Innovation (Eco)Systems

Chuck Eesleyeesley@mit.edu

MIT Sloan School of ManagementCambridge, UK May 22-23rd

International Level

Geographic Location of Firms

1

10

100

1000

1950s 1960s 1970s 1980s 1990s

Founding Decade

nu

mb

er o

f fi

rms

(lo

g s

cale

)

Latin America

Europe

Asia

US

Data from MIT Alumni

National Level

University Level

What Makes the MIT Innovation System Successful?

• Competition

• Flexibility

• Deep commitment to basic research

• Enthusiasm for opening doors

Ecosystem

Drivers of Start-up Performance

Revenues by Reason Firm Was Reported On

1000

10000

100000

1000000

1 2 3 4 5 6 or morefirms

Rev

enu

es (

log

sca

le)

Revenues Most SuccessfulFirms (2001 $)

Important Technology

First

Recent

Employees by Reason Firm Was Reported On

0

500

1000

1500

2000

2500

3000

1 2 3 4 5 6 or morefirms

Em

plo

yees

Most Successful Firms(2001 $)

Important Technology

Recent

1.) Work history (Burton, et al. 2002; Higgins and Gulati 1996)

2.) Social network (Shane and Stuart 2002 – 134 MIT spin-offs)

3.) Timing

Public markets

Persistence (~9-12 months to raise VC)

4.) Partnerships/Endorsements - (Shane and Cable 2002 – 50 MIT spin-offs, 202 seed-stage investors)

5.) Firm strategy – innovation, time frame to exit

6.) No. of cofounders, Prior IPO, same industry start-up, prior start-up (Eesley, unpublished, 2,100 MIT alumni start-ups)

Assuming geography and industry sector that VCs invest in (Sorenson and Stuart 2001)

Assuming fit with VC growth model (Fluck, Zsuzsanna, Douglas Holtz-Eakin, and Harvey S. Rosen, 1998)

Drivers of Obtaining VC

Show regression results Table 6

Differences in Age at First Founding

0

5

10

15

20

25

30

35

40

45

1st firm – one-timeonly

1st firm – eventualrepeat

entrepreneur

# Y

ears Lag to First

Firm

Age founded

Revenues and Prior Experience

0

2000

4000

6000

8000

10000

12000

14000

16000

1st firms 2nd firms 3rd firms 4th firms 5th firmsor higher

Firm Number

Th

ou

san

ds

of

$ (i

n 2

001

$)

Cofounded Firm Revenues /Operating Year Reported

Single Founder FirmRevenues / Operating YearReported

Sources of Ideas

0

10

20

30

40

50

60

70

80

90

100

1st firms 2nd firms 3rd firms 4th firms 5th firms orhigher

%

Idea through research (%)

Idea through industry experience(%)

Idea through networking (%)

Idea from other

• Show Tables 3-4 Cutting Your Teeth

How Do Drivers of Performance Differ for Developing Countries?

Sources of Differences

• Institutions• Policies

– Financial liberalization– Industrial Policy and Regulation

• Culture• Rule of Law

– Property rights

• Resources, Comparative Advantage• Universities / Education / Human Capital

Four Levels of Social AnalysisWilliamson (2000)• Social Embeddedness

– Culture, Religion (Economic Historians, Anthropologists, Sociologists)

• Institutional Environment– “Rules of the Game”, Constitutions, judiciary, politics (Poli. Sci.,

Inst. Economics)

• Governance– Contracts, Theory of the firm (Contract/Info Econ, TCE)

• Resource Allocation– Incentive aligment, Quantities and Prices (Neoclassical

Economists)

Boisot and Child 1988

Hypothesized Drivers of Performance for LDC’s

• Location in Supply Chain / Innovation• Access to $$, tech. (FDI, MNE’s)• Returnees?• Culture

– Risk preferences (France)– Inter-firm collaboration (Chaebols, business networks,

Keiretsu)

• Network Ties– Managers– Government officials– Alumni Associations

Case of Taiwan and the Semiconductor Industry

• Upgrading, How do latecomers compete?• 1975 – foreign firm dominated• Tatung

– Managerial skills• First-movers, optimal-size plants, economies of

scale• Large, National firms• Government led networks / R&D• Outsourced manufacturing