Innovation Theory of Schumpeter

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Schumpeter popularized the idea of creativity as a critical entrepreneur element. This is an opportunity-based entrepreneurship philosophy. An entrepreneur, according to Schumpeter, is an imaginative and visionary person who introduces new goods and services to the market. The entrepreneur seeks out untapped opportunities and innovates goods and services that suit the consumer niche. The founder brings a mix of innovative goods and services, a new market, unique manufacturing processes, new raw material suppliers, and a unique organization (Drejer 2004, p.557). The students and young entrepreneurs chose by the corporation should be innovative and able to identify new opportunities in their industry.

McClelland Need for Achievement Theory

McClelland emphasised the need for achievement as the most important trait of an entrepreneur. This is a development based theory of entrepreneurship. The entrepreneur should be able to do things in better ways and make decisions under uncertainty circumstances. Entrepreneurs with the need for achievement and final development of their corporations possess characteristics such as taking calculated risks, set realistic goals and prefer situations where they involved in solving complex problems (Carsrud and Brännback 2011, p.16). The experiences of these entrepreneurs drive their desire for achievement, excellence and growth.

Executive Summary

EU Entrepreneur Corporation is a start-up company with a focus on creating a business incubator centre. The organisation targets students and young entrepreneurs with a vision of starting businesses in partnership with angel investors. The corporation focuses on assisting these entrepreneurs in creating business plans for their start-ups and creating networks with investors. The primary sources of financing will be owner’s contributions. The organisation will be located at the University of Roehampton to have a competitive advantage in its target market segment.

Vision

To be the leading business incubator centre for students and young entrepreneurs with a focus on business growth.

Mission

To provide quality services to students and young entrepreneurs through research, innovation and consultancy with the aim of achieving sustainable business growth and development.

Objectives

EU Entrepreneur Corporation has two main goals which it plans to meet during the start-up period. The goals are outlined with strategies relevant to their achievement:

To create a high awareness of the organisation and its services. This recognition will is attained through marketing the corporation and services through social media and seminars in the University. It will also be achieved through offering discounts to students to ensure the organisation services are affordable to students.

To increase the customer base of the firm. This increase is through the provision of quality services to clients through hiring quality staff and continuous training programs. The customer base will also be increased through offering tailored and affordable services to clients to suit their specific business needs.

Keys to Success

The essential keys to the success of the firm include the provision of quality services, customer focus, prudent management, flexibility and adaptability to market dynamics, professionalism, creativity and innovation. The business plan should serve investors and stakeholders’ needs for it to serve its sales and marketing purposes (Agnihotri and Rapp 2011, p.370).

Company Summary

History of the Industry

The business incubation industry has had tremendous growth over the years. This is attributed to the need to get solutions to the limitations that face individuals during start-up stages of the business. It can also be attributed to the growing need for ownership of businesses especially by young people due to the benefits associated with self-employment (Galbraith and Schumpeter). The constant need for growth of small and medium-sized ventures led to the increased need for business incubator centres (Udell 1990, p.116). The advantages associated with these centres has resulted in growth and formalisation of this industry. Business incubator hubs have proven to have a huge impact especially in the growth of small and medium scale enterprises (Laskar and Rajaprabhu 2016, p.66).

Regulations

EU Entrepreneur Corporation operates in a regulated environment which demands adherence to industry controls and regulations and observance of ethical standards. The centre for entrepreneurship and incubation mentors and regulates the players in this industry. The company should be registered as per the companies act before admission to this centre. The organisation should also adhere to other regulations such as operation license, lease agreements and remittance of tax information to the relevant authorities. This centre reviews the business plan for information on product strength, market team and breakeven period (Mian 2014, p.427).

Location and Services

EU Entrepreneur Corporation will be located in Chancery Lane London where the organisation will rent offices in nearby business centres. The organisation will be strategically placed to have a competitive advantage over its competitors regarding clients' access. The location is ideal for students and young entrepreneurs from Roehampton University who form the primary customer base of the business. The site of the offices and the rented space should also be cost efficient and consistent with the revenues.

The organisation will provide consultancy services, preparation of business plans and intermediary services with anger investors. The corporation will also enter into partnership contracts with potential investors to bridge the customer-investor gap. The organisation will provide tailored services to meet individual needs of the clients as well as personalised customer services. The services will aid in creating interpersonal relationships with the customers and hence achievement of the business objectives (Lagrosen 2001, p.351).

Market Analysis

Target Market

The UK market consists of small, medium and large scale business organisations. The focus of business incubators in the country are the small and medium scale enterprises. These firms mainly provide services such as in-house training, legal and accountancy support, workspace, mentoring and workshops and networking events. Most of these incubator centres are funded by individual investors while the rest are through public funding. The accelerator explosion in the UK has created a bubble, and this is evidenced by the high number of corporate-backed accelerators which focus on specific sectors. The incubators in the country are thus shifting their concentration on providing sectoral services to start-ups (Wonglimpiyarat 2016, p.22).

Market Segmentation

The incubator market in the UK is quite diversified with emphasis on start-ups, small and medium scale organisations. The market is segmented on the type and nature of services offered by the clients, level of operations, a period of activity, the age of customers and the capital standards of the clients. These market segments provide a field from which EU Entrepreneur Corporation can choose their customers.

Target Market Strategy

The organisation target market will comprise of students and young entrepreneurs with innovative ideas. These groups of individuals will mainly be below 30 years of age and will be students and fresh graduates. These people have low start-up capital and thus the need to create a partnership with angel investors. The target market will be students from the University of Roehampton who have little experience in business start-ups. The organisation will also target entrepreneurial youths who live around the Chancery Lane London. These individuals may possess little skill and expertise in business .They, however, have more start-up capital compared to the students. The organisation will, therefore, adopt different strategies that are structured and tailored to meet both target segments.

SWOT Analysis

This analysis will help in the identification of strengths, weaknesses, opportunities and threats in EU Entrepreneur Corporation. This study is important for the business as it aids in identifying the strengths and opportunities that will give it a competitive advantage while developing measures to cope with the weaknesses and threats. This analysis is critical for the sustainable development of any business incubator organisation (Al-Mubaraki and Busler 2010, p.12).

Strengths

These are internal environment competencies that give the organisation a competitive edge over its competitors. These advantages include:

High-quality services. The company will ensure that the quality of services offered is of high quality and meets the customer's needs.

Tailored services. The offer of services that meet each need of the different clients is a strength that gives the organisation a competitive advantage as it gains customer loyalty as a result of customer satisfaction.

Advancement in technology. Adopting the appropriate technology ensures that the services are of high quality and also reduces the costs of operation thus lead to a low cost-benefit ratio. Advancement in technology also assists the organisation with coming up with new and innovative services that suit the client's needs. The application of relevant and updated technology in the business activities will give the company a breakthrough in its interactions with environmental conditions (Tushman and Anderson 1986, p.455)

Strategic location. The organisation will be located near the University of Roehampton and thus a better proximity with its clients. The location ensures that young individuals and especially students quickly access the organisation.

Possession of unique and adequate entrepreneurial skills. The possession of such skills especially concerning start-ups will be a strength as the output will be excellent. The hiring of qualified workers with the necessary skills and technical expertise will also be a point of advantage to this organisation.

Weaknesses

These are factors in the internal insufficiencies prevalent in the organisation that may have detrimental effects on the corporation performance. Some of these shortcomings include:

Lack of adequate qualified staff to meet the varying needs of the clients. This may lead to a slowdown in operations and eventually lose customers to competitors.

Internal failures of the system. Breakdown of the system due to heavy reliance on technology may cause bottlenecks.

Opportunities

These are favourable conditions in the external environment of the organisation. These opportunities include:

Entrepreneurial events organised by the university. Events present a perfect opportunity for the organisation to market its ideas to its future clients.

Grants and funding. There is a variety of funding to young people venturing into entrepreneurship. The corporation can take this opportunity by using it as a marketing tool. The organisation can promise the young entrepreneurs that they will assist in the facilitation of grants and funding both from the local and business link London.

Threats

These are external factors in the organisation environment that have adverse effects on the firm operations. Threats include the presence of new entrants into the incubation industry thus increasing the level of competition, disruption of business operations due to students strikes and riots and the threat of business closure due to a violation of rules set by the regulatory bodies.

Competitive Analysis

The business incubation industry is at its peak in the UK, and this is due to the benefits this industry has proved to provide. EU Entrepreneur Corporation is located in an environment where competition is high and thus the need for strategies to gain a competitive edge. The company will adopt the art of good products and services design and innovation which have marked impact on performance and competition .Other business incubators around the university target the same market segment thus the organisation will use the following strategies to cope with this competition:

Cost leadership strategy

This strategy involves cutting operation costs to a level below the average industry service costs. The reduction in costs provides an opportunity for low pricing of the organisation services while maintaining acceptable profit levels. The organisation will thus market itself as the cheapest source of business incubation services in the industry.

Focus strategy

This strategy involves aligning the firm within a particular group of the market segment and excluding other parts. This approach is based on the idea that serving a particular segment will give the organisation unique information that will enable it to have a competitive advantage over other firms.

Differentiation Strategy

This strategy involves an institution positioning itself along dimensions in the industry that clients value (D. Banker, Mashruwala and Tripathy 2014, p.882). The corporation evaluates the important features and qualities that consumers consider essential and most important thus giving it a unique orientation. The corporation charges it services at a price premium due to its unique orientation regarding its products and services. Creativity and Innovation are essential elements for a corporation to achieve its objectives using the differentiated strategy.

Marketing Plan

A marketing plan identifies attractive market segments that offer the best opportunity to the organisation and the most effective ways to position its offerings to the defined market segment. Business incubators develop marketing strategies with particular focus on the company capabilities, customers and their competitors. The incubator has to understand the three areas commonly known as the three "C's" in the business incubator environment. The organisation will then develop a marketing mix consisting of the seven “P’s” of service marketing (Bruneel et al. 2014, p.116).

Product and Service

A business incubator organisation has to determine the best product and service that suits the customers’ needs and preferences .It involves tailoring the services to client specifications thus creating satisfaction. EU Entrepreneur Corporation will offer products and services most suitable for students and young entrepreneurs. It will seek to provide unique services that help start-ups growth and development.

Price

A business incubator should set an optimal price that covers operational costs and remains affordable to the clients. An appropriate business model helps an organisation in setting the most suitable price. The organisation should consider the perceived value that its customers receive and the entrepreneur's perspective on the price (Teece 2010, P.186). Our organisation will, therefore, focus on setting prices based on its ability to cover costs and the perceived value from our clients. The customer base consists of students and young individuals, and thus the organisation has to convince them on the value of services offered.

Place

The location of EU Entrepreneur Corporation is an important aspect of the marketing plan. The corporation offices will be located in proximity to the University of Roehampton. The organisation has to ensure that its offices are accessible by the students from this university. The advancements in communication and technology have however given many business incubators an opportunity of operating in a virtual environment.

Promotion

Business incubators in every sector of the economy devise ways of promoting their clients and the organisation. Promotion involves informing the public about the existence, products and services offered by them and their customers. Innovation in establishing the market position for company products and services will give it a competitive advantage over its competitors (Francis and Bessant 2005, p.179).Our firm will use public relations and advertising as the primary promotion tools. Public relations will include events, publications, news, identity media, community involvement and lobbying activities. Advertising tools will include the use of print adverts, display signs, booklets and the social media.

People

The human aspect is equally important to every incubator’s marketing plan. The people the organisation interacts with includes the clients, employees and their regulators. An incubator has to put into consideration various factors before accepting a customer. EU Entrepreneur Corporation will use different client screening tools to select the most appropriate clients. The organisation employees should have the necessary business experience and expertise and who are committed to working with students and young entrepreneurs. The entrepreneur should focus on identifying appropriate people in the organisation who will be responsible for giving the company a direction. The right management will provide direction to the organisation even with the absence of the entrepreneur.

Processes

These are the internal activities of a corporation which a firm should consider when designing its marketing plan. A business incubator should be transparent with their clients in the processes. The organisation will ensure that the processes are responsive to customer needs, readily available and automated. Processes are important marketing aspects, and their breakdowns could lead to customers' dissatisfaction.

Physical Evidence

Clients make judgement decisions on the organisation based on the physical evidence since services are intangible. This behaviour by clients makes the physical evidence a crucial element in an organisation marketing plan. EU Entrepreneur Corporation should design their offices in a way that creates a positive image for their young clients. The physical evidence should be continuously monitored to ensure that the aims of the incubator are not compromised.

Marketing Mix Strategies

The seven "P's" of service marketing requires plans to design and implement them. These strategies are implemented in core areas commonly referred to as three “C’s” and are prevalent in the environment of a business incubator. These core areas include:

Company

The company is the incubator for businesses. The organisation should possess the technical competence and capabilities to guide students and young entrepreneurs in the field of start-up companies.

Customers

These are the organisation clients who the business incubator is helping in starting a business. The organisation should understand the clients' capabilities, resources and their needs to design a product that best suits them.

Competitors

The organisation should look for areas to exploit to have a competitive advantage over its peers. The corporation should focus on those sectors that satisfy their young clients and tailor their services to meet their needs.

Entry Strategies

EU Entrepreneur Corporation will adopt various generic incubation industry entry strategy. These plans are dependent on the target market segment and the resources at the disposal of the organisation (Bruneel et al. 2012, p.115). The entry strategy is also dependent on the nature of the businesses the organisation intends to enter into a partnership. The most shared and appropriate entry method will be the focused strategy. This strategy involves addressing a specific target market segment. The organisation will focus on the students and young entrepreneurs.

Differentiated Strategies

Organisations using this approach distinguish their products from similar offerings from their competitors. EU Entrepreneur Corporation is a new business and thus differentiating its products from similar products offering business incubation services will give it a competitive advantage. The organisation will focus on providing unique products to its clients to meet their desired needs in entrepreneurship. The use of technology in product design and delivery will help in achieving product differentiation (Vanderstraeten and Matthyssens 2012, p.660).

Business Incubator Complimentary Services

The business incubators require complimentary services that will enable them to achieve their objectives. They should seek partnerships with institutions that give grants and other funding opportunities to students and young entrepreneurs. These opportunities include the UK grant and local government's grants. The local universities offer complimentary services to business incubators through induction of students into the fundamentals of entrepreneurship.

UK and EU Grants

Grants are sources of financing to start-ups especially those with new and competitive projects. Grants are mainly provided by the UK central and local government, private organisations and the European Union. Local government grants have less complicated application procedures, unlike the UK and EU grants which have a lengthy and more tedious application process.

Business Incubator Substitutes

Co- working spaces are the most common alternatives to business incubators. These working offices provide an opportunity to entrepreneurs from different forms of business to share knowledge and equipment. They are characterised by flexibility and freedom which many business incubators lack. They are open to other entrepreneurs, unlike business incubators which are limited to start-ups. They also allow an open-ended membership to their entrepreneurs, unlike incubators which only work with young entrepreneurs for a given period (Cohen and Hochberg 2014). Co-working spaces are therefore potential threats to the corporation since they offer similar products and in a more flexible way.

Financial Plan

Revenue Forecast (£)

Source

JAN

FEB

MAR

APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

TOTAL

students and young clients

3000

3120

3214

3310

3409

3512

3617

3725

3837

3952

4071

4193

42960

Angel investors

500

510

520

531

541

552

563

574

586

598

609

622

6706

Partnerships

300

306

312

318

325

331

338

345

351

359

366

373

4024

Grants

50

50

50

50

50

50

50

50

50

50

50

50

600

54290

54290

The graph above shows the revenue forecasts from different sources for the corporation for a period of one year.

EU Entrepreneur Foundation Profit and Loss statement

££

Revenue54290

Less: fixed costs

Rent5000

Licenses and permits1500

Depreciation1000

Total fixed costs7500

Less: Operating Expenses

Salaries and wages16287

Electricity and water2000

Advertising expenses3500

Telephone expenses1250

Postage1300

Repairs and maintenance1000

Employee benefits2350

Total operating expenses27687

Profit before income tax19103

Income tax3821

Net Profit15282

Balance Sheet Statement

Assets

Capital + Liabilities

Non-Current Assets

Owners’ Equity

Motor Vehicle

14,750

Owner contribution

15,000

Furniture

10,050

Net profit

15,282

Computers

6,000

Total Equity

30,282

Total Fixed Assets

30,800

Long-term loans

5,000

Current Assets

Current liabilities

Cash in hand

3,151

Account payables

3,130

Preliminary expenses

1,840

Accrued tax

4,500

Miscellaneous expenses

2,226

Employee liabilities

2,600

Debtors

5,535

office supplies

1,960

Total Current Assets

14,712

Total Current Liabilities

10,230

Total Assets

45,512

Total equity and liabilities

45,512

Breakeven point

Revenue54290

Fixed costs7500

Variable costs27687

Contribution margin26603

Contribution margin ratio49%

Breakeven point= £15306

The revenue forecasts are based on the assumption that there will be a 4% growth in income from clients, 2% growth in angel investors and partnerships revenue.

The organisation will breakeven at a sales level of £15306. This is the point at which the company neither makes profit nor losses. It is an ideal position for many start-up businesses.

References

Agnihotri, R. and Rapp, A. (2011). Perspectives on competitive intelligence within business: A tactical tool for sales- people to gain a competitive advantage. The Marketing Review, 11(4), pp.363-380.

Al-Mubaraki, H.M. and Busler, M., (2010). Business incubators: Findings from a worldwide survey, and guidance for the GCC states. Global Business Review, 11(1), pp.1-20.

Baumol, W.J., (2002). The free-market innovation machine: Analyzing the growth miracle of capitalism. Princeton university press.

Bruneel, J., Ratinho, T., Clarysse, B. and Groen, A., (2012). The Evolution of Business Incubators: Comparing demand and supply of business incubation services across different incubator generations. Technovation, 32(2), pp.110-121.

Carsrud, A. and Brännback, M., 2011. Entrepreneurial motivations: what do we still need to know?. Journal of Small Business Management, 49(1), pp.9-26.

Cohen, S. and Hochberg, Y.V., 2014. Accelerating startups: The seed accelerator phenomenon.

D. Banker, R., Mashruwala, R. and Tripathy, A., (2014). Does a differentiation strategy lead to more sustainable financial performance than a cost leadership strategy?. Management Decision, 52(5), pp.872-896.

Drejer, I., 2004. Identifying innovation in surveys of services: a Schumpeterian perspective. Research policy, 33(3), pp.551-562.

Drucker, P.F., (1985). Innovation and entrepreneurship practice and principles. Harper and Row.

Francis, D. and Bessant, J., 2005. Targeting innovation and implications for capability development. Technovation, 25(3), pp.171-183.

Galbraith, J.K., 1977. CAPITALISM, SOCIALISM AND DEMOCRACY-SCHUMPETER, JA.

Hall, S. (n.d.). Financial Accelerator Effects in UK Business Cycles. SSRN Electronic Journal.

Jones, T., McCormick, D. and Dewing, C. eds., (2012). Growth champions: the battle for sustained innovation leadership. John Wiley & Sons.

Lagrosen, S. (2001). Strengthening the weakest link of TQM – from customer focus to customer understanding. The TQM Magazine, 13(5), pp.348-354.

Laskar, S. and Rajaprabhu, D. (2016). SUBSTANTIVE INCUBATION FOR GROWTH AND ITS ICT IMPACT ON MSME'S. International Journal of Business & Management, IV(4).

M’Chirgui, Z. (2012). Assessing the Performance of Business Incubators: Recent France Evidence. Business and Management Research, 1(1).

McMullen, J.S. and Shepherd, D.A., (2006). Entrepreneurial action and the role of uncertainty in the theory of the entrepreneur. Academy of Management review, 31(1), pp.132-152.

Mian, S.A., (2014). Business incubation mechanisms and new venture support: emerging structures of US science parks and incubators. International Journal of Entrepreneurship and Small Business, 23(4), pp.419-435.

Teece, D.J., (2010). Business models, business strategy and innovation. Long range planning, 43(2), pp.172-194.

Tushman, M.L. and Anderson, P., 1986. Technological discontinuities and organizational environments. Administrative science quarterly, pp.439-465.

Udell, G.G., (1990). Are business incubators really creating new jobs by creating new business and new products. Journal of Product Innovation Management, 7(2), pp.108-122.

Vanderstraeten, J. and Matthyssens, P., (2012). Service-based differentiation strategies for business incubators: Exploring external and internal alignment. Technovation, 32(12), pp.656-670.

Wonglimpiyarat, J., (2016). The innovation incubator, university business incubator and technology transfer strategy: The case of Thailand. Technology in Society, 46, pp.18-27.

November 09, 2022
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