Recent research findings have shown that high tech businesses start to internationalise almost immediately, contrary to the received wisdom (Burgel and Murray, 2000). Why do they do this? The reasons are that swift internationalisation offers them, among other things, advantages of scale necessary to bring down production costs which makes them quickly competitive. The fact that their products have almost universal appeal and application means that national boundaries of language and culture are largely irrelevant.

Again, whilst the EIC’s research incorporates small businesses in general it is focused primarily on the potential movers and shakers of industry – the agents of change (sometimes of profound and discontinuous change) in the global economy. An example of this type of company was Apple computers in the 1970s. Steve Wozniak inventor of the Apple II produced the first personal computer; a computer that had a screen and a keyboard and could be used for personal computer tasks and gaming entertainment. It personalized computing and took away power from the likes of IBM who relied on mainframes for computing power. Apple II was the first nail in the coffin of the mainframe and was five years ahead of the competition. The rest as we say is history.

The research philosophy of the EIC is therefore also Schumpeterian in nature: the concept of ‘creative destruction’ resulting from the activities of entrepreneurs and pioneered by Schumpeter in his celebrated book “Capitalism, Socialism and Democracy” is central to our view of the role of the entrepreneur. To quote Schumpeter:

“the opening up of new markets, foreign or domestic, and the organizational development […] illustrate the same process of industrial mutation, that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one”.

Entrepreneurs who are strategic innovators are ‘revolutionary’ and ‘antisocial’; they are not prepared to play by the rules of the game; they use technology to break them deliberately in order to gain competitive advantage:

“After studying more than thirty successful attackers, I believe that the simple answer is that [in being successful] they broke the rules of the game in their industry. The common element in all the successful attacks is strategic innovation. Significant shifts in market share and fortunes occur not because companies try to play the game better than the competition but because they change the rules of the game”, Constantinos Markides.

Exemplifying this tendency in recent times the Google founders invented a revolutionary search engine that changed the nature of competition in the computer industry. By combining software and hardware innovation they increased both speed and search engine efficiency and in so doing largely destroyed the competition. They also identified a huge range of new applications of this search engine and were able to generate vast advertising revenues from its ability to locate the ‘most quoted’ web pages corresponding to user search strings. Evidence of the revolutionary nature of the competition Google has introduced into the computer industry is the fact that Microsoft (in its time a mover and shaker but now part of the establishment) now regards Google as their main competitor and is anxious to do a deal with them! (Most of Microsoft’s competitors in the past were simply wiped out).

This process of “creative destruction” the EIC believes, is not only critical for the development and survival of the Western economies in the face of intensifying international competition, but also, in the face of current global challenges, of the human race. Green technology will come from the strategic entrepreneurs who see profits in ways of reducing our carbon footprints. The necessity of a global approach to the problem of climate change will mean that the new technologies that emerge in the next decade or two will be almost immediately internationally marketable. Fortunes will be made in solving the world’s environmental problems, and strategic entrepreneurs will be at the forefront of this process.

In research methodology we therefore need to reject much of the equilibrium analysis of classical economics in favour of a paradigm of evolutionary dynamics. We must accept that innovation is probably impossible to model as an optimisation process in the traditional mold. To quote Schumpeter again:

“the problem that is usually visualized [in classical economics] is how capitalism administers existing structures, whereas the relevant problem is how it creates and destroys them”.

Cameo of Robert Cressy

Dr Cressy is Professor of Entrepreneurship and Innovation at Birmingham Business School and Director of the School’s Entrepreneurship and Innovation Centre (EIC). Previous appointments include Professor of Finance at Cass Business School, London and Professor of Finance  and Director of Research at Hull University Business School. Before that he was Assistant Director of Warwick University Business School’s Centre for Small and Medium Enterprises.

His research, in the area of entrepreneurship and entrepreneurial finance has emphasised the role of human capital and learning in determining both capitalisation of the business and its performance. An early seminal finding in this area is the existence of a universal failure curve for smaller businesses and an analysis of its dependence on the human capital embodied in the business. However, his more recent research in venture capital has explained why larger UK venture capital funds have greater returns (IRR) and how specialization in private equity investment can enhance performance. A central position in a large network and the role of human capital and specialization in generating competitive advantage are found to be important influences here. Major recent publications include: “Playing to their strengths?” (Journal of Corporate Finance, 2007), “Why do most firms die young?” (Small Business Economics, 2004), “Funding gaps: A symposium”, (The Economic Journal, February, 2002), “Are Business Startups Debt rationed?” (The Economic Journal, 1996), Small Firms and their Bank (NatWest, 1994).  Current work includes an analysis of the determinants of IPO success for biotech startups in the UK, Germany and the US. EIC runs regular academic-practitioner seminars, publishes academic research in venture capital and is intimately connected with the EU’s Gate to Growth project from which it has received funding.

Professor Cressy’s professional activities include acting as a consultant for the EIC’s Enterprise Directorate, contributions to Venture Capitalist training programmes and regular contributions to EU reports. In the UK he was a member of the Bank of England’s former panel on small business finance chaired by Eddie George, the then Governor, and has advised and consulted with the DTI on small business matters. Regarding journal management Prof. Cressy is a member of the editorial boards of Venture Capital: An international journal of entrepreneurial finance, The International Journal of Entrepreneurship Education and Small Business Economics.

Contact details:

Email: r.cressy@bham.ac.uk

Phone:0121 414 5609 (direct line)