Model of the Entrepreneurship Model of the Entrepreneurship Motivation and Innovation Motivation and Innovation

Culture programmeCulture programme

22 March 2007

Valdis Avotiņš, Agnese Griņeviča, LIAARene Tõnnisson & Wolfgang Drechsler, Tartu

New products and technologies

Risk capital scheme

Shared laboratories

Training, consultancies

2004-2006

Strand III support

Business incubators

Pre-Seed

TTOs & LiOs

Competency Centres

Risk Capital

Qualified personnel

New product scheme

Innovation-System Created

Monitoring System

PPP Concept

Foresight

Operational Programme 2007-2013

Inno-Culture

Skills Centre

Techo-consultancies

TI – VCF scheme

Need analysis

Riga NIP

Business Angel networks

EU networks

CultureUsually culture is understood as a diversity of values, norms and traditions which are reflected as common value of tools and environment of creative process. Culture always has been supposed as a result of people’s activity. It is fulfilling the role of society’s social memory and provides connection of centuries and continuity of generations values.

In the economic aspect the term of culture is used quite recently. First of all, as common understanding of industrial relationships inside of collective economic subject (company). It’s possible to describe the stable employees relationships with the culture of business administration in the company with the goal to elaborate and define the decisions about effective use of limited resources in the production.

Innovation Culture

An entrepreneurship and innovation culture means an environment where people can explore and express their creative, innovative and business acumen. It is an environment whereby entrepreneurs and innovators are the norm in society rather than an exception.

The management of Innovation culture is defined by the elaboration of the Innovation strategy in the company together with access to all the necessary analytical information.

Innovation culture in the company• Components which describes the innovation competence of

managers and are related to their professional knowledge and experience during the innovation processes in the company;

• Motivation for value, which describes the motivating power of innovatin culture – common sense of demand factors, values, motives and stereotypes, which encourages the manager to implement the particular model of behavoiur during the innovation in the company. This level reflects the manager’s personal motivation.

• Behaviour, which includes all practical managerial activities in all innovation elaboration and implementation phases.

It’s possible to divide the particular terms “entrepreneur” and “intrapreneur”. The entrepreneur is a person who establishes and run the new private business – company, while the intrepreneur is a person who starts new activities in the company owned by others.

1. INNOVATION AND 1. INNOVATION AND EXISTING CULTURE EXISTING CULTURE (especially regional / (especially regional / local) as it existslocal) as it exists

2. CULTURE FOR INNOVATION2. CULTURE FOR INNOVATION in the sense of an innovation in the sense of an innovation conducive climate within a certain conducive climate within a certain location (“innovation milieu”)location (“innovation milieu”)

3. INNOVATION 3. INNOVATION CULTURE CULTURE in the sense of an in the sense of an innovation-conducive innovation-conducive habit or system or habit or system or best practise within a best practise within a given companygiven company

Innovation Innovation & Culture& Culture

Market defficiences• Lack of a visible, open enterprise culture;

• Lack of National and individual self-confidence;

• Lack of coherent, cohesive national vision in relation to entrepreneurship, innovation, and enterprise culture;

• Poor understanding of enterprise in civil and public sectors;

• Low Risk taking;

• Low levels of R & D;

• Training for enterprise not developed;

• Emigration of youth and educated workforce to other economies;

• Low levels of partnership

Only external barriers

0% 25% 50% 75% 100%

To attract external experts

Diversification of existing products

Purchase of products / licences / technologies

Collaboration with other enterprises

Increase of market share in other markets

To increase ability to react on market changes

Increase of market share and/or detection of new markets in EC

Increase of technological competence

To increase competence inside the enterprise

Increase of internal production capacity

Development of new products

Optimisation of operations to decrease costs

Increase national market share and/or detection of new marketsnationally Latvia

Sweden

Assimmmetry of information (308 firms intervied)

0 20 40 60 80 100 120 140

University of Latvia

Riga Technical University

Latvia University ofAgriculture

Riga Stradina University

Service is known

Service used

I will use again

RIS Latvia, 2003

Share of innovative firms, %, 2002-2004

14,1

27,2

53,6

0

10

20

30

40

50

60

10-49 50-249 >250

17,5% innovative firms gave 42,3% of total turnover in 2004

Only 4,7% product innovative

Only 3,5% high-tech in manufacturing

Competitive companies

4,0

6,85,6

10,29,8

5,0

13,3

19,1

2002 2003 2004 2005

Applied research Experimental development

R&D performance in business sector shows positive pace

Intramural R&D in business sector by research type, EUR mill.

Source: Central Statistics Bureau, 2006.

Two policies

Encouraging phase

Birth phase Start phase After-start phase (upon 42 months)

Growth management phase

Entrepreneurship policy

Promotion of new innovative SMEs policy

Division of business education in Education system in Finland

Business values and attitude

Business related knowledge

Business and management knowledge

Pre-schools High schools Universities Vocational education Life-long

learning

LujoLujo Brentano Brentano1844-19311844-1931

“When I climbed out of the boat that had brought us back … to Naples, and gave to one of the boys lying on the pavement my briefcase to carry, he shook his head with the words: I have already eaten!” (Brentano)

Mistakes come from lack of experiences and experiences come from mistakes

WHAT ARE INNOVATIONS AND HOW DO THEY WORK?WHAT ARE INNOVATIONS AND HOW DO THEY WORK?

• because at least for a time, the because at least for a time, the novelty that marks the innovation novelty that marks the innovation makes it impossible for makes it impossible for competitors to get “into the action”competitors to get “into the action”

The ENTREPRENEUR The ENTREPRENEUR in search of a SHORT-TERMin search of a SHORT-TERMMONOPOLY, which only an MONOPOLY, which only an innovation - except if there are innovation - except if there are laws to the contrary - provideslaws to the contrary - provides

AND WHAT PROPELS INNOVATION?AND WHAT PROPELS INNOVATION?

•INNOVATIONS ARE NOT INNOVATIONS ARE NOT INVENTIONSINVENTIONS

•innovation is an economic terminnovation is an economic term

•innovation is lucrativeinnovation is lucrative

Innovations are new products, Innovations are new products, processes, or distribution or processes, or distribution or financing mechanisms that are financing mechanisms that are succesfully succesfully brought into the brought into the economic processeconomic process (market) (market)

But this is just half of the story...But this is just half of the story...

There are innovations that are only good for the entrepreneur, and there are innovations that are also good for state, society, and economy. And while entrepreneurship is nice as such, the interest for the state side and regions lies in promoting it in precisely those areas that have a “snowball effect” to produce a general increase in production and wealth.

not so much, or not only, about creating an innovation-friendly culture,

but to create a set of innovation incentives which are in line with the existing culture!

Therefore, the question or challenge implied in asking about regional innovation culture is

Regional culture can ATTRACT innovation:Regional culture can ATTRACT innovation:During economic globalization, which is marked During economic globalization, which is marked by a divorce of value-addition and physical by a divorce of value-addition and physical product, life remains “real” and must be lived.product, life remains “real” and must be lived.

Thus, to attract innovative business, as or Thus, to attract innovative business, as or more important than tax advantages etc. may more important than tax advantages etc. may be LIVING be LIVING ENVIRONMENT and quality of lifeENVIRONMENT and quality of life for the innovators and their families…for the innovators and their families…

… … which are partially cultural, partially which are partially cultural, partially infrastructural, partially natural (landscape and infrastructural, partially natural (landscape and climateclimate), but they ARE promotable and should be a ), but they ARE promotable and should be a focus of any regional innovation strategy.focus of any regional innovation strategy.

Tartu Software Micro Cluster

• There are about 50 software companies who are employing about 1000 software engineers in Tartu

• Skype thought that it is a good place to recruit new people

• But people did not want to move so it was forced to set up an software developement office in Tartu, which became catalyst for most succesful Cluster Initiative in Estonia

Therefore Therefore iit is actually one of the best t is actually one of the best strategies for a region that wants to strategies for a region that wants to attract innovative enterprises and attract innovative enterprises and entrepreneurs to create an environment entrepreneurs to create an environment in which those people feel happy and in which those people feel happy and actually want to live.actually want to live.

The basic description

7 years programme 2007 - 2013

The budget needed is 7 MEUR;

• National programme

• Part contracted out (50-70%)

• Potential applicants – universities, local governments, NGOs, TTOs involving private intermediates

The main objectives

• To increase local interest and involvement in Education and Research as a source for innovation;

• To promote conductive climate for innovation in Latvia;

• To increase investment in R&D and Innovation at both regional and national levels;

• To use available resources to support and attract young highly skilled professionals to strengthen Latvia’s innovative capacity;

• To create a new and dynamic culture to existing companies.

Short term goals

• To promote an enterprise culture though educational programmes and competitions at each of the three levels of education;

• To develop a greater understanding of the importance of enterprise creation among public and civil servants;

• To assist the formation and sustained development of high potential start up businesses;

• To put infrastructure in place to support enterprise creation.

Existing SME Entrepreneurship Awareness building

Creativity as a part of work

Learn technology approach

Best practices & championing

Empower employees to take initiative

Promote investment in R&D

IPR legal platform

Promote training culture

Promote innovation bonus systems in companies

Design pilot project

SAP promotion

~2.0 MEUR

(need analysis/ intrapreneurs surveys)

Entrepreneurial education schools

Students’ business trainings

Business plan competitions

Pre-seed pilot facility

Support to pre-incubators

Investment readiness for researchers and engineers

Masterclass programme

Train – trainers approach

~3.5 MEUR

(potential entrepreneurs surveys)

Regional innovation days

Innovation circus

PR campaign

Internet

Info – News

Self Assessment tools, handbook

Innovation Award:

-Best innovative firm

-Best innovative product

-Best article in mass media

~1.0 MEUR

(Regular monitoring)

Outputs of the programmeNumber of

• enterprise courses delivered, persons engaged in training and skills development programmes(i.e. Investment readiness, Masterclass, Self-assessment tools & other short studies)

• promotional activities undertaken such as articles in newspapers, magazines, Interviews in TV, radio, presentations in relevant seminars, conferences, workshops

• enterprise competitions organised (Competition on Innovation prize)

• innovation awards organised, marketing plans of future entrepreneurs designed, business plans created, enterprises supported/created (Competition of Youth innovative business ideas)

• student firms created (Innovation and Marketing training for students)

• enterprise awareness programmes for public and civil servants organised (Best practices)

• Lean technology approach promoted (value concepts, productivity, efficiency, sales, new products introduced etc.)

MIDDLE term target: 200; FINAL target: 500 events

MIDDLE term target: 1000; FINAL target: 3000 enterprises approached

Beneficiaries

Private sector: manufacturing companies and the ones providing services

Public sector: governmental institutions, local authorities, NGOs

“Support infrastructure”: business incubators, technology incubators, technology transfer contact points, universities etc.

Society: potential entrepreneurs

Benefits from the programme • More innovative and high growth start-up businesses in knowledge and

technological based industries

• More innovation and creativity in existing industries

• More “intrapreneurs”

• More focus on Global market opportunities

• More productive and competitive enterprises

• More high value job opportunities for graduates

• More spin-out enterprises from research projects

• Closer linkages between

industry and Universities.

Selection criteria• Need for financial support;

• Value for money;

• Ability to reach programme and measure objectives;

• Spillovers generated jump of high effectiveness;

• Cost effectiveness;

• Potential to reposition of attitudes

• Impact on Regional Development

• Skills and experience

Pre-seed FacilityProgramme Model

Early Stage Finance Availability in LatviaThe early stage equity market for knowledge based start ups in Latvia suffers from:

lack of investor ready projectsthe dimension of the market, not big enough to allow proper

risk pooling the perception of the risk/profit ratio by the operators, due to

the lack of specialization (and consequent asymmetry of information) and to the dimension of the market

the difficulties of way out

Existing equity gap (“valley of death”)

between idea and investor ready business plan

Role of State in Early Stage

Public sector funding

Private sector funding

Commercial financingPre-commercial financing

Basic R&D Applied R&D Pre-seed Seed Start-up Expansion

• Existing equity gap between idea and investor ready business plan

• Private investors not interested

State needs to interfere

Role of Pre-seed Facility

Applied and basic

R&D

Idea with comm. value

Entrepreneurship education, training

Idea stimulation / business idea formulation Market

analysis

ProductProtectionDevelopmentValueCompetition cooperation

Business plan

Dev. plansMarket planOrganisation planFinancial planProspect

Licensing

IPRCommercial protectionMarketingRoyalty agreement

License to existing

company

Forming new start-upFundingEquity

registrationIncubator company

Operational company

Real estateIncubatorPremisesIndustrial networksBasic daily servicesProfessional services

Asset managementEarly stageSeed capitalRisk capitalCompetent management

Technology Transfer System

Innovation Culture and Entrepreneurship Motivation

EducationOutflow of

Master, PhD

Fiscal incentive

environment

Business cultureSocial attitudesUnderstanding of failuresGreenhousesBusiness labsPre-analysis

IPS fund Seed fund

Business and Technology Incubators

Pre Seed fund

Pre-seed Facility Model

• Operated by private service management company

• 6 year programme– Initially 3 year pilot phase

4 month x 300 EUR 1200 EUR

On average 3000 EUROn average 1500 EUR

Fellowship and mentoring:

For researchers and research groups

For engineers in companies

Expert consultation: Consultations with

selected specialists/experts

Voucher to participate: For participation in

training courses and seminars

Promotion and awareness building of the programme

Innovation Culture is thus not about having more technological innovations

... but it is about the right attitude and understanding how to make best out of innovations in your specific situation

Pērses iela 2, Riga, LV 1442, LatviaPhone: +371 7039410 Fax: +371 7039401E-mail: valdis.avotins@liaa.gov.lvhttp://www.liaa.gov.lv

Thank You for attention!