway linking the western suburbs of Perth with the east. This major
infrastructure development would sink a tunnel beneath the northern precincts of
the Perth CBD and throw a bridge across the Swan River. The freeway would
shorten the distance between Belmont and the rest of Perth. Also, in the early plan-
ning stages were a major upgrade of the city’s principal shopping plaza, the Belmont
Forum, and a major new riverfront housing development, Ascot Waters.
Setting a New Direction
These new and exciting developments, plus the findings from the research, laid the
foundation for the City of Belmont to develop a coordinated strategy to set the
municipality on a new path. A full day workshop was held to identify where the city
might move to over the coming 5 years. Both management and councillors attended,
and the research was used as a foundation to develop strategies for improving the
council’s relationship with its community. This was a critical workshop as it engaged
councillors in the planning process and ensured their ownership of, and commit-
ment to, the process. Faced with the recognised need for change, the councillors
embraced this workshop with enthusiasm and made strong contributions.
The City of Belmont, which had called itself the ‘City of Parks’, was given a new
brand image – ‘Belmont the City of Opportunity’ – along with a new logo and pro-
motional material. A series of community-based strategies were developed to raise
the profile of the City of Belmont, and to enhance the overall quality of life in the
municipality. This common vision assisted Council and management with decision-
making, putting everything under the ‘City of Opportunity’ banner and facilitating
change.
Imbedding the Vision
A critical management challenge was the need to undertake an internal culture

change process targeted at the council employees, as well as at the Council itself.
City management was advised by the consultants that, if such a process was not
implemented, the money spent on marketing communications would be wasted and
the overall strategy would fail.
A 2-day ‘culture change’ program was designed for both office and outside staff
at the City of Belmont. Designed and delivered by the marketing consultants, this
program took several months to complete, as all employees had to be processed
through the workshops. The purpose of this training was to change the perception of
the municipal employees to their role. As with many local government agencies, the
City of Belmont viewed itself as an administrator and regulator. The function of the
council was seen as enforcing rules and regulations on the community, telling people
‘yes you can do this, or no, you cannot to do that’. It was recognised that, if the City
of Belmont was to lead change in the community, it must shift its focus from that of
an administrator and regulator to a community facilitator. As a facilitator, the role of
local government is to work with the community to find the middle ground, fre-
quently having to negotiate a win-win outcome between conflicting interest groups.
Not all municipal employees were enthusiastic about these changes. Some were
sceptical about the value of marketing and saw the entire process as a waste of time
and money. However, commencing with the 2-day culture change workshops, the
message of change and innovation was gradually imbued. Management was able to
use the branding and marketing focus to communicate their commitment to seeing
the City of Belmont serve as a facilitator of community change. The message was
sent out loud and clear that, henceforth, the City of Belmont was no longer just an
administrator and regulator. It was now going to attract new families into the area,
facilitate development, and attract new business investment.
The culture change program challenged the way management and staff dealt
with their clients – both internally and externally. If focused on turnaround times for
work and approvals, as well as greater delegation of authority in the building plan-
ning and health services areas. It was acknowledged by council management that
such initiatives were essential if the municipality was to effectively service its
community.
This change of thinking had its biggest impact on the planning staff within the
council. The ability for the local government to encourage development, change and
entrepreneurship within the community was recognised as contingent on the planning
function. Fortunately, the council’s Director of Planning was highly receptive to this
view and embraced the change in thinking. Nevertheless, the process of change placed
substantial burdens on the planning staff, who were required to spend significant time
negotiating with community groups and communicating the vision of the council.
Empowering Management
Against this background of internal organisational change, the CEO of the City of
Belmont proposed to Council that what was needed was a review of the contracts of
employment for senior management. His concern was related to the relatively high
turnover of senior staff within the municipal authority, as well as the insecurity fac-
ing many senior managers who felt reluctant to take on ‘hard issues’ with powerful
lobby groups in case it led to future intimidation. It was recognised that it could take
around 6 months for a senior manager in local government to become fully effective
in their job. A high turnover of staff would, therefore, have a negative effect on the
capacity of the City of Belmont to implement its strategic plans.
To overcome these problems, a series of 5-year performance-based contracts were
negotiated for all ten of the most senior managers. These contracts provided stability
among the senior management team. While generous, the contracts had ‘a real sting
in the tail’, thereby making it difficult for senior managers to suddenly leave the city
halfway through a critical phase of the change process. For the managers, the con-
tracts offered security to enable them to see 5 years ahead, rather than be subject to
the shorter-term cycles of 2–3 years normally associated with council elections.
Although the relationship between management and Council at Belmont was
good, it was considered desirable to enhance the security of the management team
as the municipality entered an important period of change. It was felt that many
local government managers operate in an environment of ‘arse covering’ to avoid
future political intimidation from disaffected councillors or community groups.
What was desired was for the senior managers to be able to plan over a reasonable
time horizon, secure in their employment, and for Council to know that the same
team would be there to see it through.
Council was unanimous in its approval to re-instate all the senior managers for a
further 5 years. The managers, who ‘got a good feeling’ that they could now tackle
the challenges ahead as a team rather than as individuals, warmly received this.
Launching the Brand
By February 1996, approximately 12 months after the first working group had
formed to seek solutions to the city’s problems, the City of Belmont ‘City of
Opportunity’ was ready to launch it new brand image. Preparations for the launch
were professionally managed. Public relations teams were employed to coordinate
media, and a major public event was staged which sought to engage many of the
leading property developers and business people within Perth. Weeks prior to the
public launch, approaches were made to key stakeholders throughout the city seek-
ing ideas and listening to concerns. The Mayor was even provided with specialist
training in public speaking image and media management over a period of several
months to ensure that he could present a ‘polished’ image to the target audience.
The launch involved television cameras, T-shirts bearing the new city logo, and a
harpist to entertain the crowd.
The public launch of the ‘City of Opportunity’ announced that Belmont was no
longer willing to be viewed as a decaying, inner-city ghetto. It spoke to both the
business and resident communities of a confident new vision in which the council
would seek to engage these groups in a partnership of mutual benefit with the object
of enhancing life within the city. Even hardened property developers who had previ-
ously been antagonists at times with the council expressed positive views of the
launch. It was, they said, encouraging seeing the city government now had a vision
and a sense of purpose.
Implementing the Change
Over the period 1996–2000, the City of Belmont began to change. The Belmont
Forum shopping centre was upgraded, the Graham Farmer Freeway opened, and new
housing developments – Ascot Waters and Ascot Gardens – were established. In the
suburb of Redcliffe, an urban renewal project witnessed the transformation of a previ-
ously depressed area. While such projects were largely independent of local govern-
ment, the ‘City of Opportunity’ process that sought to make such developments as
smooth as possible encouraged their progress. Senior management from the Belmont
authority engaged with the major developers to address their needs, while seeking to
facilitate any problems they might face with other stakeholders in the community.
Following the development of a clear strategy for the ‘City of Opportunity’,
Belmont designed a series of programs to address specific problems or issues.
Among the most critical was the public perception that the City was facing a crime
wave. To address this, a community action strategy was developed, which included
the contracting of a security company to provide regular security patrols throughout
the residential and commercial areas. The security patrol service was working with
police to identify and monitor ‘hot spots’. Response times were generally around
6 min. More street lighting was provided, and youth programs were established to
assist dysfunctional families and youth at risk. A full-time youth liaison officer was
employed to facilitate this process. In addition, the City supported the establishment
of neighbourhood watch committees and launched an anti-graffiti strategy. One of
the most high-profile initiatives launched by the Council was the establishment of a
skateboard park adjacent to the Council Chambers in Faulkner Park. The Council
viewed its role as one of community liaison rather than law enforcement.
In the area of planning, the City of Belmont adopted a policy of ‘integrated plan-
ning’ in which environmental management would become a major focus for new
initiatives. Engineering projects launched by the council focused on the provision of
underground power, the protection of heritage buildings, and the enhancement of
streetscapes to provide architectural and landscape harmony. The city’s many parks
were targeted for transformation into more user-friendly family parks where the
community could engage in a variety of leisure activities. This included the skate-
board park development that also served to reduce crime and divert youth away
from the nearby shopping centre.
With ongoing support from the marketing agency, the City of Belmont commenced
the development of a series of communications programs designed to reinforce the
branding of the ‘City of Opportunity’. A newsletter, The Belmont Bulletin, was
launched that was professional produced, had a glossy style but was also informative
and interesting to residents. An ‘Opportunity Card’ was created in the form of a small
plastic card, similar in size to a credit card, which carried the new city logo. This was
issued to all residents in the municipality and could be used to obtain discounts and
incentives such as free concerts, fish and chips, hot dogs and drinks at public events. An
attempt was also made to get local businesses to offer cardholders a discount (Fig. 4.1).
According to the senior management at Belmont, it became easier to achieve change
and introduce new ideas once the ‘City of Opportunity’ process was in place. Instead
of having to justify every single new initiative and argue it on its merits, the entire pack-
age could be viewed as part of the overall process of change. Council was willing to
support new ideas if they fitted within the overall strategy for the revival of the city.
Furthermore, the shift in thinking also impacted on the employees within City of
Fig. 4.1 City of Belmont Opportunity Magazine & Opportunity Card used to help promote the
strategy to the wider community. (Source: City of Belmont)
Belmont. Senior management encouraged junior staff to become engaged in the change
process, become ambassadors for change. Through an honest and open sharing of
ideas, junior staff were asked to contribute new ideas and suggest new initiatives.
This served to stimulate innovation and encourage new ideas. Planning staff in
particular became enthusiastic advocates of change, as they could see themselves
able to contribute toward a better future for the entire community rather than simply
enforce rules and regulations. Another example of this innovation was the introduc-
tion of a GIS product incorporating computer-based mapping software based on
ARCVIEW and MAPOBJECTS. This system enabled a resident to look at a map of
the city, locate a particular parcel of land or building lot, and have this linked to
other databases providing cross references to ownership, rates payments and zon-
ing. The system assisted front counter staff to answer public enquires regarding
property ownership or regulation. It was a major support to the customer service
charter initiated within the council.
Facing the Future
In 2000, the same university researchers who had conducted the 1995 study were
commissioned by the City of Belmont to undertaken a new research study to review
the progress made and to look to the future. The findings of this research confirmed
the overall success of the ‘City of Opportunity’ campaign and demonstrated a sig-
nificant turnaround in community attitudes toward the municipality. Whereas in
1995 the most common description used for the City of Belmont was ‘ordinary’,
5 years later this had shifted to ‘friendly’, ‘go-ahead’, ‘inexpensive’ and ‘beautiful’.
Perhaps, more significantly, the proportion of respondents who considered Belmont
‘safe’ had increased from 20% to over 60%. Around half of all people surveyed
could name the ‘City of Opportunity’ brand name unprompted, suggesting that the
street signs and other media carrying the city’s logo were being noticed.
The research also indicated that both residents and businesses recognised and
appreciated the work of the council over the previous 5 years. Initiatives such as the
Belmont Bulletin, the skateboard park, security patrols and opportunity card were
all strongly endorsed. Further, residential land values had risen by around 6% over
the period. There had been an influx of new residents and a significant increase in
new businesses that recognised the central location of Belmont and its easy acces-
sibility to the airport, the CBD and other parts of Perth.
Despite these positive findings, senior management within the City of Belmont
remained worried. They recognised that their endeavours over the past 5 years had
raised the bar, and that the community was now watching and expecting them to
‘jump higher’. There was a fear that councillors, delighted with the progress made,
might become complacent. Further, there remained many new challenges looming
on the horizon. The river foreshore was coming under increasing pressure for resi-
dential and business development, and this was likely to lead to public disquiet
regarding environmental impacts. The close proximity of Belmont to the Perth CBD
was also expected to force the pace of change on the municipality. Land prices
would rise and developers were already seeking opportunities to increase housing
densities and alter the zoning.
Finally, a major industrial development within the Perth airport zone was being
initiated which was threatening to impose further pressures on the council to pro-
vide services. The Westralian Airports Corporation (WAC) had indicated that they
sought to establish within the airport such significant ventures as multiple interna-
tional call centres of between 400 and 600 seats, and a customs-free manufacturing
zone. The upgrading of the Perth international airport would eventually lead to the
facility accepting the new A380 ‘super jumbos’ capable of taking around 600 pas-
sengers at a time. Direct flights of such aircraft between London and Perth was
expected to transform the volume of traffic arriving into Western Australia and
therefore into the City of Belmont.
As they contemplated the challenge ahead, the senior managers at Belmont won-
dered if they could repeat the successes of the past 5 years.
Work Book: Innovation in Small Firms
5

• Consider the differences between entrepreneurs and owner-managers.
• Recognise the difference between an entrepreneur and an owner-manager.
• Examine the theory of small business management.
• Understand the causes of small business success and failure.
• Understand the entrepreneurial growth cycle of small firms.
• Understand the three primary strategic options available to the small firm
and recognise the five key elements of an entrepreneurial growth firm.
5.2 Chapter Review
This chapter has provided an overview of the small business sector and the nature of
small business management. Small firms are a major source of employment and
economic growth throughout the world and provide a management environment
that is very different from that found in large organisations. A problem in under-
standing the small business sector is the lack of agreed definitions as to what an
SME is. Most SMEs lack the resources of large firms and are dependent on one or
two key owner-managers for their long-term survival. Small firms are typically less
formal that their large counterparts, and are run more for lifestyle than for growth
by their owners. Entrepreneurs can own a small business, but not all small business
owners are entrepreneurs. Most small business owners are oriented toward lifestyle
and task management rather than risk taking, innovation and growth. Small busi-
nesses are often undercapitalised and their owners lack management skills.

https://doi.org/10.1007/978-981-13-9416-4_5
46 5 Work Book: Innovation in Small Firms
There is relatively little theory relating to the small firm. However, attention
needs to be given to understanding the interplay between the firm’s task environ-
ment, organisational configuration and managerial characteristics. As a manage-
ment challenge, the small firm is unique due to the limited resources and lack of
systems, and many small firms fail due to problems in these areas.
Growth within a small business requires not only an entrepreneurial owner but
also a strong level of innovation, good networking and a product-market growth
strategy. The owner-manager will then need to match their resources, strategy and
structure to what is required for success. Yet growth is only one strategic option
available to the small firm. Other options include exit and stasis, both of which are
more common and require active management. For the small firm that seeks growth,
attention needs to be given to the entrepreneurial leadership of its senior manage-
ment team, its ability to innovate and develop strategic networks, and the success
with which it identifies a growth vector in developing suitable product/market strat-
egies. The ongoing challenge for the small business owner is their ability to balance
the three key elements of strategy, structure and resources.
5.3 Key Lessons
• The definition of what constitutes a small firm is a complex and difficult area for
academic research. The most usual criteria for such definitions include the num-
ber of employees, annual turnover or assets under management.
• In any given economy, the total number of Gazelles is estimated to be less than
1% of all firms by employment and 2% by annual turnover. The risk and uncer-
tainty associated with the successful launch and growth of a Gazelle or Unicorn
firm has led to a rethink of entrepreneurship and small business policy and more
job growth seems to be generated by older high-growth firms than the younger
Gazelles.
• Small firms are typically defined by informality, loose job definitions and open
communication flows; on the other, large corporations are usually more rigid and
formal, with highly-structured communication systems. Small firms also lack the
systems that allow strategic planning, human resource management and financial
control to take place in the same way as it does in large firms.
• Overall, SMEs are less likely to have formal business planning processes, quality
assurance systems and human resource management practices than their larger
counterparts. Gazelles are more likely to have formal systems and to embrace
innovation.
• Entrepreneur and owner-managers are two concepts occur at either end of a con-
tinuum, defined to a large extent by the owner’s orientation toward growth and
profit maximisation at the expense of lifestyle and their ability to control the
venture in a direct way.
• To understand the operation of a small firm requires attention to be given to three
primary areas:
1. Task Environment: perceived opportunity, uncertainty and risk;
2. Organisational Configuration: complexity is there in the production, com-

plexity of the firm’s structure, the firm’s resources allocation and
availability;
3. Managerial Characteristics: leadership style, entrepreneurial orientation,
managerial competence and capacity for strategic partnering.
• There are many possible causes of failure in a small business: Poor economic
conditions but also the way the business is managed: Underestimation of the
start-up time, Undercapitalisation, Overestimation of the market size, Lack of
expertise by management, Lack of working capital, Confusion of cash flow over
profit, Wrong location of the business, No unique selling point, Recruitment of
the wrong people to staff it, Failure to monitor the business performance, Failure
to retain profits in the business to fund growth.
• Growth cycle of a small business although not as linear as suggested, remain a
useful framework for understanding the process of growth within SMEs.
1. Start-up stage: the business is conceived and established. Attention is given to
finding customers and maintaining adequate cash flows to survive.
2. Survival stage: the business is financially viable and may even hire additional
staff
3. Third stage, sub-sage ‘success-disengagement’: the owner-manager makes a
decision to either grow or not. If it grows: the business will enter the ‘success-
growth’ sub-stage where the owner-manager places the business under risk to
finance growth
4. Take-off stage: involves a process of team building and delegation. In this
critical stage, the businesses will either succeed and develop into a large busi-
ness, or not.
5. Maturity stage: the business has sufficient resources to conduct formal strate-
gic planning.
• The owner-manager essentially has three primary strategic options: (1) growth,
(2) exit, and (3) stasis
1. The growth option needs visionary leadership, entrepreneurial orientation and
strategic thinking
2. The exit option can take at least two forms: abandonment and closure of the
firm, or transfer of ownership to a new ownership team.
3. Stasis option means for the owner-manager to secure a comfortable and
secure lifestyle.
1. Consider the differences between the owner-manager who is focused on lifestyle

and the entrepreneur who is focused on business growth and profit maximisation.
Why are the majority of small businesses run by ‘lifestylers’ rather than
entrepreneurs?
2. Interview a small business owner-manager who you know and explore the fac-
tors that led them to start their venture and the major things that they consider to
be positive and negative about being a small business owner.
3. If you were considering becoming a small business owner what would you need
to consider in ensuring that you reduced your chances of failure and maximised
your chances for success? Answer this with reference to the material covered in
this chapter
Read the Stillroom case study below, which examines the story of two people who
have a personal relationship that leads them to launch a new business venture. The
opportunity this venture pursued and its potential for high growth was significant.
However, the two partners had very different strategic goals, and the challenges of
trying to manage a high-grow, small firm with global market ambitions, placed sig-
nificant pressures on their relationship and family life. The case offers many impor-
tant lessons for anyone seeking to pursue entrepreneurial goals via a small,
high-growth business venture. When you have read the case and considered its les-
sons against the issues discussed in this chapter, address the following questions:
Questions/Tasks
1 . What were the motivations the two owners had for setting up their business?
2. What major problems did they face?
3. Why did the business experience difficulties?
4. What does this case tell us about the nature of small businesses seeking to pursue
high-growth?
5.6 Case Study: The Stillroom; When Love Is Not Enough
Authors: John Walker and Olive Schmidenberg (Edited by Diana de Bussy)
When two lovers decided to mix business with pleasure, were they asking for
trouble? Together they turned a hobby into a small business, but when faced with
constant cash flow problems which arose from very high growth and undercapitali-
sation, the dream became a nightmare. Soon, niggling differences of opinion grew
into major issues of contention, and the lovers no longer shared a common goal or
vision. Pillow talk turned to petulance and the bedroom became a battle field. When
did the warning lights start to flash? The Stillroom story is based on information
supplied by John Walker and reflects his interpretation of events over a 5-year period
from the launch of the business until the end when the partnership broke down.
5.6 Case Study: The Stillroom; When Love Is Not Enough 49
Love Grows
John Walker, a qualified accountant with substantial experience in small business,

began to work on a casual basis in his partner’s cottage industry business making
perfumed wax clothing protectors in the kitchen of her suburban home in Perth.
Their relationship had blossomed whilst Helen was working part-time for John in
his personal development business, which closed 3 months earlier leaving him
unemployed. Both parties had been married before. John was still vulnerable from
the breakdown of his own marriage and business failure, and he found the simple
manual – yet creative – tasks required while working for Helen to be therapeutic.
Formerly a school teacher, Helen had pursued an alternative lifestyle and devel-
oped an interest in handicrafts. To supplement her income – which relied on social
security, relief teaching and occasional workshops – she made wax blocks scented
with essential oils extracted from eucalyptus and tea tree. The blocks were covered
in attractive material, decorated with straw bows or dried flowers, and sold as cloth-
ing protectors. She traded as The Stillroom and sold her product at retail craft fairs
together with some food products. A friend worked part-time with Helen, but The
Stillroom was a hobby operated more for fun than for financial return. In the first
financial year, sales for the year totalled less than AUD $5000.
From Little Acorns
Helen had recently received a small order from the Wilderness Society Christmas
mail order catalogue, which prompted her to expand her hobby into a small cottage
industry. John began to help with production whilst he was receiving social security
and searching for other work opportunities. He was enthusiastic about a new range
of product samples prepared by Helen’s part-time partner, but based on current lev-
els of production and sales he realised it would be a long time before The Stillroom
would generate the size of income – around AUD $100,000 – that he had been
accustomed to in previous business and farming ventures.
John decided to devote his time to developing Helen’s cottage industry into a
profitable small business and in August suggested a trip to the south west of Western
Australia (WA) to test the market. Initially Helen found it difficult to focus on their
daily sales target of 200 units, preferring to explore personal development career
options. However, the visit was a success and John was confident that they could
make a living from The Stillroom with consistent marketing.
A Small Business Blossoms
This sales trip marked the beginning of a more serious approach to Helen’s cottage
industry. The new products were proving to be popular, and a further range of calico
and flower decorated clothing protectors had been developed at the suggestion of a
customer who owned an environment shop and who was later to become a market-
ing consultant to The Stillroom.
By this stage John already felt he was the motivating ‘driver’ behind The
Stillroom’s production, development and marketing. Helen had little previous busi-
ness experience. She was committed to her family responsibilities and was still
dabbling in personal development programs. He used his own computer equipment
and software to produce financial forecasts and product cost estimates, and ration-
alised that the business was viable if they could establish 500 regular customers –
which meant looking outside WA for sales.
Personal financial pressures forced John to consider his options whether to find
employment or to make The Stillroom a full-time commitment. In addition, his
mother was contributing to the business by providing a free sewing service, but
there were no formal arrangements concerning equity. With the impending transfor-
mation from a cottage industry to a small business, Helen’s part-time partner decided
to leave and Helen agreed to a 50/50 split with John.
A new bank account was opened with John as a signatory, but no decision had
been made about the corporate structure or finance, so the business was still techni-
cally in Helen’s name. John felt confident about his relationship and was prepared
to trust Helen to look after his long-term interests. But issues of individual contribu-
tions, expertise, ownership of intellectual property, hours of work, future growth
and any settlement rights Helen’s former husband may have had had still not been
resolved.
By the end of their 1st year of operations, The Stillroom was making sufficient
sales to pay for their living costs, and John stopped looking for other work. Realising
that the business required working capital to finance stock, debtors and marketing
costs, John hoped that Helen would utilise her marriage settlement money. However,
Helen, wished to make a deposit of AUD $50,000 on a house. Without capital injec-
tion, The Stillroom would require a large proportion of high margin cash sales
(COD1 or retail) to provide cash flow in order to remain viable and finance early
growth. Success at the Victoria Rose Fair in October proved this was possible, with
over AUD $7000 in high margin sales in 3 days of trading.
Corporate Structure
Helen had received some advice from her brother and his accountant concerning the
corporate structure of The Stillroom, but John believed some issues – such as sales
and income tax liabilities, partners’ drawings and working capital – had been over-
looked. He offered to frame a unit trust and family trust structure which would
eliminate the income tax component for the initial period and marginally protect
Helen from any potential claim from her husband. Her husband agreed to transfer
his right as a registered joint owner of The Stillroom to the new unit trust corporate
structure. Her brother was made a joint trustee of the new family trust and a unit
Cash on Delivery (COD).

1
holder in the unit trust so that she could earn management fees without being liable
for PAYE deductions by trading as a ‘personal exertion trust’. Later, Helen’s brother
resigned when guarantees were required for an overdraft facility, but Helen failed to
correct the ‘personal exertion’ issue.
Financial Management
In February of the 2nd year, The Stillroom exhibited at the Sydney Gift Fair. This
event coincided with the financial settlement and relocation to Helen’s new house.
They returned from Sydney with orders for about 7000 items worth AUD $40,000 in
sales, and started to panic because they had no safety stock and also needed funds
to meet the house settlement costs. John believed a more appropriate accounting
system was required before any pro-forma invoices could be sent and became frus-
trated with Helen’s apparent lack of concern with the urgent need to send the
invoices. In the rush, a new software program was chosen which later proved to be
unsuitable.
They employed a part-time manager to handle the administration and accounting
on terms which would favour The Stillroom’s cash flow. There was not enough cash
to meet management costs as funds from profits were required to pay creditors for
the build-up of safety stock. John knew the situation was destined to worsen as re-
orders on credit were imminent and they were not making enough retail sales to
generate sufficient working capital. The new manager was offered 10% equity and
free use of John’s computer equipment, provided he took deferred terms for his
services.
This ‘equity for services handshake agreement’ with the new manager was not
documented formally at this stage, but taken on trust between all parties. Helen
agreed that administration was not her forte, and that both she and John would allo-
cate more time to marketing. (As some local media coverage in the press and on
television the previous year had led to greater public awareness and increased sales,
this had highlighted for them the value of media publicity). The arrangement suited
John as he no longer wished to undertake the bookkeeping role himself. He also
believed some negative business elements and differences in priorities were begin-
ning to affect his personal relationship with Helen, and preferred the manager to act
as the direct interface.
The First Agency
The Stillroom’s customer follow-up after the Sydney Fair was poor – especially in
WA – and re-orders began to drop off. The stock in shops was left unattended and
retailers were disappointed with sales. John recommended an agency structure, but
Helen resisted this suggestion on the grounds that she had a special relationship
with many of the WA retail clients. However, new agents were appointed, customer
service improved and the volume of sales increased, exceeding AUD $6000 in WA
in the 1st month and continuing to grow every month thereafter. But the agency
structure was successful only in WA, despite a high turnover of agents. A similar
exercise in the other states failed.
Success: Gift Fairs and Exports
By April of that year, The Stillroom was invited to join a group of WA crafts people
to exhibit at the Singapore Gift Fair. John’s mother advanced AUD $5000 on a
short-term loan for the Singapore exercise, as The Stillroom was still short of cash
flow despite a recent AUD $10,000 overdraft facility on a second mortgage of
Helen’s house.
The Stillroom was the most successful WA exhibitor at the Gift Fair and all the
display stock was sold for cash. Within 6 months they had orders from Indonesia,
Malaysia and Singapore worth around AUD $100,000. One order produced a profit
of AUD $15,000 within 2 months, and took less than 1 week to manufacture and
dispatch. This same customer then entered negotiations to start a joint venture in
Asia.
The success of the Singapore Gift Fair proved the value of high export sales in
generating working capital and cash flow. Export sales are pre-paid before shipment
and incur no sales tax consequences. A trial shipment to Japan from the Sydney Gift
Fair in February was also providing profitable sales leads.
Other export and trade fair opportunities were investigated. Their goal was to
increase low risk exports to 70–80% of total sales. After Government subsidies were
taken into account, their results were better than domestic sales. Substantial export
sales at retail and wholesale fairs in Australia in the 6 months to December of that
year produced profits in excess of AUD $60,000 after drawings, fees and expenses.
An additional 100 customers were added to the database, and the business was on
target to achieve 500 customers by the end of the year.
New Commercial Premises and Production Methods
During the 1st year of trading, John had experimented with the production process
and devised a method of manufacturing 500 wax blocks in 4 h using a large gas
burner purchased for AUD $135. Production capacity was not a problem and he
estimated sales would have to exceed AUD $240,000 per month before further
mechanisation would be required. However, in June of their 2nd year of operations
they were advised by the local council that they had to move the business away from
Helen’s home. They decided to trial commercial premises with potential retail
space, intending to pay the rent with retail profits, but other commitments, such as
pre-Christmas trade fairs, large export orders and the joint venture negotiations pre-
vented the retail operation from becoming a reality.
With the move to commercial premises, Helen divided her time between The
Stillroom and her family responsibilities, whilst John continued to contribute sub-
stantial hours to production, dispatch, sales, marketing and exports.
Since Christmas of the previous year, sewing and packing had been sub-
contracted to an organisation for the disabled, but due to problems with quality
control and delivery this arrangement ceased in July of the following year. An
advertisement for home-based sub-contractors produced a large response, but super-
vision of the out-workers was time consuming and quality control was still a prob-
lem due to the number of people involved. A sub-contractor employed earlier in the
year to help with production and dispatch now became a PAYE employee2, and her
husband was sub-contracted to make the wax blocks and wooden display crates.
Production management improved when another couple with industrial sewing
machines and substantial small business experience were employed to supervise
coloured fabric products, and John’s mother became responsible for the calico and
dried flower products on a contract basis. Both parties were offered higher rates, and
John’s mother received an over-ride of 33.3% of the invoices submitted by the sub-
contractors. On occasions, when cash flow was tight, she worked for nothing in
dispatch to save the business wage costs.
Mother’s Private Investment
The changeover to the new supervising system happened at the same time that
John’s mother invested AUD $40,000 (September of year 2) as an interest-free loan
with a debenture charge, in exchange for 20% equity. Her physical involvement in
the business made her feel more comfortable about the investment, and John justi-
fied the loan structure on the grounds that:
… the goodwill and value of the business were tenuous therefore, based on valuation, an
investment for 20% equity alone was too risky.
From John’s former experience as a finance broker and venture capital consultant,
he believed independent arms-length investors would require more than 20% equity.
Helen’s brother was offered the same opportunity but he declined to accept.
However, both John and Helen maintained 40% equity each totalling more than
75%, the level required for special resolutions under the unit trust deed. There was
no need to make interest payments from an already tight financial situation.
In addition, a trademark application to protect intellectual property rights was
not yet in The Stillroom’s name. A personal disagreement with Helen and with-
drawal of the unwritten “licence” to use the trademark could have jeopardised all
shareholders rights. Product effectiveness had not been tested independently, and
registration or re-labelling could have had an adverse effect on the business.
2
PAYE = pay as you earn, or salaried employee registered with the taxation office by the
company.
These issues were addressed subsequently, but at the time John considered them
important from an investor’s perspective and he believed The Stillroom name had an
independent value, separate from the products. The loan transaction was carried out
in haste because The Stillroom was short of desperately needed cash flow to main-
tain stock levels, despite 90 days credit from some suppliers. In addition, John was
due to fly to Canada to exhibit at the Vancouver Gift Fair. At this stage, confident he
could maintain overseas sales leads, John was responsible for all export negotiations
whilst Helen concentrated on the domestic market. Although it was agreed that the
loan would be secured with a debenture charge, this facility was never put into
place.
Factoring to Finance Debtors
Having experienced the business for more than a year, John assessed that their debt-
ors and stock inventory required independent financing. They agreed to a factoring
facility to finance debtors, subject to a cash security deposit of AUD $10,000 and a
third mortgage on Helen’s house. He estimated a safe stock level of AUD $40,000,
or the equivalent of 1 month’s sales. By financing their debtors with factoring and
the inventory from the family investment, their overheads, drawings and pre-paid
marketing expenses could be paid for from profits. Any pro-forma high margin
export sales would then provide a bonus cash injection.
At the same time, a lawyer was instructed to draw up the documents to record the
manager’s 10% equity agreement and change the trustee of the unit trust to a com-
pany. This would promote a more appropriate business image to international mar-
kets and enable registration of John’s mother’s debenture charge against the
inventory. He believed her AUD $40,000 investment should take priority over nor-
mal trade creditors if the business was put into financial jeopardy. The documenta-
tion was to be completed immediately before John travelled to Vancouver. All
parties signed except one, and it was left to the manager to complete the paperwork
and follow up the legal documentation.
The Age of Discontent
On his return from Canada, John was busy travelling to a number of profitable craft
fairs in the eastern states of Australia, and he failed to confirm the status of the legal
documents with the manager. When eventually he did, he discovered a number of
errors. Personality clashes were disrupting the culture of what had begun as a
friendly cottage industry, and disagreements erupted between John and Helen over
items of personal expenditure from the business finances, which were being funded
by loans. And, John’s vision to establish a million-dollar turnover or net worth busi-
ness in 3 years was not shared by all.
The retail exercise at the commercial premises had not eventuated, and produc-
tivity was lower than when John and Helen worked from home, so they decided to
buy a larger house in an area with appropriate zoning on the grounds that, even with
100% financing, they would be no worse off than with the combined costs of a fac-
tory and a residential mortgage. John believed that, with both of them working from
a business-owned home, they would become more productive and his family’s
financial security would be improved.
History Repeats Itself
In mid-January of the 3rd year of operations, a decision to exhibit at the San

Francisco Gift Fair once again interfered with John’s resolve to tidy up the legal
documentation. They were already committed to three other domestic and two inter-
national trade fairs, but believed that the risk was minimal as they were confident
that export trade fairs provided positive cash flow within a couple of months. Whilst
stock and display units were being manufactured and freight organised, they had to
move out of the commercial premises into temporary premises as an interim until
the new house was ready. A pattern of pre-trade fair rush was forming.
Taxation
Whilst John and Helen were in San Francisco, the manager worked with an accoun-
tant to prepare interim accounts to the end of December of the previous year, as
these were required by the bank for the housing loan application, Also, the previous
financial year’s accounts for Helen and the unit trust were prepared. Since for the
first 7 months of the financial year the business was in Helen’s name, and then from
February, the assets and liabilities were taken over by the unit trust. As part of their
verbal equity agreement, John had agreed to take all the income in the Unit Trust
under a management consultancy capacity, which meant that Helen was not liable
for personal tax for that financial year as John still had access to tax losses from a
previous farming business.
Accounting Alternatives
When John and Helen returned from San Francisco, the situation with the manager
deteriorated and his services were terminated. John investigated two accounting
alternatives, to buy new hardware and software or to engage a franchise bookkeep-
ing service. He chose the second option to avoid installing a new system himself and
having to learn the software program, and also to maintain his focus on his market-
ing role.
The franchise bookkeeping service, however, could not assist with the factoring
facility. Without a manager, John was required to supervise the changeover to the
bookkeeping franchise and to learn the complicated factoring reconciliation system,
which meant he could no longer focus on marketing with Helen. Complications
arose because the factoring company operated a manual system, presented non-
standard reconciliation, and did not send statements. In John’s opinion, all these
factors, combined with persistent mistakes and inconsistent recordkeeping, high-
lighted the need for a good internal accounting system. The bookkeeping service
was terminated in July of that year.
Partners’ Drawings
Prior to the change to the bookkeeping franchise, John and Helen had withdrawn
funds as required. With the new bookkeeping system, management fees of AUD
$3000 per month were journalised to both family trusts. Cash drawings, rent and
private expenditure were also then debited to this loan account. It was assumed that
unpaid profit distributions would credit the same loan accounts. But with different
work and family commitments and priorities, the topic of drawings became a con-
tentious issue.
Finance for the New House
In March of the 3rd year of operations, the new house was purchased in the name of
the business. When Helen’s house failed to sell, John’s mother provided bridging
funds of AUD $30,000 as a cash security deposit to finance an overdraft from the
bank, which was repaid over the following 9 months.
Business Improvement Program
From February of the 3rd year, apart from one oversees trip to the Hong Kong Gift
Fair, John stayed at home to manage the business while Helen travelled to trade
fairs. Frustrated with the continuing accounting problems and feeling under pres-
sure from a heavy work load after the manager’s departure, John suggested that they
should start some business improvement activities under a New Enterprise Incentive
Scheme (NIES) program funded by the Australian federal government. He believed
Helen and some other members of The Stillroom team lacked business skills and a
proper understanding of finance, and failed to focus on sales and marketing. He also
felt that his mother’s investment was at risk and he wanted to share the work load
and responsibility for the family investment.
To be eligible for NEIS assistance, a Business Assessment was required. This
was carried out by a total quality management (TQM) specialist who exposed John
and Helen’s divergent focus. John hoped an independent skills audit would provide
evidence of technical and financial deficiencies, but the audit could not be carried
out in the timeframe available.
John made enquiries about the Enterprise Workshop Program (EWP) at the local
Edith Cowan University. A graduate of this program, he thought it was an excellent
tool for people planning to enter small business. Three members of The Stillroom
team, including Helen, agreed to participate, but within 3 months they all withdrew
due to disagreements with other students in their team. However, a draft business
plan prepared during the program was used as part of an application for a Best
Practice Award.
With encouragement from a business consultant, John prepared the application
for a Best Practice Grant. In July of the 3rd year since the launch of the business,
they were informed that The Stillroom was 1 of 30 Best Practice winners and would
receive a grant of AUD $113,000. The grant coincided with the design of a new
corporate logo and Design Mark award. John had applied for a Design Mark for the
clothing protector, as he believed that The Stillroom required an independent and
public status. The Design Mark was granted on condition that the business develops
a more up-market corporate image.
The Best Practice news was received with delight, and John began to devise ways
to capitalise on the publicity and sales opportunities prior to the Melbourne and
Sydney gift fairs. A public relations company agreed to accept the account on
favourable credit terms, but there was not enough time for the publicity to have an
effect at those trade fairs.
Change from Fixed to Variable Costs
With everyone’s attention directed towards the EWP, Best Practice Award and
Design Mark application, normal business and sales suffered, and The Stillroom
incurred losses of around AUD $50,000. The shortfall in profits was met by an over-
draught of AUD $40,000, but cash flow continued to be a problem. John proposed
some changes to reduce overheads and lower the break-even volume of sales. He
attributed the losses over this period to the lack of a focused marketing effort and to
poor recording systems.
He suggested one production staff member go off PAYE and join her husband on
a service contract for a remuneration of 10 percentage of sales. Another, who had
started work as a marketing consultant and had joined the EWP, agreed to operate
as an independent distributor, attending retail craft fairs. The Stillroom would sup-
ply product at export prices and she would take the retail margin in exchange. All air
fares and accommodation costs were to be met from the distributor’s margin. The
result was more team members focused on sales and a cost structure based on vari-
able rather than fixed costs.
Accounting Problems
At the end of July, John began to try to solve the financial problems and to learn the
new accounting software, but the volume of past mistakes was greater than he antic-
ipated. Apart from recording debtors and creditors, the first priority was to sort out
the factoring account, which meant designing a system that was error proof and easy
to reconcile. Errors were hard to detect because the factoring facility had not sent
normal statements, and so the other accounting functions were always in arrears. It
had proved a costly and inefficient exercise, at about 40% per annum effective inter-
est on the outstanding net balance, excluding a time cost for management.
It was not until a new stock control system was installed in October of the fol-
lowing year, and the financial accounts for first two full financial years of operations
were completed, that the business could be managed on a daily basis with minimal
accounting expertise.
Export Manager
Exports sales had been dropping off since John was no longer directly involved in
marketing, due to his CEO/bookkeeper responsibilities. In addition, his relationship
with Helen was starting to show the effects of their continued separation due to dif-
ferent work commitments. John contacted ‘Don’t Overlook Mature Experience’
(DOME) and appointed an export manager on trial for an advance of AUD $500 per
week to be netted off against future commissions. The export manager was sent to
Jakarta with stock to relieve Helen who wished to return home. From September to
December, the new export manager travelled overseas many times, but the appoint-
ment was not cost-effective and his contract was terminated in January of the 4th
year of operations.
Investor Sought
By the end of the 3rd year of trading, The Stillroom advertised for investors and
received an investment offer of AUD $100,000, which would eliminate the factoring
facility and bank overdraft and allow John to concentrate on marketing and the Best
Practice Program, although on settlement the actual amount was reduced to AUD
$50,000. John was under pressure to prepare final accounts in a short timeframe,
and his relationship with Helen deteriorated further. To make the business more
efficient, they needed more administrative assistance which required more sales or
capital. But capital injection was dependent on the past financial year’s accounts
being available – a classic ‘catch 22’.
Later, John decided to shelve the Best Practice activities until the accounting and
financial problems were resolved. As a consequence, when The Stillroom could not
meet its deadlines, the program grant was halved.
Business Valuation and Possible Sale
They continued to investigate other equity options. John was not convinced the
AUD $100,000 loan offer was enough to meet long-term needs and he preferred
equity arrangements – especially if the investor could provide expertise and
services. They entered discussions with a Fremantle group, which expressed an

interest in buying them out for AUD $200,000 plus equity, with continued manage-
ment involvement from John, Helen and the rest of team, but negotiations broke
down due to lack of clarity around the proposed equity structure.
The business was valued by brokers with a view to raising equity or achieving an
outright sale. The value suggested was AUD $425,000 plus stock. Helen and John
were prepared to sell for this amount, as they were becoming tired and were becom-
ing attracted to other lifestyle options. The business was listed and John raised the
price to AUD $300,000 for 40% equity.
Direct Marketing and Franchising
By December of the third trading year, Helen and two other team members had been
trialling a direct sales approach via workshops. They were aiming for a greater per-
centage of high margin retail sales to keep everyone in employment and to demon-
strate The Stillroom’s income possibilities to potential franchisees, but the concept
had limited success and was not profitable.
From April to June of the fourth trading year they explored licence or franchise
options to develop the workshop concept and add to the business value. Existing
agents were offered the first option for the state licence for AUD $70,000. This was
reduced to AUD $40,000 but the agents declined. Later, a verbal agreement pro-
posed that the first state licence or franchise would be sold to John’s mother in
exchange for her debt and sold on after the documentation was completed.
The state agent would manage the licence to gain experience in the total busi-
ness. Every part of the marketing operation would be documented in a manual and
taught to the agent, who would service and supervise the franchises. The system
would provide a record of sales and profits for reporting purposes, tidy up the bal-
ance sheet by reducing debt, and provide security for John’s mother’s investment.
Before the documentation was completed, Helen changed her mind about the
franchise option. Personality conflicts between staff were brewing and the begin-
ning of a total breakdown of the business was in sight.
Business Management Pressures
From June to August of their 4th year in business, a number of major activities were
scheduled. Despite the internal problems, The Stillroom had been selected as the
feature company at the Prime Minister’s launch of AusIndustry. A change of struc-
ture from trust to company, The Stillroom Australia Pty Ltd., was required in order
to register a debenture charge from a finance company. Discussions to sell the busi-
ness were underway. A Japanese distributor was visiting Perth for negotiations and
training. Other activities included the end-of-year financial statements and stock
take, staff training and trade fairs. During this period, John felt that Helen and one
of the sales team were working in opposition to him, as new products were being
introduced without his knowledge and without any financial planning.
A total quality management (TQM) program was underway as part of the Best
Practice Award, but despite a general consensus about their direction at meetings, in
reality there were disagreements, emotional outbursts and a lack of communication.
John wanted to focus on exports and on improving the administrative, accounting
and stock inventory systems. Without equity capital or the sale of a franchise, he
believed they required AUD $80,000 per month in sales to support their cost struc-
ture and meet debts. A short-term loan of AUD $4100 from John’s mother was used
to pay sub-contractor costs, and in September of that year she advanced a further
AUD $20,000 to meet sales tax arrears until John could arrange alternative finance.
As a direct contradiction to an agreement they had made at a TQM meeting, John
claimed Helen introduced new products and packaging immediately prior to a trade
fair in September without his knowledge and with no consideration for safety stock
or cash flow. They had agreed they would concentrate on sales and customer service
with the existing product range. Their product range had now increased to 84 items,
most of which were self-competing and contributed less than 1% of total sales for
each line. Furthermore, 50% of sales and profits came from just three items.
Helen announced that she wished to quit the business, but was advised to go on
holiday by the TQM counsellor. John’s workload increased further and the tension
mounted.
Repayment of Loans
Documents had been drawn up to register a debenture charge as security for John’s
mother’s investments. Her exposure was up to AUD $80,000 because she had not
cashed signed cheques John had left her. However, on her return from holiday,
Helen refused to sign the documents, which honoured a previous agreement to pro-
vide security. John felt strongly about Helen’s actions and told his mother to present
the cheques she already held for AUD $4100 and AUD $20,000 when the funds
were available for cashing. He did not advise Helen of his actions because she was
receiving conflicting advice which he believed was against his mother’s interests.
Accusations and Mediation
Following the repayment of John’s mother’s funds, Helen accused John of dishon-
esty and appointed an auditor. Their personal relationship broke down completely
and they parted. Mediation was proposed but Helen declined, preferring to remain
dependent on friends and colleagues for support. John continued to attend business
meetings and sought professional advice.
An offer was made to pay John’s mother AUD $60,000 with interest on her funds
for 3 years, plus car and telephone expenses. The offer was withdrawn then re-
submitted. Helen gave John 2 h to accept or else the business would be put into
Reference 61
liquidation. John was not prepared to accept voluntary liquidation until he had
received an independent valuation. Together with an advisor, he did a quick calcula-
tion based on the last year’s financial results and determined that the value as a
going concern was probably substantially greater than Helen’s offer. John and his
mother decided to obtain some indicative values before making a final decision. He
believed Helen was trying to devalue the business, as she had mentioned in discus-
sions that she had been advised to liquidate and start again. John could not under-
stand this advice which appeared to ignore normal company law and the unit trust
documentation.
The Final Cut
Offers to buy and sell see-sawed, and the relationship came to a bitter end.
Eventually, 5 years after launching the business together, John purchased the busi-
ness from Helen and turned The Stillroom into a:
... very profitable $600,000 a year venture with growing export orders from South East Asia
and Japan. (Kennedy 1996)
Reference
Kennedy, A (1996, October 28). Love is not enough at boardroom table. BRW, p. 76.
Work Book: Adoption and Diffusion
of Innovation 6

• Understand the process of innovation diffusion.
• Review theories of adoption and diffusion.
• Recognise the social nature of innovation diffusion.
• Understand the innovation decision-making process within organisations.
• Understand some of the reasons for failure of innovation adoption and
diffusion.
6.2 Chapter Review
This chapter examines the process of adoption and diffusion of innovation. It sug-
gests that innovation is driven by three paradigms, focusing respectively on: the
individual creative genius, the technology-push of systematic scientific inquiry, and
market-pull. While the creation of innovative new ideas and technologies is an
important goal for business, there is no value in innovation without commercialisa-
tion which is frequently fraught with challenges. The diffusion of innovation is a
social process that involves inventors being imitated by adopters. Their decision to
adopt – or not to adopt – is influenced by a combination of rational attitudes and
subjective norms that can be shaped by peer group influence. Word of mouth can
play a key role in the diffusion process as early adopters provide recommendations
and role models for laggards. Successful commercialisation requires the innovation
to be adopted by customers and to diffuse into markets. Customers will not always
accept new ideas. They usually need to be assured that the innovation: can be inte-
grated with their existing systems, is able to produce genuine benefits, is easy to use,

https://doi.org/10.1007/978-981-13-9416-4_6
64 6 Work Book: Adoption and Diffusion of Innovation
and is also being accepted by others. It can take many years for a new innovation to
gain acceptance in markets. Good technology development must also be accompa-
nied by good market and business development.
6.3 Key Lessons
• Innovation is a specific function of entrepreneurship and is the means by which

the entrepreneur creates new wealth-producing resources or endows existing
resources with enhanced potential for creating wealth. It is the process by which
entrepreneurs convert ideas into marketable opportunities.
• The commercialisation of an innovation requires the new product or process to
be successfully taken from the idea stage to full market acceptance. It has been
likened to a process of bridging a gap
• The adoption of new technology is frequently unable to move past the initial
imitators or early adopters who readily take up the innovation but fail to influ-
ence the mainstream end-user group or wider community. There is a chasm into
which the innovation may fall. Many excellent ideas or products fail to take off
despite superior apparent advantages.
• There are several major myths relating to innovation: that innovation is planned
and predictable; technical specifications should be thoroughly prepared, creativ-
ity relies on dreams and blue-sky ideas, big projects develop better innovations
than smaller ones, and technology is the main driving force for innovation and
success.
• Two main models are used to study innovation diffusion:
1. Rogers model, where the diffusion of innovation is contingent on five per-
ceived attributes: relative advantage, complexity, compatibility, trial-ability
and observability.
2. The TAM model, considering that the level at which a new technological
innovation is adopted and therefore diffused into the target market is contin-
gent upon the attitudes the adopters hold toward the innovation, affected by
two mediating variables (the depth of experience the adopters have had with
technology or innovation acquisitions of this type on the one hand, and the
degree to which the adopter has discretion over whether or not they adopt, i.e.
voluntariness on the other).
• Earlier adopters affect later adopters in the adoption decision, and later adopters
affect earlier adopters in the dis-adoption of an innovation. Critical mass typi-
cally involves opinion leaders in a social system and operates at the aggregate or
social system level.
• There are several categories of adopter depending on the timing of their take-up
of the innovation. These are classified in five distinct groups described below:
1. Venturesome innovators, demonstrating a keen interest in new ideas,
2. Respectable early adopters, with local social networks and the greatest degree
of opinion leadership of any category,
3. The deliberate early majority, who adopts innovations just before the average
member of the social system,
4. The sceptical late majority, adopting innovations just after the average mem-
ber of the social system, and finally
5. The laggards having the most localised outlook and border on isolation
• The individual adoption process usually comprises five stages of behaviour.
1. Knowledge, where the innovation is brought to the attention of the adopter
who begins to learn of its merits and characteristics.
2. Persuasion, with the adopter forming an attitude toward the innovation that
may be either favourable or unfavourable.
3. Decision, when the adopter either accepts or rejects the innovation.
4. Implementation occurs when the adopter puts the innovation to use. I
5. Confirmation see the adopter seeking reinforcement about the decision to
accept or reject the innovation
• Similarly, in organisational contexts adoption follow a six-stage process:
1. Agenda setting: the organisation begins to identify the need for an innovation
through the definition of problems
2. Matching: the organisation seeks to match the innovation with the perceived
problem or desired solution
3. Decision: the organisation selects the solution to its priority problem and
decides to adopt or not adopt a particular innovation
4. Re-defining/restructuring: The adoption of an innovation is followed by a
period of reinvention of the innovation to match the organisation’s needs.
5. Clarifying: the innovation is put to widespread use, with the innovation
becoming clearer to the members of the organisation.
6. Routinizing: When the innovation is incorporated into the organisation and
becomes routine
• Word-of-mouth communication between individuals can play a key role in the
diffusion process.
1. Within your own work experience, identify a situation in which a new technol-
ogy or process innovation was introduced to your organisation. Can you relate
the adoption process that took place to the technology or innovation adoption
models described in this chapter?
2. Consider the introduction of new mobile telephone technology into the market in
your home country. What are the key social, economic, technical and cultural
factors likely to determine the speed and success of its diffusion?
For your third journal entry, address the following:
• Describe an innovation that has had a profound influence on your life, on your
work, or on the way you live. What type of innovation was it and how has it
changed your life?
• How did you become aware of the innovation?
• What type of adopter were you, e.g. innovator, early adopter, etc.?
• Describe the innovation decision process that you went through up until the inno-
vation became a ‘routine’ part of your life.
• Identify key actors within your innovation decision network and how their influ-
ence affected your behaviour.
6.6 Group Exercise: GENCO and RENKA
review the content from Chaps. 4, 5, and this chapter, and apply their content to
addressing a complex problem. Read the following problem and then in a group of
other students, solve the problem. Further details of the task are found below.
GENCO is a small biotechnology company established 10 years ago with the pur-
pose of identifying, cultivating and extracting marketable products from indigenous
Australian flora and fauna. The initial research that led to the founding of GENCO
was undertaken by a local university which identified the process for extracting the
oils and compounds from the plant stock. This technology was licensed to GENCO
for commercialization and the company had now widened its stock of plant species
for oil extraction.
The plant stock is provided by sub-contractors to GENCO who grow and harvest
the plants, and GENCO in-turn sub-contracts to other firms wanting to derive com-
pounds of interest from native plants. These compounds can attract prices of around
$10,000 per kilogram. A key technology under development by GENCO is a natu-
ral, non-toxic insecticide extracted from Australian eucalypts. GENCO has secured
patent protection for the innovation and considers that the compound has significant
commercial potential for both domestic and industrial applications.
The entrepreneurial founder of GENCO, Mr. K does not have a scientific back-
ground, but came from a marketing and advertising career. His motivation for estab-
lishing GENCO was triggered by his experience of working in a business that had
developed new methods for the handling and transporting of live plant material
6.6 Group Exercise: GENCO and RENKA 67
around Australia. This led him to see the potential for commercialization of
Australian native plants.
Two years previously GENCO had secured a major contract with a large
Australian pharmaceuticals manufacturer and had anticipated major growth.
Unfortunately, this lead customer had collapsed due to poor management nearly
taking GENCO down with it. Forced to severely downsize to a core team of six full
time employees and restructure, GENCO is now financially stable but additional
financial resources are urgently needed.
A new lead customer RENKA, a large insecticide manufacturer, has now been
found for the innovative insecticide product produced by GENCO. However,
RENKA is a demanding and somewhat conservative customer that needs to be con-
vinced that the prototype product is safe and can be manufactured reliably and in
commercial quantities. Of concern to the management team at RENKA is the ability
of GENCO to supply sufficient quantities of the plant oil and undertake further
R&D on the compound.
Mr. K is excited about the potential for the RENKA production orders, but sees
additional opportunities in a range of new products. As he explains, “our lead cus-
tomers change with different innovations, as mentioned these products can be for
perfumes, flavours, natural remedies, pharmaceuticals and pesticides”. He is nego-
tiating with the same local university who developed the original extraction technol-
ogy to undertake further R&D.
Your Task Explained
Chap. 3. The group should follow these steps:
states.
problem.
6. Draw on material from the text, in particular Chaps. 4, 5, and this chapter, and
other readings to help you build an evidence-based argument and follow the
Read the Owen Gun case study, which provides a history of the commercialisation
of the Australian designed and built Owen submachine gun invented by Evelyn
Owen during World War II. The case highlights the many challenges experience by
the inventor in getting a new and innovative product design through the difficult
processes of development, proof of concept testing and eventual adoption. Once
you have read the case, and examined its lessons against the material outlined in this
chapter, address the following questions.
Questions/Tasks
1. What does this case reveal about the challenges facing the adoption and diffusion
of a new, radical invention and the pathway that such diffusion can take?
2. With reference to the case, explain the theories of innovation diffusion making
sure that you cover as many of the issues outlined in this chapter as possible in
your analysis.
6.8 Case Study: The Owen Gun
By: Tim Mazzarol, based on source material from Mellor (1958) and Haycock and
Ross (1987).
Australian soldiers with Owen submachine guns in New Guinea. (Source: Australian War
Memorial)
6.8 Case Study: The Owen Gun 69
The ‘Owen Machine Carbine’ or ‘Owen Gun’ is an Australian designed and

manufactured submachine gun invented by Evelyn Owen and used as the main sub-
machine gun by Australian troops during the World War II and later during the
Korean War. It fires a 9 mm ‘Parabellum’ pistol round at a rate of 700 rounds per
minute, with an effective range of 123 m. It is simple and has the unique feature of
a 32 round detachable box magazine that is top mounted. The gun uses a ‘blow
back’ recoil system which is much less prone to jamming.
The Australian Patent System
Australia became a member of the International Convention for the Protection of

Industrial Property in 1907, and began issuing patents for local inventions. With an
economy largely focused on primary industries and mining, the number of patents
lodged prior to the World War I was modest. However, the war brought about a
boost in industrialisation and the number of patents grew. Most patents lodged in
Australia from 1907 to the start of the World War II in 1939 were by companies not
individuals. Between 70% and 80% of these patents were taken out by large over-
seas organisations or their Australian subsidiaries seeking to protect their intellec-
tual property (IP) rights in Australia.
Australia was unique among English-speaking countries in its publication of a pat-
ent within 6 months of the application being lodged. This applied for both Australian
and foreign patent applications. The effect of this was to make important scientific and
technical innovations, especially from overseas, publicly available via the Patent
Office in Canberra before they were published in scientific or technical journals.
War Breaks Out
The Commissioner of the Australian Patent Office had the power to withhold public
disclosure of patent information on security grounds. With the outbreak of World
War II, this power was used extensively. Under the international convention on IP
rights, there was reciprocity of data sharing between patents offices, and the
Australian Patent Office became a repository for a vast range of scientific and tech-
nical knowledge from around the world. This was of significant potential military
value, and the Commissioner used his discretion to protect data of such sensitivity.
However, the Patent Office also held many thousands of patents from enemy nations.
Despite being at war, there was no right to free use of these patents and the Patent
Office continued to require licence approval for their use. Thus, the Australian
Government set up a special ‘Custodian of Enemy Property’ for the duration of the
war to retain royalty and licence fees for such patents.
With the outbreak of war, there was an increase in inventors or would-be inven-
tors offering ideas to help the war effort. Among these many inventors was a young
24-year-old Evelyn Owen who came to the Army ordnance workshops at Victoria
Barracks, Sydney with a new machine gun. The prototype was a .22-in. calibre, a
commonly available small arms ammunition for civilian use. Despite his enthusi-
asm to offer this new weapon to help Australia’s war effort, Evelyn was rejected by
the Army who informed him that they had no interest in the gun. They felt the cali-
bre of bullet used was too small and, despite his explanation that this was only
chosen for convenience and could be scaled up, the Ordnance Officer politely told
him to go away.
Submachine Guns
The first machine guns emerged during the World War I when it became apparent that
the close-in fighting of trench warfare made long rifles unwieldy. Further, there was a
need for a weapon that could give out a high rate of fire at close range, but still be eas-
ily carried by a single soldier. The heavy machine guns then in use were mounted on
tripods and required two to three people to fire them. The solution was to adapt auto-
matic pistols, fitting them with longer barrels, butt stocks and higher rates of fire.
By the 1920s, a number of dedicated submachine guns had been invented. The
most well-known of these were the Thompson, an American weapon that fired a
.45-in. calibre bullet, and the Italian Beretta and German MP40, both of 9 mm. The
Thompson or ‘Tommy Gun’ became famous as a gangster weapon of choice, as it
could fire a lot of bullets and was easily fired from a car or inside a room.
When the war started, Australia had only two submachine guns available. One
was a German Bergmann machine pistol from the World War I that had been cap-
tured as a trophy; the other was an MP-40 that had been seized by Customs in
Sydney from the luggage of a German passenger. By 1940, the Army had also
bought a single Thompson gun from a rubber plantation owner in the Solomon
Islands and brought it back to Australia for use as a training aide. This was the only
experience the Australian military had had with submachine guns at the time Evelyn
Owen brought his new invention to their depot.
Evelyn Nearly Gives Up
A year after his rejection by the Army Ordnance Officer and having heard nothing
more from the Australian Government about his invention, Evelyn Owen decided to
abandon his idea and make his contribution to the war effort on a more personal
basis. By September 1940 he had joined the AIF as a private soldier and was on
stand-by to ship out to the Middle East.
However, Evelyn could not really leave his idea to be totally abandoned and, in
a last desperate effort, he put the gun into an empty sugar bag and left it anony-
mously outside the home of a neighbour, Vincent Wardell, Manager of the Lysaghts
Works Pty Ltd. at Port Kembla. As a manufacturer, Vincent quickly realised the
potential value of the weapon for the war effort. He knew it was Evelyn who had
developed the gun and took it to the Director General for Munitions, Mr. Essington
Lewis, the industrialist who had helped establish the Commonwealth Aircraft
Corporation and reorganise Australia’s war industry.
Mr. Lewis promptly sent the gun to the Secretary of the Army Central Inventions
Board, Captain Dyer, who was impressed with the weapon’s potential. Submachine
guns were proving very useful in the war, and both the German and Italian armies
were making extensive use of them. However, when Dyer sought to take the matter
further, he was rebuffed by his senior officers who argued that a similar weapon was
being developed in Britain.
A Second Chance
Captain Dyer did all he could to get the Owen Gun tested, but the Army’s systems
of testing inventions were chaotic due to the war, and he went back to Vincent
Wardell to see what private industry could offer. Wardell’s brother was the Chief
Engineer at the Lysaghts Works, and he agreed to evaluate the gun on a private and
unofficial basis, including the fabrication of additional prototypes.
With this reprieve for his invention, Evelyn Owen managed to secure duty leave
for a period of 3 weeks. In this time, he worked with Wardell and the Lysaghts team
and produced a series of prototypes in various calibres ranging from .32 to .45 in.
Firing trials found the smaller calibre, rimless ammunition was the most successful.
Wardell approached the Master-General of Ordnance, Major General Milford,
for the opportunity to demonstrate the new weapon. After some delays, approval
was given and a trial was arranged in Melbourne at which Captain Dyer and Private
Owen were present.
Trial by Fire
Despite the passion Evelyn had for his invention and the support he had received
from visionaries such as Essington Lewis, Wardell and Dyer, the real problems of
getting the submachine gun into production had only just begun. At least two major
obstacles had to be overcome:
• the military customers had to be convinced that the invention could be developed
into a reliable weapon, and
• the Army high command had to be convinced that such a weapon was required
by Australian forces.
A major problem facing the Owen Gun’s commercialisation was not that the
Australian Army did not believe it needed submachine guns, but that an alternative
weapon was becoming available from Britain. As Major General Milford explained
to the trial team that the British Army’s experts, ‘with far more experience than was
available in Australia’, were now producing a new submachine gun known as the
‘STEN’, modelled on the German MP-40 or ‘Schmeisser’.
Australian troops were already using Thompson submachine guns produced in
the United States, but these weapons were heavy and their mechanisms were
complex. If not carefully maintained, they were prone to jamming. Captured MP-40
and Beretta submachine guns were generally considered superior.
Pvt. Evelyn Owen with Owen Gun prototype. (Source: Australian War Memorial)
Owen Gun Versus the STEN Gun
The British military had agreed to send a number of STEN guns to Australia, along
with full technical drawings and manufacturing details. It was expected that the
STEN gun would be a high quality, well-designed and finished weapon of a similar
standard to the excellent MP-40. The Owen Gun therefore had a serious rival.
Despite this challenge, the Wardell brothers were convinced that the Owen Gun
had a future. They had placed Evelyn Owen onto the payroll at Lysaghts and had
taken out a patent that offered him royalties if the gun was ever manufactured.
However, they faced many problems. Not only was the Army convinced that locally
produced guns could not be as good as those from Britain, they could also not agree
on the final calibre of bullet for the gun.
The Thompson had a .45-in. bullet; the STEN was 9 mm – which was now the
standard size pistol round for the British Army. At the time, however, Australia’s
armaments factories did not make 9 mm ammunition. What was worse, the Army
ordnance officials were not prepared to offer any guidance and felt it best to wait for
the arrival of the STEN gun.
Australian paratrooper with AUSTEN submachine gun. (Source: Australian War Memorial)
The STEN Arrives
When the STEN guns finally arrived, they were a disappointment. Rather than the
promised British equivalent of the MP-40, the STEN was found to be poorly
designed and poorly finished. It was clear that the weapon had been rushed into
production and was a cheap, mass produced design. In order to get it rapidly made,
…many standards of functional performance were abandoned under the pressure of the
grave situation.
The military trials and testing undertaken on the STEN and Owen Guns showed the
latter weapon to be far superior to its British rival. As the official report stated:
The Owen gun…its outstanding features include: a) extreme simplicity of design and con-
struction, which enabled it to function successfully under difficult service conditions; b) the
rapidity with which it could be taken to pieces and reassembled; c) the system of fire control
which facilitated economical expenditure of ammunition; d) a tubular stock body and, in
later models, a hollow breech bolt; e) high muzzle velocity, which helped to make the gun
a very effective short-range weapon.
By placing the magazine on top the centre of gravity of the gun was made to coincide
with the gun’s longitudinal axis. This gave greater accuracy of fire under fully automatic
conditions. Another great advantage was gained from this placing of the magazine: if mud
got into the weapon round the breech it would drop straight to the ground; if it entered the
magazine it either tended to drop out or was pushed out by the magazine spring.
The STEN gun, on the other hand, was loaded on the side and ejected spent cartridges
to the other side so that mud tended to lie in the bottom of the casing round the bolt. It was
the Owen gun’s ability to operate under muddy conditions that made it superior to other
sub-machine guns in the jungle. All these advantages, combined with an unusual simplicity
of design, singled the Owen gun out from its contemporaries and its predecessors.
Going Political
Faced with these results, the Army officials were still reluctant to approve the Owen
Gun for full scale production, even though the 9 mm ammunition problem was now
resolved and quantities of the bullets were being produced in Australia. By this
time, the progress of the Owen Gun had reached the attention of the Government,
and the Minister for the Army, Hon Sir Percy Spender, gave instructions to Major
General Milford to order 100 Owen Guns to be manufactured.
Despite the Minister’s direct instructions, the Army Chiefs took no action. The
Military Board effectively overrode the Minister and ordered that the guns not be
made and that further trials take place. This only served to anger the Minister who
demanded that,
… the Owen guns are produced and that the first 100 weapons are manufactured to take
both 9 mm and .45-inch ammunition and those field trials against the STEN are carried out.
Once it was clear that the Owen was superior to the STEN, the Minister ordered the
Australian submachine gun’s production order be increased to 2000 units.
Production Problems
Evelyn and the Wardell brothers now felt that they were over the worst in their quest
to get the Owen Gun into mass production. However, their troubles were not over
yet.
Full scale production of the new submachine gun was held up by a lack of access
to the machine tools and related equipment needed. There were also many modifica-
tions that the Directorate of Ordnance Production was demanding be made to the
gun’s prototype. The Directorate wanted design changes that would make the gun
easier to manufacture.
On 5 November 1941, the Sydney Daily Telegraph newspaper published an arti-
cle on the progress of the Owen Gun and the delays it was experiencing in produc-
tion. The newspaper attacked the Army for opposing what was,
… a most promising Australian-designed weapon of a kind urgently needed, that was not
being developed as rapidly as it should because of Army opposition.
Despite their initial reluctance to adopt the Owen Gun, the Army Chiefs had finally
begun to change their minds. However, they still placed an order for 20,000 STEN guns
as a backstop should the new Australian-designed weapon fail. However, while the
Army was now more favourable, the Department of Munitions was not. They preferred
the STEN gun on the grounds that it was already in mass production in the United
Kingdom and was cheaper and easier to manufacture. In the Department’s view:
… the superiority of the Owen had not been so marked as to warrant its exclusive
production.
They commenced volume production of the British gun which became known as the
AUSTEN. The Australian engineers who took on the production of the AUSTEN
also redesigned the weapon and found ways to improve its operation by adding back
features from the MP-40. The new AUSTEN took only six-man hours to produce
compared to the STEN, and could be field stripped and reassembled in only 15 s.
The Owen Gun now had a serious competitor.
Into the Field and Fame
The Lysaghts team were forced to make numerous changes to their original design,
but fortunately few of these required a fundamental change. They also found it dif-
ficult to acquire the machine tools and special steels that such a weapon required for
its manufacture. However, these problems were overcome and the new Minister for
the Army, Hon Frank Forde, became a strong supporter of the Owen Gun, thereby
assisting its production.
From 1941 to the end of the war in 1945, a total of 50,000 Owen submachine
guns were produced. Troops who used both the Owen and AUSTEN guns in the
South West Pacific battles gave their approval to the Australian-designed weapon.
Evelyn Owen’s invention was considered more reliable; it would keep on firing even
if immersed in thick mud and slush. The Owen Gun became the weapon of choice
for the front-line troops, and was given the epithet ‘The Digger’s Darling’.
In December 1943, the Owen Gun was tested by the British Ordnance Board
against a range of other submachine guns including those from Germany, the United
States and Italy. The Owen Gun was rated,
… first in four of the five tests with five other guns and first in over-all order of merit,
The Owen Gun served on after the World War II and saw active service in Korea,
Borneo and later Vietnam, by which time it was being replaced by more modern fire
arms. While the Owen Gun became an Australian military legend, its inventor faired
less favourably. Evelyn Owen received £10,000 in royalties from the patent rights of
his invention. He invested the money in a saw mill near Wollongong NSW where he
lived alone. A heavy drinker, Evelyn’s health deteriorated and he died at the age of
33 on 1 April 1949 in Wollongong Hospital as a result of a ruptured gastric ulcer.
Perhaps the last word should go to Mellor (1958), the official historian who
states:
… While the Owen certainly justified the hopes and efforts of those who worked so enthu-
siastically to have it introduced during the war, it is not difficult to sympathise with the
caution shown by Army and munitions officers who were anxious that the country’s produc-
tion potential should not be squandered in making a weapon about which at that time they
had doubts. However, the gamble was successful and the gun proved a major contribution
to British small arms design.
References
Haycock, R. R., & Ross, A. T. (1987). The Australian Owen Gun Scandal, 1940–1945. Wat &
Society, 5(2), 39–55.
Mellor, D. P. (1958). The role of science and industry, volume V, Australia in the Ward of 1939–
1945. Canberra: Australian War Memorial.
Work Book: Planning, Business Models
and Strategy 7

• Understand the role and relevance of planning.
• Understand how to integrate analysis and vision.
• Understand the fundamentals of building a business model.
• Identify skill requirements/matches for new ventures.
• Understand the planning process within an entrepreneurial venture.
• Understand the nature and role of entrepreneurial risk perception in the
planning process.
• Apply the planning process to a case analysis.
7.2 Chapter Review
Planning should not be confused with clarity of vision. This chapter examines the
relationship between an entrepreneur’s vision and the need to generate a formal
business plan. It suggests that a formal business plan is no guarantee for success and
that, while planning is important, too much attention can be paid to business plans
at the expense of having a clear vision for the business. The business plan is often
viewed as a complex document, but it is really a mechanism for helping the entre-
preneur systematically communicate their vision to others – either to raise money,
secure contracts or organise the work of employees. Of more strategic importance
is the ability to create a clear vision for the future.
The business plan is also less important than the underlying business model upon
which the plan is built. The key elements of the business model are the product, the
profit formula, and the key processes and resources. Of particular importance is the

https://doi.org/10.1007/978-981-13-9416-4_7
78 7 Work Book: Planning, Business Models and Strategy
ability to identify a customer value proposition (CVP) that can be sustained over
time in a competitive manner. Business plans come in a variety of types, but most
need to have a statement of the opportunity, the environmental context, the risk-
reward, and the team. Ultimately you must use common sense when writing the
plan.
Entrepreneurs generally don’t plan, at least in a formal manner, and much of the
reason for this their propensity to perceive risk differently to others. They use biases
and heuristics plus the ‘law of small numbers’ to convince themselves that the risk
is less than it might really be. As a result, they plan less but can easily launch into a
new venture or invest in an innovation – thereby seizing first mover advantage.
Strategy and planning are not the same. Strategy is a continuous or double-loop
process, while planning is a single-loop process. The appropriate planning response
for a given situation will differ. Four generic planning responses exist: (i) the shop-
keeper; (ii) the salesman; (iii) the administrator, and (iv) the CEO. Each is appropri-
ate depending on the level of uncertainty in the task environment and complexity in
the organisational configuration or product/process technologies.
7.3 Key Lessons
• A business plan is a written document that describes the current state and the
presupposed future of an organisation. It is usually acknowledged that a good
business plan should have at least four key elements: (i) the opportunity; (ii) the
environmental context; (iii) the risk-reward, and (iv) the team.
• The possession of a business plan is not a guarantee of success and there is mixed
evidence that firms with formal plans are any more profitable than firms without
as the business plan is largely obsolete the moment it leaves the printer.
• The process of planning within the entrepreneurial, innovative venture requires
flexibility and recognition that the process is more important than the plan itself.
• A formal written business plan is a communications tool designed to inform,
guide and sometimes sell a business concept or case to a third party. There are
thus at least three common types of business plans: an application for finance
(either targeted at the equity market or targeted at the banker), a supply chain
driven plan; and a plan for internal use. Each of these applications of the business
plan requires slightly different emphasis.
• One of the most useful applications of the business plan is simply to guide the
management of the business venture. For very small firms, the need for a formal
written business plan is probably less important than for their larger counterparts,
even if the discipline of writing down the entrepreneur’s thoughts about the ven-
ture and its future directions into a coherent documented plan is highly
beneficial.
• Entrepreneurial ventures in which there are high levels of environmental uncer-
tainty may not benefit from excessive planning and under such conditions, the
entrepreneur is better to maintain a more intuitive approach to planning involv-
ing continuous learning and ‘sense-making’
7.5 Individual Research Paper 79
• The business model of an entrepreneurial venture makes explicit the mechanism

that can deliver value to a target customer or market segment in a sustainable
manner, and with an appropriate allocation of resources to achieve this
outcome.
• It will thus describe following components:
1. Target customer: how the venture plans to delight the customer by offering
them a benefit that they had not expected or even thought of.
2. Value proposition: includes the decision on which customers the business is
to serve. The selection of the first customer can be a critical issue.
3. Customer relations refers to the cost of winning and retaining a customer,
showing the firm’s basis of differentiation and the unique value proposition.
4. Value capture: how to acquire a sufficient income stream from the value the
venture has created.
5. Costs: analyses the balance between fixed costs raising the break-even point
for the venture and variable costs more dynamic
6. Resources: the list of skills, abilities and other resources that are likely to be
needed to allow the venture to deliver its CVP
• Planning should be confused for clear vision: The development of a well-written
business plan is no guarantee of success, and an entrepreneur should not assume
that just because they like an idea it will be successful.
• The development of strategy within a business can be explained in terms of the
response its management makes to the level of uncertainty in the task environ-
ment and to the level of complexity within its organisational configuration, with
four generic strategic planning types that are appropriate responses for a given
set of conditions: the shopkeeper (low complexity, low uncertainty), the vendor
(low complexity, high uncertainty), the administrator (high complexity, low
uncertainty) and the CEO (high complexity, high uncertainty)
1. What is a business plan and how should it be structured to achieve the best out-
comes for the launch of a new business venture?
2. Consider the business model framework outlined in this chapter and then apply
its structure to a new business venture. What issues should the entrepreneur(s)
launching the new venture consider with respect to its key elements?
7.5 Individual Research Paper
The purpose of this assignment is to assess your understanding of the concept of the
“business model” and how the analysis of this concept within the academic litera-
ture has evolved and can be applied to the development not only of new business
start-ups, but also new products and services. According to Professor David Teece
from the University of Pennsylvania,
… “The concept of a business model has no established theoretical grounding in economics

or in business studies” (Teece 2010).
If he is correct, why has so much attention been given to the development and
design of business models? Using the text and other reading material that you can
source, undertake a critical review of the concept of the business model. Examine
the origins, nature and importance of business models for the creation of new busi-
ness ventures, enhancement of existing ones and the commercialisation of new
innovations.
Write a research paper of around 2500 words and address the following issues:
• Discuss the theoretical foundations of the business model.

• Discuss the application of the business model concept to practice.
• Access the business model concept’s value to commercialisation of new products
and services.
• Provide a critical analysis of any weaknesses in the business model concept.
• Support your research by providing evidence from academic literature sources.
Read the case study Comfort Homes, which outlines the story of James, an entrepre-
neurial manager who rescues a failing business manufacturing transportable houses,
and turns it into a highly successful enterprise. However, he now faces a number of
opportunities for future growth and needs to undertake a review of his business
strategy. Having read the case, and examined it against the material outlined in this
chapter, prepare a report for the owner-manager to assist him when preparing a
future strategy and plan for the business.
Questions/Tasks
1. What has been the performance of James as an owner-manager? In doing so,

consider:
• the resources he has had available;
• the experience of him and his team;
• the control systems he has used;
• the ideas and innovation for new products that he has demonstrated, and
• the leadership he has shown.
2. How would you profile James – as a shopkeeper, a salesman, an administrator, or
a CEO?
3. What is the nature of James’ task environment? Examine this question using
the Strategic Development Framework (Figure 7.1 and Figure 7.3 in Chapter 7
of the Textbook) and make reference to:
7.7 Case Study: Comfort Homes 81
• The potential threats, opportunities, weaknesses and strengths James faces in

his new market opportunities;
• The key considerations James will need to make in relation to his ability to
build strong dynamic capabilities within each new targeted market given the
resources he has to apply.
4. If James was to prepare a strategic plan for the future direction of his business,
what key things should he consider? In answering this, address the structure of
his business model using the business model canvas (see Figure 7.1), and what
each new strategic opportunity may do to impact on this with specific attention
to:
• his vision and mission,
• his product and customer value proposition,
• the profit formula,
• the key processes, and
• the key resources required.
7.7 Case Study: Comfort Homes
By: Olive Schmidenberg and Tim Mazzarol
James felt a puff of pride. Four years in the driving seat and he had turned an
ailing building business, trading at a loss, into a multi-million-dollar success story.
The end-of-financial-year figures on his desk were proof that Comfort Homes had
disclosed a healthy growth in profit for the fourth year running. Not bad for a former
building supervisor turned owner-manager. James recalled when he’d first bought
the business that he’d boasted to workmate Kevin – now one of his own employ-
ees – that a business could not only survive trading cycles and but also grow if it was
focused. Well, he’d proved his point.
Old Hands, New Roles
Kevin had been cynical about a small business that built steel-framed transportable
houses competing in a trading environment dominated by the big boys. He thought
James lacked the outgoing, gregarious personality that would win orders, and that
his mate’s trade background was insufficient preparation for the role of owner-
manager. However, James knew all about sour grapes and personal agendas. He
believed ownership brought new responsibility and personal accountability—two
key ingredients for success in any venture. Kevin didn’t realise that, as owner-
manager, James viewed Comfort Homes from an entirely different perspective.
Being in charge is quite unlike being a paid employee.
Slow and Steady
James was the silent type, but his quiet confidence and straight talk had won him
respect from customers, employees and suppliers alike. His business style was care-
ful and considered, like his speech – slow and steady with the long-term view in
mind. He never acted on a whim and made few mistakes. True to character, James’
decision to buy Comfort Homes was careful and considered. The business had been
trading at a loss for a couple of years, and the owners were desperate to sell. The
purchase price was fair, based on the poor trading performance. He paid only for
plant and equipment and nothing for goodwill, for the client list or for intellectual
property. He was not out to make a fast buck but, as the results demonstrate, his
financial success had surpassed many get rich quick schemes.
Minimise Overheads
Controlling overheads is always a big concern in the building industry, and many
high-profile companies have gone under in the past. James didn’t have deep pockets
and he had no intention of taking any unnecessary risks. From day one, he set up a
low-overheads business. He minimised his wage exposure (a big cost for any build-
ing company) by ensuring all work was done on a sub-contract basis. Although this
added a premium to normal award wages, it reduced the company’s exposure sig-
nificantly in an industry subject to trading cycles. All sub-contractors had to meet
fixed quality and delivery standards. As a result, shop floor productivity was high
and the company’s sales break-even point was lower than if all tradesmen were on
the payroll.
Home from Home
In his own quiet way, James was a pioneer in the building industry. He saw a niche
in the market and grabbed it. The resources industry was booming. Most mines had
a lifespan of 1–10 years, and so it made economic sense to erect transportable
homes onsite and then transfer them elsewhere when the mine shut down.
Competition between individual mining companies was fierce, and many recog-
nised the link between employee comfort and productivity. James knew from his
own onsite experience that employees working in remote locations were more pro-
ductive and suffered less stress if they had good living accommodation. This ‘home
comforts’ concept offered the perfect selling pitch – the home-away-from-home
transportable.
Comfort Homes started to manufacture top quality transportable houses for the
mining industry. They were constructed with invisible steel frames to look like a
real home from the outside. Floor space was optimised to provide comfortable self-
contained accommodation. Several mining companies tested this superior
7.7 Case Study: Comfort Homes 83
accommodation on their senior employees, and soon others were forced to follow
suit in order to attract skilled labour and to reduce staff turnover.
Better Building, Reducing Risk
James’ own building competitors soon pirated his ideas, but he just took up the chal-
lenge and designed even better transportable homes using the latest building con-
cepts. As a result, Comfort Homes remained at the forefront of the industry.
However, Comfort Homes was not quite the high-risk trailblazer that its promo-
tional pitch suggested. The new designs were simply imported residential housing
improvements applied to the transportable market. The cost of researching and
developing new designs was insignificant in terms of the company’s annual turn-
over, and the construction methods made economic sense. The transportable houses
were manufactured in town where labour costs were low and tradesmen were abun-
dant, and they were then transferred to the mine sites.
Quality control was paramount. Each transportable was checked thoroughly by
the building supervisor before it left the company premises, as it was easier and
cheaper to rectify problems before delivery.
Window of Opportunity
James recognised another window of opportunity and began to market Comfort

Homes to the rural sector. As farm properties were valued on a per hectare basis,
often with little value attached to the homestead, he could see the attraction to canny
farmers of erecting a transportable, low-cost home that could be moved when the
farm was sold or passed on to the next generation.
Marketing and Management
To promote an existing product to a new market is a smart move, even if it is not part
of a considered strategic or marketing plan. Kevin’s lack of confidence in the com-
pany’s future was based on his perception of James’ personality and his mate’s lack
of marketing experience.
Marketing was James’ responsibility, and he does not always make time for it.
He was a perfectionist and found it difficult to delegate. He realises that, whilst he
had steered Comfort Homes to financial success, the company’s marketing was lim-
ited to chasing leads in the mining industry and, to a lesser extent, in the rural sector.
He had no marketing program aimed at specific industries or geographic regions,
and the idea of building business networks had been overlooked. Although at heart
he knew it was important, urgent issues always took precedence over the valuable
but not-so-pressing need for marketing. Somehow James had to learn to delegate the
daily, routine tasks to his staff so that he can devote his time and energy to working
on the business.
Delegation is fine in theory, but difficult in practice. At Comfort Homes, com-
munications between management and staff was poor. James and Kevin had never
sat down together to discuss ideas, despite their long years of friendship. Kevin was
a long-term employee whose knowledge and skills had not been used to their full
potential. James lacked experience in human resource management. He liked to be
in control and was not comfortable sharing ideas with employees. On the whole, the
job ‘got done’, but his employees never felt that they were part of a team.
Four Factors for Financial Success
Despite these in-house management problems, Comfort Homes had performed well
in an industry subject to trading cycles. Four factors contributed to this success:
1. James was very astute in financial matters. He ensured that all contracts earned a
good profit margin and generated cash flow by way of progress payments
invoiced on completion of agreed milestones. Apart from a nominal bank over-
draft, the company has no debt. Turnover ran into the millions, but the debtor
position at any point in time was insignificant.
2. There was no incidence of bad debt. Most clients were established blue-chip
mining companies who paid on time.
3. Demands on plant and equipment were modest, but substantial industrial land
was required for construction. Comfort Homes had no capital to invest in prop-
erty, and had opted to lease suitable premises. James was a model tenant and paid
rent at market prices.
4. James was fastidious about product quality. He built a team of loyal, conscien-
tious sub-contractors, and he rarely ventured outside this core team. He ensured
sub-contractors were briefed before each job commenced and he always paid his
tradesmen on time as soon as they reach the agreed milestones. He almost had
the advantage of having his ‘own’ work force without the financial responsibility
of having permanent staff.
Quality Control
James knew quality control was one of Comfort Homes’ critical success factors. He
had spent 4 years complying with Government Quality Assurance requirements,
and was critical of his competitors. He believed that they relied on official paper-
work to ensure that quality assurance procedures were followed. James, however,
preferred to inspect construction first-hand against accepted national benchmarks of
quality.
Reference 85
Future Directions
As he contemplates the future and how to expand the business, James is considering
a potential new market—to supply transportable homes to the Queensland Housing
Commission. As a State Government agency, the Queensland Housing Commission
demands Quality Assurance under ISO 9002, but this Government directive irritates
James. He believes it is administered by bureaucrats with no idea of the difference
between Quality Assurance and quality standards. In his deliberate, considered way
he has begun to weigh up the benefits of winning this contract against the hidden
costs.
Reference
Teece, D. J. (2010). Business models, business strategy and innovation. Long Range Planning,
43(2/3), 172–194.
Work Book: Risk Management
in Innovation 8

• Understand the variety of risk at different levels in the management of a
new venture.
• Understand the nature of risk in the innovation process.
• Understand the nature of entrepreneurial risk perception.
• Understand how to conduct a risk assessment of a venture.
8.2 Chapter Review
This chapter examines the issue of how to manage risk in the process of innovation.
By its very nature, innovation is inherently risky. The more radical and disruptive
the innovation, the more uncertainty and potential risk is created. However, the
management of risk remains an important issue for any manager or organisation
seeking to engage in the commercialisation of innovation.
8.3 Key Lessons
• Risk can be measured quantitatively by estimating the likely cost or loss that can
arise where an event takes place. It is important to distinguish risk from uncer-
tainty. Risk is something that can be measured in a quantitative manner and
assessed. However, uncertainty is not so readily quantitatively measured.
• While the area of risk management originally focused on operational areas it has
now evolved into a strategic-level activity, Enterprise Risk Management (ERM).

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88 8 Work Book: Risk Management in Innovation
Around the world large companies use ERM as a core element in their strategic
planning, project management and budgeting, with full-time risk management
executives employed within the senior management team.
• Risk management in new ventures is often addressed by the entrepreneur and is
carried out tacitly, without any specific tools. It is not necessarily subject to a
specific investment and its impact on performance remains difficult to demon-
strate, so risk management in new ventures has so far not been considered either
as a source of specific cost, or as a source of significant value creation.
• One of the main characteristics of a new venture’s strategy and management is
the strong influence of what can be grouped under the name of proximity effects,
resulting in filters of perception and action.
• The informality in the management of innovation creates an ad hoc approach to
strategic decision-making including activities such as new product development
(NPD) and commercialisation.
• Another key issue facing small and young firms engaged in innovation is their
lack of resources. From a risk management perspective this is problematic
because any minor event or anomaly can become a source of crisis by the effects
of cascading risks.
• A key attribute of entrepreneurs is their ability to deal with risk. However, this
view has been challenged by those who argue that entrepreneurs don’t have any
greater risk-taking proclivity than the average person. What they do have is a
propensity to perceive risk differently to others.
• The effectuation theory suggests that entrepreneurs are more likely to assess their
own affordable losses than their expectations of returns, leading them to assess
risk taking with a different scale.
• Many entrepreneurs make use of only limited information. This is described as
the law of small numbers, i.e. taking feedback from only one or two key custom-
ers or relying on the support of friends and family, to help them decide whether
to invest.
• Planning behaviour is a response to both the perceived risk and uncertainty in the
task environment and to the perceived level of confidence and competence within
the entrepreneur.
• Firm’s ability to acquire, assimilate, transform and exploit information and
knowledge represents an absorptive capacity that can form the basis of a dynamic
organizational capability.
• Firms seeking to develop new products need to learn how to operate in this often
chaotic and unpredictable environment. For most projects the initial stage
requires some exploration, experimentation, testing of concepts and theories, and
bootstrapping with limited resources. This is all designed to help reduce uncer-
tainty and risk.
• A formal approach to managing risk can be found in the Australian standard (AS
4360) ‘Risk Management’. This provides a generic and very broad framework
for risk management containing six key elements: (i) establish the context, (ii)
identify the risks, (iii) analyse the risks, (iv) evaluate the risks, (v) treat the risks,
(vi) monitoring risks. Other tools like the Failure mode and effects analysis
(FMEA) can be used for more technical projects.
• Assessing the technical and market risk of an NPD project may be done to deter-
mine if a single project should be launched, continued or perhaps aborted, but
may also done in the context of managing a portfolio of NPD projects where the
focus is not on a single project, but on the selection of the most promising set of
projects for an organisation to pursue.
• A final tool for management of risk in innovation is Real Options Reasoning,
which is an approach whereby the decision maker invests in an option that grants
them the right, but not the obligation to make future investments. Such tools are
more likely to be used in large firms.
• A risk-return model has been developed to provide a quick screening tool for
small firms drawing on a model of Innovation Rent from a future innovation that
is a function of three variables: Volume, Rate and Length. It provides an
Innovation Rent typology helping small firm to assess the opportunity to launch
an innovation.
1. What are the main factors that need to be considered in managing risk within
entrepreneurial ventures? Address this question with reference to the roles played
by proximity effects, informality and resource scarcity within small entrepre-
neurial firms, the nature of risk perception by entrepreneurial people, and how
that risk perception influences their planning behaviour.
2. Explain the relationship between absorptive capacity and the management of
risk within firms engaged in commercialisation of new technologies. How does
absorptive capacity help managers deal with risk and uncertainty?
3. Consider the fuzzy front-end and new concept development concepts proposed by
Koen et al. (2002). Explain these and relate their role in management of risk with
reference to the assessment of technical and market risk in NPD.
4. Relate the issues discussed in the previous three learning activities to the typol-
ogy of innovation rents proposed by Santi et al. (2003) and Reboud and Mazzarol
(2003) discussed in chapter 8. How might this typology and the staged process
of commercialisation outlined in Figure 8.13, be used in conjunction with the
concepts described elsewhere in chapter 8 so as to provide a systematic approach
to risk management?
Read the case study Robotics Pty Ltd that tells the story of a small, technology-
based firm seeking to balance the need to maintain the profitability of their existing
product-service portfolio, while simultaneously investing in R&D, NPD and com-
mercialisation of new technology-based products. This is a common dilemma
facing small firms, who often lack the resources to pursue their opportunities and
ideas for new innovations.
After reading the case, and with reference to chapter 8, prepare a report for the
owner-managers to assist them to identify and understand the risks that face their
business.
Questions/Tasks
1. How does the Robotics Pty Ltd case demonstrate some of the common character-
istics of small, entrepreneurial ventures? In addressing this question, make refer-
ence to:
• Proximity effects;
• Informality, and
• Resource scarcity.
2. With reference to the concepts of entrepreneurial risk perception, absorptive
capacity and business planning, discuss how Robert and Claire have approached
their NPD and commercialisation processes so far.
3. With reference to the typology of innovation rents, what type of innovation do
you think Robert and Claire have created?
4. What advice would you give to them going forward? In preparing this response
make reference to:
• Fuzzy Front-End (FFE) analysis;
• New concept development;
• The assessment of technical and market risk;
• Risk management principles and techniques;
8.6 Case Study: Robotics Pty Ltd
By: Aniket Maroo
“Too much engineering, too little marketing” is how Robert and Claire sum-
marised their company’s position. They were confident their product far exceeded
anything comparable on the market, but their faith in the engineering excellence of
Robotics Pty Ltd. had failed to translate into a healthy bank balance. Robert rel-
ished the challenge of solving engineering problems, but his motivation was not
profit driven. As a consequence, the time spent on research and development was
disproportionate to the company’s revenue base. As a result, Robotics owned a
substantial intellectual property base, but the accounting standards did not permit
intellectual property to show as an asset on the company balance sheet and the
bank appeared to overlook its value. Was this the key reason Robotics failed to post
a healthy profit?
8.6 Case Study: Robotics Pty Ltd 91
Humble Birth
Like many family businesses, the birth of Robotics Pty Ltd. was modest and
unplanned. But the energy, enthusiasm and drive of its husband/wife partnership
offset a lack of financial resources. Robert was an engineer turned businessman.
Robotics manufactured automated flat-bed cutting machines, but the similarity
between the names was pure coincidence. In fact, Robotics’ operations began acci-
dentally in an altogether different field under an entirely different name, IntelliDesign
Pty Ltd.
Robert had become bored with his job as a mechanical engineer. During the
course of a telephone conversation with two old mates from his post-graduate days
at Imperial College in London, he secured the Australian rights to distribute
IntelliCAD, a suite of software products designed especially for the sign writing
industry. Combined with the advent of affordable personal computers, IntelliCAD
revolutionised the sign writing industry. Small franchise sign writing businesses
proliferated across the country and IntelliDesign prospered.
Dealer Network
Robert made all the initial software sales and secured a list of long-term clients, to
whom he could provide ongoing support and product upgrades. The first year of
business was so sensational he considered opening an office in every capital city in
the country. However, Claire’s caution prevailed, which proved fortunate when
competition from other products mounted and it became apparent IntelliCAD
lacked the “blue sky” potential it had previously exhibited. Instead Robert appointed
regional dealers in each of the major metropolitan cities. Based on a simple 30:30:40
formula, he offered a 30% dealer margin on every sale. Each dealer was responsible
for local advertising and marketing. IntelliDesign received 30% and the remaining
40% covered costs of sales.
Extended Credit Terms
IntelliDesign secured 90-day terms of trade from the software supplier. This was a
huge benefit, as all sales were made and monies collected well within the 90-day
period, which allowed the new business to build up a surplus cash pool. Unfortunately,
this surplus was misinterpreted as business profits before depreciation, due to an
absence of monthly financial accounts. In hindsight, this was regrettable for a num-
ber of reasons:
• IntelliDesign failed to demand timely payments from its dealer network when-
ever they fell behind with their credit terms. As a consequence, some dealers
began to use IntelliDesign as a quasi-banking facility.
• Robert and Claire thought they had a brilliant accountant because their annual
reported results and tax bill were much less than anticipated based on the cash
reserve. It never occurred to them to query this apparent discrepancy.
• The business failed to budget effectively. As there was always cash around to
spend on business development, IntelliDesign experimented with new growth
opportunities without proper strategic planning.
Vertical Expansion
After 3 years in business and with a steady cash flow from the software sales and
support, Robert turned his attention to a vertical expansion of his operation. His
mechanical engineering background had enabled him to answer client software sup-
port calls by fixing the sign writing hardware. Problems often arose from poorly
designed low-grade hardware. The challenge to design and engineer, high quality
hardware was too much for Robert to resist.
Whilst Robert devoted his attention to the research and design of hardware,
Claire stepped into the business to manage the software dealer network. She was so
successful at balancing this responsibility with her role as mother of three, that few
people would have known the business was shifting direction, if the name had not
changed to Robotics Pty Ltd.
Cash Surplus
These were exciting times. The cash surplus generated by software sales and sup-
port was ploughed back into the business to finance the manufacture of better and
smarter flat-bed sign writing hardware, which was marketed through the established
dealer network using the 30:30:40 formula. Forty percent covered the cost of manu-
facture but now, for 30%, the dealers were required to promote and install the hard-
ware on delivery at clients’ premises and to provide a 3-month after-sale support
service.
Enhanced Performance
Robotics was driven by the engineering excellence of its flat-bed sign writing hard-
ware and strove to improve and enhance product performance. The hardware was
keenly priced and, in Robert’s view, the best value on the market. Yet most sales
were achieved either by trimming the price further or by making specific modifica-
tions for a nominal extra charge.
Robert saw each customer requested modification as a further engineering chal-
lenge and costed jobs on the nominal time rather than the actual time taken. However,
most modifications were client specific, requiring research, experimentation and
8.6 Case Study: Robotics Pty Ltd 93
individual development. They did not translate into a body of knowledge that could
be copied for other customers to save time and costs.
New Markets
Aside from sign writing, Robert identified other industries where he could modify
automatic flat-bed hardware, such as cutters for wood, metal, fibreglass and cloth.
In essence, each cutter comprised the flat-bed, a cutting mechanism (blades, routers
or laser beam) and an automatic controller.
However, Robotics had no formal marketing plan and devised no new marketing
initiatives. The company simply continued to advertise in the sign writing industry
magazine, participate in trade shows and rely on any direct marketing undertaken by
its dealer network.
Costs
Robotics’ retail price for flat-bed hardware was in the order of $25,000, made up
from the following components:
Flat-bed hardware and cutting tool $9000

Controller 1000
10,000 40%
Robotics profit 7500 30%
Dealer profit 7500 30%
100%
Intellectual Property Protection
Robert could have patented his flat-bed hardware designs, which were easy to copy
by reverse engineering. To save time and money, he devised a simple solution to
protect his intellectual property. In effect, each controller was just a small black box
implanted with programmed instructions. It was impossible to duplicate these con-
trollers without Robert’s assistance. Irrespective of the cutting application (wood,
metal, cloth etc), the controller boxes looked identical, but their capacity was deter-
mined by the implanted software.
Body with No Brain
A large share of expenditure went into the research and development of the control-
ler boxes, but the cost of production was negligible compared to the cost of the
flat-bed cutting unit as a whole (see table above). The hardware production, which
could be copied and manufactured by any able machine shop, generated most of
Robotics’ growth in terms of rental space, employees, stock holding, debtors etc.,
but the controller box gave it value. In Robert’s words,
With no controller box, the hardware is just a pile of metal with little commercial value, like
body with no brain.
Systems Lagged Behind Growth
When Robotics moved into hardware manufacture, Robert and Claire failed to
realise their accounting systems and credit control policies had not kept pace with
the company’s growth and new direction. Due to their lack of skill in product cost-
ing, Robotics sold a superior product for the same price as the competition. The
retail price was market not cost driven and the gross margins were mediocre.
Robert and Claire also fell into a common trap. They assumed all was well
because Robotics seemed to be making a profit, but they overlooked the key area of
working capital management. Evidence suggests many profitable businesses go
under because they neglect this issue.
Decreasing Liquidity
During the days of software-only sales, company credit policies evolved that gave
unofficial extended trading terms to the dealer network. Naturally, the dealers uti-
lised these terms when purchasing hardware. This drained Robotics of its liquidity,
because the trading terms for imported materials were either payment on delivery or
at best 30 days. Labour was paid weekly, as incurred. The company’s liquidity posi-
tion changed from a healthy cash surplus to delayed creditor payments in a space of
2 years.
Product Profitability Re-examined
The cost table shows that Robotics’ flat-bed hardware returned $7500 for every
$10,000 invested in manufacturing, or a gross margin of 42.9% on the dealer price
of $17,500. The company was drained of its liquidity because it spent $10,000
before it saw its share of profit, after the dealer received his sales cheque. For an
ongoing manufacturing operation, a gross margin of 42.9% would be considered an
adequate return. However, for a technology company needing to re-invest its receipts
back into further R&D, it left nothing for growth or working capital management.
References 95
Inefficiencies and Lost Orders
The lack of sufficient working capital created inefficiencies in the business and
resulted in lost orders. Many raw materials used to manufacture hardware were
imported, with a two-to-three-month lead-time. Without sufficient stock on hand,
Robotics was forced to order from suppliers after sales orders were received. This
created delays in delivery that intensified the working capital deficiency. In addi-
tion, the company lost orders to competition when deliveries could not be guaran-
teed within a customer’s time frame.
Search for Extra Funds
Robert and Claire believed their financial problem was only a temporary glitch and
they applied for a bank overdraft facility of $50,000. The facility had to be secured
on company assets, but because Robert and Claire had ploughed all their profits
back into the business, they had no bricks and mortar property to offer as security.
From the company’s summarised financial results, it was evident Robotics’ turn-
over had doubled in a space of 3 years, but net profit results were static and the
company’s liquidity had eroded. The bank concluded that the liquidity problems
were due to diminished owner participation and increased personal drawings. A full
examination of the company’s position was overlooked and the overdraft applica-
tion was refused.
A New Beginning
Various issues have emerged from this story and Robert and Claire have decided to
seek advice. They assumed the market knew their products, due to their reputation
of engineering excellence, but this amounts to nothing if the company is unknown.
The biggest challenge now facing Robotics is to switch direction yet again, from
a focus on design and development to management and marketing. Robert and
Claire’s business educations are about to begin.
References
Koen, P. A., Ajamian, G. M., Boyce, S., Clamen, A., Fisher, E., Fountoulakis, S., Johnson, A., Puri,
P., & Seibert, R. (2002). Chapter 1: Fuzzy front end: Effective methods, tools and techniques.
In P. Belliveau, A. Griffin, & S. Somermeyer (Eds.), The PDMA tool book 1 for new product
development. New York: Wiley.
Reboud, S., & Mazzarol, T. W. (2003). Risk assessment in SMEs, a proposed tool. Cashiers du
CEREN 4(2003), 31–45.
Santi, M., Reboud, S., Gasiglia, H., & Sabouret, A. (2003). Modèle de valorisation et de protection
intellectuelle des innovations des PEI. July, HEC/INPI, 63p.
Work Book: Disruptive Innovations
and the Commercialisation 9
of Technology

• Understand how to identify emergent, disruptive technologies.
• Understand whether ventures need to spin out new ventures or can capture
their value.
• Appreciate the pivotal role of customers.
• Understand how new ventures can ‘create new market space’.
• Appreciate how innovation management frameworks intersect and contra-
dict strategy and marketing frameworks.
• Understand how innovation occurs in products and services as well as
technology – at all stages and sizes of ventures.
9.2 Chapter Review
This chapter examines the role of innovation as a key economic driver and the nature
of radical or disruptive innovations as a major source of new technological products
and processes. It examines the theory and practice of strategic management of inno-
vation, and the generation of innovation value through the adoption of a Blue Ocean
strategy. Technological innovation involves significant improvements in product or
process performance and generally has a higher level of risk associated with it.
Historically, technology has played an important role in the success of entrepre-
neurs, but in recent decades it has accelerated in its importance.
The adoption of new technology must take into consideration both the organisa-
tional customer’s needs, and those of the individual end-user. Because radical inno-
vations frequently challenge the existing industry paradigm, it may be difficult to

https://doi.org/10.1007/978-981-13-9416-4_9
98 9 Work Book: Disruptive Innovations and the Commercialisation of Technology
get a clear market signals from end-users. New technologies must not only offer
significant improvements in performance, but may need to create entirely new mar-
kets. To secure acceptance of radical innovations, it is frequently necessary to form
strategic alliances with producers of enabling technologies.
The risks associated with the commercialisation process may require the forma-
tion of new project teams or spin-off ventures. New product development requires a
dual track approach, with technical and market analysis taking place simultane-
ously. Ultimately, the success of a new technological innovation depends on its
ability to generate above average rents, which require above average sales volume,
profit margin and a long product lifecycle.
9.3 Key Lessons
• The radical or disruptive innovations are those that produce fundamental changes
in the activities of an organisation or an industry, and represent clear departures
from existing practices. Such innovations usually lead to increasing uncertainty
within industries, and serve to transform either the firm or the industry itself.
• The United States continues to dominate the global research landscape with the
largest number of scientific articles authored or co-authored by researchers from
that country. However, other countries are rapidly emerging to challenge this
dominance. China is the most significant of these.
• Since the 1980s, the focus has shifted to the technologist-entrepreneur with
technology-driven firms emerging. Even well-established firms have focused
their resources more on finding technology-driven strategies to maintain their
competitive advantage. Firms in the low technology industries usually have little
difficulty with the management of technology, but this is not generally the case
with their counterparts in the medium and high technology areas. The two main
issues that managers must deal with are: product proliferation; and technology
substitution.
• The key to successful technology management in technology-driven firms is
good project management. Key elements of innovation management can be iden-
tified as:
1. Inputs (people, physical and financial resources, tools);
2. Knowledge management (idea generation, knowledge repository, and infor-
mation flows);
3. Innovation strategy (strategic orientation and leadership);
4. Organisation and culture (culture and structure);
5. Portfolio management (risk/return balance, optimisation tool use);
6. Project management (project efficiency tools, communications and collabora-
tion), and
7. Commercialisation (market research, market testing, marketing and sales).
• Four generic types of innovative firms have been described:
1. Technology innovators – those that introduce new generic technologies into
existing markets;
9.3 Key Lessons 99
2. Application innovators – those that apply existing technology in established

markets;
3. Market innovators – those that develop new product concepts by combining
them into existing markets;
4. Paradigm innovators – those that produce new product concepts with com-
pletely new technology.
• With application innovators and technology innovators being the oldest and larg-
est among these four groups of firms and the largest potential for growth being
found among market innovators and paradigm innovators.
• Six issues are important when considering disruptive technologies:
1. First, the pace of technological change in most industries outstrips the cus-
tomers’ ability to make use of improved versions of a product.
2. Second, higher profit margins can be secured by moving products from lower
yield markets to upmarket customer segments.
3. Third, the notion of providing incremental innovations to keep established
markets satisfied with established technologies is not a disruptive process, but
rather a sustaining one.
4. Fourth, established market players are likely to win if they choose to compete
vigorously against new entrants – even if the new entrants launch new tech-
nologies. This is due to the stronger level of resources usually available to the
established firms.
5. Fifth, disruptive technologies are often attractive to customers that are not
themselves attractive to the established market players. This allows the new
entrant firm to secure a niche.
6. Sixth, the opportunity for new growth can be found in disruptive technologies
due to the lack of interest that is often shown by established firms towards
such innovations.
• The process of developing disruptive technologies involves distinct successive
competences:
1. The ability to screen the disruptive technologies from among the field of
emerging new ideas.
2. To adequately define the significance of the disruptive technology.
3. To find a market that can adopt the innovation.
4. To locate the responsibility for the new innovation in a small, independent
organisation.
• Disruptive technologies, by nature, are unlikely to respond to traditional market-
ing approaches. Where no pre-existing market can be found for a new product or
service, the challenge for marketing is to create the market using selective strate-
gies designed to gain the most cost-effective market diffusion pathway.
• The strategy of seeking to create new value as a Blue Ocean Strategy, as opposed
to the Red Ocean Strategy where firms are competing directly one with another.
• In a Blue Ocean Strategy, four criteria need to be considered relating to what
should be raised, reduced, created and eliminated.
1. The issue of what should be raised relates to the gaps that are currently to be
found within the existing product/market offerings and what the company
might offer that would raise value for customers.
2. The issue of reducing below industry standards reflects the tendency for many
product or service offerings to be overly-complex and expensive when first
introduced.
• Several tools have been designed to better approach the management of NPD.
1. The Stage-Gate® process is a systematic step-wise approach to the manage-
ment of NPD, but also of the risk associated with commercialisation of an
innovation. It involves the movement of the innovation through a series of
stages and gates where “GO/KILL” decisions.
2. The Lean Start-Up process emerged around a cycle of Adapt-Innovate-Batch-
Grow and focuses around five basic principles: entrepreneurs are everywhere;
entrepreneurship is management; validated learning; build measure learn;
innovation accounting.
3. The Rent Model described in Chap. 8, with each of the eight innovation rent
configurations having different potential commercialisation pathways. The
more disruptive the innovation the more challenging these issues become.
1. Critically assess the argument outlined by Bower and Christensen (1995) in their
paper on disruptive technology. Do you agree that new market space can be cre-
ated by focusing on disruptive rather than sustaining innovations? And, what
application do the theories of Kim and Mauborgne (1999) have in guiding this
process?
2. If the securing of above average RENT is the key focus of a new innovative tech-
nology, what should a technopreneur from a small high technology firm consider
when assessing the merits of their proposed innovation? Discuss with reference
to the RENT model outlined in Chap. 8.
Read the Davies Craig EWP case study, which provides an example of a new tech-
nology seeking to achieve commercialisation. Once you have read the case, and
reviewed the contents of this chapter, you should then answer the following
questions.
Questions/Tasks
1. What were the key technical and marketing problems facing Davies Craig in try-
ing to commercialise this product?
9.6 Case Study: Davies Craig EWP 101
2 . Try to classify the EWP against the RENT model, and define its type.
3. You were asked to provide advice to Davies Craig for developing a commerciali-
sation strategy drawing on the concepts outlined in this unit, what key issues
would you focus on?
9.6 Case Study: Davies Craig EWP
By: Tim Mazzarol

Australian company Davies Craig Pty Ltd. developed the electric water pump
(EWP) to replace existing belt-driven pumps. The new pump offers enhanced power
and improved cooling. The new pump can be retro-fitted to almost all cars, trucks,
buses and boats. The company was the originator of electric radiator fans into
Australia and the US during the 1970s, and developed the EWP at a cost of $1.2
million (see Fig. 9.1).
Solving the Problem of Engine Overheating
According to Davies Craig Managing Director Richard Davies, the problem with all
existing mechanical water pumps is that they are slaves to the engine speed and run
when not required. They also reach very high speeds when the engine is accelerat-
ing through the gears and reduce the power available to the drive wheels. Mechanical
pumps also operate poorly when the vehicle is stationary or idling, particularly in
high ambient temperatures. Coolant flow rates drop significantly, and power to the
pump increases due to higher flow resistance in the radiator.
The Davies Craig electric pump operates at its maximum efficiency design rate
of 80 l/min when the full 12 volts is applied to its motor. However, in most situations
Fig. 9.1 The Davies Craig

electronic water pump.
(Source: Davies Craig
2003)
even that rate is more than necessary, so the system is fitted with an electronic con-
troller that senses the engine temperature and varies the pump speed to precisely
control the set temperature. Power usage for the EWP is much lower than for con-
ventional pumps.
The EWP as an After-Market Solution
The EWP can be retro-fitted to any existing vehicle for around $280 by cutting a
section of the lower radiator hose out and inserting the pump. The engine thermostat
is removed and the EWP acts as the thermostat. According to Richard Davies:
The pump conversion kit and the smart controller option will both carry a two-year war-
ranty. The modification involves removing the mechanical pump, pulling off the impeller
from the pump shaft, and re-installing the mechanical pump housing and its belt. Now the
pump is an idler pulley doing no work and causing no drain on the power to the wheels.
Alternatively, you can just delete the water pump pulley from the belt system.
Racing Cars as an Initial Early Adopter
The first niche market secured by Davies Craig was the racing industry. High per-
formance racing car owners were keen to adopt any innovation that might boost the
power output from their engines. Such customers were also not price-driven, and
were used to adopting new technologies to achieve a competitive edge. As Richard
Davies explains:
Drivers will notice an improvement in acceleration and performance, especially in the top
rev range, and a better control of engine temperature along with an increase in cooling
capacity and a fuel saving – especially when high speed cruising and in the city. A five-litre
V8 engine could produce an extra 8% to 10 % power at the drive wheels. Maximum engine
speed is increased and automatic gear changes are sweeter.
But the biggest boon will be to engine life because the electric pump can be programmed to
run on after a hot engine shut down for less than a minute, which is more than enough to
wash out built up heat from the engine block.
Vintage Cars as Another Niche Customer
Another target customer was owners of vintage cars, which tend to overheat on hot
days. These owners are less motivated by power output than the desire to protect
their valuable engines from damage. Like racing car owners, they are not price
driven. According to Richard Davies:
Demand for the pump is expected to come from performance, off road and vintage vehicles
with overheating problems. Owners of vintage cars, which tend to overheat on hot days, are
9.6 Case Study: Davies Craig EWP 103
set to benefit greatly from the EWP. They will be able to add the pump to the existing sys-
tem to supplement cooling and protect precious vintage engines.
The pump motor of the EWP has enough torque for the impeller to crush rust
particles found in some old engines. The unit will withstand heavy salt road spray,
but total immersion – such as in a river crossing – should be kept to a minimum
unless the motor is sealed.
Offering Superior Performance
As shown in Fig. 9.2, the performance improvements offered by the new Davies

Craig EWP had to be significantly greater than those offered by existing belt-driven
water pumps. The low cost and high reliability of the conventional belt-driven sys-
tems had to be offset by the new technology for it to be considered worth spending
the additional money on. The performance improvement trajectory of the EWP had
to be at a rate higher than the anticipated incremental performance enhancement of
existing technologies.
The decision to select the vintage and racing car target markets enabled Davies
Craig to find potential early adopters who found the EWP system’s benefits of
greater value than any potential cost associated with the replacement of existing
technologies and the disruption this would cause.
Because electric water pumps are new and have no established reputation in the
market, Davies Craig has ‘over-engineered’ the pump to prove its reliability. It can
Fig. 9.2 The Davies Craig EWP market assessment

withstand the harshest operating conditions and coolant types. Weighing only 800 g
and using only 6 amps of power, the device can operate in temperatures ranging
from −26 to 140 °C, and pressures of 50 psi. According to Richard Davies:
We cannot afford to have one pump fail in the heat of battle. The way technology is explod-
ing in the auto industry these days, it may be only ten years before most cars have electric
water pumps.
References
Bower, J. L., & Christensen, C. M. (1995). Disruptive technologies: Catching the wave. Harvard
Business Review, 73(1), 43–54.
Chan Kim, W., & Mauborgne, R. (1999). Creating new market space. Harvard Business Review,
77(1), 83–94.
Davies Craig Pty Ltd (2003). www.daviescraig.com.au company website.
Work Book: Screening Opportunities
and Assessing Markets 10

• Understand the main causes of innovation failure.
• Understand the importance of listening to the voice of the customer.
• Understand the fundamentals of the customer discovery and validation
processes.
• Be able to develop a customer archetype and customer value proposition
(CVP).
• Appreciate the need to keep the NPD and CVP processes closely
connected.
• Understand the factors likely to erode the sales, profitability and lifecycle
of an innovation.
• Be aware of the main tools and techniques that can be used to screen
opportunities and assess markets during the NPD and commercialisation
process.
10.2 Chapter Review
This chapter examines the process of screening opportunities for new product devel-
opment (NPD), and the importance of undertaking detailed market assessments of
the customers’ needs and wants. It discusses the use of a range techniques and asso-
ciated concepts including voice of customer, quality function deployment (QFD),
Kano analysis, CAGE modelling, customer archetyping, product concept develop-
ment, and product-technology road mapping. The chapter also provides an

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106 10 Work Book: Screening Opportunities and Assessing Markets
overview of how this screening and market assessment process can be undertaken
with reference to many of the concepts covered in Chaps. 7, 8 and 9.
10.3 Key Lessons
• There are at least six common causes of failure in the management of NPD and
commercialisation projects: (i) failure to anticipate and act with sufficient speed
to changes in the external market and industry environment; (ii) failure to develop
appropriate product development road maps and project management systems;
(iii) failure to develop coherent business models; (iv) failure to secure technol-
ogy leadership; (v) failure to secure product leadership; and (vi) failure to gain
access to the market. We discuss each of these issues in the following sub-
sections as they provide a useful starting point for understanding why some firms
fail to adequately screen opportunities and assess markets.
• The customer development process involves an initial search phase followed by
an execution phase. The project team must first go through a stage of customer
discovery to develop theories about the customer’s needs and wants, then test
these theories, develop a minimum viable product (MVP), test it with early
adopters, and use this to validate or refute their theories. Depending on the results
they will need to either pivot or persevere.
• Customers’ willingness to adopt a new innovation are likely to be influenced by
five factors: (i) the relative advantage that it offers over existing solutions; (ii) its
compatibility with existing technologies; (iii) whether or not its complexity
makes it difficult to employ; (iv) whether it can be trialled prior to adoption, and
(v) how observable its benefits are. In addition, customer will be influenced by
their awareness of the new product, as well as its attractiveness, affordability,
availability and accessibility.
• Developing a customer archetype involves seven stages:
1. Segment the target market.
2. Define the customer problem.
3. Define the customer type.
4. Identify the customer’s wants & needs?
5. Assess how the customer can benefit from the product?
6. If an organisational buyer, prepare organisational and customer influence
maps.
7. Review the Business Model Canvas.
• A customer’s perception of value is a trade-off between their perception of the
benefits a new product or service offers, against the perceived sacrifices that they
must make to acquire it. Customer perception of value is complex and relative.
Factors likely to influence the CVP are the attributes, benefits and costs of the
new product or service.
• The process of listening to the voice of the customer (VOC) is a fundamental part
of any NPD process and has been built into a range of systematic approaches
used widely by large firms. These were initially developed in Japan in the 1950s
as part of the total quality management (TQM) systems, but are now used glob-
ally. They include:
1. Quality Function Deployment (QFD) – a process of integrating marketing and
R&D technical activities throughout the NPD process. This includes the
House of Quality analysis to trade-off VOC customer feedback against techni-
cal and product design attributes to generate an optimal final product.
2. Kano model analysis – developed by Professor Kano from Tokyo University,
this model maps a product or service’s attributes on the dimensions of high-
low technical performance versus high-low customer satisfaction. It identifies
features and attributes that are basic must-be present but not offering any
satisfaction; attractive, and able to offer a high satisfaction if present, plus
those that satisfy when present and dissatisfy when absent, as well as those
that the customer is indifferent about.
3. VOC CAGE Model – this model maps the attributes that are obtained from
customer research and examines them against the attributes the design team
has already identified, placing them into the givens that must be present, while
identifying opportunities for new exciting features and attributes.
4. Many techniques can be used to undertake VOC research. They include focus
groups, in-depth interviews, brainstorming, ethnographies, collaborating with
lead customers and crowdsourcing. Analysis of data collected can be under-
taken with techniques such as affinity diagrams.
• The Stage-Gate® approach to NPD involves an initial discovery stage that builds
on ideas that have emerged from the fuzzy front-end and progressed through the
idea screen. They are subject to preliminary technical, market and financial
assessments, before being scoped into business case. Here the product design
and definition work are undertaken, which considers all the major features and
attributes that market research has indicated will provide an attractive CVP.
• Once the product definition phase is complete the go to development phase of the
NPD process continues and a product-technology road-map should be devel-
oped. This provides a visual mapping, using a Gantt Chart, that shows the con-
current development time-lines for the R&D, IP rights, technology, product and
market activities required to achieve commercialisation.
1. Review the main causes of failure in the process of commercialisation identified

by Deschamps (2017). Research examples of product failures and consider if
they demonstrate evidence to support his views. What should managers of busi-
nesses engaged in or wishing to undertake new product development (NPD) and
commercialisation do in order to avoid falling into these traps?
2. Read York and Danes (2014) paper and the summary of their work (see

Table 10.5 in chapter 10). Review the material outlined in chapter 9 relating to
the different approaches to screening opportunities and assessing markets, as
proposed by the Customer Development (CD) (Blank and Dorf 2012), Fuzzy
Front-End (FFE) (Koen et al. 2002), and Stage-Gate® NPD processes. Draw up
a list of the similarities and differences between these approaches, and try to
summaries a best-practice model drawing together the strengths of all three.
The purpose of this assignment is to assess your understanding of the theory and
practice of new product development (NPD), in particular the Stage Gate process of
NPD outlined by Robert Cooper and Scott Edgett (Cooper 2006, 2008, 2017, 2019;
Cooper et al. 2008). According to the Chairman of Proctor & Gamble:
… Innovation is a prerequisite for sustained growth and no other path to profitable growth
can be sustained over time. Without continual innovation, markets stagnate, products
become commodities and margins shrink.
However, although new products account for as much as 50% of annual profits,
and two thirds of all sales in some industries, the success rate of many new products
is poor.
Using the text and other reading material that you can source, undertake a critical
review of the theory and practice of NPD with particular attention to its application
to small and large firms.
Write a research paper of around 2500 words and address the following issues:
• Discuss the theoretical foundations of the new product development (NPD), e.g.
Stage-Gate® process.
• Discuss the application of NPD processes to SMEs and large firms.
• Access the role played by the NPD process in commercialisation.
• Provide a critical analysis of the Stage-Gate® process.
• Support your research by providing evidence from academic literature sources.
Read the case study Nokia Sell’s Out, which tells the story of how Finland’s Nokia
Corporation grew into the world’s leading mobile telephone manufacturer, only to
be impacted by the entry of Apple and the iPhone into the market. The case provides
lessons for how even the most successful and global firms, can quickly find them-
selves in trouble by failing to adequately screen opportunities and assess the trends
that are taking place within their markets. This can be particularly the case where
technological change disrupts the status-quo within an industry or market.
Having read the case study below, reviewed the contents within this chapter, and
the material, particularly from Chaps. 6, 7, 8, and 9, address the questions below.
10.7 Case Study: Nokia Sells Out: The Rise and Fall of Nokia Mobile Communications 109
Questions/Tasks
1. Deschamps (2017) suggests that the majority of failures in the management of

innovation within large firms can be attributed to at least six “classic root causes
of innovation failure.” What are these causes, and how were Nokia’s problems
caused by them?
2. With reference to the Huijser innovation success formula, explain the probability
of Nokia achieving market success against Apple in the smartphone market.
3. How and why did Nokia fail to keep the alignment between their NPD and CVP
processes in relation to the smartphone?
4. With reference to the case, consider how Nokia might have avoided the problems
they experienced with their NPD process in responding to the emergence of the
Apple iPhone. In doing so make reference to the following:
• Listening to the voice of the customer and VOC research.
• Following the Quality Function Deployment (QFD), House of Quality frame-
work for product design.
• Using Kano model analysis.
• Using CAGE model analysis.
• Working systematically through the integrated product definition process (see
Figure 10.16).
• Using product-technology road-mapping.
• Applying the techniques of:
(a) New Product Development Stage-Gate®;
(b) Fuzzy Front-End (FFE), and
(c) Customer Development (CD).
10.7 C
ase Study: Nokia Sells Out: The Rise and Fall of Nokia
Mobile Communications
Author: Tim Mazzarol (Mazzarol 2013)

In June 2006 Nokia Corporation was the world’s leading manufacturer and sup-
plier of mobile phones. The company was viewed as the market leader in mobile
telecommunications. Nokia’s strategic vision had seen it grow within a period of
14 years from a relatively small diversified electronics manufacturer based in
Finland, into a multinational company. However, by February 2013 Nokia had sold
its mobile handset business to Microsoft and essentially exited from the mobile
phone market. What happened?
Nokia’s Rise to Global Dominance
The origins of Finland’s Nokia can be traced back to 1865 when the company was
founded by Fredrik Idestam and Leo Mechelin as a pulp and paper manufacturing
business near the town of Tampere, then part of the Russian Empire. By the 1870s
the company was engaged in the generation of hydroelectricity and by the early
twentieth century it was a major producer of rubber products and cables for tele-
phone, telegraph and electricity. This latter opportunity emerged from the compa-
ny’s ability to provide the rubber insulation required for these products.
During World War I Nokia supplied rubber boots and telephone cables to the
military, but was nearly bankrupt by the 1920s. It was subsequently restructured and
continued to supply military contracts during World War II. After that war Nokia
supplied cables to the Soviet Union as part of Finland’s war reparations. This helped
Nokia to develop its product portfolio to include paper products, car and bicycle
tyres, footwear (rubber boots), communications cabling, television sets, electricity
generating equipment, personal computers, other consumer electronics and military
communications systems.
By 1967 Nokia Corporation was a diversified industrial conglomerate in which
each strategic business unit had its own Managing Director who reported directly to
the Corporation’s President Björn Westerlund. Its foray into electronics had com-
menced in 1960 under his direction when he was MD of the cable works division.
During the 1970s Nokia began to develop its competence within the telecom-
munications sector. This initially took the form of the DX200, which was the world’s
first digital phone switching system. Then in 1972 the first mobile phone system
was produced as part of an order from the Finnish Army.
Throughout the 1980s Nokia expanded under CEO Kari Kairamo, but by the end
of that decade it was once again experiencing problems. The company was facing
significant financial losses, particularly in its television manufacturing division and
the corporation was viewed as having diversified too much. So serious was the pres-
sure that Kairamo committed suicide. He was replaced by Simo Vuorilehto who
served as both Chairman and CEO.
Under Vuorilehto the company was significantly restructured. In 1988 Nokia
divested itself of its tyre division, Nokian Tyres, and by 1990 the Nokian Footwear
business was also divested. A severe recession hit Finland in 1990–1993 and the
Nokia television and personal computer divisions were then sold.
However, the real change took place in the 1990s with the appointment of Jorma
Ollila as Nokia’s CEO in 1992. Ollila made the decision to focus Nokia’s business
strategy entirely on mobile telecommunications. This required the company to sell-
off all its business units that had no part in this future direction. Throughout the
1990s Nokia shed its rubber, cable and consumer electronics divisions despite their
long-term relationship with the company.
A key part of the strategy set by Ollila was to ride the wave of mobile telecom-
munications that he could see would become a growth industry in the coming
decades. His vision for this was articulated by Nokia within their vision statement:
“Voice Goes Mobile”. This was corporation’s guiding strategic direction through-
out the 1990s.
Nokia’s vision statement reflected the anticipated trend for telecommunications
to move from fixed to mobile lines. However, this new strategy was risky. Nokia was
putting all its fortunes into the mobile telecommunications basket, which was a
market space that was already attracting major competitors such as Ericsson and
Motorola.
Over the decade that followed Nokia’s risky strategy paid off handsomely. By
2004 Nokia had secured a key place in a global market with over 1.6 billion phone
subscriptions. There were more mobile phones than fixed lines and many develop-
ing economies such as China and India were major growth markets. As Nokia
looked at the future of its markets the outlook was very optimistic:
Growth is being driven by the ongoing boom in new subscribers in Latin America, Russia,
India and China, as mobile communications continue to become more affordable and
widely available. We expect growth in these markets to be a main driver for global mobile
subscriptions, reaching approximately 2 billion users by the end of 2005 and approximately
1 billion users by 2010. (Nokia 2004)
Life Goes Mobile
In 2006 Ollila left Nokia to take up the helm of Royal Dutch Shell. His replacement
was Olli-Pekka Kallasvuo. However, before leaving the company Ollila refocused
Nokia’s vision to “Life Goes Mobile”. This took place in 2004 as part of a major
corporate restructure of the company’s networks and equipment division, responsi-
ble for the mobile phone infrastructure (e.g. towers and base stations). This division
was eventually merged with Germany’s Siemens in 2006 to form the world’s third
largest “networks” business.
This change of vision reflected the convergence of voice-based mobile commu-
nications with the new data-driven applications including multimedia, online ser-
vices. Nokia was already actively engaged in this market and had equipped its
phones with high quality cameras and other multimedia technologies. The company
was clearly anticipating that the future would be focused on the “smartphone”, as
stated in the company’s reports:
A smartphone is a new category of mobile device that can run computer like applications
such as email, web browsing and enterprise software, and can also have built-in music play-
ers, video recorders, and other multimedia features.
The global smartphone market is expected to grow from around 22 million units in 2004
to more than 50 million units in 2005 and represent approximately 25% of the total global
mobile device market volume in 2008. Some of these markets overlap with each other. In
the longer term, we believe that applications such as music, mobile games and mobile TV
will be taken widely into use. (Nokia 2004)
Nokia’s strategic planning could foresee the emergence of the multimedia smart-
phone. It also recognised that such technological convergence was likely to lead to
a fundamental shift in the overall structure of the industry. This would see mobile
communications, information technology, media and consumer electronics indus-
tries converging together. There was also recognition that the mobile phone was
going to be a point of convergence for email, web browsing, and music downloads,
radio, cameras, wireless LAN, Bluetooth and other technologies. However, the
challenge for Nokia was to develop a strategy to maintain its competitive edge.
Enter the iPhone
During 2006 a group of Nokia managers were engaged in a strategic management

training program run by UWA Business School in Tokyo. They were discussing the
process of strategic change in their industry and the instructor asked them to con-
sider future trends created by the convergence of voice and multimedia technology.
At the time their main competitors were Motorola and Ericsson.
The managers discussed the problems facing Nokia with their Symbian operat-
ing system (OS). This was a reliable and proven software platform for mobile tele-
phony. However, it lacked many of the features needed to truly embrace the full
multimedia future. Then one manager – an American – made the observation:
One day someone will put an aerial in an iPod and then it will be game over.1
The following year Apple launched its iPhone and Nokia’s position in the mobile
telecommunications market began to slip. The rise and rise of smartphone technol-
ogy left Nokia without the leadership position that it had once enjoyed.
Caught in a catch-up mode Nokia fought back with new products such as the
Lumia 520. However, the growth of Apple’s iPhone market share continued to rise
from its launch in 2007. By 2008 it was being sold globally and the number of
iPhones sold per annum grew from 1.46 million in 2007 to over 125 million by
2012. Other competitors such as Samsung and HTC also entered the smartphone
market using Google’s Android OS.
One of the problems facing Nokia was that its Symbian OS was not designed to
handle the multimedia environment that the smartphone market required. This was
also a problem for Blackberry and the other former key competitors Ericsson and
Motorola. Apple’s iPhone began to erode the markets for these products, including
Nokia’s premium brand Vertu.
In 2007 Nokia’s leading smartphone product was the N95, a multimedia phone
of high quality that contained a Zeiss 5-megapixel camera and a larger colour
screen. However, the N95 was still a slide phone with keys and lacked the smooth
simplicity of the iPhone. In 2008 Nokia launched the N8500 with a touch screen and
enhanced camera and music/media features. In 2010 the Nokia N8 was released
with a 12-megapixel autofocus lens and a Symbian3 OS. This touchscreen smart-
phone offered many of the features of the iPhone in look and functionality. However,
it was still not able to recover the lost ground.
During 2008 Nokia announced to its shareholders that it was to focus away from
mobile communications and onto the internet. It described Apple, Google and
Microsoft as not being “natural competition”, but “major important players to deal
Personal experience of the author.

1
with” (Kallasvuo 2008). However, by the end of that year Nokia had ceased mobile
phone sales in Japan (a market in which it never had a strong market share), although
it continued to maintain R&D centres in that country.
In 2009 Nokia sold its network security business to Israel’s Check Point Software
Technologies Ltd. By February 2012 Nokia commenced laying off over 4000
employees as it shifted manufacturing from Europe to South America and Asia. In
2010 Google’s Android OS was adopted by both Samsung and Sony Ericsson leav-
ing Nokia as the only manufacturer still using the Symbian OS.
By 2011 Nokia was aware that its Symbian OS was no longer able to support the
smartphone market. Further, Nokia was unable to compete with the additional mar-
ket benefits offered by Apple via its iTunes App store and the smooth connectivity
between the iPhone and other Apple computer products such as the iPad. Nokia had
already started to offer non-Symbian OS platforms such as the Linux-based Maemo
OS. It also sought to offer content and applications via its Ovi online store.
Enter Microsoft
The open source community-driven Maemo OS was subject to market adoption

issues and in 2010 Nokia joined with Intel to create the MeeGo OS. This merged
Maemo with Intel’s Moblin OS. Yet by early 2011 Nokia’s CEO Stephen Elop
announced that both Symbian and the MeeGo OS would be replaced with Microsoft’s
Windows Phone OS for all Nokia’s smartphones.
Mr. Elop had previously been a senior manager with Microsoft where he had
headed up their business division with responsibilities for MS Office and other
products. Elop was a Canadian and the first non-Finnish CEO Nokia had appointed.
He had replaced Kallasvuo in 2010. As a result of his appointment Nokia reduced
its expenditure into R&D and focused on providing support to the Microsoft
OS. This also led to Ovi becoming absorbed into the Microsoft Windows Phone
Store and Bing became the primary online search engine for all Nokia
smartphones.
However, these changes were not embraced by the public. In 2012 Nokia’s share
price fell by around 14% and its smartphone sales collapsed, despite the fact that
they had previously been recovering. From the start of 2011 through to its sale of its
mobile phone business to Microsoft in early 2013 Nokia’s market share plummeted.
Where it had once been the world’s market leader in mobile phones it was now in
10th place and falling.
The alliance with Microsoft was intended to build synergies that would allow the
two companies to compete with Google’s Android OS and Apple’s iOS. Yet the
decline of Nokia’s Symbian OS smartphones had taken place so rapidly during 2011
that Apple’s iPhone product had taken over as the market leader. The net impact on
Nokia from a financial perspective was significant. Profits fell and the company
posted losses of around €368 million in 2011. Throughout 2011–2013 the company
continued to shed around 24,000 workers across its global operations.
When Moody’s downgraded its shares to “junk” status in mid-2012 CEO Elop
was forced to admit that the company had failed to foresee the rapid changes that
would take place in the mobile phone industry. The new Lumia range of smart-
phones with the Windows Phone 8 OS was released in 2012 in an attempt to turn
around the company’s fortunes, however it was not enough. Nokia’s operating loss
for the second quarter 2013 was €115 million and sales were falling. The company
had incurred combined operating losses of around €4.1 billion in the previous
2 years.
Exit Nokia
These financial and market pressures led Nokia to its final decision to sell out is
mobile phone business to Microsoft at a bargain price of $7.2 billion (Kuittinen
2013). The deal saw the transfer of around 32,000 Nokia staff, including Mr. Elop,
into Microsoft. Nokia was also bound by a non-compete clause enforceable to 2015.
Shortly after joining Nokia 3 years earlier Elop had circulated an internal memo –
subsequently leaked – that described the situation at the company as like a person
standing on a burning oil platform. His reference to “platform” was interpreted as a
reference to the firm’s Symbian operating system or platform.
His decision to axe the Symbian OS and replace it with the Microsoft system has
been viewed by some as little more than a “Trojan Horse” strategy contrived by
Microsoft. Although Nokia’s share price fell by 85% under Elop, he was rumoured
to be a favourite for the CEO role at Microsoft to replace Steven Ballmer who
announced he was leaving the company in 2014.
References
Blank, S., & Dorf, B. (2012). The start-up owner’s manual: The step-by-step guide for building a
great company. Pescadero: K&S Ranch Publishing.
Cooper, R. G. (2006). Formula for success in new product development. Marketing Management,
15(2), 18–24.
Cooper, R. G. (2008). The stage gate idea-to-launch process update, what’s new and NexGen sys-
tems. Journal of Product Innovation Management, 25(3), 213–232.
Cooper, R. G. (2017). Idea-to-launch gating systems: Better, faster and more agile. Research
Technology Management, 60(1), 48–52.
Cooper, R. G. (2019). The drivers of success in new-product development. Industrial Marketing
Management, 76(1), 36–47.
Cooper, R. G., Edgett, S. J., Kleinschmidt, E. J. (2008). Portfolio management for new prod-
uct development: Results of an industry practices study. www.stage-gate.com, Product
Development Institute.
Deschamps, J.-P. (2017). Classic root causes of innovation failures – things we all know but some-
times forget. In N. Pfeffermann & J. Gould (Eds.), Strategy and communication for innovation:
Integrative perspectives on innovation in the digital economy (3rd ed., pp. 41–60). Cham:
Springer.
Kallasvuo, O.-P.. (2008). Nokia annual general meeting. Helsinki Fair Centre, presentation by
Nokia CEO Olli-Pekka Kallasvuo, 8 May 2008.
References 115
Koen, P. A., Ajamian, G. M., Boyce, S., Clamen, A., Fisher, E., Fountoulakis, S., Johnson, A., Puri,
P., & Seibert, R. (2002). Chapter 1: Fuzzy front end: Effective methods, tools and techniques.
In P. Belliveau, A. Griffin, & S. Somermeyer (Eds.), The PDMA tool book 1 for new product
development. New York: Wiley.
Kuittinen, T. (2013). Nokia sells handset business to Microsoft at a shockingly low price, Forbes 9
February [available online] www.forbes.com
Mazzarol, T. (2013). Nokia sells out – case study. Perth: UWA Business School.
Nokia (2004). The mobile device market. Nokia Corporation Vision and Strategy, www.nokia.com
York, J., & Danes, J. (2014). Customer development, innovation and decision-making biases in the
lean start up. Journal of Small Business Strategy, 24(2), 21–39.
Work Book: Team Building, Company
Leadership and Strategic Alliances 11
• Examine the role of advisory and management boards.

• Understand the importance of corporate governance.
• Understand the importance of team building for venture growth.
• Recognise the different leadership styles required within innovative and
entrepreneurial ventures.
• Understand the relationship between innovation and culture.
• Understand the important of strategic partnering and how to manage stra-
tegic alliances.
• Understand how to conduct a risk assessment of a venture.
11.2 Chapter Review
This chapter provides an overview of some of the elements associated with team
building and leadership with entrepreneurial companies. The importance of assem-
bling a well-balanced management team with a complimentary range of skills is
highlighted. This management team should be supported by a competent manage-
ment board made up of individuals who compliment the executive management
team and assist in providing strategic guidance. In establishing a board of gover-
nance, care should be taken to get a good cross-section of members who can work
together, and to avoid individuals who might wish to pursue narrow interests, inter-
fere too much with the operational management, or see board membership as a
‘second job’.

https://doi.org/10.1007/978-981-13-9416-4_11
118 11 Work Book: Team Building, Company Leadership and Strategic Alliances
How the company is structured is often critical to success. Entrepreneurial firms

should have strong values, a commitment to quality, a willingness to make flexible
changes, and strong working relations between employees and the senior manage-
ment. Team building is crucial to success and should involve understanding the
intellectual skills of the team and how to combine these effectively for the benefit of
the entire organisation. Successful entrepreneurs hire good people and seek to
develop their potential, adapting the organisation’s structure as the business grows.
The entrepreneurial manager will need to employ both a transactional leadership
style to ensure that projects are completed and quality is maintained, but also a
transformational leadership style for innovation and change. Different leadership
styles will be required depending on the situation in which the venture and its
employees are found.
It is also necessary to establish strategic partnerships with leading customers, key
suppliers or other third-party organisations. Entrepreneurial managers must learn
how to manage strategic alliances and control risk via techniques such as portfolio
analysis, AS4360 and technology project risk models. For example, decision tree
models can be useful to help guide stage-gate project management and ‘go/kill’
decisions during the NPD and commercialisation process.
11.3 Key Lessons
• Venture capitalists want to see a well-balanced team with the right combination
of skills that can represent the seven management functions: (i) marketing and
sales; (ii) general management; (iii) operations management; (iv) personnel
management; (v) research and development; (vi) legal and taxation, and (vii)
financial management.
• For the smaller firm, it is usually impossible to assemble all these various man-
agement competencies in the three to four key people who will comprise the
executive management team. It is probably best to focus on the sales and market-
ing, financial control and operations management areas as a priority.
• Fast growth CEOs usually make their decisions with the concurrence of top man-
agement teams and consistently utilise their boards in making strategic deci-
sions. They also balance the number of management levels to the number of top
managers. Finally, they tend to prioritise developing the functional areas of
finance, marketing and operations.
• For small firms the challenge is to attract and retain high calibre people when
budgets preclude paying high salaries and when the size and market profile of the
firm is low and such people are often aware of their talents and selective about
the organisations for which they work.
• Small firms seeking to attract such high-level people may be able to appeal to
them on a different level – such as offering them the opportunity to play the role
of mentor. Offering such people equity is another strategy that can be used,
although care needs to be taken not to create a confusing share register that might
prove detrimental in subsequent capital raising activities
11.3 Key Lessons 119
• Five typical ‘renegade’ types of board member can be identified:

1. Retired and looking for work (e.g. retired former CEO who still hankers after
the challenge of running a company, may also slow down the decision making
at the board by wanting to discuss issues in depth).
2. The knowledge expert (often a functional specialist such as an accountant or
lawyer. They are prone to becoming passionate about areas within their pro-
fessional field of expertise).
3. The ‘C’ performer (This person is usually poorly prepared for each board
meeting and can waste everyone’s time asking basic questions they should
have noted in the pre-reading).
4. Special interest flag bearer (This refers to the person who joins a board to
follow a personal, political or social agenda. Such individuals may be difficult
to deal with as they often have strong political skills and may speak well and
enjoy community support).
5. New board member (A newly-appointed member of the board can also
become a renegade if they are captured by a factional group within the board
in order to secure their vote).
• Selection should be based on the ability of board members to provide the com-
pany with particular skills or expertise, and not because of mate ship, personal
references or personality.
• The major traps that teams can fall into are group thinking, poor individual per-
formances and siloing. An impatient senior management looking for fast results
can often impact negatively on a team’s performance. Political meddling and the
excessive centralisation of power and authority away from the team, denying
them sufficient autonomy will also impact negatively.
• A transactional leadership style is one in which the manager focuses their team
members on the completion of tasks to expected performance levels. Three com-
ponents of transactional leadership have been identified: (i) contingent reward;
(ii) active management-by-exception; and (iii) passive management-by-
exception. Transactional leadership is important when the tasks are routine and
the focus is on the implementation of a plan and/or the maintenance of quality
standards.
• For change to occur, the manager must display a transformational leadership
style in which they lead change. Four key elements that make up the transforma-
tional leadership style have been listed (the 4 I’s): (i) idealised influence; (ii)
inspiration; (iii) intellectual stimulation; and (iv) individualised consideration.
• Situational leadership is a contingency model that recognises the leader exists
within a given context or organisational situation: (S1) is a directing style (focus
on giving subordinates clear instructions; called telling); (S2) is a coaching
style(the leader explains what needs to be done and why; called selling; (S3) is a
participation style (share ideas and reach decisions via mutual agreement); (S4)
is a delegating style (the leader delegates authority to their team for all
decisions).
• When a business is small, the entrepreneur can employ a directing style of lead-
ership, however, as the business grows the entrepreneur must learn how to
transfer knowledge from themselves to their employees. This requires the shift
towards a coaching style of leadership.
• Creating a partnership with another organisation is a complex process in itself.
Many partnerships are formed where neither party has any experience in this
process, especially on the side of the new venture entrepreneur. There must be a
good fit of business strategies of both partners; available resources should com-
plement each other, as an overlap in resources can easily threaten the job security
of existing staff and seriously disturb overall staff morale.
• During partnership formation, partnerships need clearly defined strategic, opera-
tional and business goals as well as an accurate mutual understanding of each
partner’s strengths and weaknesses. Staff personnel should be briefed as to the
history, goals and value of this relationship. The ownership of intellectual prop-
erty must be clearly defined. Prudence requires that exit strategies be written into
partnership agreements.
• During the ongoing relationship, a partnership is a process and should be man-
aged. Partnering is highly people-oriented. The loss of a key person can be trau-
matic. Cooperation involves each partner adapting to the other’s operating style.
Senior management commitment and the early inclusion of key groups in the
planning process can counteract the corporate ‘immune response’.
• One of the most significant strategic partners for a small, entrepreneurial firm
engaged in the commercialisation of innovation is the leading customer or lead
user
1. Using evidence from your own work experience and environment, identify
examples of intelligence (IQ), emotional intelligence (EQ) and implementation
intelligence (Imp Q). How well-balanced is your own organisation in relation to
these three types of intelligence?
2. Critically assess your own ‘meta-abilities’, writing down what you see as your
strengths and weaknesses. How important do you feel such ‘meta-abilities’ are
to being a successful manager?
3. Within your group, discuss how each of you might contribute to a well-balanced
management team. What areas are your strengths and what are your weaknesses?
(Considering both technical skills and ‘meta-abilities’.)
For your final journal entry, comment on the following:
1. What have you learnt during the reading of this book, both about yourself and
about the nature of entrepreneurship and innovation?
11.7 Case Study: AQ2 Smartaflow 121
2. Have any changes occurred since Chap. 1 in terms of your own perceptions of
whether you might seek to be more entrepreneurial or innovative?
11.6 Case Study
Read the AQ2 Smartaflow case study, which provides an example of a new technol-
ogy seeking to achieve commercialisation. Once you have read the case and exam-
ined it against the contents of chapter 11 and other chapters in the textbook, you
should then answer the questions that follow.
Questions/Tasks
1. Examine the organisational structure of AQ2 and try to draw up an organisation

chart of the company. Then discuss how leadership is distributed within the busi-
ness. Is there evidence of a well-balanced team having been created that can
commercialise the Smartaflow Chlorisafe technology?
2. What leadership roles do Chris Speight and Steve Brown have within the com-
pany, and would their leadership styles need to be different in order to fulfil these
roles? Explain with reference to leadership theory.
3. Discuss the way in which AQ2 has used strategic alliances and leading custom-
ers in its commercialisation process. What does this case teach you about the role
such alliances and lead users play for a small innovator firm?
4. How might AQ2 employ the concepts of risk management outlined in this chap-
ter in their commercialisation of the Smartaflow Chlorisafe technology?
11.7 Case Study: AQ2 Smartaflow
By: Jackie Wong

AQ2 Pty Ltd. is a young start-up company in Western Australia that manufactur-
ers the ‘Smartaflow’ hypochlorinator, a breakthrough industrial invention for the
drinking (potable) water disinfection industry that is suitable for use in small and
remote towns with populations of less than 1700. The product comes in three varia-
tions – C-type (Chlorisafe), U-type and T-type systems. The systems evolved from
a breakthrough pump design that solved the main problems of using aqueous sodium
hypochlorite (liquid chlorine) for water treatment. The pump was later combined
with other innovative features and developed into an integrated system that signifi-
cantly resolved safety issues and fulfilled legislative requirements in aspects which
traditional water treatment methods had ineffectively addressed. AQ2’s vision is to
provide a global market with:
A safe, reliable, accurate and low-cost water disinfection system capable of treating all
types of water, without gaseous chlorine.
In 2003, the company secured their own manufacturing facility at Katanning,

295 km south east of Perth, which ensured that the entire system could be devel-
oped, fabricated and assembled in regional Western Australia. Its business develop-
ment office, located in Perth, is responsible for sales and marketing, service and
installation functions. AQ2 currently employs eight staff, of whom four work in
research, design and product development on a full-time basis. The company is in
its early stages of commercialisation, and the majority of the firm’s financial
resources have been invested: in mechanical design and development, in protecting
its designs in the form of patents and trademarks, and in acquiring and building
manufacturing capabilities.
AQ2 was incorporated in 2000, and its gross income during the fiscal year 2002–
2003 was expected to be around $700,000. Figure 11.1 illustrates that corporate
expenditure on developing the system over the past 3 years amounts to $1.1 million.
Future investments in Figure APP.1 were projected on the premise that the company
would be able to raise the necessary funds from external equity sources, and subse-
quently the emphasis of the business would shift dramatically to focus on sales and
marketing activities. The four key factors that AQ2 will focus on for its growth are:
• market development (direct sales for domestic and licensee acquisitions for
export markets);
• product improvement (re-design);
• product range extension; and
• expansion of intellectual property protection.
Fig. 11.1 Funds invested in the Smartaflow system for the last 3 years compared to expenditure
in the next 3 years. (Source: Interview with CEO Steve Brown, July 2003)
It was estimated that an investment of $200,000 would be required to develop

each market segment in terms of protecting intellectual property and implementing
marketing strategies. Approximately $800,000 would be invested in design-related
activities such as product improvement (such as re-design, and the product line
extensions), and new product development, with a further $500,000 to be spent on
promotional materials (direct mail, website, brochures and printing), and trade
advertising. At the time this case study was written, the company had managed to
raise $400,000 in funding from local investors, grants and competitions.
The initial success of the system can be indicated in its early adoption by local
water authorities, and the keen interest shown by those in other Australian states.
Enquiries for a series of trials to be arranged in the US, New Zealand and Malaysia
have indicated a strong response in potential export markets. The company cur-
rently sells directly in domestic markets, and plans to build an international pres-
ence by licensing its patented technology, which at this point is complete and
proven, with anticipated global sales to reach 3600 Smartaflow systems over the
next 5 years at an average sales value of $35,000 per unit. Based on these forecasted
sales and a gross margin of 30% or more in licence sales, the company is expecting
corporate revenues of $40 to $50 million in the next 5 years.
Going Beyond a Good Idea
Chris Speight is the engineering tradesman responsible for the invention of the
Smartaflow Chlorisafe system, and now has the role of technical director at AQ2.
Chris is regarded as an expert in water disinfection systems for small towns, and has
a background specialising in the design, installation and maintenance of water treat-
ment equipment for rural water suppliers for over 25 years. His experience working
for the Water Corporation of WA has given him a firm grounding in the technical
knowledge of water chemistry, water treatment systems, familiarity with industry
standards and legislative trends as well as the manufacture of certain repairable
components on the equipment he serviced.
The trigger for the invention resulted from Chris’ frustration with the weaknesses
of existing pump technology and from operator safety issues dealing with gaseous
chlorine. What started out as a part-time research project by a water technician,
frustrated with the inadequacies of existing technology and practices, has led to a
disinfection system set to transform small and rural town water treatment. The
design and development of the Smartaflow pump started in 1999, and the scope of
the product concept was later broadened and refined by Chris and a team of special-
ists and consultants, which subsequently evolved into the unique modular Smartaflow
Chlorisafe system.
The system is the first commercial product in the world that has managed to
solve the problem of sodium hypochlorite causing ‘vapour lock’ – or stalling – in
dosing pumps, due to gas bubbles forming during the natural decomposition of the
chemical, reducing its effectiveness in reliably disinfecting water supplies. The sys-
tem also resolves the potential of chemical exposure to the operator, in which the
patented decanting system ensures the safe transfer of chemicals from all types of
dangerous goods vessels. These two major drawbacks of sodium hypochlorite use
have led to its low adoption as an alternative to the potentially hazardous and less
cost-effective use of chlorine gas in the water treatment industry.
Recognising an Opportunity
Over the past century, gaseous chlorine has been the dominant global standard in the
water disinfection industry. The chemical is recognised as being hazardous and
threatens operator safety, as well as requiring considerable investment for infra-
structure and maintenance. Of late, due to increasingly stringent global water regu-
lations with growing demand for better water quality and a push for safer alternatives,
it seems that chlorine gas may eventually play a lesser role in disinfection at some
point in the future.
Chris recognised there was a need for an alternative in the water disinfection
market that would overcome the problems of safety and reliability. Sensing an
untapped opportunity in sodium hypochlorite, he decided to take on only part-time
employment with the Water Corporation in order to work on the project. In 1999 he
formed a private service-based company called Aquaclear Engineering, in partner-
ship with his wife Josie. Working independently and armed with personal savings of
around $10,000, he began to work on a prototype of the Smartaflow pump, pushed
forward by his gut feeling that was supported by positive early results demonstrated
by initial tests.
While working for himself, he provided services in solving some of the problems
faced by the water disinfection industry, which included projects such as the induc-
tion of a nationally-recognised chlorine gas safety training course for the Western
Australian municipal swimming pool operatives, and was involved in the early
development of a portable chlorine analyser that was later approved for monitoring
the water supply for Homebush Village during the Sydney Olympics in 2000. In
view of these activities and experiences, Chris decided to focus on:
Developing an entirely new water disinfection system capable of overcoming inherent
problems specific to the strong, decanting and metering of sodium hypochlorite.
The development of the metering pump moved further ahead in 2000, with the
approval for funding and support from a Federal Government grant known as the
Commercialising Emerging Technologies (COMET) Program. At this stage, the
company only had a provisional patent to protect the concept and a basic prototype.
Moreover, Chris says that:
Despite the inherent risks, the process started and I couldn’t turn back – and something had
to be produced.
He described the COMET process as:
Excellent in allowing us to really take a look at how we have to do it in bite sized chunks.
The funding scheme was worth around $52,000 and was managed by private
consultants. The program required Chris to go through a challenging course of
action that included:
• conducting market research and analysis,

• completing a working prototype to prove that the technology would work,
• finalising the design,
• developing an intellectual property strategy, and
• developing a business plan.
As a result, the Submerged Metering and Auto Refill Technology (SMART) sys-
tem was materialised, designed and engineered specifically for metering sodium
hypochlorite. Later that year, the prototype for the chemical decanting system was
also designed and produced. Chris knew that, in order for his product to be accepted
and thrive in a demanding and conservative market, the invention must present a
major leap in product features and benefits in order to be able to challenge the status
quo (see Table 11.1).
According to Chris, the design and performance of the Smartaflow pump and
system is ‘radically different’ from comparable products in the market, and he
recalls that:
The initial design was developed from a viewpoint that there has to be something better
than the existing designs, mainly due to the fact that they don’t meet the needs of the opera-
tors – especially from an occupational safety and health point of view … we primarily
focused on best industry practices and considered that a design, quite radical from conven-
tion, would encourage the competition to rethink and possibly improve standards in the
longer term.
Proving the Technology
The identification and involvement of leading customers is important in a firm’s

design and product development strategy.
With the relatively unknown variables that a new product presents, AQ2 had to
convince the lead user of water treatment technology, the Water Corporation, to
provide critical trials to qualify their product claims. The Water Corporation of WA
manages one of the largest water supply and distribution systems in the world, and
has sales of over $1 billion with an asset base of $10 billion. The Water Corporation
is also a major user of leading-edge technologies for water treatment and distribu-
tion in what is one of the world’s driest regions.
In 2001, the Water Corporation ordered a trial unit for field testing and bench-
marking. As the company’s first customer, Water Corp helped to identify specific
issues concerning the design and configuration of the system for which they pro-
vided engineering and technical support for assessing pump performance. These
circumstances had forced AQ2 and its staff to elevate their standards in professional
conduct and proficiency in dealing with the demands of a large corporation. Since
Table 11.1 Features and benefits of Smartaflow Chlorisafe

Features Description
Automatic vapour Two built-in mechanisms (patented) release vapour while eliminating
release vapour lock
Unlike conventional metering pumps, it is not prone to stalling when
using vaporous chemicals like sodium hypochlorite
Accurate dosing Automatic bypass value (patented) positioning ensures precise dosing
under all field and chemical conditions, even at extremely low flows
Integrated calibration An integrated device allows confirmation of dose rates and
calibration checking of ancillary equipment such as residual
analysers
The operation can be automated
Automatic decanting Eliminates suction pipes, foot values and hazardous manual
operations such as decanting chemical from the delivery container to
the local container
Protects operator from exposure to hazardous fumes
Remote monitoring, The entire system can be monitored and controlled from anywhere
logging and control via landline, mobile or internet systems. Has a built in 28-day logger
FIFO chemical storage Chemicals are consumed on a first-in, first-out basis
system Old chemical is not mixed with new and remains undiluted
A simple, powerful The system is operated by an easy-to-use controller providing
control unit manual, flow-paced or set-point modes
Workload is automatically transferred between multi-duty and
standby pumps
Low voltage Inherently safe, and can use solar or battery power
Portability Integrates pump with the chemical container
Safety Eliminates manual decanting and exposure to chemicals and low
voltage power
Versatility Can be used on all types of water anywhere
Cost effectiveness Needs only single operator and minimal infrastructure
Has zero waste
Accuracy Offers better range of dosing rates (20 times higher than existing
pumps)
Reliability Is 100% reliable with battery backup in case of power failure
then, the system had satisfied the water utility’s high standards and expectations,
and the Smartaflow system was now listed in their ‘blue book’ of approved prod-
ucts. The final report from the Water Corporation concluded that:
The unique and innovative design of the Smartaflow pump has been successful in address-
ing a number of issues relating to the dosing of sodium hypochlorite, i.e. vapour locking
and manual handling of the chemical. On top of this, the pump has been designed such that
it could be marketed as a ‘total package’ solution for small chemical dosing facilities
because the unit can be mounted directly onto the outlet nozzle of the storage container.
The Water Corporation had in total purchased and field tested an additional five
units of the system for different applications, proving the versatility of the system,
at an estimated cost of $55,000 per unit. It had also taken a role in sharing 10% of
the costs of the intellectual property licence. AQ2 then identified at least another
dozen or more potential rural districts around the state that would require the
Smartaflow system. As yet, there were more than 200 water distribution systems in
WA serving populations of less than 1700 – of which many were not compliant with
the stringent Australian water guidelines introduced in 1996. It was anticipated that
the system would be considered as a central technology when the Water Corporation
decides to roll out its plans to improve these sites in the future.
Protecting and Leveraging Intellectual Property
For a start-up company with a radically different innovative product, the key chal-
lenge is to steer the business through growth by expanding sales worldwide through
licensing and planning for new product development. The Smartaflow pump was a
major departure from other products in the market, and it was important in AQ2’s
commercialisation strategy that such a technology had to be rapidly developed and
protected in an uncertain market. Protecting intellectual property (IP) allows the
company to have temporary commercial control of its product’s unique features,
which excludes others from replicating and exploiting the design of the invention
for the life of the patent.
To do so, the company had to build sustainable competitive advantage by build-
ing a portfolio of IP assets around its patented core technology. Much of the firm’s
competitive advantage lay in its ability to effectively leverage the value in existing
IP, and its commitment to continuous innovation in design and product development
to sustain their IP strategy. The company’s business plan put forth the view that:
A key value-adding step in the manufacturing process is the manufacture and assembly of
our patented designs.
A provisional patent was registered with IP Australia in 2000 for the break-
through chemical metering Smartaflow pump that forms the ‘heart’ of the Chlorisafe
system. In 2001, the patent was upgraded and broadened to encompass the final
product specifications (pump, decant system and dosing spear), and the additional
patents were lodged under an international patent application. Thus, the four patents
surrounding the pump form the cornerstone of the company’s IP and technology
strategy. The trademarks of Smartaflow® and Chlorisafe® have also been registered
in Australia with an overseas listing pending. The IP license is co-owned by Chris
and the Water Corporation, in which AQ2 believes that by having the large corpora-
tion’s ‘weight behind the patent, will be a commercial advantage and help deter
imitators.’
A total of $200,000 had already been invested in the patent process and IP rights
proceedings, which included legal consultations and applications for patents and
trademarks. It was projected in the firm’s business plan that a further $650,000
would be allocated for protecting its existing patented designs in the coming 5 years.
According to Chris:
The patent process is like a baby; you have to feed it all the time – the expected length of
time is likely to be 20 years … and the design is constantly challenged by others that claim
that their products are similar.
Chris recalls that it was a ‘big’ learning curve for him, but he never anticipated it
to be such ‘a long drawn out process’. He says that gaining access to the internet and
the relevant information has been instrumental during the initial periods, and admits
that it would have been impossible to accomplish the feat without the strategic fore-
sight of management and the expertise of staff and external consultants.
The Outcomes
Through comprehensive field-trials and testing by lead users in the industry, the
pump technology has convincingly dissolved the barriers to sodium hypochlorite
use, and has managed to guarantee 100% reliability in delivering accurate doses into
drinking water supplies, even at low flows – which makes it an ideal disinfection
system for small remote towns with varying levels of water needs. AQ2 has also
combined other innovative features into a simply and economical modular system
that costs less than a third of an equivalent gaseous system to install. This makes it
an attractive alternative to the existing technologies.
The Smartaflow pump currently generates the highest margins from the sale of a
system. The four patented design features in the pump has allowed the potential of
the core technology to be extended into diverse applications, which may include:
other water markets, broader chemical dosing markets, and the development of
complementary products.
Steve Brown, who joined AQ2 as its CEO in 2001, acknowledges that to a sig-
nificant degree it is ‘the cocktail of elements’, such as the system’s patented design
and providing the customer with a holistic product solution, which has enabled AQ2
to charge a premium price in the market. He says:
The system is essentially two inventions into one, which is more valuable than each on their
own, and as a whole is greater than the sum of its parts. The system’s patented technology
helps to prove that there is nothing similar to it; therefore, the client has the confidence to
purchase directly from AQ2. The procurement process, e.g. tendering, is no longer neces-
sary as there isn’t any other product that can perform a similar function on the market.
The Smartaflow system won three industry awards in 2002, which have gener-
ated significant publicity in the media and interest from investors in the business
community. The Western Australian State Award in the Telstra Yellow Pages
Business Ideas Grants competition was a valuable award that included a cash prize,
business mentoring, advertising and television exposure on the Channel 9 ‘Small
Business Show’. Later that year, Smartaflow won the WA Water Industry Awards,
which encompassed both the ‘Overall Minister’s Award for Excellence’ and the
‘Award for Water Treatment and Recycling’. The system was claimed to be a ‘genu-
ine innovative breakthrough’ by the awards judges.
The Role of Design in Commercialisation
AQ2 believes that design and innovation go hand in hand. Good design is viewed as
being inextricably linked to the firm’s commercialisation strategy for its new prod-
ucts. The management team believe in taking a systematic approach to market
research in and giving strategic attention to marketing and sales.
As CEO, Steve is responsible for the implementation of the business plan and
marketing and sales strategies as well as the company’s human resource manage-
ment. To this mix of competencies, he also adds design skills:
Innovative design is absolutely crucial to the business; there couldn’t be a business at all
without it…Chris has been through the conceptual and theoretical phases and the product
has gone through a developmental process so that it is manufacturable, and that has proba-
bly been the turning point for the business.
When asked if design played a central role in the successful of the pump’s com-
mercialisation, Chris says:
Whilst I am not quite sure that design is the primary element, it certainly has to be a key
element in the continual improvement of an engineering product – be it conceptual or
existing.
Through his past experience with corporate designers, Chris has noticed that that
most of them were ‘arrogant’ and not user-centric. He felt that they were irrespon-
sible by not meeting user needs and expectations, and often refused to ‘look outside
the box’. He says that design should be focused on functionality and commercial
relevance, and believes a product must also be marketable and profitable for the
business in the long run. As he says:
The product must result in a commercially viable blueprint – a saleable item of some worth
… Like it or not, though, to feed the team and pay the banker, the design has to sell.
Commercial reality bites!
Steve, who has had extensive experience in growing start-up businesses, says
that he became interested in AQ2 because Chris had a business with the elements he
was looking for, in terms of a truly innovative product that had protected IP and the
opportunity to grow and become ‘big and interesting’. When comparing Chris with
other innovators he had met, Steve commented:
Innovators cannot often differentiate between a good invention and a good business. They
automatically assume that a good invention is useful, and that because it is useful it can
naturally be built into a business. This is not necessarily the case, because an invention may
only obtain a small margin per unit, and therefore to build a business out of it, one may have
to sell millions of units and spent a lot of capital to promote the product far and wide. By
concentrating on branding and design, for example, one can help a business to earn a rela-
tively high margin on a product.
According to Steve AQ2 has now:
Developed a clearly defined product, assembled a credible management team and profes-
sional board, protected its intellectual property and has the potential to make a profit.
The modular design of the integrated system was a strategic decision made by
management when planning for product development. This has allowed AQ2 to
derive its primary revenue from system sales and support contracts where value-
adding and profitability is maximised. From early on, the company realised that
they were not just selling a stand-alone product or a single innovative component,
but an integrated system and complete solution that could be sold at a premium.
According to Chris:
Due to the manner in which we have chosen to enter the market, the pump, the heart of the
‘system’, happens to be packaged as an integrated component of a metering pump system;
we have not just targeting the cut-throat stand-alone metering pump market.
The flexible design of the system also allows it to be easily adapted to the increas-
ingly stringent international standards of demanding water supplier requirements.
Within its domestic market, instead of charging for a $2000 pump, AQ2 was selling
the system for between $50,000 and $60,000 per unit, with an average profit margin
of around 40%. According to Steve:
The Water Corporation generally looks out for turnkey products, where the supplier would
provide the system, leave it at the site and all they need to do is switch it on and it is ready
to run. The alternative to that would be to buy all the components separately, where they
would go to a supplier to buy two pumps, a decanter, a control panel and a cabinet to put the
system in, and then later assemble the system themselves, which is unlikely as their
resources are limited.
Beyond functionality and ergonomics, Chris says that design can also play an
important part as a marketing tool, where the product has to look and feel right.
Although large corporate buyers like the Water Corporation are relatively price sen-
sitive, both Chris and Steve understand that design can be used as a key positioning
tool, where the customer’s perception of value can be shaped by it. Steve makes it a
point to instil the importance of ‘looking the part’ to his employees, where he sees
it as a significant part of the selling-in of a high-quality technological product that
commands a fairly high price. In view of this, he says:
If you want to look like a big company, one must start behaving like a big company…and
appearing excellent is something big companies try to do right and small companies need
to do in order to get the confidence of customers who demand quality. This is because the
better a product looks, the more it helps customers feel good about paying significant
money for it. It all comes down to getting all the details right, from the product, to the logo,
and onwards to printed material. These aspects have to improve and continue to improve as
the business grows. (Fig. 11.2)
Fig. 11.2 The unique integrated and modular Smartaflow Chlorisafe system and Smartaflow
pump
The Organisation of Design and Product Development
Chris’ role as technical director is to provide the company with an innovation strat-
egy and providing the overall vision and momentum for the product development
process as well as to generate sales. With top management support, the design and
product development activities are integrated into marketing and sales, financial and
administrative functions so that the product potential can be maximised.
Chris says that access to good people has been important, and they have provided
the ‘main energy’ for the successful development and commercialisation of the
pump and system. Through experience, Chris has observed that the process of
design and re-design requires a multi-disciplinary group of people with personali-
ties that can allow and accept criticism; moreover, it is critical to find ways to ‘dove-
tail’ the intellects and skills of both internal and external expertise to support the
design, visualisation, prototyping and production of the Smartaflow project.
Chris admits that he has a creative streak tempered with an understanding of
practical realities, and has been fortuitous in finding the right kind of people with
the necessary skills at critical points of the product development process. To a sig-
nificant degree, the key to finding appropriate support was an ability to recognise his
limitations and to nurture effective collaborative relationships to supplement them.
On reflection he acknowledges that:
A continuing process of improvement for any engineering design is costly and, unlike an
artist who merely relies on his own ability to produce a successful work of art, an individual
innovative engineer can seldom produce his masterpiece without a dependence on the inge-
nuity of others.
Planning for Product Development
According to AQ2’s business plan, product development is projected 1–4 years

ahead, and articulates explicitly what the company intends to develop in terms of
products and markets. Product development expenditure is expected to be around
$280,000 for the next 2 years. It is important for the future growth of the company
that the patented core technology is flexible enough for them to develop comple-
mentary products in order to expand into other market segments with a sustainable
competitive advantage.
Besides planning for growth, the company is consciously aware of its weak-
nesses and strengths in terms of resources and competencies that would allow it to
realistically face the risks of diversification in order to enter new markets. Its knowl-
edge of where the firm and its products are positioned in relation to competitors has
assisted in making decisions and trade-offs to extend its product range, through
either choosing to redesign and ‘stretch’ existing products or to introduce new inno-
vations. The company plans to establish two distinct business divisions, with one
unit focusing on manufacturing and developing products while the other concen-
trates on market development activities.
The Chlorisafe system is fully developed with all design, drawings and specifica-
tions complete. By having a proven system in place, it is presently implementing
preliminary plans to roll out its sales and marketing strategy in a systematic and
targeted manner. With interest established in export markets, the company is plan-
ning a licensed distribution model as it ensures more rapid penetration. Extensive
market studies have revealed significant long-term trends in the water disinfection
marketplace that will influence the uptake of the company’s innovative technology.
As a user-oriented approach is central to its design and product development phi-
losophy, their research shows that water suppliers are increasingly concerned about
issues which the Smartaflow system can effectively manage, such as their exposure
and accountability as privatised companies in the areas of:
• the risks of over- or under-dosing of chemicals,

• the safety of local populations and the environment, and
• operator safety.
To address customer requirements, the robust design of the Smartaflow system

has permitted it to be potentially developed in a number of ways that may include
altering the dimensions of the system or the type of chemical metered. Chris and the
development team are currently planning to extend their product line for applica-
tions beyond the water disinfection market, where future developments may include
applications: in agriculture, in mining, in domestic or industrial grey water systems,
and in commercial and public swimming pools.
The Evolution of a New Product Development Process
The company’s core development team is responsible for design, development,

manufacturing, testing, installation and service. The team includes Chris as the
technical director, Jeremy George as design technician, Gary Smith as electronics
design technician, and Gary Richardson as production specialist. The team are all
full-time staff based in the company’s Katanning manufacturing site under the guid-
ance of Chris.
Chris believes that the design and product development process requires fore-
sight and planning, getting the details right and challenging perceptions as well as
the effective coordination of internal and external design and development teams.
He emphasises that it is important for them to begin by looking at the ‘big picture’
or concept, and then proceed to discussions with a set of rough sketches on a white-
board where everyone is involved. Dialogue based on the sketches and suggestions
for the refinement of concepts are important to align ideas. Chris calls this the ‘affin-
ity process’, saying that this phase synchronises and clarifies the thought processes
of the team.
The second stage usually leads to a prototype being fabricated – where at least
three working prototypes are tested before commercialisation. Archiving sketches,
drawings and documents is essential for them to keep track of what has already been
done, especially for problems that have been solved before, thus saving time. It also
serves as a reference to keep track of the development process.
According to Chris, computer-aided drawings (CAD) used to be considered a
luxury, but they realised that detailed drawings could be used to sell ideas, to gener-
ate a routine within the development process, to assist in the patenting process, and
to act as a communication tool for manufacture.
The team members are all focused on what they do well, but Chris claims that
they are ‘a bit like artists’, temperamental and usually difficult in business matters.
He comments:
There is a fine line when keeping people interested and focused on the horizon when it is
time for commercialisation … as the situation demands a great deal of dedication and com-
mitment to working nights and weekends. The irony is that too often those involved with the
creation of the masterpiece seldom care for the structure – and even less for commercial-
ity – and, regardless of its brilliance, a design without a definitive conclusion will never
become a blueprint of any worth. But for us a successful design did emerge. The first of
many ‘valuable’ blueprints was born from a team effort.
Chris says that development and team practices have been managed informally
over the years, improvising and refining processes as they went along. It seems to
him that the challenge for AQ2 in the future is to motivate and get buy-in from the
team when changes in the process are required as the company grows. In the future,
it is suggested that installation and servicing will be outsourced to allow the team to
focus exclusively on design, product development and manufacturing.
The Use of External Design Services
Chris says that the realities of commercialisation required the discipline and skills
of specialists who were trained to make things look ‘professional’ and ‘business-
like’. After careful thought and research, he realised that professional engineering
designers were required to put together a product that was ready for the market.
Chris is well-known for bringing together a menagerie of skilled trades’ people and
designers who have assisted him in developing the Smartaflow pump and system.
He observes that engineering designers, who are essentially creative personalities,
were not easy to get along with, and for the relationship to work he had to look
beyond personal characteristics and concentrate on skills and talent. Chris realised
from the beginning that good engineering designers were not cheap, but acknowl-
edges that ‘they are worth their weight in gold when it comes to results’.
After some research, he found that access to the expertise he needed was non-
existent in Katanning. Chris chanced upon meeting Dianne Boddy when he hap-
pened to be involved in a group project with students from the Graduate School of
Management at the University of Western Australia who knew of Dianne’s reputa-
tion and expertise as a leading mechanical engineering designer in her field.
Convincing her to work on the pump design with him was not an easy task, as she
was very selective with the projects, she was willing to work on.
The primary function of Dianne was to create engineering drawings for the pur-
pose of manufacturing prototype products. At first, Chris found it difficult to cross
the cultural divide between manufacturer and designer, but both recognised that
they had to work together to achieve a satisfactory end-result. Their intense and
long-term interaction helped to resolve the conflict that arose between them from
time to time. Friction aside, and more importantly to Chris, was the fact that Dianne
was sympathetic to inventors like himself.
One of the key lessons learnt from this process, and one that fascinated Chris,
was that Dianne treated the exterior of the product ‘like a piece of furniture’. In his
view she had the ability to focus on the proportions and aesthetics from an engineer-
ing perspective that ultimately contributed to a product that was designed to be
functional and yet aesthetically satisfying. Prior to his experience with Dianne,
Chris was primarily focused on achieving technical precision and resolving the
functional aspects of the product and never really appreciated the role proportions
played. He comments that,
… Dianne had the perfect eye for it … the final product looks and feels like a well-
engineered product.
Like Dianne, David Miller was also a highly-qualified Perth-based mechanical

engineer with excellent practical skills and credentials. David had a mechanical
engineering background and experience working with other designers and start-up
companies. He specialised in product development that involved concept develop-
ment, research and development, prototyping and testing to design for volume
production. Chris says that, unlike Dianne, David appears to be more entrepreneur-
ial in approach, as he has recruited a team of other specialists to support him.
Over time, besides providing expert drafting skills, David became a rich resource
in terms of knowledge and networks, assisting Chris immensely by ‘sending him in
the right direction’.
David’s library of catalogues, research expertise and countless referrals saved
Chris time, effort and costs in sourcing parts and other manufacturing components
many times over. Over their period of close interaction, David continually proved to
be proactive in putting forth suggestions for improvement and in imparting advice
that often went beyond his brief.
Strategic Partnering: Baker’s Junction Machinery
In 2002, Baker’s Junction Machinery (BJM) in Albany was contracted to manufac-

ture the initial complete models of the Smartaflow system. Gus Hook, its owner and
proprietor hired Gary Richardson, who at that time was not employed by AQ2, to
specifically manage and work exclusively on the Smartaflow account. Before AQ2
built its own manufacturing plant they leased workspace from BJM and purchased
equipment to facilitate this working relationship. The purpose of this investment
was to decrease the risk of BJM taking on the manufacturing of an unproven
product.
Both Gus and Gary have extensive experience with complex and sophisticated
engineering projects, and they believe that the intense period of planning and design
iterations before manufacture saves time and costs in the long-run, and that problem-
solving with the client to make continual improvements during the initial phases
provides access to better design and lower production costs. Starting with drawings
from AQ2, BJM designed and manufactured specialised tooling (around 60 differ-
ent parts) for the system. These custom-made tools have decreased the average time
of manufacture from 8 to 4 h. Whilst Chris is often more focused on the end product,
Gary says he continuously examines how the design can be easily be adaptable to
other products that would be extensions of the existing range, as well as getting the
models to become rational versions for production. It is also his role to remove
superfluous features not contributing to the functionality of the final product.
Chris says that the synergies built up over time with BJM contributed to the
‘closeness, seamlessness and enthusiasm that is evident with their long-term
involvement’. Separated by distance, they communicated through email, sending
CAD drawings over the internet for approval, while the usage of synchronised soft-
ware made processes more compatible and efficient. The nature of the relationship
allowed AQ2’s technical team to be open to suggestions from Gary, as they con-
stantly discussed and exchanged ideas and built up a routine over time. The ease and
effectiveness of communicating also helped strengthen the bond between like-
minded individuals and AQ2 has benefited from this interaction with BJM as it has
led to the standardisation of key production processes.
Chris’ criteria for selecting designers to work with is based on: a good track
record, their ability to work with individual inventors to a satisfactory conclusion,
their ability to provide practical solutions, and the degree to which they can fill in
knowledge and skill gaps when required. Chris had this to say about his experiences
with designers so far:
Most importantly they were sympathetic to individual inventors (as opposed to companies).
Furthermore, they gave me access to a network of specialist services (Perth and else-
where) – especially in the case of David. In reality, finding them was not easy as they were
selective in which clients they took on, and generally had little interest in taking on new
projects (referring to himself) – especially crack pot individuals with a hair brain idea.
Over time, AQ2 has developed a design and technical team by recruiting special-
ists internally to form a multidisciplinary team environment. As a consequence, they
now use external designers less frequently for ongoing projects. An important
insight, through working with professional designers, has revealed to Chris the
importance of thinking about the manufacturing process at the design stage – as it
ultimately saves time and decreases complexity and costs during production.
Chris not only learnt how to facilitate an outcome with different personalities and
ideas, he also discovered that a systematic iteration of ideas – by going back and
forth and exploring options from different perspectives and being challenged in the
process – makes designing and product development a synergistic process that can
involve everyone from senior management to staff as well as external specialists. He
remarks that the transfer of knowledge and skills from their engagement with exter-
nal designers was a critical change agent in contributing to the continuous refine-
ment of their internal design and product development processes. The learning
effects have filtered through to the rest of the in-house product development team
and, subsequently, the standards and attitudes towards product development pro-
cesses have been raised.
For example, Jeremy George was a carpet layer by trade, and his initial exposure
to working with a Dianne Boddy inspired him to pursue his CAD skills. With sheer
determination, he drove to Perth for 16 weeks to complete a TAFE course to learn a
two-dimensional drawing program. Through his new knowledge and acquired
skills, he subsequently developed the three-dimensional plans that are used for man-
ufacturing the Smartaflow pump. The detailed CAD drawings and research by
Jeremy also helped with the patent application. Chris says: ‘It has taken Jeremy
around three years to get his drawing ability to today’s level, and his skills are an
unexpected bonus from what he was originally employed for.’
In the beginning Chris set out to be a key instigator in the process, and it has
surprised him that others have also evolved throughout the experience. He can now
confidently leave his staff to go through the product development process without
his constant supervision. His current role is to manage and facilitate the develop-
ment process by bringing a diverse group of people together that have the right
attitude and expertise to do the job.
Outsourcing Graphic Design Services
Steve says that, in the beginning, he had to design the Smartaflow brand and website,
as they were on a tight budget. His insights into branding and graphic design stems
from his experience with marketing, public relations and advertising professionals
during his previous ventures in technology and start-up companies. He realises that,
if they aim to pursue international markets, the upgrading of their brand, the website
and their printed material will be central to producing a desired image in each tar-
geted segment. For example, if entering the US, a separate web portal may have to
be designed and maintained, and any promotional materials – e.g. product bro-
chures – would have to be reprinted in imperial rather than metric units.
In 2002, AQ2 contracted the services of a marketing professional, who started by
managing public relations work with the company. Maureen Mawson has expertise
in marketing and communications, media liaison and event management. She is also
charged with the management of AQ2’s design needs in terms of sourcing for
graphic designers and printing. Although Maureen has no formal background in
graphic design, she credits her design philosophy of ‘less is more’ to her employer
in London, who taught her about keeping designs simple where it ‘does not have to
be overdone to drive home the message’.
Maureen’s second project involved a product brochure. At that time the company
only had the Smartaflow brand, and the previous design of a brochure by another
agency was, in Maureen’s opinion: ‘… a little old-fashioned and not contemporary
enough to reflect a new technological innovation. They (AQ2) needed something to
show off an exciting product.’
She concurs with Steve and Chris’ point of view that: ‘if a product wants to look
like it is worth $50,000, both the company and its products will have to look the
goods, as the intangible aspects are also important to differentiate them to the
customer.’
Maureen essentially manages the design process by briefing and liaising with a
freelance graphic designer on a project’s requirements. She sees the benefits of
going to a professional designer as an outsourced advantage in order for the busi-
ness to focus on more value adding activities, and comments that:
A designer is trained to do the job, and to do things that you can’t do as well. Steve or
myself could do the design work, but it is worth paying the extra money to get a better
product. It all comes down to the results you get from an effective piece of work. It is a good
return on investment where it is the best use of one’s money and time. As AQ2’s business
grows, Steve would need to focus on different things.
Although finances are tight for a new company such as AQ2, Steve would typi-
cally provide Maureen with a budget and an idea of what he wanted. Frequent infor-
mal discussions are held with him on how they should apply the branding, and how
they could extend it to other items such as newsletters, direct mail and trade show
displays. Maureen realises that everything she does will be built upon an evolving
model as the business grows, and she is motivated by the fact that the process is
inclusive, e.g. they are often brainstorming and evaluating possible markets, other
applications for the product, and industry trends.
During these meetings, Maureen usually records an action list and then monitors
tasks as they are implemented.
Maureen believes that the marketing function should be in direct contact with
senior management and should be incorporated into everything an organisation
does, as this helps a company convey a consistent message. Maureen remarks how
this situation is reflected in an exemplary way in AQ2, where Steve and Chris are
both openly communicative and supportive of the process. Over the past year,
Maureen has been treated as an integral part of the AQ2 team and is now familiar
with the company’s long-term goals and branding objectives. Their continuing syn-
ergistic relationship has stretched her role into the strategic planning and implemen-
tation of AQ2’s marketing needs while working closely with management and staff.
Maureen adds:
The beauty of small businesses is that they can work in a non-hierarchical environment,
getting support from the top, and working closely with senior management and staff from
different disciplines.
Work Book: Financing the Venture
12

• Understand how new ventures are financed.
• Understand how to position new ventures for appropriate funding.
• Appreciate global funding networks and venture capital.
• Understand the role of venture capital in innovation and
commercialisation.
• Understand the ‘financing gap’ problem of entrepreneurial financing.
12.2 Chapter Review
This chapter has provided an overview of the financing process for entrepreneurial
firms. For these types of businesses, there is likely to be an equity finance gap due
to a lack of available risk capital. Sources of financing can include banks, financing
firms, insurance companies and trade creditors that provide debt financing against
either tangible assets or cash flow.
One of the most common sources of financing is bootstrapping, or the funding of
growth via retained profits and cash flow. A critical issue for entrepreneurs is to
ensure that they have sufficient working capital (e.g. liquid assets and cash) within
the business to fund daily operations and growth. Debt financing is typically
obtained from banks while equity financing is secured from investors who can be
either private, informal sources such as family and friends, or business angels (high
net worth individuals willing to invest in a small firm). Bootstrapping offers lower
risk and greater control than debt financing, and does not dilute equity – as is the
case with equity financing. Entrepreneurs seeking to fund using bootstrapping need

https://doi.org/10.1007/978-981-13-9416-4_12
140 12 Work Book: Financing the Venture
to understand the difference between cash and profit. A business might be profit-
able, but if it cannot access good cash flow it might still face financial ruin.
Debt financing can be short-, medium- or long-term in nature, and usually
requires the borrower to show a good trading history, strong cash flows, and the
ability to underwrite any borrowings against collateral such as property or fixed
assets. Banks are competitive and borrowers should shop around but should also
cultivate a good working relationship with their banker before they need to raise
money.
Entrepreneurs seeking to raised venture capital need to prepare a sound business
case and be willing to surrender equity and control over their business in order to
secure faster growth. Equity financing is not usually available to entrepreneurs
unless they have a strong technology base or the ability to grow rapidly. A venture
financier takes equity in the business with the expectation of a high rate of return.
Venture capital moves through a series of distinct stages, usually with higher levels
of actual funding but lower levels of risk and return. A major problem facing small,
entrepreneurial firms is a lack of early-stage seed capital investment. This is typi-
cally available only from informal sources such as family and friends, or perhaps
business angel investors. Venture capital remains highly important to economic
growth.
12.3 Key Lessons
• Access to financing is one of the most significant challenges facing entrepre-

neurs. There is a financing gap that exists within most economies whereby banks
and suppliers of venture capital essentially ration credit and deny funding to
entrepreneurial ventures, particularly start-ups and small firms.
• Entrepreneurial capital, for the formation of new business ventures, is usually
available from at least three sources:
1. Bootstrap financing: the funding provided from the entrepreneur’s savings
and what can be retained through cash flow management and retained
profits.
2. Debt financing: the funding borrowed over the short and long-term from
banks, other financial institutions and credit cards.
3. Equity financing: the funding obtained from informal and formal investors
who take part ownership in the business for a return on capital.
• Compared to large firms, most SMEs rely more heavily on bootstrap financing in
the form of personal savings and retained profits. As a general rule, SMEs retain
a higher proportion of earnings, which they use as working capital and to fund
future growth.
1. The important benefit of bootstrap financing is that it costs little or nothing.
Further, the owner-manager can have total control over the funds and their
use.
2. A common cause of small business failure in the initial years after start-up is
a lack of working capital. The cash flow cycle needs to be carefully managed,
particularly where the business is growing, because this will place more
demand on working capital.
3. The firm’s break-even also needs to be closely monitored. Break-even is
where the total costs are equal to the total revenues.
• The main characteristic of debt financing is that it is money obtained from a
lender at a cost, usually associated with an interest charge on the repayments.
Debt financing requires the entrepreneur to guarantee the debt and thereby risk
the potential loss of not just the borrowed amount but also of their assets (e.g.
home).
• However, debt financing has several benefits when compared to equity financing:
lower cost of capital, greater borrowing ability, no loss of equity or profits; and
no loss of control.
1. The final cost of borrowing money often involves much more than just the
interest rate. The checklist for reviewing the costs of a bank loan should
include direct financial costs, indirect costs and loan conditions and personal
guarantees needed to obtain the loan.
2. A major cause of failure in bank loan applications by small firms is the exis-
tence of information asymmetries, where the information available to owner-
manager and banker are not identical. Unlike venture capital, the banker is not
seeking to achieve rapid return on investment and an early exit strategy. Most
banks want clients and are generally highly risk adverse by nature
3. A new emerging source of debt financing is peer-to-peer (P2P) lending. This
is currently still in an early stage of development, but has been growing
strongly in recent years.
• SMEs also don’t generally seek equity financing. This is due in part to the cost
and difficulty of securing equity financing for a small firm, but also the desire by
many entrepreneurs and small business owners to retain control over their ven-
ture and to not dilute equity control.
• The financing lifecycle through which small firms typically pass if they follow a
VC-funded growth path consists in several distinct stages that the firm must pass,
commencing with early stage seed capital funding, then moving on to early stage
and later stage VC funding until it is either sold to a larger organisation via a
trade sale or listed on the stock exchange via an initial public offering (IPO).
• A study of venture capital investors found that the top five things that they looked
for when deciding whether or not to invest in a deal were: the entrepreneur’s
personality, the entrepreneur’s experience, characteristics of the product or ser-
vice, characteristics of the market, financial considerations.
• In order to do a deal over securing finance, the entrepreneur needs to understand
three key things: (i) they must understand their business; (ii) they must under-
stand the viewpoint of the venture financier; and (iii) they must understand what
their own needs are in relation to the money being sought.
1. What are the pros and cons of debt financing and venture capital, and why would
some entrepreneurs feel that venture capital should not be sought unless there is
no other alternative?
2. For many entrepreneurs the venture capital sector is seen as difficult and fickle,
but the venture capitalist usually feels that the problem is due to the entrepreneur
not being ‘investment ready’. What is required for an entrepreneur to get their
business ready for venture capital investment?
For your fourth journal entry, address the following:
• Have you tried to get a venture (of any sort) funded or backed? If you have not,
would you now?
• Describe and explain the venture and related funding you chose or would choose
to pursue.
• What kinds of issues might you encounter in an entrepreneurial fund-raising
process?
• How important is implementation versus planning?
• Are there any specific issues – i.e. benefits or problems – that may arise from
your location?
Read the Mt Romance case study, which provides an example of venture capital
financing of an entrepreneurial growth firm and the relationship that must develop
between the entrepreneur and the venture capital financier in order to make the deal
work. Once you have read the case you should then answer the questions below.
Questions/Tasks
1. What were the key characteristics that venture capital looked for in the Mt.
Romance deal?
2. Why was the relationship between Steve Birkbeck and Ian Murchison important
to the way this deal was managed?
3. What were the impacts that securing venture financing had upon Steve and Karen
Birkbeck, and how did they handle these?
4. Assess the positives and negatives of the venture financing to Mt. Romance. On
balance was it a good thing?
12.7 Case Study: Mt. Romance Australia Ltd 143
5. If you were asked to provide advice to an entrepreneur about the key things that
they should consider when seeking to raise venture financing for their own busi-
ness, what lessons would you deliver using the Mt. Romance case as a guide?
12.7 Case Study: Mt. Romance Australia Ltd
By: Jackie Wong

Mt. Romance Australia and its founders, Steve and Karen Birkbeck, have come
a long way since they set out in the 1980s to manufacture emu oil based therapeutic
products in their kitchen. Today, far flung from its humble beginnings, the company
operates the largest sandalwood production factory in the world from the town of
Albany, a rural centre located in the south west of Western Australia. Since the com-
pany began sandalwood oil production in 1997, it has become a major supplier of
sandalwood oil, which is derived from an indigenous Western Australian species
known as santalum spicatum. Western Australia is host to the world’s largest sus-
tainable reserves of sandalwood.
It is a little-known fact that during the 1800s, sandalwood was Western Australia’s
most valuable export to the Far East through the port of Albany, which makes it an
even more venerable industry than the state’s highly celebrated gold mining indus-
try. In the past, sandalwood oil had been prized for its aromatic, therapeutic and
mystical properties. However, in recent times, its value resides in its properties as a
perfume fixative, which represents a lucrative market in the fine fragrances
industry.
Although yield of the active ingredient (santalol) in the West Australian variety
is lower than the East Indian sandalwood species of santalum album, poor agricul-
tural management practices in India have resulted in dwindling supply of the Indian
product, increasing the demand for high quality Australian sandalwood oil.
Mt. Romance has added value to a scarce resource and has been instrumental in
revitalising the sandalwood industry by:
• using cutting-edge research and development to discover and commercially

develop the natural ingredients found in Australian flora,
• securing market leadership,
• controlling supply,
• promoting sustainable agricultural practices, and
• pursuing innovation in export, retail and tourism.
The successful sourcing of venture capital from Foundation Capital and other
sources of private equity, together with the development of world-class manufactur-
ing technology, has allowed Mt. Romance to strengthen its position as a high-tech,
export-oriented regional enterprise.
During the 1990s, the company was able to obtain financing from a variety of
channels such as overseas investors, local business angels, banks and venture capital-
ists. After repaying their French investors through loans over a 3-month period in late
1996, they acquired an essential oils complex in Albany in 1997 to produce sandal-
wood oil. The substance was identified by the Birkbecks through rigorous research
and assessment as a sustainable and competitive resource that would provide them
with a long-term global advantage. By the end of 1997, they had an injection of funds
from a local business angel for $1.3m. They used this initial boost in financial sup-
port to extend the manufacturing complex by adding an international showroom and
retail shop, which was set up as a strategic vehicle to develop a home market for a
range of Mt. Romance consumer products. The trading profits from the consumer
products and bulk oil division were then reinvested into the company for research
and development. Further funds totalling $1m were raised from European industry
players in 1998. The only institutionally invested venture capital fund in Western
Australia, Foundation Capital, then provided another $2m in 1999.
The Beginning of a Relationship
Foundation Capital was established in 1994 to invest long-term equity capital in

Australian small- to medium-sized enterprises with strong growth potential, adding
value by being an active partner in guiding and supporting these companies through
critical strategic and management issues. Foundation currently manages $113.8m
across three funds, and invests between $1m and $10m in enterprises from early
stage to pre-IPO.
The relationship between Mt. Romance and Foundation Capital began rather
serendipitously when Foundation Capital’s founder, Ian Murchison, and his wife
were holidaying in Albany in mid-1998. At that time Foundation Capital was
actively seeking an investment opportunity in regional Western Australia in sectors
that they considered to be prospective such as mining, agriculture and manufactur-
ing. After completing a tour of the Mt. Romance sandalwood complex, Ian was
impressed by its set-up and preceded to contact Steve Birkbeck to arrange a meet-
ing. Ian was enticed by the story of sandalwood and the opportunities it represented.
Ian also found that not only did Steve have the enthusiasm and a strong marketing
background, he also possessed the elusive ‘X factor’. This sought-after quality, as
Ian explains, is the characteristic of an experienced and driven entrepreneur who is
a non-autocratic leader able to establish a good team behind him or her. It is also
someone who is committed to the delivery of results. From Steve’s perspective, it
was Mt. Romance’s requirement for a large injection of capital to prime it to reach
new markets that was the trigger for needing venture capital.
In 1998, Foundation Capital was still an embryonic venture capital fund, so
Steve had to confirm, through his business and personal networks, its track record
and reputation before a formal engagement. He discovered that Foundation had
extensive experience from other venture funds in the US that have spanned
20–30 years, and that Ian was a respected player and ‘seasoned warrior’ in the
industry. The two companies came together with the mutual objective of building a
profitable company and maximising the return on shareholder investment. Although
Foundation Capital was a quality investor, Steve did not have any real idea at that
point in time what the outcomes of the relationship would be.
When Foundation Capital was negotiating with Mt. Romance, Mt. Romance was
close to finalising a contract with the Western Australian Government Department
of Conservation and Land Management (CALM) to process sandalwood for a
period of 10 years. Steve says that Foundation Capital’s influence was significant in
recognising that Mt. Romance had to focus on the bulk oil business, and that it had
to be a major supplier of sandalwood oil to be a formidable competitor in an indus-
try traditionally dominated by Asian players. They had to embark on a very ambi-
tious financing arrangement and, partly as a result of Foundation Capital’s expertise
and resources, they managed to finalise a significant contract with CALM, securing
the supply of sandalwood for oil production. They bought a huge quantity of sandal-
wood in order to control supply, with the intention of reducing competition and
becoming the dominant supplier.
Structure and Process of the Investment
Steve and Karen Birkbeck have always been hands-on business owners, although
Karen has had less involvement recently, partly due to a condition of the venture
capital investment that is designed to reduce founder influence at the board level by
limiting the number of family members that can be directors. Steve admits that this
scenario often happens when one relinquishes ownership rights and brings on exter-
nal shareholders. The company’s board was structured to challenge the CEO by
reducing Steve’s control base. Suddenly, Steve found himself accountable to more
than just family and employees.
Foundation’s rigorous due diligence process, among other things, involves a
technology assessment, a review of the transparency in management dealings, and
an evaluation of potential business and corporate development. Overall, the due dili-
gence took around 8 months to complete. Steve was surprised by the value
Foundation placed on the entrepreneur, and wondered whether he had the necessary
traits to ‘make it’. Steve saw the process of taking on venture capital in three broad
categories, where the objective was to limit the threats and risks to venture capital
investor.
The first was a process of courtship that involves the ‘Pre-heads of Agreement’.
At this stage, Ian had to learn about the industry and the company, and Steve had to
service the information needs of Foundation in order for them to invest. In exchange,
he received snippets of information on Foundation and the investment process.
The second was an engagement that led to the signing of a formal Heads of
Agreement (HOA), where a two-page document that included information on how
much the company was worth, the amount Foundation was willing to invest, and the
pre-requisites required prior to the investment being activated. In between courtship
and engagement, which took 4–5 months, key man insurance was obtained. Prior to
the insurance, health and police checks were performed, and the ‘sanity’ of the CEO
was scrutinised.
To reinforce this process, Steve also had to provide extensive market-related

information to convince investors that Mt. Romance had market potential. After the
HOA was signed, a shareholder’s agreement and a review of constitution were
among the avalanche of paperwork that had to be dealt with. Profitability ratchets
were also negotiated against the company’s net profits using an EBITDA-linked
mechanism.
The final stage of the process was marriage, whereby Foundation Capital negoti-
ated two seats on the Mt. Romance board.
The process did come with its share of drama. In December 1998, when Ian rec-
ommended the investment of $2m to his Board, Steve had provided the marketing
information required and he thought that all technicalities had been resolved through
Foundation Capital’s 6 months of intensive due diligence. Just when Steve was
about to leave on a business trip to France, he was notified that the Foundation’s
Board had rejected the submission for technical reasons. The Foundation Board felt
that Mt. Romance was being too ambitious with their technology, and felt it was too
risky. Determined to make one last stab at it, Steve had to go to France over the
Christmas period to bring back the necessary technical data to meet Foundation’s
next meeting in January. He also made a point of inviting the Foundation Board
Members to Albany for a tour of the factory. Subsequently, the deal was sealed.
According to Steve, Foundation Capital delivered far more punch than normal
shareholders. Although Foundation Capital has around a 20% shareholding in Mt.
Romance, they have significant power and influence over his business. The mar-
riage, in his opinion, was deemed a success because there was room for compromise
and consensus in the relationship. Ian notes that there was admittedly some tension
in the beginning when the business was undergoing rationalisation, but Foundation
Capital was aware that while reigning in management to be more focused on the
core business, it was important not to restrict the creativity inherent in the mindset
of its leader. Ian further adds that venture capital comes in as an investor without a
hidden agenda.
When Foundation made its investment in Mt. Romance, they had to negotiate
hard and fast on the valuation. Because an agreement could not be reached on the
valuation, a pricing ratchet linked to performance was introduced. The Mt. Romance
investment was made in two tranches – the first tranche comprised $1.3m, and the
second tranche of $700,000 was released conditionally upon the successful com-
missioning of the plant and Mt. Romance’s commitment to use the infrastructure to
develop new markets. An earlier angel investor had invested at higher valuations, so
Steve entered into a deal with this investor to protect him from the ratchet. The
operation of the ratchet was a negotiated process that has been sorted out over the
duration of a year. Because Stephen felt it was too punitive, Foundation gave some
of its entitlement back to reward Steve. According to Ian, one of the hardest issues
to negotiate was the Adverse Trading Clause, which basically meant that, if there
was a serious breach of the Shareholder’s Agreement or something catastrophic
happened to Mt. Romance, Foundation Capital could override the Board and come
in and run the company.
How the Venture Capital Process Shaped Mt. Romance
The partnership has grown the equity from $2m to $9m, and now Mt. Romance’s
value is estimated at $30 to $40 million. Both Ian and Steve agree that their partner-
ship has brought commercial discipline and market focus to Mt. Romance, and its
success can be measured in terms of both parties meeting their prime objective of
maximising investment returns through developing the commercial value of the
business. Steve adds that the key benefit of a venture capitalist is providing com-
mercial focus to a company, and from his perspective this has added tremendous
value to the company.
Besides capital, Foundation also provided a good sounding board for Steve’s
ideas and opportunities, and they kept him focused on the 5-year business plan, add-
ing value to the core business of selling bulk oil. They kept Steve focused on the
bulk oil because that was where the volume and margin was. Steve expressed that
going through the process has given their evolving business plan a clear strategic
focus, introducing prudential systems, and encouraging better planning and testing
of ideas. Ian says that they helped to bring structure to esoteric areas, provided guid-
ance on long-range planning, and were instrumental in shaping the culture of the
management team. By shifting away from what was essentially a ‘husband and
wife’ team, Mt. Romance now has a well-rounded management team that will con-
tinue to develop.
In Ian’s view, Mt. Romance has become a more disciplined business and is start-
ing to look more like a public company with a formal Board of Directors, monthly
accounts, proper product certification, quality assurance procedures, established
product development processes that offer their clients a point of differentiation in
terms of new compounds, and effective strategic alliances.
Another area where Foundation Capital played a major role was in facilitating
Mt. Romance to access management expertise and related professional and knowl-
edge networks. For example, Peter Byers, a founder of one of Foundation Capital’s
main investors, UniSuper, brought considerable knowledge of the essential oils
industry and pushed for the Mt. Romance technology to be tested against world-best
practice. He also introduced valuable professional networks, including Professor
Menary from the University of Tasmania who is a leading researcher of essential oil
science and an expert on enhancing sandalwood extraction techniques and yields.
Professor Menary played an important role in improving Mt. Romance products and
processes. Similarly, Robert Mackledown, a previous employee of Essential Oils
Tasmania, was a major contributor to Mt. Romance’s new plant design and to the
optimisation of operations that brought the facility up to industry specifications.
Foundation Capital also brought in a new accountant to up-skill the accounting
function, to improve the balance sheet, and to introducing a new level of financial
reporting consistent with public company standards. Public company standards in
corporate governance were also introduced in the form of regular comprehensive
financial, management and technical reports.
Ian says that a company can do many things, but not all at the same time. For
example, when Steve wanted to enter the ‘cosmo-pharmaceutical’ market, which
uses sandalwood for therapeutic purposes, Foundation Capital steered him away
from this space, primarily because of the possible public liability issues. Foundation
Capital also encouraged Steve to close the retail outlet in Melbourne and sell the
direct marketing business to Herron, allowing him to concentrate on the bulk oil
business and tourism and sales in Albany, and to get away from long-range manage-
ment. As indicated by Ian, the challenge for the near future is to diversify away from
a one-product company. To do this it is necessary to bio-prospect for other com-
pounds and to seek out other sources of sandalwood such as plantations in Shark
Bay and Kununurra. Management succession is also an issue, where there may by
some apprehension in ‘letting go’. There is also a need for staff to change from
generalists to specialists in order for the business to continue growing. Steve adds
that, on a secondary level, the prudential measures required by venture capitalists
provides a degree of credibility that may pave the way for businesses to access alter-
nate sources of capital, as due diligence is often viewed to have been done on behalf
of other financiers and facilitates the mitigation of risk and legwork for subsequent
potential financiers. For example, Mt. Romance’s relationship with Foundation
Capital gave them a good head start in successfully obtaining a second AusIndustry
R&D Start Grant of $1.5 million in April 2003. Steve also adds that Ian is a ‘sea-
soned warrior’ with a lot of experience and a proven track record, and having an
investor with a good reputation is also important when looking to build a good
standing in the industry.
Lessons Learnt from Both Sides
The execution of a share buy-back by the company in more recent times prompts the
question as to whether too much capital may have been invested in Mt. Romance.
However, foundation believes that having the additional capital in the company was
a necessary prudential and appropriate measure given the early stage risks associ-
ated with the investment. If something had gone wrong, immediate access to that
additional capital could have been a crucial factor in the company’s survival.
Foundation Capital also learnt that gaining certification in France was a difficult
process, as it took a lot of time and focus to develop systems that met the require-
ments. The original business plan underestimated the time required to break into
new markets and the subsequent acceptance of a substitute product in established
markets. It was a ‘learn-as-you-go’ process, Ian revealed, where Foundation had to
juggle and amass the necessary knowledge of the product and distillation technol-
ogy as well as an understanding of the markets for sandalwood oil.
Foundation Capital’s decision process involved a lengthy and rigorous proce-
dure. In describing the means of attaining and thriving within the constraints of
venture capital, Steve provides the analogy of joining an elite sports team – in Mt.
Romance’s case with Foundation Capital it was selected to be part of an elite finan-
cial institution. In terms of lessons learnt from his encounter with venture capital-
ism, Steve endorses that going through the process of due diligence and Heads of
Agreement was a valuable exercise, as ‘everyone can have a good idea, but ideas
need a lot of hard work to become commercially viable and profitable’.
Steve realises that venture capitalists belong to a very serious, systematic, insti-
tutionalised industry, and their directive is to ultimately mitigate all possible risks
and achieve superior returns for their own investors. Their nature forces them into
a bureaucratic system driven by finance and driven by shareholder demands. For
example, Foundation Capital’s role is to take care of retirees in Australia and ensure
they get a return on their superannuation investment. He likens ventures capitalists
to bulldogs – strong, hard business people with aggressive personalities who push
their way through. They do not seek to be personally involved in the business and
remain unattached until a problem occurs, while for Steve ‘the business is his life –
his baby’. In the end: ‘They mature you in terms of discipline and harden you by
forcing you to make difficult decisions. This is all good stuff if you want to make
money; the partnership between us has brought significant financial rewards to
both sides.’
Steve stresses that it is important for the CEO not to ‘self-destruct’ by dwelling
on conflicts that arise and taking issues personally. He adds that the process is chal-
lenging to one’s physical and psychological state, but it is up to the entrepreneur to
actively shape the situation to one’s own advantage. One must be able to ‘absorb the
good, brush off the bad and to balance pessimism (the investor) with a good dose of
optimism (Steve)’. Steve says it is valuable to have the ability to recognise opportu-
nities within a context of threats and weaknesses. He says it is the venture capital-
ist’s role to be the ‘devil’s advocate’, where they are on the constant lookout for the
threats and weaknesses of the business, whilst it is important for the entrepreneur to
be ‘driven by seeing the good in something bad’. The reality, as Steve points out, is:
‘It is lonely at the top. It is a stressful existence – it either kills people or prematurely
ages them!’ He states reassuringly that, along with the hard work, the rewards in
terms of improving one’s lifestyle will become evident with time.
Issues for a Regional Business
Ian elaborates that one of the challenges associated with managing a regional invest-
ment is that ‘you can’t just drop in to see how things are going or to address an
emergency. However, when you do go and visit, you can focus on the investment
because there are less interruptions.’ The remoteness of Albany means that there is
a pronounced lack of diversely skilled local workforce and highly qualified person-
nel, which does affect the business’s ability to resource. For example, one can be
limited to what accounting packages can be used because it is difficult to find local
people familiar with them. However, Ian points out, ‘you do get good value for
money from the human resources available, as Mt Romance is seen as a huge oppor-
tunity to its local employees and they take a lot of pride in working there.’
Steve advocates that the growth and vitality of Mt. Romance has been largely a
result of the dedication, energy and expertise of the company’s regional staff. To
illustrate this point, he says that a team of Albany-based staff have coordinated the
design and construction of the sandalwood factory, including its corporate image,
products and marketing initiatives. Steve also corroborates Ian’s view, saying that
the most significant challenge for Albany is that a significant amount of people lack
education, have low computer literacy, and are mostly lifestyle oriented. Within a
population of 30,000, the narrow employment pool limits the number of employees
to between 400 and 500 potentials. On the other hand, Albany does offer good voca-
tional training of tradespeople, and Steve is actively involved in efforts to train and
develop future generations by offering sponsorships to school children and being on
the Board of the University of Western Australia’s Albany Centre. In his opinion,
society has to change in order for businesses to advance.
Steve has been hailed as the ‘Sultan of Sandalwood’ in Tim Fisher’s book,
Outback Heroes – a tribute to rural Australian entrepreneurs who have overcome the
odds to create sustainable futures for their businesses and the regional communities.
His personal ‘catch cry’ is ‘how do you value-add, how do you create something
novel and new?’ He says for the region, ‘the point of difference is to create busi-
nesses with high growth potential in the community that can sell goods and services
to another region, nationally or overseas’. To attract equity into a business Steve
advises to prepare a business plan to improve the blueprint of the company, invest
wisely in information technology, and introduce strategic vision into the company.
It is also important for businesses to bring other people along for the ride, which
can include angel investors and shareholders from the region – but avoid giving
away equity in the business too early. Using available government assistance in
terms of expertise and funding is also a route not to be ignored, as it can provide the
company with the necessary infrastructure and knowledge to pursue venture capital.
Steve feels that it is important for the government and other regional commercial
and economic development institutions to help create the culture of sourcing ven-
ture capital among regional enterprises.
Steve also notes that another barrier to venture capital investment for regional
businesses could be attributable to their isolation from the marketplace and the
resultant difficulties in communicating with potential customers. On the other hand,
it seems evident that the government helps regional businesses more than Perth
businesses in terms of raising awareness, as they have sent bankers and investors on
tours of regional businesses, and AusIndustry has established a regional office in
Bunbury with organised seminars and information sessions.
According to Steve, a business is ready for venture capital investment when they
have gained a good track record in terms of sales with a decent margin; they must
have the necessary resources in place (around $1 million), and adequate intellectual
property protection. He adds that many business owners in the region usually
approach venture capital with a laid back altruistic and idealistic attitude, where one
is constantly pursuing ‘holy grails’ – essentially preventing any ‘seed culture’ to
blossom.
Ian says that the remote and unique location of Mt. Romance can be a benefit:
… as people will travel a long way to experience new things, and the lifestyle of rural
Australia can also be attractive. For example, going to Albany and Kalgoorlie is a very
novel experience for a French perfume company executive. It is often harder to get someone
from Sydney to come to Perth than it is to get an overseas person to visit Albany.
Modern communications and technology have also made remote management

much easier, and Foundation Capital is keen on making other investments in rural
WA – but the problem is finding the deals.
Acknowledgements This case was prepared in conjunction with the Australian Venture Capital
Association Ltd.
Work Book: Intellectual Property
Management 13

• Understand the nature of intellectual property and IP rights.
• Review basic legal frameworks and sources of IP protection.
• Understand the relationship between IP, innovation and business growth.
• Review different approaches to valuing IP assets.
• Understand the process of commercialisation.
13.2 Chapter Review
This chapter has provided an overview of the nature of IP and how it is protected
and valued. A key issue in successful commercialisation of innovation is the identi-
fication, ownership and protection of creative output and proprietary knowledge. IP
can be formally registered (e.g. patents, trademarks) or automatically assigned upon
creation (e.g. copyright). The formal registration of IP provides the recognition of
rights, but does not of itself provide legal protection. An IP strategy needs to be cre-
ated that serves to protect IP and foster its development from intellectual capital,
through intellectual assets to IP. It is important to register IP assets within a business
via an IP portfolio, to place a valuation on these, and to make strategic decisions as
to whether to proceed with their commercialisation or not. Commercialisation is a
high risk and costly process, and having a formal approach to its management as
illustrated by the IDD framework can be beneficial.

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154 13 Work Book: Intellectual Property Management
13.3 Key Lessons
• According to the World Intellectual Property Organisation (WIPO), “Intellectual

property (IP) refers to creations of the mind, such as inventions; literary and
artistic works; designs; and symbols, names and images used in commerce”.
Ownership of IP allows individuals or companies to enjoy financial benefits from
the sale or licencing of this IP.
• Formal IP rights are conferred by government authorities in each jurisdiction.
These rights require the rights holder to formally register their IP with the appro-
priate authority and pay a fee.
• Before a patent is registered, it must be demonstrated that the invention or pro-
cess is able to meet three general criteria: it must be new, it must involve an inven-
tive step, it must have industrial application. A patent provides patent owners
with protection for their inventions for a limited period, generally 20 years.
1. Patents are granted to the patent owner by the sovereign state for exclusive
title to the use, sale and licencing of a device, substance, method or process.
This right provides the patent owner with the exclusive right to commercially
exploit the invention. A patent gives the owner the right to stop others from
using your invention. Alternatively, the owner can choose to let others use it
under agreed terms.
2. It is not compulsory for a patent to be registered but, once it is, the inventor
must accept the risk that the publication of the patent will result in others
copying the idea and thereby breeching their patent rights.
• A trademark is a distinctive sign that identifies certain goods or services pro-
duced or provided by an individual or a company. The system helps consumers
to identify and purchase a product or service based on whether its specific char-
acteristics and quality meet their needs.
• An industrial design is the ornamental or aesthetic aspects of an article. A design
may consist of three-dimensional features, such as the shape or surface of an
article, or two-dimensional features, such as patterns, lines or colour.
• There is also the option of employing confidentiality and secrecy within the busi-
ness to secure IP rights. The company should then require all employees and
third-party actors to sign confidentiality or non-disclosure agreements. Use of
confidentiality or secrecy provisions may be appropriate where IP cannot be eas-
ily patented or registered, or where the process associated with the production of
the product or process is particularly complex and where reverse engineering is
less likely.
• For many companies, the most valuable long-term protection for their products
and services is the development of a well-recognised brand name. The end result
of a well-considered branding strategy is the generation of substantial ‘goodwill’
in the market.
• Any IP strategy should be integrated into the overall business strategy, and should
be included in business and marketing plans. The value lies with IP that has
clearly defined ownership and that is aligned with the strategic directions being
followed by the company.
• The value of IP assets is often greater than the value of physical assets, and it is
advisable to have IP assets formally valued and their value recorded within the
firm’s assets register and balance sheet. It is thus important not only to protect IP,
but to also value it appropriately. The five common mistakes on that matter are:
1. to enter into negotiations with a third party over a joint venture, merger or
acquisition without first properly valuing their IP assets.
2. to undervalue the IP assets, looking at what they are worth today rather than
what they might be worth in future alignment with the assets of another
partner.
3. to undervalue corporate brands that have been created over many years and
would cost substantial amounts to generate from scratch.
4. to value IP assets only after the deal has been negotiated.
5. to value all IP assets collectively rather than individually.
• There are many different techniques that can be used to value an IP asset, and this
is still an emerging field of activity. A number of different approaches to the valu-
ation of IP assets have been identified. These include the cost, market, income,
relief from royalty and real options approaches.
• IP rights provide the firm with an ability to generate “isolating mechanisms” that
can prevent competitors from securing a similar opportunity in the use of the
innovation.
• One way to secure isolating mechanisms without formal disclosure is the adop-
tion of Trade Secrets which generate causally ambiguous competencies. There
are at least three key sources of causal ambiguity: Tacitness, Complexity and
Specificity.
• When entering a licence agreement at least four key issues need to be addressed:
specifying the agreement boundaries, determining the compensation, establish-
ing rights, privileges and constraints; and specifying the duration of the
agreement.
1. Consider the IP management processes within your own organisation or an

organisation with which you are familiar. Review the current systems of identi-
fying, valuing and protecting IP assets. Are these systems well structured? What
changes can you recommend?
2. Using the IP asset management system outlined in chapter 13 (see Figure 13.3)
by Harrison and Sullivan (2000), and the best practice systems for new product
development outlined by Akgun et al. (2004), critically evaluate the commer-
cialisation and NPD systems of your own organisation or an organisation with
which you are familiar.
3. Consider the three IP assets showcased in the chapter: The Orbital engine, the
Redheads trademark, and the Sebel stacking chair. If you had to put a valuation
on each of these, what method or methods would you choose and why?
For your fifth journal entry, research the following:
• Find and cite your own (i.e. unique to your knowledge) example of a recent (i.e.
in the past 3 months) article in a respected business newspaper or journal such as
the Australian Financial Review, Business Review Weekly, The Economist,
Business Week or similar journal that features:
1. a disruptive technology or service,
2. the value of intellectual property (IP) and its protection, or
3. team building and leadership within entrepreneurial firms.
• Discuss the article’s contents and why you chose it, with reference both to what
has been covered in this unit and to your personal/work experiences.
13.6 Group Exercise: Professor M’s Dilemma
review the content from Chaps. 7, 8, 9, 10, 11, 12, and 13, and apply their content
to addressing a complex problem. Read the following problem and then in a group
of other students, solve the problem. Further details of the task are found below.
Professor M from the University of Western Australia (UWA) has invented a new
process for extracting a by-product from the shells of crustaceans such as lobsters
that can provide a significant pain relief medicine for people suffering from Arthritis.
While these ingredients are already in use within the pharmaceuticals industry the
process innovation developed by Professor M is a significant breakthrough and
offers a pure form of the base compounds. Further, the ingredients are currently all
imported. Professor M has secured an agreement with the WA Rock Lobster indus-
try to provide him with a constant supply of lobster shells from their processing
plants that would otherwise be discarded as land fill waste. According to Professor
M:
The innovation is related to the method of preparation of a product available in the market
and its benefit is widely accepted by consumers nationally and worldwide. The product is
supplied nationally only via importation from overseas while ironically the Australian fish-
ing industry is spending money to dispose of a waste which is the source of the product. So,
there is a market in Australia for sufferers of Arthritis and clearly our process is viable
presenting an opportunity to eliminate waste and also providing the product at a competi-
tive price.
Professor M has been assisted by the UWA Commercialization Office to develop

a business plan that seeks to establish a joint venture with a private sector partner.
13.6 Group Exercise: Professor M’s Dilemma 157
To date Professor M and UWA have not developed a strategy for how they will deal
with their Intellectual Property rights and do not make routine use of non-disclosure
agreements although they do mark documents “CONFIDENTIAL”. They are yet to
formally register their IP rights and feel that this should be done prior to the forma-
tion of the joint venture.
The business plan calls for the establishment of a factory to process the shell fish
waste and extract the by-product. It even details the need for the purchase of some
trucks and the hiring of drivers to address the logistics of the project. However,
Professor M is concerned about the future that this plan outlines for his process. He
is not sure whether he should seek to leave his teaching and research work and go
into the joint venture as the Director of R&D as proposed. He is also not sure if the
University has assembled the right people to lead the company and what the overall
governance structure of the new venture should be. He has had previous experience
working within major pharmaceuticals firms overseas and is aware of the way such
businesses manage their commercialization process. He has not seen any evidence
that the University has such experience. According to Professor M:
At this point in time to protect our IP we are operating with the signing of confidentiality
agreements or a signing of a contract when dealing with potential business partners. In the
short term we will be filing for a provisional patent which will give us a bit of time to
improve on our innovation and also to attract business ventures. In a year’s time we will be
able to lodge a full international patent to western countries only. The natural progression
is to set up a company or license the technology to someone else applying an annual fee or
percentage on the holdings of the company.
Professor M remains concerned that his research can continue to benefit Arthritis
sufferers.
Your Task Explained
Chap. 3. The group should follow these steps:
states.
problem.
6. Draw on material from the text, in particular Chaps. 7, 8, 9, 10, 11, 12, and 13,
and other readings to help you build an evidence-based argument and follow the
Read the AQ2 Smartaflow case study in Chap. 11, which provides an example of a
new technology seeking to achieve commercialisation. Once you have read the case
you should then answer the following questions:
• What were the key technical and marketing problems facing Chris Speight when
he was trying to commercialise his product?
• How important is IP protection for the future commercialisation of the Smartaflow
Chlorisafe system, and what has been the approach taken by AQ2 in protecting
its IP assets?
• If you had to draw up an IP strategy for AQ2, what might be the things you would
want to consider? In doing this, make reference to what they might include in an
IP asset register and how they might value these assets.
• AQ2 has alliances with the Water Corporation, Baker’s Junction Machinery and
several sub-contractors. Discuss the benefits of these alliances as well as the
potential risks with reference to the protection of the company’s IP assets.
References
Akgun, A. E., Lynn, G. S., & Byrne, J. C. (2004). Taking the guess work out of new product
development: How successful high-tech companies get that way. Journal of Business Strategy,
25(4), 41–46.
Harrison, S., & Sullivan, P. H. (2000). Profiting from intellectual capital: Learning from leading
companies. Industrial and Commercial Training, 32(4), 139–148.
Work Book: Social Innovation
and Enterprise 14

• Understand the concept of social entrepreneurship.
• Define social entrepreneurship and innovation, and distinguish them from
traditional entrepreneurship.
• Recognise the importance of the social economy.
• Understand the nature of co-operative enterprise and its contribution to
economic and community development.
• Understand the theory of community-based enterprise.
• Examine the role of social entrepreneurs via case studies.
14.2 Chapter Review
This chapter has provided an overview of the concepts of social entrepreneurship

and innovation. It has highlighted the fact that social entrepreneurs use the same
skills and behaviours of traditional entrepreneurs, but for a social rather than an
economic purpose. The social entrepreneur can be found in a wide range of environ-
ments that can include non-profit and voluntary organisations through to for-profit
organisations. Social entrepreneurship seeks to build a social value proposition that
draws together people and capital to exploit opportunities for social capital build-
ing. Social entrepreneurship and innovation are new and emerging concepts that
remain poorly defined. However, since the 1990s there has been a growing recogni-
tion of the importance of the social economy and the social enterprise. The ‘third

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160 14 Work Book: Social Innovation and Enterprise
way’ was a reaction to the ‘economic rationalism’ that became prominent in the
1980s. An important form of social enterprise is the co-operative. This type of busi-
ness model has been in operation for centuries, and the principles of the Rochdale
Society founded in 1844 remain the basis for the global co-operative enterprise
movement that encompasses some of the largest business organisations in the world.
Co-operatives offer economic and social benefits to their members and can be found
in a wide range of industries. They play an important role in regional and commu-
nity development. However, co-operatives suffer from some generic problems asso-
ciated with their collective ownership rights, and recent trends have seen the
formation of a new generation co-operative business model designed to alleviate
some of these problems. The theory of community-based enterprise (CBE) suggests
that, where a community is suffering economic or social stress but has a tradition of
collective problem-solving and sufficient social capital willing to become involved
and provide the necessary critical mass, a CBE can form. It will be based on avail-
able community skills, have a range of goals, and succeed if there is sufficient com-
munity participation.
14.3 Key Lessons
• While entrepreneurship has been viewed as a process of self-directed, individu-

alistic and profit maximising opportunism, the reality is that many entrepreneurs
and innovators are not totally focused on personal wealth creation.
• Social entrepreneurship can be defined as innovative, social value creating activ-
ity that can occur within or across the non-profit, business or government sectors.
Rather than a dichotomous separation into for-profit and not-for-profit forms of
entrepreneurship, the process should be viewed as a continuum that ranges from
the purely social to the purely economic.
• Social entrepreneur differs from that of the traditional entrepreneur in several
ways: (i) the context in which the social enterprise venture is taking place (e.g.
performance measures), (ii) their deployment of resources (e.g. much of the
work force may be voluntary in social ventures), (iii) the deals they do (exchange
assets of a non-economic value for social ventures, of economic value for con-
ventional ones).
• By its nature, a social innovation must meet the test of innovation by being new
or novel and also by being primarily for the wider social benefit.
• The concept of the social economy traces its origins back to at least the early
nineteenth century (encompassing voluntary and non-profit organisations, chari-
ties, philanthropic organisations and foundations). The rise of the economic
rationalism of the 1980s did not meet with universal approval, and this has given
the notion of corporate social responsibility (CSR). The 1990s saw the emer-
gence of a greater recognition of the social economy that included co-operative
enterprises, non-profit organisations and the role of voluntary, community and
philanthropic activities.
• Under the European Charter of the Social Economy, an organisation falls within
this arena when:
1. It is an autonomous enterprise.
2. Its members join voluntarily, are responsible, have equal rights and obliga-
tions, and are focused on self-help interest.
3. They must also be democratic (e.g. one-member-one-vote), and members
must own at part of the assets.
4. They should also be designed to provide services for the exclusive benefit of
their members, and be member not investment focused.
5. The creation of employment and the enhancement of member welfare and
education also define these organisations.
6. Finally, they should be independent and autonomous from the state.
• One of the oldest and most enduring forms of social enterprise is the co-operative,
or mutual business. A co-operative is an autonomous association of persons
united voluntarily to meet their common economic, social and cultural needs and
aspirations through a jointly-owned and democratically-controlled enterprise.
• Despite many having been founded in the 19th and early 20th Centuries, many
mutual enterprises have been demutualised and converted into investor owned
firms. This has particularly occurred in the banking and financial services
sector.
• CMEs should not be confused with non-profit organisations, and they are in
many respects not really part of the Third Sector. The Co-operative is a different
form of social enterprise and forms what might be described as the Fourth Sector.
Co-operatives are generally established primarily for the economic benefits they
can provide to their members, with social benefits as a secondary issue.
• The co-operative principles, as for the International Co-operative Alliance, are:
(i) voluntary and open membership, (ii) democratic member control, (iii) mem-
ber economic participation, (iv) autonomy and independence, (v) education,
training and information, (vi) co-operation among co-operatives and (vii) con-
cern for community.
• The co-operative business model is thus viewed as offering an ideal balance
between the objectives of profit and self-interest, with the capacity to provide
services where they are required.
• Co-operatives have proven to be a successful and enduring business model they
suffer from what have been defined as the five generic problems, most of which
relate to the issue of vaguely defined property rights:
1. The free rider problem emerges wherever property rights cannot be traded, or
where they are insecure or unassigned.
2. The horizon problem emerges where the residual claims a member of a co-
operative might make over the net income generated by an asset is shorter
than the productive life of that asset.
3. The portfolio problem emerges from the lack of transferability and liquidity
of the members’ equity in the co-operative enterprise.
4. The control problem emerges from the divergence of interests that takes place
between the co-operative membership and its management.
5. The influence cost problem: For many co-operatives, the strategic focus
becomes fuzzy and the enterprise seeks to engage in a wide range of diverse
activities.
6. New Generation Co-operative’ (NGC) are designed following a business
model that will overcome the generic problems inherent in the co-operative
enterprise. The NGC is thus a one-member-one-vote democratic organisation
in keeping with the principles of the co-operative, but where earnings are
distributed based on shares owned by members. Unlike the traditional co-
operative, membership is restricted.
• Community-based enterprise (CBE) occurs where a community acts in an entre-
preneurial way to create a new enterprise that remains embedded in the existing
social structure. Such CBEs are formed and managed in order to pursue the com-
munity’s economic and social goals in a way that offers sustainable benefits for
both the individual and the group.
• The characteristics of the CBE are: Based on available community skills, A mul-
tiplicity of goals. Dependent on community participation.
The purpose of this assignment is to assess your understanding of the concepts

associated with social entrepreneurship, co-operative and mutual enterprises. Write
a research paper of around 2500 words and address the following issues:
1. What is the social economy and why should it be recognised as an important

element in the wider national economy?
2. With reference to the principles of the co-operative movement, discuss why the
co-operative is a unique form of business enterprise.
… The concept of a business model has no established theoretical grounding in

economics
Read the Bendigo Bank case study, which provides an example of a community-
based enterprise and social entrepreneurship project. Once you have read the case,
you should then answer the questions below.
14.6 Case Study: Bendigo Bank, Tambellup and Cranbrook 163
Questions/tasks
1. What were the key motivations as well as the key challenges faced by Vicki
Brown and Jan Pope in trying to get the Bendigo Bank established in Tambellup
and Cranbrook?
2. Discuss, with reference to the case, what this suggests about the nature of social
entrepreneurship and innovation. Does it support the theory of community-based
enterprise?
3. Do you think that Vicki Brown and Jan Pope can be called social entrepreneurs?
Give reasons why you either agree or disagree.
14.6 Case Study: Bendigo Bank, Tambellup and Cranbrook
By: Amada Jappu.
We deserve a better deal on banking. Banking is an essential service. They have betrayed us
with their failure to deliver basic access that is fair and affordable … costs have risen, cus-
tomer service is poor and branches have closed, Louise Petschler, senior policy officer,
Australian Consumers Association.
In August 1998, two women were listening to the radio. Vicki Brown, in
Tambellup in the Wheatbelt of Western Australia, and Jan Pope, 40 kilometres away
in Cranbrook, were listening to the same show. On it Max Trenorden, the State
Member of Parliament for the district of Avon, was discussing his recent visit to
Victoria to attend the opening of the first community bank there. Both women
reached for the phone at the same time to ask Trenorden whether a community bank
would work in their communities, and the idea for the Tambellup and Cranbrook
Community Bank was conceived.
A Brief History
About 12 years ago, both the Bank of New South Wales and Westpac announced
that they were closing their Cranbrook branches. In 1996, the Westpac branch at
Tambellup also announced that it was closing. The branches were first reduced to
agencies, and then these were also closed. People in the shires had to go to
Katanning, Albany or Mount Barker in order to do their banking. Local businesses
and even local government officials had to drive distances of up to 100 km with
large quantities of cash. At the same time, people did their shopping and other
errands there, meaning that Tambellup and Cranbrook lost not just their banking
business but that other small businesses also suffered. Tambellup estimated that it
was losing $26,000 per week in ancillary business to other towns. Shopkeepers had
to keep high levels of cash on their premises in order to cash pay cheques for agri-
cultural workers, and the agri-business incubator began to suffer because there was
no bank in the area. Many businesses and organisations began to ask whether it was
worth going into these towns because of a perception that they weren’t big enough
to have their own bank.
Vicki Brown, a local councillor for Tambellup, tried to get various credit unions
interested in opening a branch there through the Australian Federal Government’s
Credit Care programme. The credit unions did not feel there was critical business
mass; and nor was the community supportive of a credit union because they wanted
full banking facilities. Other banks that Vicki tried to persuade to come to Tambellup
felt that they did not have the agri-business knowledge and that the business base
was too small. They felt that internet banking was the way forward.
The Bendigo Community Banking Model
Successful communities create successful banks. (S. Cornwall, Manager, Bendigo Bank)
Bendigo Bank’s community banking model was developed in response to

demand for local bank branches from small mining communities in Victoria,
Australia. The aim was to provide basic banking facilities in the short-term, and to
provide improved return on capital and enhanced community prospects in the lon-
ger term.
Each community bank is operated as an individual company under a franchise
arrangement. The community purchases the right to run a banking branch from
Bendigo Bank. The community company has to raise funds to purchase the fran-
chise, secure the branch premises, and them equip them, select and recruit staff, and
pay branch running costs. Bendigo Bank provides a banking licence, a full range of
products and services, staff training, systems, marketing and back office functions
such as treasury and cash management. Bendigo Bank also underwrites all loans
made by the branch, thereby taking on the credit risk.
The franchise is owned by shareholders or ‘contributors’ from the local commu-

nity. The maximum shareholding is $10,000 and each shareholder, no matter how
big their investment, has one vote. This ensures that power is not concentrated in the
hands of a few individuals. The aim is to have as wide a shareholder base as possible
to ensure community ownership. In the case of Tambellup and Cranbrook, the up-
front cost of the franchise was $50,000 for 5 years, and Bendigo Bank takes an
annual fee of 50 percent of gross profit.
Getting It Going
Responding to the calls from Jan and Vicki, Max Trenorden approached Bendigo
Bank to ask them if they would visit Western Australia (WA). At the time, Bendigo
Bank did not have a presence in WA. In order to make the visit worthwhile, they
required at least five communities to be interested in a community bank, each with
certain minimum populations. Tambellup and Cranbrook offered to be two of those
communities; the others were Kulin, Goomalling and Frankland.
In February 1999, representatives from Bendigo Bank addressed a local govern-
ment meeting in Perth attended by Jan. Following this, Vicki and Jan organised
community meetings in Tambellup and Cranbrook on consecutive days for Bendigo
Bank to present the community bank model. Vicki and Jan printed flyers which
were mailed to every ratepayer in the shires. Vicki admits that the flyer she sent out
in Tambellup was intentionally confrontational, telling people to,
… Stop moaning about having no bank and do something about it.
Sheer hard work and persistence was vital; Vicki and Jan called everyone they
could reach in the Tambellup and Cranbrook telephone books to gauge interest and
encourage them to come to the meetings.
At the first community meeting in Tambellup, at which Bendigo Bank presented,
only 70 people turned up. Out of a population of 750 this was less than 10% success
rate. Many of those that came did so only to complain about the ‘rude’ flyer. Jan
attended the meeting in Tambellup and saw how many people were there. She knew
that they had to get at least that many people, if not more, to the Cranbrook meeting
the following day. She drove home after the Tambellup evening meeting, arriving
after midnight, and spent the night sending fax messages to as many people as she
could, encouraging them to attend. The next day, she got on the phone and called
more people. She succeeded in getting 75 people to the Cranbrook meeting that
night. Again, out of a population of 1150, this was still a poor percentage.
Despite the disappointing attendance, the meetings were a success because the
idea gained unanimous support. At the meetings, volunteers were asked to partici-
pate in Steering Committees for both shires. Jan became Chair of the Cranbrook
Steering Committee, and Vicki became Chair of the Tambellup Committee. Each
had 12 members.
Working Together
Tambellup and Cranbrook had a joint cricket team that travelled together to other
parts of the state to play. Although they had never worked together on a major com-
munity project, they used the cricket team as a basis for coming together.
For example, … “They were smart enough to realise that they couldn’t do it alone. The
friendly rivalry between the communities helped. They were two of the smallest towns in
Australia to host community banks. It was the first joint branch and was one of the things
that made the project unique” (S. Cornwall, Manager, Bendigo Bank).
The friendly rivalry was used to advantage. Jan would tell people in Cranbrook
that Tambellup had raised more contributions than them, and Vicki would tell peo-
ple in Tambellup that Cranbrook had raised more. A little emotional blackmail was
used to turn parochialism on its head for the benefit of the community.
A Painful Process
The steering committees arranged for a feasibility study to be conducted by Bird

Cameron accountants. Tambellup and Cranbrook were fortunate in receiving some
government funding for the feasibility study. The government contributed $10,000,
and each shire had to pay $5000 each for the study. Survey questionnaires were sent
to every business and householder in the shires asking about banking business vol-
ume. Forty-two people were interviewed by Bendigo Bank and Bird Cameron. The
feasibility study estimated that there was $100m of banking business in both shires,
comprised of farming, small business and personal banking. The study estimated a
portfolio of $26.7m of business by the end of the 3rd year of operation, meaning that
the joint branch would achieve sufficient business volume to go ahead.
Following the feasibility study, the steering committees had to call on local peo-
ple to pledge to become shareholders. It was no small feat to convince people to
invest prior to opening. There was no guarantee of the level of business that would
flow to the bank after opening, and investors had to be made aware that they would
be unlikely to receive a return on their investment for 4 or 5 years. In addition, they
could only buy or sell shares once every 6 months. It was an ‘act of faith’; there was
no guarantee of success.
According to Vicki Brown, … “Both Jan and I felt burdened with guilt and worry. We were
recommending that people invest their money in a project, and these people were our
friends and neighbours – if it failed, we would feel responsible.”
The steering committees estimated that $200,000 would be needed for start-up.
However, as the franchise was shared between two towns, it required two buildings
and two fit-out costs, so the actual start-up amount was much higher than this.
$295,000 was raised through contributions from community investors; with an
average investment of only $2000, this was a testament to the number of community
investors involved.
Vicki Brown and Jan Pope describe themselves as a ‘civic mothers.’ During the
9 months between the start of the project and the bank opening, the steering com-
mittees spoke to every local organisation and group that they could get access to,
and over 20 community meetings were held. Any conflict that arose during these
meetings was resolved then and there, ensuring that everyone had a common
understanding.
There were no funds available for marketing, but despite this, lots of excellent
publicity was obtained by the steering committees. As well as the local Tambellup
Topics and the Cranbrook News, local papers in Katanning and Albany were pre-
sented with stories and photographs. In most cases, the publicity referred to the
bank as the ‘community bank’ or ‘your bank’, rather than as ‘Bendigo Bank’, in
order to engender a feeling of community ownership.
The steering committees evolved into legal Board structures. Once people had
given pledges to become shareholders, a formal prospectus had to be issued in line
with Australian Securities and Investments Commission (ASIC) rules. Compliance
with ASIC rules and the responsibilities of company directors were more onerous
than many Board members had imagined, and the due diligence process (i.e. the
process of ensuring that accurate, legal and regulatory information appears in the
prospectus) was arduous. The Board was used to dealing with local community
issues, but not with business and commercial issues.
As explained by Vicki Brown, … “We didn’t know what we were doing sometimes and we
had to seek help from external sources. Bird Cameron helped. We had a former bank man-
ager who lived here and we asked family, friends, accountants – anyone who could help.
Most important of all, we had each other for support – we were all in the same position so
we weren’t working in isolation.”
There were community concerns over confidentiality. Some people thought that
the board members and employees of the bank would know their financial details.
The board had to work hard to convince people that the strictest confidentiality
would be maintained by employees, and that the board members would not have
access to any account information. They had to convince people that it was properly
segregated and legitimate. This has had to be continually demonstrated, and yet
people still stop board members in the street to ask why their loan wasn’t approved,
or other questions connected with their banking.
Many people in the community thought the bank would fail. At the time prior to
opening, the ABC was running a fictitious TV programme called Sea Change,
which featured a corrupt councillor and his girlfriend who were planning to run off
with the community bank’s money. In addition, the Cranbrook shire had lost money
in 1991 as a result of the collapse of the Permanent Building Society, making people
very wary of new financial enterprises. The big four banks (ANZ Bank, Westpac,
NAB and the Commonwealth) were regularly in the press denigrating Bendigo
Bank and warning that its credit rating was low.
These hurdles were overcome through persistence and through a feeling that it
would be worth it in the end. The banks opened in November 1999 with street par-
ties and great fanfare in the local communities.
According to Jan Pope, … “We pushed through the obstacles as they came up. The process
took nine months, and it was like giving birth – only harder. But it was simply the right
thing to do for the community.”
The First Year
Waivers of fees and duties were offered for a short period after opening to encour-
age people to switch banks. The bank is staffed by local people – Keith McLuckie
is the Bank Manager, and there is one full-time Customer Service Officer, Beth
Trezona, who had moved out of the area but came back to work in the bank. In addi-
tion, there are two part-time Customer Service Officers. The staff are shared between
the branches, with each branch open for three half-days per week. A full range of
household and business services is provided, including financial advice and tax
planning. Online banking is available but is not promoted; the aim of the commu-
nity bank is to encourage people to come into the branch to do their banking.
The first year was the most difficult time. 1999 was not a good year for local
agriculture. Local people were slower than expected in moving their accounts to the
community bank, making the first 12 months a ‘touch-and-go’ period, with some
people sitting on the fence because they were uncertain that the bank was a safe
place for their money. Unexpected competition arose from Elders, Australia Post
and rural transaction centres. Cash flow was strained and an overdraft was required
from Bendigo Bank. This was unusual, only one in five branches usually requires
overdraft facilities, but costs were higher than anticipated because in this instance
there were two premises to pay for.
The community also had some issues with Bendigo Bank as the franchisor. At
the beginning, the whole concept of community banking took off so fast that
Bendigo Bank did not really have the people to cope with it. The needs of rural
producers in WA are very different to those in Victoria. Bendigo Bank was conser-
vative and somewhat inflexible in its lending policies because it didn’t really under-
stand the financial issues facing farmers, such as seasonal cash flow. Thus, the
requirement for security was higher than farmers were used to.
Four Years of successful Operation
At the time of writing, the fourth year has shown a gross profit of over $2m, and a
small dividend will be paid to investors. The bank now has a business portfolio of
$34m in business, with 1724 accounts and the potential for further increases because
there are still some ‘fence-sitters’ in the community. In year three, a portfolio of
$31.5m was achieved, exceeding the $26.7m estimated in the feasibility study. Out
of net profits, half will be returned to investors and half will be used as seed funding
for community projects. Profits from the bank are generated by postcode, so any
surplus will be distributed back to those areas that have given the bank the most
profitable business. An independent panel will be set up with requests for funding
sought from local community groups. In this way, the community can reap the ben-
efits of its efforts and keep the proceeds within the towns.
The range of rural banking products has been improved and expanded by Bendigo
Bank over the past 3 years. Lending guidelines have been altered to be more accom-
modating to rural producers. The bank manager, Keith McLuckie, has written a
rural banking policy for Bendigo Bank.
The bank returned the banking service to the community and provided work for
local people, but this only scratches the surface of the difference the bank has made
to the local communities. The communities achieved something together that lifted
community spirit. Beth Trezona, a local resident, returned to the town as a result of
the bank. At a recent high school graduation ceremony, one of the girls graduating
said that her ambition was to work in the community bank; this was a chance for the
town to see how the bank helped to attract and retain its young people. School bank-
ing was provided, and most of the local children have a savings account. Local busi-
ness owners report that bank opening days are now their busiest times. More
importantly, the bank has been used as an icon of what the community can achieve
and as a catalyst to do other projects; they succeeded with the bank, so why shouldn’t
other community improvement projects succeed?
Reflecting on the process, both Vicki and Jan admit that they had days when they
nearly gave up on the project. Both of them claim that they were not responsible for
the success of the project, and that it could not have happened without the involve-
ment of many people. Certainly, they were responsible for starting the project and
getting community buy-in. Overall, they say that the most wonderful thing is the
enthusiasm and optimism of a rural community doing something for itself.
As noted by Keith McLuckie, … “The best thing is the way people talk about ‘their’ bank.
There is no bank-bashing here. The community completely embraced it and is proud of
what they’ve done.”
Appendices
ppendix A – Work Book: General Measure of Enterprising

A
Tendency (Version 2)
Sally Caird
Introduction
Enterprise may be expressed by starting your own business, operating as an intra-
preneur within an organisation or setting up community ventures. This self-assess-
ment should take you about ten minutes to complete and will give you an idea of
your enterprising potential. There are no right or wrong answers, you are asked to
decide if you tend to agree or disagree with each statement. For each statement
select the answer which best expresses your views. Answer quickly and honestly
since this gives the best picture of yourself.
Instructions for Completing Test

Go to the online portal: http://www.get2test.net/index.html#home
Click on the “TAKE GET2” button and follow the prompts as you work through
the questionnaire. There are 54 questions and you must answer all of them by sim-
ply agreeing or disagreeing with each statement.
Once you have completed the test press the button marked “How enterprising
am I?”
This will automatically generate a report that you can print out from the
website.
Print your report (perhaps as a PDF file) and read the findings carefully with refer-
ence to the information on the GET Test outlined in Chap. 2 of the textbook.

https://doi.org/10.1007/978-981-13-9416-4
172 Appendices
Questions
1. I would not mind routine unchallenging work if the pay and pension prospects
were good.
2. I like to test boundaries and go where no one has gone before.
3. I tend not to like to stand out or be unconventional.
4. Capable people who fail to become successful have not usually taken chances
when they have occurred.
5. I rarely day dream.
6. I have strong opinions and find it difficult to switch off from work.
7. You are either naturally good at something or you are not, effort makes no
difference.
8. Sometimes people find my ideas unusual.
9. I would rather buy a lottery ticket than enter a competition.
10. I like challenges that stretch my abilities and get bored with things I can do
quite easily.
11. I would prefer to have a moderate income in a secure job rather than a high
income in a job that depended on my performance.
12. At work, I often takeover projects and steer them my way without worrying
about what other people think.
13. Many of the bad times that people experience are due to bad luck.
14. Sometimes I think about information almost obsessively until I come up with
new ideas and solutions.
15. If I am having problems with a task, I leave it, forget it and move on to some-
thing else.
16. When I make plans, I nearly always achieve them.
17. I do not like unexpected changes to my weekly routines.
18. If I wanted to achieve something and the chances of success were 50/50 I would
take the risk.
19. I think more of the present and past than of the future.
20. If I had a good idea for making some money, I would be willing to invest my
time and borrow money to enable me to do it.
21. I like a lot of guidance to be really clear about what to do in work.
22. People generally get what they deserve.
23. I am wary of new ideas, gadgets and technologies.
24. It is more important to do a job well than to try to please people.
25. I try to accept that things happen to me in life for a reason.
26. Other people think that I am always making changes and trying out new ideas.
27. If there is a chance of failure, I would rather not do it.
28. I get annoyed if people are not on time for meetings.
Appendices 173
2 9. Before I make a decision, I like to have all the facts no matter how long it takes.
30. I rarely need or want any assistance and like to put my own stamp on work that
I do.
31. You are not likely to be successful unless you are in the right place at the right
time.
32. I prefer to be quite good at several things rather than very good at one thing.
33. I would rather work with a person I liked who was not good at the job, rather
than work with someone I did not like even if they were good at the job.
34. Being successful is a result of working hard, luck has little to do with it.
35. I prefer doing things in the usual way rather than trying out new ways.
36. Before making an important decision, I prefer to weigh up the pros and cons
fairly quickly rather than spending a long time thinking about it.
37. I would rather work on a task as part of a team rather than take responsibility
for it myself.
38. I would rather take an opportunity that might lead to even better things than
have an experience that I am sure to enjoy.
39. I usually do what is expected of me and follow instructions carefully.
40. For me, getting what I want is a just reward for my efforts.
41. I like to have my life organised so that it runs smoothly and to plan.
42. When I am faced with a challenge, I think more about the results of succeeding
than the effects of failing.
43. I believe that destiny determines what happens to me in life.
44. I like to spend time with people who have different ways of thinking.
45. I find it difficult to ask for favours from other people.
46. I get up early, stay late or skip meals if I have a deadline for some work that
needs to be done.
47. What we are used to is usually better than what is unfamiliar.
48. I get annoyed if superiors or colleagues take credit for my work.
49. People’s failures are rarely the result of their poor judgement.
50. Sometimes I have so many ideas that I feel pressurised.
51. I find it easy to relax on holiday and forget about work.
52. I get what I want from life because I work hard to make it happen.
53. It is harder for me to adapt to change than keep to a routine.
54. I like to start interesting projects even if there is no guaranteed payback for the
money or time, I have to put in.
174 Appendices
Answer and Scoring Sheet

Row 1 46 37 28 19 10 1 Row tally
A A A A A A
D D D D D D
Row 2 47 38 29 20 11 2
A A A A A A
D D D D D D
Row 3 48 39 30 21 12 3
A A A A A A
D D D D D D
Row 4 49 40 31 22 13 4
A A A A A A
D D D D D D
Row 5 50 41 32 23 14 5
A A A A A A
D D D D D D
Row 6 51 42 33 24 15 6
A A A A A A
D D D D D D
Row 7 52 43 34 25 16 7
A A A A A A
D D D D D D
Row 8 53 44 35 26 17 8
A A A A A A
D D D D D D
Row 9 54 45 36 27 18 9
A A A A A A
D D D D D D
ow to Score Your Responses

H
Starting with box 1 in the top right corner of your Answer and scoring sheet and,
working across to the left, give yourself one point for every D that you have circu-
lated in the shaded boxes, for example:
1
A
D
Also give yourself one point for every A that you have circled in the unshaded
boxes, for example:
10
A
D
Appendices 175
When you have added up your total score for each row, write it down in the Row
tally. When you have calculated all rows transfer your scores for each row into the
boxes below.
hat Scores Measure

W
The GET test measures enterprising tendency by measuring five entrepreneurial
attributes as follows:
1. Need for achievement – this is measured in row 1 and row 6 of the scoring
sheet, i.e. questions 1, 10, 19, 28, 37, 46, 6, 15, 24, 33, 42, 51.
2. Need for autonomy – this is measured in row 3, i.e. questions 3, 12, 21, 30, 39, 48.
3. Creative tendency – this is measured in rows 5 and 8, i.e. questions 5, 14, 23,
32, 41, 50, 8, 17, 26, 35, 44, 53.
4. Calculated risk taking – this is measured in rows 2 and 9, i.e. questions 2, 11,
20, 29, 38, 47, 9, 18, 27, 36, 45, 54.
5. Locus of control – this is measured in rows 4 and 7, i.e. questions 4, 13, 22, 31,
40, 49, 7, 16, 25, 34, 43, 52.
Even numbers on the scoring sheet represent positive entrepreneurial

statements.
Shaded odd numbers on the scoring sheet represent negative entrepreneurial
statements.
Calculating Your Score

Row 1 [ ]
+ Add together = [ ] = Need for achievement
Row 6 [ ]
Row 3 [ ] only [ ] = Need for autonomy
Row 5 [ ]
+ Add together = [ ] = Creave tendency
Row 8 [ ]
Row 2 [ ]
+ Add together = [ ] = Calculated risk taking
Row 9 [ ]
Row 7 [ ]
+ Add together = [ ] = Locus of control
Row 4 [ ]
[ ] = Total score (right column)
176 Appendices
Interpreting Your Score
General Enterprising Tendency (GET)

The maximum score (representing General Enterprising Tendency) is 54.
• 44–54 – This score means that you are very enterprising (High).
• 26–43 –This score means that you have some enterprising qualities (Medium).
• 0–26 –This score means that you are probably happiest working with guidance
from superiors (Low).
If your enterprising tendency is high this means that you have the following
qualities.
You:
• have a strong need for achievement;

• like to be in charge;
• seek opportunities and use resources to achieve plans;
• believe that you possess the qualities to be successful; and
• are innovative and willing to take a calculated risk.
If your enterprising potential is low then:
You would probably prefer to work in employment. If your present employ-

ment circumstances are not satisfactory then perhaps you should consider
careers counselling and aptitude testing.
If your enterprising potential is medium and scores for need for achievement,
creative tendency or calculated risk-taking are not high then:
You probably wish to consider ‘tried and tested’ small business ideas that
fit in with your lifestyle.
If your enterprising potential is medium and scores for need for autonomy are not
high then:
Starting a business is not the only option for you. You would probably be
equally happy to work as an employee as part of an organisational team or on
your own projects.
Appendices 177
If your enterprising potential is medium and scores for locus of control are not
high then:
Although you have some entrepreneurial qualities, if you wish to start a

business you may need to develop your self-confidence and business skills to
make a success of the venture.
Entrepreneurial Qualities: Need for Achievement

The maximum score is 12; high score is 10–12; low is 0–6.
If your need for achievement is high this means that you have the following
qualities.
You:
• have an orientation towards the future;

• rely on your own ability;
• have an optimistic rather than a pessimistic outlook;
• have a strong task orientation;
• effectively manage time;
• judge people on results;
• are restless and energetic;
• defend your ideas and views;
• ensure that your objectives are met even when
• difficulties arise;
• take responsibility and persist to achieve aims;
• set yourself challenging but realistic goals; and
• work long and hard when necessary.
You may need to be careful about maintaining your work life balance and
in particular taking care of your health and important relationships in your
life.
If your need for achievement is low then:
Achievement may not be one of your high priorities. Perhaps setting up

and running a business would be too much hard work.
178 Appendices
If your need for achievement is high and your GET score is high then:
You are interested in considering business ideas with potential for growth,
expansion in global as well as local markets.
If your need for achievement is high and your GET score is low then:
You may prefer a high achieving job as a manager or intrapreneur within

an established organisational system to setting up and running your own
business.
If your need for achievement is not high and your GET score is high then:
You may be happy with self-employment or setting up a small business

venture rather than putting a lot of effort into business growth or global
expansion.
Entrepreneurial Qualities: Need for Autonomy/Independence

If your need for autonomy is high this means that you have the following
qualities.
You:
• prefer to work alone;

• need to do your ‘own thing’;
• have to say what you think;
• dislike taking orders;
• like doing unconventional things;
• like to make up your own mind;
• are not responsive to group pressure; and
• are stubborn and determined.
You like to take charge of projects that you are involved with, although you
do not always like working with other people.
You may need to work at developing good relationship skills with clients,
employees, suppliers and authorities since this is important even in very small
businesses.
Appendices 179
If your need for autonomy is low then:
You probably prefer to be advised about managing your work and would
not enjoy the responsibility of taking charge of a business.
If your need for autonomy is high and your GET score is low then:
You may be a bit of a loner or have a touch of the rebel, which makes you
better suited to self-employment than employment. You need to develop other
entrepreneurial skills if you are going to be successful in business.
If your need for autonomy is not high and your GET score is high then:
You may be happy to work as an intrapreneur as a valuable member of an

organisational team. If you start your own business you may need to cultivate
stronger independent leadership qualities.
Entrepreneurial Qualities: Creative Tendency

If your creative tendency is high this means that you have the following
qualities.
You are:
• imaginative;
• intuitive;
• a good guesser;
• innovative;
• someone who likes novelty;
• versatile;
• curious; and
• enjoy new challenges.
If your creative tendency is low then:
You would probably look to others for entrepreneurial ideas but are prob-
ably content with proven, traditional business approaches.
180 Appendices
If your creative tendency is high and your GET score is high then:
You may need to be careful about over-extending yourself and following

up too many opportunities. It may be important to develop skills in evaluating
ideas to assist with decisions about which ideas to prioritise for investment
and development.
If your creative tendency is high and your GET score is low then:
Although you are inventive you may have problems bringing your ideas to
fruition and may even have had experiences with other people plagiarising
your ideas. It may be that business is not the only or most appropriate vehicle
for your creative expression and you may consider other scientific, artistic or
technical occupations.
If your creative tendency is not high and your GET score is high then:
You would probably be happiest with ‘tried and tested business ideas’,
such as plumbing services, dentistry, hairdressing, etc. If you wished to estab-
lish a more innovative business then you might like to consider developing
you own latent creative skills or finding an innovative business partner.
Entrepreneurial Qualities: Calculated Risk Taking

If you scored high as a calculated risk taker this means that you have the follow-
ing qualities.
You:
• can act on incomplete information;

• are good at judging when incomplete information is sufficient;
• can accurately assess your own capability;
• can evaluate the likely benefits against the likely costs of proposals;
• set yourself challenging but attainable goals; and
• are good at using information to calculate probabilities linked to
outcomes.
You are very good at sizing up opportunities and filtering information to

help you take calculated risks.
Appendices 181
If your calculated risk-taking score is low then:
You are not happy about taking on any risk and perhaps you have too many
responsibilities or too few personal resources to allow you to feel comfortable
about taking financial or business risks.
If your calculated risk-taking score is high and your GET score is low then:
You may be a bit of a thrill seeker or even a gambler, and enjoy managing
uncertainty. If you wish to set up and run a business successfully then you
may need to develop additional skills to help you to set up and run a business
successfully.
If your calculated risk-taking score is not high and your GET score is high then:
You would probably be happiest with ‘tried and tested business’ ideas, less
risky business ideas, or business ideas where a partner takes the risks (even if
that includes the potential rewards).
Entrepreneurial Qualities: Internal Locus of Control

If you scored high having an internal locus of control this means that you have
the following qualities.
You:
• seek and takes advantage of opportunities;

• do not believe in ‘fate’;
• believe you have control over own destiny and that you make your own
‘luck’;
• are proactive;
• are self-confident;
• are determined and strong willed; and
• equate results with effort.
You strongly believe that your personal qualities and efforts will help you
to achieve your aims in life.
182 Appendices
If your locus of control score is low (an external locus of control) then:
You may have experienced some knocks to your self-confidence which

lead you to doubt that your personal qualities and efforts will help you to
achieve your aims in life. You believe that luck and fate will determine what
happens to you in life, and determination and hard work will not make much
difference.
If your locus of control score is high (internal) and your GET score is low then:
You may be satisfied in a managerial role rather than starting up and run-
ning your own business. You are probably quite satisfied with what you have
achieved. You may believe that you could if you wanted to, set up a successful
business.
If your locus of control score is low (external) and your GET score is high then:
You may need to develop your self-confidence and exert greater control
over the development of your ideas. Self-confidence could be strengthened by
developing specific business skills in areas that you feel could be improved.
Without greater self-confidence you may over-rely on others, such as partners
or clients, and this could engender greater business risk.
ppendix B – Work Book: Diagnosing Your Innovation

A
Management
Tim Mazzarol and Sophie Reboud
© Copyright, T Mazzarol & S Reboud 2010. All rights reserved. Materials are
made available for educational use by students, teaching staff and researchers with
appropriate recognition to the authors. No commercial gain may be made from the
materials presented here without the express written permission of the authors.
Introduction
The purpose of this questionnaire is to examine the current position of your business
and its innovations. There are no right or wrong answers, and you will get more
from the findings if you answer all questions openly and honestly.
Appendices 183
Innovation may be defined as finding ways to enhance competitiveness by con-

verting ideas, processes, technologies and alliances into commercially valuable out-
comes. Innovations can come in many forms. This survey is seeking to better
understand your thinking about innovation and the strategic decision making that is
associated with this.
The Nature of Innovation Within Your Firm

184 Appendices
Appendices 185
A. Your Market Index
B. Your Innovation Index

186 Appendices
C. Your Resources Index
D. Your Strategy Index

Appendices 187
E. Assessing Your Innovation RENT

The following section is designed to assess the overall RENT associated with your
innovation. Copy each of the scores recorded at the bottom of the previous sections,
i.e. Questions 12 through 19. RENT is a function of three elements:
RENT = VOLUME ´ RATE ´ LENGTH

Where:
VOLUME = the total volume of sales generated by the innovation

RATE = the rate of profits generated by the innovation
LENGTH = the length of time over which the innovation generates sales
Calculating Your RENT Score

188 Appendices
Your Typology of RENT Innovation Configurations
Champion: [High levels of volume, rate and length]

The most attractive innovation type offering high RENT.
Shrimp: [Low levels of volume, rate and length]
A configuration offering low rent potential due to its modest levels of
volume, rate and length. As such, it is unlikely to be of much interest.
Gadget: [Low volume, high rate, low length]
A configuration offering low volume and length but high rate, leading to
little interest overall. Such a configuration would not justify significant
investment.
Joker: [High volume, low rate, high length]
A configuration with high volume and length but low rate, making it little
better than the ‘gadget’ despite its apparently attractiveness.
Flash in the pan: [High volume, high or low rate, low length]
Type A (low rate) A configuration with good volume but poor length and may experience
Type B (high rate) both high or low rate, making it challenging for the investor that may need
to outlay substantial capital to secure the return over the short lifecycle.
Oasis: [Low volume, high or low rate, high length]
Type A (low rate) A configuration that offers good length but low volume and high or low
Type B (high rate) rate.
Appendices 189
F. Diagnosing Your Innovation Diamond

Copy each of the scores recorded at the bottom of each of the previous sections –
from Questions 16–19 – onto the ‘innovation diagnostic diamond’. Having com-
pleted this, you should examine the findings by reading the following
sub-sections:
Market Market analysis and development is critical to the successful commercialisation of a

index: new innovation. It requires a careful assessment of customer needs and how the new
innovation offers customers value for money. Pricing strategies and the ease with
which the customer can understand the new idea and adapt it to their existing
systems are critical. Customers will often like to trial a new innovation prior to
adoption and assess its value post adoption. Many customers will collaborate with
innovators, assisting its commercialisation process.
How was your score? If you scored below 5 on the M-score, you should consider
taking urgent action to improve your market assessment. In the space below, write
down the top three market issues facing your business.
1. ______________________________________________________
2. ______________________________________________________
3. ______________________________________________________
Innovation Innovation management requires a formal process focusing on new product

index: development and the recognition that innovation is a key aspect of the firm’s
success. Commercialisation requires the development of a workable prototype
that can be taken to market, and the protection of the intellectual property (IP)
associated with the innovation. Legal protection (e.g. patents, trademarks) is
important in securing the value of the IP. Customers and employees can be a
valuable source of new ideas for innovation and can assist in the development of
innovations.
How was your score? If you scored below 5 on the I-score, you should consider
taking urgent action to improve your innovation management. In the space below,
write down the top three innovation management problems facing your business.
1. ______________________________________________________
2. ______________________________________________________
3. ______________________________________________________
190 Appendices
Resources Commercialisation requires resources of a technological, human, financial and

index: managerial nature. You will need to have adequate technological resources to
build the prototype, and the competencies to take it to market. An assessment of
the expertise, staffing, and physical and financial resources needed for the
commercialisation process should be undertaken. Sources of external funding
such as government R&D grants and venture capital financing need to be
explored and secured. A well-constructed board of directors who can provide
advice and guidance should be identified.
How was your score? If you scored below 5 on the R-score, you should consider
taking urgent action to improve your resources for innovation. In the space below,
write down the top three resource problems facing your business.
1. ______________________________________________________
2. ______________________________________________________
3. ______________________________________________________
Strategy Strategic planning is critical to the success of commercialisations. A formal written

index: business plan is an effective way to organise the process of strategic management
and will be valuable when seeking future external support. This plan should assess
the power of customers, suppliers and competitors within the markets targeted by
the new innovation. Where the firm can secure collaborative agreements with
complimentary actors, it should. The impact of such things as government
regulation, compliance requirements and other threats should be examined. A key
part of the plan should be the development of a comprehensive financial model for
the innovation, assessing return on investment and profitability.
How was your score? If you scored below 5 on the S-score, you should consider
taking urgent action to improve your strategy and planning activities. In the space
below, write down the top three strategic planning problems facing your business.
1. ______________________________________________________
2. ______________________________________________________
3. ______________________________________________________
G. Blueprinting Your Future

What are the main things that you feel you should do to enhance your business
model and the opportunities of your innovation?
Prepare a dot point list of the key things that you should do.
Appendices 191
ppendix C – Work Book: Action Learning Project

A
in Commercialisation
Tim Mazzarol and Sophie Reboud
© Copyright, T Mazzarol & S Reboud 2019. All rights reserved. Materials are
made available for educational use by students, teaching staff and researchers with
appropriate recognition to the authors. No commercial gain may be made from the
materials presented here without the express written permission of the authors.
Introduction
The materials outlined in this Appendix provide a structure and supporting tools
that can be used to undertake an analysis of a live commercialisation project. They
have been used in post-graduate commercialisation programs at the University of
Western Australia with success since 2005. This has involved managers from small
and large firms, as well as university researchers, working on NPD commercialisa-
tion projects within the university’s master’s programs collaborating with the stu-
dents to address the tasks outlined below. Additional supporting material can be
provided as required by contacting tim.mazzarol@cemi.com.au.
he Action Learning Approach

T
The action learning approach recognises the importance of embedding the learning
into practice, and the need to recognise the existing knowledge and experience that
the learner-manager brings to the program. Most managers, particularly those who
own and operate their own business, regardless of their formal management educa-
tion, have in-depth experience of running their companies in a successful manner.
This pre-existing knowledge and competence need to be respected and used within
the program to enhance peer-group learning and knowledge exchange.
Developed by Revans (1971, 1980, 2011), action learning aims to apply learning
to addressing practical problems for which there may not be a standard textbook
solution. Action learning is founded on five key stages that are illustrated in Fig. 1.
Fig. 1 Key stages of

action learning. (Source:
Developed from Revans
2011)
192 Appendices
As Revans (2011) explains, the action learning approach follows the scientific
method philosophy of approaching any complex and uncertain problem with an
open mind and initially observing and studying the available data. In the second
stage the project team should formulate theories and perhaps more precise hypoth-
eses about the cause-effect relationships and possible solutions to the problem or
task being addressed. In the third stage, the team should carry out activities to test
or experiment to help validate or refute their hypotheses and theories. Following the
outcome from this experimentation the next stage is to undertake an audit or review
of the findings from these experiments and objectively analyse the data. Here it is
important to get objective views based on evidence not opinion. Finally, the project
team should review and control by rejecting, changing or accepting their theories
about what casual relationships exist and how future management decisions should
be made. Then the process repeats. This learning approach is consistent with absorp-
tive capacity and the SIMPLEX process outlined in Chaps. 3, 4 and 8 of the text-
book. The action learning process provides:
• The opportunity to engage with real-life problems and stimulate more purposeful
learning;
• A learning environment and experience that is both social and individual in
nature, and
• An opportunity to generate new ideas, theories and solutions from existing
knowledge (Rae and Carswell 2001).
Recruiting the Project
This project should commence with the identification of an innovation project
owner who is willing to work with you on this process. Such project owners can be
individual inventors, start-up entrepreneurs, established small and medium size
business owners who have new products they are working on commercialising, or
even NPD project teams from within larger established firms. They should be
approached and the nature of the project explained. Then a number of initial stages
should be undertaken.
Set up a meeting with them and allow for around 1–2 h. You can meet them at
their place of work, but make sure that the meeting place is quiet and sufficiently
private so that any confidential issues can be discussed. Bring to the meeting the
following things:
1. A copy of the Diagnosing your innovation management questionnaire in

Appendix B;
2. A non-disclosure agreement that explains that you will only be using the infor-
mation for educational purposes and that any information disclosed by the proj-
ect owner to you will be treated in strict confidence. This should be signed by
both you and the project owner. You may wish to give them a copy.
3. A note book and an audio recording device for the meeting, but make sure that
you get permission to record the meeting and treat this with strict
confidentiality.
Appendices 193
Prior to the meeting you should search online to see if they have a company
website, and get some understanding of their organisation’s products, size, structure
and past experience with commercialisation if this can be found. Also, ask the proj-
ect owner prior to the meeting, to bring with them, or have available, any informa-
tion they are willing to share on their innovation. This can include product brochures,
samples of the product, presentations they have made available on their project for
sales or venture capital raising activities.
Explain that you will be analysing the data from the interview and then meeting
with them to undertake some action learning tasks that will hopefully help them
with their commercialisation project and strategy development.
Conducting the Initial Interview

It is important to make the person who you are interviewing comfortable and a good
way to start is to get them to talk about their own background and how their project
emerged. Some initial areas for this discussion might be:
• Personal and professional history of the project owner;

1. Age, education.
2. Previous work experience, e.g. large or small firms.
3.
Past experience of new venture creation and/or innovation
commercialisation.
• History of the company if there is an incorporated entity involved;
1. Years in operation.
2. Employment, e.g. number of employees and any increase or decrease over
past 3 years.
3. Gross annual turnover of the business, and any changes over the past 3 years.
• Perceptions of how easy or hard they feel it is to be an entrepreneurial manager
trying to commercialise a new product or technology. Here you might ask them
about:
1. Ease of finding employees with the necessary skills and education.
2. The overall cost of doing business in comparison to other countries.
3. Any problems with geographic distance to key markets (e.g. if they export).
4. How easy they feel it is to raise financial capital (e.g. via venture capital or
equity) to fund future growth.
5. The ease or difficulty in recruiting high quality managerial staff to work
within their business.
6. The ease or difficulty in accessing high quality R&D centres (e.g.

universities).
7. The level of government support to innovators (e.g. R&D grants, tax conces-
sions, export assistance).
8. The laws and regulations that might influence their project (e.g. IP rights
laws, taxation, corporate governance rules).
9.
Infrastructure and communications (e.g. road, air, sea transport,
telecommunications).
194 Appendices
ssessing the Project – The Innovation Diagnostic Report

A
Once you completed the interview, take your notes and the completed Innovation
Diagnostic questionnaire (see Appendix B), and prepare a report for your project
owner. There are two key areas that need to be examined from the data collected in
the interview and the questionnaire. The first is the innovation RENT typology and
the second is the innovation diagnostic diamond.
Assessing the Innovation RENT

As noted in Appendix B, there are eight potential types of innovation, each with
different levels of potential sales volume, profit margin rate, and innovation lifecy-
cle length. Each of these is determined by several factors that need to be examined
as they typically represent the project owner’s ‘best guess’ or optimistic hope of
what they expect will happen when their innovation is launched. These assumptions
are not always well founded and your task should be to critically and objectively
examine these expectations.
An import items to focus on within the questionnaire are:
• Question 3, which asks whether the innovation works alone or integrates into a
system.
• Question 4, which asks whether the innovation will substitute for an existing
product, or create a new market.
An innovation that is able to work alone is isolated, while one that integrates into
a system is systematic. This initial dichotomy may be difficult for some project
owners to assess, but it is important, as is the issue of whether the innovation is to
substitute within an existing market, or try to create a new market. For example, in
relation to the different innovation RENT configurations the following issues are
likely to apply.
Shrimp
The Shrimp innovation has low or modest potential sales volumes, profit margin and
length of lifecycle. It is therefore usually an incremental innovation that can be
readily developed by an SME without significant risk or outside support.
Considerations here are:
• Isolated within either a new or existing market – it might be worthwhile proceed-

ing with autonomous development if the returns to any investment are consid-
ered sufficient to justify the expenditure. There may not be much opportunity for
formal IP rights protection, and even if there were, it might not be worth the cost.
• Systemic within an existing market – due to the nature of the Shrimp, it may be
difficult to secure entry into the market unless there are existing key network
members who are willing to help support its adoption. Only rudimentary IP
rights protection is likely to be necessary.
Appendices 195
• Systemic within a new market – this may be too difficult and also unrewarding
given the potential cost for the modest return and lifecycle. Withdrawal or aban-
donment of the project may be wise.
Gadget
The Gadget innovation has low or modest potential sales volumes and length of
lifecycle, but an above average rate of profit. It is therefore attractive where it can be
quickly commercialised Examples of this are software apps that meet specific niche
market needs where the buyer is willing to pay a premium for at least a period of
time. Considerations here are:
• Isolated within either a new or existing market – this set of conditions offers a
good opportunity for an autonomous development, but one that might be suitable
for a partnership if this can add value. IP rights protections would be highly
desirable, but carefully planned due to the short lifecycle.
• Systemic within an existing or new market – this might be a challenge for a stra-
tegic partnership given the short lifecycle and modest sales volume. Rapid com-
mercialisation will be essential and this could prove difficult if network partners
are too slow or demanding on the technology. Limited IP rights protection might
be best, given the short lifecycle.
Oasis (Types A & B)

The Oasis innovation has low or modest potential sales volumes a long lifecycle,
but either a low or modest rate of profit (Oasis A), or a high rate of profit (Oasis B).
The decision to proceed with commercialisation may depend on whether it is a type
A or B configuration. This is not to suggest that the Oasis A should be abandoned,
but given the long lifecycle, the more profitable Oasis B is potentially more attrac-
tive. Considerations here are:
• Isolated within either a new or existing market – this is an ideal configuration for
an Oasis, particularly the high rate (profit) type B, with potential for autonomous
development. However, if profit is high, a partnership might be beneficial if this
can add value. IP rights should be protected due to the long lifecycle.
• Systemic within an existing or new market – this is an ideal configuration for a
partnership development. Whether to lead or follow in this partnership will be an
important strategic consideration. This will be dependent on how dependent the
firm is on partners. Due to the long lifecycle, protection of IP rights is very
important.
Flash-in-the-Pan (Types A & B)

The Flash-in-the-Pan innovation has a potentially high sales volume, but a short
lifecycle, and may offer either a low or modest rate of profit (Flash-in-the-Pan A),
or a high rate of profit (Flash-in-the-pan B). The decision to proceed with commer-
cialisation may depend on whether it is a type A or B configuration. This is not to
suggest that the Type A should be abandoned, but given the short lifecycle, the more
196 Appendices
profitable Type B is potentially more attractive if it is to return any investment from

a relatively low sales volume. Considerations here are:
• Isolated within an existing market – commercialisation may be risky due to the

short lifecycle. A trade sale of the technology might be a better option if a suit-
able buyer can be found. IP rights protection will be valuable to assist with any
trade sale.
• Isolated within either a new market – for small firms, an autonomous start to help
achieve proof-of-concept then either a partnership, trade sale or licensing strat-
egy. This will be more attractive if it is the high profit Type B. IP rights will be
important if licensing or trade sale. However, short lifecycle will need to be
considered.
• Systemic within an existing market – this may be very difficult for an SME due
to the large market diffusion required and the relatively short lifecycle. This will
require support from incumbent network partners, and might be possible if the
innovation is a higher profit Type B. However, the project team should assess the
technical and market risk and if strong alliance partners are not able to provide
support, the best option may be to delegate the project to another firm via licenc-
ing or trade sale. This will require formal IP rights protections and the cost of this
should be factored into any development strategy.
• Systemic within a new market – this situation may be approached via a strategic
partnership so that the innovation can be diffused within a niche market. If the
innovation is a Type B, with good profitability, it may be an attractive alliance
partnership (e.g. joint venture), or licencing opportunity for a larger firm. This
will require a formal IP rights protection strategy and the cost of this will need to
be assessed against any potential returns.
Joker
The Joker innovation has a high sales volume and long lifecycle, but only a low or
modest rate of profit. It can be a worthwhile innovation to proceed with, but its com-
mercialisation depends on the relative ease with which it can be brought to market
and sustained give that the profit margin is not high. Such innovations can work if
there are sufficient process innovations to help keep production and distribution
costs down, thereby not placing too much pressure on profit margin. In fact, many
Joker innovations are actually technological process innovations. Considerations
here are:
• Isolated within an existing market – commercialisation may be risky due to the

low profitability. However, as noted above, if the innovation is more a process
than a product, it may be acceptable to proceed with commercialisation. If IP
rights can be secured across a broad geographical diffusion, they can provide the
foundation for licensing opportunities.
• Isolated within either a new market – in this case, particularly for SMEs, it may
be best to start the commercialisation process alone, or in partnership if a suitable
Appendices 197
relationship can be found, and get the innovation through the proof of concept
stage. At this point the opportunity to either licence or trade sale the innovation
can be explored if future internal growth is too difficult. It will be important to
have strong IP rights protections in place.
to the large market diffusion required and the relatively thin profit margin. If
there are suitable buyers, perhaps larger firms, within the market network, a trade
sale may be a good strategy. Once again, strong IP rights protections will assist
with the trade sale value.
• Systemic within a new market – for a small firm, this situation should probably
be approached via a strategic partnership from as early as possible, to assist with
proof of concept, and securing access into the target market. Over the longer
term, a licensing or trade sale to the larger firm partner might be an opportunity.
This will require a formal IP rights protection strategy and the cost of this will
need to be assessed against any potential returns.
Champion
The Champion innovation has a high sales volume, rate of profit and length of life-
cycle, making it potentially very attractive as a commercialisation project.
Nevertheless, the typical Champion innovation has a global market potential, and as
such it will require significant resources for the full commercialisation process to
succeed. This may pose a challenge to small firms. Considerations here are:
• Isolated within an existing market – as noted above, commercialisation of a

Champion innovation, which is by nature, disruptive, will pose substantial chal-
lenges to an SME. The decision to proceed will depend on the project team
ascertaining if they can realistically mange the project. If not, they may have to
consider licensing or trade sale. This will require strong IP rights protections
across a wide geographical area.
• Isolated within either a new market – for small firms, an autonomous start to help
achieve proof-of-concept then either a partnership, trade sale or licensing strat-
egy. Strong IP rights protections will also be very important and across a wide
geographic area.
to the large market diffusion required even given the relatively high profit mar-
gin. If this is the case, the project team should consider either delegation via
licensing, or trade sale to a larger, complementary firm. This will require strong
IP rights protections across a wide geographical area.
• Systemic within a new market – this situation may be approached via a strategic
partnership so that the innovation can be diffused within a niche market. The
opportunities for licensing and trade sale This will require a formal IP rights
protection strategy and the cost of this will need to be assessed against any poten-
tial returns.
198 Appendices
Assessing Other Aspects of the Innovation RENT Configuration

It should be noted that each of these eight innovation RENT typologies is only per-
ception of potential rent as viewed by the project owner. Various factors can be
adjusted to change the configuration of the innovation. For example, close engage-
ment with the customer / end-user via voice of the customer (VOC) research can
help to generate sufficient value added to a product that profitability, lifecycle and
market sales potential can be increased.
Attention should be given to the responses that were provided by the project owner
to questions 7–15 within the diagnostic survey (see Appendix B). It is importance to
understand fully why these particular answers have been given, how reliable they are
and whether they are based on solid research, or hopeful expectation and “gut feel.”
Assessing the Innovation Diagnostic Diamond

As noted in Appendix B, the four components of the Innovation Diagnostic Diamond
(IDD) provide a foundation to assess how well the firm is structured and resourced
to proceed with the commercialisation. Each item in the IDD should be examined,
along with the comments made by the project owner during the interview in relation
to each of these four indices. In relation to the four indices of the IDD, an interna-
tional study of 567 innovator SMEs, from 11 OECD countries, all of which were
engaged in the commercialisation of a technological product and/or process was
undertaken (Mazzarol and Reboud 2011).
This study involved in-depth, face-to-face interviews using the innovation diag-
nostic survey as outlined in Appendix B. Of these firms, 51% had successfully com-
mercialised at least one innovation prior to being surveyed. A total of 43% had
experience of commercialising more than six in the previous 3 years. The majority
(72%) of these innovations were new products, a further 16% were technological
process innovations. These same firms invested an average of 22% of their annual
turnover into R&D.
As shown in Table 1, the most common type of innovation these firms were
working on was a Champion, with no statistically significant differences found in
relation to the size of the firm, the industry it was operating in, the country it was
located in, or the type of innovation characteristics (e.g. isolated, systemic, new or
established markets) (Mazzarol and Reboud 2011). The following sub-sections
review the findings from the IDD.
IDD Market Index

The market index of the IDD is illustrated in Fig. 2, which represents a box plot
diagram. The IDD was measured on a 5-point scale and the box plot shows the
results for each of the ten question items in the index. The thicker ‘box’ within each
item represents the concentration of 50% of all the responses to that question.
Within the box is a thicker line that shows the mean (average) point for the group
response. The thinner “whiskers” that extend out from the ‘box’ comprise the
remaining 50% of responses and the standard deviation of the responses is repre-
sented by the overall length of the box plot including the ‘box’ and the ‘whiskers.’
Outlier cases are represented by small circular dots.
Appendices 199
Table 1 Innovation RENT Proportion of

configuration typologies – Innovation type sample (n = 567)
567 SMEs across 11 OECD Shrimp 11.6%
countries
Gadget 5.5%
Flash-in-the-Pan (type A) 7.8%
Flash-in-the-Pan (type B) 9.2%
Joker 9.3%
Oasis (type A) 7.8%
Oasis (type B) 10.1%
Champion 38.8%
Source: Mazzarol and Reboud (2011)
Fig. 2 The IDD Market Index. (Source: Mazzarol and Reboud 2011)
From Fig. 2, it can be seen that the majority of respondents were confident that
they had lead customers already in place, ready to adopt their innovation. The
majority were also confident that they had fully explored the opportunities that their
innovation offered to customers. Further, the majority also felt that it was compati-
ble with their lead customers’ existing technologies and systems. However, there
was much less consensus over things such as:
• Whether they had fully examined the customers’ perceptions of risk and cost;
• If the customer could do post adoption tests and evaluations;
• How easily the customer will understand the new technology;
• If they had the most appropriate pricing strategy in place; and
• Whether they had fully researched the benefits as perceived by the customer to
allow them to generate a CVP.
200 Appendices
There was also a significant level of variance across the sample in relation to
whether they had worked with lead customers over the NPD process, and how easily
customers could do pre-adoption test and evaluations. What this data indicates is
that most SMEs, when engaging in NPD commercialisation, even those with a good
deal of past experience, don’t undertake a systematic VOC customer discovery and
development process. The proximity effect of having a potential lead customer
apparently showing interest in adopting the innovation, and having met or addressed
any potential issues over meeting compatibility with the customer’s existing sys-
tems, appears to override a more considered market assessment.
It is important, when reviewing the IDD index, across all four measures, that you
review each item and discuss the results from the survey and what they mean in
relation to the future commercialisation of the innovation your project owner is try-
ing to undertake. An important issue is possessing the necessary resources and com-
petencies. As discussed in Chap. 11 of the textbook, the SME engaged in
commercialisation will need to assess if they have the necessary marketing compe-
tencies and skills to enable them to proceed alone, or if they might need to find
strategic partners to assist them.
IDD Innovation Index

Figure 3 shows the results from the survey of the IDD innovation index. It can be
seen that there was strong consensus amongst these firms that they actively involved
their employees in the NPD process. As noted above, the majority of firms also had
past experience of commercialisation, and there was a major strategic focus within
Fig. 3 The IDD Innovation Index. (Source: Mazzarol and Reboud 2011)
Appendices 201
these firms on innovation. However, here was significantly less agreement over a
range of important issues relevant to the NPD process and commercialisation:
• The active involvement of customers in the NPD process;

• The use of confidentiality agreements prior to showing new ideas to others;
• Possession of patents or patents pending;
• Discussions with lawyers or patent attorneys over IP rights protections;
• Independent testing of new technologies;
• The ability to develop a prototype alone;
• Possession of a formal NPD process.
These findings are fairly typical of most small firms that engage in commerciali-
sation, even those that have past experience with this and a strong focus on innova-
tion as a strategic issue. The pattern that emerges from these findings shows the
relatively informal approach to NPD and commercialisation amongst SMEs. As a
result, you should not be surprised to find that many of the projects you might
encounter in this action learning tasks, if they are owned by SMEs, will have a simi-
lar profile. Your challenge will be to help the project owners to improve the way they
deal with these issues.
IDD Resource Index

The findings from the IDD resource index are illustrated in Fig. 4. It can be seen that
most of the firms who were surveyed felt confident that they could find external
expert assistance if required, and that they already had the technological resources
Fig. 4 The IDD Resource Index. (Source: Mazzarol and Reboud 2011)
202 Appendices
required to create a prototype. However, there was significantly less agreement over
many of the other items that were examined in the resources area. Particular areas
of divergence were:
• Identification of potential venture capital investors to assist with financing the

commercialisation;
• Having fully explored all the possible support they might get from government
programs;
• Having adequate financial resources to develop their idea through the commer-
cialisation process;
• Having the physical and staffing resources required;
• Having an experience NPD project team to work in the idea;
• Having all the necessary competencies to fully commercialise the innovation
alone.
As discussed in Chap. 5 of the textbook, a common characteristic of an SME is

that it lacks resources, and this is clearly reflected in these findings. The lack of
attention to identifying sources of venture financing or government support are also
worth noting. Given that most of these firms indicated that they didn’t have the
financial or staffing resources to fully commercialise their innovation, their concur-
rently lack of interest in securing third party investors or leveraging government
funding or other support for commercialisation suggests that many were somewhat
insular in their thinking. However, the study also found that many did not wish to
secure venture capital funding for their projects, and many did not feel that their
governments were providing them with much support (Mazzarol and Reboud 2011).
IDD Strategy Index

The last of the four IDD indices is the strategy index. Figure 5 shows the results
from the survey of SMEs in relation to these questions. It can be seen that in com-
parison with the other three indices, there was much less consensus over these
issues. The standard deviations were generally much larger on most items suggest-
ing that these small, innovator firms, were not particularly well organised in relation
to their commercialisation strategies. Some issues worth noting:
• Many had not completed a comprehensive financial model for their innovation.
• There was some equivocation as to whether or not they had undertaken a risk
assessment.
• There was a high degree of equivocation in relation to whether or not they had
fully assessed the reaction of complementary actors that might collaborate with
them.
• While around half the respondents indicated that they had taken action to secure
any necessary compliances and authorisations, a high proportion had not really
given much attention to existing or anticipated changes to government
regulations.
Appendices 203
Fig. 5 The IDD Strategy Index. (Source: Mazzarol and Reboud 2011)
• There was more consensus over their assessment of competitor reactions, threats
of alternative technologies, or supplier and customer power. However, the results
did not suggest this work was fully completed.
• Finally, there was a large proportion of firms that did not have a formal, written
business plan for the innovation.
These findings reflect the relative informality that typically defines the SME. This
is therefore not surprising. However, if such firms wish to actively pursue the com-
mercialisation of innovation as a key strategic priority, and if they need to form
strategic partnerships to secure access to resources and competencies they don’t
possess, but need to complete their projects, it would seem sensible and necessary
for them to enhance the formality of their strategic planning process.
Discussing the Findings from the Innovation Diagnostic Report

with the Project Owner
When undertaking this action learning process, it is important that you engage with
the project owners, to clarify their responses in the innovation diagnostic report,
benchmark them against the findings outlined above, and make sure that they per-
sonally reflect on their own responses. Sections E, F and G of Appendix B are
important areas to focus on during your interview with the project owner, and dur-
ing any subsequent discussions.
The following sections outline the action learning task and provide some poten-
tially useful tools for you to work with your project owner as you undertake the task.
204 Appendices
ction Learning Task 1: Assessing the Strategy and Market Case

A
The purpose of this action learning task is to assess the innovation strategy and
market assumptions underlying the business model of the company you are working
with on the innovation project. This is the first of a two-part group project that will
draw together your assessment of the firm’s business model and its effectiveness for
the commercialisation of the innovation.
Requirements
Working in groups and using the industry partner plus the unit workshop notes and
other relevant readings and information prepare the following:
1. A critical assessment of the innovation project you are working on with specific
reference to the Innovation Diagnostic Report and, the “anticipated rent” fore-
cast. Is this realistic and if so, what are the implications for the future commer-
cialisation strategy to be followed by the company? Also examine the results of
the Innovation Diagnostic Diamond (IDD). Consider the findings from the
“Strategy Index” and “Market Index”. What are the key areas of weakness and
what does this mean for the future commercialisation of the innovation?
2. A preliminary business model analysis using the “Lean Canvas” framework.
Consider each of the nine areas within the framework and try to clearly identify
what are the areas that in need of further work or where there are major gaps in
the firm’s knowledge or information. Prepare a list of “Business Model
Hypotheses” relating to things such as: i) market size; ii) product vision; iii)
product features and benefits; iv) customer segments; v) channels; vi) market
type; vii) customer relationships; viii) key resources and ix) key processes.
3. A Customer Archetype should be developed that examines the customers’ needs,
both known and unrecognised. Then an assessment of how to reach this customer
archetype and how to validate this customer archetype for the business model
considering the product/market fit, scalability and whether the innovation is or
can be offered as a Minimum Viable Product (MVP).
4. A Business Growth Engine analysis should be developed that seeks to classify
the current business model being followed by the company against one of the
business growth engines described in the Lean Start-Up process. Once this has
been identified, you should critically assess whether you think this is an appro-
priate business growth engine for this innovation.
eveloping the Business Model – A Check List

D
Developed originally by Grupp and Maital (2001), the following is a list of ques-
tions with accompanying comments that should be answered in the preparation of a
business model. These issues include an assessment of both the market and the
customer; determining the scope of the firm’s operations and the way it offers value
to the customer via a clear point of differentiation. The business model is much
wider than the product, which is only a relatively small part of the entire package.
Other key elements that will need to be considered are the way the business will be
organised, how this business will take its product to market and the systems that will
Appendices 205
be put in place to make it work. The following sections of this document examine
these issues and comprise a check list for you to consider when blueprinting a sound
and sustainable business model. It can be used in conjunction with the Lean Canvas
template.
Assessing the Customer and the Market

In assessing the customer and market for the innovation the following questions
should be answered (Tables 2 and 3):
Table 2 Customer selection process

Key questions: Considerations:
1. Which customers do you wish to serve with You should select your first customer carefully
your innovation? to ensure that you get your innovation adopted
2. What do you know about them and will by a prominent early adopter who will provide
they be a good long-term partner for you? you with access to wider market access.
3. How will this customer segment be better Review existing technologies used by the
served by your innovation than existing target customer and examine their weaknesses
technologies? & strengths. Also look at the prices paid for
4. Will this customer be willing to pay a these existing products and whether you can
premium for your innovation? get a better price to create more margins.
5. Is there a “customers-customer” or If the end user is not the same as the customer
end-user that you must consider and satisfy you will need to ensure that you look closely
before your customer will be willing to at both to achieve market penetration.
purchase your innovation?
6. Where is this customer located and how
easy is it for you to reach them?
Table 3 Customer behaviour and market change

How are customers’ demographics and It is important to get market research data on
psychographics (e.g. values, attitudes & the target customers whether they are people
lifestyles) changing? or firms. This data should provide information
on their characteristics and also how they use
such technology or how such technology can
offer them solutions.
What are the priorities that customers or You should find out how these customers buy
end-users of your innovation in relation to and how willing they are to adopt new ideas.
their needs that are likely to be satisfied by
the innovation?
What is their buying behaviour and track You should find out what drives the customer
record in the adoption of new products or to pay for products and the factors that
services? influence their spending on new technologies.
What are the key drivers of profit within the
market segments you are seeking to service?
Will these conditions continue into the
future?
206 Appendices
Assessing Differentiation and Value

In assessing the differentiation of the innovation and the value that it can offer cus-
tomers the following questions should be answered (Tables 4 and 5).
Determining the Scope of Operations

In assessing the scope of the firm’s operations, the following questions should be
answered (Table 6).
Go to Market Mechanism
In assessing the way in which the firm will seek to sell into its target market the fol-
lowing questions should be answered (Table 7).
Building the Venture Team

In assessing the team that will manage the firm’s innovation the following questions
should be answered (Tables 8 and 9).
Operations Management
In assessing the how the firm will manage its operations the following questions
should be answered (Tables 10 and 11).
Financial Issues
In assessing the how the firm will deal with financials the following questions
should be answered (Tables 12, 13 and 14).
Developing the Market Strategy – A Check List
Customer Needs
In the space below write down the key needs that customers are likely to have in
relation to the new product. Consider: (i) basic needs (what the customer assumes
the product will do); (ii) spoken needs (what they say they want the new product to
do); (iii) unspoken needs (things that might delight them if provided).
List as many as you can in the space provided and mark them B (basic), S (spo-
ken), and U (unspoken) needs, then try to rank them in order of priority from the
customer’s perspective (where 1 = most important). Under “BEST FIT” try to indi-
cate with an X the needs that your product is able to satisfy best (Table 15).
Market Segmentation
Based on the findings from your customer needs analysis can you identify any cus-
tomer/market segments that the product is most likely best placed to serve?
Prepare a brief profile of the target customer listing any demographic, geographic
or psychographic variables that help to define them. You may wish to review Chap.
10 of the textbook (see Fig. 10.3).
Appendices 207
Table 4 Differentiation of the innovation

What is the basis for your differentiation? You should clearly define the things that make
What is your unique value proposition for your innovation unique from competitor offers
your target customers? and how these features can create a clear offer
to customers as to what your value is.
Why should the customer want to buy from It is important to know why the customer
you? might want to buy from you and to allow
Will customers be able to understand, test and customers a chance to test or trial your
trial your innovation prior to purchase and innovation prior to purchase which has been
will they be able to undertake? found an important issue in achieving
adoption.
Can your innovation substitute an existing Radical innovations are often less likely to be
product or would it create a new market? adopted than incremental ones that fit into
Is your innovation compatible with existing existing customer systems and can be less
products and process or does it create a new disruptive to customer behaviour.
dominant design or new system?
Table 5 Competition issues

Who are your key competitors today? You should have a clear understanding of who
Who will be your key competitors in your key competitors are and what makes
1–5 years’ time? them stronger or weaker than you. If you feel
How convincing is your differentiation you have an advantage you will need to assess
relative to that of your key competitors? if they might respond and erode your edge.
Table 6 Operations scoping issues

Does your innovation offer a platform that Your innovation should not be a ‘one trick
can offer a wide range of new products and pony’ that has only a limited target market.
services able to target a large number of new
markets?
Which products allow you to best match You should seek to target markets that allow
market opportunity with your firm’s core you to best match your firm’s knowledge and
competencies (e.g. the things that you are best skills to their requirements.
able to do)?
Can you do all the work required for Unless you have all the resources and skills
commercialisation yourself or do you need to you need to fully commercialise the innovation
sub-contract or form alliances to achieve your you will probably need to form alliances with
goals? other organisations. These need to be treated
If you do need to form alliances or sub- as of strategic importance and selected with
contract, what are the key activities that you care.
should keep to yourself and which ones can
you outsource?
208 Appendices
Table 7 Go to market issues

Will you seek to sell direct, use agents, It is important to decide how you will take the
franchise or licence the innovation? innovation to market and whether you will
Will the customer pay you directly or seek to sell directly or deal via third parties.
indirectly and is this a problem? Licensing your innovation is often easier than
How frequently will customers pay you and selling directly but will be less likely to
will this provide sufficient cash flow? generate high returns. However, marketing and
Will your business secure repeat customers as selling costs are usually very substantial.
part of its business model?
Table 8 Team composition

Who will make up the team to manage your Who is in the team is actually a more
venture? important issue than the innovation
1. What is their past experience in similar itself? You should ensure that there is a
ventures? well-balanced team with a good
2. What is their technical education & skills? cross-section of skills in the key areas of
3. Do they work well in a team & have integrity? technology, marketing & sales, finance,
personnel, operations, planning and
What is each team member’s knowledge of?
legal. All team members should “get on
1. The innovation or derived products & well” and have a sound knowledge of the
services? overall picture of the firm and its
2. The process of producing these products & innovation.
services?
3. The marketing of such products & services?
4. The dynamics of working in an innovative
venture?
Table 9 Team support networks and corporate governance

Who can the team call upon for legal advice? Most firms lack all the specialist skills they
need to fully commercialise a new product. A
network of business advisors & potential
sources of venture financing should be found.
Is there a competent taxation and accounting A Board of Directors should be appointed with
advisor? an independent chairperson who is not
identical to the CEO.
Where will the team go for specialist Share ownership should be clear and there
marketing advice? should be a formal share register within the
Is there a source of external financing if firm’s deeds of incorporation. How this equity
required? will be shared and how a shareholder will exit
Describe the corporate governance structure the venture needs to be agreed.
for your firm.
Who will form the firm’s board of
governance?
How will shareholder equity be structured?
What is the dividend or reinvestment policy?
What is the exit strategy for shareholders?
Appendices 209
Table 10 The purchasing system

How will you deal with key suppliers? Key suppliers should be viewed as long term
Can key suppliers be integrated into partners who can assist with your innovation
operations? process and become valuable allies. Using
How can effective use be made of supply e-commerce systems can be a way of lowering
chain management systems? transaction costs.
Table 11 R&D and NPD activities

Should R&D be outsourced? It is important to decide if you can develop the
What can or needs to be developed innovation alone or if it requires a joint effort.
collaboratively? Finding a partner is a major strategic issue.
How much should be spent on R&D?
Will R&D teams be integrated with You should ensure that the technical side of
marketing, finance and other functions? the product development process is run in
How can R&D be linked to marketing and parallel with the marketing side.
market research?
What mechanisms do you have to ensure that An NPD road map defines how you plan to
R&D projects will be completed on time? take the innovation to market and points of
What metrics will be used to ensure R&D GO/KILL that can be identified along with
projects are assessed? budget estimates and other relevant metrics.
Is there a new product development road map
in place?
Table 12 Cost-profit-volume issues

What will be the final price you can secure You should calculate the profitability of your
for this innovation? venture with a realistic assessment of the
What will be the gross profit margin once number of sales that will be needed to allow
variable or selling costs are deducted? the business to break-even given its anticipated
What is the break-even for your business overhead costs.
given estimated fixed costs?
Do forecast sales make the business case
attractive?
Table 13 Capital investment issues

Will capital investment and capital intensity High capital investments will risk raising the
levels be high? break-even level and may require you to
secure external funding.
Will automated systems allow you to reduce Employees can raise fixed costs and the
the level of staff? break-even levels. Staffing issues also put
pressure on the management team.
210 Appendices
Table 14 Production costs

How many costs can be If you can shift costs from fixed to variable the break-even
moved from fixed to variable? point for your firm will fall and the business model will be
dynamic in nature.
Is sub-contracting a means of Sub-contracting or outsourcing will offer a chance to achieve
achieving this? variable costs but you will need to ensure that this does not
risk loss of control or quality.
Do you need to purchase High sunk costs may risk raising your break-even levels.
state-of-art systems or will
90% be OK?
Table 15 Customer needs analysis

Customer needs: Type of need: Priority: Best fit:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Key Competitors
Take the top 5–10 customer needs from the previous table and list them on the table
below. Then rate your new product or technology against the leading existing prod-
uct or technology currently in use.
Rate your product against the current leading competitor product from the cus-
tomer’s perspective as being either: worse, same or better than the competitor in
relation to each benefit (Table 16).
In Table 17, list the strengths and weaknesses of the product or technology in
relation to the key competitor product or technology currently in use within the
target market.
Appendices 211
Table 16 Top benefits to customer

Customer benefits (from Table 15) Worse Same Better
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Table 17 Top benefits to customer strengths and weaknesses

Key strengths Key weaknesses
1. 1.
2. 2.
3. 3.
4. 4.
5. 5.
6. 6.
7. 7.
8. 8.
9. 9.
10. 10.
Table 18 Top potential threats and opportunities

Key threats Key opportunities
1. 1.
2. 2.
3. 3.
4. 4.
5. 5.
6. 6.
7. 7.
8. 8.
9. 9.
10. 10.
In Table 18, list the key threats (from competitors, substitute technologies, regu-
latory changes) to the new product in the target market and also what you see as the
key opportunities for the new product.
What additional information do you need to fully assess the customer’s needs
and the market potential for the product?
212 Appendices
Prepare a brief list of the things you should do to capture the voice of the cus-
tomer and make a full assessment of the market for your new product (e.g. market
research, product evaluations).
Selling into the Market

How will the firm sell the product into the target market? You should have a clear
strategy for the way the firm will sell its product to the customer.
Key considerations for this should be:
• Who will do the selling of the product (owner, a sales team or an agent)?
• How well are they organised and briefed to sell the benefits or unique features of
the product and project the company image? (consider sales support tools e.g.
brochures, prototypes)
• Is there a well-considered customer targeting and approach strategy? (e.g. use of
data bases, market research, lead generation and sales presentation).
• What will be the minimum sales targets at a market entry price to achieve break
even?
Prepare a brief description of your selling-in strategy.
Employing the Marketing Mix

The following section provides an initial outline of a marketing strategy using the
marketing mix framework as a guide. Try to address each question/issue in brief but
relevant detail.
Pricing Strategy
Describe your pricing policy: e.g. premium price (market skimming) or low price
(market penetration) and how this will assist in generation of high sales volume and
good profit margins. How will you justify a premium pricing strategy if followed?
Promotion Strategy
Describe your promotional strategy with consideration given to any advertising, use
of websites, publicity, participation in trade shows, entry to competitions and the
development of a brand name for the product.
Distribution Strategy
Describe your distribution strategy with consideration given to how you will get the
product into the hands of the end user. Will you seek to deliver direct to the cus-
tomer, will you supply to intermediaries who will on-sell to the end user? How will
you control the quality of the product as it moves through the distribution channel
and what will be your approach to after sales service and support?
Appendices 213
Physical Evidence – Image Management Strategy

Describe how you will control your company and product image to ensure that it
looks and feels like a top-quality item. You might consider product re-design, pack-
aging, and corporate/product logos)
People and Process Strategy

Describe your strategy for controlling the quality of work undertaken within the
firm and the people who will need to be found to assist in taking the product to
market. You should consider what use might need to make of specialist consultants
such as market researchers, marketing and publicity firms, product designers.
ction Learning Task 2: Assessing the Resources and Innovation Case

A
The purpose of this assignment is to assess the innovation strategy of the commer-
cialisation project in relation to the firm’s available resources and the overall strength
of their innovation. Having examined their business model strategy and market
opportunities, the next phase of this process is to examine the firm’s financial, tech-
nical, physical and managerial/staffing resources to see if they are adequate for the
future development of the innovation. Also important is whether there are sufficient
“isolating mechanisms” (e.g. IP rights protections) to allow the innovation to pro-
ceed alone, or be negotiated with third parties if not.
Requirements
Working in groups and using the industry partner plus the unit workshop notes and
other relevant readings and information prepare the following:
1. A critical assessment of the resource and innovation base for the project you are
working on with specific reference to the Innovation Diagnostic Report and, the
results of the Innovation Diagnostic Diamond (IDD). Consider the findings from
the “Resource Index” and “Innovation Index”. What are the key areas of weak-
ness and what does this mean for the future commercialisation of the
innovation?
2. An assessment of the need for strategic partnering that determines if the innova-
tion can proceed to commercialisation alone and if not, what strategic partner-
ships are required and their nature. Draw up a list of the essential strategic
partners and describe the “value exchange” that might take place with each.
What are the implications for the future development of the innovation?
3. An IP rights portfolio should be developed that identifies all the intellectual
property rights that are held by the firm and any third parties and that are consid-
ered vital to the future commercialisation of the innovation. What are the impli-
cations of this for any future strategic partnerships and equity financing?
214 Appendices
4. A financial value analysis should be developed that examines the financial merits
of the innovation. This should examine anticipated sales over at least a 3-year
time horizon, how such sales will be generated and the pricing strategy to be fol-
lowed. This should be matched against the anticipated cost structure of the busi-
ness model and a cost-profit-volume analysis undertaken. Make recommendations
to the partner company as to the implications of this.
eveloping an IP Strategy – A Check List

D
Describe the steps you will take to protect your intellectual property. In particular,
consider:
• NDA and trade secrets;

• Patents; and
• Trade marks.
Also, describe the steps you will take to remedy any potential problems with
your IP rights portfolio (Table 19).
Table 19 Steps to developing an IP strategy

Key issues that will need to be taken to
Key steps required remedy problems
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Appendices 215
Licensing
Describe your thoughts about the possibility of licensing or selling your IP,
including:
• licensable subject matter;

• potential licence targets;
• potential licence values; and
• potential licence terms
Using IP as a Strategic Advantage

Describe how you think your IP can be used to strategic advantage, including:
• to create value, e.g., a licensing program, IP asset sale, or participating in a joint

venture arrangement
• to use as a barrier to entry from competitors
IP Rights Concerns
Describe any concerns you have in relation to:
• infringement by your business of third-party IP.

• infringement by third parties of your IP.
Describe how you will resolve these issues.

Describe how your IP strategy aligns with your existing business strategy.
References
Grupp, H., & Maital, S. (2001). Managing new product development and innovation: A microeco-
nomic toolbox. Cheltenham/Northampton: Edward Elgar.
Mazzarol, T., & Reboud, S. (2011). Strategic innovation in small firms: An international analysis
of innovation and strategic decision making in small to medium sized enterprises. Cheltenham/
Northampton: Edward Elgar Publishing.
Rae, D., & Carswell, M. (2001). Toward a conceptual understanding of entrepreneurial learning.
Journal of Small Business and Enterprise Development, 8(2), 150–158.
Revans, R. W. (1971). Developing effective managers. Harlow: Longman.
Revans, R. W. (1980). Action learning: New techniques for management. London: Blond and
Briggs.
Revans, R. W. (2011). ABC of action learning. Farnham/Burlington: Gower.

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1.1 Learning Objectives

After completing this chapter, you should be able to:

1.2 Chapter Review

© Springer Nature Singapore Pte Ltd. 2020 1

1.3 Learning Activities

1. Using examples, explain why entrepreneurship and innovation are considered

1.4 Key Lessons from the Chapter

1.5 Exercise: Profiling Activity

Profile an entrepreneur that interests or inspires you. Many high-profile entrepre-

1.6 Case Study Analysis

1.7  ase Study: Small Entrepreneurial Firms in the

Unirex Kabushiki Gaisha, Japan

• Bio Coal technology, which produces clean-burning, high-energy briquettes

Factors Attributed to the Company’s Success

Boots Online, Australia

• the imposition of taxes in some purchasers’ home countries;

Factors Attributed to the Company’s Success

Electrical Components, Malaysia

Electrical Components (EC), in the state of Selangor, Malaysia, is a typical Chinese,

The company regards itself as a relatively sophisticated user of computer tech-

Factors Attributed to the Company’s Success

Vjandep Pastel Bakeries, Philippines

Ms. Eleanor Popera-Jose admits to a number of failed small-business ventures

Vjandep Pastel faces several challenges as it contemplates the further growth

Factors Attributed to the Company’s Success

2.1 Learning Objectives

After completing this chapter, you will be able to:

2.2 Chapter Review

© Springer Nature Singapore Pte Ltd. 2020 9

different opportunities for entrepreneurial behaviour. Individuals develop personal

2.3 Key Lessons

• Although some personality related characteristics or traits appear to be strongly

2.4 Learning Activities

1. Using examples, discuss whether you think that entrepreneurship is influenced

2.5 Exercise – Profiling Activity

• Which entrepreneurial traits do you recognise in yourself and your group?

2.6 Creativity Journal

Creativity is a foundation for both entrepreneurship and innovation. To assist you in

The Creativity Journal is a semi-structured written assignment that provides evi-

Creativity Journal Framework

2.7 Individual Assignment – Am I an Entrepreneur?

1 . Examine the theory and practice of entrepreneurs.

• Personal family and career history;

• Motivations for doing entrepreneurial things;

• Discuss what entrepreneurship means to you (drawing on theory and frameworks

2.8 Case Study Analysis

2.9 Case Study: Lessons from Entrepreneurs

Author: Tim Mazzarol

This case study is based on a research project undertaken at the University of

Case Study: Brian

On previous business venture Brian launched ended in failure. He attributes this

• Realise that making mistakes is simply part of the learning process.

Case Study: Andrew

According to Andrew, this combination of financial and family pressures meant

1 Work Book: Entrepreneurship as a Social and Economic Process �� 1

3 Work Book: The Entrepreneurial Process�� 21

Corporate Structure�� 50

The STEN Arrives�� 73

Decreasing Liquidity�� 94

11.5 Creativity Journal Entry�� 120

14 Work Book: Social Innovation and Enterprise �� 159

1.1 Learning Objectives

1.2 Chapter Review

1.3 Learning Activities

1.4 Key Lessons from the Chapter

1.5 Exercise: Profiling Activity

1.6 Case Study Analysis

1.7 ase Study: Small Entrepreneurial Firms in the

Unirex Kabushiki Gaisha, Japan

Boots Online, Australia

Electrical Components, Malaysia

Vjandep Pastel Bakeries, Philippines

2.1 Learning Objectives

2.2 Chapter Review

2.3 Key Lessons

2.4 Learning Activities

2.5 Exercise – Profiling Activity

2.6 Creativity Journal

Creativity Journal Framework

2.7 Individual Assignment – Am I an Entrepreneur?

2.8 Case Study Analysis

2.9 Case Study: Lessons from Entrepreneurs

Case Study: Brian

Case Study: Andrew

Case Study: Jim

Case Study: Peter

3.1 Learning Objectives

3.2 Chapter Review

3.3 Key Lessons

3.4 Learning Activities

3.5 Group Exercise: Creating Jobs and Economic Growth

The Problem Outlined

Your Task Explained

3.6 Case Study Analysis

3.7 Case Studies of Nascent and Novice Entrepreneurs

Case Study: Malcolm (Non-Starter): The Nascent Entrepreneur

ast Business Failures

Case Study: Richard (Starter): The Novice Entrepreneur

4.1 Learning Objectives

4.2 Chapter Review

4.3 Key Lessons

4.4 Learning Activities

4.5 Creativity Journal Entry

4.6 Case Study Analysis

4.7 Case Study: Belmont ‘City of Opportunity’

Setting a New Direction

5.1 Learning Objectives

5.2 Chapter Review

5.3 Key Lessons

5.4 Learning Activities

5.5 Case Study Analysis

5.6 Case Study: The Stillroom; When Love Is Not Enough

From Little Acorns

A Small Business Blossoms

The First Agency

Success: Gift Fairs and Exports

New Commercial Premises and Production Methods

Mother’s Private Investment

Factoring to Finance Debtors

The Age of Discontent

History Repeats Itself

Finance for the New House

Business Improvement Program

Change from Fixed to Variable Costs

Business Valuation and Possible Sale

Direct Marketing and Franchising

Business Management Pressures