Joining Forces - Alliances as Entrepreneurship Accelerators

Entrepreneurs or a venture team often engage in a torturous, checkered process of nurturing an idea into a successful business. Professors Yves Doz and Peter Williamson show that alliances, at different stages of venture development, may help reduce the burn rate as well as improve the chances of success. Download the full text of this working paper to find explanations on an applied managerial level, with real-world examples of new entrepreneurial ventures.

by Yves Doz,Peter Williamson
Last Updated: 23 Jul 2013

Booz-Allen & Hamilton, a strategy consultancy that tracks alliance formation patterns, reports that no fewer than twenty thousand new alliances have been created in the past two years (1999-2000). A growing proportion of these alliances involves a link between smaller entrepreneurial firms and large established firms.

Often, researchers focus on the perils smaller firms face when cooperating with larger ones, rather than on the value creation potential therein. Professor Yves Doz, the Timken Chaired Professor of Global Technology and Innovation and Professor of Business Policy at INSEAD, and Peter Williamson, Professor of Asian Business and International Management at INSEAD, show how entrepreneurship can be supported and accelerated in strategic alliances.

They explain that the challenges of entrepreneurship in developing a new innovative business can be broadly divided into four stages: idea generation, experimentation and validation of the business model, market launch, and business growth and scale up. Alliances can make different contributions (and prevent different threats) at each of these stages. Those contributions can be summed up as co-discovery, co-learning, co-option and co-specialization, respectively.

When an entrepreneurial idea for a business is first conceived, an alliance can promote the effectiveness of “co-discovery.” It helps elaborate and extend the idea and begins to shape the business model that will ultimately emerge. Affymax is an entrepreneurial new drug discovery venture and one of the firms studied as part of this research. It managed to cut short the process of developing its business idea by shifting its research focus, from uncovering natural molecules to designing artificial molecules. This was based on inputs from a network of scientific advisors who had had alliances with Affymax’s founder, Dr. Zaffaroni.

At the next stage, that of experimentation, or piloting, alliances can promote efficient “co-learning,” helping to design cost effective experiments and pilots, executing those experiments, and assessing and interpreting their results. Partners provide a “reality-check” as well as facilities for fast prototyping and pilot execution.

Once it is appropriate to launch the new business into the market as a venture, the contribution of alliances lies in “co-option” of the right partners – associates that provide complementary capabilities, such as access to launch customers, reputation and credibility, mobilization of industry players, etc. The authors cite PixTech, which built a network to create a venture as a new type of flat panel displays, explaining this was the most systematic and boldest use of alliances for venture development.

Finally, when it is time to scale up the venture to a full-fledged business that can generate sustainable profits and shareholder value, alliances can assist efficient “co-specialization.” Renault received the concept of the highly innovative – and now very successful – Espace, a multi-purpose vehicle from an innovative technology group, Matra. It partnered with Matra to produce it, initially in smaller volumes than what was economically justified on Renault’s new production lines.

The authors explain that along with the benefits of alliances, there are also pitfalls to consider. Often there is a need to manage a mix of transitory and permanent alliances in parallel. Partners often enter and exit at different points in the business evolution and this sets off complex dynamics that need to be effectively managed.

Thus, the authors conclude that the successful use of alliances as entrepreneurship accelerators seems to hinge on getting the right partners involved at the right stages, and it is also dependent upon the flexibility of venture management to move from stage to stage in entrepreneurial process effectively.

INSEAD 2002

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