Technovation 41-42 (2015) 110

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Technovation
journal homepage: www.elsevier.com/locate/technovation

Innovation in start-ups: Ideas lling the void or ideas

devoid of resources and capabilities?
Amit Paradkar a, John Knight a,n, Paul Hansen b
a
Department of Marketing, University of Otago, Dunedin 9054, New Zealand
b
Department of Economics, University of Otago, Dunedin 9054, New Zealand

art ic l e i nf o a b s t r a c t

Available online 31 March 2015 We investigate how access to different types of resources affects the success of entrepreneurial start-up
Keywords: rms at early stages of development in small isolated economies by studying 12 start-ups based in New
Innovation Zealand. We nd that successful commercialization of innovations depends on the availability of
Entrepreneurship complementary assets, and that capability-based resources, especially dynamic capabilities, have a greater
Commercialization impact on competitive advantage of start-ups than other intangible and tangible assets. For the start-ups
Start-ups in our study, alliances with partners are particularly important, and so the ability to form alliances is a key
Resources capability. Successful start-ups leverage their available resources to attract alliance partners in order to
Capabilities access necessary complementary resources. The start-ups in our study clearly demonstrated the ability to
Dynamic capabilities
attract partners locally but struggled to do so internationally, thereby limiting their growth potential.
Core competencies
& 2015 Elsevier Ltd. All rights reserved.

1. Introduction successfully compete against rivals (Hervas-Oliver and Sempere-

Entrepreneurial start-up rms usually begin with high hopes for
what they want to achieve, but many fail because they do not have
the requisite capabilities (Dosi et al., 2000). In this paper, we
address the challenges faced by start-ups at early stages of devel-
opment in economies that are relatively small and geographically
isolated and relate these challenges to the dynamic capabilities
perspective (Teece, 1986, 2014; Teece et al., 1997) and the relational
view (Dyer and Singh, 1998). Our objective is to explore the ways in
which access to resources affects start-ups and the commercializa-
tion process, and to identify which types of resources contribute
most to competitive advantage and why. Studying start-ups in these
respects is important in order to illuminate what it takes for start-
ups to succeed (while others fail).
The full set of resources and capabilities required to solve critical
business problems is often beyond the scope of individual rms,
especially in their early stages of development (Groen and Walsh,
2013). Teece (2014, p. 18) draws an important distinction between
ordinary (and easily replicable) capabilities and dynamic (hard to
replicate) capabilities: Ordinary capabilities support technical t-
ness, while dynamic capabilities support evolutionary tness. Firms
that are able to build capabilities by combining resources in unique
ways, such as establishing superior organizational routines and
partnering with rms that have complementary assets (Dyer and
Singh, 1998), can access intricate bundles of resources with which to
n
Corresponding author.
Ripoll, 2014).
Although forging relationships with other rms in order to
obtain complementary assets is generally associated with improv-
ing a start-up's chances of success, this is not guaranteed; for
example, Velu (2015) recently reported that such alliances can be
harmful as the degree of business model innovation rises. In
contrast, Teece (1986, p. 294) identies circumstances under which
contractual or partnering strategies are ideal: If the innovator's
technology is well protected, and if what the partner has to provide
is a generic capacity available from many potential partners, then
the innovator will be able to maintain the upper hand while
avoiding the costs of duplicating downstream capacity. However,
assembling such inter-rm linkages poses a particular challenge for
start-ups, especially in small isolated economies where ideal
partners may not exist locally.
As reviewed in the next section, most research into innovation and
the dynamic capabilities perspective is based on data or case studies
from large developed economies such as the US. Start-ups in large
developed economies have the advantage of sizeable domestic con-
sumer markets and well-developed venture capital and stock markets.
These advantages enable US start-ups to experiment with their com-
mercialization activities with relative ease and get early feedback from
customers, enabling them to adapt their strategies quickly. On the
other hand, start-ups in large economies are exposed to more aggr-
essive competitive pressures than start-ups in smaller economies.
The setting for our research, which involves studying 12 start-
ups in a variety of industries ranging from aviation to cosmetics, is

http://dx.doi.org/10.1016/j.technovation.2015.03.004
0166-4972/& 2015 Elsevier Ltd. All rights reserved.
2 A. Paradkar et al. / Technovation 41-42 (2015) 110
New Zealand. With a population of just 4.5 million and its closest
neighbor, Australia, more than 2000 km away, New Zealand does not
have the advantage of a large domestic consumer market and well-
developed venture capital and stock markets. Given such constraints,
incubating and commercializing inventions rapidly can be highly
challenging, requiring intense entrepreneurial orientation and cap-
ability on the part of innovators (Clausen and Korneliussen, 2012;
Wonglimpiyarat, 2005).
Our study contributes to the innovation literature in the context of
entrepreneurial start-ups at early stages of development in small
isolated economies by providing evidence for the following main
conclusions. First, successful commercialization of innovations depends
on the availability of complementary assets. Second, start-ups' capa-
bility-based resources have a greater impact on competitive advantage
than other intangible and tangible assets. For the start-ups in our
study, alliances with partners are a particularly important asset, and so
the ability to form alliances is a key dynamic capability. Successful
start-ups leverage their available resources to attract alliance partners
in order to access necessary complementary resources.
2. Theoretical underpinnings and research propositions
Innovation comes in many forms and its intensity varies in terms
of its impact on consumers and competitors (Christensen and
Rosenbloom, 1995). Innovations range from the discovery of complex
scientic principles and the invention of radically new technologies
to simple incremental additions to existing knowledge. In order to
generate nancial returns, an innovation has to deliver benets that
consumers perceive as valuable (Drucker, 1985; Rogers, 2003; Sheen
and MacBryde, 1995). Start-ups that are ultimately successful com-
pete with rival rms by creating entirely new benets for customers
or by signicantly improving extant ones.
Transforming the benets from an innovation into a commercially
viable product is a multi-stage process, which is accomplished only
when the full set of resources required for commercialization is
available to the innovator rm (Clark, 1985; Dosi, 1982; Teece, 1986;
Teece et al., 1997). Such resources include potentially all assets,
capabilities, organizational processes, rm attributes, information
and knowledge (Barney, 1991). Firms cannot expect to simply
purchase sustained competitive advantage in markets; instead,
sustained competitive advantage depends on access to resources
that are valuable, rare, imperfectly imitable and non-substitutable
(VRIN) (Barney, 1991). Moreover, as Newbert et al. (2007, p. 444)
explain, it is not the mere possession of but rather the exploitation of
a rm's resources via its strategy that determines its performance.
Capabilities are an especially important type of rm resource. Teece
(2014, p. 14) denes a capability as the capacity to utilize resources to
perform a task or activity, against the opposition of circumstance.
Essentially, capabilities ow from the astute bundling or orchestration
of resources. Grant (1991) argues that capabilities may take the form
of routines and interactions by which the rm's other resources are
coordinated. Likewise, according to Nelson and Winter (1982, p. 104):
An organization does not become capable of an actual productive
performance merely by acquiring all the ingredients, even if it also
has the recipe. What is central to a productive organizational
performance is coordination. Koryak et al. (2015) distinguish two
broad types of capabilities: substantive (growth) capabilities, which
enable a rm to compete in its market on a day-to-day basis; and
dynamic capabilities, which extend, modify or create new substantive
(growth) capabilities.
Marino (1996, p. 41) draws a distinction between capabilities,
which are rooted more in processes and business routines, and
competencies, which have a technology or knowledge-based com-
ponent. Newbert et al. (2007) nd that rms established on the
strength of their managerial capabilities emphasize demand-pull
strategies at founding, whereas rms based on technological com-
petencies emphasize technology-push strategies. The authors also
conclude that technology-intensive new rms emphasizing techno-
logy-push strategies perform better than rms emphasizing
demand-pull strategies.
According to Teece (2014, p. 14): The dynamic capabilities
framework emphasizes the importance of (signature) business
procedures, both inside the rm and also in linking the rm to
external partners. The importance of relationships with one or more
partner rms for the success of a rm is emphasized by the relational
view of competitive advantage, which includes the idea that the
combined resource endowments of partner rms are more VRIN
than if they are kept completely independent (Dyer and Singh, 1998).
For rms not in full possession of VRIN resources of their own,
Newbert et al. (2008, p. 15) conclude that: such rms may wish to
consider developing inter-rm networks and alliances, perhaps with
large rms that possess such resources and capabilities or with small
rms with which they can be co-developed.
Central to the dynamic capabilities framework and the relational
view is the fundamental role played by entrepreneurs in building their
rm's requisite capabilities and managing relationships with alliance
partners. Though Richard Cantillon coined the term entrepreneur in
the mid-18th century for a speculator engaged in activities with certain
expenses and uncertain incomes (Blaug, 1997; Brewer, 1992), Jean-
Baptiste Say laid the foundations in the early 19th century for the
concept of an entrepreneur as not merely a bearer of risk but also a
coordinator of the factors of production (Bruyat and Julien, 2001). Most
contemporary scholars regard an entrepreneur as someone who is
adept at managing risks and deploying resources and managing
relationships in pursuit of prot opportunities.
Firms managed by entrepreneurs appraise markets, technologies
and business models in novel ways (Teece, 2009) and strive to create
new products or to transmute customer values with respect to existing
products (Drucker, 1985; Stevenson and Jarillo, 1990). As well as
exploiting their own ideas, entrepreneurial rms are adept at inte-
grating the ideas of others and rearranging new or existing assets into
meaningful and value-enhancing congurations (Christensen, 1997;
Drucker, 1985; March, 1991; Shane, 2000; Shane and Venkataraman,
2000; Smilor, 1997; Teece, 2009). Thus, entrepreneurial start-up rms
upset the status quo of established rms, disrupt accepted ways of
doing things and alter traditional patterns of behavior (Schumpeter,
1934; Christensen, 1997; Drucker, 1985; Smilor, 1997).
Transforming an innovation into a commercially viable product
requires that the know-how inherent in the innovation can be
utilized in conjunction with complementary assets (Teece, 1986;
Colombo et al., 2006; Sheen and MacBryde, 1995). Examples of
complementary assets include manufacturing facilities, marketing
and distribution networks, after-sales servicing, and specialized
componentry and technology. Such assets are usually in short
supply for entrepreneurial start-ups, especially at the early stages
of development, which results in three types of problems.
First, start-ups at inception usually lack the nancial resources
needed to build or buy capital-intensive complementary assets.
Initial resources such as business networks (Huang et al., 2012),
the core team's commitment (Chorev and Anderson, 2006) and
heterogeneity in the functional capabilities of the founders
(Aspelund et al., 2005) may increase the chances of the rm's
survival, but these resources do not fully compensate for its capital
deciencies. Second, acquiring or building complementary assets
usually takes time, a luxury unavailable to most start-ups unless
they have patient and deep-pocketed investors. Third, rival
(incumbent) rms may already possess the assets or be better
equipped to build them than start-ups. As a result of these prob-
lems associated with complementary assets, it is not surprising
that commercialization is often regarded as more challenging than
coming up with an invention in the rst place (Arora and Fosfuri,
 A. Paradkar et al. / Technovation 41-42 (2015) 110
2003; Arora et al., 2001; Colombo et al., 2006; Gans and Stern,
2003).
The overall signicance of an innovation manifests in its power to
disrupt rival rms in the extreme, by causing rivals to fail after
rendering their capabilities and assets obsolete (Clark, 1985; Dosi,
1982; Henderson and Clark, 1990). This characterization suggests that
the new resources necessary for commercializing an innovation are
different from those required for a rm's day-to-day operations and
that they are relatively difcult to reproduce or obtain. This argument
is supported by the resource-based view (RBV), which holds that the
survival of a rm in a competitive environment depends on its ability
to harness VRIN resources (Barney, 1991; Grant, 1991; Hall, 1992;
Peteraf, 1993; Prahalad and Hamel, 1990). According to Wernerfelt
(1984, p. 173): What a rm wants is to create a situation where its
own resource position directly or indirectly makes it more difcult for
others to catch up.
Our rst research proposition emerges from combining the
argument of innovation theorists that the new value created by
innovation requires new assets to be developed (Christensen, 1997;
Christensen and Rosenbloom, 1995; Dosi, 1982; Drucker, 1985;
Henderson and Clark, 1990; Tushman and Anderson, 1986) with
the RBV that complementary assets play a crucial role in the success
of rms (Penrose, 1959; Barney, 1991; Teece, 1986; Wernerfelt, 1984).
Proposition 1. For start-ups at early stages of development in small
isolated economies, successful commercialization of innovations
depends on the availability of complementary assets.
Innovations need protection from imitation by competitors, some
of whom may be incumbents that are better resourced than the
innovator. To ensure a sustainable competitive advantage, start-ups,
which are unlikely to have many resources to begin with, need to
obtain strategic resources that serve as entry barriers for rivals.
Alliances with large rms (Rothaermel, 2001a, 2001b; Rothaermel
and Deeds, 2004) and access to venture capital (Black and Gilson,
1998; Gompers and Lerner, 1998, 2001) can enable start-ups to create
valuable strategic resources.
In general, tangible assets do not qualify as strategic resources as
they can be readily purchased by competitors in factor markets or
easily imitated (Amit and Schoemaker, 1993; Grant, 1991; Hall, 1992,
1993; Michalisin et al., 1997; Srivastava et al., 1999). In contrast, the
value of intangible assets is difcult to quantify (Grant, 1991; Hall,
1992), as their value depends on the rm's competency (Wernerfelt,
1984); such assets may allow a rm to exploit technologies in ways
that other rms cannot (Barney, 1991). As well as managerial
competence and experience, technological competencies are critical.
Walsh and Linton (2011, p. 213) consider that by constructing an
inventory of technological competencies it should be possible to
identify bundles of competencies that are used in a variety of
products and are not easily found in competing rms. Overall,
intangible assets appear to have much more strategic value than
tangible assets, as they are unique to the rm and difcult to imitate
and substitute.
A common view is that capability-based resources (discussed
earlier) are of greater strategic value than other types of resources
(Amit and Schoemaker, 1993; Day, 1994; Hall, 1992; Michalisin et al.,
1997; Srivastava et al., 1998; Teece, 2009; Teece et al., 1997; Wernerfelt,
1984). If successfully developed, capabilities which are difcult for
rivals to replicate immediately can become a rm's core competencies
denable as the collective learning in the organization, especially
how to coordinate diverse production skills and integrate multiple
streams of technologies (Prahalad and Hamel, 1990, p. 82).
Teece et al. (1997) view a rm as being an incubator and store-
house of technological and organizational assets that are difcult to
replicate. A rm may achieve superior performance by identifying,
investing in, protecting and nourishing dynamic capabilities: the
3
rm's ability to integrate, build, and recongure internal and external
competences to address rapidly changing environments (p. 516). The
capacity for new product development (Marsh and Stock, 2003, 2006)
and especially when technology and markets are changing rapidly
major (O'Connor, 2008) or radical product innovations (Slater et al.,
2014) are dynamic capabilities. Process innovation is receiving increas-
ing attention as a dynamic capability too; for a recent study, see Pie-
ning and Salge (2015).
Despite most analyses of the positive relationship between
capability-based resources and competitive advantage being
focused on established rms, such resources are also very impor-
tant to the success of start-ups (Somsuk et al., 2012). In their initial
phases, start-ups are almost always small and lacking in nancial
and capital-intensive tangible assets (Bhide, 2000). Their small-
ness and resource impoverishment leads start-ups to form beliefs
about the relative value of resources that often differ from how
they are viewed by incumbents (Kirzner, 1973). The essential skill
for start-ups in the early ferment stages is the capability to
assemble and utilize a bundle of complementary assets despite the
limitations inherent in being a start-up in other words, a can do
attitude coupled with managerial ability and know-how. These
ideas lead to our second research proposition.
Proposition 2. For start-ups at early stages of development in small
isolated economies, capability-based resources, especially dynamic
capabilities, contribute more to competitive advantage than tangible
assets or other forms of intangible assets.
3. Methods
Our methodological approach is to study 12 entrepreneurial start-
up rms based in New Zealand by interviewing key people from each
rm usually founders, chief executives and/or venture capitalists
and to assess whether common patterns in the resulting data are
consistent with the two research propositions outlined in the previous
section. Direct (but anonymous) quotes from the interviewees are
used to support our analysis. Given that commercialization processes
are idiosyncratic to individual start-ups, a context-specic eldwork-
based methodology specically, case studies is appropriate for
investigating such idiosyncrasies (Collis, 1991; Godfrey and Hill, 1995;
Hoskisson et al., 1999; Rouse and Daellenbach, 2002).
Our rationale for such a relatively intrusive approach (compared
to relying on secondary data sources) is that it is more likely to reveal
how a rm is able to create or access resources and why doing so made
the rm competitive (or not). According to Rouse and Daellenbach
(2002, p. 964): To untangle the nature and sources of such compe-
tencies requires going inside the black box of organizations. We
included 12 start-ups all of which have received awards for
innovation from the New Zealand Government or from businesses
such as large consulting rms because a multiple case-study
approach is more likely to uncover evidence that is valid and reliable
(Dul and Hak, 2008; Eisenhardt, 1989; Stake, 2005; Yin, 2009).
The data gleaned from the 12 case studies can be used to build
theory inductively (rather than deductively): The theory is emergent
in the sense that it is situated in and developed by recognizing
patterns of relationships among constructs within and across cases
(Eisenhardt and Graebner, 2007, p. 25). Like a series of related
laboratory experiments, multiple cases can serve as replications and
contrasts and extend the emerging theory; case studies can provide
rich details about the real-world context in which the studied rms
are embedded (Eisenhardt and Graebner, 2007). This story-telling
approach provides a context for understanding the phenomena under
investigation (Denzin and Lincoln, 2005; Patton, 1990; Yin, 2009).
One or two key people were interviewed for each of the 12 start-
ups, resulting in 18 interviewees in total. Usually they were founders,
chief executives and/or venture capitalists, which is appropriate given
4 A. Paradkar et al. / Technovation 41-42 (2015) 110

that important decisions in start-ups are made by small groups of
people, usually founders and chief executives, with input from external
stakeholders such as venture capitalists. For the ve start-ups for
which more than one person was interviewed, the rst interview was
analyzed before the next interview was scheduled, following the
literal replication logic recommended by Yin (2009). A case study
log was maintained in which all collected details of the organizations
and interviewees were cataloged. Ideas and observations that emerged
during the data collection process were noted, and interviews were
digitally recorded to ensure that no details were lost.
The interviews were conducted at the interviewees' workplace and
guided by a protocol that included open-ended questions focusing on
specic information-seeking tasks (Carson et al., 2001; Easterby-Smith
et al., 2001; Merton et al., 1956; Patton, 1990; Yin, 2009). In accordance
with ethics approval from the Marketing Department of the University
of Otago, anonymity of respondents was preserved and commercially
sensitive material was kept condential.
Each rm's resource portfolio in terms of specic resources
developed by the rm or, alternatively, outsourced, and whether they
are classied as tangible or intangible assets are reported in Table 2.
Four of the start-ups failed to commercialize their innovations
during the time period studied: Cases 3 (computer games), 5
(biological-threat detection), 9 (fungicide) and 12 (jetpack). The
remaining eight rms successfully commercialized their innova-
tions: Cases 1 (discount vouchers), 2 (probiotics), 4 (loyalty-pro-
gram monitoring), 6 (safety trampoline), 7 (energy-efcient light
bulbs), 8 (cosmetics), 10 (online booking) and 11 (GPS mapping).
Most of these rms not only successfully commercialized and
survived but also, at the time of the study, were growing steadily.
Case 1 (discount vouchers) is an exception because, despite achiev-
ing commercial success, it failed later on. During the interviews we
discovered its failure was caused by interpersonal friction between
the entrepreneurs, which was rather different from the causes of
failure of the other unsuccessful rms.

Proposition 1. For start-ups at early stages of development in small

4. Results
For each of the 12 start-ups (cases 112, anonymized), its char-
acteristics in terms of product, interviewee role and years of operation
and operating status are reported in Table 1. As can be seen in the
table, all rms are relatively young, having existed for less than 12
years. During the study, the three rms referred to as cases 1, 3 and
9 ceased operating and were placed in receivership; their information
was obtained by interviewing ex-managers and ex-employees. Cases
6, 8 and 10 were acquired by strategic investors or rival rms during
the study; their information comes from interviewing their founders.
isolated economies, successful commercialization of innovations
depends on the availability of complementary assets
Our case-study analysis revealed a major difference between the
rms that successfully commercialized their innovations and those
that did not. Successful rms managed to assemble a full set of
complementary resources, whereas the resource portfolio of unsuc-
cessful rms was inadequate to achieve the desired result. The rms'
ability or inability respectively to commercialize their innovations by
bringing together complementary resources is clearly reected in their
survival and growth. Therefore Proposition 1 is fully supported.

Table 1
Characteristics and interviewees' roles of the 12 case-study rms

Case Product Interviewee role Years of operation and

operating status

1 Online discount vouchers Co-founder 20062010 (liquidated)

Venture capitalist (The VC in cases 1 and 2 is the same person; he was
interviewed separately for each case.)
Co-founder

2 Probiotics Business development manager 2000-ongoing

Venture capitalist (The VC in cases 1 and 2 is the same person; he was
interviewed separately for each case.)

3 Computer-animated games for education Founder 20042009 (liquidated)

4 System for monitoring loyalty programs Co-founder 2009-ongoing

5 Biological-threat detection device Director and venture capitalist 2006-ongoing

6 Safety trampoline Founder 2003-ongoing

7 Energy-efcient light bulbs Co-founder and Director 2006-ongoing

8 Cosmetics/personal healthcare products Co-founder 2002-divested in 2010

Co-founder

9 Biological fungicide General manager (former) 20012009 (liquidated)

Chief executive (former)

10 Online booking system for tourism industry Co-founder 2004-divested in 2010

11 GPS-based guidance and mapping system for General manager 2005-ongoing

agricultural sector
12 Jetpack Founder 1998-ongoing
Chief executive
Venture capitalist
 A. Paradkar et al. / Technovation 41-42 (2015) 110 5

Table 2
Resource portfolios of the 12 case-study rms.

Case Product Resources Resources Outsourcing mode Resources that Commercialization of innovation
developed by the outsourced by the could not be
rm (asset type) rm (asset type) developed or
outsourced

1 Online discount Software Distribution Alliance Successful (This innovation was

vouchers (intangible) (intangible) commercialized successfully; however, the
Brand Finance rm failed due to a personal dispute between
(intangible) (tangible) the founders.)

2 Probiotics Patents Manufacturing Multiple alliances Successful

(intangible) (tangible)
R&D Distribution
capabilities (intangible)
(intangible) Finance
Brand (tangible)
(intangible)

3 Computer-animated Software Distribution Contractual Brand Unsuccessful

games for education (intangible) (intangible) agreements Distribution
Brand
(intangible)
Finance
(tangible)

4 System for monitoring Software Distribution Alliance Successful

loyalty programs (intangible) (intangible)
Finance
(tangible)

5 Biological-threat Patents Finance Distribution Currently unsuccessful, but may succeed in

detection device (intangible) (tangible) future
R&D
capabilities
(intangible)
Brand
(intangible)
Manufacturing
(tangible)

6 Safety trampoline Patents Manufacturing Multiple alliances Successful

(intangible) (tangible)
R&D Distribution
capabilities (intangible)
(intangible)
Brand
(intangible)
Distribution
(intangible)
Finance
(tangible)

7 Energy-efcient light Design of Manufacturing Multiple alliances Successful

bulbs technologies (tangible)
(intangible) Distribution
R&D (intangible)
capabilities
(intangible)
Brand
(intangible)
Finance
(tangible)

8 Cosmetics/personal Brand R&D Alliances and sub- Successful

healthcare products (intangible) capabilities contracting
Finance (intangible) agreements
(tangible) Manufacturing
(tangible)
Distribution
(intangible)

9 Biological fungicide Patents Finance Distribution Unsuccessful

(intangible) (tangible) Manufacturing
R&D
6 A. Paradkar et al. / Technovation 41-42 (2015) 110

Table 2 (continued )

Case Product Resources Resources Outsourcing mode Resources that Commercialization of innovation
developed by the outsourced by the could not be
rm (asset type) rm (asset type) developed or
outsourced

capabilities
(intangible)
Brand
(intangible)

10 Online booking Software None Successful

system for tourism (intangible)
industry Distribution
(intangible)
Finance
(tangible)

11 GPS-based guidance Software Software Multiple alliances Successful

and mapping system (intangible) (intangible)
for agricultural sector R&D Hardware
(intangible) components
Brand (tangible)
(intangible) R&D
Assembly capabilities
Distribution (intangible)
(intangible) Manufacturing
(tangible)
Distribution
(intangible)

12 Jetpack Patents Finance Potential alliance for Manufacturing Currently unsuccessful, but may succeed in
(intangible) (tangible) manufacturing; in New Zealand future. (As at December 2014, having an initial
R&D Manufacturing working on other Distribution public offering.)
capabilities (tangible) alliances
(intangible)

Table 3
Interviewees' views about the advantages of outsourcing business functions.

I think it [outsourcing] is the most important thing in the whole business. There are products out there that [inventors] have been trying to roll out for 10, 15, 20 years. But
[commercialization] is not successful because [individual inventors] try to do everything from product development to marketing to accounting it just doesn't work that
way I know exactly what my strengths and weaknesses are. I am not trying to be good at what I am not good at. I am trying to be good and excellent at what I can achieve
and for the rest [of the activities], get the best people in that eld to help Right from the start we knew exactly that we needed to have as many partnerships, as much
outsourcing as we possibly could. Co-founder, case 1
Our global distributor Frutoram has taken over [my] role. So I don't need to get out and go see people as much as I did in the early days. Once it [the product] goes to them
[distributors], we don't have to worry about product recalls, packaging, and marketing. It just made sense. Business development manager, case 2
We outsource everything apart from ideas. Ideas, I guess, are the only things we have here. Co-founder, case 8
We are doing more and more outsourcing. We develop the new ideas here but most of our hardware requirements are outsourced. We are using local companies for
outsourcing A lot of these [small] companies are good at development, but poor at taking it [the technology] to the market. General manager, case 11

In addition, we observed that most start-ups satised their
manufacturing requirements by developing some resources in-
house and outsourcing others. Some responses from the inter-
viewees supporting their outsourcing strategy are reported in
Table 3. Outsourcing was achieved by formal contractual agree-
ments or by mutually benecial non-contractual alliances. Inter-
estingly, in every case the outsourced rms were local. Lack of
international suppliers increased production costs and put pres-
sure on prot margins. On the other hand, relying on local
suppliers made communication easier, faster and cheaper, thereby
speeding up the commercialization process.
Proposition 2. For start-ups at early stages of development in small
isolated economies, capability-based resources, especially dynamic
capabilities, contribute more to competitive advantage than tangible
assets or other forms of intangible assets
The intangible and tangible assets developed and outsourced
by the rms are also reported in Table 2 above. The greater
capability to develop and/or acquire intangible assets over tangible
assets is clearly evident. Moreover, our case-study analysis indi-
cates that intangible assets contribute to the competitive advan-
tage of entrepreneurial rms in multiple ways and their effect is
cumulative. Intangible assets such as brands help start-ups to erect
barriers to new entrants, protecting themselves from competition.
Ownership of intellectual property (e.g., brands, patents, designs)
gives start-ups a sense of security that enables them to explore the
potential of international markets with greater condence.
Whereas ve of the 12 rms cases 4, 7, 8, 10, 11 nanced
their ventures from personal savings or loans from friends and
family, the other seven cases 1, 2, 3, 5, 6, 9, 12 raised venture
capital through external sources such as institutional investors and
stock markets by leveraging assets such as brands and patents.
Cases 6 (safety trampoline) and 12 (jetpack) acquired patents and
 A. Paradkar et al. / Technovation 41-42 (2015) 110 7

developed working prototypes of their innovations before seeking
investments, enabling investors to better judge the commercial
potential for themselves.
Interestingly, cases 2 (probiotics), 3 (computer games), 5 (biolo-
gical-threat detection) and 9 (fungicide) attracted investment with-
out any proof of concept or marketable product. The patents owned
by these rms (2, 5 and 9) were enough for investors to support
them with millions of dollars in venture capital. Also, intangible
assets are highly valued by rms searching for strategic acquisitions.
Cases 8 (cosmetics) and 10 (online booking) were acquired for large
purchase prices.
Several rms formed alliances to access complementary assets
owned by other rms. Indeed, some rms appeared to be almost
virtual, with multiple alliances that more or less took care of all their
business functions. An example of this is the cosmetics rm (case 8)
that outsourced all its business operations, except marketing.
It appears that resources that motivate established rms to co-
operate with start-ups tend to be largely intangible. Alliances were
mainly with other New Zealand-based rms; and rms that made
use of such local alliances were more successful at commercializ-
ing their innovations. In contrast, rms that failed to commercia-
lize their innovations were ones in need of assets owned by
foreign rms but which failed in their attempts to forge interna-
tional alliances. Alliances appear to be an important source of
competitive advantage as they are somewhat difcult to obtain
and are therefore of strategic value. In contrast, rms for which the
commercialization of innovations was incomplete at the time of
the study cases 3 (computer games), 5 (biological-threat detec-
tion), 9 (fungicide) and 12 (jetpack) all lacked alliances.
Alliances appeared to be easier to build in industry sectors that
are relatively generic (e.g., cosmetics and energy) and also that are
well established in New Zealand (e.g., agriculture and tourism).
Alliances with industry sectors that are under-developed in New
Zealand, such as the defense industry, are difcult to establish,
resulting in delays in commercializing innovations. Table 4 pre-
sents some responses by interviewees with respect to these
observations.
In contrast to the competitive advantage realized from intangi-
ble resources, the start-ups derived no signicant benets from
tangible resources. Most start-up entrepreneurs and their investors
afrmed that they deliberately refrained from developing or invest-
ing in tangible assets as they are capital- and time-consuming.
Start-ups, at least in New Zealand, have very limited access to
venture capital and so this behavior seems justied.
Like physical assets, competence-based resources can be either
generic or specialized in nature. Our analysis revealed that specia-
lized competence-based resources that enable start-ups to develop
intangible assets such as brands contribute signicantly to their
competitive advantage. The knowledge involved in developing such
assets is cryptic and unobservable and is often the result of years of
experience, and so it is usually difcult to imitate and reproduce.
The start-ups in the study were all relatively young, less than 12
years old. Naturally, therefore, they were decient in intangible
assets such as rm and product reputations, organizational cultures
and routines as would result, for example, from the complex
personal interactions of a rm's employees over an extended period.
We observed that the capabilities possessed by specic individuals
contributed more to the rms' competitive advantage than these
other assets. With one exception, we observed no organizational
routines developed by the rms (although perhaps such routines
were occasionally present, but were either unobservable or in the
initial stages of development). The exception was case 8 (cosmetics),
which had developed specic organizational routines for launching
and promoting new products, and had successfully launched 42
products in 16 international markets in just eight years.
We also observed that the capability to execute a business
opportunity effectively is more important than the other assets
available. For example, the resources of cases 2 (probiotics), 5
(biological-threat detection), 9 (fungicide) and 12 (jetpack) included
intellectual property, nancial assets and manufacturing and R&D
facilities and competencies. In contrast, cases 7 (light bulbs), 8
(cosmetics) and 10 (online booking) owned only three main assets
brands, other forms of intellectual property and superior business-
execution skills and yet their performances were vastly superior

Table 4
Interviewees' views about the advantages of intangible resources

Creating barriers for rival rms

We had [several] imitators. Five of them were in New Zealand. [But] our advertising [campaign] was very strong. We quickly became a household name like the Lux vacuum
cleaner [Eventually] our brand pushed everyone out. We just built it [the brand] and got their [customers'] attention. It is just the brand [everything else was easy to imitate].
There were imitators and there still are. Co-founder, case 1
One of the main ones [markets] we have been in for the longest has been the New Zealand agriculture market and we have got dominance in that by an investment in brand
in the New Zealand market what we have been able to do is pretty much build it [brand] so that there is no other option or no other alternative for farmers. When they think
about it [tracking system] or a GPS system, ours is the obvious brand. We have spent $10,000 a month on advertising just the brand. And we are pretty much the dominant
player in the market. We have managed to just become top of mind for farmers but if someone else is going to try to come into the market and develop their own product, it
will be tough for them to do it because they are about four years behind our brand in recognition. General manager, case 11
Attracting nancial resources
We almost always look for someone who has solved the problem. We want somebody who has got proof of principle and patents in place. That is kind of the cut-off point
There has got to be a patent, a real patent There is a full spectrum of quality of patents out there, but its [patent] got to be there. Venture capitalist, case 5
What property do start-ups have, other than intellectual property? We need something solid to invest in. We invest in people, sure, but people having solid intellectual property
are better. And the jetpack had both of them. Venture capitalist, case 12
Importance of alliances in start-ups: Responses from successful rms
The key issue we would often look for [before we invest] is a partner who would effectively give us a route to market. Venture capitalist, case 1
We always have a partner. We are basically pulling out from nished goods So we are always selecting partners that are sizable, formidable in the market, [like] Nestl. We
are always targeting the top-tier companies. Once you get one multinational on board, you get a sort of credibility. Good bit of muscle and good bit of name you know, using
them as collateral There is power in partnering with these guys. Business development manager, case 2
What we need in the other countries is a partner. It doesn't work without that partnership. Co-founder, case 4
What are we without our partners? They are key ingredients of this business. Co-founder, case 8
It takes a lot of time and lots of money to convince them [potential partners], and make those [partnership] deals. Founder, case 3
Lack of alliances: Responses from failed rms
We tried to get parties [alliances] on board not only parties who had distribution interests [but also parties with] strong marketing track records. I think [there were] about 86
condentiality agreements that we signed over a period of ve years. So we really tried to nd partners, and a lot of people held their hand up and said we will look at this, we
want to look at it but it was all too new. Chief executive (former), case 9
If I had my time again, I would force them [the rm] to try to nd a partner [back] in 2001. Venture capitalist, case 9
When we became a product-based company we had a lot more challenges. We had to make, market and sell the product. Plus we had to provide support to the customers. We
had to nd the right partners. This was very difcult. It just didn't happen. Founder, case 3
8 A. Paradkar et al. / Technovation 41-42 (2015) 110

Table 5
Interviewees' views about the importance of capability-based resources.

I don't think there is anything [inimitable in our rm], I don't think there is anything that anyone else couldn't do. I think it's just a question of getting the right people excited
about a good product, bringing together great marketing ideas, always trying to be rst, always trying to be different. And therefore the secret to the success of this business
is having the right people, having fresh ideas and having innovation as a part of your business. Co-founder, case 8
You've got to be the brain operating all the relationships. We knew exactly how to delegate people to do these things it is important to keep all of the brains to yourself. Co-
founder, case 1
Basically it was the knowledge which certain people had and the ability to use this special equipment in a certain way [that gave the rm an edge]. Chief executive (former),
case 9
The key to the company is the management itself. You have technology obviously, have good IP around the technology, have good support you know, good scientists We have
the CEO and the more commercial people who have very good backgrounds. It's a combination of lots of different things, but people are the key. Business development
manager, case 2
The actual core asset of our company was talent, specialized talent Founder, case 3
Large businesses have the potential to innovate, but they are slow we were quick in building our product and proving its value [to partners and retailers] In technology the
key is rapid execution. Co-founder, case 4

to other rms, as these assets enabled them to become more virtual
(online), which reduced risk and their capital requirements. The
unsuccessful rms cases 3 (computer games), 5 (biological-threat
detection) and 9 (fungicide) all lacked one or more of these
capability-based assets. Some rms in our study relied on computer
programming skills to commercialize their innovative ideas; however,
such skills can be learnt and emulated, and hence their competitive
advantage is limited. All interviewees unanimously agreed about the
importance of capabilities; Table 5 catalogs some of their comments.
Overall, Proposition 2 is strongly supported.
5. Discussion
This study is based on the fundamental notions that innovation is
a source of competitive advantage for entrepreneurial start-ups and
that commercial exploitation of innovation depends on a rm's core
competencies and capabilities (Marino, 1996). Our objective was to
explore the ways in which access to resources affects start-ups and
the commercialization process, and to identify which types of
resources and capabilities contribute most to competitive advantage
and why. The case studies we included illustrate how entrepreneur-
ship and strategic management complement each other and overlap
with respect to aspects such as innovation, exploitation of opportu-
nities and competitive advantage. By building on the ndings of
other researchers, in particular Teece (1986; 1988; 2006) and Gans
and Stern (2003), we demonstrate the critical role of capabilities
particularly with respect to the challenges of being able to form
strategic alliances in determining the survival of start-ups in a
relatively small and geographically isolated economy. The rm's
ability to obtain external competences from strategic partners and
to integrate them with the rm's own inherent capabilities and
resources indeed appears to be critical to survival in a rapidly
changing environment (Teece et al., 1997; Newbert et al., 2008).
The study, as much as possible, considered the full set of reso-
urces owned and outsourced by start-ups, and assessed the specic
and overall impact of resources on competitive advantage. The
resource portfolio required for commercialization of innovations
needs to be completed for a rm to succeed; an inadequate resource
portfolio results in partial commercialization and can lead to the
rm's failure. However, it is not necessary for a rm to develop and
own all of the resources required for commercialization. It appears
that start-ups that outsource their resource needs are able to
perform better and commercialize more rapidly, thereby increasing
their potential to expand. Knowing how to go about doing this is a
vitally important capability.
For the 12 rms we studied, we observed that most outsourcing
of physical asset requirements occurs by forming alliances (Dyer and
Singh, 1998; Alvarez and Barney, 2001). Established local rms with
extensive international distribution networks are generally preferred
as alliance partners. Our research demonstrates the interdependence
of resources both inside and outside rms by identifying specic,
intangible assets such as brands and other forms of intellectual
property, and reveals their effect on alliances. In doing so, the study
sheds new light on how start-ups form their resource portfolio and
how some types of resources are more valuable than others.
We also observed that start-ups often face difculties in creating
international alliances to access the requisite complementary assets.
Such rms appear to lack the dynamic capability to integrate, build,
and recongure (Teece et al., 1997, p. 516) external competencies
that could be provided by a strategic partner. This nding is of
particular relevance to rms in small economies (such as New
Zealand) as it implies that the commercialization of innovation in
such economies should be aligned with the country's resources and
scope of industrial development. We observed that New Zealand
start-ups allying with established local industries such as tourism did
well, whereas rms attempting to ally with weaker local industries
(e.g., the defense industry in New Zealand) performed relatively
poorly. This nding could be interpreted by international venture
capitalists as a constraint when it comes to scaling local innovations
globally. For start-ups in small economies that are unable to over-
come this constraint, there are two main options: (1) restrict your
products to strong, local markets, or (2) relocate yourself to another
country where the necessary complementary assets are available.
With respect to option (2), two high-prole examples of young
rms originally from New Zealand are HaloIPT, a developer of
wireless induction charging for electric vehicles, and LanzaTech, an
inventor of gas fermentation technologies for recycling carbon-rich
waste gases from heavy industry such as steelmaking. In 2011,
HaloIPT was bought by Qualcomm, a global communications infra-
structure rm based in San Diego (Qualcomm, 2011); in 2014,
LanzaTech relocated from Auckland to Chicago (Weekes, 2014).
The tendency of the start-ups in our study to prefer local vendors
and alliances over international equivalents may reect a conservative
approach by New Zealand venture capitalists. Nonetheless, with
localization comes faster decision-making, which in turn enhances
the progress of start-ups. The results of the case-study analysis
indicate that intangible resources, in particular brands and other forms
of intellectual property (e.g. patents and designs), are very important,
as they act as barriers to new entrants and attract alliance partners.
Brands and patents are instrumental in attracting investors, often
despite a lack of evidence regarding an innovation's commercial
prospects. This nding is opposite to the conclusions of Hall (1992;
1993) who ranked intellectual property assets lowest in their ability to
contribute to commercial success. Critically, however, Hall's conclu-
sions were based on a study of established businesses selling generic
products, whereas the present research studied early-stage entrepre-
neurial rms developing new products through innovation.
We also found that intangible assets such as brands and superior
business-execution skills that are based on the entrepreneur's skills
and experience often contribute more to the success of start-ups
than do organizational resources (e.g., rm reputation and culture).
 A. Paradkar et al. / Technovation 41-42 (2015) 110
This nding is in contrast to the opposite pattern observed for older,
more established rms (Barney, 1986; Day, 1994; Dierickx and Cool,
1989; Fiol, 1991; Hall, 1992; Galbreath, 2005). Clearly, successfully
managing relationships with partner rms is a critical capability for
entrepreneurs. Start-ups that master this task save a signicant
amount of time and nancial resources and increase their chances
of success.
Finally, it is important to acknowledge the potential limitations of
the study. Naturally, there is a tacit component to some of the
information gleaned via interview-based methods, making it difcult
to dene and identify these components and to link them to
competitive advantage. It is also possible that the rms' other
stakeholders have different opinions to the interviewees; this is a
fundamental limitations of single (or even double) informant research
(Sharfman, 1998). Another potential weakness is that just 12 rms
from a single country (New Zealand) are involved. The question arises
as to how generalizable our ndings are to other countries, in
particular other small relatively isolated economies. Reassuringly,
though, many of our ndings echo other studies involving other
countries, including larger ones. Further research into start-ups
operating in other small economies would seem to be worthwhile.
6. Conclusions
To successfully commercialize innovations, entrepreneurial
start-ups at early stages of development require key resources
comprising several different types of assets. Astute selection of
these resources from both inside and outside the rm is a vital
capability and an important determinant of a start-up's competi-
tive advantage. Lack of key assets reduces the likelihood of a start-
up's success. From studying the behavior and performance of 12
start-ups based in New Zealand in a variety of industries, we found
evidence for the following conclusions (associated with the two
research propositions in our study).
First, successful commercialization of innovations depends on the
availability of complementary assets. Second, start-ups' capability-
based resources, especially their dynamic capabilities, have a greater
impact on competitive advantage than other intangible and tangible
assets. For the start-ups in our study, alliances with partners were a
particularly important asset; thus the ability to integrate external
competencies with their own operational capabilities proved crucial.
Successful start-ups leverage their available resources (e.g., brands
and patents and other forms of intellectual property and superior
business-execution skills) to attract alliance partners in order to
access necessary complementary resources. Entrepreneurial start-
ups should therefore focus their efforts on the development and
retention of such intangible assets and capabilities. The start-ups in
our study clearly demonstrated the ability to attract partners locally
but appeared to struggle to do so internationally, thereby limiting
their growth potential.
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