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The Effect of a Market Orientation,Entrepreneurial Orientation, andTechnological Capability on Innovativeness: AStudy of Young Biotechnology Ventures in theUnited States and in Scandinaviajsbm_274 331..369

by Maija Renko, Alan Carsrud, and Malin Brännback

Previous research suggests that in order to excel in innovativeness, a firmshould simultaneously be market oriented, proactive, and willing to take risks, aswell as have access to superior technological assets and capabilities. However, thecontribution of these factors on innovative outcomes has seldom been assessed inone study. This study investigates influences of market orientation, entrepreneurialorientation, and technological capabilities on technology ventures’ innovativeness.Data for this study were collected through personal interviews in biotechnologystartups in the United States, Finland, and Sweden. As expected, results indicate asignificant link between technological capability and product innovativeness.However, neither market orientation nor entrepreneurial orientation is related toproduct innovativeness in this empirical context where firms typically aim atlaunching radical, disruptive innovations. The drivers of capital investments,however, are different from the antecedents of product innovativeness. Differencesbetween the Nordic and U.S.-based biotechnology ventures are also identified.

Maija Renko is an assistant professor of management at the University of Illinois at Chicago.Alan Carsrud is the Loretta Rogers Chair in Entrepreneurship in the Ted Rogers School of

Management at Ryerson University in Toronto, Canada.Malin Brännback is a professor of international business at Åbo Akademi University, a

docent at Swedish School of Economics and Business Administration and a docent at TurkuSchool of Economics in Finland.

Address correspondence to: Maija Renko, Managerial Studies, University of Illinois atChicago, MC 243, University Hall 2211, 601 South Morgan Street, Chicago, IL 60607. E-mail:[email protected].

Journal of Small Business Management 2009 47(3), pp. 331–369

RENKO, CARSRUD, AND BRÄNNBACK 331

mailto:[email protected]

IntroductionInnovation is the lifeblood of virtually

every successful technology-based busi-ness. Small R&D firms are typicallyheavily dependent on the success of theirlead development projects. In biotech-nology, the huge costs of R&D effectivelylimit the number of projects that canbe run within one firm. Failures inlead projects can break the company,whereas success in them can attractinvestors and speed up the developmentprocess (Robbins-Roth 2000).

In recent years the locus ofnew product development (NPD) andinnovation research has shifted fromcharacterizing the process as being adichotomy between one that ismanufacturer/technology-led or custo-mer-led to an interaction perspective.According to this perspective, successfulinnovations result from the interplaybetween actors, typically manufacturersand customers (Becherer and Maurer1997; Gatignon and Xuereb 1997; Slaterand Narver 1995). Extant research innew product development supports theclaim that NPD projects, which rely oncarefully defined customer needs, aremore likely to succeed than those thatare “only” based on new technologicalopportunities (Cooper 1993; Rothwell1992; Holt, Geschka, and Peterlongo1984). Furthermore, recent research sug-gests that the degree to which a firmis involved in new product activitydepends on the extent and nature ofits market orientation (Frambach,Prabhu, and Verhallen 2003; Tyler andGnyawali 2002; Hurley and Hult 1998;Atuahene-Gima 1996, 1995). Two majorreasons have been advanced in the lit-erature to explain why listening to cus-tomers and partnering with them inNPD is beneficial. First, customers canprovide major inputs that improve thequality of innovation. Second, especiallyin the settings of industrial marketsand high-technology products, close

partnerships with customers duringproduct development may provideaccess to resources that the focal firmlacks in-house (Campbell and Cooper1999).

However, information on customerneeds can be too costly or complex toaccess, especially for smaller technologyventures. In addition, especially indeveloping radically new products, con-ventional market research tools areoften of limited utility; many firms donot incorporate users’ or customers’opinions in their innovation processesbecause of the customers’ limiteddomains of expertise, their inability toarticulate their underlying needs, andthe belief that user-developed conceptstend not to be innovative or creative(Adams, Day, and Dougherty 1998;O’Connor 1998; Leonard-Barton andRayport 1997; Leonard-Barton 1995).For example, Atuahene-Gima (1996)found that market orientation had anegative effect on product newness.Similarly, Im and Workman (2004)found that customer orientation influ-ences new-product novelty significantlybut negatively. From Im and Workman’s(2004) study, it appears that enhancingcustomer orientation is less likely tohelp a firm create truly innovative,novel products because current custom-ers may not approve novel productideas because of their inertia towardexisting products in the market. Thesestudies essentially suggest that firmsshould focus on developing their tech-nological and scientific capabilities inorder to excel in innovation.

There are reasons to believe that thebalance between market orientation andtechnological superiority as a driver ofinnovativeness is context dependent. Forexample, it is not necessarily possibleto generalize results from large firmsamples or “low-tech” industries ontoyoung, small firms that operate inmarkets like biotechnology. Therefore,because of the nature and increasing

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importance of technology markets, weneed to know more about the driversof innovativeness in young technologyventures. The objective of this studytherefore is to investigate the role ofmarket orientation, entrepreneurial ori-entation, and technological capabilitybehind the innovativeness of a youngbiotechnology-based firm. The paperadvances theory development by con-tributing to the understanding of therelative importance of entrepreneurialand market orientation as well as of tech-nological capability as drivers of small-firm innovativeness. Even if each one ofthese theoretical constructs has previ-ously been studied as an antecedent ofinnovativeness, little is known about theimportance of one construct versus theother, or their interaction. Our study isunique in that it incorporates all threeconstructs as drivers of innovativeness inone study.

The current study’s emphasis isdesigned to provide managers of youngtechnology ventures with an improvedunderstanding of the drivers of innova-tiveness in their firms. Biotechnology,the focus field of this empirical study, isrepresentative of markets for technol-ogy, where knowledge is the mostimportant trading good. A typical busi-ness model of a small, dedicated bio-technology firm aims at making moneyout of licensing inventions to down-stream companies—typically, largerpharmaceutical companies. “Technologyseeds” that can be developed into bio-technological products emerge from sci-entific advances made by these smallerbiotechnology firms. As a science-driven field, biotechnology representsan “extreme case” for market orienta-tion; if it can be demonstrated thatmarket orientation matters even in thishighly rigorous scientific sector, we areone step closer to concluding thatmarket orientation is important in allfields of economic activity (Renko 2006;Renko et al. 2005).

Innovativeness inTechnology Markets

Innovation combines the skills andknowledge of an organization—and itsnetwork—in a novel way with the needsof customers and users outside—orwithin—the organization. Thompson’s(1965) classic definition of innovationstates that innovation is the “generation,acceptance and implementation of newideas, processes, products or services”(p. 36). Along similar lines, Zaltman,Duncan, and Holbek (1973) define inno-vation as “an idea, practice or materialartifact perceived as new by the relevantunit of adoption” (p. 2). The conceptionof innovation captures both the sciencepush, that is, the idea-generation part ofan invention, and its adoption, typicallythrough commercialization. Hence, it islogical to start to look for antecedents offirm-level innovativeness at two fronts.There are factors that influence the idea-generation potential of an organization,like entrepreneurial orientation and/ortechnological capability. In addition,there are those forces that have a poten-tial to affect the commercialization of aninvention once it has been created, likemarket orientation.

Researchers have recently exploredinnovativeness along the explorative-versus-exploitative learning continuum(Quintana-García and Benavides-Velasco2008; Kyriakopoulos and Moorman 2004;March 1991). In studies of organizationallearning, the balance between explora-tion and exploitation has been exhibitedin choices made between the refinementof an existing technology (exploitation)and the invention of a new one (explo-ration) (March 1991). The two types oflearning and innovativeness are pre-sented as opposites to each other: theexploration of new alternatives reducesthe speed at which skills at existing onescan be improved (March 1991, 72).These strategic trade-off decisions in anorganization are made based on past per-


formance as well as on expectationsabout the future. It is important todistinguish the focus of this study, theantecedents of innovativeness, from theinnovation process itself, characterizedby exploitative or explorative learning inan organization. High levels of entrepre-neurial orientation, market orientationand technological capabilities can coexistin an organization and all, simulta-neously, contribute to superior innova-tions and performance. Choices that afirm makes about its focus on explorativeor exploitative innovation processes arerelated to, but not equal to, the choicesmade about resource allocations in thedevelopment of market orientation, tech-nological capabilities, or entrepreneurialorientation. A firm’s market orientation,for example, can allow it to excel inexploitation as well as exploration: Aunifying frame of reference focused oncustomer goals and facilitating marketinformation flow in the firm can aid inthe development of innovations that areeither within or outside of the firm’sexisting experience domain. A firm’smarket orientation reduces the tensionsbetween exploration and exploitationstrategies and creates the opportunity forcross-fertilization and complementarylearning between the two innovationstrategies (Kyriakopoulos and Moorman2004). Similarly, investments in expand-ing a firm’s technological capability canbe beneficial for both exploration andexploitation. Organizations can benefitfrom introducing new technology intoexisting products and systems toimprove performance, or they candevelop technological innovations thatrepresent radical changes to their tradi-tional product lines (Quintana-Garcíaand Benavides-Velasco 2008).

Technology-intensive small andmedium-sized enterprises (such as youngbiotechnology ventures) cannot competewith established corporations (such aslarge pharmaceutical multinationals) involume, production capacity, promotion,

or price subsidization (Qian and Li2003). Instead, their competitive advan-tages rise from being more innovativethan their competition and finding aniche where they can make the most outof their knowledge-based capabilities.Uncertainty pervades biotechnologyR&D. At the outset of a project, assess-ments of costs, duration, and outcomesare virtually impossible. Uncertainties ofR&D can only be resolved sequentially asthe project progresses. For pharmaceuti-cal products, a key application area ofbiotechnological knowledge, it is esti-mated that it takes about 10 years tostudy and test a new drug before a regu-latory agency can approve it for thegeneral public. This includes early labo-ratory and animal testing, as well as laterclinical trials on human subjects. Forevery 5,000 drug candidates initiallyevaluated, only five are tested onhumans, and only one of these isapproved for patient use (Brännbacket al. 2001).

Strictly speaking, innovativeness isnot a traditional performance indicator;rather, innovativeness further contrib-utes to superior financial performance.Nevertheless, this relationship takes timeto develop and express itself. Especiallyin a field like biotechnology, an empiri-cal investigation of the contribution ofinnovativeness to financial performancewould require following innovatingfirms for years, perhaps even decades.However, the link from innovativeness tosuperior performance has been estab-lished in the existing literature, as illus-trated by the meta-analysis by Bauschand Rosenbusch (2005). They conducteda meta-analysis of 60 published (peer-reviewed) studies over the past 15 yearsthat have looked into the relationshipbetween innovativeness and firm per-formance in over 18,000 firms. Research-ers have employed accounting-based,growth-oriented, capital-market-based,and subjective measures to assess perfor-mance. Bausch and Rosenbusch (2005)


show that the overall effect size of inno-vativeness on firm performance is small(r = 0.14) but significant (at 95 percentconfidence interval). However, the effectsize for studies using biotechnologyfirms as an empirical field is higher,namely, 0.36. Consequently, innovative-ness certainly can be expected to make adifference for a firm’s performance inbiotechnology.

Market Orientation,EntrepreneurialOrientation, andTechnological CapabilityMarket Orientation

Market orientation was first definedwithin the marketing literature as anorganization-level culture comprisingvalues and beliefs about putting the cus-tomer first in business planning. Sincethen, market orientation has beenstudied both as a cultural phenomenonand as a set of behaviors relating to (1)organization-wide market intelligencegeneration through decision supportsystems, marketing information systemsand marketing research efforts, (2) dis-semination of the intelligence acrossfunctions in a firm, and (3) organization-wide responsiveness (actions) based onthis intelligence (Kohli and Jaworski1990). In the current study we adopt thebehavioral view of market orientation;the focus is on actions and doing, notmind-set and culture. Consequently,market orientation is defined as theorganization-wide generation of marketintelligence pertaining to current andfuture customer needs, dissemination ofthe intelligence across departments, andorganization-wide responsiveness to it(Kohli and Jaworski 1990, p. 6). Thisdefinition has a clear focus on marketinformation and behavior.

There is a large body of literature thatis dedicated to studying whether marketorientation results in superior organiza-tional performance. Some studies have

verified a positive link between the con-cepts (Matsuno, Mentzer, and Ozsomer2002; Deshpandé, Farley, and Webster1993; Kohli and Jaworski 1990; Narverand Slater 1990), while others did notfind support for a direct positive relation-ship between market orientation andperformance (Han, Kim, and Srivastava1998). For example, Pelham and Wilson(1996) found that market orientation didinfluence new product success, but didnot impact other performance indicators,namely growth or market share.

Deshpandé, Farley, and Webster(1993) speculate on a causal relationshipof market orientation and innovation,and Han, Kim, and Srivastava (1998)provide empirical evidence for the cul-tural market orientation–innovation link.They find that customer orientation ishighly significant for organizationalinnovativeness, even though competitororientation and interfunctional coordina-tion do not approach a level of signifi-cance. Using the Narver and Slater (1990)measurement of cultural market orienta-tion, Lukas and Ferrell (2000) show thata greater emphasis on customer orienta-tion increases the introduction of new-to-the-world products and reduces thenumber of me-too products launched bya firm. The Narver and Slater measure-ment was also employed by Mavondo,Chimhanzi, and Stewart (2005), who dis-covered that market orientation is posi-tively related to process innovation andproduct innovation, as well as adminis-trative innovation. The meta-analysis ofKirca, Jayachandran, and Bearden (2005)shows that market orientation affectsperformance through innovativeness,customer loyalty and quality. Marketorientation has positive associationswith both organizational innovativenessand new-product performance (Kirca,Jayachandran, and Bearden 2005).

One of the major critiques of marketorientation in the context of technologyventures has been its focus on customers’expressed needs with no attention to


long-term thinking or a desire to satisfycustomers’ latent needs. In response tothis critique, Narver, Slater, andMacLachlan (2004) studied the compo-nents and role of proactive market ori-entation. Narver, Slater, and MacLachlan(2004, p. 336) define a proactive marketorientation as “the attempt to understandand to satisfy customers’ latent needs.”In a sample of 120 managers represent-ing 25 business organizations, they findthat the strength of the proactive marketorientation relationship to new-productsuccess is larger than that of responsive(or reactive) market orientation (Narver,Slater, and MacLachlan 2004).

Entrepreneurial OrientationMiller (1983) describes entrepreneurial

orientation as one that emphasizesaggressive innovation, risky projects, anda proclivity to pioneer innovations thatpreempt competition. Covin and Slevin(1989) have developed a scale for themeasurement of the three componentsof entrepreneurial orientation, namelyinnovativeness, proactiveness, and risktaking. Innovativeness reflects a tendencyto support new ideas, novelty and cre-ative processes, thereby departing fromestablished practices and technologies.Hence, innovativeness, as conceptualizedin entrepreneurial orientation, is akin toexplorative learning in organizationallearning literature (March 1991). Proac-tiveness refers to a posture of anticipatingand acting on future wants and needs inthe marketplace, and risk taking is asso-ciated with a willingness to commit largeamounts of resources to projects wherethe likelihood and cost of failure maybe high (Wiklund and Shepherd 2003;Lumpkin and Dess 1996).

At an extreme, entrepreneurial orien-tation has been represented as a com-plete opposite to market orientation;traditional market orientation has beendescribed as an adaptive capability bywhich firms react or respond to condi-tions in the market environment. Entre-

preneurial orientation, in contrast, is anenvironmental management capabilityby which firms embark on proactive ini-tiatives to change the competitive land-scape (Atuahene-Gima and Ko 2001).Foxall (1984) suggests that most firmshave an inherent tendency toward eithermarket or entrepreneurial orientation.Instead of generating, disseminating andresponding to market intelligence, entre-preneurially oriented firms generate, dis-seminate and respond to technologicalknowledge. Atuahene-Gima and Ko(2001, p. 56) explicitly state that entre-preneurial orientation is “. . . akin totechnological orientation because itincreases the firm’s ability and will toacquire new technical knowledge tobuild new technical solutions to meetnew and latent needs of users.” Thistechnological orientation “. . . refers to afirm’s value system that promotes tech-nology in new products at the expense ofcustomer news or market orientation”(Atuahene-Gima and Evangelista 2000).

Technological CapabilityBoth market orientation and entrepre-

neurial orientation of a firm reflect thestrategic directions implemented by afirm to create innovations and superiorperformance. These choices about strate-gic orientation are not independent of theresources of the firm (Gatignon andXuereb 1997). Staying close to customersand markets, as well as adopting aproactive, innovative approach indecision-making require a firm’sresources—especially human resources—to be committed to appropriate strate-gic actions and goals. Similar to commit-ting resources to the development ofmarket or entrepreneurial orientation, afirm can decide to develop its technologybase. In addition to adopting a companyculture that emphasizes innovativeness,proactiveness, and risk taking (entrepre-neurial orientation) a firm can make con-crete, direct investments in developingits technological capabilities through


investments in R&D or strategic technol-ogy alliances, for example. A firm’stechnological capability is a major com-ponent of its knowledge base. Theresource-based view of a firm, thedynamic capabilities approach, andthe knowledge-based view either explic-itly state or imply that a firm’s techno-logical capability can be a source ofcompetitive advantage and above-normalperformance (Coombs and Bierly 2001).Indicators of a superior technologicalcapability, like patents and a firm’s exten-sive investments in research and develop-ment, should increase both investors’willingness to invest in the firm as well asthe number and quality of innovationsfrom the firm.

All small, young R&D-intensive firmsin technology markets can be expectedto possess technological capabilitiesand have some entrepreneurial features(innovativeness, proactiveness, risktaking). However, the level of these skillsand traits is likely to vary from one firmto another, and the more entrepreneur-ially and technologically oriented thefirm, the better its performance can beexpected to be (Wiklund and Shepherd2005; Wiklund 1999; Gatignon andXuereb 1997; Zahra and Covin 1995;Zahra 1991).

To summarize, high levels of entrepre-neurial orientation, market orientation,and technological capabilities can coexistin an organization and can all, simulta-neously, contribute to superior innova-tions and performance. However, theright way to assess these factors is tomeasure each construct independentlyrather than forcing managers to reflectboth the level of entrepreneurial andmarket orientation of a firm in a singleanswer (Berthon, Hulbert, and Pitt 2004).This will deal effectively with what maybe measurement error in prior research.

Research HypothesesIn this study, we test the links between

the three constructs introduced earlier

and the innovativeness of a biotechnol-ogy venture. Toward this end, we developeight hypotheses that suggest relation-ships between market orientation, entre-preneurial orientation, and technologicalcapability on one hand and a firm’s inno-vativeness in terms of its product pipelineand capital invested in the firm on theother. In addition to product-based inno-vativeness, capital investments are usedas an additional proxy for innovativeness,because young biotechnology venturesseldom have actual revenue income thatwould tell about the success of their inno-vations in the marketplace. Small, youngfirms in biotechnology are mostly depen-dent on external investors’ money untilthey break even. Because of the longdevelopment timescales, high R&D costs,and regulatory issues typical in biotech-nology, this breakeven point typicallycomes many years after the start-up ofthe firm. External investors, like venturecapitalists and business angels, investfor capital gain and they share the successof the businesses that they invest in.Accordingly, these investors are expectedto place emphasis on a venture’s innova-tion potential when making their fundingdecisions (Shepherd and Zacharakis1999). A study of venture capitalistsby Tyebjee and Bruno (1984) showsthat product differentiation (uniqueness,patents, technical edge, profit margin)not only affects VCs’ decision-making,but also has a significant effect on theactual expected return. Also, a recentstudy specific to biotechnology venturesshows that innovation potential of afirm is key in investors’ decision-making(Baeyens, Vanacker, and Manigart2006). Due-diligence process focuseson market, technology, and financialcriteria. Management team capabilitiesare more important for later stageinvestors, whereas early-stage investorsexpect to have an impact on the futurerecruiting of professional managers(Baeyens, Vanacker, and Manigart2006).


Given the technology- and science-driven nature of the biotechnology busi-ness, we also propose technologicalcapability as a moderator betweenmarket orientation and innovation out-comes. Finally, in addition to the tests ofthe antecedents of innovativeness, weexpect to see differences between theantecedents of innovativeness in theU.S. based versus Northern Europeanbiotechnology ventures. Previousresearch on the market orientation–innovativeness relationship shows thatthe strength of this relationship variesbased on the cultural context (Grinstein2008). Institutional environment mayalso influence the ways in which entre-preneurial orientation manifests itselfand affects organizational outcomes (Liet al. 2008).

Market Orientationand Innovativeness

Despite some research evidencequoted earlier that has questionedmarket orientation’s positive effectson (radical) innovativeness, a bulkof market orientation literature hasestablished a positive link betweenmarket orientation and innovativeness(Grinstein 2008; Kirca, Jayachandran,and Bearden 2005). For example, Lukasand Ferrell (2000) show that a greateremphasis on customer orientationincreases the introduction of new-to-the-world products and reduces the numberof me-too products launched by a firm.Verhees and Meulenberg (2004) find thatamong rose growers there is a positiveeffect of customer intelligence onproduct innovation. Also Pelham andWilson (1996) find that market orienta-tion influences new product success insmall firm context. Therefore, it can beexpected that

H1a: Market orientation in a biotechnol-ogy venture is positively associatedwith product innovativeness.

H1b: Market orientation in a biotechnol-ogy venture is positively associatedwith capital invested in the company.

Entrepreneurial Orientationand Innovativeness

Entrepreneurial firms, unlike moreconservative firms, innovate boldly whiletaking considerable risks in theirproduct-market strategies (Miller andFriesen 1982). Khan and Manopichetwat-tana (1989) find empirical support thatshows how innovative firms demonstratea far greater willingness for risk-takingand proactive market leadership thannon-innovative firms. Also Zhou, Yim,and Tse (2005) find that entrepreneurialorientation positively affects break-through innovations. Findings of Avloni-tisa and Salavoub (2007) suggest thatthose entrepreneurs who adopt an orien-tation characterized by risk taking and aproactive competitive attitude introducenew products that are highly unique.Thus, we propose the followinghypotheses:

H2a: Entrepreneurial orientation ina biotechnology venture is posi-tively associated with productinnovativeness.

H2b: Entrepreneurial orientation in abiotechnology venture is positivelyassociated with capital invested in thecompany.

Technological Capabilityand Innovativeness

A firm’s technological capability is amajor component of its knowledge baseand a basis for long-term competitiveadvantage (Lee, Lee, and Pennings 2001;Henderson and Cockburn 1994). Tech-nological capability is the driving forceof a firm’s innovation, and it consists oftechnological knowledge, trade secrets,patents, and know-how engendered byR&D and other technology-specific intel-lectual property (Hsieh and Tsai 2007;


Lee, Lee, and Pennings 2001). Indicatorsof a superior technological capability,like patents and a firm’s extensive invest-ments in research and development,should increase firm’s product innova-tiveness as well as investors’ willingnessto invest in the firm. Also, in atechnology-intensive context such asmodern biotechnology, the hypothesizedpositive effects of market orientation arelikely to be enhanced if the firm has astrong technology base. Market-derivedideas alone cannot develop into success-ful biotechnology products unless theygo through rigorous R&D and are pro-tected through proprietary mechanisms(Williams 2007). Hence:

H3a: Technological capability in a bio-technology venture is positively asso-ciated with product innovativeness.

H3b: Technological capability in a bio-technology venture is positively asso-ciated with capital invested in thecompany.

H3c: Technological capability moderatesthe relationship between market ori-entation and innovation outcomes.Technological capability enhancesthe positive relationships that marketorientation has with productinnovativeness/capital invested in thecompany.

Geography and Antecedentsof Innovativeness

The global nature of the biotech-nology business and, especially, theinternational scope of biotechnologymarkets—be it global markets for medi-cines or the licensing markets forinventions—would suggest that the ante-cedents of successful innovations shouldbe similar everywhere in the developedmarkets (Renko et al. 2005). Having saidthat, the role of the public sector in sup-plying the soft infrastructure of innova-tion support for enterprises is not

uniform from country to country, conti-nent to continent. Critics say that thepublic sector is the source of Europe’sinnovation gap with the United Statesbecause reliance on public interventionin Europe signifies a major market failure(Cooke 2001). Grinstein’s (2008) meta-analysis shows that the relationshipbetween market orientation and innova-tiveness is stronger in countries charac-terized by high individualism andhigh-power-distance national cultures.Our empirical research investigates theantecedents of innovativeness in Finland,Sweden, Pennsylvania, Florida, andCalifornia. Given the different institu-tional and cultural environments ofNorthern Europe and the United States,we hypothesize:

H4: There will be significant differencesbetween the antecedents of innova-tiveness in biotechnology ventures inthe United States versus biotechnologyventures in the Nordic countries(Finland and Sweden).

Figure 1 summarizes H1a–H3c. In thenext section we describe the empiricalstudy conducted to test the hypothesizedrelationships.

MethodologyEmpirical Setting

Roughly speaking, biotechnology isdefined as the application of knowledgeof living organisms and their compo-nents to industrial products and pro-cesses (Brink, McKelvey, and Smith2004). In discussing the biotechnologyfield, the focus is usually on the sixdominant, interdependent categories:pharmaceuticals, medicine, agriculture,biomaterials, computing, and militaryapplications. The common thread thatruns through these categories is depen-dence on the function of genes at themolecular level (Bergeron and Chan2004). This empirical study focuses on


pharmaceuticals, medicine, and theapplication of biomaterials for medicalpurposes.

QuestionnaireSix qualitative case studies were com-

pleted in Pennsylvania biotechnologyfirms in 2003 to aid in questionnairedevelopment and to pilot test question-naire items. In addition, the first teninterviews completed for this studyserved as pilot tests.

The measure of market orientation isan adapted version of the Jaworski andKohli (1993) MARKOR scale. Matsuno,Mentzer, and Rentz (2005) have arguedthat from the theoretical domain per-spective, the MARKOR scale is superiorto Narver and Slater’s (1990) marketorientation scale (MKTOR) for its con-sistency with the theory and scale opera-tionalization. The original 32-itemMARKOR scale reported in Jaworski andKohli (1993) has subsequently beendeveloped into the 20-item MARKOR byKohli, Jaworski, and Kumar (1993).However, the results of Caruana (1999)do not confirm the 20-item MARKORscale, suggesting particular scale itemsbeing more relevant to specific situations(e.g., industries and countries). Also, in

the study by Deshpandé and Farley(1998) the Cronbach’s alpha reliabilityscore for the 20-item MARKOR scale isbelow acceptable, that is at 0.51. Becauseof these severe problems with the20-item MARKOR, the original 32-itemMARKOR scale of Jaworski and Kohli(1993) was the basis of our measurementfor market orientation. This 32-item mea-surement by Jaworski and Kohli (1993)was further developed to reflect thecurrent empirical context, that is, smallbiotechnology firms. The original 32items only represent a limited number ofstakeholder domains, mostly customersand competitors. They do not explicitlyaddress how other market factors sug-gested in the literature and preliminarycase studies (e.g., legal and regulatoryenvironment) may influence competitionand customers (Kohli, Jaworski, andKumar 1993; Matsuno, Mentzer, andRentz 2000). Consequently, items thatreflect the regulatory environment wereadded to the scale.

Based on the preliminary case studiesand small-business literature, thewording of some items in the originalscale was changed; instead of depart-ments, in small firms individuals are therelevant unit of analysis in information

Figure 1Ex Ante Model of the Hypothesized Relationships

H1b

H3c

H2a

H3b

H1a

H3a Technological capability

Entrepreneurial orientation

Productinnovativeness

Capital invested in the firm

H2b

Market orientation


dissemination. Also, in addition tocurrent markets, the respondents wereasked to assess the items from the per-spective of potential future markets.After the changes, the final MARKORscale in our questionnaire included 38items, each evaluated on a five-pointLikert scale. The development process isoutlined in Table 1. In the table, “(R)”denotes a reverse coded item.

To increase the validity of the mea-surements and, more specifically, toreduce mono-operation bias, an alterna-tive operationalization of market orienta-tion was used as a check for validity.Business philosophy items used byHarris (2002, 2001) were used to checkthe construct validity of the MARKORscale. These items are supposed tomeasure the sales, production, customer,stakeholder, and technology focus of theorganization (for actual items, seeTable 2).

The entrepreneurial orientation mea-surement (EO) used in this survey isbased on Knight’s (1997) eight-itemscale for entrepreneurial orientation.It measures the three componentsof entrepreneurial orientation, namelyinnovativeness, proactiveness, and risktaking. Knight’s (1997) scale, again, is aslightly modified version of Covin andSlevin’s (1989) nine-item scale. To beconsistent with the MARKOR measure-ment part of the survey, the EO scale wasformulated as a five-point Likert scale(Knight’s scale is a seven-point scale),where the two ends of each question“continuum” present opposites to eachother, and higher values stand for moreEO. We added one item to the Knight(1997) scale: “How many new lines ofproducts or services does your firm haveunder research and development rightnow?” the answers ranging from 1 = “nonew lines of products or services,” to5 = “very many new lines of products orservices.” This addition was necessarybecause most firms included in thecurrent empirical study did not have any

products on the markets at the time ofthe data collection interview. The finalentrepreneurial orientation scale itemsare reported in Table 3.

We measure a firm’s technologicalcapability with two items, namely (1)“share of R&D expenses out of totalexpenses of the firm,” and (2) number ofpatents. Measurements of R&D activity,such as the total amount of R&D spend-ing and R&D spending divided by totalsales, have been used as indicators oftechnological capability in previousresearch (Coombs and Bierly 2001).Nelson and Winter (1982) suggest thatthe probability of a firm coming up withan innovation is proportional to thefirm’s R&D spending. At the same time,R&D is regarded as a highly uncertainactivity. R&D spending reflects invest-ment in knowledge creation, rather thanin knowledge itself, and is a question-able proxy because knowledge genera-tion is cumulative. Hence, we use patentsas an additional proxy for technologicalcapability. Patents are output measure-ments of technological capability(Coombs and Bierly 2001). In biotech-nology, most new technology is pro-tected by patents, and previous studieshave widely used patents as a measurefor technological competence in thecontext of biotechnology (Rothaermeland Boeker 2008; Stuart 2000). Medicalbiotechnology is, especially, character-ized by temporary monopolies based onproprietary drugs protected by patents,directly affecting firm performance(Rothaermel and Boeker 2008). Eventhough R&D spending and patent countare both imperfect measurements oftechnological capability, using them bothshould capture variation in the samplefirms’ technological capability.

The interviewees were asked to esti-mate the share of R&D expenses(percent) out of the total expensesof their respective firms. They werealso asked to provide information onthe patent count (approved patents,


Table 1Adaptation of the MARKOR Scale (Based on Jaworski and

Kohli 1993)

Scale Item in Jaworskiand Kohli (1993)

Scale Item in This Study Comments

Market intelligence generationOur company meetscustomers at least once ayear to find out whatproducts/services theywill need in the future.

Our company meets endcustomers or potentialend customers of ourproducts at least once ayear to find out whattheir future needs are.

Potential end customersare included becausemost sample firms do nothave sales for the timebeing. Opinion leadersare included because,based on the preliminarystudy, they were deemedto be important inreflecting end users’preferences and needs.Also, inspired by Narver,Slater, and MacLachlan(2004) proactive marketorientation item: “Wework closely with leadusers who try torecognize customer needsmonths or even yearsbefore the majority of themarket may recognizethem.”

Our company meetsopinion leaders (forexample, recognizedmedical doctors) at leastonce a year to find outabout the future needs ofour end customers.

Individuals from ourmanufacturing departmentinteract directly withcustomers to learn howto serve them better.

Individuals from our R&Dand/or manufacturingdepartment interactdirectly with customers tolearn how to serve thembetter.

R&D is included inaddition to manufacturingbecause most samplefirms do not havemanufacturing.

Our company does a lotof in-house marketresearch.

Our company conductsmarket research in-house.

Sample firms do notnecessarily have resourcesto conduct marketresearch in-house butthey may still outsourcethese services.

Our company outsourcesmarket research.

Our company is slow todetect changes in ourcustomers’ product/service preferences. (R)

Our company is slow todetect changes in ourcustomers’ or potentialcustomers’ product/service preferences. (R)

Potential customersincluded.


Table 1Continued



Our company pollscustomers at least once ayear to assess the qualityof our products/services.

Item deleted. Quality inmedical biotechnology ismostly not determined bycustomers but regulators,such as the FDA orEMEA.

We often talk with orsurvey those who caninfluence our end users’purchases.

We often talk with orsurvey those who caninfluence our end users’purchases (e.g., medicaldoctors).

We collect industryinformation by informalmeans (e.g., lunch withindustry friends).

We collect industryinformation by informalmeans (e.g., lunch withindustry friends).

In our companyintelligence on ourcompetitors is generatedindependently by severaldepartments.

In our companyintelligence on ourcompetitors is generatedindependently by severalindividuals/departments.

Departmental boundariesare unclear in thesmallest firms.

Our company is slow todetect fundamental shiftsin our industry (e.g.,competition, technology,regulation). (R)

Our company is slow todetect fundamental shiftsin our industry (e.g.,competition, technology,regulation). (R)

Our company periodicallyreviews the likely effectof changes in ourbusiness environment oncustomers (e.g.,regulation, competition,technology).

Our company periodicallyreviews the likely effectof changes in ourbusiness environment oncustomers (e.g.,regulation, competition,technology).

Intelligence DisseminationA lot of informal “halltalk” in our companyconcerns our competitors’tactics or strategies.

A lot of informal “halltalk” in our companyconcerns our competitors’tactics or strategies.


Table 1Continued



Our company holdsinterdepartmentalmeetings at least once aquarter to discuss markettrends and developments.

Our company holdsregular interdepartmentalmeetings to discussmarket trends anddevelopments.

Intelligence disseminationcan also take placebetween companies.

Our company holdsregular meetings withother companies todiscuss market trends anddevelopments.

Our company’s marketingpersonnel spend timediscussing customers’future needs with theother functionaldepartments.

Our company’s marketingpersonnel/businessdevelopment personnelspend time discussingcustomers’ future needswith the other functions.

Small firms are morelikely to have businessdevelopment personnelbefore marketing/sales.See also Narver, Slater,and MacLachlan (2004)item: “We continuouslytry to discover additionalneeds of our customers ofwhich they are unaware.”And “We brainstorm onhow customers use ourproducts and services.”

Our company periodicallycirculates documents(e.g., reports, newsletters)that provide informationon customers.

Our company periodicallycirculates documents(e.g., newspapers, e-mailalerts) that provideinformation oncustomers.

When somethingimportant happens to amajor customer in ourmarket, the wholecompany knows about itwithin a short period.

When somethingimportant happens tocustomers in our(potential) markets, thewhole company knowsabout it within a shortperiod.


Our companydisseminates data oncustomer satisfaction atall levels in the companyon a regular basis.

Our companydisseminates data oncustomer satisfaction atall levels in the companyon a regular basis.


Table 1Continued



There is minimalcommunication betweenmarketing andmanufacturingdepartments concerningmarket developments. (R)

There is minimalcommunication betweenpeople in this firmconcerning marketdevelopments. (R)

Departments not relevantfor the smallest firms;rather, communicationblocks arise betweenindividuals.

When one departmentfinds out somethingimportant about themarket (for example,customers, competitors) itis slow to alert the otherdepartments. (R)

When someone in ourfirm finds out somethingimportant about themarket (for example,customers, competitors)he/she is slow to sharethis information withothers. (R)

ResponsivenessIt takes our company along time to decide howto respond to ourcompetitors’ pricechanges. (R)

Our company interactswith the regulators andlegislators that determineindustry standards.

Prices in medical marketsare often determinedtogether with regulatorsor third-party payers.Firms that license outtheir inventions receiveroyalties and milestonepayments rather thansales income.

Principles of marketsegmentation drive newproduct developmentefforts in this company.

Understanding marketsdrives new productdevelopment efforts inthis company.

For one reason oranother, our companytends to ignore changesin our customer’sproduct/service needs(for example, makes noresponse to the changes).(R)

For one reason oranother, our companytends to ignore changesin our customer’sproduct/service needs(for example, makes noresponse to the changes).(R)


Table 1Continued



Our company periodicallyreviews our product/service developmentefforts to ensure that theyare in line with whatcustomers want.

Our company periodicallyreviews our product/service developmentefforts to ensure that theyare in line with whatcustomers/potentialcustomers want.


Our business plans aredriven more bytechnological advancesthan by market research.(R)

Our business plans aredriven more bytechnological advancesthan by market research.(R)

Several departmentsperiodically get togetherto plan a response tochanges taking place inour businessenvironment.

Several departmentsperiodically get togetherto plan a response tochanges taking placein our businessenvironment.

Responsiveness can alsotake place as acollaborative effort.

Our firm periodically getstogether with other firms/organizations to plan aresponse to changestaking place in ourbusiness environment.

The product lines we selldepends more on internalpolitics than real marketneeds. (R)

The product lines wedevelop depends moreon internal politics thanreal market needs. (R)

Most sample firms do nothave sales yet.

If a major competitor ofour company were tolaunch an intensivecampaign targeted at ourcustomers, our companywould implement aresponse immediately.

We are quick to respondto changes in the wayour competitors behave.

The activities of thedifferent departments inour company are wellcoordinated.

The activities of thedifferent departments/functions in our companyare well coordinated.

Departments not relevantfor the smallest firms.


Table 1Continued



Our company takes noaction on customers’complaints. (R)

Our company takes noaction on customers’complaints. (R)

Even if our companycame up with a goodmarketing plan, ourcompany probably wouldnot be able to implementit in a timely fashion. (R)

Even if our companycame up with a goodmarketing plan, ourcompany probably wouldnot be able to implementit in a timely fashion. (R)

We are quick to respondto significant changes inour competitors’ pricingstructures.

Our company has littleinteraction with theindustry regulators andlegislators. (R)

Pricing issues are stillirrelevant for most samplefirms. Instead, theregulators in medicalmarkets determine theprices and have majorinfluence on trends inconsumption. New itemalso inspired also byNarver, Slater, andMacLachlan (2004), “Weextrapolate key trends togain insight into whatusers in a current marketwill need in the future.”

When we find out thatcustomers are unhappywith the quality of ourproduct/service, we takecorrective actionimmediately.

When we find out thatcustomers are unhappywith the quality of ourproduct/service, we takecorrective actionimmediately.

When our company findsthat customers would likeus to modify a product/service, the departmentsinvolved make concertedefforts to do so.

When a product of ourcompany is/will be onthe market we modify/will modify it if ourcustomers would like usto do so.


international and domestic) of the firm.Two interviewees refused to give outthis information. However, most inter-viewees were confident in answering thepatent questions, but six intervieweeswere unsure of the actual counts. Theseinterviewees were asked to check thenumbers after the interview, and all ofthem replied later with the patentnumbers. The United States Patent andTrademark Office’s (USPTO) publiclyavailable database was searched to verify

the patent data given by the inter-viewees. However, many of the samplefirms have obtained rights to patents thathave not actually been developed by thefirms themselves; for example, universityspin-offs often have rights to patentsdeveloped by university research groups.Thus the USPTO patent search bycompany names is not likely to catch allthe patents the interviewees were refer-ring to when providing patent numbersduring the interviews. Comparison of

Table 2Validation Items for the Market Orientation Scale (Based

on Harris 2002, 2001)

Business Philosophy Item Description

Production Focus The key to business success is producing qualitygoods and services at a reasonable cost. Goodproducts and services sell themselves. If possible,products and services should be standardized tokeep costs down.

Sales Focus The key to business success lies in persuadingpotential customers to buy your goods and services,through advertising, personal selling, or othermeans. Potential customers must be informed andconvinced of the benefits of the products.

Customer Focus The key to business success is to integrate allcompany activities and personnel toward satisfyingcustomers, while providing satisfactory profits to thefirm. The firm should find out what benefitscustomers want and then provide these benefitsthrough goods and services.

Stakeholder Focus The key to business success lies in satisfying theimportant “publics” of the company. These publicsinclude customers, employees, stockholders,governmental agencies, suppliers, and the public atlarge. All of their interests should be consideredwhen making decisions.

Technology Focus The key to business success is the ability and will toacquire a substantial technological background anduse it in the development of new products/services.This includes the activities of R&D as well astechnological scanning. Success is achieved bybeing more innovative than competitors.


Tab

le3

Entr

epre

neu

rial

Ori

enta

tion

Sca

leIt

ems

(Bas

edon

Knig

ht

1997;

Covi

nan

dSle

vin

1989)

How

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yN

ewLi

nes

of

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duct

sor

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ices

has

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Mar

ket

edSi

nce

2000

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new

lines

of

pro

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sor

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ices

12

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ery

man

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patent data from the interviews with theUSPTO patent data revealed that thenumbers given by the interviewees werehigher. Nevertheless, for the reasonsmentioned, this does not mean that theinterviewees were not truthful whenanswering the questions about patents.There is a significant positive correlationbetween the USPTO patent numbers andthe numbers provided by the inter-viewees (Correlation coefficient 0.484,p = .002). For the analyses, an averageof the number of patents reported bythe interviewees and the number ofapproved patents listed in the USPTOdatabase was computed. This mean isused as a proxy for patents in the analy-ses. In addition to using patents andR&D investments separately in the analy-ses, we also computed a summatedscale based on standardized (Z-scored)responses. This variable is called techno-logical capability.

The two dependent variables of thestudy are product innovativeness andcapital invested in the startup venture.The measurement of product innovative-ness in this study includes the followingcontinuous items self-reported by therespondents: (1) company’s new productintroductions to markets; (2) NPDprojects started; and (3) end productsthat are/have been developed based onthe company’s invention(s) during theprevious three years. A composite mea-surement (sum) of these three items isused in the analyses. Because the bio-technology ventures studied here areyoung, most have not commercializedany of their inventions yet. Hence, it isimportant to include inventions in thedevelopment pipeline (items two andthree) in the measure for innovativeness.Capital invested in the firm is used asan additional proxy for innovativeness(innovation potential) because venturecapitalists’ expectations of high financialreturns are highly correlated with theradical nature of innovation (Tyebjee andBruno 1984). Venture capital is a cru-

cially important phenomenon for bio-technology start-ups (Baeyens, Vanacker,and Manigart 2006). In the interviews therespondents were asked to provide infor-mation on the capital invested in theirfirms up to the time of the interview.Seventy interviewees (out of a total of85) actually provided this information.Because these young companies are notrequired to provide information abouttheir sources of capital to the public,secondary data to confirm these numbersare not readily available. For currencyconversions, USD 1 = EUR 0.9 = SEK 8(data collected in 2003–2004).

The dummy variable for location(1 = United States, 0 = Finland orSweden) is used as a control variable instatistical analyses. Additional controlvariables are firm size, measured as thenumber of employees at the time of theinterview (self-reported by the inter-viewee), and the time firm’s productshave been on the market, or an estimateof how long it will take before the firstproduct will be launched. Rather thanfirm age, this variable captures the timeto/from the first product launch, which ismore relevant in innovativeness studiesof young firm than a simple firm-agemeasure.

Data CollectionThe data for this research were col-

lected by interviewing 85 biotechnologyventure CEOs and business developmentmanagers. All interviews were done inperson. The companies are located inthe United States (Pennsylvania, SouthFlorida, and San Francisco Bay Area,California) and in Finland and Sweden.All interviews were completed by thelead author between October 2003 andJune 2004. The interview included aqualitative part (not reported here) and acompletion of a structured questionnaire.

The target population of the survey isthe small and medium-sized indepen-dent medical biotechnology companieslocated in Finland, Sweden, the San


Francisco Bay Area, the Philadelphiaarea, and South Florida. These areaswere chosen so that firms from differentinstitutional environments (Nordic andAmerican) would be included. Further-more, some areas have long roots inbiotechnology (like Bay Area andPennsylvania), others have experienceda dominance of large pharmaceuticalcompanies in the past (Sweden), andsome areas have only witnessed rapidgrowth in the biotechnology field overthe past decade (Finland and SouthFlorida). Random sampling was used inthis study to make the sample similar tothe population. The sample was stratifiedusing the following criteria: (1) corporategovernance (independent firms), (2)employment size class maximum of 250people following the European Union’sstatistical cutoff for small and medium-sized enterprises, (3) industrial sector:active in R&D in human therapeutics(drug discovery and development), diag-nostics, medical devices, and/or technol-ogy research that helps in developing theaforementioned classes of products, and(4) product-orientedness (even if firmsprovide services like consulting as a partof their business model, their main linesof business are about researching anddeveloping physical products).

The random sample of companiesincluded in this research was derivedfrom the industry databases ofBioFlorida (http://www.bioflorida.org),the Pennsylvania Biotechnology Associa-tion (http://www.pennsylvaniabio.org/),the Biotechnology Industry Organization(http://www.bio.org) member directoryof Californian companies, the directoryof Finnish biotechnology companies(http://www.finbio.net), and “TheSwedish Biotech Industry Guide” (http://biotech.idg.se/industryguide/). The ove-rall response rate of 45 percent isrespectable, especially considering thata one-hour commitment from the CEOof the company was required. The onlyincentive given for participation was

access to research results. The actuallength of the interviews varied between40 minutes and slightly over two hours.To assess the possible nonresponse biaswe compared the age of the sample firms(n = 85) with nonrespondents (n = 107)area by area. The respondents do notsignificantly differ from nonrespondentsexcept in the Bay Area of California,where the difference in age between therespondents (mean, 3.5 years) and non-respondents (mean, 5.38 years) turnedout to be significant (t-test p-value < .05).There are two possible explanations forthis. First, it may be that in somecases—despite numerous trials—ourattempts to contact the CEOs of largerfirms did not go through. Second, it maybe that larger firm managers are busierand do not have time for researchinterviews. However, one would expectthat to be the case for the Europeanparticipants as well, which showed nodifferences.

Analysis and ResultsOrganizational Profiles

Table 4 provides information aboutthe sample organizations’ demographiccharacteristics. A typical sample firm isthree to five years old and develops inno-vations either for the pharmaceuticalmarkets or for use by other companies(technology platforms). Only five samplefirms employ more than 100 employees,and half of the firms had not launchedany products by the time they were inter-viewed. Even out of the firms that didhave some sales revenue at the time ofthe data collection many indicated thattheir most promising products were yetto be launched.

Table 5 shows the results of t-testscomparing U.S.-based and Nordic samplefirms. As indicated in Table 5, the U.S.-based sample firms are larger (number ofemployees), exhibit higher levels ofentrepreneurial orientation, and havegathered more capital on a per-year-basisthan their Nordic counterparts. The


http://www.bioflorida.org

http://www.pennsylvaniabio.org

http://www.bio.org

http://www.finbio.net

http://biotech.idg.se/industryguide

http://biotech.idg.se/industryguide

Tab

le4

Dem

ogra

phic

sof

Com

pan

ies

inth

eEm

pir

ical

Stu

dy

(n=

85)

Fir

mLoca

tion

Fie

ldof

Busi

nes

sFir

mA

ge

Num

ber

of

Em

plo

yees

Pro

duct

son

Mar

ket

s

Del

awar

eV

alle

y,PA

13D

rug

dis

cove

ry&

dev

elopm

ent

301–

2ye

ars

141–

59

Yes

43

South

Flori

da

19D

iagn

ost

ics

63–

5ye

ars

316–

2038

No

42B

ayA

rea,

CA

26M

edic

aldev

ices

166–

10ye

ars

3021

–50

22Sw

eden

7Tec

hnolo

gypla

tform

3311

–20

year

s10

51–1

0011

Finla

nd

2010

1–25

05


location effect on capital investments is inline with secondary data. Biotechnologyinvestment trends are reflected, forexample, in PriceWaterhouseCoopers(2005) report: European biotechnologysector investments totaled €647 million in2003 and €625 million in 2004. The cor-responding figures for the United Statesare €3,046 million for 2003 and €3,076million for 2004. More importantly, theaverage biotechnology deal size inEurope in 2003 was €1.04 million,whereas in the United States it was €9.55million (Price Waterhouse Coopers 2005).

Reliability and Validityof Measurements

The Cronbach alpha reliabilities ofour scales were adequate. The 38-item market orientation scale showsCronbach’s alpha of 0.83. The alphavalue for the entrepreneurial orientationscale is 0.719 (seven items),1 and thethree-item innovativeness scale has Cron-bach’s alpha of 0.758.

In research where measurements ofdifferent variables are collected from thesame respondents and an attempt ismade to interpret any correlations

1We originally added one item to the Knight (1997) scale: “How many new lines of productsor services does your firm have under research and development right now?” This addition wasnecessary since half of the firms included in the empirical study did not have any products onthe markets at the time of the interview. The resulting nine-item scale for entrepreneurialorientation had a Cronbach’s alpha of 0.631. After an analysis of the item-total statistics of thescale, items one and two were dropped from the scale. Item one in particular had a pooritem-to-total correlation, which is probably due to the fact that most study firms have either notlaunched any products on the markets or have only launched a few. After removing the twofirst items, the resulting seven-item scale has a Cronbach’s alpha of 0.719, and the mean valueon this scale is used as a proxy for entrepreneurial orientation in the regression analyses.

Table 5t-Test for Differences in Variables, United States versus

Nordic Firms

U.S. Firms(n = 58)

Nordic Firms(n = 27)

t-Values forDifferencesin Means

Mean S.D. Mean S.D.

Age of Firm, Years 5.72 4.33 7.11 3.40Size of Firm, Employees 44.57 58.99 22.70 17.23 **Patents, Approved, Self Reported 8.32 12.39 8.70 21.80R&D Expenses Out of Total Expenses 63.34 28.42 54.81 32.97Market Orientation 3.80 0.46 3.77 0.41Entrepreneurial Orientation 3.97 0.612 3.63 0.538 **Capital Invested/Year 6,200 8,437 1,757 2,647 ***Innovativeness (log) 2.05 0.948 2.12 0.831

*Significant at the 0.1 level; **Significant at the 0.05 level; ***Significant at the 0.01level.


between those variables, commonmethod variance can be a severeproblem that biases the research results(Campbell and Fiske 1959). Because thevariables of this study were obtainedfrom a single key informant per firm, wetested for common method bias usingthe Harman one-factor test (Podsakoffand Organ 1986). Because of the rela-tively small number of cases in thedataset (n = 85), the factor analysis hadto be limited to selected sets of variablesat a time. Hence, we selected eight vari-ables at a time for factor analysis. Thevariables were selected from differentconstructs that the questionnaire wasdesired to tap in order to detect possiblecommon method bias. Altogether, threesets of eight variables were chosen forfactor analysis. For each set of variablesanalyzed, the results of the principalcomponents analysis revealed threefactors with eigenvalues greater than 1.0.These results (even with limited setsof variables at a time) seem to indicatethat there is no one general factor inthe unrotated factor structure. Hencecommon method bias was not consid-ered to be of great concern.

The sample size of 85 companies pre-sents some challenges in terms of statis-tical conclusion validity. However, thefact that the units of analysis, and, moreimportantly, respondents, represent arelatively homogenous group of compa-nies in terms of firm demographicsshould increase the statistical conclusionvalidity. The more the units in a studyare heterogeneous within conditions ona variable, the greater will be the stan-dard deviations on that variable (and onany others correlated with it). Also, toincrease statistical conclusion validity weaim at accurate effect size estimations.Before conducting the statistical analysesthe data were scanned for potential out-liers that would cause the distribution todepart from normality.

To test for construct validity, the busi-ness philosophy items (Table 2) were

used as validation items for the marketorientation (MARKOR) scale. A firm thatranks high on the MARKOR scale is alsoexpected to rank high on customer focuson the business philosophy scale. Asexpected, there is a positive correlationbetween the MARKOR measurementand customer focus (0.290, p < .01). Cor-relations between MARKOR and otherbusiness philosophy items other than cus-tomer focus turned out to be insignificant.

Regression AnalysisMultiple linear regression analysis was

used to assess the relationship betweenthe dependent variables and the indepen-dent variables. Product terms were calcu-lated to test the moderated relationshipssuggested in H3c. The main assumptionsfor using multiple linear regression arenormality of the variables, homoscedas-ticity, and independence of the indepen-dent variables. The normality of thevariables was tested by assessing the nor-mality of distribution graphically with thehelp of normal probability plots. The find-ings of each assessment were additionallyverified by means of the Kolmogorov-Smirnov test for normality. The homosce-dasticity of the variables is tested usingLevene’s test. Variance-stabilizing trans-formations were applied in order toachieve equal variances in cases whereheteroscedasticity was present. Whenrunning the regression analyses, we usedthe variance inflation factor (VIF) value toassess multicollinearity. All the VIF valueswere comfortably low. Note that techno-logical capability and patents/R&D inten-sity measures enter regression modelsseparately. Hence, the high intercorrela-tions of these variables (Table 6) are notproblematic in regression models.

The hypotheses were tested usinghierarchical regression analysis. An inter-action effect only exists if the interactionterm gives a significant contribution overand above the direct effects of theindependent variables. The adjustedR-squared values and F-values (Table 7)


Tab

le6

Corr

elat

ions

for

Dep

enden

tan

dIn

dep

enden

tV

aria

ble

sin

the

Reg

ress

ion

Anal

ysis

(Pea

rson)

(n=

85)

Var

iable

sM

ean

S.D

.1

23

45

67

89

10

1.Cap

ital

Inve

sted

inFi

rmPer

Yea

r(l

og)

7.33

1.90

1

2.Pro

duct

Innova

tive

nes

s(l

og)

2.07

0.91

0.32

*1

3.Lo

cation,

USA

/Sca

ndin

avia

0.68

0.46

80.

36**

-0.0

41

4.Tim

eon

Mar

ket

9.61

5.02

-0.2

8*0.

15-0

.14

15.

Curr

ent

Num

ber

of

Em

plo

yees

(log)

2.98

1.15

0.67

**0.

35**

0.10

0.04

1

6.Pat

ent

Count

(log)

1.18

1.34

0.36

**0.

36**

0.17

0.00

0.38

**1

7.Sh

are

of

R&

DExp

ense

sof

All

Exp

ense

sof

the

Firm

60.4

630

.10

0.13

0.22

0.14

-0.4

9**

-0.0

70.

171

8.Tec

hnolo

gica

lCap

ability

-0.1

251.

290.

33**

0.36

**0.

23*

-0.3

5**

0.21

0.61

**0.

82**

19.

Mar

ket

Ori

enta

tion

(MA

RK

OR),

Scal

eM

ean

3.79

0.44

0.22

0.16

0.03

-0.1

60.

150.

190.

150.

121

10.

Entr

epre

neu

rial

Ori

enta

tion,

Scal

eM

ean

3.86

0.61

0.08

0.08

0.26

*-0

.33*

*-0

.02

-0.0

90.

35**

0.21

0.30

**1

*Corr

elat

ion

issi

gnifi

cant

atth

e0.

05le

vel

(tw

o-tai

led).

**Corr

elat

ion

issi

gnifi

cant

atth

e0.

01le

vel

(tw

o-tai

led).


Tab

le7

Reg

ress

ion

Anal

ysis

Res

ult

s,Tota

lSam

ple

(n=

85)

DV

:P

roduct

innova

tive

nes

sD

V:

Cap

ital

inve

sted

inth

efi

rm

Contr

ols

Mai

nef

fect

model

sIn

tera

ctio

nm

odel

Contr

ols

Mai

nef

fect

model

sIn

tera

ctio

nm

odel

Model

A1

Model

A2

Model

A3

Model

A4

Model

B1

Model

B2

Model

B3

Model

B4

Loca

tion,

United

Stat

esvs

.Sc

andin

avia

-0.0

64-0

.154

-0.0

58-0

.161

0.38

0***

0.50

8***

0.47

1***

0.46

7***

Tim

eon

Mar

ket

0.13

50.

272*

*0.

199

0.26

5**

-0.2

61**

-0.2

81**

-0.4

16**

*-0

.333

***

Firm

Size

,N

um

ber

of

Em

plo

yees

(log)

0.35

2***

0.29

4***

0.25

8*0.

311*

**a

aa

a

Mar

ket

Ori

enta

tion

0.04

70.

133

0.26

5**

0.27

4**

Entr

epre

neu

rial

Ori

enta

tion

0.13

80.

007

0.16

1-0

.280

**-0

.247

*-0

.195

TECH

NO

LOG

ICA

LCA

PA

BIL

ITY

0.38

0***

0.08

9Pat

ent

count

(log)

0.23

6*0.

325*

**Sh

are

of

R&

DExp

ense

s0.

229

-0.1

62M

arket

Ori

enta

tion

¥Tec

h.

Cap

ability

(Model

A4)

Mar

ket

Ori

enta

tion

¥Pat

ent

Count

(log)

(Model

B4)

0.38

6***

0.33

0***

R-S

quar

ed0.

143

0.29

80.

274

0.30

00.

220

0.35

70.

422

0.35

9A

dju

sted

R-S

quar

ed0.

108

0.23

30.

176

0.24

60.

194

0.29

60.

347

0.31

4F-

Val

ue

4.01

8**

4.53

5***

2.80

6**

5.57

7***

8.32

1***

5.87

3***

5.59

8***

7.99

1***

Durb

in-W

atso

n1.

823

2.04

52.

001

2.09

82.

295

2.25

52.

100

2.17

3

*Sig

nifi

cant

atth

e0.

10le

vel;

**Si

gnifi

cant

atth

e0.

05le

vel;

***S

ignifi

cant

atth

e0.

01le

vel.

a:Fi

rmsi

zeis

not

use

das

aco

ntr

olva

riab

leher

e.Rat

her

than

contr

ibuting

toca

pital

inve

sted

inth

efirm

,th

esi

zeof

the

firm

islikel

yto

be

influen

ced

by

the

avai

lability

of

capital

.


indicate that the constructs selected forthis analysis do, indeed, explain a signifi-cant proportion of the variance in thedependent variables. However, movingfrom the main effect models (A2 andA3/B2 and B3) to the interaction models(A4 and B4), the changes is R-squaredare not significant.

For product innovativeness as adependent variable, the best adjustedR-squared values are just below 0.25. Forcapital investments, the best model hasan adjusted R-squared of 0.35. We bench-marked these effect sizes against otherpublished studies that have lookedat market orientation’s effect on firmperformance (typically financial perfor-mance rather than innovativeness). Oureffect sizes seem to be rather typical forthis stream of research. For example,Appiah-Adu and Ranchhod (1998) hadeffect sizes that varied between 0.23 and0.31 for their models that tested marketorientation’s effect on financial perfor-mance in a biotechnology context. Inother studies and other empirical con-texts, similar models testing marketorientation–performance relationshiphave rendered effect sizes varyingbetween 0.13 and 0.26 (Harris 2001),0.04 and 0.42 (Sin et al. 2004), 0.36(Kara, Spillan, and DeShields 2005),0.10 and 0.25 (Matsuno, Mentzer, andRentz 2005), and 0.26 (Verhees andMeulenberg 2004). Because of differentmethods and research settings theseresults cannot be directly compared tothe ones reported here. However, theydo imply that our models explain vari-ance in a way that is not far from otherstudies published earlier.

Hypothesis 4 posited that there wouldbe differences between the antecedentsof innovativeness in biotechnology ven-tures in the United States versus biotech-nology ventures in the Nordic countries.To test the hypothesis, we ran regres-sions for Nordic versus U.S.-basedcompanies in our sample separately(Table 8). The tested models are the ones

that demonstrated the best explanatorypower based on the analysis where allfirms were pooled together (Table 7).Hence, product innovativeness wasregressed on market orientation, entre-preneurial orientation, and technologicalcapability. Capital investments wereregressed on market orientation, entre-preneurial orientation, as well as patentsand R&D intensity separately.

Tests of HypothesesHypotheses 1a and 1b predict that

product innovativeness and capitalinvestments in a firm will be positivelyassociated with market orientation. Wefind support for the positive associationin the case of capital investments(support for H1b) but not in the case ofproduct innovativeness. Hypotheses 2aand 2b establish a positive relationshipbetween entrepreneurial orientation andproduct innovativeness (2a) and capitalinvestments (2b). Surprisingly, entrepre-neurial orientation is not a significantpredictor of product innovativeness (nosupport for H2a) and the relationshipbetween entrepreneurial orientation andcapital investments is only marginallysignificant (p < .10) but negative (modelB3 in Table 7). Hence, we do not findsupport for H2b either. Hypotheses 3aand 3b predict that product innova-tiveness and capital investments in afirm will be positively associated withthe firm’s technological capability. Ourtechnological-capability variable was cal-culated as a combination of patents andR&D intensity. However, because thesetwo variables may have contradictingindependent effects in addition to a com-bined effect, we also ran models wherethe two variables of patents and R&Dintensity enter the models separately(models A3 and B3, Table 7). As far asproduct innovativeness is concerned, wefind that technological capability is astrong predictor of innovations. Thesepositive effects come from a combinationof patents and R&D intensity (model A2).


Tab

le8

Reg

ress

ions

by

Reg

ion

(Nord

icn

=27,

U.S

.n

=58)

DV

:P

roduct

Innova

tive

nes

sD

V:

Cap

ital

Inve

sted

inth

eFir

m

All

Nord

icFir

ms

U.S

.Fir

ms

All

Nord

icFir

ms

U.S

.Fir

ms

Tim

eon

Mar

ket

0.27

0**

0.48

8*0.

222

-0.3

45**

-0.2

15-0

.474

**Fi

rmSi

ze,

Num

ber

of

Em

plo

yees

(log)

0.27

7**

0.31

50.

309*

*a

aa

Mar

ket

Ori

enta

tion

0.05

50.

065

0.03

70.

186

0.71

2***

0.19

6Entr

epre

neu

rial

Ori

enta

tion

0.10

1-0

.099

0.20

8-0

.011

-0.3

25-0

.237

Tec

hnolo

gica

lCap

ability

0.35

3***

0.31

50.

414*

**Pat

ent

Count

(log)

0.33

7**

0.28

90.

259*

*Sh

are

of

R&

DExp

ense

s(p

erce

nt)

-0.0

76-0

.262

-0.0

95R-S

quar

ed0.

277

0.27

60.

348

0.25

90.

660

0.30

5A

dju

sted

R-S

quar

ed0.

222

0.03

40.

274

0.18

00.

490

0.19

3F-

Val

ue

4.98

7***

1.14

34.

706*

**3.

284*

*3.

878*

*2.

723*

*D

urb

in-W

atso

n1.

980

2.49

72.

034

1.89

02.

789

2.11

6Chow

Tes

t:N

ord

icV

s.U

.S.-B

ased

Com

pan

ies

F(6,

59)

=0.

78(n

s)F(

6,41

)=

2.73

(p<

.05)

*Sig

nifi

cant

atth

e0.

10le

vel;

**Si

gnifi

cant

atth

e0.

05le

vel;

***S

ignifi

cant

atth

e0.

01le

vel.

a:Fi

rmsi

zeis

not

use

das

aco

ntr

ol

vari

able

her

e.Rat

her

than

contr

ibuting

toca

pital

inve

sted

inth

efirm

,th

esi

zeof

the

firm

islikel

yto

be

influen

ced

by

the

avai

lability

of

capital

.


This finding provides support for H3a. Inthe case of capital investments, model B3shows that patents and R&D intensityaffect the dependent variable differently.Patent count is a positive predictor ofcapital investments, but R&D intensity isnot related to this outcome. Hence, wefind partial support for H3b.

For product innovativeness as adependent variable, the best adjustedR-squared value in a main effect model is0.23. In this model (A2), technologicalcapability is highly significant. In inter-action model A4 the product term is sig-nificant, but the predictive power of themodel is not improved over model A2.Also, because we found no main effectsfor market orientation, there is no evi-dence of technological capability moder-ating the relationship between marketorientation and innovativeness. Similarly,even if product term is significant inmodel B4, the interaction term does notgive a significant contribution over andabove the direct effects of the indepen-dent variables (model B3). Hence, wefind no support for H3c. Figure 2 illus-trates the findings with regard to H1a–3c.

Finally, we ran regression modelsseparately for the U.S.-based sample(n = 58) and the Nordic sample (n = 27)

to test for H4 (Table 8). Using productinnovativeness as a dependent variableand analyzing U.S.-based and Nordicfirms separately, the relative importanceof each variable in both country sampleswas very similar to the values reportedfor the overall sample. The Chow test(Chow 1960) is the most popular way oftesting whether the parameter valuesassociated with one data set are the sameas those associated with another data set.A Chow test (Chow 1960) demonstratedthat the two sets of regression coeffi-cients are not significantly different inthe case of product innovativeness, pro-viding no support for hypothesis 4(F(6,59) = 0.78; ns). However, it should benoted that the explanatory power of themodel among the Nordic companies isunimpressive (adjusted R-squared 0.03).This indicates that the observed effects oftechnological capability in the overallsample are mostly driven by the U.S.-based sample companies. When capitalinvestment was used as a dependentvariable and the models were run sepa-rately for Nordic and American firmssome differences emerged. In the Nordicsample, the model adjusted R-squaredvalue is 0.49 (F-value 3.878, p = .032) andonly market orientation has a significant

Figure 2Ex Post Model, Study Findings

+

+Technological capability

Entrepreneurial orientation

Productinnovativeness

Capital invested in the firm

-

+

Market orientation


coefficient in the model (standardizedcoefficient 0.712, p = .009). In contrast,in the model that was run for the U.S.sample the adjusted R-squared value is0.19 (F-value 2.723, p = .038) and the sig-nificant variables in the model are “Timeon market” (standardized coefficient-0.474, p = .022) and patent count (stan-dardized coefficient 0.259, p = .036). AChow test shows that the regressioncoefficients are now significantly differ-ent for Nordic versus U.S.-based compa-nies (F(6,41) = 2.73; p < .05). Hence, ouroverall conclusion with regard to H4 isthat we found partial support. Theseresults are discussed in more detail in thefollowing.

Discussion andConclusions

We have analyzed the effects ofmarket orientation, entrepreneurial ori-entation, and technological capability oninnovativeness in a highly technology-intensive field, namely, modern biotech-nology. Our results show that in youngbiotechnology ventures, market orienta-tion shares a positive relationship withcapital invested in the firm. This findingis in line with the literature on marketorientation that has established a linkbetween market orientation and positivefirm performance outcomes (Matsuno,Mentzer, and Ozsomer 2002; Deshpandé,Farley, and Webster 1993; Kohli andJaworski 1990; Narver and Slater 1990).However, as discussed in the following,this link between market orientation andcapital investments is specific to biotech-nology firms in Finland and Sweden onlyand is not applicable in the U.S. context.

Contrary to expectations, market ori-entation is not related to product inno-vativeness measurements. Technologicalcapability is a positive predictor ofproduct innovativeness, and patentcount is positively associated with capitalinvested in the firm. Heterogeneousresource positions explain why firmsinnovate differently (Henderson and

Cockburn 1994). This supports thegeneral notion of the knowledge-basedview in that knowledge is the principalproductive resource of the organization(Nonaka 1994; Kogut and Zander 1993).These findings are also in line with pre-vious literature suggesting that investorsevaluate both the technology/productaspects of the firm as well as its marketpotential when making investment deci-sions (Mason and Stark 2004; Shepherdand Zacharakis 1999; Tyebjee and Bruno1984).

The lack of links between market ori-entation and product innovativeness is inline with the findings of Appiah-Adu andRanchhod (1998). They found a linkbetween market orientation and financialperformance in larger and older biotech-nology ventures than the ones covered inthis study, but simultaneously found thatmarket orientation did not contribute tonew product success. Most likely theseresults reflect the fact that the kinds ofinnovations developed by biotechnologyventures are typically disruptive innature. In biotechnology markets, con-tinuous innovations are typically intro-duced by companies that are notdependent on outside investments and,hence, can afford to have lower expec-tations for return on investment.

The findings of the Grinstein (2008)meta-analysis suggest that the relation-ship between market orientation andinnovation consequences is weaker intechnology turbulent environments. Ourfinding that market orientation is notrelated to product innovativeness isalso in line with Veryzer (1998), whoconcludes that successful discontinuousNPD processes may not be as customerdriven as continuous NPD. Ideas aboutnew applications for emerging technolo-gies are not apt to come from presentcustomers. In addition, in terms of timeand product familiarity, discontinuousinnovation is more distant from the endmarket than continuous innovation;development spans of new products


in medical technology take years ordecades, and in the end an innovationmay be incompatible with customers’cultural values or with previouslyadopted ideas (Rogers 1962).

The managerial implications that wederive from these results are in line withThieme and Song (2002): In the case ofradical innovation projects being devel-oped in turbulent markets like biotech-nology, development teams shouldconcentrate more on technology issuesand less on the potential market inthe early stages. Market-intelligence-gathering activities are probably bene-ficial later, at the product-commerciali-zation and sales stage (Renko 2006;Renko et al. 2005). Rather than agreeingwith the established view that marketorientation affects performance throughinnovativeness, customer loyalty, andquality (Kirca, Jayachandran, andBearden 2005), we suggest that in bio-technology market orientation does notaffect innovativeness, but probably mod-erates the relationship between superior,technology-based innovations and finan-cial performance (such as sales out-comes). However, at the same time itshould be kept in mind that investors lookfor targets that show both technologicaland market innovation potential. Furthertests of the relationships between innova-tions, market orientation, and perfor-mance in various industry contextsprovide interesting topics for futureresearch.

Unlike what was expected, entrepre-neurial orientation is not related toproduct innovativeness. This is surpris-ing, as the domain of the entrepreneurialorientation construct covers innovative-ness, proactiveness, and risk taking(Miller 1983). The lack of relationshipmay be explained by the fact that entre-preneurial orientation measures innova-tiveness as an attitude and “culture”within the firm, whereas the innovative-ness measurement used as a dependentvariable in this study only focuses on

product innovation. It does not takeaccount of innovativeness as far as itpertains to managerial practices, organi-zational structures, process improve-ments, and continuous nonproduct typesof innovations. It is very possible that thekind of innovativeness measured bythe entrepreneurial orientation constructmaterializes in the form of new productinnovations as well, but, especially in afield like biotechnology, these develop-ments take time and depend on soundscience. The correlations (Table 6) revealthat even though entrepreneurial orien-tation is not related to the product-innovativeness measurement, it shares asignificant positive correlation with“Share of R&D expenses of a firm’s totalexpenses.” Patents, again, are signifi-cantly and positively correlated with theproduct innovativeness measurement. Afeasible interpretation of these relation-ships is that innovativeness and patentnumbers reveal the current innovative-ness of the firm as far as it relates toproducts developed and in development.R&D expenses and entrepreneurial ori-entation, for their part, can reflect thefuture innovation potential of the firm.As theorized by Lumpkin and Dess(1996): “An entrepreneurial orientationrefers to the processes, practices, anddecision-making activities that lead tonew entry” (p. 136). This dynamic rela-tionship, however, remains speculationfor the time being, and only additionaldata collection in the future can actuallyprovide evidence of this suggestedcausal relationship. Clearly, longitudinalresearch is needed.

Entrepreneurial orientation is notpositively related to capital invested inthe biotechnology venture either. A posthoc analysis of this finding suggests thatfirms operating in a technology-intensiveenvironment do not necessarily benefitfrom being more entrepreneurially ori-ented than their competitors; the merefact that these firms operate in atechnology-intensive environment exhib-


its a level of innovativeness, proactive-ness, and risk taking. More extreme risktaking may simply not be adaptive. Also,Walter, Auer, and Ritter (2006) foundthat entrepreneurial orientation did nothave a direct effect on sales growth, salesper employee, or profit attainment in asample of university spin-off firms (tech-nology intensive firms).

Even if our results for the separatesamples of Nordic and U.S.-based bio-technology ventures should be inter-preted with caution because of thesmall sample sizes, our empirical resultsindicate that the capital investments inthe two geographic areas are driven bysomewhat different factors. First of all,the total amounts of capital invested inbiotechnology ventures are significantlyhigher in the United States than inNorthern Europe. In Sweden andFinland biotechnology firms that rankhigh on market orientation are able toattract more investor capital than firmswith limited market orientation. In theUnited States, however, market orienta-tion does not contribute to capitalinvestments. Given the global nature ofthe biotechnology markets, this in itselfis a rather interesting finding. It couldreflect the local nature of the venturecapital industry (Sorenson and Stuart2001) and possibly an impressionamong Nordic investors that accessingthe global end markets of biotechnol-ogy products will be challenging andwill require high levels of market ori-entation. American investors, for theirpart, place more value on intellectualproperty issues when making theirinvestment decisions.

As far as investors’ decisions arereflective of the innovation potential ofthe target companies, it looks like theNordic investors emphasize the marketside of innovations in their decision-making, whereas the U.S.-based inves-tors place value on protected technology.Combined, these findings support previ-ous research evidence that has estab-

lished target firm’s innovation potentialas an important criterion in early-stageinvestor decision-making (Shepherd andZacharakis 1999; Tyebjee and Bruno1984). However, because investmentdata from young, private ventures areparticularly challenging to collect, previ-ous studies on investment criteria havetypically collected data from investors.Our finding about the importance oftarget firm’s market orientation andprotected technology further validateprevious arguments concerning theimportance of innovation potential ininvestor decision-making. Still, signifi-cant geographical differences in invest-ment criteria, although not unexpected(Grinstein 2008; Clark 1990), definitelycall for further research on the nationalpatterns of innovativeness and invest-ments. It is clear that regional differencesdo exist and the context of biotechnol-ogy firms does play some kind of role.National culture, a highly integrativeconstruct, can explain and predictdecision-making even in biotechnology,which is typically characterized as aglobal field.

Limitations and Direction forFuture Research

In addition to the “usual suspects” forfuture research directions (need for morelongitudinal research, need to collectmore objective data about young, smallfirms, and the need to expand the geo-graphic scope of this study to furtherincrease external validity), a number ofareas for future research have alreadybeen suggested earlier. In addition,this research definitely calls for moreindustry-specific investigations of thedrivers of innovativeness. Technology-intensive firms, which have an importantrole in the creation of new opportunities,jobs, and innovations, are typicallyunderrepresented in meta-analyses suchas the one completed by Kirca,Jayachandran, and Bearden (2005). As aresult, the findings from (combined)


samples of manufacturing, service, orgeneral small firms do not necessarilygeneralize into the context of technologyintensive businesses, as illustrated by ourresults.

Heirman and Clarysse (2004) arguethat prefounding R&D efforts and intan-gible assets such as team tenure, experi-ence of founders, and collaborationswith third parties are important for inno-vation speed in research-based start-ups.Technology start-ups differ significantlyin their starting conditions and these dif-ferences have a significant effect on thetime it takes to launch the first product.Studying innovativeness in start-upsfaces a unique challenge compared withstudies in larger firms. That challenge isthat the NPD does not necessarily beginwhen the company is founded. It is prob-able that start-ups differ significantly intheir prefounding conditions, includingmarket knowledge. Consequently, tomake a fair assessment of the perfor-mance as well as the level of marketorientation, entrepreneurial orientation,and technological capability of a start-upfirm, future research should look intoprefounding behaviors in addition to theobvious current conditions.

The main limitations of this studyinclude a possible single-informant biasand limited statistical conclusion validityas a result of the small sample size. Thesingle informant problem is typical forstudies conducted in small-firm settings.In this study, comparisons of patentnumbers reported by the intervieweeswith data from secondary sources werecompleted to ensure the reliability of thedata. What is more, strictly speaking, thekind of cross-sectional design of thisstudy does not allow causal inferences.Longitudinal studies would provide abetter understanding of the nature ofthe relationships between market-and technology-related variables andinnovativeness.

Innovativeness has been assessedusing two outcome measures that are

specific to biotechnology innovations.Even if we have argued that capitalinvestments reflect innovativeness of afirm, it is possible—and likely—that theyalso reflect managerial decision-makingon both investor and firm-managementside. For example, managers of biotech-nology businesses make decisions onwhen and where to look for continuedinvestments. At the same time, however,capital investments in the case of young,R&D-intensive biotechnology venturesare similar to sales revenue in estab-lished firms. Companies decide whereand to whom market their products, butunless people buy, the company will notsurvive. Here we have a similar phenom-enon, but “customers” are external inves-tors. Overall, we welcome future effortsto develop measures for innovativenessin contexts where technology based ven-tures are still far from their markets anddo not have sales income.

The empirical data in this study werecollected from a single industry, namelymedical biotechnology. Innovation in bio-technology, especially in the case of phar-maceutical products that need to passclinical trials for governmental approvalto be marketed, is a process that takesmore time than the development of newinnovations in most other technologyintensive fields. Hence, it is possible thatour results with regard to the antecedentsof innovativeness are representative ofbiotechnology only. The data in ourempirical study come from five locationson two continents. This has benefitsfor external validity. However, the factthat we found evidence for differencesbetween the U.S.-based and Nordicsample suggests that in addition to indus-try, the drivers of innovativeness may alsovary by geographic location. Notwith-standing these limitations, we believe thatthese findings make a significant contri-bution to the small-business literature andthat technology venture managers canbenefit from the insights gained from thisinvestigation.


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