The Historical Role of Entrepreneurs in Innovation Diffusion

Historically, it is recognized that commercial firms are 'but one agent for the diffusion of technology'. In many countries, governments and non-profit organizations have been, and continue to be, equally active in promoting innovations - for example rural extension agencies in the US promoting new seed varieties. That said, the historical impact of commercial firms on technology diffusion is widely recognized to be an important one.60

A firm built on an innovative technology serves as an incubator and carrier of that innovation, and the fate of the firm and of its innovation can often be linked.61 If the firm goes under, then the impetus behind the innovation's diffusion can die with it. But if the firm continues to grow, then we can expect other firms to enter the market, creating competitive pressures for enhanced marketing, cost and quality improvements, and further development of the infrastructure for widespread availability. For this reason, we need to look closely at the role of entrepreneurs in driving the growth of firms built on or around innovations.

First we should take a moment to define the term 'entrepreneur'. In more traditional economic studies, 'firms are the key actors', while 'individuals are viewed as interchangeable and their actions determined by the firms they are in'.62 This view sees individuals as largely dispensable. However, there is another perspective in economics which links the growth of new markets directly to the individuals involved. One of the few economists to recognize the broader economic impact of these individuals was Schumpeter, who proclaimed that to be an entrepreneur was to be an agent of change:

The entrepreneur and his function are not difficult to conceptualize: the defining characteristic is simply the doing of new things or the doing of things that are already being done in a new way (innovation).63

To be clear, the entrepreneur was not to be confused with the inventor, for while 'the inventor produces ideas, the entrepreneur gets things done'.64

Insofar as mainstream economics has attended to entrepreneurs, it has been to assign them the role of risk-takers.65 However, studies have found that many entrepreneurs actively avoid risk.66 Hewlett-Packard, for example, were overtly risk-averse.67 Even for Schumpeter, who stressed the dangers that entrepreneurs encounter, it was not the willingness to take risks, but rather the capacity to bring about change that was the key attribute of entrepreneurs.68

In line with Schumpeter, other prominent analysts have defined entrepreneurs as individuals that create a 'new market' with a 'new customer'.69 The implication of this definition is that to be in charge of a new small business does not make one an entrepreneur. Rather:

To be entrepreneurial, an enterprise has to have special characteristics over and above being new and small. Indeed entrepreneurs are a minority among businesses. They create something new, something different: they change and transmute values.70

According to this definition, it is entirely possible for individuals within large corporations to be entrepreneurs. There is no doubt that larger corporations have the research and development (R&D) facilities, the brands, the marketing, the capital and the human resources that entrepreneurs within their ranks can harness for innovation and diffusion of innovations.71 For this reason, where a corporation allows or encourages entrepreneurship, it can sometimes have a larger impact on diffusion than the struggling start-up company.

However, history has also shown time and again that established corporations often consciously or unconsciously avoid doing what they need to do to whole-heartedly propagate innovations for fear of destabilizing existing markets.72 For example, neither General Electric nor Westinghouse sought to push new energy-efficient light-bulbs into the marketplace 'for fear of alienating power utilities that purchased their lamps, generators and other electrical equipment'.73 Indeed, every wave in the innovation and diffusion of lighting technologies, from gas lighting, to incandescent to fluorescent lighting, was 'originated and carried forward by industry outsiders'.74

On the other hand, it may not be fear, but simply a lack of vision that hobbles the large corporation. As Porter writes, 'It is hard for firms steeped in an old technological paradigm to perceive the significance of a new one. It is even harder for them to respond to it.' An example given in this regard is the failure of the established US vacuum tube competitors to enter the semiconductor market.75

Thus by 'entrepreneur' we do not necessarily mean an individual who is working on their own, or has set up their own company, although more often than not, these industry outsiders prove to be the pioneers of innovation. Instead, we mean more broadly an individual who has the capacity to match resources to opportunities for innovation .76

The relevance of such individuals to the process of innovation diffusion should by now be clear. Using Schumpeter's phrase, entrepreneurs can set off a process of 'creative destruction' in the marketplace, whereby an innovation gradually starts to replace and thus destroy the market for existing alternatives. Initially entrepreneurs may toil and struggle to bring an innovation to market, but if they are successful, they set a precedent which others follow, and on the basis of which rapid diffusion can occur:

As soon as the success is before everybody's eyes, everything is made much easier by this very fact. It can now, with much diminished difficulty, be copied, even improved upon, and a whole crowd invariably does copy it.77

The early efforts of entrepreneurs set off a series of competitive pressures, leading to greater allocation of resources, to improved design, marketing and aggressive pricing, all of which have been found to encourage more rapid diffusion.78 For example, the successful introduction of the typewriter by Remington encouraged the entrance of competitors with better designs, lower-cost products, and increased sales and promotion activities. The cumulative impact of Remington's early commercial initiative was that the typewriter eventually became 'a ubiquitous fixture of the workplace', and so, as his brochure promised, it became 'a machine to supersede the pen' (until, of course, it was itself superseded by the personal computer).79

The role of entrepreneurs in bringing technological innovations to market and stimulating the growth of entirely new industries around these innovations suggests that diffusion research must do a better job of explaining the way in which entrepreneurs are able to have this impact. To do so, I borrow the core concepts of 'capacities' and 'resources' from management literature on entre-preneurship, and integrate them with the four factors earlier identified from theories on innovation diffusion.

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Key Principles For Entrepreneurs

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