Careers in the 21st Century || Global Start-Ups: Entrepreneurs on a Worldwide Stage [and Executive Commentary]

Global Start-Ups: Entrepreneurs on a Worldwide Stage [and Executive Commentary]Author(s): Benjamin M. Oviatt, Patricia Phillips McDougall and Marvin LoperSource: The Academy of Management Executive (1993-2005), Vol. 9, No. 2, Careers in the 21stCentury (May, 1995), pp. 30-44Published by: Academy of ManagementStable URL: http://www.jstor.org/stable/4165256 .

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?) Academy of Management Executive, 1995 Vol. 9 No. 2

Global start-ups: Entrepreneurs on a worldwide stage Benjamin M. Oviatt and Patricia Phillips McDougall

Executive Overview If the mouse connected to your personal computer is made by Logitech, Inc.-and there's a good chance it is-then you're plugged into the growing phenomenon of global start-ups.' Most people expect new ventures to begin domestically and for their international operations to evolve slowly, but global start-ups are international at inception.

Logitech was founded in 1982 by a Swiss and two Italians who had global aspirations from the beginning. The venture was headquartered in both California and Switzerland. The firm's R&D and manufacturing were also split between California and Switzerland, and then quickly spread to Taiwan and Ireland. By 1989, it had revenues of $140 million and 30 percent of the worldwide market for those ubiquitous computer rodents.

Was the Logitech experience unique. or might there be a pattern underlying the creation dynamics and success characteristics of global start-ups? To answer these questions, we analyzed twelve such start-ups, and personally interviewed several of their founders.

The establishment of Logitech,2 and firms like it, challenges traditional beliefs about how firms internationalize. Conventional wisdom would suggest that firms usually internationalize after a period of domestic maturation; certainly, ventures just starting up would not be international. In order to withstand the rigors of international competition, organizations seem to need a well-developed and accepted product or service, time-tested internal processes, significant financial assets, experience in international trade, and knowledge about foreign cultures and laws. It seems obvious that such resources take time to develop.

But competitive conditions are disproving those premises as you read this page! Nothing has become more international than financial services, thereby greatly increasing access to business financing. Because international trade and the number of multinational corporations has expanded so much over the last thirty years, the number of internationally experienced managers has greatly increased, and so has their international mobility. Technological change has brought most areas of the world within easy reach of telephones, fax machines, and even computer terminals. When personal travel is necessary or when goods must be transported, today's globe-spanning airlines can whisk an executive to any continent in a day or can serve almost as a space-age factory cart in the movement of intermediate goods.3 Of course, nowadays real factory carts are often unmanned and digitatlly controlled.

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Oviatt and McDougall

Such increases in efficiency have decreased everyone's costs of conducting international business. That means large, mature multinational enterprises no longer enjoy the same advantages they once had, and fewer entrepreneurs who start new ventures are likely to be constrained by purely domestic past experience. In other words, competitive advantage has, in recent years, tended to shift away from firms with large size and long experience toward firms with unique knowledge and swift response capabilities.

Perhaps not surprisingly, the number of global start-ups appears to be growing.4 Moreover, such firms seem to have aggressive growth objectives in that they rapidly exploit technological advantages, acquire foreign technologies, and follow clients into foreign lands. When those facts are combined with the observation that small businesses create a significant portion of new jobs in America,5 then the collective potential of global start-ups as a powerful economic engine begins to emerge.

Yet that potential is often ignored because too many people still view international business as the nearly exclusive preserve of large, mature, multinational corporations. We argue, however, that forces for rapid internationalization, especially technological and competitive forces, are also affecting new ventures, making slowly staged efforts risky for an increasing number of firms. Internationalists will not be surprised. But many entrepreneurs will be, especially U.S. entrepreneurs who until recent years have been able to find many protected niches and varied opportunities in their large, diverse, and relatively insular country.

Should a Start-up Be Global? Although much is yet to be learned, we have distilled the reports of various scholars and our own interviews with the founders and financiers of global start-ups in the United States and Europe into an exploration of the forces that seem to drive their creation.6 (See Appendix A for a brief sketch of companies we studied).

Entrepreneurs, investors, and corporate executives exploring venturing options should consider the following six questions, based on these driving forces, to determine whether the business being considered should be a global or a domestic start-up.

1. Are the best human resources dispersed among various countries? For many new ventures, starting internationally is a resource issue. Cheap unskilled labor, a frequent rationale for seeking resources overseas, is not a primary motivation of a global start-up. In technology-intensive industries where global start-ups thrive, unskilled and semi-skilled labor are very small portions of total cost. Unique skills, as well as strong educational and communication infrastructures, are key factors in making a particular location attractive to a global entrepreneur.

Certain locations in the world are known for unique workforce skills. For instance, the Americans are very good in software design, the Europeans excel in ergonomics, the Italians are masters at fine leathers, and the Japanese are known for their attention to detail in manufacturing. To profit from such differences and to procure the best resources at the lowest prices, a company must search globally.

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We argue ... that forces for rapid internationalization . . . are ... making slowly staged efforts risky for an increasing number of firms.



Academy of Management Executive

This was very much the philosophy of Momenta, a Silicon Valley start-up manufacturing pen-based computers. Development and manufacturing activities were conducted in the U.S., Japan, and Europe. The halls of Momenta's headquarters were like a miniature United Nations. Top level executives, as well as clerical staff, represented a wealth of nationalities. The founders themselves came from Iran, Tanzania, Cuba, and the U.S.

2. Would foreign financing be easier or more suitable? This particular resource is critical to the new venture. The founders of U.S.-based global start-ups were most vocal about their difficulties in raising financing, and those difficulties had driven them to pursue funding outside the U.S. In addition to its U.S. investors, Momenta obtained funding from Singapore, Taiwan, and Europe.

Peter Sprague, founder of Wave Systems Corporation, a global start-up that held patents for data compression and data-use metering, believed that some European investors were more willing to take risks with start-ups than were American investors. He was passionate in his condemnation of U.S. venture capitalists:

They have institutionalized and bureaucratized the investment process. Investment in a start-up is inherently a gutsy act of faith, the risks of which can never be fully analyzed. Gutsier investors are now found overseas, in Europe especially.

Mr. Sprague, who was also chairman of the board of National Semiconductor Corporation, believed that international sourcing of funds may be one of the most important forces driving new ventures to internationalize because of the "pull effect" of the overseas funding. Foreign investors will want their venture to move rapidly into their own markets, and founders will certainly consider moving into a country from which they have received funding. In some cases, a prime motivation of foreign investors may be to get new technology into their own home market.

Several of the global entrepreneurs we interviewed believed their non-U.S. investors were more appropriate because they were more patient than Americans and had longer investment horizons. Shiraz Shivji, Vice President of Engineering at Momenta, noted that impatient investors can force a start-up to go to market with a premature idea or technology. According to the published criticisms of the company's pen-based computer, Momenta may have made that mistake itself. Managers of one high technology U.S. venture told us that in response to a request from their Japanese investors for their short-term plans, they sent their one-year goals. The Japanese quickly responded that by short-term they meant five years!

The European entrepreneurs we interviewed expressed less frustration with financing in their home countries and typically were less aggressive in seeking international financing at start-up. Although IXI (Cambridge, UK) did raise money outside its home country, it made no attempts to pursue any U.S. money since its founder's perception of U.S. investors was very negative. IXI, an English producer of software designed to simplify the use of UNIX computers, raised money from English investors, German investors, an Austrian bank, and a Japanese company. IXI's founder believed American investors required endless meetings to make a decision and wanted too many contractual protections that would let them out at the first sign of trouble. Contrary to the

Virtually all the entrepreneurs we interviewed believed that the current and increasingly global nature of demand in many markets was one of the main forces encouraging the formation of global start-ups.

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stereotype that Japanese managers are slow to make decisions, he was able to get a decision from his Japanese investors in one day.

3. Do the target customers require a venture to be international? Virtually all the entrepreneurs we interviewed believed that the current and increasingly global nature of demand in many markets was one of the main forces encouraging the formation of global start-ups. When Oxford Instruments started producing its high-field magnets in 1959, its market was physics laboratories that were conducting research in low temperature physics and related areas. About ten labs worldwide focused on such research, and only one was in Oxford's home country of England. With 90 percent of its market abroad, there was no choice but to be international from day one. Thus, its first marketing effort was a mailing to virtually every major university physics department in the world. Today, Oxford's sales are still reflective of its roots. Its new product mix has greatly expanded its market far beyond university laboratories, yet about 90 percent of its sales are still derived from outside England.

4. Will rapid worldwide communications lead to quick responses from competitors? Before the days of fax and satellite communications, distance and geography were natural barriers to global markets. With rapid and worldwide communication and transportation, information about virtually any market is available and access to it is increasing. Alert entrepreneurs in foreign countries can learn quickly about business in any other country. Recognition of this force drove Peter Sprague to develop a plan for immediate internationalization of Wave Systems. As Mr. Sprague explained,

Let's presume that I were successful in the U.S. two or three years out. The world isn't going to sit on its hands any more, and that is partly a function of the speed with which communication is rolling around.

Today there are few geographically protected market niches. For those foreign competitors with a superior product or a lower price, political borders, distance, and physical geography are crumbling obstacles and, thus, weak protection from foreign competitors. The global entrepreneurs we interviewed recognized this fact and seemed to form global start-ups at least partly because the best domestic defense might be a superior international offense.

5. Are worldwide sales required to support the venture? The vast size and wealth of the U.S. market has, in the past, made an international approach unnecessary for most American entrepreneurs. However, in an increasing number of industries that is a fading comfort. Worldwide sales may be needed to justify large R&D expenses and to effectively address the target market. The simple fact is that a global start-up enjoys more potential customers than a domestic venture selling the same product. Ecofluid, a Czech company with a unique waste-water treatment technology, targeted foreign customers because the potential revenues in its home country were limited. Another case in point is OASiS, a U.K. management consulting company specializing in the international problems of multinational firms. It can aptly be called a "reluctant global start-up." In discussing what drove OASiS to start out internationally, its founder Richard Eaton said,

When we started we didn't have a global strategy. We simply had to be large to be effective. Being international was a vehicle for doing that-not the vision of what we were going to do.

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. . . the best domestic defense might be a superior international offense.




The founders of OASiS had previously worked for multinational organizations, and each had had extensive international responsibilities. Although their initial vision was not global, when they began to detail how they would implement their strategy, they realized they would have to employ a significant number of consultants to effectively serve the large customers they were targeting. Therefore, instant internationalization was required.

6. Will domestic inertia be crippling if internationalization is postponed? Organizational history and culture combine to inhibit change, routines become fixed, and inertia sets in. Resources and processes that provided competitive advantages in the past may, if retained after their benefits have faded, become crippling disadvantages. Capabilities that create competitive advantages in the domestic arena may not be the same as those that do so in the international arena. If a new venture starts out domestically, its policies and procedures are focused on domestic markets. When the firm has an international opportunity, employees are more likely to resist the disruptive changes required to operate in foreign markets. If the business has been successful and grown, its large size makes change difficult even if employees are willing. It takes great effort and considerable time to overcome such domestic inertia. Thus, global start-ups benefit in the long run from being international at inception.

IXI greatly benefited from its initial international orientation which drove the start-up to write its software to standards that permitted easy internationalization. The effort required an extra month of writing and debugging computer code, but later on, it saved several months of work when customers demanded versions in multiple languages. Thus, the feature became an instant marketing tool.

Gerard Hascoet, founder of Technomed, a French producer and marketer of medical equipment, stressed that the advantage of starting internationally is that an international spirit is established from the very beginning. His ambitious business plan called for the immediate establishment of wholly owned subsidiaries in the U.S., Italy, Japan, and Germany. Hascoet chose the name Technomed because it could be easily understood in all his markets, with the exception of Japan. He did not see Technomed as a French company, but as a world company. From its inception, the company conducted meetings and business in English. The flags of the countries where Technomed had offices were flown at the entrance of its headquarters in an industrial area near Lyon, France, and in the lobby of its headquarters visitors were immediately confronted by a large television constantly presenting a variety of information about the company-all in English!

Characteristics of Successful Global Start-ups Creating a global start-up does not guarantee it will be a success. However, research on these ventures has identified a pattern of seven characteristics commonly associated with their survival and growth. Furthermore, each of the characteristics is consistent with recent theoretical developments in the management of multinational enterprises. What is unique here is that we apply these concepts to new ventures, a group of firms whose international activities were regarded as uninteresting anomalies until recently.

A Global Vision Exists From Inception Probably the most important characteristic associated with success is that the founders of a global start-up loosen the ties that bind their business thinking to a single country or culture. The founder must be able to communicate

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compellingly a global vision to everyone else associated with the venture. To be global one must first think globally.

Mr. Hascoet, founder of Technomed, believed it was important to diversify geographically precisely because his firm did not have a diversified product line in the beginning. Fortunately, his ability to do that was facilitated by the fact that Technomed's lithotripters were used in much the same way in every country, and the biggest market was the U.S.

Bernd Holzhauer, President and Chief Financial Officer of SPEA, a global start-up that manufactured graphics boards for computers, was equally adamant on the importance of a global vision from inception:

To be successful, you have to be a global player right from the first day ... You have to go international or the international companies come to you, so you are fighting in your own market.

Leaders who can effectively communicate a global vision are also needed in large, mature, multinational enterprises.7 However, this is a requirement that has not been stressed among the founders of new ventures. Nevertheless, the entrepreneurs we interviewed believed a global vision at inception was essential to global start-up success.

Managers Are Internationally Experienced Every global start-up we contacted had internationally experienced founders or top managers, and every person interviewed believed that was a necessity. Some understanding of the nuts and bolts of cross-border business conduct, such as letters of credit, the risks of exchange rates, and, most important, potential communication and cultural conflicts seem necessary. Without that experience, small problems can become disasters.

The initial inspiration for many of the ventures we studied came from an international experience of its founder. For example, founder Ray Anderson conceived the idea for IXI's software while he was employed by a U.K. company with operations in the U.S. and Canada. Through his business interactions in the U.S., Anderson identified the product need that later led him to found IXI.

It was interesting that all but one of the global entrepreneurs we interviewed believed English was the only language one needed to know, although most actually spoke several languages themselves. English was seen as the universal language of both business and technology. Nevertheless, the German director of EEsof, a producer of circuit design software, had an interesting reason for believing that skill with foreign languages was important. He maintained that foreign sales were made, not by the salesperson's ability to speak, but by his or her ability to listen in a foreign language. Listening to customers in their own language provides insight into the nuances of their demands that is otherwise missed. Virtually all of the interviews stressed the importance of understanding the cultures of the countries in which a venture operated and the international experience necessary for such understanding.

Global Entrepreneurs Have Strong International Business Networks An important aspect of prior international business experience is that it builds essential business relationships. No start-up can survive without trusted and

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Listening to customers in their own language provides insight into the nuances of their demands that is otherwise missed.




trusting financiers, suppliers, distributors, and the like. New ventures, being resource poor, are much more dependent than large mature multinational enterprises on a supportive network of business associates.

International Investment Group (IIG), an Atlanta-based business consulting venture, specifically identified its "proprietary network" of business associates around the world as its key competitive advantage. Their network was comprised of highly successful individuals, most of whom were retired. Most of the individuals in the network had a personal, as opposed to business, relationship with one of the founders. The network identified opportunities, offered business advice, assisted in negotiations, and sometimes lent their names and reputations to business deals. No compensation was paid unless a transaction actually occurred. IIG's network allowed a venture with very limited funds to achieve worldwide presence.

Having a network of international alliances to access vital resources rather than owning those resources outright is the increasingly preferred way of conducting international business.8 Resource-poor start-ups have little choice; the only way they can access many resources is through a network of alliances.9

Heartware International, another Atlanta-based global start-up and owner of an advanced, FDA-approved instrument for measuring and treating cardiac arrhythmias, failed because its relationship with its Dutch suppliers was insecure and because its network of interested investors could not supply enough capital. Gerald Seery, the founder, has said that his most important failure may have been his inability to convey his vision of the venture to others. Thus, a global vision may be inadequate by itself; it must be shared by a supportive network of business relationships extending across national borders.

Preemptive Technology or Marketing is Exploited Most successful global start-ups begin by selling a unique product or service in leading markets. To successfully enter a foreign market, a firm must possess some clear advantage that will allow it to overcome indigenous firms' more thorough understanding of its market. Economies of scale and other advantages of large size have been important advantages used by traditional multinational corporations in the past. Start-ups, however, are handicapped by both their inexperience and their small size. The way global start-ups overcome such disadvantages is to be first to market a distinctively valuable product or service.

The founders of Wave Systems hoped to put on-line data services, such as Dialog, out of business with their patented data compression and metering technology. But they realized that their patent might simply help competitors engineer their own competing technologies to accomplish the same thing. So they planned to preemptively introduce their unique technology in Japan, North America, and Europe roughly simultaneously, thereby familiarizing customers with Wave's technology, and raising the switching costs for customers high enough to discourage potential competitors from introducing an alternative. Thus, Wave Systems hoped to develop a worldwide standard, much as Microsoft has done with its PC operating systems.

A Unique Intangible Asset is Present Success attracts imitators, especially in a global arena. Marketing a distinctively valuable product or service is preemptive only if that

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distinctiveness is sustained. Possessing relatively few resources, global start-ups must depend on intangible assets, such as tacit knowhow, to sustain their advantage.'0 During our interview, the President and Chief Financial Officer of SPEA, one of the most successful global start-ups we studied, picked up one of the company's graphics boards, pointed at the array of computer chips on it, and said,

This is the major product we manufacture, but it's not the secret of our success. The secret is in the software inside the chips and the advanced knowledge of our software engineers.

In most cases, the founders identified their competitive advantage as some bit or collection of special knowledge that the people in their venture had that no one else had. Unique knowledge seemed to be the key intangible asset. That means global start-ups must take great pains to recruit, train, and manage their human resources very effectively, and to use that resource for continual innovation.

Product or Service Extensions Are Closely Linked Continual innovation ensures that a firm's advantage is a moving target and, therefore, one that is more difficult for competitors to hit. Yet innovations subsequent to the founding of the start-up must be incremental due to the venture's limited experience and resources. Successful global start-ups seem to follow their initial product or service with extensions that are closely linked to the unique assets from which they derived their original competitive advantage. Over time, an incrementally innovative venture can build an impressive lead.'

Oxford Instruments took on consulting jobs related to magnetism, made copper coils for fusion research, produced some of the first reliable superconducting magnets, and formed Oxford Cryogenics to produce the liquid helium needed by their clients to operate those magnets. Later, diversification included medical devices and instruments that used powerful magnets. The skills learned at medical instrumentation led to investments in general industrial instruments. The company began with unique knowledge of magnetic technology, continued to learn new ways to apply it, and each time the product line was extended the result was an increase in the related fund of knowledge. Oxford's unique intangible asset became an ever-increasing and unbeatable competitive advantage.

The Organization is Closely Coordinated Worldwide If the goal is to produce the finest product in its class by using the finest resources wherever in the world they are, a strong top management team is required to coordinate R&D, procurement, production, marketing, distribution, sales, and other activities in several dispersed locations. Just as a global start-up's product extensions must be closely linked to conserve resources, so too must geographic extensions be closely coordinated. Among our sample firms, more emphasis was placed on coordinating the implementation of the venture strategy than on adjusting the product and its marketing to varying local conditions.

Such close coordination has several facets.'2 First, a close bond must form among the top managers, be it a personal bond or simply a strong commitment to the goals of the venture. Second, no effort should be spared to communicate the global vision throughout the organization, and an effort should be made to

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. . . top managers had better enjoy, not just endure, travel.




obtain every employee's commitment to that vision. It is seen in employee hiring practices, in training, and in frequent and multilateral communication. Third, top managers had better enjoy, not just endure, travel. International business requires face-to-face meetings to establish and nurture that network of international business associates. Fourth, for communication between those face-to-face meetings, the telephone, fax machine, and e-mail are all essential and should work overtime. Thus, the communication infrastructure of the successful global start-up must be more sophisticated than that of the usual domestic start-up of equal size.

A Progress Report Of the dozen global start-ups we studied, three have failed and one is in the process of ceasing operations. Heartware International failed because it had a weak network for accessing resources. It was headquartered in the U.S., but Heartware depended entirely on a Dutch hospital and European designers for the technology of its advanced cardiac monitors and stimulators. When the hospital began exploring alternative designs on its own and the original designers left the hospital, the start-up was without technological skills. The founder's attempts at alternative alliances and financing failed, and he was left with little choice but to cease operations. At Momenta, not even $30 million in financing within two years of opening its doors could save it from lavish marketing expenses, poor reviews of its pen-based computers, and rapid top management turnover. At International Investment Group, lack of a uniquely valuable advantage appeared to doom the business consultants. That same problem along with expansion plans that were interrupted by the Gulf War seemed to have mortally wounded Techmar Jones and its water treatment technology.

On the other hand, the capabilities of three of the global start-ups were valuable enough to make them acquisition targets in 1993. Hewlett Packard bought EEsof's computer aided design skills for analog circuits. IXI and U.S.-based Santa Cruz Operation, Inc. combined their efforts in Unix-based software. Sybase, Inc. was attracted by OASiS' skills in systems reengineering. We believe these acquisitions are clear evidence that global start-ups can successfully create value.

The most successful global start-ups were Oxford Instruments and SPEA. Oxford Instruments has prospered for 35 years and is a well-known firm in the U.K. SPEA was profitable within a few years of founding, has built on its original base as a supplier to Sony of advanced computer graphics boards, and was seeking additional investors in order to expand further. Both of these ventures demonstrated the advantages of possessing all seven of the success characteristics. But what about the other start-ups?

In Exhibit 1, we provide a score card, based on our assessment of each firm. This exhibit shows that the global start-ups that failed possessed fewer of the success characteristics. In addition, the first three characteristics -global vision, international experience, and a strong social network-were found in almost all the ventures, supporting our contention that these are necessary at founding. The importance of linked product extensions relative to the other characteristics is difficult to evaluate because few of the businesses had been in existence long enough to fully explore such extensions.

... organizational history books of the future will describe the beginning of the next millennium as the first time when large numbers of new corporations were forced to be global from inception.

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Success Characteristics

Preemptive Unique Linked Global Start-up Global Iter i Strong Tenology Itagie Product Tight Current & Headquas Vision Experience Network or Marketing Asset Extension Coordination Status

Ecofluid Ltd. Brno, Czech ** * * * ** * Operating Republi

EEsof, GmbH Munich, *** ** *** *** * *** Acquired Ger-many

Heartware Int'l Failed Atlanta, GA, USA

Intemational Investment Ffe Group *** *** ** Failed Atlanta, GA, USA

IXI Ltd. Aqie Cambridge, U ** ** *** ** * |Acqr

Momenta Corp. Mountain View, *** *** *** *** Failed CA, USA

OASiS Group PlC * * * Acquired Berkshire, U.K.

Oxford Instruments Operating Oxford, U.K

SPEA Starnberg, *** ** ** *** * ** Operating Germany

Techmar Jones Intemational Ceasing Indus. operation Atlanta, GA. USA ______

Technomed

Intem'lOprtn Lyon-Bron, ** * * ** * ** Operating France

Wave Systems NewYork, NY, *** *** *** * * * Operating USA

= Characteristic is strongly present * = Characteristic is present

*=Characteristic is somewhat present Vacant cell = Characteristic is not present

Exhibit 1. Success Characteristics Score Card

Beginning the New Millennium Any of the remaining global start-ups might yet fail. No one knows whether the survival probability for global start-ups will be any better or worse than for domestic new ventures. Certainly, the risks of international operations compound the usual liabilities of being new and small, but, as we have argued earlier, the risks of domesticity may be just as high when markets are global.

It is worth emphasizing that a general understanding of global start-ups is yet to be achieved. However, the forces and characteristics discussed here represent common factors that have been recently reported by several management scholars and practitioners investigating this phenomenon.

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Clearly, the characteristics associated with global start-up success resemble those associated with all successful international firms. However, history, habit, and stage theories of international business development have combined to give many entrepreneurs, especially Americans, only domestic imaginations. We believe the lessons of this article are most important for them.

A skeptical reader may doubt the significance of global start-ups because he or she has never seen one. It is true that their number is now apparently small. However, we have found that many currently exist in locations where rapidly changing industries have encountered universal demand (e.g., Silicon Valley). Today, there is a choice, and it involves a complex calculus balancing the benefits of incremental organizational learning about international operations against the now rapid global movements of markets, competitors, resources, and internal forces. One can only conclude that progressively fewer protected market niches seem available. In the extreme, a profitable new venture that is not international may serve mainly as the quickly obliterated sign of a business opportunity for firms better equipped to handle the imperatives of global competition.

Much evidence presages increasing numbers of global start-ups in the industries of the future. New technologies, increasingly sophisticated communication capabilities, and low-cost air transportation have made the internationalization of markets ubiquitous. The evolutionary, staged internationalization of organizations is good history, but the organizational history books of the future will describe the beginning of the next millennium as the first time when large numbers of new corporations were forced to be global from inception.

Appendix A Sketches of Global Start-up Companies:

Name of company (founding year), headquarters location

Ecofluid Ltd. (1991), Brno, Czech Republic. Within two weeks of the fall of the Communist regime in Czechoslovakia, the twin brothers who founded this venture resigned their academic positions and began designing an organization for commercializing water treatment technologies. The venture's technology using fluidized bed filtration for water treatment and purification was based on patents the founders were able to acquire from the government. Recognizing the lack of adequate capital in their home country for projects concerning the natural environment, the founders targeted international markets. Within six months of founding, this venture had contracts in three different countries.

EEsof, GmbH (1988), Munich, Germany, was a subsidiary of a California-based global start-up which was founded in 1983. The parent company was begun by two Americans to produce and sell personal computer software for the design of analog circuits used in communications devices such as mobile telephones, satellite communication, and radar. During its first year, the venture had sales in several European and Far Eastern countries. By 1988, sales had increased in Europe so rapidly that a European subsidiary was founded in Germany. The subsidiary directed operations all over Europe, including Eastern Europe. EEsof was acquired by Hewlett Packard in 1993.

Heartware International Corporaxtion (1988), Atlanta, Georgia, USA, was formed to market hospital-based equipment used in the treatment and diagnosis of cardiac arrhythmia. The product was developed in Holland by a Spanish physician. Production was in

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Holland. Initial sales of the product were in Europe and South America. Heartware failed after two years of operation.

International Investment Group (1989), Atlanta, Georgia, USA, formed with a worldwide network of prominent business associates, offered international trading, technology transfer, and investment consulting to a client base of U.S., Indian, French, Swiss, and English companies. The venture identified and negotiated opportunities, offered financial and marketing advice, and sometimes arranged international financing. International Investment Group failed in 1992.

IXI Ltd. (1987), Cambridge, U.K. Its software, X.desktop, made it easier for non-technical people to use Unix computers. The original product was designed with global markets in mind. Financing came from the U.K., Germany, Austria, and Japan. Established in the U.K., its first three customers were multinational computer companies headquartered in the U.S. Japanese sales quickly followed. A stated key component of the venture's strategy was to overwhelm entrenched competitors with a product that was a worldwide standard. By 1992 it had $6 million in revenue and 50 employees. In 1993 it was acquired by Santa Cruz Operation, Inc., a $160 million American-based firm operating in 11 countries with 1,100 employees and a large market share in UNIX-based software applications.

Momenta Corporation (1989), Mountain View, Califomia, USA, sold some of the first pen-based computers. The company was headed by a Silicon Valley entrepreneur credited with two other successful global start-ups. He leveraged his reputation as a co-founder of Cirrus Logic and CAE Systems to raise $5 million from venture capitalists in the first round of funding, even before he had developed a business plan. The architecture of the computer system was designed in the U.S., hardware was designed in Europe, initial manufacturing was in Japan, volume production was planned for Taiwan, and localized software development was done in Europe. Human resources were drawn from multiple countries. A stated goal of the chief executive was to take the company public in Taiwan, Japan, or the European Community. Momenta failed after three years of operation.

OASiS Group Plc. (1986), Berkshire, U.K., with an annual compound growth of 85% over the five years following its founding, boasted that it was the fastest growing management services group in the U.K. Its consultants were British, Dutch, French, and Irish. All consultants were required to speak at least one language besides English. Projects have been in the U.K., Denmark, France, Belgium, Germany, Ireland, Japan, and the U.S. Typical clients were multinational companies with international problems. OASiS was acquired in 1993 by Sybase, Inc.

Oxford Instruments (1959), Oxford, U.K., was founded to supply high field magnets to laboratories that were doing research in low temperature physics. With about 90% of the venture's market outside the U.K., the founders had a global vision from day one. By the second year, over 50% of sales were international, and that percentage has continued to rise. At the time of our research, Oxford Instruments was a well-established company selling a number of related products and services, and 90% of its sales were international.

SPEA (1985), Stamberg, Germany, was founded by four engineers who left a large electronics firm because they had innovative ideas for software. SPEA's primary products were highly sophisticated, but medium priced, graphics controllers for personal computer color monitors. The firm achieved immediate stability due to its 1986 deal to design and produce graphics controllers for Sony Corporation. It had continued financial success while expanding sales in Europe and the U.S. It expected to have a public offering of its stock in the U.S. by the mid-1990s.

Techmar Jones International Industries (1989), Atlanta, Georgia, USA, secured the international sales and technology transfer rights to the water treatment systems of a

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U.S. company. A network of strategic alliances was built to market the product internationally. Revenues were received from Japan, Korea, Saudi Arabia, Germany, and Belgium. A joint venture for building a manufacturing plant in Saudi Arabia was entering the final stage of negotiations at the outbreak of the Gulf War. The founder indicated that both parties lost interest because of the government bureaucracy. As a result, he planned to scale back the company and probably eventually cease operations.

Technomed Intemational (1985), Lyon-Bron, France, began by producing and selling lithotripters, medical devices that destroy kidney and gall stones with ultrasonic pulses and without surgery. It also expanded its technology into related medical devices that use ultrasonic, laser, and heat technologies to treat various types of tumors with minimal or no need for surgery. From its beginnings, Technomed acquired financing and solid its products in several parts of the world. At the time of our research it had subsidiaries in the U.S., Japan, Italy, and Germany.

Wave Systems Corporation (1988), New York, New York, USA, was called Cryptologics when it started. A radical new way of distributing information from large databases was the vision of the founders. The firm's data condensing technology and computer metering device was designed to allow customers to pay only for the information needed, and not for on-line and search time. The meter could potentially determine exactly what article or material is used, so that royalties could flow to the writer and the publisher each time it is accessed. The implications of this technology were far-reaching. For example, smaller libraries could access the same volumes of information as larger ones. The founders were interested in preemptive internationalization to gain advantage over potential foreign competitors who might develop alternative technologies. At the time of writing, however, competitors were beginning to appear.

Endnotes The authors gratefully acknowledge financial support for this research from the Bernard B. & Eugenia Ramsey Chair of Private Enterprise at Georgia State University and from the Society of International Business Fellows (SIBF), based in Atlanta, Georgia. Early versions of this paper were presented at the 1992 annual meeting of the SIBF and at the 1993 Babson Entrepreneurship Research Conference, Houston, Texas. Parts of this paper appeared in the New York University Center for Entrepreneurial Studies' newsletter, The Entrepreneurship Forum.

1 Global start-ups have been variously called: innate exporter, born international, infant international, and international new venture. What they all have in common is that they are a type of international new venture that coordinates many organizational activities across many countries. For more details, see B.M. Oviatt and P.P. McDougall, "Toward a Theory of International New Ventures," Journal of International Business Studies, 25(1), 1994, 45-64.

2 Information about Logitech comes from V.K. Jolly, M. Alahuhta, and J-P. Jeannet, "Challenging the Incumbents: How High Technology Start-ups Compete Globally," Journal of Strategic Change, 1, 1992, 71-82; and from M. Alahuhta, Global Growth Strategies for High Technology Challengers (Helsinki, Finland: The Finnish Academy of Technology, Acta Polytechnica Scandinavica, Electrical Engineering Series No. 66, 1990).

3 For this analogy, we thank Mr. Peter

Sprague, Chairman of National Semiconductor Corporation.

4 Although no statistical studies on their growth have been completed, much evidence supports our belief that the number of global start-ups is small, but growing. See U. Gupta, "Small Firms Aren't Waiting to Grow Up to Go Global," The Wall Street Journal, December 5, 1989, B2; U. Gupta, "Mitsubishi and Hambro Launch Fund for U.S. Start-ups," The Wall Street Journal, March 14, 1991, B2; G.S. Burrill and S.E. Almassy, Electronics 93: The New Global Reality (San Francisco, CA: Ernst & Young, 1993), 38; M. Fujita, "Small- and Medium-Size TNCs," The CTC Reporter, No. 30, Autumn, 1990, 37-42.

5 The actual percentage of new jobs created by new and small ventures in the U.S. is in dispute. See D.A. Birch, "Who Creates Jobs?" The Public Interest, 65, Fall 1981, 3-14; C. Brown, J. Hamilton, and J. Medoff, Employers Large and Small (Cambridge, MA: Harvard University, 1990); and B. Harrison, Lean and Mean (New York, NY: BasicBooks, 1994).

6 Since we were aware of only a few case studies of global start-ups at the time, and since no directories or public resources were available to systematically identify them, we were forced to rely on personal networking and on articles in the business press to find candidates for our study. Our method of investigation involved analysis of three types of evidence: (1) documents, such as business plans, financial statements, letters, faxes, and minutes of meetings; (2) physical artifacts, such

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as the firm's products; and (3) personal interviews. Semi-structured personal interviews were conducted with either the founder or founding team of ten ventures. In two other ventures, personal interviews were conducted with the chief financial officers, both of whom had joined the venture soon after it began operations. There were one or more follow-up personal interviews in four cases and additional telephone interviews in all cases. Most ventures were contracted periodically over a period of about three years. We also conducted personal interviews with key managers, a board member, or an investor in several of the ventures, as well as with three venture capitalists (one in Silicon Valley, one in New York, and one in Munich) who had financed global start-ups. We sought information about founders' personal characteristics, the motivation and process for starting the venture, products and services offered, geographic coverage of the venture, how financing and other resources were obtained, significant problems encountered, and keys to success. All examples of global start-ups, except Logitech, come from our research.

7 C.A. Bartlett and S. Ghoshal, Managing Across Borders: The Transnational Solution (Boston, MA: Harvard University Press, 1989).

8 See P.J. Buckley, "The Limits of Explanation: Testing the Internalization Theory of the Multinational Enterprise," Journal of International Business Studies, 19(2), 1988, 181-194; and S. Ghoshal and C.A. Bartlett, "The Multinational Corporation as an Interorganizational Network," Academy of Management Review, 15(4), 1990, 603-625.

9 See H. Aldrich and C. Zimmer, "Entrepreneurship Through Social Networks," in D.L. Sexton and R.W. Smilor, eds., The Art and Science of Entrepreneurship (Cambridge, MA:

Ballinger, 1986); A.C. Cooper and W.C. Dunkelberg, "Entrepreneurship and Paths to Business Ownership," Strategic Management Journal, 7(1), 1986, 53-68; A. Larson, "Network Dyads in Entrepreneurial Settings: A Study of the Governance of Exchange Relationships," Administrative Science Quarterly, 37(1), 1992, 76-104; P.P. McDougall, S. Shane, and B.M. Oviatt, "Explaining the Formation of International New Ventures: The Limits of Theories from International Business Research," Journal of Business Venturing, 9(6), 1994, 469-487; B.M. Oviatt and P.P. McDougall, "Toward a Theory of International New Ventures," Journal of International Business Studies, 25(1), 1994, 45-64; and K.H. Vesper, New Venture Strategies, revised edition, (Englewood Cliffs, NJ: Prentice Hall, 1990).

10 This argument is built on the resource based theory of competitive advantage. See J. Barney, "Firm Resources and Sustained Competitive Advantage," Journal of Management, 17(1), 1991, 99-120; and P.J.H. Schoemaker, "Strategy, Complexity, and Economic Rent," Management Science, 36(10), 1990, 1178-1192.

" Our observations are consistent with the belief that the boundaries of the firm are extended by technological opportunities, the possession of complementary assets, and organizational learning abilities, and that those boundaries are limited by dependence on established paths of organizational change and the munificence of the environment. See D.J. Teece, R. Rumelt, G. Dosi, and S. Winter, "Understanding Corporate Coherence: Theory and Evidence," University of California at Berkeley, Center for Research in Management, CCC Working Paper No. 92-6, 1992; and Jolly, Alahuhta, and Jeannet, op.cit.

12 Adapted from Jolly, Alahuhta, and Jeannet, op.cit.

About the Authors Ben Oviatt received his Ph.D. from the University of South Carolina and is currently assistant professor of management at Georgia State University, specializing in strategic management. His award-winning research on strategic management, international entrepreneurship, and management education has appeared in several journals, and he serves on the editorial review boards of three refereed journals. His current research interests focus on international new ventures and organizational turnaround strategies.

Patricia McDougall is an associate professor of management at the Georgia Institute of Technology. Dr. McDougall is well-known in the academic community for her research on start-up companies, and has received the international award for the best dissertation in entrepreneurship, as well as three Best Paper in Entrepreneurship awards given annually by New York University. She has published numerous articles in academic journals and currently serves on five editorial boards. Her research has also been presented in the business press, including Inc. magazine and The Wall Street Journal. Dr. McDougall is Program Chair of the Academy of Management's Entrepreneurship Division.

Executive Commentary Marvin Loper, Anheuser-Busch

Many of us work in organizations that have some international, multinational or global aspect to them. However, opportunities for involvement in global start-ups is rather limited for most firms. The trick, then, is to instill in these

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"aspects" the factors that characterize the essence of what it means to be a successful global start-up-all the while leveraging the strengths of a larger, established organization.

Quickness and flexibility appear to be those critical factors. Established enterprises have some combination of financial strength and reserves, marketing knowledge and experience, operational expertise, leadership, and human resource bench strength which can be used to advantage. On the other hand, entrenched practices which are based on a domestic history and requirements, bureaucratic management, and a limited tolerance for risk characteristic of many firms often prove problematic for new global ventures.

A third factor to consider is striking the right balance between short and long-term performance. The demands that an organization must face to be successful are probably influenced more by the elements of the global playing field than by the fact that it is a start-up. Being a start-up is a condition that exists only for a short time. Short-term performance is certainly essential at this point. However, long-term viability very quickly grows in importance for any new endeavor, particularly a global operation.

Marvin Loper is an internal consultant in the Management and Organization Development Division of the Anheuser-Busch Companies. He is also a member of the AME Executive Advisory Panel.

For permission to reproduce this article, contact: Academy of Management, P.O. Box 3020, Briarcliff Manor, NY 10510-8020

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Documents

Careers in the 21st Century || Global Start-Ups: Entrepreneurs on a Worldwide Stage [and Executive Commentary]