Models of Innovation

Models of Innovation:

STARTUPS AND MATURE CORPORATIONS

John Freeman Jerome S. Engel

nnovation refers to a process that begins with a novel idea and concludes with market introduction. Invention by itself is not an innovation. The innovation process occurs in two ways, the Corporate Model and the Entrepreneurship Model, and we refer to existing firms that are older and usually larger as “corporations” and firms recently started by entrepreneurs as “startups.” There are many competitive advantages that most corporations can use to succeed against startups. In a one-on-one competition, the startup usually has less capital, fewer scientists and engineers, less legitimacy or brand presence, fewer strategic alliances, evolving organizational structures, and incomplete or even non-existent business processes. At a more abstract level, young firms have liabilities of newness and smallness,1 so they fail at higher rates than do their larger and older competitors. Why aren’t opportunities always absorbed into the existing industrial structure? Why don’t the big companies just take them all? Over the last fifty years, a persistent and growing proportion of new ventures are technologybased companies, founded to exploit changes in technology and the market disruptions they often generate. Why does the Entrepreneurial Model prove to be such a robust vehicle for breakthrough innovations? While the innovation process in corporations has features in common with that in startups, the managerial and structural advantages that established companies have are the bases of their disadvantages as well. Innovation requires two important underlying properties wherever it occurs. First, resources must be mobile. This often means changing the existing deployment of those resources. Extracting them from their current allocation slows down the process and often introduces inefficiencies as managers seek to

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CALIFORNIA MANAGEMENT REVIEW VOL. 50, NO. 1 FALL 2007

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