22. The valley of death
When an
innovation has passed the stage of proof of concept, and even when it
has passed market tests, with prototypes, that is not the end of it.
Often then the real problems start, in a valley of death in which many
innovations strand.
The usual
take on this is that now one has to pass from development to production, with
corresponding investment and organization. Emphasis shifts from technical and
commercial viability to efficient production and competition in the market.
Rising volume of demand offers an opportunity for economies of scale, and
increasing price competition, upon entry of competition, enforces its
utilization.
The
entrepreneur needs to develop into a manager. Production volume starts to
increase, division of labour is needed, the distance between entrepreneur and
the shop floor increases, direct supervision becomes unworkable, the
entrepreneur must delegate, and more formal procedures of control have to be
implemented.
Often,
entrepreneurs cannot take this hurdle. Their psychology of stubbornness,
independence, will to power, personal leadership, risk taking and informality,
become a liability. Then they are replaced by people more prone to management,
or the firm is taken over by an already established, larger one, with deeper
pockets, more know-how, specialist support, more contacts, market position,
brand name, and access to distribution channels. The entrepreneur often opts
out, sells the firm, and starts anew elsewhere, in serial entrepreneurship.
From the perspective
of previous items in this blog, concerning the tensions between exploration and
exploitation (item 16) and the cycle of invention (item 18), the valley of
depth obtains more perspective.
The
transition is one from exploration to exploitation. As discussed in item 17,
the problem is limited in case production is relatively stand-alone,
with products being tailor made, varying between customers, with the need of
variety and a degree of exploration within exploitation. Pressures of scale are
also less with more custom-made products.
In terms of
the cycle of invention, varying the product according to context, in
production, already entails differentiation and reciprocation.
In the case
of a more systemic, inflexible production logic, the firm may opt to specialize
in exploration and seek a partner in exploitation. In item 17 I indicated the
case of small, exploratory biotech firms in partnership with large
pharmaceutical companies.
According
to the cycle of invention, the problem lies mostly in the transition from accommodation,
in the search for a workable and viable novel combination, to the stage
of consolidation, where the novelty needs to be embedded in institutions
or to shift them (infrastructure, skills, laws and regulations, technical
standards, distribution channels, and customer practices). Established firms
will try to block or slow down entry.
An
alternative to conforming to established institutions is a rush into further,
more political entrepreneurship to break them open to the innovation, against
powerful lobbies of established interests. This accords with the Schumpeterian
concept of the entrepreneur as one who achieves creative destruction.
There are
ways to help entrepreneurs through the valley of death, with support from experienced
entrepreneurs and specialists, and alliances that are carefully crafted to fit
the problems of combining exploration and exploitation and the stage of
development along the cycle of discovery.
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