Laura Mata Garcia's thesis Designing Entrepreneurship

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Doctoral research on the use of service design tools as strategies to structure the front-end of the entrepreneurial process.

Doctoral research on the use of service design tools as strategies to structure the front-end of the entrepreneurial process.

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  • 1. Designing Entrepreneurship. Creating Enterprise Through Design Culture Dipartimento di Design Dottorato di ricerca in Design XXVI Ciclo January 2011 - March 2014 Coordinator: Prof- Francesco Trabucco Thesis For the obtainment of the degree of Doctor of Philosophy in Design Candidate: Laura Y. Mata García Supervisor: prof. Alessandro Deserti Co-supervisor: Prof. Carlos Teixeira Opponent: Dr. Toni-Matti Karjalainen
  • 2. 2
  • 3. 3 Acknowledgements
  • 4. 4
  • 5. 5 Acknowledgements This work would not have been possible without the support of many people. It is now crystal clear to me that research is a collective endeavor, and although I am the one executing it, many people contributed very significantly and without their help this work would not have been possible. First and foremost, I want to thank those directly involved in the creation of this work. Special thanks to my supervisor Prof. Alessandro Deserti for the countless hours that he dedicated to this work despite his busy schedule. His guidance and advising were fundamental for me in this journey. Another enormous thank you goes to Prof. Carlos Teixeira, whose help was fundamental for me. The passion, rigor and commitment he puts into his work were an inspiration. Being able to join him around the world as part of the Dream:in project was an invaluable experience. He also dedicated numerous hours to my work and I deeply appreciate that. A special thanks goes also to Dr. Toni- Matti Karjalainen, for dedicating his time to act as my opponent, reading my work and providing valuable feedback as well as for the opportunity to spend time with his research group in Aalto University in 2012. It was a very helpful and valuable experience. From my research group in Politecnico di Milano; I want to thank deeply Prof. Flaviano Celaschi for giving me the opportunity to join the research group in the first place, back in 2009 and entering this fascinating community that has the privilege to stand on the edge of human knowledge and being able to share it with each other and the students. Special thanks goes to Prof. Manuela Celi, who was always available to provide feedback for me, and provided a sympathetic ear for personal matters as well. Our written collaborations were fundamental in my training as a researcher. Another special thank you goes to Prof. Giorgio Casoni. The experience of working together in Mantova was fundamental for my growth as a professional and as a researcher. His enthusiasm and “let’s-find-application-in-real-life” approach is inspiring. Thank you also to Chiara Colombi, Elena Formia, Xiaobo Qian and Jennifer Rudkin, for their friendship, support and the times spent together in this journey. Other colleagues from Politecnico di Milano that receive a special thanks are Simona Murina, for being always available to sort through the bureaucracy and paper work to keep the place running, Maria Ventura for her patience and availability and Cristina Argentiero who was always available as well and helped sort many of the trips that this work required, some of them on a very short notice. From the Parsons The New School for Design team that was directly involved in the Dream:in experience in India, I want to thank Bridget Sheerin, Subodh Divekar and Fernanda Alcocer who dedicated time for me even though their master thesis deadlines were around the corner. I also want to thank Ms. Sonia Manchanda for hosting us in India, and organizing the seminar. The exchanges and the experiences of “living” the subject of our study (instead of just studying it) were extremely inspirational. From the New School team that joined us in China, a deep thanks goes to Nelson Lo, his super translation and cultural mediation skills made all the difference for us. Another deep thanks goes to Sophie Han Lou, her super organizing and management skills made everything possible, and the exchanges we had were also very enriching for me personally. A super special thanks goes to Delmo Oliveira that provided me with over 450 pictures of the event practically overnight. His help was invaluable in
  • 6. 6 reconstructing the material. To the rest of the team that was part of the adventure; Hellem Pedroso, Tracy Lin, Helena Wong and Angie Rodríguez, a deep heartfelt thank you for letting me join the team. Who thought doing fieldwork could be so much fun? From Tsinghua university I want to thank all the organizers of the Dream:in event, Prof. Cai Jun, Yian Guan, Yuanyuan Liu and everyone else that made the event possible. Thank you to the students that accepted to be part of the experiment and became my guinea pigs for one day! During these years I have met many colleagues that provided support and inspiration in one way or another, thanks to Raffaella Trocchinaesi, Marinella Ferrara, Rui Roda, Peter Krogh, Miikka Lehtonen, Fawaz Bakhotmah, Namkyu Chun, Lia Krucken, Gabriel Hernández, Seçil Ugur, Pelin Arslan, Hazal Gumus and Roberto Iñiguez. Your feedback, support and pats on the back when things got rough were definitely helpful. I feel proud to be part of this community of enthusiastic and inspiring people. A huge thanks goes also to Rodrigo Marcos who helped me manage the challenge of sorting out all the data and presenting it visually. His help as well as his unconditional friendship are invaluable to me. A special thanks goes to Huang Yanli, who helped me translate all the material from the workshops. His help was very precious. Last but not least, I want to thank the people in my personal life who made all the difference. First and foremost, thanks to my partner Massimo Menichinelli for all the love and support he provided along these years, for all the weekends and holidays spent working (and not complaining). I feel honored to have him in my life. Super special thanks to my parents, Laura R. García and Raúl Mata for supporting this endeavor, both morally and materially. I would not be here today if it was not for them. This work is dedicated to all of you.
  • 7. 7 Table of contents
  • 8. 8
  • 9. 9 Table of Contents 1) Preface 17 II) Introduction a) Designing Entrepreneurship: Relevance Today 22 i) Which entrepreneurship? 23 ii) Relationship between Design and Business 25 b) Basic Assumptions i) Business and entrepreneurship are based on a premise of repetition and efficiency 26 ii) Creating new ventures is risky and requires a different mindset, prone to exploration and trial and error learning 27 iii) Design possesses tools, cultures and a mindset that encourage experimentation 28 c) Hypothesis 28 i) Research Objectives 30 d) Research design and methodology 31 e) Results 33 First part – Designing entrepreneurial opportunities 1. The importance of entrepreneurial opportunity 1.1. The entrepreneurial process 36 1.2. Definition of entrepreneurial opportunity 37 1.3. The discovery perspective 40 1.4. The creationist perspective 41 1.5. Reconciliation between discovery and creation perspectives 43 1.6. Individual cognitive factors that contribute to the discovery/ creation of entrepreneurial opportunities 45 1.6.1 Creativity 46 1.6.2 Dealing with Ill-defined Problems 47 1.6.3 Generalization over small samples and use of heuristics 47 1.6.4 Alertness and “connecting the dots”. 48 1.6.5. Knowledge of how to serve markets 50 1.7. Discussion: the possible contribution of design to opportunity creation 51 2 Business Models as Enactors of Entrepreneurial Opportunities: Possible Design Contributions 55 2.1 A brief history of the business model construct 56 2.2 Definition of business model 57 2.3 The relevance of design for business modeling 58 2.4 Business Modeling As Entrepreneurial Opportunity Enactment: What about design? 59 2.5 Designing Instruments For Business Model Design 64 2.6 Designing The Value Proposition 68 2.7 Key Insights 72 Second Part – Generating new enterprises through design culture 3. Creating design-oriented enterprises: case studies 3.1 A brief history of design-oriented companies 74 3.2 Product Based case studies of design-oriented companies 76 3.2.1 Selection Criteria 77
  • 10. 10 3.3 Case Study: Dyson 79 3.3.1 Analysis of the Dyson Case 81 3.4 Case Study: Kartell 82 3.4.1 Analysis of the Kartell Case 87 3.5 Discussion: Lessons learned from product-centered firms 88 3.6 Case studies of design-oriented ICT companies 89 3.6.1 Findings 91 3.7 Case Study: Airbnb 92 3.7.1 Analysis of the Airbnb Case 94 3.8 Case Study: Instagram 95 3.8.1 Analysis of the Instagram Case 96 3.9 Discussion: Lessons learned from ICT firms 97 3.10 Conclusions 98 4. Support ecosystems for design-driven entrepreneurship 4.1 Introduction 100 4.2 Historical aspects 100 4.3 Existing models of support systems 4.3.1 Incubator 102 a) Pratt Design Incubator 103 b) Incubation RCA 104 4.3.2 Accelerators 105 a) Hardware accelerators 107 i) HAXLR8R 108 (a) The Design Accelerator 109 4.3.3 Co-working spaces 110 a) The Stitch Factory 111 4.3.4 Entrepreneurial Ecosystems and events 112 a) Aalto Entrepreneurship Society 113 b) The Designer Fund 114 4.4 Insights from the case studies 115 4.5 Conclusions 119 Third Part – Development of the Hypothesis and Experimental Verification 5. Insights from the literature and case study explorations a) Existing approaches to design entrepreneurship: Designing the business offering 123 b) Gap in the literature identified: Lack of a design approach to discovering/creating entrepreneurial opportunities 124 c) Similarities between the FEI of the entrepreneurial process and the New Product Development Process 125 5.1 Developing the Research Hypothesis: Using Service Design Instruments as Aids in the Opportunity Generation/ Discovery Phase (FEI) 126 5.2 Why Service Design Instruments? 127 5.3 Experimental testing of the hypothesis: a few preliminary considerations 128
  • 11. 11 6. Field Experiment within the DREAM:IN China project 6.1. Background 133 6.1.1. The Dream:in Project Structure 133 6.1.2. The core of the project: the Conclave 134 6.1.3. The role of design in the Dream:in project 138 6.2. Experiment design 139 6.2.1. Premises 139 6.2.2. Hypothesis and Objectives 140 6.2.3. Research Questions 140 6.2.4. Methodology 140 6.3. The Workshop: Beijing 142 6.3.1. Results 147 6.3.2. Difficulties and Insights on Potential Improvements 152 a) During The Workshop 153 b) After the Workshop 154 6.3.3. Interpretation of the Results and Implications 154 6.4. Conclusions 156 7. Conclusions 7.1. Synthesis of the Research 159 7.2. Results and Original Contribution 162 7.2.1. Theoretical contribution: Similarities between the Front-end of Innovation of the Entrepreneurial Process and the New Product Development Process. 162 7.2.2. Experimental Verification: Entrepreneurial Opportunity identification May be Systematized 163 7.2.3. Experimental Verification: Using Service Design Tools in the Discovery/Creation of Entrepreneurial Opportunities 164 7.2.4. Production of Instruments: Design of a Service Design Toolkit for the generation of Business Ideas 167 7.3. Limitations of the Research 168 7.4. Relevance and Implication of Findings for Academia and Practice 168 7.4.1.Academic relevance 168 7.4.2. Relevance for Practice 169 7.5. Reflections on Open Questions for Future Research 170 7.5.1. The quality and innovativeness of business ideas using this methodology 170 7.5.2. Discovery vs. Creation of Entrepreneurial Opportunities: A Design Perspective? 171 7.5.3. Possible Applications of Service Design Tools in Non- Design Related areas 173 8. Bibliography 175 9. Appendixes 9.1. Appendix 1: Design Driven Firms Case Studies 187 9.2. Appendix 2: Design-Driven Entrepreneurship Support Systems Case Studies 189 9.3. Appendix 3: Selection of Service Design Tools 213 9.4. Appendix 4: Workshop Planner 215 9.5. Appendix 5: Service Design Simplified Frameworks 217
  • 12. 12 9.6. Appendix 6: Workshop Outputs 231 Index of Figures II. Introduction Figure 1. Creation and destruction of jobs by new firms and existing firms. 22 Figure 2. The positioning of this work within larger macro-topics 23 Figure 3. Mainstream idea of design as an agent capable of influencing organizational strategy 26 Figure 4. Similarities between the product-development process and the entrepreneurial process 29 Figure 5. The different subtopics explored by this research 31 Figure 6. The research structure 31 Chapter 1. The Importance of Entrepreneurial Opportunities Figure 1. Complex factors that influence the formation of new ventures 36 Figure 2. Process model of entrepreneurial venture creation. 37 Figure 3. Value creation capability 40 Figure 4. Mapping of the different strains of entrepreneurial research that analyze the variables that contribute to opportunity discovery/creation 45 Chapter 2. Business Models as Enactors of Entrepreneurial Opportunities: Possible Design Contributions Figure 1. Components of business models affinity diagram 57 Figure 2. Elements of a Choices- Consequences Business Model 62 Figure 3. Ryanair’s business model representation with its virtuous cycles 63 Figure 4. Osterwalder and Pigneur’s business model canvas 65 Figure 5. Business Model Framework. IDEO (2011) 66 Figure 6. The Lean Canvas. 67 Fig. 7. The Social Enterprise Tool. NESTA (2011) 67 Figure 8. The Product-Service System 68 Figure 9. . Intersection of value creation for multiple actors leads to meaningful innovation. 68
  • 13. 13 Figure 10. Design as a mediator. 69 Figure 11. Some examples for meaningful value propositions using the value creation framework 71 Figure 12. Example of a systemic value proposition with value flows and a variety of different actors 71 Chapter 3. Creating design-oriented enterprises: Lessons from Case Studies Figure 1. The cyclone at the lumberyard that inspired James Dyson 80 Figure 2. The Dyson G-Force vacuum cleaner 80 Figure 3. A recent Dyson vaccum cleaner model 81 Figure 4. Dyson hand drier 82 Figure 5. James Dyson with the Air Multiplier, the bladeless fan 82 Figure 5 & 6. The first product designed by Giulio Castelli using Nastrocord 84 Figure 7. Early Kartell products designed by Gino Colombini 84 Figure 8. The 4999 Chair, designed by Marco Zanuso and Richard Sapper 84 Figure 9. Universale chair, designed by Joe Colombo 84 Figure 10. Bookworm library designed by Ron Arad 84 Figure 11. Mr. Impossible chair by Philippe Starck 86 Figure 12. Louis Ghost chair, by Philippe Starck 86 Figure 13. Bourgie Table Lamp by Ferruccio Laviani 86 Figure 14. Dr. Glob chair by Philippe Starck 86 Figure 15. Kartell Shoes by Moschino 86 Figure 16. La Marie Chair by Philippe Starck 86 Figure 17. Traditional role of design in design-driven entrepreneurship 97 Figure 18. Service-based design-driven entrepreneurship: design shapes the business strategy 97 Chapter 4. Support systems for design- driven entrepreneurship Figure 1. The Business Incubator Continuum 103 Figure 2. Some of the companies currently incubating in the Pratt Design Incubator 104 Figure 3. Two of the most successful startups from Innovation RCA 105
  • 14. 14 Figure 4. Two products created by some of the hardware companies in HAXLR8R. 108 Figure 5. The Haxlr8r three tracks for startups 109 Figure 6a. A product from the startup Khora. 110 Figure 6b. Electrical commuting bicycles from The Conscious Commuter. 110 Figures 7a & 7b. Images from The Stitch Factory in Las Vegas. 112 Figure 8. Some of the most famous Internet startups that had a designer founder or cofounder. 114 Figure 9. Example of the graphic mapping. Case Study: Design Incubator (Serbia). 115 Figure 10. Incubation RCA mapping. 116 Figure 11. The different levels of design value. 117 Figure 12. Different standard formats of entrepreneurial support actors and their positioning along the entrepreneurial process. 118 Figure 13. The mapping of the case studies shows clearly gaps in the lower right quadrant, which corresponds to investment and funding. 120 Chapter 5. Insights from the literature and case study explorations. Figure 1. Traditional role of design in design-driven entrepreneurship. 124 Figure 2. The New Concept Development Model (NCD) provides a common language and a visual representation to the components of the Front End of Innovation. 125 Figure 3. The design process and the entrepreneurial process shown in parallel. 126 Figure 4. Hypothesis: Design could enable the generation and development of business ideas. 127 Figure 5. A model of the sub-phases inside the front-end of innovation with the space that was tackled during the experimentation phase 129 Chapter 6. Field Experiment Within the Dream:in China Project Figure 1. The different phases of the Dream:In project with their respective duration 134 Figure 2. Participant profiles for the Conclave workshop and their respective roles 135
  • 15. 15 Figure 3. Idea Development Diagram 137 Figure 4. Dream Ideation Framework 137 Figure 5. Example of simplified design framework elaborated taking the widespread Mindmapping design tool 142 Figures 6,7 & 8. Participants who used the simplified service design tools during the first day of workshop. 143 Figures 9, 10, 11 & 12. Participants of the control group during the first day of workshop. 144 Figure 13. Overview of all the frameworks produced by the teams using the tools in day 1. 145 Figures 14, 15 & 16. Dream Ideation Frameworks produced by teams using the service design tools. 145 Figures 17, 18 & 19. Dream Ideation Frameworks produced by teams NOT using the service design tools. 146 Figure 20. One of the groups using the SDT during the second day of the workshop (Violet Team) 148 Figures 21 & 22. Team Green 2 using the tools in the second day started prototyping out of their own initiative when faced with the Business Model Canvas tool 148 Figure 23, 24 & 25. Teams from the control group (NOT using the tools) on the second day of the workshop. 149 Figure 26. Outcome from team purple- during day 2 of the workshop working using the service design tools. 150 Figure 27. Outcome from team green 2 during day 1 of the workshop working by themselves 150 Figure 28. Outcome from team green 2 during day 2 of the workshop working using the service design tools 150 Figure 31. Outcomes from control group during day 2 of the workshop working NOT using the service design tools 151 Figure 32a. Graphic synthesis of the results of the first day of workshop. 152 Figure 32b. Graphic synthesis of the results of the second day of workshop 152 Figure 33. The way participants filled the dream ranking tool 153 Figure 34. How I expected participants to use the tool. 153
  • 16. 16 Chapter 7. Conclusions Figure 1. The design process and the entrepreneurial process shown in parallel 160 Figure 2. Map of areas of service design research 165 Figure 3. The perspective of this work: design can have a role in the earliest phases of the entrepreneurial process. 166
  • 17. 17 I. Preface
  • 18. 18
  • 19. 19 I. Preface This research is the result of the work of five years spent in Politecnico di Milano, first as a research fellow and then as a doctoral candidate. It’s also an international research that was developed mixing two different ways of doing, thinking and conceiving design: the Italian culture of design, and specifically the Polytechnic culture embraced inside our school and the American way of approaching design, as it is lived within Parsons The New School of Design and its roots in the IIT Institute of Design through the invaluable contribution of my co-advisor, Prof. Carlos Teixeira. The topic started forming quite organically following the experience as a research fellow working for Small-Medium Enterprises in the Mantua region (Italy). The overall goal of the collaboration with those companies was to enable them to become design- driven and foster design culture within the organizations. The year was 2009 and the effects of the Great Recession that began in 2008 in the United States were starting to be felt in Italy in full force. Some of the companies that participated were in serious financial difficulties, struggling to keep afloat. Some others were going through generational family successions that created a lot of tension between the members of the families. These factors left the companies with no energy or resources to invest in design. I discovered through experience that trying to change an existing company is very hard, and requires a lot of commitment, time, resources and even a little bit of good luck. It was that moment when we started speculating, what if instead of working with existing SMEs we worked with small young companies, or even startups? What if insteadofcomplainingaboutthedifficultytochangeacompanywecreatedacompany? What could possibly be a designerly contribution to that area? I come myself, from a very entrepreneurial culture. I was born and raised in Monterrey, Mexico. A city that was founded in the middle of nowhere, with a semi-arid weather that can roast the city with temperatures over 40ºc for 10 months a year, freeze it in the winter with temperatures below 0º, and flood it with torrential rains and even hurricanes in the fall is the entrepreneurial hotbed of Mexico and it’s most prosperous city. I have no doubt that the reasons behind the city’s prosperity have to with its entrepreneurial character and its toughness and perseverance to thrive in such a hostile environment. I came to Italy 10 years ago to study design and learn and embrace the Italian way of doing design. I became fascinated with the work of professors Deserti and Celaschi, and my colleagues of the Advanced Design Research group. As time went by, the more I learned about the contributions of design in the Front End of Innovation, developing scenarios and innovation pathways, looking at trends and weak signals, using design as an instrument to envision a desired future the more it fascinated me, and the more I was convinced that these instruments could be useful in other contexts, not strictly design-related. Thus, the threads that made the topic started coming together. What can design bring to the entrepreneurial process, and specially to its earliest phases? In a context of deep economic recession, I sincerely hope that this research contributes to advance a design perspective on entrepreneurship, to bring design expertise and capabilities to the entrepreneurial process, and bridge both disciplines so that maybe more entrepreneurs can profit from design and perhaps more designers might decide to become entrepreneurs.
  • 20. 21 Introduction
  • 21. 22 II. Introduction “Really, what we’re doing as designers is, ultimately, and inevitably, designing the business of the companies that we’re working for. Whether you like it or not, the more innovative you try to be, the more you are going to affect the business and the business model.” -Tim Brown (2005), Speech at the Rotman Business Design Conference a. Designing entrepreneurship: relevance today Net Job Change - Start-ups Net Job Change - Existing Firms Source: Business Dynamics Statistics, Tim Kane 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 -1,000,000 -2,000,000 -3,000,000 -4,000,000 -5,000,000 0 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 Entrepreneurship has gained a lot of attention in recent times, in which the economic crises has reflected severely in massive unemployment – particularly among young people in Europe. It has become the focus of attention of governments and private sector alike particularly because it has been positively correlated to job creation. Authors like Acs and Armington (2003), Audretsch and Fritsch (1996), Carree and Thurik (1998, 1999a), Thurik (19996) and Robbin, Pantuosco, Parker and Fuller (2000) in Bunyasrie (2010) all have correlated positively entrepreneurship and economic growth in different industrialized regions. In the United States, start-ups created 3 million jobs annualy between 1996 and 2006 whereas all other ages of firms, including companies in their first full years of existence up to firms established two centuries ago, are net job destroyers, losing 1 million jobs net combinedperyear.InFinlandbetween2007-2010ithasbeencalculatedthattherewere 668 startups which created a net of 51,000 new jobs — over half of the total number. According to studies performed by the Kauffman foundation, start-ups create the most newnetjobsintheUnitedStates.Thesenumbers,althoughtakencautiouslytakinginto accountthatEuropeisnotasinnovativeandaccessibletoentrepreneurshipasAmericais , reflect how much the world’s largest industrialized Western economy depends on new firms for job creation. AlthoughotherauthorssuchasSalgado-Banda(2007)advocateforothermeasurements of entrepreneurship relevance other than jobs created, such as the number of patents generated. However, in the design industry, not all design creations are patented, and as such patents are an unreliable measurement of industry size and growth. The importance of new small firms to the economy has been the result of many structural shifts. Many studies indicate that there has been a structural shift in the OECD economies from large companies competing through mass production, product differentiation, and economies of scale, towards smaller companies relying Figure 1. Creation and destruction of jobs by new firms and existing firms. The Kauffman Foundation.
  • 22. 23 Figure 2. The positioning of this work within larger macro-topics. CRISIS DOWNTURN UNEMPLOYMENT ISSUES GENERATION OF WEALTH SPECIFIC INTEREST OF UNIVERSITIES ENTREPRENEURSHIP NEW FIRMS ROLE OF DESIGN on knowledge, initiative and flexibility. This transition from a “managed economy” towards an “entrepreneurial economy” appears to have taken place between the mid-1970s and the early 1990s. (Acs, 1996 and 1999;AcsandAudrech,2001;AudretschandThurik,1997,2001aand2001b;Audretschet al,2002;CarreeandThurik,1998;Carreeetal,1999and2002;Thurik,1996;Verheuletal, 2003inKarlsson,C.,Friis,C.,&Paulsson,T.,2004).Amongthevariablesthatinfluenced this shift are increased global competition, changes in demand and demographics, intensifieduncertaintyandnewtechnologies.Inthiseconomy,(namedbysomeauthors “new economy” or more recently “knowledge economy”) the main focus of economic activities is information: its acquisition, manipulation and transmission. This is greatly enhanced by ICT, which allow teams of people to collaborate together in non- hierarchical networks that allow them to self-organize and innovate (Den Ouden, 2011) . i) Which entrepreneurship? It is widely acknowledged that there are many different types of entrepreneurship, as well as entrepreneurs. Most authors would divide entrepreneurship into two different spheres: those seeking profit, traditional businesses, and those with a non-profit aim. These organizational forms are largely divided among three criteria: their search for profit, their social impact and an organizational form that divided profit among its members (co-ops). However, for the sake of simplification, this research is focused in for profit entrepreneurship. Although many authors1 have advocated for entrepreneurial research on opportunities to include also opportunities exploited by existing firms, instead of through the creation of new firms this research will largely focus on entrepreneurship and opportunity exploitation through the creation of new firms. One of the first tasks before approaching the research was to define precisely what type of entrepreneurship we are referring to. Many authors have different definitions that range from extremely general to very specific, and vary according to the context 1 Shane, S.A. (2003) A General Theory of Entrepreneurship: The Individual – Opportunity nexus. Edgar Elvar Publishing, Inc. Massachusetts, USA. P. 267
  • 23. 24 where the definition is situated as well as the scientific discipline used as a framework of reference. For the sake of this research, the preferred definition of entrepreneurship is based on two major pillars: first of all, as advocated by Schumpeter in the German tradition. This definition focuses on the entrepreneur as an innovator and inspirer, the implementer of creative destruction, creating instability, disequilibria and economic development (Karlsson,FriisandPaulsson,2004)2 .ForSchumpeter(1934)theentrepreneurisabearer of the mechanism for change and economic development, and entrepreneurship is the undertaking of new ideas and new combinations, (i.e. innovations). An entrepreneur would have 5 basic ways of manifesting entrepreneurship: introducing a new good, a new method of production, a new market, a new source of supply of intermediate goods, and a new organization (Karlsson, Friis and Paulsson, 2004; Salgado-Banda, 20073 ). Wennekers and Thurik (1999) provide a more complete definition: “Entrepreneurship is the manifest ability and willingness of individuals, on their own, in teams, within and outside existing organizations to perceive and create new economic opportunities (new products, new production methods, new organizational schemes and new product-market combinations) and to introduce their ideas in the market, (acting) in the face of uncertainty and other obstacles, by making decisions on location, form and the use of resources and institutions”4 Secondly, this work will adopt the opportunity-based definition of entrepreneurship, thus, the entrepreneur is assumed to be acting because s/he recognizes (or creates) an entrepreneurial opportunity unlike necessity-based entrepreneurs who start businesses because they have no other work options and they need a source of income. The Global Entrepreneurship Report defines the latter type of entrepreneurship as “improvement-driven”5 . It is therefore now acknowledged that entrepreneurs, in a Schumpeterian perspective act as innovators. Innovation – the introduction of new and/or improved products, services and production processes, or marketing methods is the driving force of a nation’s economic growth and improves competitiveness of its firms. (Oerlemans et al. 20016 ) However, most of current research is focused on technology-driven innovations and its role in generating IT startups. Most of the research comes from the management, economics or entrepreneurship research and the role of design is not acknowledged as a lever that can spark entrepreneurship, besides being the content of the business offering. 2 Karlsson, C., Friis, C., & Paulsson, T. (2004). Relating entrepreneurship to economic growth. (CESIS/ JIBS), September, (13), 1–27. Retrieved from http://papers.cesis.se/CESISWP13.pdf 3 Salgado-Banda, H. (2007). Entrepreneurship and economic growth: An empirical analysis. Journal of Developmental Entrepreneurship, 52(55), 1–46. Retrieved from http://www.worldscientific.com/doi/abs/10.1142/ S1084946707000538 4 Wennekers, S., & Thurik, R. (1999). Linking entrepreneurship and economic growth. Small Business Economics, 27–55. Retrieved from http://www.springerlink.com/index/M63P6311184114Q5.pdf 5 Kelley, D. J., Singer, S., & Herrington, M. (2011). The Global Entrepreneurship Monitor 2011 Global Report. Retrieved from http://www.gemconsortium.org/docs/2409/gem-2011-global-report 6 Oerlemans, L.A.G., Buys, A.J., and Pretorius, M.W. Research Design for the South African Innovation Sur- vey 2001, Working Paper 01.02, The Netherlands: Eindhoven Centre for Innovation Studies, 2001.
  • 24. 25 ii) The Relationship Between Design and Business In order to establish the foundations and basic assumptions of this work, it is first necessary to take a look at the relationship between design and business, in a wider scale. During the last decade, design and business grew closer to each other, finding in Design Thinking a common ground where an interdisciplinary approach could take shape: design researchers and practitioners became interested in strategy and business while the management scholars and practitioners became interested in design as if mutually acknowledging that both fields could benefit from each other’s contribution. The first notable appearance of the term Design Thinking, bound to the idea that design research could and should become an independent area of study, was in Bruce Archer’s statement “there exists a designerly way of thinking and communicating that is both different from scientific and scholarly ways of thinking and communicating, and as powerful as scientific and scholarly methods of enquiry when applied to its own kinds of problems.” (Archer, 19797 ) From then on, research on Design Thinking worked to extract and model designers’ thinking processes and cognitive style, their tools for application, the composition of design teams and the interaction among its components, the procedures and the processes that designers activate. (Dorst and Dijkhuis, 19958 ; Dorst and Cross, 20019 ). Starting from Archer’s idea and from Lawson’s (198010 ) research on the mental process that architects undertake in solving problems, Rowe (198711 ) popularized the term Design Thinking. Traditionally, this field of research was based on the premise of analyzing designers and design practice to understand the “designerly” ways of problem finding, setting and solving by observing the ways they approach the design of different artifacts. (Cross, 198212 ; Schon, 198413 ; Schon, 198714 ) According to the most relevant studies, designers use envisioning capabilities, divergent idea generation, visualization tools, synthesizing and prototyping, just to mention some of the skills and tools generally associated with designers and their cognitive style. Design Thinking can tackle ill-defined or indeterminate problems (Buchanan, 199215 ) with a solution-oriented attitude (Cross, 1982), generating ideas and transforming them into new solutions (Buchanan & Margolin, 199516 ). Following the expansion of its scope, Design Thinking moved away from design practice as a promising approach for dealing with problems in different fields by employing formalized processes and techniques that can be applied by professionals of all disciplines, not necessarily by designers. Design Thinking became a new robust 7 Archer, B. (1979) Design as a Discipline. Design Studies. 1 (1), pp. 17-20 8 Dorst, K. & Dijkhuis, J. (1995) Comparing Paradigms for Describing Design Activity. Design Studies. 16 (2). pp. 261-74. 9 Dorst, K. & Cross, N. (2001) Creativity in the Design Process: Co-Evolution of Problem–Solution. Design Studies. 22(5) pp. 425–37. 10 Lawson, B. (1980) How Designers Think. The Design Process Demystified. Architectural Press-Elsevier, Amsterdam. 11 Rowe, P. G. (1987) Design Thinking. The MIT Press, Cambridge, MA. 12 Cross, N. (1982) Designerly Ways of Knowing. Design Studies. 3 (4). pp. 221-27 13 Schön, D. (1984) The Reflective Practitioner. How Professionals Think in Action. Basic Books. New York, NY. 14 Schön, D. (1987) Educating The Reflective Practitioner. Jossey-Bass. San Francisco, CA. 15 Buchanan, R. (1992). Wicked Problems in Design Thinking. Design Issues 8 (2), pp. 5-21. 16 Buchanan, R. & Margolin, V. (1995) Discovering Design: Explorations in Design Studies. Chicago University Press. Chicago.
  • 25. 26 design method or “a discipline that uses the designer’s sensibility and methods to match people’s needs with what is technologically feasible and what a viable business strategy can convert into customer value and market opportunity” (Brown, 200917 ). Behind Design Thinking stands the idea that managers should apply Design Thinking and practices to improve business and succeed in future challenges (Kelley, 200118 ; Boland and Collopy, 200419 ; Martin, 200920 ): according to Brown (2009), thinking like a designer can help managers and organizations to develop innovation in products, services, processes, and strategy. Nevertheless,theemergenceofDesignThinkinganditswidespreaduse(and,according to some authors, abuse) helped position design as a discipline that could influence aspects of the business process that were previously thought to be beyond the scope of design, such as the business strategy (Image 2). Since 2008, this idea has become mainstream and design is now routinely acknowledged to contribute to strategic aspects of the business (Martin, 200921 ). b) Basic Assumptions i) Business and entrepreneurship are based on a premise of repetition and efficiency One of the reasons why, throughout this work I sustain that design can be a tool that enables innovation and creativity is because it is a discipline that is based on different logical principles that are almost the opposite of those used in business. While innovation requires entering unexplored fields, and introducing (still) unverified solutions, established business organizations tend to rely on existing knowledge, or else on procedures that have proven to be efficient and reliable. Martin (200922 ) describes this “persistence of the past” as the natural condition of established companies, since the predominance of analytical logic draws them to look at the past as a way to predict the future. This is a recurrent knowledge bias, based on the idea of linear evolution: if we map where we used to be yesterday, and where we are today, we can tell which is the direction towards the future by extending the line that joins the past to the present. Unfortunately, this assumption is proven true only when tomorrow will be exactly like today: a condition quite far from the instable nature of contemporary markets. Managing a company with this conservative mindset is like driving a car looking at the rear-view mirror, yet this is still the predominant approach, 17 Brown, T. (2009) Change by Design. HarperCollins. New York, NY. P. 86 18 Kelley, T. (2001), The Art of Innovation. Lessons in Creativity from Ideo. Crown Business, New York. 19 Boland, R. J. & Collopy, F. (2004) Managing as Designing. Standford University Press. Stanford, CA. 20 Martin, R. (2009) The Design of Business. Harvard Business School Press, Boston, MA. 21 Martin, R. (2009) The Design of Business. Why Design Thinking is The Next Competitive Advantage. Har- vard Business Press. Boston, MA. 22 Martin (2009) Ibid. Pp. 44 - 45 DESIGN BUSINESS OFFERING BUSINESS STRATEGY BUSINESS IDEA Figure 3. Mainstream idea of design as an agent capable of influencing organizational strategy stemming from the work of Brown (2009)
  • 26. 27 for a number of reasons that Martin (2009) describes in detail. The variability of contemporary markets has thus become a quite relevant problem for managers: while their historical attitude and knowledge are based on deductive and inductive thinking, the integration of adductive thinking is now highly required. The world of business is characterized by a constant tension between change, requiring the capacity and the tools to enter unexplored territories, and preservation, bound to the need of repeating, optimizing and standardizing processes to make them effective and efficient. Martin (200923 ) refers to this tension as that between validity and reliability, or else between the need of exploration and that of exploitation, telling that it cannot be solved but just managed and balanced. Studies on organizational change pinpointed the relevance of this issue: Lawrence (195424 ) dedicated an article to how to deal with resistance to change long ago, and from then on the topic was widely discussed in the frame of change management. At the same time, studies on product innovation highlighted the importance of managing the interfunctional conflicts occurring during the innovation processes (for example: Xie, Song & Stringfellow, 199825 ). These conflicts reveal the different mindset of different areas/divisions of an organization, the natural resistance to change that characterizes both individuals and organizations, and the need of repetition as a base for efficient processes. Organizations sense both the need to innovate and the risks associated to innovation and change, and naturally develop an attitude towards these contradictory perceptions, bound to their culture (internal factors) and to the characteristics of the environment they are immersed in (external factors). This attitude can be defensive or offensive, passive or active: some companies understand the need of change only when competitors or new entrants start affecting their business, while others pursue innovation and change actively. In the perspective of the entrepreneurial risk, new ventures represent the highest achievement: in the famous Ansoff’s product/market matrix we can place them in the same position of a corporate diversification (new products for new markets unrelated to the current technological and marketing base). ii) Creating new ventures is risky and requires a different mindset, prone to exploration and trial and error learning. New ventures are in fact characterized by a high level of uncertainty and risk; there is a need to deal with systemic problems related to the creation of an entire value chain; the need to build new networks to develop and sustain the new businesses; the difficulty to give incontrovertible proof of the potential success of the entrepreneurial idea. This last characteristic, together with the need to reduce the risk, led to a typical two-step structure of the venture capital funding scheme: seed money to get to the “proof of concept”, and real funding to start-up and ramp-up the business. An interesting lesson coming from design culture is bound to its “trial and error” mindset. While in business the fear of error is the most powerful motivation of stillness, in design it is regarded as a natural condition of innovation. Even if the idea of resilience was discussed in the business field, noticing that companies can recover and learn from errors, and base on them their future success (Hamel & Valikangas, 200426 ; Gunther McGrath, 201127 ), the fear of error still stands as the greatest cultural 23 Martin (2009) Ibid. Pp. 53-54 24 Lawrence, P. R. (1954) How to Deal with Resistance to Change. Harvard Business Review. 32 (3). pp. 49-57 25 Xie, J. Song, M.X. & Stringfellow, A. (1998) Interfunctional Conflict, Conflict Resolution Styles, and New Product Success: A Four-Culture Comparison. Management Science. 44(12). Part 2 of 2. pp. 192-206. 26 Hamel, G. & Valikangas, L. (2004) The Quest for Resilience. Harvard Business Review. 81 (9). pp. 52-63 27 Gunther McGrath, R. (2011) Failing by Design. Harvard Business Review. 89(4). pp. 77-83
  • 27. 28 barrier to change and innovation. This throws light to another interesting feature of the design tools: they are not based on the idea to fully prefigure a future situation from the very beginning, but to continuously adjust it along its construction, and even to completely change the direction if some new intuition or unexpected event suggests so. In new entrepreneurial ventures the fear of error might be at the same time a safe and a misleading sentiment: it will help reducing risk, but will force concentrating on the reliability rather than on the validity of the idea. Viability studies build an analytical frame around business ideas, and are thus likely to select not those with the highest potential of being desirable, but those with the lowest potential risk. A designerly mindset would help in applying a different attitude at different stages: the decision to kick-off a new business should be based on the validity of the idea (prevalence of adductive reasoning), while analytical tools should be used to assess and make it robust (prevalence of inductive and deductive reasoning). Entrepreneurial process phase Idea generation and validation Idea prototype and assessment Design process phase Front end of innovation New product development Prevailing mode of reasoning Abductive Deductive and inductive What to consider Validity Reliability Table 1. Modes of reasoning in the different phases of construction of a new entrepreneurial venture Design Thinking could be an answer to the fear of new ideas and change pervading the world of business: a large number of consultancies are today focused on introducing a culture of innovation into companies through Design Thinking. Within this frame, designisprimarilyinterpretedinaromanticperspective(Fallman,2008)andassociated to creativity, and the use of design skills is essentially seen as a way to force out-of-the- box thinking in situations that inhibit innovation. Today, some authors like Deserti and Rizzo (2013), and even Brown himself, question the application of design thinking like a linear, decontextualized, top-down efficiency-based process like total quality or Six Sigma methodologies in the 1990s. However, that debate is beyond the scope of this work. iii) Design possesses tools, cultures and a mindset that encourage experimentation While recognizing the importance of creative and divergent thinking in the front-end of innovation, it should be noted that what design can really bring to business is not just creativity, but a comprehensive way of facing the question of innovation, balancing the constant tension between change and preservation. In this comprehensive perspective, designisnotonly“thinkingout-of-the-box”,butitisasituatedpracticebasedonatough contextualinquiry,takingintoaccountawidenumberofconstraintsproducedbydifferent actors and stakeholders. This point was well defined by Vandenbosh & Gallagher (2004) : while contemporary managerial perspective on innovation is fraught with the idea of out-of-the-box thinking, what should be learned from design is not a further push towards a romantic view of creativity but the capability to stay “inside the box”, thus, innovating while respecting constraints. c) Hypothesis In recent years, the focus of attention of many designers has turned to the earliest phases of the design process, the so-called “Fuzzy Front End of Innovation” (FFEI). The FFEI has become important because, according to Reid and De Brentani (2004), “the activities and decisions comprised in the FFEI are the starting point and, therefore,
  • 28. 29 Figure 4. Similarities between the product-development process and the entrepreneurial process. Ela- boration by the author. determine the direction of any new product path, it is clear that a better understanding of the activities and decisions comprising this starting point ultimately could lead to competitive advantage”. Additionally, according to Smith and Reinertsen (1991), of all the actions firms can take to improve their NPD process, those taken at the fuzzy front end give the greatest time savings for the least expense”. Thus, actions taken place during the FFEI, could potentially provide the most benefits with the least effort in the new product development process. Different stages of the innovation process ask for different designerly mindsets: while in the front-end of innovation a primarily explorative attitude supports the generation of new ideas, their honing requires considering many constraints. Moving along the innovation funnel to transform an idea into a product to be marketed requires both the adductive leaps of mind that might make that idea innovative, and the analytical processes based on deductive and inductive thinking that give the possibility of developing and honing it. Design is thus far from being a “compact” activity: in almost all the literature on design methods it is actually described as a complex process, requiring different attitudes and competences at different stages. This knowledge led to an intuition that eventually became the hypothesis of this research. Couldtheentrepreneurialprocessbeparalleledinsomewaytotheproductdevelopment process? Both aim to produce new products or services to be introduced to the market, however in the entrepreneurial process the scale and complexity increase importantly. Just as many products fail because there was not an appropriate FFEI process leading to the pursuit of products very few people want to buy, could the same reasoning be applied to the entrepreneurial process? This intuition was supported by the finding of the work of Barringer and Gresock (2008), which became the bridge linking the design discipline, and the traditional stage-gate process in product development as a way to structure the front-end of the entrepreneurial process and apply the same competences of product development to the generation and assessment of business ideas. Barringer and Gresock (2008) report a study of 600 entrepreneurs in which only 31% of them had done a business plan before starting the venture. Although this is enough reason for serious concern for entrepreneurship scholars since planning is acknowledged to be a critical, they claim that it could be easily inferred that, if developing a business plan is still a widely
  • 29. 30 underdeveloped activity, pre-business plan activities such as identifying business ideas, developing them and assessing them are even weaker or non-existent. Barringer and Grasock proposed to transfer the State-GateTM model to the front-end of the entrepreneurial process because of its success and popularity in product-development literature. However, the front-end is not considered part of the new product development process and a linear process is not deemed appropriate for the FEI. According to Koen (2002) many of the practices carried out during the NPD don’t apply to the front-end, because the nature of the work, commercialization date, funding level, revenue expectations and other factors are fundamentally different and the activities in the FEI are often chaotic, unpredictable and unstructured. However, there is little literature regarding entrepreneurial experiences in which design plays a key role in early stages of new firms. There are basically two major strands of research that deal with the relationship between design and entrepreneurship: Designers as entrepreneurs, either designing and selling their own products (typically furniture, clothing or other traditional design-intensive products) or selling their design services from a “creative industries” perspective. Design as an instrument that acts in the front-end of innovation in existing firms in new product development processes (however, this is not related to entrepreneurship but rather, to intrapreneurship). Nevertheless,theideathatdesignmayhavearoleinthefront-endoftheentrepreneurial process until now has not been addressed in research, neither from entrepreneurship nor from design scholars. Thus, the hypothesis of this work began to take form. Given that design has developed instruments and a mindset to deal with the fuzziness and vagueness of the front-end of innovation and that both processes aim to introduce a new product or service to the market, could design bring some of these instruments to the early phase of the entrepreneurial process? And if so, how? Following these observations, it became quite quite clear that it was worth exploring the earliest phases of the entrepreneurial process from a design perspective, and more specifically how design can help identify and construct business ideas. The hypotheses of the research was constructed as follows: Design can be a driver of entrepreneurship by enabling the generation, setting up and development of business ideas to turn them into potential entrepreneurial opportunities. i) Research Objectives The research has two types of objectives. The general objectives are: To provide a panorama of the phenomenon of design-led entrepreneurship. Toadvancetheknowledgeofpossibledesigncontributionstoentrepreneurship. The specific objectives are: To codify the different existing models of design-led entrepreneurship. To identify design instruments that may be transferrable to the entrepreneurial process. The research area is the role of design in the generation, setting up and development of business ideas before the decision to exploit the opportunity and build the
  • 30. 31 Figure 5. The different subtopics explored by this research venture. The design focus is on contribution design tools and design culture could bring to the earliest phases of the entrepreneurial process. If time allows, the final design output will be macro-tool (or perhaps a toolkit) that enables entrepreneurs (or aspiring entrepreneurs) to shape their business idea in order to perhaps, creating a business opportunity. Specific objectives of each section of the thesis will be subsequently described. d) Research Design and Methodology NEW FIRM CREATION OPPORTUNITY DISCOVERY TYPES OF OPPORTUNITIES BUSINESS MODELS DESIGN PROCESS, TOOLS & PROTOTYPING IN OPPORTUNITY IDENTIFICATION/ CREATION AND NEW FIRM CREATION CASE STUDIES: ECOSYSTEM OF SUPPORT TO DESIGN-DRIVEN START-UPS PILOT EXPERIENCE WITH A DESIGN- DRIVEN BUSINESS GENERATION PLATFORM TESTING OF A TOOLKIT OF DESIGN TOOLS IN AN OPPORTUNITY DISCOVERY SIMULATION PROCESS RESEARCH RESULTS. OPEN QUESTIONS FUTURE DEVELOPMENTS LITERATURE REVIEW CASE STUDIES CASE STUDIES ACTION RESEARCH + MODELLING TESTING ACTION RESEARCH LITERATURE OVERVIEW RELEVANCE EXISTING APPROACHES BEST PRACTICES HISTORICAL & CONTEMPORARY PERSPECTIVE MAPPING BEST PRACTICES MAPPING ESTABLISHMENT OF CONTEXTUAL DIFFERENCES CODIFYING OF ENABLING MODEL AND TOOLS ANALISYS OF RESULTS ACTION RESEARCH + DESIGNING Figure 6. The research structure. The top row describes the methodology used in the section, the central row describes the content of the research and the bottom row describes the outcomes of each section. The research was structured in three distinct blocks: a first part of literature review, a second part of case studies analysis and an experimental action research part (figure 5). First part – Designing entrepreneurial opportunities A central construct and fundamental pillar of business ventures is the entrepreneurial opportunity.Thereisalargebodyofresearchthathasrecentlyfocusedonopportunities, since they were largely overlooked in entrepreneurship literature and the construct
  • 31. 32 has remained subject of much debate. Among the many research questions that come when studying opportunities are: What are entrepreneurial opportunities? Do opportunities exist and are waiting to be discovered or are created? If they are discovered, why do some people discover them and others don’t? If they are created, how is it possible to do so? What are the factors that contribute to the discovery/creation of an opportunity? Is this an individual or a collective endeavor? Can design contribute to the production of business opportunities? Although synthetically, the first chapter will summarize the contributions of entrepreneurship research on the opportunity construct and its implications for this research,aswellasattempttolinkthepossiblecontributionofdesignersinopportunity discovery (creation), since many cognitive traits possessed by successful entrepreneurs overlap with many skills designers are formally trained in. The second chapter will describe the business model construct, which is essential to understand the logic behind a profit-making business and how designers have contributed to the process of business model design. Some authors such as Eppler and Hoffmann (2011)28 and Eppler, Hoffmann and Bresciani (2011)29 argue that the visual solutions and visual artifacts designers bring to the business model design process can greatly help teams working in business model innovation because visual tools “help teams collect, process and distribute information, structure an inclusive and creative process (…), develop scenarios in order to explore the feasibility of new business models,(…) sense customer needs and business model requirements, minimize the risks of failure through testing new business model prototypes (…) and facilitate knowledge creation and transfer”.30 The central argument of this chapter is that the business model and the entrepreneurial opportunity are strongly related, and that design could help framing and shaping the entrepreneurial opportunity in the same fashion as it is facilitating and enabling the design of business models. Second part – Generating New Enterprises Through Design Culture In chapter three, two sets of case studies will be analyzed. These two sets of cases represent two different experiences in design entrepreneurship: the first one, which is historical analyzes product-based design-oriented companies, particularly Italian companies operating in design intensive industries; the second one, which is a more recent phenomenon, analyzes the ongoing trend in the United States of designers who have become founders of very successful IT companies. The chapter focuses specifically on how these companies were created and what was the role of design in the discovery or creation of the entrepreneurial opportunity that led to the creation of the firm. Chapter four will analyze case studies of different models of support systems for entrepreneurs, particularly design-related entrepreneurship, such as incubators, accelerators, co-working spaces, etc. in order to understand the differences of each format, the services they provide and the type of support that each actor proposes. The chapter maps the differences between the various formats and outlines the gaps that few of the actors have covered and that would be necessary to support better design- driven startups. 28 Eppler, M. J., & Hoffmann, F. (2011). Challenges and Visual Solutions for Strategic Business Model innovation. In M. Hülsmann & N. Pfeffermann (Eds.), Strategies and Communications For Innovations (pp. 25–36). Berlin, Heidelberg: Springer Berlin Heidelberg. doi:10.1007/978-3-642-17223-6 29 Eppler, M. J., Hoffmann, F., & Bresciani, S. (2011). New Business Models Through Collaborative Idea Generation. International Journal of Innovation Management, 15(06), 1323–1341. doi:10.1142/S1363919611003751 30 Eppler, M. J., & Hoffmann, F. (2011) Ibid. P. 26
  • 32. 33 Third Part. Development of the Hypothesis and Experimental Verification. Chapter five will summarize the findings from the previous two sections and detail how they have contributed to the formation of the research hypothesis. Particularly in this chapter, the hypothesis is fully formed. The hypothesis of this work is that the design discipline possesses tools, methodologies, frameworks and a “designerly mindset” that could make the creation, framing, positioning, development and assessment of business ideas more reliable and efficient when exploring entrepreneurial opportunities. These toolsets could be transferred from the field of design to that of business to support the construction of new entrepreneurial ventures. The word “construction” is used since some of these tools are a step ahead of prefiguring: they are not just meant to design, but to dialogue, convince, construct, assess, and build a working prototype. (Nesta, 201131 ). The author opted for selecting service design tools as a potentially valid alternative for structuring the front-end of the entrepreneurial process because they enable and facilitate the framing, design, prototyping and assessment of complex intangible artefacts that require developing networks of actors and partners that support execution (Blomkvist, 201032 ; Meroni & Sangiorgi, 201133 ). The sixth chapter of the research describes the experimental verification of the hypothesis, in the context of an entrepreneurial open innovation platform. The platform was founded by prof. Carlos Teixeira, who kindly agreed to co-supervise the authors’ work, and Sonia Manchanda, founder of IDIOM design consultancy in Bangalore, India. The platform was founded and conceived in 2010 and started as a pilot project in India in January and February 2011. The project consists of three phases called Dream, Believe and Realize. However the focus of the research is in the Believe phase, when a workshop called “The Conclave” takes place. During the workshop participants refine the business ideas with the help of a multidisciplinary team with the objective of empowering and facilitating the creation and innovation process. The team is made up of students, professors, entrepreneurs, industry experts, ONG members and local authorities, among many others. Then, the ideas are pitched and refined, and teams who have a good idea and want to carry on and start the venture move to the next phase, in which they are mentored and put in contact with a network of investors. The chapter is divided in two parts; the first one analyzes and dissects the structure of the DREAM:IN platform in order to understand the model. The second part describes the experiment, a workshop performed within the first phase of the DREAM:IN China project in Beijing. The experiment applied a series of simplified service design tools during a workshop aimed to generate business ideas. One group used the tools and a larger control group did not. The results of the workshop are described, as well as the issues identified. e) Results The research provides an overview of the phenomenon of design-led entrepreneurship, andthestate-of-the-artofthemindsetandinstrumentsdesignhasbroughttobusiness. The empirical evidence correlates positively the use of service design tools with the marked increase in efficiency, reliability and rigor in business idea generation from the participants that used them. This is a promising sign for aspiring entrepreneurs since 31 NESTA (2011). Prototyping Public Services. Retrieved from www.nesta.org.uk/library/documents/Proto- typingLearning.pdf 32 Blomkvist, J. (2010). Conceptualising Prototypes in Service Design. Linköping University. Retrieved from http://liu.diva-portal.org/smash/record.jsf?pid=diva2:412916 33 Meroni, A. & Sangiorgi, D. (2011) Design for Services. Gower Publishing. Surrey, England.
  • 33. 34 these instruments could be used systematically to manage the uncertainty and risk and generate valid and robust business ideas in the earliest phases of the entrepreneurial process, a crucial moment in the birth of a new venture. Entrepreneurs could then, focus their time and energy in searching, framing, developing and assessing business ideas in a structured and rigorous manner avoiding inefficient activities and the waste of scarce and precious resources. The tools also helped the participants get a marked increase in efficiency both of time and material resources. The tools are inexpensive to design and print (they can be used at no cost) as well as materials for the workshop therefore valuable results can be achieved with very little resources. This is no small factor for bootstrapping entrepreneurs, especially in this tough economy, so they need to be assertive about where they spend their valuable time, money and energy. The results are encouraging in this direction: valuable results can be achieved with very little. The positive results from the workshop also point at the potential of the use of design strategiesinthefront-endoftheentrepreneurialprocess.Participantsusingdesigntools produced more detailed and comprehensive ideas, analyzed the issues at stake more deeply, and satisfied multiple constraints and guidelines in a reliable and systematic way. The design tools also enabled the participants to use their tacit knowledge about their culture and personal expertise to contribute and enrich business concepts. This is also an auspicious sign of the potential of design in knowledge brokering. Overall, the use of design tools and strategies correlated positively with the quality and quantity of the results produced. Furthermore, the design tools helped structure and de-mystify the front-end of the entrepreneurial process. Participants could focus on generating valuable ideas and refine them through multiple iterations without being distracted by factors related to managing the work process, the learning curve of the design instruments or cognitive overload brought on by the complexity of the issues at stake. The design of new services is quite similar to that of the starting up of new entrepreneurial ventures: they might have a material substrate, but they primarily pose problems related to the business model and to the ecosystem of actors and stakeholders. Designing a new service requires the construction of a complex network - which means that it is really new to the company that brings it to the market - its development is quite close to that of shaping a new business. The toolset used to build a new service can be thus adopted to give shape to a new entrepreneurial venture, since the front-end of new product (or service) development and the front-end of the entrepreneurial process are very similar. This similarity opens up promising cross- pollination of methods between design and entrepreneurship. The experimental model, using service design tools as aids in structuring the front- end of the entrepreneurial process, proposed reliable and replicable design strategies for dealing with multiple aspects to be considered when designing business ideas, and introduces the novelty of the contribution of design tools to add rigor, validity, reliability and efficiency to the front-end of the entrepreneurial process.
  • 34. 35 Chapter 1. Designing Entrepreneurial Opportunities
  • 35. 36 1. The importance of entrepreneurial opportunity A central construct and fundamental pillar of business ventures is the entrepreneurial opportunity.Thereisalargebodyofresearchthathasrecentlyfocusedonopportunities, since they were largely overlooked in entrepreneurship literature. Among the many research questions that come when studying opportunities are: What are entrepreneurial opportunities? Do opportunities exist and are waiting to be discovered or are they created? If they are discovered, why do some people discover them and others don’t? If they are created, how is it possible to do so? What are the factors that contribute to the discovery/creation of an opportunity? Is this an individual or a collective endeavor? Although much attention and energy has been dedicated to a generic approach to the discovery and creation of entrepreneurial opportunities from an entrepreneurship perspective, Can design contribute to the discovery of business opportunities? If so, what could be some of the contributions of design of their discovery? Although synthetically, this chapter will summarize the contributions of entrepreneurship research on the opportunity construct and attempt to link design thinking with cognitive traits necessary to discover business opportunities. 1.1. The entrepreneurial process There is a wide acknowledgement that the entrepreneur is the person who perceives/ creates an opportunity and creates an organization to pursue it. The entrepreneurial process involves all the functions, activities and actions associated with perceiving opportunities and creating organizations to pursue them. Bygrave (2010) describes the factors that influence the entrepreneurial process highlighting the fact that there is always a triggering event that pushes the entrepreneur to pursue an entrepreneurial opportunity. The diagram synthesizes the many complex factors that contribute to the formation of new entrepreneurial ventures. However, Bhave (1994) proposes a non-linear, iterative, feedback-driven, conceptual and physical process highlighting that, even after the business concept has been Figure 1 Bygrave (2010) p. 4 Adapted from Moore (1986) Personal Achievement Locus of Control Ambiguity Tolerance Risk Taking Personal Values Education Experience Opportunity Recognition Personal Risk taking Job dissatisfaction Job Loss Education Age Gender Commitment Resources Sociological Networks Teams Parents Family Role Models Advisers Personal Entrepreneur Leader Manager Commitment Vision Organizational Team Strategy Structure Culture Products INNOVATION TRIGGERING EVENT IMPLEMENTATION GROWTH Environment Opportunities Role Models Creativity Environment Economy Competition Resources Incubator Government Policy Environment Competitors Customers Suppliers Investors Bankers Lawyers Resources Government Policy Economy
  • 36. 37 EXTERNALLY OR INTERNALLY SIMULATED OPPORTUNITY RECOGNITION BUSINESS CONCEPT PRODUCT CUSTOMER MARKET STRATEGIC FEEDBACK OPERATIONAL FEEDBACK SENSEMAKING PROCESS SUPPLY & DEMAND BOUNDARY OPPORTUNITY STAGE TECHNOLOGY SETUP & ORGANIZATION CREATION STAGE EXCHANGE STAGE ORGANIZATION CREATED & PRODUCTION TECHNOLOGY COMMITMENT TO VENTURE CREATION defined, feedback from other actors (suppliers, customers, distributors, etc.) along the process can lead the entrepreneur into modifying his/her initial idea. This results into the entrepreneurial process being a non-linear iterative process. Murphy (2009, 2010)1 ; refers that many authors, although acknowledging that explaininghowopportunitiesareformedisvitaltoentrepreneurshipresearch,referthe existence of ambiguity on the ontological status of opportunities in entrepreneurship theory. However, most authors agree that the entrepreneurial opportunity is fundamental for the existence of the new venture and that it is placed very early in the entrepreneurial process although the debate on their nature and role in the entrepreneurial process is still ongoing (Murphy, 2010)2 . 1.2.Definition of entrepreneurial opportunity A first step in identifying what an opportunity is, depends on the school of thought. Shane (2003) 3 defines an entrepreneurial opportunity, as “a situation in which a person can create a new means-end framework for recombining resources that the entrepreneur believes will yield a profit”.4 Other authors like Plummer, Haynie & Godesiabois (2007)5 have categorized opportunities according to different economic perspectives (Table 1), however, Shane (2003) notes that these perspectives assume that the entrepreneurial opportunity is always profitable, whereas this is not always the case.6 1 Murphy, P.J. (2009) A model of the discovery, assembly, and viability of entrepreneurial opportunities. Entrepreneurship: values and responsibility. Retrieved from: http://works.bepress.com/profpjm/7 2 Murphy, P. J. (2010). A 2x2 conceptual foundation for entrepreneurial discovery theory. Entrepreneurship Theory and Practice, 35(2). Wiley InterScience Early View DOI: 10.1111/j.1540-6520.2010.00368.x 3 Shane, S.A. (2003) A General Theory of Entrepreneurship: The Individual – Opportunity nexus. Edgar Elvar Publishing, Inc. Massachusetts, USA. P. 18. 4 Murphy, P.J. (2009) A model of the discovery, assembly, and viability of entrepreneurial opportunities. Entre- preneurship: values and responsibility. Retrieved from: http://works.bepress.com/profpjm/7 5 Plummer, L.A., Haynie, J.M., Godesiabois, J. (2007) An Essay on the Origins of Entrepreneurial Opportuni- ty. Small Business Economics. 28:363-379. 6 Some of the definitions of opportunity included in the table are non-productive such as rent seek- ing. Technically other non-productive activities could also be considered entrepreneurial opportunities such as organized crime, therefore although the definitions could fit a variety of activities the context and content of the economic activity must be taken into consideration. Figure 2 Process model of entrepreneurial venture creation. Adapted from Bhave (1994)
  • 37. 38 Theory Foundations Type of economic rent Normative Implications Opportunity Construct Entrepreneurial Strategy SCP Porter Structure- conduct- performance paradigm: Firm as a production function Monopoly rent accruing to industry structure Assess the industry structure (five forces) to implement one of three generic strategies: cost leadership, differentiation o r niche. Opportunities are objective artifacts defined by unmet needs or demand Entrepreneur chooses a market positioning strategy; initial environment conditions and “correctness” of choices have stronger implications. Resource- based view Firm as a bundle of resources Ricardian rents accruing to valuable resources Acquire and leverage valuable advantage- granting resources; develop and upgrade core competences or dynamic capabilities. Opportunities are objective artifacts that exist because of the firm and its access to resources and capabilities. Earliest decisions that influence among other things the ability to acquire and leverage valuable resources (e.g. location, legal form) are pivotal. Transaction cost economics New institutional economics, firm theory; firm as a governance structure for exchange Pareto (quasi) rents accruing to assets put to first-best use. Assess the nature of the difficulties for a given transaction; select most efficient governance structure (i.e. firm, market or hybrid) Opportunities are objective artifacts defined by possibility for reducing or exacerbating transaction “frictions” Aside from the mode of exploitation (firm or market) a key decision is the governance structure and the boundaries of the firm (ex. What to make and what to buy) Evolutionary Theory Evolutionary economics (Schumpeter): firm as a repertoire of routines Schumpeterian rent accruing to search and selection of new combinations (i.e. organizational and technological innovation) Selection of a first-best strategy is not possible, efforts to optimize lead to inefficiency. Opportunities are objective artifacts to be “found” by search routines. Less clear than other theories, but the concepts of search and discovery are strongly related. Real options reasoning Focused on the “components” representative of a firms’ total market value Schumpeterian rents based on opportunities flowing from the options “to purchase additional productive capacity in future periods” Value of flexibility in the face of uncertainty and dynamic conditions Opportunities are representative of investments today in anticipation of future investments given uncertainty. Focused on entrepreneurial strategies that allow for the leveraging the benefits of flexibility and entrepreneurial discretion. Table 1: Classification of entrepreneurial opportunities. (Plummer, Haynie & Godesiabois, 2007) Plummer, Haynie & Godesiabois (2007), identify in their table the different factors that could account for a firms’ superior performance and thus, be an essential part of the opportunity construct. These authors claim that it can be deducted from these perspectives a support for the idea that opportunities are objective not subjective phenomena that theoretically exist
  • 38. 39 outside of the individual7 . Most authors divide opportunities in two major types: Kirznerian and Schumpeterian. Inanutshell,Kirzner(1975)andSchumpeter(1934)disagreedoverwhethertheexistence of entrepreneurial information involves the introduction of new information or just differential access to existing information. In simple words, Kirznerian opportunities are viewed as “discoveries” whereas Schumpeterian opportunities are viewed as “creation”. Schumpeterian opportunities Kirznerian opportunities Disequilibrating Equilibrating Requires new information Does not require new information Very innovative Less innovative Rare Common Involves creation Involves discovery Table 2. Taken from Shane (2003) The debate on whether opportunities are found or created has been going on for decades, with authors presenting inconclusive and contradictory results that will be detailed in the following pages. On a very basic level however, all opportunities must include references to three central characteristics: potential economic value (i.e. the capacity to generate profit), newness (i.e. some product, service or technology that did not exist previously), and perceived desirability (e.g. moral and legal acceptability of the new product or service in society)(Baron, 2007). Opportunities begin in a very elemental form, as fuzzy constructs such as “imprecisely- defined market needs, or under-employed resources or capabilities” (Kirzner,1997). The latter may include basic technologies, inventions for which no market has been defined, or ideas for products and services. Prospective customers may or may not be able to articulate their needs, interests or problems (Von Hippel, 1994).” Ardichvilietal.(2003)distinguishopportunitiesintermsofthevaluecreationcapability (known or unknown) and the value sought (or market needs). Defined value creation capability includes specifications or intellectual, human, financial and/or physical resources (e.g. general specifications for a product/service). In the matrix, value sought may represent problems and value creation capability may represent solutions. This matrix, which the abovementioned authors adapted from the creativity literature (Getzels, 1962), differentiates between opportunities based on their origin and degree of development. The authors however point out that these phases could be subsequent, with opportunities going through the four phases. Nevertheless, it is assumed that the solutions are technology-based. 7 Plummer, L.A., Haynie, J.M., Godesiabois, J. (2007) Ibid. P. 373
  • 39. 40 Baron (2006) recalls that opportunities emerge from a complex pattern of changing conditions – changes in technology, economic, political, social and demographic conditions. They come into existence at a given point in time because of a juxtaposition or confluence of conditions that did not exist previously but is now present. For Byers, Dorf and Nelson (2010) an opportunity is a timely and favorable juncture of circumstances providing a good chance for a successful venture. They acknowledge that discovering (or creating) opportunities is a creative process that relates a need to the methods, means or services thatsolvetheproblem.Agoodopportunitycreatesvalueforthecustomer.Anotherway of describing a good opportunity is to describe the customer’s pain, which represents the extent of need for the solution of a problem. Thus, a high value solution is sought by a customer who feels significant pain or need. 1.3. The discovery perspective One of the two major perspectives on the origin of entrepreneurial opportunities is the discovery approach. According to these authors, opportunities exist and are objective entities that are waiting to be discovered by alert individuals. The basic assumption of this perspective is that there are sub-utilized resources in existence and the entrepreneur re-configures these resources so they can yield a profit. An example would be, for instance, the existence of an empty commercial space in a neighborhood. The entrepreneur might then decide, based in different cognitive processes, that if s/he set up a restaurant in that place, s/he might yield a profit. In doing so, s/he establishes a new means-end framework for a profit. Shane (2003) argues that this process, since it is cognitive, can only be carried out by an individual. Therefore most research on the Kirznerian perspective is focused on why some individuals perceive opportunities and not others. Critics of this perspective argue that these types of opportunities are not innovative (for example, speculating with values in the stock market and or buying and reselling a property for a profit are also examples of Kirznerian opportunities). “Discovery entrepreneurs” focus on predicting systematic risks, formulating complete and stable strategies and procuring capital from external sources. The advantage of these MARKET NEEDS VALUE CREATION CAPABILITY Undefined Defined Unidentified Identified Dreams I Problem Solving II Technology Transfer III Business Formation IV Figure 3. Value Creation Capability. Adapted from Ardichvili et al. (2003)
  • 40. 41 entrepreneurs comes from being the first to decide to exploit them. However, since the information about these opportunities and their exploitation is widely available these first mover advantages are difficult to sustain (Lieberman and Montgomery, 1988). Nevertheless, discovery authors mention some individual traits that contribute to the “discovery” of entrepreneurial opportunities. These traits could enable entrepreneurs to react to information in their environment and produce numerous business ideas. Someofthesetraitsaretypicalofdesignersanddesignculture,andonecouldarguethat designers could be well equipped to detect and perceive entrepreneurial opportunities. This does not imply that they could be successful entrepreneurs but merely that they could be better trained at detecting potential opportunities. However, the current trend is to integrate some of this “designerly” capabilities into business curricula, or to create design-driven curricula created ex-facto for business managers, given that design has been deemed a suitable answer to the challenges of finding new ways of thinking and working, that can be applied in situations of complexity, uncertainty and ambiguity and generate new insights and new solutions (Matthews, Bucolo and Wrigley, 2011). Some of the early attempts to integrate design education in business curricula included joint courses by the Rotman School and the Ontario College of Art and Design; The Illinois Institute of Technology’s Institute of Design, a nine-month-long executive master’s degree program in design methods; and Stanford University’s $35 million commitment to launch its ‘d.school’, for people from large companies and startups to come to learn design thinking. 1.4.The Creationist Perspective In creation theory, opportunities to produce and sell new products or services do not exist until entrepreneurs act to create them. According to this theory, entrepreneurs do not “recognize” opportunities and act upon them but rather, they act and wait for a feedback from the market. Then they readjust their initial offering and act again. In acting, entrepreneurs create opportunities that could not have been known without the actions they took. Entrepreneurs also may not be able to foresee how the market will react to their offering and can only have hypotheses. A key difference between a “business idea” or “creative idea” and an entrepreneurial opportunity from a creationist point of view is the fact that the entrepreneur must act on the idea so it can become an opportunity (Dimov, 2007) . A fundamental fact for classifying as an entrepreneur is do to something about the idea, since entrepreneurship can be characterized as acting in the face of uncertainty (McMullen&Shepherd,2006inDimov,2007).Anopportunitycanonlybeconsideredas such when it is considered to be viable. Thus, it’s the work of the aspiring entrepreneur to work in the idea, make it as robust as possible, assess it and test it in order to turn it into an opportunity. Dimov deepens this ontological contradiction: “It is not about the idea per se; rather, it is about finding out whether the idea can really deliver its original promise. But then, how far should my idea stretch in order to be considered entrepreneurial, i.e. an opportunity? How can eventual commercial viability – and who is to make this judgment? - Have a bearing on
  • 41. 42 whether what I am thinking bout here and now, before I have done anything about it or as I am taking the very first toward pursuing it, be considered an opportunity?” His definition of entrepreneurial opportunity embraces creativity as a fundamental part of the generation of the idea: “Opportunity as a creative product in entrepreneurship is the progress (idea + action) along a continuum ranging from an initial insight to a fully shaped idea about starting and operating a business”. This is the definition that will be used throughout this work. In the creationist perspective, the opportunities are first and foremost, imagined. The viability of the idea remains to be seen. Then, a sense-making process will begin in order to clarify the viability of this vision of a possible future. The sense-making process needs the feedback of the entrepreneurs’ peers and members of his social network. During this process the idea will be refined and it will progress from “opportunity” into a more structured form of business concept. As the business concept is refined it becomes more complex, including product/service concept (what is to be offered), market concept (to whom it will be offered), supply chain/marketing/operations concept (how the product/service will be delivered to the market)(Cardozo, 1986). This development process, which some authors call objectification, involves proactive efforts much like that of new product development but the development process here gives rise to an entire business, not just a product (Pavia, 1991). A key point of this theory is the generation of new knowledge by acting and creating. The process is refined and repeated for as many times as possible. This process, called effectuation, is acknowledged to be messy and non linear. As such, the opportunity develops as a social construction and does not exist apart from the entrepreneur (Shackle, 1979; Sarasvathy, 2001; Baker and Nelson, 2005) . In this context of high uncertainty what matters the most is not just reorganizing existing resources and information but rather, asking the right questions, designing new experiments, remaining flexible and learning (Mintzberg,1994). When entrepreneurs do not have well understood and deep knowledge of the opportunities they are enacting, learning by doing is a more effective guide to entrepreneurial action than detailed planning (Argote, 1999 in Álvarez and Barney, 2007). Entrepreneurs in these conditions develop their own knowledge structures through repeated experiments and then use those knowledge structures to give the information they create form and meaning (Walsh,1995 in Álvarez and Barney, 2007). Furthermore, even though the creationist perspective acknowledges the role of the individual in the creation of the initial business idea, the picture is not complete. Dimov (2007) argues that the context, the environment and the entrepreneur’s social circle can heavily influence the entrepreneur in this very early stage. Because in this perspective opportunities are viewed as social constructions, a key ability of the entrepreneur would be the ability to reach consensus and produce coalition building to effectively influence current economic and social structures in ways that give rise to opportunities for profit (Shackle, 1979; Weick, 1979; Giddens, 1984; Sarasvathy, 2001; Dimov, 2007; Felin and Zenger, 2009 in Wood and McKinley, 2010). Thus, the entrepreneur first envisions his or her idea, and then initiates a sensemaking process to clarify the viability of the idea. This sensemaking process takes place through interactions between the entrepreneur and his or her peers: for example, family, friends, and mentors. If the entrepreneur
  • 42. 43 decides to exploit the opportunity, then he or she attempts to enact the opportunity by engaging the social structure and trying to involve potential stakeholders into supporting the venture. The support of these individuals is needed to turn the opportunity into a working business (Lounsbury and Glynn, 2001 in Wood and McKinley, 2o1o). In this perspective consensus building is a key to the successful enactment of opportunities and that social relationships and reputation help facilitate that task (Wood and McKinley, 2010). 1.5. Reconciliation between discovery and creation perspectives. In recent years, however, a few authors have come to the conclusion that both discovery and creation theory can coexist, or perhaps even be two ends of the spectrum. They are rarely found “pure” in practice, and many authors acknowledge that most entrepreneurial opportunities entail a phase of discovery, a phase of creation and even the influence of luck. Chandler,DeTienne&Lyon(2003)discussthedifficultyofcategorizingentrepreneurial opportunities and advice that most of them are a mixture of the following factors: 1. Pro-active search: Individuals identify opportunities through purposeful, deliberate search. The abovementioned authors highlight the fact that many authors pinpoint at this modality of discovery within existing organizations (corporate entrepreneurship). 2. Problemistic search: Search of solutions to specific problems expressed in terms of dissatisfaction with the performance of existing activities. 3. Fortuitous discovery: Opportunities are discovered fortuitously by those individuals that are alert to changes in the environment and “have the ability to notice without search”. Other authors acknowledge that entrepreneurs must have also knowledge in order to recognize potential opportunities when they arise. 4. Opportunity creation: As proposed by Schumpeter, the opportunity is created by the entrepreneur or the firm and the consumer is “educated” to desire the particular product . In this perspective opportunities can be created in five areas: the introduction of a new good, a new method of production, the opening of a market, the conquest of a new source of supply and the carrying out of the new organization of any industry. This model particularly is the one that has longest development times and requires high levels of individual creativity and action since, as Shane (2003) recalls, it must be remembered that opportunities in themselves lack agency. The mere existence of an opportunity does not spontaneously result in exploitation. This can only happen through the action of a human being. Chandler et al. (2003) give the example of an animal bandage company created by a retired magazine manager, as an example of the difficulty of classifying opportunities. The manager’s cat got into a fight and needed stitches. When the cat was brought home from the veterinarian he started knocking things over because of the collar they put him to stop him from licking his wounds. He and his wife fashioned a bandage out of a stocking for him to use as a control top. This eventually became the company’s first and primary product. This story involves nearly all of the above-mentioned factors: a fortuitous circumstance (the cat fight), focused problemistic search (finding a substitute for the collar), and opportunity creation (creating a new product and new
  • 43. 44 company which did not exist before). Other authors such as Baron (2007) although explicitly embracing discovery theory, acknowledges that designing and developing a product involves creation. Thus, discovery may be referred to the moment of perceiving a need or “connecting the dots” in order to envision a potential opportunity however when it comes to designing an offering one can talk about creation. One could, for instance, discover a market need or a change in consumers’ behavior but then in order to satisfy this need, the entrepreneur should create a product or service to satisfy this need.
  • 44. 45 1.6. Individual Cognitive Factors that could contribute to the discovery/creation of entrepreneurial opportunities Entrepreneurship research has been studying the factors that contribute to the discovery/creation of entrepreneurial opportunities. So far, these contributions can be mapped along two axis: Figure 4. Mapping of the different strains of entrepreneurial research that analyze the variables that contribute to opportunity discovery/creation This section of the research will focalize mostly in the research that has been done in the areas covered by the inferior right quadrant: those factors inherent to cognitive factors internal to the individual, since a firm body of literature supports the notion that internal cognitive traits of people enable them to identify and construct entrepreneurial opportunities. Support systems that enable the creation of new firms such as incubators, clustering, venture capital etc., thus, external system models to the organization will be discussed in chapter 4. Since the initial phase of opportunity idea or “insight” happens inside the individual’s mind, a big strain of research has focused on the personality traits, cognitive processes, life experiences and knowledge possessed by individuals who discover/create entrepreneurial opportunities. Some of the cognitive traits possessed by alert entrepreneurs, overlap with cognitive traits that are also characteristic of design thinking. Thus, it could be argued that designers may be more inclined to spot opportunities because they are formally trained in the same thinking skills that facilitate discovering them.
  • 45. 46 1.6.1.Individual cognitive factors: Creativity Creativity is acknowledged to be an important factor in the discovery/creation of entrepreneurial opportunities. However, detailed research is lacking and some of the findings are mixed (Gielnik, Frese, Graf et al., 2011)8 . Creativity is best understood as an iterative process of divergent and convergent thinking to generate, evaluate, refine and eventually come up with a creative idea. (Basadur et al., 1982; Mumford et al,. 1991; Ward et al., 1999). A systematic examination of creativity in the entrepreneurial process would thus require disentangling the different stages of both the creative process and the entrepreneurial process.9 Some of the mixed findings relating to the relationship between creativity and generation of entrepreneurial opportunities may have to do with the fact that different measures of entrepreneurial success are used such as business ideas, business opportunities, venture growth, etc. which scholars have attempted to link with creativity. Shane (2003) also acknowledges that there is evidence that creativity and innovation of a firm’s founders is positively linked to some measures of innovation and success of a firm. Creativity can be defined as a process that alternates divergent and convergent thinking. Divergent thinking facilitates the generation of multiple novel, and original ideas whereas convergent thinking facilitates the detection of applicable, correct and useful ideas (Basadur et al., 1982; Brophy, 1998; Cropley, 2006; Mumford et al., 1991 in Gielnik at al., 2011.) Through divergent thinking, people produce an initial set of multiple and original ideas that form the basis for subsequent stages of evaluation and refinement. In the case of designers, it needs to be highlighted that although they have been stereotyped and portrayed as being exclusively “creative” and “thinking outside of the box” in popular media, they possess both sets of skills that distinguish creativity as an asset: training in both divergent and convergent thinking. It is also to be noted that although design is most notable for its “creative outcome”, (creativity in the form of a product), in recent years design’s focus has shifted into creativity as a process. Cross (200610 ) reports that the mental insights defined as creative leaps are not as personal and idiosyncratic as the “romantic” popular notion of the creative genius tends to repeat. In a protocol study done in 1998 with experienced industrial designers, Cross and Dorst reported that all subjects when confronted with a design problem had the same creative breakthrough. All nine linked together the same pieces of available information and used this as a basis for their solution concept. All nine thought their insight was a unique personal insight11 . Thus, it can be deducted that the training and experience these designers had enabled them to combine the information correctly. Even in a discovery perspective the creativity factor is important, because according to Kirznerian scholars, entrepreneurial opportunities mean the need to reorganize resources into a new means-end framework. In order to do so an entrepreneur needs 8 Gielnik, M.M., Frese, M., Graf, J.M., Kampschulte, A. (2011) Creativity in the opportunity identification process and the moderating effect of diversity of information. Journal of Business Venturing,27, (5), September 2012, Pages 559-576, ISSN 0883-9026, 10.1016/j.jbusvent.2011.10.003. 9 Gielnik et al. (2011) Ibid. P. 560 10 Cross, N.(2006) Designerly Ways of Knowing. Springer-Verlag. London. P. 85 11 Cross, N. (2006) Ibid. P. 86
  • 46. 47 imagination and creativity because it involves identifying, defining and structuring novel solutions to open-ended problems. (Harper, 1996; Sarasvathy, 2001 in Shane, 2003). 1.6.2. Dealing with ill-defined problems A fundamental characteristic of design thinking is the fact that it deals with ill-defined or wicked problems. As Cross (2006)12 puts it: “It is also now widely recognized that design problems are ill-defined, ill- structured, or ‘wicked’ (Rittel and Webber, 1973). They are not the same as the ‘puzzles’ that scientists, mathematicians and other scholars set themselves. They are not problems for which all the necessary information is, or ever can be, available to the problem-solver. They are therefore not susceptible to exhaustive analysis, and there can never be a guarantee that ‘correct’ solutions can be found for them. In this context a solution-focused strategy is clearly preferable to a problem-focused one: it will always be possible to go on analyzing ‘the problem’, but the designer’s task is to produce ‘the solution’.” Thus, designers are used to dealing with open-ended problems and have developed the ability to handle them and produce solutions, even in absence of all the possible information about the problem. This also deals with another important traits that entrepreneurs should possess when starting a venture: the ability to deal with uncertainty. 1.6.3 Generalization over small samples and use of heuristics Another characteristic of entrepreneurs is their overconfidence in their own abilities. This might be considered a positive optimism bias because overconfidence is the belief in the accuracy of one’s judgment that is too high given actual data. Overconfidence encourages people to exploit entrepreneurial opportunities (Busenitz, 1999) because it leads people to take action in situations in which they do not have enough information to assess the likelihood of their success, but where further investigation would reveal the poor odds, a short opportunity half-life, or the low value of the opportunity facing them (Busenitz and Barney, 1997; Johnson, 1986; Cassonm 1995; De Meza and Southy, 1996; Wu, 1989 in Shane, 2003). This overconfidence is related to another cognitive trait that is characteristic not only of entrepreneurs but of designers as well: a tendency to generalize over small samples. This trait, called representativeness bias, encourages a person to exploit entrepreneurial opportunities. Decisions to exploit opportunities must be made in situations where there is little historical information to guide the decision. Moreover, these decisions have to be made under significant uncertainty, in settings in which greater effort to analyze information will not resolve that uncertainty (Busenitz and Barney, 1997 in Shane, 2003). This is related to another individual trait: optimism, meaning they expect positive outcomes even when such expectations are not rationally justified (Hmierleski and Baron, 2009). Busenitz and Barney (1997) also demonstrated that entrepreneurs tend to overestimate the probability of being right and overgeneralize from a few characteristics or observations more than managers of large, well established organizations. Busenitz and Barney (1997) point to the use of heuristics, or “rules of thumb” as a way 12 Cross, N. (2006) Ibid. P. 7
  • 47. 48 of making decision in the absence of enough information but when a decision has to be made before the window of opportunity closes. The authors associate the heuristic process with innovativeness in entrepreneurs. Martin (2009) highlights the role of heuristics in the advancement of knowledge in many areas: a phenomenon that is scarcely understood for example, writing successful music starts to be slowly understood and is codified into a rule of thumb. This allows then the heuristic to be further refined into a repeatable process which allows for the exploitation of the knowledge. However, seldom does knowledge go directly from mystery to knowledge without being a heuristic first. Heuristics are important because they enable entrepreneurs to handle uncertainty. The term is important because uncertainty and risk are not synonymous. In a risk, the probabilities of a set of outcomes are known. A risk is quantifiable and may be subject to actuarial evaluation; it is also possible to be insured against it. On the other hand, uncertainty means the outcomes are known but not the probabilities (Wickham, 2003)13 . This means that when entrepreneurs are deciding if they want to pursue entrepreneurial opportunities, they are facing an uncertain situation. Busenitz and Barney (1997) affirm that pursuing entrepreneurial decisions might not have happened if the entrepreneurs would not have used heuristics to approximate and roughly predict decision outcomes in absence of precise information. Thus, people with cognitive styles that tend to encourage intuition and tools to deal with ambiguity might approximate entrepreneurial opportunities with more openness than people with strict analytical cognitive styles. Accordingly, designers could seem to be well equipped to deal with openness and ambiguity, uncertainty about the problems faced and lack of complete information, and work on solutions based on heuristics and rules of thumb. As Cross (2006) points out, the focus of design work is the production of solutions to design problems. The designer produces a variety of solutions, and they will in turn provide information, which will lead the designer to produce a more refined solution and so on.14 This leads back to the very nature of design problems, which never provide the entire in-depth information necessary for a solution. Therefore, a problem-solving strategy of trial and error with alternative or half-baked solutions or prototypes is typical of the design process. It’s messy and does not yield neat intermediate results. However, the use of small-scale models or representations allows the process to advance and gives back feedback on the nature of the problem to the designer (Cross, 2006). This would not be possible without the use of heuristics and approximations, which designers use continuously whenever they build a model or prototype. 1.6.4 Alertness and “connecting the dots”. Otherkeycognitivetrait,particularlyfromthediscoveryperspectiveisthatofalertness. Since opportunities “exist” and are only found by alert individuals in discovery perspective, alertness thus becomes a fundamental trait for entrepreneurs. This alertness brings to the entrepreneur knowledge that nobody else has: the existence of a new product, a new productive process or simply a difference in price of an item in two locations that allows him/her to sell the item for a profit. Alertness is different from systematic search, when the entrepreneur would be seeking for new information, 13 Wickham, P. A. (2003). The representativeness heuristic in judgements involving entrepreneurial suc- cess and failure. Management Decision, 41(2), 156–167. doi:10.1108/00251740310457605 14 Cross (2006) Ibid. P. 30
  • 48. 49 but rather entrepreneurship is the act of discovering and being alert to opportunities, changes in the environment, trends or modifications of consumer’s behaviors that others fail to perceive15 . This in turn connects with another key trait. Once the entrepreneur has perceived a demographic trend, for instance, he or she would then “connect the dots” and imagine how this information, integrated with his or her life experience and knowledge could combine into an entrepreneurial opportunity. In the definition of Baron (2007): “Recognition of opportunities depends, in part, on cognitive structures possessed by individuals – frameworks, developed through their previouslifeexperience.Theseframeworks,whichservetoorganizeinformationstored in memory in ways, useful for the persons who possess them, serve as “templates” that enable specific individuals to perceive connections between seemingly unrelated changes or events. In other words, they provide the cognitive basis for “connecting the dots” into patterns suggestive of new business opportunities”. Individuals can then recognize patterns within their personal stream of experience (Weick, 1995 in Dimov, 2007). Kuratko (2008) 16 identifies possible sources for innovative ideas: Trends : Societal, technological, economic, government Unexpected occurrences: For example, the 9/11 terrorist attacks Incongruities: These occur when a gap occurs between expectations and reality. Process needs: Answer to particular needs required by the market. Industry and market changes: Continuous shifts in the marketplace are caused by developments such as consumer attitudes, advancements in technology and industry growth. Demographic changes: These arise from trend changes in population, age, education, occupations, geographic locations and similar factors. Perceptual changes: These are changes that occur in people’s interpretation of facts and concepts. The changes in perception can lead to major shifts. Knowledge based concepts: These are the basis of the creation or development of something new. Inventions are knowledge-based and they are the product of new thinking, new methods, and new knowledge. Designers are trained to be aware of their surroundings and trends in many different areas; this becomes part of their own personal cultural baggage. When faced with a project, it is expected that designers will incorporate elements from their personal baggage as elements inside the project. Particularly, the attention to trends, or changes in people’s behaviors or “weak signals” is fundamental within the design discipline. Designers would then be expected to synthesize the different blocks of information and synthesize them into one coherent working solution, thus “connecting the dots”. Furthermore, in design culture, attention to trends and new sociocultural behaviors is regarded as extremely important, because it is already acknowledged as potential source of inspiration and innovation. These social and cultural trends, known as “weak signals” may indicate the emergence of a new insight about a future strong trend among consumers. Design-driven innovation is, according to Dell’Era and Verganti (2007)17 , a type of radical innovation in which the novelty of product semantics prevails 15 Foss, N., & Klein, P. (2009). Entrepreneurial alertness and opportunity discovery: Origins, attributes, critique. In F. Lorhke & H. Landström (Eds.), The Historical Foundations of Entrepreneurship Research. UK: Ed- ward Elgar. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1353981 on June 7th, 2013 16 Kuratko, D.F. (2008) Entrepreneurship: Theory, Process, Practice. South Western Cengage Learning. Ma- son, OH. 17 Rampino, L. (2011). The innovation pyramid: A categorization of the innovation phenomenon in the product-design field. International Journal of Design, 5(1), 3–16. Retrieved from http://ijdesign.org/ojs/index.php/
  • 49. 50 over functional and technological novelty. The aforementioned authors stress the importance of innovating the meaning of the product, which becomes the key driver of innovation. Some famous Italian design-driven companies even possess among their prized capabilities the ability to read and interpret social and cultural phenomena in what Dell’Era (2007)18 calls Linguistic Design Driven Laboratories. These laboratories act as research and development labs for companies whose main objective is to produce design-driven innovation. In order to produce the cultural knowledge necessary these “Linguistic Labs” also scout the art and cultural worlds, and occasionally collaborate with these cultural producers into generating together the cultural discourse they will later use to embed meaning into their products. Thus, alertness and considering social and cultural “weak signals” and new behaviors is deeply embedded in design culture. 1.6.5 Knowledge of how to serve markets Because entrepreneurs face uncertainty about the value of goods and services that they plan to produce, knowledge of the industry or market that they will enter has a strong influence on the decision to exploit an opportunity. Those people with prior experience in an industry as a customer or supplier often have a better understanding than others of how to meet demand conditions in that market place (Knight, 1921; Von Mises, 1949) because industry experience provides information that outsiders cannot gather (Johnson, 1986 in Shane, 2003). In the case of designers, this combines with another important factor; Shane (2000) explained that a person is more likely to discover an entrepreneurial opportunity if s/ he knew what products or services could be introduced, how these products or services could be produced or distributed, how a new material could be used in the production process, or what sources of supply are available (Shane, 2003). Thisinformationcancreateadisequilibrium(accordingtodiscoverytheorysupporters), which the entrepreneur can use to his/her advantage in order to rearrange resources and create a new means-ends framework. In design culture, a person designing any product needs to address all of these issues and be knowledgeable in most of these areas in order to design and create a product from sketch to the consumer. Traditionally, this area has been the core expertise of designers. Designers are trained to be sensitive to people’s needs and wants, and to innovate products from user observation. They should be able to create products to satisfythoseneedsconsideringcriteriarangingfrommaterialsknowledge,ergonomics, production processes, aesthetic beauty and usability. Nowadays, it is also common for designers to design not only the product but also the retail experience, how and where the product will be sold, which are sometimes more important than what you are selling. This experience, know-how and sensibility give designers an edge in innovating products and services. Thus, designers could be better at imagining new products and services to be introduced to the market. This does not imply that they would succeed as entrepreneurs but merely that they could generate more innovative product and service ideas. IJDesign/article/view/645 18 Dell’Era, C. (2007). Language Mining: Managing Design-Driven Innovation by Capturing, Interpreting, and Communicating Knowledge about Socio-Cultural Trends. Doctoral Dissertation. Politecnico di Milano. P. 123.
  • 50. 51 1.7 Discussion: the possible contribution of design to opportunity creation As discussed before, designers may contribute to discovering the business opportunity, using the cognitive traits that both designers and successful entrepreneurs share: creativity, ability to deal with ill-defined problems, a tendency to generalize over small samples and use heuristics, alertness to trends and an ability to “connect the dots”. Design culture also encourages empathy with consumers and their incipient needs or wants, as a means of both producing appealing products and designing them considering their future use. Design is a future-oriented activity (Morello, 2000)19 , it should anticipate user’s reactions and experiences while using a product or service. It helps visualize products or services that do not exist yet through sketching and/or computer renderings. It can imagine and show possible futures through visualization, prototyping, design-oriented scenarios and models can produce information and insights that stake holders and users can use to provide feedback and make decisions affecting the process in an early stage (Zoels and Gabrielli, 2003)20 . Thus, design helps envision, in a planning sense; and it objectifies creating tangible artifacts that may become actual products or services, which in turn is also a key capability when starting a new business venture. Thus, there are positive hints to the notion that designers could be valid allies in the process of identifying potentially successful business ideas. This does not imply that the venture would be successful since identifying an opportunity and executing the business are different activities that require different skillsets. When executing the business idea, the ability to produce and deliver reliable results and have a profitable and successful venture is an ability that so far belongs to entrepreneurs. Furthermore, the sphere of influence of design is expanding, moving away from physical objects into designing strategies, systems, environments and even values (Buchanan, 1998).21 This ever-expanding range of design’s sphere of influence has also touched aspects that were not traditionally thought as design contributions such as instruments to co-design business models, which will be described in the following chapter. 19 Morello, A. (2000). Design Predicts The Future When It Anticipates Experience. Design Issues, 16(3), 35–44. 20 Zoels, J., & Gabrielli, S. (2003). Creating Imaginable Futures: Using Design Strategy as a Foresight Tool. ACM DUX03 Conference, S. Francisco, USA. Retrieved from http://dl.acm.org/citation.cfm?id=997114 on May 13th, 2013. 21 Buchanan, R. (1998). Branzi’s dilemma: Design in Contemporary Culture. Design Issues, 14(1), 3-20.
  • 51. 52
  • 52. 53 Chapter 2. Business Models as Enactors of Entrepreneurial Opportunities: Possible Design Contributions
  • 53. 55 Business models have been the focus of much recent attention by various disciplines such as management, information technology, entrepreneurship and economics. The design discipline has also shown interest in business models, particularly following the publication of Osterwalder and Pigneur’s (2010) work, Business Model Generation1 . The notion of business models as being something that can be designed, and be subject of innovation begun to be widespread and caught the attention of design researchers. This is particularly relevant for design, because business model innovation closely resembles design-driven innovation: it is neither technology-driven, neither market- pulled, the two traditional drivers of innovation. Business models can be designed and it is their design that will determine the value creation and appropriation mechanisms of the firm. This may seem obvious to the design and business reader, however until very recently business models were very vague constructs and a very important percentage of new firms did not even know what its business model was. In a study by Heirman and Clarysse (2004) 42% of the firms in their study did not have a clear business model2 . Osterwalder (20043 ) described business models through a design-science approach, arguing that while other firm constructs can be studied scientifically, observing them, measuring them and analyzing them; business models have to be created, as they do not exist yet. Thus, business models are part of the artificial world created to serve human purposes (March and Smith, 1995 in Osterwalder, 2004)4 , they are not natural phenomena that can be observed and understood. Thus,fordesignresearchersandpractitionersaroundtheworld,theinterestinbusiness model stems from the notion of innovating not only single products or services, but rather value creation and capture systems. Thus, design has adopted the perspective of innovation management literature, in the words of Zott, Amit and Massa, 20115 : “In the technology and innovation management field, the business model is mainly seen as a mechanism that connects a firm’s (innovative) technology to customer needs and/ or to other firm resources (e.g., technologies). The business model is conceptually placed between a firm’s input resources and market outcomes, and it “embodies nothing less than the organizational and financial ‘architecture’ of the business. (Teece, 2010 in Zott, Amit and Massa, 2011)” However, although the role of business model design as driver of innovation is very relevant for the discipline, this role has been much more explored by design scholars. Nevertheless, there is one approach to business models that is also relevant for this research: the entrepreneurial approach. According to George and Bock (20116 ), a business model is “the design of organizational structures to enact a commercial opportunity”. This definition also has relevance for this work and this will be detailed in section 2.4.1. This chapter has two objectives: firstly, to provide a quick overview of business model definitions and origins, secondly to attempt to link together the concepts of business 1 Osterwalder, A., Pigneur, Y. (2010) Business Model Generation. John Wiley & Sons. Hoboken, NJ. 2 Heirman, A., & Clarysse, B. (2004). How and why do research-based start-ups differ at founding? A resource-based configurational perspective. The Journal of Technology Transfer, (June), 1–65. Retrieved from http://link.springer.com/article/10.1023/B:JOTT.0000034122.88495.0d. P. 35 3 Osterwalder, A. (2004). The Business Model Ontology: A Proposition in a Design Science Approach. Business. Université de Lausanne. 4 Osterwalder, A. (2004) Ibid. P. 4 5 Zott, C., Amit, R., & Massa, L. (2011). The Business Model: Recent Developments and Future Research. Journal of Management, 37(4), 1019–1042. doi:10.1177/0149206311406265 6 George, G., & Bock, A. J. (2011). The Business Model in Practice and its Implications for Entrepreneurship Research. Entrepreneurship Theory and Practice, 35(1), P. 99
  • 54. 56 model, business model design and entrepreneurial opportunities and finally, to provide a more comprehensive understanding of the potential contribution design as a discipline may bring to business model design, at various levels. 2.1 A brief history of the business model construct Since the decade of the 1990s, the concept of business models gained attention particularly from scholars from the fields of entrepreneurship and information technology. They noticed that with the emergence of e-business (or e-commerce), made possible by the Internet, new ways of creating and delivering value became suddenly possible, especially with the increasing interdependence of firms with external partners through unconventional exchange mechanisms and transaction architectures and accentuated the possibilities for the design of new boundary- spanning organizational forms (Daft & Lewin, 1993; Dunbar & Starbuck, 2006 in Amit, Zott & Massa, 20117 ). These developments opened new horizons for the design of business models by enabling firms to change fundamentally the way they organize and engage in economic exchanges, both within and across firm and industry boundaries (Mendelson, 2000 in Amit, Zott & Massa, 20118 ). They point out that, in an industrial economy model of the last decades of the 20th century, there were other fundamental assumptions about value creation and business models. First of all, customers were mostly passive and locked-in because of information asymmetries. Intermediate agents like retailers, distributors, travel agents, brokers and so on, had the upper hand on the information regarding products or services so customers needed to spend time and money looking for it. Consequently most customers were passive and stayed with one company, one car brand, etc. for most of their lifetime. Suppliers were also passive actors, and the rules of value creation and competition were fixed and established tightly by the industry. The only goal was to obtain a high ROI (return of investment) and the only competitive advantage for a firm was to have lower costs than its competitors. The de facto unit of analysis was the industry, and the industry was at all effects the business model.9 However, in the 21st century many of these fundamental assumptions do not apply anymore.Forinstance,customersareactive;theyhavemanychoicesandevaluatethem accordingly. Nobody can prevent customers from deciding which product or service to prefer and no one can block new entrants to the market anymore. According to the aforementioned authors today it does not make much sense to talk about industries anymore.Businessmodelscancreatenewmarketspacesthroughmobilizingcustomers for a new type of product and service (Kim and Mauborgne, 1999 in Keen and Qureshi, 200610 ). “Mobilizing,” means attracting and keeping customers and partners, which depends on the value the business model offers to customers compared with alternate choices. Many examples of contemporary disruptive innovations cross industry boundaries and cannot be confined within one industry only. The classic example is the Apple Ipod and Itunes music sale and consumption system. Apple went from being in the personal computer industry into the music industry, integrating both electronic devices and a digital rights service that allowed consumers to download music legally. In a classic 20th century view, Apple could have only innovated within their industry, perhaps reducing costs or charging consumers a premium for superior 7 Zott, C., Amit, R., & Massa, L. (2011). Ibid. P. 7 8 Zott, C., Amit, R., & Massa, L. (2011). Ibid. P. 7 9 Keen, P., & Qureshi, S. (2006). Organizational Transformation through Business Models : A Framework for Business Model Design. In HICSS’06. Proceedings of the 39th Annual Hawaii International Conference on System Sciences (Vol. 00, p. 206b–206b). P. 5 10
  • 55. 57 quality computers. However, innovating their business model allowed them to reach into untapped market space and become a disruptive force in more than one industry. 2.2 Definition of Business Model So what is a business model? According to Amit, Zott & Massa (2011), the business model has been labeled by different authors as: “a statement (Stewart & Zhao, 2000), a description (Applegate, 2000; Weill & Vitale, 2001), a representation (Morris, Schindehutte, & Allen, 2005; Shafer, Smith, & Linder, 2005), an architecture (Dubosson-Torbay, Osterwalder, & Pigneur, 2002; Timmers, 1998), a conceptual tool or model (George & Bock, 2009; Osterwalder, 2004; Osterwalder, Pigneur, & Tucci, 2005), a structural template (Amit & Zott, 2001), a method (Afuah & Tucci, 2001), a framework (Afuah, 2004), a pattern (Brousseau & Penard, 2006), and a set (Seelos & Mair, 2007)”.11 Shafer, Smith and Linder (2005)12 performed an extensive literature review of business model definitions and “building blocks”. It was sorely needed due to the enormous abundance of definitions and approaches, many of them contradicting or overlapping with each other. They identified 42 different components of business models; all of them appeared in established publications during the years 1998 – 2002. Then, performing an affinity diagram, they organized the 42 business blocks into 4 macro areas based in their underlying similarity (figure 1). They found 4 macro elements present in different definitions, ontologies and model from different authors. Figure 1. Components of business models (affinity diagram). Shafer et al. (2005) It has become clear within the past decade that business models are its own distinctive unit of analysis (Stähler, 2002 in Osterwalder, 2004) and that they can be observed and compared, help defining measures and improves decisions13 . Another common thread in all the existing definitions is the notion of value co-creation: the locus of value creation is no longer perceived to reside within the firm boundaries but value is considered to be co-created among various actors within the networked market (Nenonen and Storbacka, 2010).14 11 Zott, C., Amit, R., & Massa, L. (2011). Ibid. p. 4 12 Shafer, S., Smith, H., & Linder, J. (2005). The power of business models. Business Horizons, 48(3), 199– 207. doi:10.1016/j.bushor.2004.10.014 13 Osterwalder, A. (2004). Ibid. P. 21 14 Nenonen, S., & Storbacka, K. (2010). Business model design: conceptualizing networked value co- creation. International Journal of Quality and Service Sciences, 2(1), 43–59. doi:10.1108/17566691011026595 Components of a Business Model Strategic Choices Customer (Target Market, Scope) Value Proposition Capabilities/ Compentences Revenue/ Pricing Competitor Output (Offering) Strategy Branding Differentiation Mission Create Value Resources/assets Processs/activities Suppliers Customer Information Customer Relationship Information Flows Product/Service Flows Value Network Cost Financial Aspects Profit Capture Value
  • 56. 58 Nevertheless, to define what a business model is or is not is beyond the scope of this dissertation since it has been widely studied by many scholars from multiple perspectives. There are at least four different approaches to conceptualizing what a business model is, e-business, strategy, technology and information systems; and thus the resulting definition changes depending on the perspective of the author. For this research, since it touches entrepreneurship research, the author will adopt the definition given by George and Bock (2011): “ A business model is the design of organizational structures to enact a commercial opportunity” (emphasis added). This definition seems more relevant than the others for this work for three reasons: firstly, because it clearly explains the function of a business model in the context of a new firm, secondly, because it clearly states the word design and it would be interesting to find out if the design discipline could have any contribution from this perspective, and thirdly because in this perspective the business model becomes the bridge that takes the entrepreneurial opportunity from idea to reality, a key factor for considering an entrepreneurial opportunity as such (Dimov, 2007)15 . 2.3 The relevance of design for business modeling Business model design is considered a critical activity in management and innovation technology literature. However, most management scholars have approached design looking for design guidelines or recommendations that may be used to attempt to systematize business models. There are a few existing guidelines regarding the design of business models. Amitt and Zott (201016 ) provided a framework for business model design. The first components of the framework are business model design elements: content (what activities should be performed?), structure (how should these activities be linked and sequenced?) and governance (Who should perform them and Where?). These same authors, have identified three basic elements that can be the object of business model design and that can bring different types of innovation: Innovating the content of the business model means adding novel activities, linking the activities in novel ways thus innovating the structure or by changing one or more parties that perform any of the activities it is possible to innovate the governance. (Amitt and Zott, 201217 ) The remaining parts of the framework are four of the most common design themes of business models. 1. Novelty: The essence of novelty centered business models are new products or services, new ways of linking the activities that generate the products or services and/or new ways of governing the activities. A classic example is the aforementioned Apple Ipod and Itunes music system. 2. Lock-in: Activity systems designed to lock-in the participants and keep third parties attracted as business model participants. An example of this type of business model is the Nespresso coffee machines, which are sold at convenient prices but the capsules are sold at a premium. The Nespresso machines will 15 Dimov, D. (2007), Beyond the Single-Person, Single-Insight Attribution in Understanding Entrepreneurial Opportunities. Entrepreneurship Theory and Practice, 31: P. 720 16 Zott, C., & Amit, R. (2010). Business Model Design: An Activity System Perspective. Long Range Planning, 43(2-3), 216–226. doi:10.1016/j.lrp.2009.07.004 P. 218 17 Amit, R., & Zott, C. (2012). Creating Value Through Business Model Innovation. MIT Sloan Management Review, 53(3), 41–49.
  • 57. 59 only work with Nespresso brand coffee capsules, thus locking in consumers. 3. Complementarities: Complementarities are present whenever a bundling of activities within a system provides more value than running the activities separately. An example comes from commercial banking, where deposit activity is an important source of funding that complements the banking lending activity. 4. Efficiency:Efficiency-centereddesignreferstohowfirmsusetheiractivitysystem design to aim at achieving greater efficiency through reducing transaction costs. A famous example of this is Walmart. Walmart has a strong network of suppliers from whom Walmart purchases in very large volumes. Walmart also keeps the cost of its workforce at a minimum which allows them to offer the final customer very competitive prices. Keen and Qureshi (2006) elaborated a table with principles of business model design, by comparing the four design themes with different logics of value creation (table 1). Table 1. Basic principles of business model design. (Keen and Qureshi, 2006) Novelty Efficiency Complementarities Lock-in Schumpeterian Analysis High Low Low Low Value Chain Analysis Medium Medium Medium Low Strategic Network Theory Medium Medium Medium High Resource Based Theory Medium Low High Medium Transaction cost economics Low High Low Medium However,accordingtoKeenandQureshi,200618 therearealmostnoexistingguidelines for business model design because a business model can vary greatly according to the context, the actors involved, the activities that are being carried on, the target market, and the activities being carried on by the firm. This makes quite a lot of sense from a design science perspective. According to Cross (198219 ) one of the characteristics of design is its focus on generating a solution that fits appropriately according to the contextual conditions. Design aims to create something new and imagine what may be. Thus, is too difficult to classify or produce guidelines for entities that do not exist and that could vary greatly because many contextual and internal factors may be different than what is expected. Using a design science approach however, may facilitate managing the uncertainty and the uneasiness this brings to managers. 2.4 Business Modeling As Entrepreneurial Opportunity Enactment: What about design? The notion of using design processes and methodologies for business modeling, as mentioned before began to spread across the design discipline thanks to the work of Osterwalder, who also has become an advocate of the advantages designers can bring to a business model design process: 18 Keen and Qureshi, 2006. Ibid. P 3 19 Cross, N. (1982). Designerly ways of knowing. Design Studies, 3(4), 221–227. doi:10.1016/0142- 694X(82)90040-0
  • 58. 60 “A designer’s business involves the relentless inquiry into the best possible way to create the new, discover the unexplored, or achieve the functional. A designer’s job is to extend the boundaries of thought, to generate new options, and, ultimately, to create value for users. This requires the ability to imagine ‘that which does not exist.’ We are convinced that the tools and attitude of the design profession are prerequisites for success in the business model generation”. (Osterwalder & Pigneur, 2009, p. 125 in Colby, 201120 ) Designers have entered the picture in recent years, mostly dealing with business model innovation as facilitators, since visual artifacts have been proven helpful to deal with the challenges of business model innovation21 . According to Eppler and Hoffmann (2011) different visual methods (table 2), which are quite common among designers, have helped them solve challenges such as: Table 2. Business model innovation challenges and visual solutions (Eppler and Hoffmann, 2011)22 Challenges Visual Solutions Cognitive Complexity Absorb complexity (Eppler and Platts, 2009) Organigraphs Map and Clarify (Mintzberg and Var den Heyden, 1999) Strategy canvas and profile charts (Kim and Mauborgne, 2005) Business model canvas (Osterwalder and Pigneur, 2009) Dominant Logic Scenario diagrams enable different views on the future (Fiol and Huff, 1992) Challenge self-imposed constraints (Mintzberg and Var den Heyden, 1999; Platts and Kim Hua, 1994) Enable the playful exploration of mindsets (Mintzberg et al. 2007) Sketching fosters big picture thinking and abstracting (Mayer, 2008) 20 Colby, C. C. (2011). The Relationship Between Product Design and Business Models in the Context of Sustainability. Université de Montréal. P. 25 21 Eppler, M. J., & Hoffmann, F. (2011). Challenges and Visual Solutions for Strategic Business Model innovation. In M. Hülsmann & N. Pfeffermann (Eds.), Strategies and Communications For Innovations (pp. 25– 36). Berlin, Heidelberg: Springer. doi:10.1007/978-3-642-17223-6 22 Eppler, M. J., & Hoffmann, F. (2011). Ibid, Pp. 33
  • 59. 61 Knowledge Foster shared thinking (Fiol and Huff, 1992) Stimulate thinking (Tufte, 1990) Trigger memory (Craig, 2000) Inspire (Ewenstein and Whyte, 2007) Sketches and prototypes integrate view points (Schoen, 1984) Collaborative visualization software fosters knowledge sharing (Bresciani and Eppler, 2009) Organizational Resources Resource maps visualize allocation potential and scope (Klein at al. 1998) Values Elicit implicit values and trigger value-related dialogues (Schoen, 1984) Team Foster mutual learning in teams (Bresciani and Eppler, 2009) Offers coordination (Eppler and Platts, 2009) Strategy roadmaps create involvement and foster creativity (Blackwell et al. 2008) As we can see, many of these instruments and skills that designers bring to the table, facilitate solving business model design challenges such as clarifying complexity, fostering teamwork and mutual learning, visualizing future scenarios, sharing information and avoiding the formation of knowledge silos, challenging self-imposed constraints and enabling the visualization of “the big picture”, among many others. Furthermore, business model design is an ongoing iterative process that needs to be prototyped, tested, and refined doing it in a similar way as it is done in product design or architectural design so a designer that assists in this process would be very helpful. However, there is a different aspect of business model design that remains unexplored and unacknowledged by design scholars: the fact that business models establish the organizational structure that will enable to exploit the entrepreneurial opportunity. When starting a new venture, it is of course, very important to decide what product or service the new venture will offer, but it is equally important to decide how those products or services will be delivered to the consumer. Whenever a new venture is established,itexplicitlyorimplicitlyemploysaparticularbusinessmodelthatdescribes the design or architecture of the value creation, delivery and capture mechanisms it employs (Teece, 2010)23 . According to George and Bock (201124 ), “the business model narrows entrepreneurial ideation to a definable opportunity (emphasis added), establishes the relevant goal set that drives entrepreneurial action and organizational investiture, and bounds the implementation of organizational activities that enact the opportunity”. Thus, the business model also serves to clarify the entrepreneurial opportunity as well as 23 Teece, D. J. (2010). Business Models, Business Strategy and Innovation. Long Range Planning, 43(2-3), 172–194. doi:10.1016/j.lrp.2009.07.003 24 George, G. & Bock, A. (2011) Ibid, P. 99
  • 60. 62 to construct it: value creation mechanisms should be defined, stakeholders must be engaged and involved, strategic partnerships should be formed. These actions overlap with those necessary to construct an entrepreneurial opportunity from a creationist perspective (Wood and McKinley, 201025 ). It could be then, said that designers are helping craft the entrepreneurial opportunity as well. Furthermore, whenever designers are assisting a new firm with business model design, if we acknowledge a business model to define the structure of the firm, then, they are actually helping design the organization itself. Some design scholars such as Buchanan (2008)26 , Junginger (2008)27 , Deserti and Rizzo (201328 ) and Bolland and Collopy (2004)29 have followed this line of thought and claim that since organizations are man-made, artificial entities they can be designed. Casadesus-Masanell and Ricart (2007; 2010 in Schmiedgen, 201130 ) developed a choices- consequences framework (figure 2), under the assumption that the business model determines the structure of the firm and its activities; the choices that will be made during the business model design will determine numerous implications in the future operations of the firm. The aforementioned authors provide a practical example of Ryanair’s business model and it is evident that its choices reflect into flexible or rigid operations, and the creation of virtuous circles that feed each other. All of the above examples show how business model design is a key competence that influences several aspects of the firms’ operations, structure, partnerships and offering and its interdependences are complex and indiscernible from one another. However, professional designers engaging in business model design may be ill fitted for the role of “organizational designers”. Generally speaking, design practitioners tend to lack business knowledge and organizational design knowledge. The idea that designers can influence organizations is, at the moment, still confined to a handful of forward-thinking scholars. Furthermore, authors like Keen and Qureshi (200631 ), argue, “there is not enough research about the link between model and organizational form. If a firm had a unique business model, would it thus require a unique organizational design? From the information available on such firms as Amazon, eBay, Dell, PriceLine, 25 Wood, M., & McKinley, W. (2010). The production of entrepreneurial opportunity: a constructivist perspective. Strategic Entrepreneurship Journal, 84, P. 70. 26 Buchanan, R. (2008). Introduction: Design and Organizational Change. Design Issues, 24(1), 2–9. 27 Junginger, S. (2008). Product development as a vehicle for organizational change. Design Issues, 24(1), 26–35. 28 Deserti, A., & Rizzo, F. (2013). Design and the Cultures of Enterprises. Design Issues, 30(1), 36–56. doi:10.1162/DESI_a_00247 29 Bolland, R.J., Collopy, F. (2004) Managing as Designing. Stanford University Press. Stanford, California. 30 Schmiedgen, J. (2011). Innovating User Value. The Interrelations of Business Model Innovation, Design (Thinking) and the Production of Meaning. A Status-quo of the Current State of Research. Zeppelin University. 31 Keen, P., Qureshi, S., (2006) Ibid. P. 3 Business Model Choices Consequences Policies Assets Governance Flexible Rigid Figure 2. Elements of a Choices-Consequences Business Model. Casadesus-Masanell and Ricart (2007; 2010 in Schmiedgen, 2011)
  • 61. 63 Autobytel and other business model-driven companies, there is no evidence of any organizational design that differs from the main trends in large businesses”. Thus much more research is needed to support the idea of business model design as being equal with organizational design. Nevertheless, business model design is a challenge that may be facilitated by applying a designerly way of thinking (Cross, 2006) rather than with a scientific problem-solving mindset. Among many other things, design could be helpful because: - Business model design implies creating something that doesn’t exist yet32 . Furthermore, in the case of new ventures, designing a business model might imply serving consumers they don’t have, at estimate price points, delivering products that don’t exist yet and building on resources they don’t have (yet). - Business models span across firm boundaries, thus they require close collaboration and agreements with a network of partners to co-create value together. Design possesses some instruments that could enable and facilitate this process33 . - Business models serve the function of narratives that must inspire and co-opt partners and stakeholders “in the pursuit of implausible opportunities”. (Keen and Qureshi, 2006; George and Bock, 2011). It also should build and motivate the organization. - Design has instruments that allow also co-creating and co-designing together with stakeholders. These collective design capabilities become evermore important as products and services become more complex and creating systemic innovation becomes more relevant than ever (Den Ouden, 2011)34 . Many of these skills, instruments and mindsets, overlap quite well with those described in the constructivist model of entrepreneurial opportunity proposed by Wood and 32 This might seem obvious and redundant but it is not. McGrath (2010) argues that managers are quite reluctant to jump on the wagon of business model design because they cannot view them as experiments rather; they stick to notions of betting on tried and tested business ideas. People expect projections, numbers, hard data and certainty but business model design cannot offer any of that unless it experiments. 34 The term ecosystem is increasingly being used to emphasize that innovation is no longer an activity that organizations can do in isolation. Many innovations are not just solitary products, but combinations of products and services in a larger scale (Den Ouden, 2012). The implications of these shifts in value creation mechanisms will be further discussed in chapter 5. Figure 3. Ryanair’s business model representation with its virtuous cycles (Casadesus-Masanell and Ricart (2007, 2010)
  • 62. 64 McKinley (2010). Thus, it would be interesting as well as novel to attempt to apply design instruments and a designerly mindset to the entrepreneurial opportunity discovery/creation phase. 2.5 Designing Instruments For Business Model Design One of the most famous instruments, if not the most famous of all, of business model design is the business model ontology, or “canvas”, as they are popularly known. In this section, a few of the most popular types of ontologies will be described, attempting to pinpoint the particularities of each ontology and the logic behind each tool. Ontologiesinbusinessmodeldesignaresimplifiedsmall-scalemodelsofreality.Oneof the main criticisms made to these types of visual artifacts is that they do not represent the core logic of the model and its cause and effect linkages (J. Linder & Cantrell 2000; Casadesus-Masanell & Ricart 2007; 2010 in Schmidgen, J. 201135 ). However,thisisatypicalproblemofanysimplifiedmodelandtheissuewaswonderfully described and satirized by the Argentinean writer Jorge Luis Borges (1974)36 . In his short story, a king of an anonymous empire wants a precise and detailed map of his empire. He wants everything represented with obsessive detail in a 1:1 scale. His royal geographers comply with his wish and the result is a gigantic map that covers the entire empire inch by inch. As a result, the empire collapses since the people are unable to work and cannot receive sunlight because the map covers them. The empire collapses and civilization is destroyed and all that remains is a paper desert of the map of the empire. This small story shows the issues that arise as maps or models become more detailed. However these issues are part of what makes a model a model, they are of course simplified omitting sometimes, important information. As Ramonet (2006)37 argues, as a geographer a map is always an interpretation and not a simple copy of reality (as Borges’ 1:1 scale map). It is always necessary to understand the logic behind the map and interpret the reality that the map is trying to convey. Therefore, in using any ontology or model, to try to answer to Casadesus-Masanell and Ricart’s concern, a skilled facilitator that deeply understands the logic, mechanisms and frameworks used to develop the ontologies can properly help guide teams that choose to use these tools, out of ease of use and practicality. The most famous ontology is certainly Osterwalder and Pigneur’s business model canvas (2010) (fig. 4). The business model canvas represents 9 different building blocks of business models: partners, key activities, key resources, value proposition, relationships, distribution and acquisition channels, customer, cost structure and revenue streams/pricing. 35 Schimedgen, J. (2011) Ibid. P. 90 36 Borges, J.L. (1974) Del Rigor en la Ciencia, in El Hacedor, Obras Completas. Emecé Editores, Buenos Aires. 37 Ramonet, I. (2006) Atlas de Le Monde Diplomatique. Le Monde Diplomatique Chile. Retrieved August 5th, 2013 from http://www.lemondediplomatique.cl/Atlas-de-Le-Monde-Diplomatique.html
  • 63. 65 Figure 4. Osterwalder and Pigneur’s business model canvas (Adaptation by Schmidgen, 2011) Osterwalder (2012)38 claims that he seems a lot of similarity between the product design process and a business model design process. Design routinely produces models, prototypes and sketches that allow exploring, framing and testing the solutions before committing valuable resources to its actual implementation. This process reduces the risk of making costly mistakes. However, in entrepreneurship there is no similar process and often new ventures enter the market with their untested ideas and wrong assumptions with terrible consequences for the founders. The Business Model Canvas thus, provides a way to test business models in a structured manner; it enables the creation of a tangible outcome and the sharing of information and common assumptions among the team. Although it is one of the most famous ontologies, some authors like Maurya (2012) claim that this tool is better suited to existing firms that need to change or enter a new industry rather than for new firms. Also, neither the strategic choices neither their interdependencies received enough attention in his work, Neither of them can be illustrated in the canvas because it was rather developed as a tool for fast analyzing, mapping and co-creating existing models as well as future scenarios (Schmiedgen, 2011)39 . Another famous ontology comes from the American design consultancy firm IDEO. They call it Business Model Framework (fig. 5). It is essentially very similar to Osterwalder and Pigneur’s Business Model Canvas. The only different “building blocks” are called “growth strategy” and “competitive strategy”. This most likely stems from the vagueness of the business model construct that many scholars overlap with or include within strategy. 38 Osterwalder, A (2012). A New Approach to Designing Business Models. Retrieved on August 6th, 2013 from http://www.youtube.com/watch?v=fEnDHgTR3bg 39 Schmiedgen, J. (2011) Ibid. P. 87
  • 64. 66 One of the latest additions to the business model design tools is the Lean Canvas (Maurya, 2010)40 . Lean Canvas inserts itself into the work of Ries (2010)41 “Lean Startup” methodologies and practices. Lean Startup itself stems from Lean Manufacturing practices, which originated in Japan, most precisely inside Toyota. Lean Startup, like its manufacturing counterpart is focused on avoiding the expenditure of resources for any other goal than customer satisfaction. In other words, if the customer is not willing to pay for something, that something is a waste and must be eliminated. With this in mind, Ash Maurya developed the Lean Canvas (fig. 6). Although it is very similar to the Business Model Canvas, the focus of the Lean Canvas lies on identifying uncertainties, and thus reducing the risk. Maurya (2012)42 claims that his version is more entrepreneur-centered and speaks a language that entrepreneurs understand better. He eliminated items that a startup, at least in its early days does not know or need (such as partnerships) and provided items that are often overlooked by entrepreneurs such as: defining precisely what is the problem your product solves and how, and which metrics are going to be telling you that your firm is in good health. Maurya’s version is an interesting addition to the entrepreneurship literature because most of the famous tools are perhaps more indicated for existing firms, or as narrative instruments for outsiders about an existing firm’s activities. However, from an entrepreneurial perspective they made less sense. Last but not least, the British charity NESTA developed a canvas that can be used for non-for-profit organizations called the Social Enterprise Planning Tool (fig. 12). This tool is much more service design oriented and user centered. Since NESTA has a considerable experience (re)designing and innovating public services, it can be inferred that they transferred this experience into the tool. There are no pricing or revenue 40 Maurya, A., (2012) Running Lean. Iterate from Plan A to A Plan That Works. O’Reilly Media. Sebastopol. CA. P. 27 41 Ries, E., (2011) The Lean Startup. How Today’s Entrepreneurs Use Continuous Innovation To Create Radically Succesful Businesses. Crown Business. New York, NY. 42 Maurya, A., (2012) Why Lean Canvas vs. Business Model Canvas. Practice Trumps Theory. Retrieved on August 6th, 2013 from http://practicetrumpstheory.com/2012/02/why-lean-canvas/ Growth Strategy Competitive Strategy Market Segments Value Proposition Costs Capabilities Partners The offer to the consumer, including how and why it addresses their need / fulfills their job to be done. How consumers themselves would describe the benefit. What group(s) of people benefit from the value proposition, how many there are now and in the future. The skills we need in order to create the value proposition, particularly the team. Who will we need to partner with or the input we are dependent on in order to develop/deliver the value proposition. How much it will cost to initially develop the value proposition and how much it will cost to subsequently market and deliver it. Who the existing competitors are and how we will react to them and likely new entrants into this space, how we are positioned to win in the market How we plan to grow and what we hope our or- ganisation will be in 5 years, do we plan to sell and if so to who and when. Prompts: How about taking away things from your offer until you can remove no more in order to simplify it? How about using defaults to try to offer individuals the most suitable offer immediately? Prompts: How about partnering with companies that accelerate development of the product? How about considering which areas of the business model are sacred and which can be fulfilled through partnership? Prompts: How about deferring costs wherever possi - ble, enabling you to get paid before you have to pay suppliers? How about negotiating better deals with em- ployees and suppliers by offering them a share of the upside in your company? Prompts: How about shipping fast to learn early? Do we have the skills to move and learn fast? How about focusing on the minimum offer at launch that shows real benefit? Prompts: How about stopping to consider what you are great at in order to deliver the value proposition and reapplying it to other business opportunities? How about adding on additional premium services for your most loyal customers? How about looking at other consumer segments that have similar needs? Prompts: How about charging customers less (of even not charging for something) in order to build to critical mass fast, particularly when there are positive network effects? How about partnering with potential future competitors early? Prompts: How about exploring which other groups of consumers are likely to have similar needs? How about ensuring that you have a member of that group available at all times to act as a consumer advocate? How about looking for a passionate sub-segment to market to initially? Pricing Model How we will price the value consumer proposition, whether it be fixed, variable or subscription pricing. Includes alternative sources of revenue, particularly important if the consumer is not expected to pay. Prompts: How about offering a subscription element to your offer to ensure repeat revenues? How about offering the base service for free and then charging for a premium service? How about having consumers pay different amounts based on how much they benefit? Distribution Marketing How the value proposition is delivered to the consumer segment - how it is delivered to them (distribution channel) and how it is communicated to them (marketing channel). Prompts: How about ensuring that you have multiple distribution channels available? How about tracking platform usage among your target customer group, which platforms are growing fastest? How about using prize funds to engage the consumer in developing your brand? How about rewarding your most passionate consumers for becoming evangelists? How about considering who is the greatest influencer for your target customers? Channel Figure 5. Business Model Framework. IDEO (2011)
  • 65. 67 building blocks, however there is a wide focus on the users (current vs. potential) as well as the different segments. There is also a strong focus on the activities and achieving the right type of partnerships (clients are also considered partners since in a service design perspective they also co-create the services together with the provider of the service. Fig. 7. The Social Enterprise Tool. NESTA (2011) Thelistisnotexhaustive,howeverthesearethemostpopularontologiesatthemoment. The issue that comes forward among the different tools is that understanding the logic behind the model is more important than the graphic representation of the model. Figure 6. The Lean Canvas. Maurya (2012) adapted from Osterwalder and Pigneur (2009)
  • 66. 68 Figure 8. The Product-Service System. (Deserti, 2011) product system brand service communication point of sale product material features immaterial features 2.6 Designing The Value Proposition In recent times, the attention of designers has started shifting from physical objects to intangible components of the value offering, which will undoubtedly influence the physical product as well. Although designers have traditionally focused on products, and more recently in more intangible components such as services, today the notion of designing innovative value propositions is starting to permeate design discourse. Value propositions should not only include products; they should comprise everything ranging from the physical object to the way the product is purchased, delivered and disposed of. Deserti (2011)43 describes how the product has become a bundle of tangible and intangible features (figure 8). According to Den Ouden (201244 ), designers need to move up the value chain, beyond physical products, and face up to several challenges like: Complex social, ecological, health and economic issues that humanity is facing at a massive scale. These pressing needs could use the help of designers, and designing only products that sell well is unlikely to help tackle these challenges. 43 Deserti, A. (2011) Mappe e Strumenti per l’Advanced Design. In In M. Celi (ed.), Advanced Design. Visioni, Percorsi e Strumenti per Predisporsi all’Innovazione Continua. McGraw-Hill. Milan, Italy. Pp. 47-60 44 Den Ouden, E. (2012) Innovation Design. Creating Value for People, Organizations and Society. Springer Verlag. London, UK. Society Ecosystem Organization User Meaningful Innovation Figure 9. Intersection of value creation for multiple actors leads to meaningful innovation. (Den Ouden, 2012)
  • 67. 69 Figure 10. Design as a mediator. (Celaschi, 2008) form function valuemeaning economics & marketing technology & engineering arts humanities design These new challenges are systemic in nature. A single actor is unable to single- handedly satisfy any of those needs. Collaborating with networks of actors, and thus creating value not only for the final consumer but also for stakeholders and partners as well as society as a whole (figure 9). Innovations will need to be entire ecosystems, not just punctual products or services. According to Den Ouden (2012) the first step in designing the business model is to detail the value proposition. “A value proposition is defined in the business literature as a clear, simple statement of the tangible and intangible benefits of a new solution, together with an approximate price. It requires an understanding of a real customer with a fundamental problem in a given situation that needs a solution (Johnson, Christensen, and Kagermann, 2008 in Den Ouden, 2012)45 . The value proposition is commonly described as one of the business model’s most important elements (Chesbrough and Rosenbloom, 2002; Dubosson-Torbay, Osterwalder and Pigneur, 2002; Kim and Mauborgne, 2000; Magretta, 2002; Morris, Schindehutte and Allen, 2005; Vorst, Dongen, Nouguier et al., 2002 in Aziz, Fitzsimmons, & Douglas, 200846 ). A value proposition should help consumers gain a benefit while relieving a burden or unwanted job, and should also clearly position the firm ahead of its competitors. The key dimensions of customer value to be addressed in the value proposition are: economic (price); functional (solutions); emotional (experience); and symbolic (meaning) (Rintamaki, Kuusela, and Mitronen. 200747 ). These four parameters strongly coincide with the four macro-areas that design needs to address when designing any product. According to Celaschi (2008)48 , designers need to mediate between the needs of the production system and the needs of consumers, while ensuring to address the four basic parameters that any successful product must have: meaning, value, form 45 Johnson, Mark W., Clayton M. Christensen, and Henning Kagermann (2008) in Den Ouden, 2012. 46 Aziz, S. A., Fitzsimmons, J., & Douglas, E. (2008). Clarifying the business model construct. In G. L. Murray (Ed.), 5th AGSE International Entrepreneurship Research Exchange (pp. 795–813). Melbourne, Australia. Retrieved from http://eprints.qut.edu.au/15291795–813 47 Rintamaki, Timo, Hannu Kuusela, and Lasse Mitronen. 2007. Identifying competitive customer value propositions in retailing. Managing Service Quality 17(6): 621–634. 48 Celaschi, F. 2008. Il Design Come Mediatore Tra Bisogni. In: C. Germak (Ed.), Uomo Al Centro Del Progetto. Torino, Umberto Allemandi & C., P. 19-31
  • 68. 70 and function (figure 10). However since design is a relatively young discipline it must borrow knowledge from other disciplines, and integrate it into the design project. Value propositions should describe for whom value is created, what the needs or desires of this target group are, what is offered as a solution, what alternatives are available and why this solution is more compelling than the alternatives (Den Ouden, 2012). Thus, design already has experience tackling the factors that make up a value proposition, at least the ones that offer directly products and services to consumers. Other factors that are crucial in a value proposition are besides the product or service in itself, how it is delivered and the parameters related to the payment49 . Osterwalder&Pigneur(201150 )proposedacategorizationofpossiblevaluepropositions into one or more of these: newness, performance, customization, getting-the-job- done, design, brand/status, price, cost reduction, risk reduction, accessibility and convenience. Den Ouden (2012) proposed a value framework that can be used as starting point for creating new and meaningful value propositions. Table 3. Elements of meaningful innovations (Den Ouden, 2012) Level Value Proposition User Experience Offers a pleasurable experience for users, seducing them into changing their behavior, and keeping on using the product or service to contribute to an increased quality of life Organization Doing Well Provides an opportunity for sustainable value to ensure the continuity of the organization Ecosystem Doing Good Allows the creation of ecosystems that can adapt to inherent changes and dynamics over a long period of time and keep providing value for all stakeholders. Society Transformation Improves the quality of life for society as a whole and cares for people and planet. As it can be seen from these examples, many of these value propositions are no longer single products. Innovation is evermore expected to be systemic and create ecosystems of products and services that complement each other and together provide more value that if they were separated. This notion backs up the concept of value co-creation and 49 Den Ouden, E. (2012) Ibid. P. 36 50 Osterwalder, A., & Pigneur, Y. (2011). Aligning profit and purpose through business model innovation. In G. Palazzo & M. Wentland (Eds.), Responsible Management Practices for the 21st Century (pp. 1–17). Pearson International. Retrieved from http://pdf.thepdfportal.com/PDFFiles/3049.pdf
  • 69. 71 the need for reliable and trusted partners of the whole business model logic in general. Meaningful value propositions are also expected to provide value in different areas, for different partners and at different levels51 . Figure 11. Some examples of meaningful value propositions using the value creation network (Den Ouden, 2012) The value creation mechanisms often go beyond the value that can be created through Schumpeterian innovation, the (re)configuration of the value chain (Porter, 1985), the formation of strategic networks among firms, or the exploitation of firms’ specific core competencies52 . The value can also be intangible such as reputation, brand awareness, social responsibility, etc (figure 12). Figure 12. Example of a systemic value proposition wi th value flows and a variety of different actors. Den Ouden, 2012. 51 For a comprehensive and in-depth literature review, framework and guidelines for designing value propositions see Den Ouden, E. (2011) 52 Zott, C., Amit, R., & Massa, L. (2011). Ibid. P. 11 Wealth Well-being Meaningful Life Livability of the environment Society Ecosystem Organization User Experience Doing Well Doing Good Transformation Value Propositions Economy Psychology Sociology Ecology Stability Shared Drivers Reciprocity Sustainability Eco- effectiveness Eco- footprint Social Responsibility Belonging Core Values Happiness Profit Value for Money Initiating new value proposition Ex. LED Roadlighting Ex. Smart Grid Ex. Fair Trade Ex. Ambilight TV Ex. Grameen Bank
  • 70. 72 As the above example showed, today goods are complex bundles of products and services orchestrated by a variety of actors and stakeholders. However, design has evolved with the complexity and products and it can be a valid alley in developing a compelling value proposition within an appropriate business model that generates value for the involved actors and to the society as a whole. 2.7 Key Insights This chapter aimed at providing an overview of the potential design contributions of design culture to business modeling. So far, design scholar have adopted the viewpoint of business models that is mainstream in innovation technology literature, seeing business models as enablers of a particular type of innovation that is neither technology-driven nor market-pulled. Until now, design has contributed to business modeling in different ways. Firstly, it contributed to the production of business model visual tools, such as the various ontologies. They differ according to the purpose, the logic behind the models and the approach they take to business modeling (as a structure, a narrative, a vision, a strategy, etc.) (Shafer, Smith and Linder,2005)53 . Furthermore, designers acting as facilitators of business modeling enable teams to overcome many cognitive challenges when faced with a business model design problem. Some of the ways designers help facilitate the process are visualizing complex issues and clarifying complexity, fostering teamwork and mutual learning, visualizing future scenarios, sharing information and avoiding the formation of knowledge silos, challenging self-imposed constraints, producing early-stage prototypes, etc. Design has also contributed, in more traditional ways, by helping generate, develop and shape the content of the business model and the value proposition (Den Ouden, 2012). However, the most interesting aspect of the relationship between business models and the design discipline, for the sake of this work, is the possibilities that design culture and design instruments may bring to the generation of entrepreneurial opportunities. Many of the skills and instruments designers bring to the table when they collaborate in business model design processes overlap with those needed to generate, construct and develop an entrepreneurial opportunity. In entrepreneurship opportunity literature, particularly those authors who approach the subject with a constructivist mindset, entrepreneurial opportunities are seen as social constructs. In this approach, entrepreneurs generate a business idea, and then act on it, seeking support and feedback from peers. If they receive validation, they proceed on to a process of sense making and engagement of a wider group of stakeholders, attempting to establish partnerships and create the value network of the new venture (Wood and McKinley, 2010). Design culture and instruments, have enabled and facilitated similar processes during business model design processes. Therefore, it would be interesting as well as novel, to investigate if design culture and design instruments could be applied to the entrepreneurial opportunity discover/ creation phase as well. 53 Shafer, S., Smith, H., & Linder, J. (2005). Ibid. P. 202
  • 71. 73 Chapter 3. Creating Design-Oriented Enterprises: Lessons from Case Studies
  • 72. 74 3. Creating design-oriented enterprises: Lessons from Case Studies This chapter will describe the phenomenon of design-driven entrepreneurship, first from a historical perspective through a quick overview of the relationship between designers and industry and how the one-man-band role of master craftsmen evolved into three separate specializations: entrepreneurship, design and manufacturing. The second part will describe first, the extensive analysis and mapping of 20 design-driven companies based on secondary sources that interviewed the company’s founders, in order to understand the common factors among them, particularly of the factors surrounding the company’s foundation and secondly, two in-depth case studies that are emblematic of the phenomenon. The third part will describe the new trend of designers that are becoming IT entrepreneurs using the same methodology as the previoussection,andtwoin-depthcasestudiesofemblematicexamples.Itisimportant to consider that these two phenomena take place in very different time, geographical and social contexts. Thus, this is not an attempt to find common elements among two widely different contexts but rather, to understand the roles design and designers play in both contexts, in an attempt to understand better and more deeply the phenomenon of design-driven entrepreneurship. Finally, the last part will discuss the findings and attempt to draw some conclusions about this phenomenon. 3.1. A brief history of design-oriented companies When discussing design-driven entrepreneurship (from now on DDE), it may seem like it is a very recent phenomenon and the answer to the lack of employment opportunities for young design graduates. However, when one looks closely at the history of design and design-oriented companies many aspects of DDE that we now take for granted do not seem as neat and clear cut as they may seem. Unlike art or architecture, where the history was lead by the authors of famous works, the historical process of design is not based upon single designers. Entrepreneurs, manufacturers, vendors and the general public had a key role as well. The history of designcannotbereducedtothatofproductseitherbecauseinmanycasestechnological innovations, institutions, ideas, and the logics of production and consumption led the way many times (De Fusco, 19931 ,2 ). Thus, it is difficult to identify single factors or single people that could explain the origins of design-related phenomena. Rather, during certain moments in time there were constellations of actors and circumstances that led to determinate artifacts, schools or design styles. A look into the origins of design-driven entrepreneurship takes us all the way back to the period between 1760 and 183o, the years of the first industrial revolution. New machinesthatcouldsimplifyandspeedupthefabricationofobjectsthathadbeenman- made until then appeared. Artisans that mechanized some parts of their production and thus, replaced human labor founded some of the first proper industries. Probably the first known design entrepreneur was John Wedgwood, even before the word design existed. He was the descendant of a long tradition of ceramists and potters in the Staffordshire district in England in the early 1700s. He was among the first producers to use steam engines to grind the materials and power the potter’s mills 1 De Fusco, R. (1993) Storia del Design. 5th Edition. Editori Laterza. Bari, Italy . p. 24 2 De Fusco is considered the most authorative Italian scholar on design history, and he has described extensively the evolution of design throughout history, with a special emphasis on the uniqueness that separates Italian design and Italian firms from the rest of the world.
  • 73. 75 of the factory. However, he also put a big emphasis in the design of the company’s products and developed two distinctive product lines: a neoclassical high-end line that evoked historical styles (Greek, Etruscan and Chinese) and a more affordable simple line that was strictly functional. This model of artisan turned industrialist with a design sensibility was still common until the last decades of the 20th century particularly in Italy where many leading design-driven companies have a similar origin. From then on, industry and design (or “decorative arts”), as it was called back then, became evermore distant. In fact, the poor quality and unpleasant taste of these products created the movement of Arts & Crafts, led by William Morris starting in 1860, as a response to the squalor and decadence of industrial products. However, the industrial revolution and the mass-production of everyday objects were now unstoppable and in the years that followed between the end of the XIX century and the early 20th century industrialized products evermore took over hand-made products. Many of the design movements of this era aimed at encouraging industrialists to include designers in the manufacturing process, such as the Deutsche Werkbund. The Werkbund was a state-sponsored effort to establish partnerships of product manufacturers with design professionals to improve the competitiveness of German companies in global markets. However, it was the contribution of Henry Ford that definitely contributed to the full automation of manufacturing. Interestingly enough, Ford was also a designer (even if he was not formally trained) and designed and prototyped a couple automobiles before starting Ford Motor Company. It was in this company that Ford started experimenting the ideas of Frederick Taylor and his theories on “scientific management”. As a result, he was able to develop the first assembly lines, reducing the times of fabrication of automobiles from twelve and a half hours to one and a half hours (De Fusco, 1993)3 . It is at this point increasingly clear that the roles of the entrepreneur and the designer were separated whereas before they used to be united in the role of the master craftsman,whoownedtheshopanddesignedandmanufacturedhis/herownproducts. The assembly line system required initial investments of machines and tooling that were beyond the means of most craftsmen. Thus, also the production means became independent of craftsmen and their skills. The emergence of the first design schools such as the Bauhaus, with its clear objectives of training people to work for the industry as designers and embrace the possibilities offered by industrialized manufacturing processes further consolidated the separation of designers and entrepreneurs. For the first time in history, designers were explicitly being trained as such: they would need to master the principles of mass manufacturing and design products respecting the constraints posed by those processes. Design and manufacturing became effectively two separate and distinct areas of expertise. In the 1930s, design as a profession consolidated in the United States and became known as industrial design, implying the design of mass-produced objects by fully mechanized production means. During all the XX century, the same experience of moving from craft to industry expanded around the world in different countries and the role of the designer evolved as well. It was in Italy that design-driven companies became a distinct phenomenon. Many of the most famous Italian design-driven companies were founded by families 3 De Fusco, R. (1993) ibid. P. 113
  • 74. 76 that were part of a long tradition of local trade districts that industrialized some parts of their production (although keeping some of the handmade component of the production will remain a staple of the Made in Italy). It was in Italy that the evolution of role of the designer became more evident, particularly in design-intensive sectors like furniture and home ware. According to Ferrara (20124 ), in the 1970s, the Italian design industry remained confined to a local scale, and all decisions regarding the launch of products, or the collaboration with a new designer were still made by the industrialists. However in the 1980s the model begins to change and the focus of the attention is put on the designer. The designer becomes the “dominant character”, exactly in the way a fashion stylist becomes a brand. The personalities and eccentricities of designers were part of the brand and the objects that s/he signed became objects of desire. In this decade designers became art directors for design-driven companies curating strategies of production and picking new designers to add to the portfolio. In the 1990s, production started taking a more marginal role in the equation; it could be now outsourced to Asia or Eastern Europe with more than acceptable quality. New undergraduate courses in design were now available in many Italian universities and design graduates had been trained in more skills and capabilities than their predecessors, thus companies started delegating them more research and development responsibilities and the companies began to assume the role of editors. Accordingly, their focus became talent scouting and brand development. It was in the last decade that the panorama of design became much wider. Designers were now more specialized in one sub-area of design (graphic, product, interior or fashion design) or even in one industry (car, furniture or yacht design) and there was now an excess of trained designers with not enough vacant jobs in the industry available. Furthermore, new manufacturing technologies like 3D printers, laser cutters, rapid prototyping, etc. became affordable and widespread. Whereas in the past century prototyping a product required months and a substantial amount of money, today it can be done in a fablab (digital fabrication laboratory) with shared equipment, very little money and short timeframes. As a response to the scarcity of formal employment perspectives, designers are starting to take matters into their own hands, producing their own products in small series (or unique pieces) either in their own laboratories or commissioning them to Asian contractors. Moreover, designers are moving their focus from products into digital services thanks to Internet communication technologies (ICT). Some designers are embracing the possibilities of starting their own companies and producing their own products or services thanks to the democratization of these technologies. This new phenomenon will be described extensively in section 3.6 3.2. Product-Based Case Studies of Design-Oriented Companies The objective of this section was to understand more deeply the origin of design- driven firms and how design played a role in the founding of the companies. Other research questions of this section were: what was the role of designers in founding 4 Ferrara, M. (2012). Design e produzione in Italia dal miracolo economico all’attualità. PAD Journal, 1–12. Retrieved from http://padjournal.net/design-production-in-italy-from-miracolo-economico-time-to- today/?lang=it
  • 75. 77 the companies? How was the entrepreneurial opportunity discovered or created? Did technology play a role in this process? How was design used in shaping the business offering? Product-based design-driven firms were chosen because they are emblematic case studies of design-driven entrepreneurship. Today, when speaking about design entrepreneurship there is a widely diffused notion that it consists solely of designers creating their own products and selling them without intermediaries. This section is an attempt to demystify this phenomenon and show that even when design entrepreneurship is still product-focused, the phenomenon is much more complex and rich than it seems at first glance. In order to understand from an entrepreneurship perspective the phenomenon of design-driven entrepreneurship, 21 of these companies were extensively analyzed (The full mapping is in Appendix 1). The parameters mapped were: 1. Having (or not) a formally trained designer as founder 2. How the company was founded and the type of entrepreneurial opportunity according to the classification used by Chandler, DeTienne & Lyon (20035 ). 3. Whether they used any (known) design thinking aspects or methods in the discovery or creation of the opportunity6 . 4. Whether new technology (materials or manufacturing processes) influenced the entrepreneurial opportunity. The companies mapped were selected according to these criteria: 1. They must possess a reputation of being design-driven companies 2. They must have founded in the 20th century 3. There must be enough public information about the history of the foundation of the company. Many Italian companies were selected because Italian companies are an emblematic example of the phenomenon of design-driven companies however; a couple of non- Italian companies were studied as well. The industry or current size of the companies was not taken into consideration for this exercise. The information was obtained using secondary sources, mostly interviews with the founders, their descendants or top managers from the firms. However, it must be kept in mind that Italian firms are quite unique (they tend t put a special focus on design and to be family-run firms). The entrepreneurial system is also quite particular because it is configured around close- knit industrial districts that were artisan clusters before becoming industrialized. As such, the insights and findings that come from this sample may not be directly applicable in firms operating in different contexts. 3.2.1 Selection Criteria Thefirstcriterionmappedwaswhetherthefounderswereformallytrainedasdesigners or architects7 . Out of the 21 companies studied, 6 out of 21 had formally trained 5 Chandler, G. N., DeTienne, D. R. and Lyon, D. W., (2003). Outcome Implications of Opportunity Creation / Discovery Processes. Babson College, Babson Kauffman Entrepreneurship Research Conference (BKERC), 2002- 2006. Available at SSRN: http://ssrn.com/abstract=1783698 6 As mentioned explicitly in the interviews with the founders regarding the circumstances of the founding of the company. 7 In the case of Italy there were no undergraduate degrees in design until the 1990s so almost all designers of the time were trained as architects.
  • 76. 78 designers as founders. Of all the case studies, nearly a third of the entire sample had at least one formally trained designer founder. Although most of them were not formally trained, more than half of all the founders interviewed8 specifically mentioned considering the use of design a fundamental factor of the business opportunity. According to the interviews, they already were very sensible towards the possibilities offered by design and used the services of designers since the early days of the companies. The second criterion was the origin of the entrepreneurial opportunity mapped using the classification of Chandler, DeTienne & Lyon (2003) that is as follows: 1. Pro-active search: Individuals identify opportunities through purposeful, deliberate search. The abovementioned authors highlight the fact that many authors pinpoint at this modality of discovery within existing organizations (corporate entrepreneurship). 2. Problemistic search: Search of solutions to specific problems expressed in terms of dissatisfaction with the performance of existing activities. 3. Fortuitous discovery: Opportunities are discovered fortuitously by those individuals that are alert to changes in the environment and “have the ability to notice without search”. Other authors acknowledge that entrepreneurs must have also knowledge in order to recognize potential opportunities when they arise. 4. Opportunity creation: As proposed by Schumpeter, the entrepreneur or the firm creates the opportunity and the consumer is “educated” to desire the particular product9 . In this perspective opportunities can be created in five areas: the introduction of a new good, a new method of production, the opening of a market, the conquest of a new source of supply and the carrying out of the new organization of any industry. In the interviews with the founders regarding the circumstances of the founding of the companies specific references to these four factors were sought. Regarding the type of entrepreneurial opportunity, an overwhelming majority of the companies’ entrepreneurial opportunities could be classified as created. Although it is difficult to determine this fact, this aspect was done by elimination: Did they tackle a clear need? Did they look for an answer to a problem? Did they actively look for an idea to establish a company? Also, the behavior in which the founders engaged when deciding to start the ventures was assessed. Most design-driven company founders launched products and waited from feedback from the market, refining their offer in time, thus fitting better the definition of “created opportunity”. In the definition of Alvarez and Barney (2007): “In Creation Theory, opportunities to produce and sell new products or services do not exist until entrepreneurs act to create them (Baker et al., 2005; Gartner, 1985; Sarasvathy, 2001; Weick, 1979). In this theory, entrepreneurs do not recognize opportunities first and then act; rather, they act, wait for a response from their actions— usually from the market--and then they readjust and act again (Weick, 1979). And in acting, entrepreneurs create opportunities that could not have been known without the series of actions they took. In this sense, the formation of opportunities, in Creation Theory, is both a path dependent (Arthur, 1989) and emergent process (Mintzberg & Waters, 1985). In acting and reacting, entrepreneurs enact the opportunities they ultimately exploit (Weick, 1979).” 8 Castelli, C., Antonelli, P., Picchi, F. (2007) La Fabbrica del Design. Conversazioni con i Protagonisti del Design Italiano. Skira. Milano, Italy. 9 Chandler, G. N., DeTienne, D. R. and Lyon, D. W., (2003). Ibid. P. 399
  • 77. 79 As we can see, product-based design-driven firms fit more closely this definition: they came to be because entrepreneurs acted to create them, they refined the business offering over time, and in acting they enacted the opportunity. Put more simply in the words of Gartner et al. (2003 in Schlinkert, A. M., & Altmeppen, T. (2008))10 opportunities are “(…) the result of what individuals do, rather than the result of what they see” (p.110), emphasizing action as a crucial element of opportunity creation. The third criterion that was mapped was references to “designerly” traits that were used to discover or create the entrepreneurial opportunity as mentioned11 in the conversations with the interviewees. The traits that were mentioned the most were being aware of current trends in art and design, obtaining deep meaning insights from art and culture, using creativity and being alert to weak signals of society behaviors. Althoughthislistisbynomeansexhaustive,itisindicativeofsomecommon“designerly” traits used when discovering an entrepreneurial opportunity. It is interesting to note that only a couple of them claimed to obtain insights from user observation, a factor that had been noted before by Verganti (2009). The fourth criterion that was mapped was whether any new technological developments influenced the discovery of the entrepreneurial opportunity. This was an interesting point of view from product-based design-driven companies because there is a widespread notion that these companies were entirely driven by design and technology did not play an important role. However, the mapping of the case studies paints a different picture. Although technological developments are not as prominent or well known as design is, an important number of the companies came to be because they were exploiting the new possibilities brought by new technology in materials and because they developed unique or proprietary manufacturing technologies. Before moving on the detailed case studies, a small clarification is needed regarding the criteria of selection of the cases. The cases selected are widely known and much has been written about them. However, the issue of how the entrepreneurial opportunity that led to their existence was never raised. The fact that these companies are very known, I believe is a positive factor that helps the reader understand better the issue of the entrepreneurial opportunity discovery (or creation) without being too distracted by the particularities of the company. 3.3 Case Study: Dyson James Dyson is a British engineer that developed the Dyson vacuum cleaners, as well as other electric appliances such as hand dryers and fans without blades, founding the homonymous company. His education included a formation in the Byam Shaw School of Art and a partial degree in furniture and interior design from the Royal College of Art before switching to engineering12 . Although design school provided him with a sensibility on form and aesthetics, Dyson found much more appealing how products work, and thus, the 10 Schlinkert, A. M., & Altmeppen, T. (2008). Entrepreneurial opportunity discovery and creation as a development process – the impact and influence of networks and social interaction. Copenhagen Business School. P. V 11 There maybe more than these but only those traits mentioned in the interviews were taken into consideration. The references to these traits were looked on the answers to the questions to the founders surrounding the circumstances of the discovery/creation of the entrepreneurial opportunity and the founding of the firm. 12 Inside Dyson- James Dyson. Dyson.com Retrieved August 6th, 2012 from http://content.dyson.com/ insidedyson/article.asp?aID=jamesdyson&hf=0&js=&basketTotal=0.00&basketQty=0&logged=false
  • 78. 80 technology/engineering side of products. He began to be interested in vacuum cleaners while using a Hoover vacuum cleaner at his home and finding the experience frustrating. He decided to disassemble the device to see how it worked. He realized that the flow of air was dependent of the quantity of dust gathered in the bag, since the air went through the bag instead of being independent from it. As the bag filled up, it became clogged and this led to losing suction as the dust blocked the flow of air. Therefore, he realized that it didn’t matter how powerful the motor was, since the design allowed for massive losses of performance very quickly (as soon as the bag starts filling). While wondering how could vacuum cleaners be improved, he went to a lumberyard and saw an industrial cyclone on the ceiling collecting dust and expelling clean air. He also noticed that the cyclone was not clogging, it was spinning dust down and sending clean air upwards. He wondered how come nobody had thought of applying such a system to vacuum cleaners. He went back to his home where he made a crude prototype, which appeared to work. He got excited and decided this was a good idea to pursue. He then dedicated between four and five years to refining the prototype, through the construction of 5,127 more prototypes. His aim was to achieve no loss of suction at all as well as the collection of particles up to the size of half a micron. He soon realized the technical challenge was enormous since the vacuum cleaner does not always collect only dust but also other large particles like long strands of hair, socks or other small household items. Since he had been borrowing money from the bank in order to finance himself for the past five years, he could not borrow any more money from the bank he started looking for business partners in order to manufacture the vacuum cleaners and faced a great deal of rejection. Venture capitalists refused to invest because “anyone going into manufacturing must be an idiot” and “he was not a professional manufacturer or a professional from the domestic appliances industry”.13 Other vacuum cleaner manufacturers also rejected his idea since this would deprive them from their lucrative replacement bag business. Finally, in 1985 a small Japanese company contacted him because they had seen photos of his vacuum cleaner in a magazine (figure 2). Nearly bankrupt, he accepted the deal 13 Edison Nation (August 16th, 2011). Interview with James Dyson. [Video File] Retrieved from http:// youtu.be/PzCU7fiTXEw Figure 1. The lumberyard that inspired James Dyson. Figure2. The G-Force Vacuum Cleaner.
  • 79. 81 Figure 3. A recent Dyson vaccuum cleaner. with the Japanese and his vacuum cleaner called G-Force started selling in Japan exclusively through catalog sales. The G-Force was sold for the equivalent of $2,000 USD and became the ultimate domestic appliance status symbol. Encouraged by this success, Dyson returned to the UK in order to set up his own company. Eventually the bank that had already borrowed him money agreed to fund him since all venture capitalists had refused. In the founding of his new company he vowed not to separate design and engineering, as traditionally big appliance manufacturers had done. He also decided to make bold decisions regarding the aesthetic look and feel of his vacuum cleaners: “At the time, (when the G-Force was released, ndr) pink was not used in domestic appliances. They were gray or brown and occasionally a primary color like red – very sober, safe colors. Pink was a great shock, a lot of fun. Our color palette is influenced by how it looks as a plastic material. Some colors work as plastic, some don’t. It has to do with the way the light hits them and the kind of chrome you can get in plastic. We try to use colors that haven’t been used before and produce unusual combinations you wouldn’t expect (…) Conventional looks don’t make a product more marketable. Just as the technology was different, the machine should look different because designing a new product is about surprising people, rather like a work of art.”14 He also decided to leave the dustbin transparent against the advice of focus groups and retailers who thought it was disgusting to see the contents. Dyson thought that users would enjoy seeing how much dirt the machine picked up. Today Dyson is a healthy company that owns 50% of the market share for vacuum cleaners in the UK. The company started manufacturing other home appliances besides vacuum cleaners such as fans, hand dryers and washing machines using the same design philosophy and signature bold colors. 3.3.1 Analysis of the Dyson case. Entrepreneurship literature makes a clear distinction between two distinct phases of the opportunity discovery/creation process. There is a first moment, of identification of the opportunity and a second moment of the development of the opportunity, 14 Dyson Fills a Vacuum. (2009) @Issue: The Online Journal Of Business And Design. (Hirasuna, D. Ed.) 8 (1). 16 – 21. Retrieved from http://www.atissuejournal.com/wp-content/uploads/2009/cs/cs_0801_02.pdf
  • 80. 82 and different constructs can be used to identify any given phase, as mentioned by Chandler at al. (2003). From an entrepreneurial related point of view, the opportunity could be divided in the following phases: Environmental factors: Existence of a market for vacuum cleaners, which in turn generates a market for replacement bags. A market need: People need to clean their homes. Factors related to the entrepreneurs’ cognitive style and motivations: James Dyson had been trained as a designer and engineer; he had a special sensibility and curiosity of how things work. He gets frustrated with existing vacuum cleaners and disassembles one, discovering the reason for their poor performance lay in the poor design. He sees a pattern forming between the workings of a cyclone lumberyard and “connects the dots” into thinking this could also be applied to vacuum cleaners and allow them to collect dust without using bags. He begins a sense making process, and by doing multiple prototypes he learns more about how to make vacuum cleaners work without bags. Fortuitous discovery: James Dyson visits a lumberyard and sees a cyclone that separates sawdust from clean air without losing suction. Factors related to opportunity creation: Thanks to his design and engineering background, he realizes that applying the cyclone principle he saw in the lumberyard in domestic vacuum cleaners he could solve the problem of losing suction and radically disrupt the market for vacuum cleaners and replacement bags. He prototypes his idea until he makes it work. He decides to exploit the opportunity. His abilities, cognitive style, education and decisiveness enable him to create a knowledge-based solution. In a nutshell, the thorough and radical redesign of the vacuum cleaner created a business opportunity, disrupting a mature market and delivering a product with superior performance and appealing aesthetic and symbolic qualities. 3.4 Case Study: Kartell Kartell is an Italian company founded in 1949 by Giulio Castelli, who had just graduated from chemical engineering and was a pupil of scientist Giulio Natta. Natta won the Nobel Prize in Chemistry in 1963 for the discovery of isotactic polypropylene. Figure 4. Dyson Hand-drier. Figure 5. James Dyson and the bladeless fan
  • 81. 83 It was recognized back then to be the first “unbreakable plastic” that could be used in everyday products. Castelli was very optimistic and visionary about the new possibilities brought by on by new developments in materials technology, particularly in plastics. Inspired by Natta’s teachings, Castelli began his own industrial production using various plastics such as Nastrocord15 and polyethylene (Casciani and Sandberg, 2008)16 . He was able to experiment because back then, it was feasible to do so: molds were inexpensive so experimenting could be done easily (La Repubblica, 200917 ). The first product he ever produced was an accessory for cars that allowed transporting skis using Nastrocord (figures 5 & 6). In Italy, in the aftermath of World War II new plastic tools were slowly replacing traditional wooden and metallic tools (Annicchiarico, 201218 ). Castelli is aware of this trend and he sees the potential of integrating plastic in home objects; particularly, he had the ambition of replacing glass in everyday home objects, lamps and in laboratory equipment. He also has a vision of bringing color to Italian households, which were before the war quite monotone: white was the prevailing color, with metal, wooden and straw tools here and there. The only color in the household belonged to the foods peoplecookedandate. Kartelloffersavisionof“coloredhousekeeping”;nolongerpoor, sad and archaic In Castelli’s own words: “I wanted to make something new with the new materials that were becoming available in the market, trying to generate through my products beauty, innovation and first and foremost, surprise” (Annicchiarico, 2012). However, his vision was far more complex: he sees in fact, an entire industrial system based in design. This means managing the entire design process. He also develops a model that becomes widely imitated among many Italian companies. He decides to keep inside the company the intangible parts of the productive process (design, marketing, research) and the tangible parts like tooling and production would be outsourced. Castelli’s first collaborator was his wife, Anna Ferrieri, who was an architect and contributed enormously doing research, managing and improving the company’s relationships with the world of design and architecture and bringing sensibility to the problems linked to designing for the household. The first designer that collaborated with the company was Gino Colombini, an architect, who designed popular household objects with very simple forms (a bucket and a drying rack for dishes) (figure 7) that became very popular among families of all classes and lifestyles (Casciani and Sandberg, 2008). Among the first “generation” of designers that collaborated with Kartell are Ettore Sottsass and Gae Aulenti (La Repubblica, 2009). Between 1954 and 1960 Kartell won four times the prestigious design award Compasso D’Oro given by the ADI (Associazione per il Disegno Industriale) with products designed by Gino Colombini, and were nominated. Castelli and Ferrieri also consecrated as activists, patrons and promoters of design and design culture in Italy. The company’s most intense, and more fruitful period in the furniture area arrived in 1963 with the creation of the Habitat division that introduced more sophisticated objects besides the already existing product lines. Two of the most acclaimed products 15 Nastrocord: A rubber-like material patented by Pirelli that was used to replace metal springs in beds. 16 Casciani, C., Sandberg, T. (2008) Design in Italia: Dietro le Quinte Dell’Industria. Dworschak, G. (ed.) 5 continents. Milano, Italia. Pp. 65 - 69 17 La Repubblica (2009) Dal 1949, le due vite di Kartell (per ora) Retrieved from http://design.repubblica. it/2009/04/20/dal-1949-le-due-vite-di-kartell-per-ora/ 18 Annicchiarico, S. (2012) La Cultura della Plastica in Kartell, The Culture of Plastics. Storace, E., Werner Holzwarth, H., eds. (2012) Taschen. Köln, Germany. Pp. 9 - 19
  • 82. 84 5 6 7 8 9 10 Figure 5 & 6. The first product designed by GiulioCastelli, designed to hold the skis on top of cars, using Pirelli’s material nastrocord. Figure 7. Early Kastell products, designed by Gino Colombini. Figure 8. The4999 chair designed by Marco Zanuso and Richard Zapper. Figure 9. Universale chair designed by Joe Colombo in 1968. Figure 10. Bookworm Library by Ron Arad.
  • 83. 85 from that era are the children’s chair 4999 designed by Marco Zanuso and Richard Sapper in 1964 (figure 8), and the Universale chair designed by Joe Colombo in 1968 (figure 9). The 4999 was the first plastic chair for children ever produced, and within a few years every private school in Italy was equipped with them however, the difficulties finding proper distributive channels led to the chair going out of production in 1980. The Universale chair was born thanks to advancement in material technology and specially the birth of ABS. The chair was a success however with time they discovered ABS did not age gracefully so they replaced it with polyamide fibers (Nylon). However, Nylon proved to be problematic as well so Carlo Bartoli redesigned the chair. The chair was called 4785 and was done in polypropylene. From the experiences with the previous chairs and their problems, the new chair could be resolved gracefully. It became an immediate best-seller. In 1972, Kartell was invited to be present at the Museum of Modern Art in New York, to be part of the exhibition “Italy: A New Domestic Landscape”. Many products were sent to the museum, including three prototypes specifically designed for the exhibition by Gae Aulenti, Ettore Sottsass and Marco Zanuso. Some of them remained in the museum’s permanent collection. The presence in the exhibition put Kartell in the global map as a producer of avant-garde living solutions. However, by the 1980s business had become difficult for Kartell. “Plastic was no longer seen as innovative and fresh– quite the opposite, it was regarded as cheap and overused,” says Lorenza Luti, Kartell’s marketing and retail director and the daughter of the company’s present owner Claudio Luti19 . The taste changed in the 1980’s and there was a revival of handcrafted furniture; clients looked for unique limited edition products and designers and producers started giving them what they wanted. Unfortunately, Kartell could not follow that direction because the essence of the company was to master the opposite direction: mass production, a democratization of design and the use of plastics as main material (La Repubblica, 2009). In 1988, Claudio Luti, Giulio Castelli’s son-in-law, took over the company after a long experience in Versace. He then started transferring many practices and ideas from his experience in the fashion industry into Kartell. Following the logic he learned in Versace, he enlisted top designers like Philippe Starck (figures 11, 12, 14, 16), Ron Arad (image 10) and Ferruccio Laviani (figure 13). “He needed to valorize plastic again,” explains Lorenza Luti. “The new generation (of designers) took the business in yet a new direction by creating a language in plastic we weren’t used to seeing; suddenly it was covetable and glamorous again (Backhouse Interiors, 2010).”  Claudio Luti explains the product-centered strategy he used to try to bring the company back to life: “I decided to take charge directly. Many furniture companies have an art director or a production curator that is an external collaborator that signs products also for other brands. I was truly convinced that controlling the product meant controlling the company. We needed to re edit the catalogue, so I needed to understand it and appropriate it. From the beginning I started participating in the production meetings with designers and from the beginning I clarified that we would have to work in continuous collaboration” (La Repubblica, 2009). The strategy worked and new iconic pieces like Philippe Starck’s Dr. Glob (figure 14), 19 Backhouse Interiors (2010) Plastic Made Perfect. Retrieved from http://backhouseinteriors.blogspot. it/2010/04/plastic-made-perfect.html
  • 84. 86 11 12 13 14 15 16 Figure 11. Mr. Impossible by Philippe Starck. Figure 12. Louis Ghost by Phillippe Starck. Figure 13. Bourgie Table Lamp by Ferrucio Laviani. Figure 14. Dr. Glob by Philippe Starck Figure 15. Kartell Shoes signed by Moschino. Figure 16. La Marie by Philippe Starck.
  • 85. 87 Mr. Impossible, and Louis Ghost chairs (among the first pieces of furniture that were completely transparent and made in polycarbonate; Ron Arad’s bookworm bookshelf and Ferruccio Laviani’s Bourgie Table Lamp saw the light in the 1990’s. In the last decade, Kartell continued its fashion influences with collaborations with fashion stylists such as Dolce and Gabbana, and taking their know-how of plastics to an even more fashion-oriented direction. Since 2012, Kartell started producing plastic shoes (image 15), having famous stylists sign some of the models. The company has also expanded to emerging countries where an emerging middle-class is starting to demand their products. As a way to cope with the request for local shops around the world, the company started a franchising model for its distributors. Overall, Kartell represents an emblematic example of a design-driven company that mixed design and technology and created a cultural discourse around the use of plastic and bright colors inside the home. Kartell used plastics in furniture in a completely innovative way and using manufacturing technologies that had traditionally been used in other industries and changed forever people’s tastes bringing plastic and color into the home. 3.4.1 Analysis of the Kartell case From an entrepreneurial related point of view, the opportunity could be divided in the following phases: Environmental factors: The period after World War II in Italy was a time of optimism, vitality and economic boom (specially the 1960’s). An emerging middle class and a vibrant industry were the perfect breeding ground for entrepreneurship. New advances in material technology, particularly in plastics, brought new opportunities in design and manufacturing. Milan was (and still is) a vibrant cultural center, where artists, architects, philosophers and intellectuals created, discussed and spread a design discourse and a design culture. Factors related to the entrepreneurs’ cognitive style and motivations: Giulio Castelli was a chemical engineer that had specialized in plastics engineering. He was very motivated and curious, and he believed plastics had an enormous potentialasanewmaterialthatcouldbeusedtoreplaceglassandothermaterials inside the home. He was also very sensitive to design and the possibilities design could bring to innovating products. Fortuitous discovery: Giulio Castelli had the opportunity to be a pupil of Nobel Prize winner Giulio Natta, spending time discovering the new possibilities offered by plastics. Factors related to opportunity creation: Castelli created his company combining design and new materials technology. He began producing car accessories. However, he realized he could apply his knowledge to house products that were traditionally made of glass. The first household Kartell products were simple products. The enthusiastic market response, and the collaborations with renowned designers led him to start the famous Habitat division and propose to the market evermore sophisticated products. Thus, he started the company with an intuition, he acted and with time and the feedback from the market he refined the firm’s business offering. In acting he created the business opportunity.
  • 86. 88 3.5 Discussion: Lessons learned from product-centered firms These design driven firms tended to fit better the creationist (or Schumpeterian) definition of entrepreneurial opportunities: founders acted mostly inspired by trends and insights from art and culture and refined their business offering over time. Founders referred using a wide variety of design-thinking instruments used during the generation of the entrepreneurial opportunity however none of them mentioned using user observation or feedback to generate their entrepreneurial opportunity. This approach to creating entrepreneurial opportunities closely resembles the design- driven approach used to design the company’s products, relying on trends, future scenarios, and insights from art and culture and the design discourse rather than on user observation. This could be an interesting insight to pursue in future research: how design-driven methods could enable creating opportunities versus user-centered methods, which allow discovering opportunities (this topic will be deeply discussed in the next section). In these firms, design’s influence remained confined to the product20 (the business offering) at least, in their early years. Most of these companies have obviously evolved with the times and have added services and other intangible elements to their business offering. With time, most of these companies also embedded design at a strategic level since its one of its key capabilities. However they remain firmly product-based and they basically sell designed objects. As we will see in the next section, design is moving up the value chain and this can be seen also in the case studies: from shaping the products (as in these case studies), to shaping business concepts and business strategies. However, when referring to design-driven entrepreneurship today, many people still equal it with self-production: a designer designs, produces and sells his/her own products, thus design is still confined to a product-focused role and its more strategic potential is overlooked. One of the many objectives of this work is to challenge this view and advocate for design as an instrument that can be used at a more strategic level. This topic will be further discussed in the final remarks of this chapter. Founders of product-based design-driven firms also referred to the networking aspect of creating a business: partnering with designers and cultural actors as way to enter “the design system”. Most founders were also part of local industrial or artisan clusters so in a way they linked both systems: the design system and the industrial system they formed part of. Founders were sensitive and attuned to design and its possibilities, some of them were trained architects themselves and involved the designers in the companies directly. This insight resonates strongly with Schlinkert and Altmeppen’s (2008) perspective of network-driven entrepreneurial opportunities. One of the basic challenges entrepreneurs face in this early days is making sense of the idea and getting feedback and support from members of their social network. This insight was key for the development of the service design toolkit and its guiding principles that are described in-depth in chapter 6, section 3. An unexpected insight from the case studies came from the relationship these companies had with technology. An important percentage of the firms mentioned the availability of new technology (manufacturing or material technology) as an important factor that enabled them to pursue the entrepreneurial opportunity. There is a widespread notion that design-driven companies relied exclusively in design to gain a competitive advantage. Seen from up-close, the distinction is not nearly as neat 20 In a later time, many of these companies embraced design as part of their strategy however I am referring to the foundation and early days of these product-based design-driven firms.
  • 87. 89 as it seemed before. This sheds light on how technology and design could be paired together in order to create innovation, in this case design-driven. This observation leads to questioning whether this distinction between design-driven and technology- driven firms is as neat as it seems and if maybe, the case studies analyzed in the following section could be a new manifestation of the same phenomenon: design creates new products or new services partly because technology now enables it to do so. This phenomenon will be deeply discussed in the following section. 3.6 Case Studies of design- oriented ICT companies The phenomenon of design-driven software-based companies is very recent. The first mentions of its existence started in 2011, based on the work of Stanford design alumna Enrique Allen and his project The Designer Fund. Allen himself, on a piece published by Fast Co.Design in January 2012 explained how he started analyzing, and later encouraging this phenomenon: “For the last few years, I was teaching startups to think like designers. But I eventually realized that you need someone to model and inspire design thinking within the company. If you don’t have a designer in your founding group, it’s harder to have a culture of design. You see the reasons why all the time: A consultant comes in to improve a design and when they leave, the transformation eventually dies. This was my aha moment; it challenged whether I was making an impact. My solution? Do the opposite of what I’ve been doing. Rather than spending as much energy training nondesigners, I figured I’d help designers succeed as part of the founding DNA of startups, thus making great design a natural expression of their operations21 .” The phenomenon started gaining momentum with the publication of two books, one by Enrique Allen called Designer Founders (2012) and one by Tim Hoover and Jessica Karle Hetzel entitled Kern and Burn: Conversations with Design Entrepreneurs (2013). Both books interviewed designers who had founded ICT companies (mostly partnering with a technology-trained and/or a business-trained partner). The interest in encouraging entrepreneurship in designers spread like wildfire, with many design schools opening special programs, incubators or accelerators for designers (this phenomenon will be deeply analyzed in chapter 4). This coincided with the post-2008 economic crisis climate, when young people found it especially hard to find formal employment and it was thought that encouraging design graduates to become self-employed would enable them to kick-start their careers. Supporters of the “designer founders” movement, claim that designers are already trained in creating compelling products and experiences, they are sensitive to people’s needs and possess the design thinking skills consultants have been trying to teach managers. Thus, they would “naturally” be good entrepreneurs. However, critics of this approach argue that designers have almost no training in business or technology, so they face a steep learning curve. Also, different skillsets are required to generate and design product or service ideas and to manage, execute and deliver a product or service on an everyday basis so being a good designer does not automatically mean 21 Allen, E. (2012) Silicon Valley’s New Secret Weapon: Designers Who Found Startups. Fast Co.Design Retrieved from http://www.fastcodesign.com/1665795/silicon-valleys-new-secret-weapon-designers-who-found- startups on January 10, 2014
  • 88. 90 they would make good entrepreneurs. Furthermore, critics argue, designers tend to be creative and crave novelty; those who start a company could eventually become bored when the business is up and running and the work becomes a “routine” without the excitement of the initial creative phases once the novelty wears off. In a sense both sides of the argument make good points, and I hope to address these concerns in the conclusions of this dissertation (chapter 7). In the meantime, there are already several case studies of designers that have founded or co-founded ICT-based companies. However, the object of this mapping is not to determine whether firms founded by designers (or with a designer in their founding partners) are more successful than those founded by other professional profiles. Rather, as with the case studies presented before, the objective was to understand the role of designers in the discovery/creation of the entrepreneurial opportunity, the type of entrepreneurial opportunity they produced, and what type of design thinking traits were used in doing so. Although I am mapping the same criteria as with the previous case studies, I am not claiming that they are similar in any way. Both sets of case studies are set in different territories, different contexts, different times and different circumstances. The objective of analyzing both sets of case studies is, rather, to understand the role designers took in generating the entrepreneurial opportunities (if any) and to deepen the understanding of the role of design (if any) in the creation of two macro categories of firms: product-based design-driven firms and c service-based ICT firms. As with the case studies of the previous sections, the parameters mapped were: 1. Having (or not) a formally trained designer as founder 2. How the company was founded and the type of entrepreneurial opportunity according to the classification used by Chandler, DeTienne & Lyon (200322 ). 3. Whether they used any (known) design thinking aspects or methods in the discovery or creation of the opportunity23 . 4. Whether new technology influenced the entrepreneurial opportunity and what parts of the offering were affected by these technological developments. Since these business offerings are more complex and intangible, new elements were added: service, product, user-experience and process. The selected firms were chosen according to the following parameters: 1. They must have at least one founding partner that identifies him or herself as a designer. 2. The firm has a strong ICT focus (software, digital services, social media, etc.) 3. The firm must still be in operation at this time. 4. There must be abundant public information regarding the founding story of the firm. The data was obtained from secondary sources specifically interviews with the founding partners regarding the story of the founding of the firm. The case studies were mapped following the same format as the case studies of the previous section. The full mapping can be consulted in Appendix 1. 22 Chandler, G. N., DeTienne, D. R. and Lyon, D. W., (2003). Ibid. Pp. 399 - 401 23 As mentioned explicitly in the interviews with the founders regarding the circumstances of the founding of the company.
  • 89. 91 3.6.1 Findings As for the profiles of the founders, the vast majority of the companies has a formally trained designer as a founding partner whereas a small minority had a partner that had a career working in design-related areas however had pursued his or her degree in a different field (or was self-taught). One very interesting insight came from analyzing the stories of the founding of the different companies. From the interviews it emerged that nearly all of the firms analyzed had an entrepreneurial opportunity that could be classified as problemistic. This is, the founders thought of a specific problem and how to solve it, or even were faced with the problem themselves. Then, they solved the problem through their product or service. Also, the opportunity appears to be discovered rather than created. For example, in an interview with Rashmi Sinha24 , the founder of Slideshare she mentioned how her husband went to a conference in 2006 and noticed how presenters were uploading their presentations to different services like Flickr or YouTube or were exchanging USB drives with other attendees. He thought there should be a website to share Power Point presentations with pictures and video. When he told her this idea, she immediately thought it made sense and “somebody’s going to do that (…) People will want to share it (the presentations, ndr); it’s a social format”. Both husband and wife start working in the idea as fast as possible before someone else had the same idea and became the dominant player. In this example, as well as with other interviewees there is a sense of urgency, of launching their service first because they know they are tackling and obvious and existing need and it is only a matter of time before someone else discovers it as well. Another important factor in opportunity discovery seems to be pure luck. Nearly half of the interviewees attributed some of their ideas to random events or lucky coincidences that led to the discovery of a problem that later became the opportunity. Regarding the design thinking traits used to discover the opportunity, the results are quite different from the previous sections. Nearly all the entrepreneurs got their insights from user observation, and then they prototyped and iterated several times collecting feedback in the process. Most of them also mentioned “connecting-the- dots” between observing an unsolved need and producing a business venture that solved that need. From the table we can see that two of the most used design thinking traits were obtaining insights from user observation and then “connecting-the-dots”. This makes sense with a problemistic approach to opportunity discovery: observing users, understanding what problem they have and then proposing a service that tackles that very problem. Regarding technology as a driver of the opportunity, unlike in the previous case studies technology plays a huge role. Virtually none of the firms would exist if it weren’t because of ICT possibilities that were unthinkable just ten years ago. Of the firms analyzed, a vast majority used this technology to develop a service, a couple of them in a product, and a few of them to generate a compelling user experience. 24 Allen, E. And Ye C. (eds.) (2012). Designer Founders. Stories of Designers Who Founded Tech Startups. The Designer Fund and Pre/Post. San Francisco, CA. P. 26
  • 90. 92 3.7 Case Study: Airbnb Airbnb was founded in 2007 by two recent grads from Rhode Island School of Design: Joe Gebbia and Brian Chesky. They both had day jobs as designers however they wanted to start their own company. While they were thinking of potential ideas they got a letter from their landlord notifying them that their rent was going to increase 25%. Desperate to get extra money to pay rent, they sorely needed a quick way to get extra income. They found out that the next week a big design conference was taking place in San Francisco and hotels were completely sold out. They decided to put inflatable beds in their living room and rent them to strangers who were attending the conference. They hosted three people from very different backgrounds and origins and then they had the insight that this could be something big. Around the world in that very moment, thousand of people possibly had an extra room or sofa bed they could rent to make extra money however; those resources remained there unutilized. Nevertheless, the idea still needed to be developed and executed, so they recruited an engineer friend (Nathan Blecharczyk) to have someone from a technological background help them develop the website. They launched the website in 2007, and tested it for the SXSW festival in Austin, Texas. However, only two people booked a room with them (one client, one was them as a test). While testing, they realized that there was no way to pay using the website, so users needed to pay by cash directly to their host. Chesky stayed with a PhD student from the University of Texas at Austin and really enjoyed being with his hosts. However, when it was time to pay: “It was kind of a cold exchange, only because, here it was, it felt very personal, suddenly it immediately felt very financial and I also think I didn’t even have the money at the time! I had forgotten to go to the ATM and I just remember the experience feeling not very streamlined and not very great overall. You have to exchange the cash, then you’ve got to get change, and there was no real transactional record of what was happening. The whole thing just felt very illegitimate and under the table and so we realized that we had to build payments and we thought building payments would be the thing that really created our business and so that was the first thing25 .” Chesky mentions this experience was key to developing Airbnb because unless they added a payments systems, Airbnb would be just another messaging website so they started charging up to 15 per cent of the booking (the host pays three per cent and the traveller between six and 12 per cent). In summer 2008 they found the perfect opportunity for their business. Barack Obama wasduetospeakinDenverattheDemocraticNationalConvention,and80,000people were expected to be there, but again, there was a shortage of hotel rooms. Gebbia, Chesky and Blecharczyk finished the website in time to launch it two weeks before the conference. Within a week they had 800 listings. But the site wasn’t making any money26 . Desperate and with their credit cards to the limit, they decided to design and sell limited-edition cereal boxes featuring both presidential candidates (John McCain 25 Tame, J. (2011) From Toilet Seats to $1 Billion : Lessons from Airbnb’s Brian Chesky. Startups Open Sourced. Retrieved from: http://www.startupsopensourced.com/2011/05/30/from-toilet-seats-to-1-billion-lessons- from-brian-chesky/ 26 Salter, J. (2012) Airbnb: The Story Behind the $1.3 bn room-letting website. The Telegraph. Retrieved from: http://www.telegraph.co.uk/technology/news/9525267/Airbnb-The-story-behind-the-1.3bn-room-letting- website.html
  • 91. 93 and Barack Obama). This allowed having extra money and surviving until 2009 when they were admitted to the notorious Silicon Valley accelerator: Y-Combinator. By then, the website was barely making $200 a week. Not nearly enough to cover even basic living expenses in San Francisco. Once in the program, they now had to figure out why they were not growing at the rhythm they wanted to. One afternoon, the team was poring over their search results for New York City listings with Paul Graham, the founder and head of Y-Combinator, trying to figure out what wasn’t working. After spending time on the site using the product, Gebbia had a realization. “We noticed a pattern. There’s some similarity between all these 40 listings. The similarity is that the photos sucked. The photos were not great photos. People were using their camera phones or using their images from classified sites. It actually wasn’t a surprise that people weren’t booking rooms because you couldn’t even really see what it is that you were paying for27 .” Grahamproposedacompletelynon-scalableandnon-technicalsolutiontotheproblem: travel to New York, rent a camera, spend some time with customers listing properties, and replace the amateur photography with beautiful high-resolution pictures. The three grabbed the next flight to New York and upgraded all the amateur photos to beautiful images. A week later, the results were in: improving the pictures doubled the weekly revenue to $400 per week. This was the first financial improvement that the company had seen in over eight months (First Round Capital, n.a). They realized that even digital services companies are posed with non-scalable problems that are not solvable only with software. In November 2010 they raised another $7.2 million from a venture capitalist. Then in July 2011 the company received a further $112 million in venture funding, and was reportedly valued at $1.3 billion. The online listings in Airbnb range from the cheap and cheerful – a one-bedroom flat in Paris near the Eiffel Tower is €40 per night – to deluxe, such as a three-bedroom deluxe villa in Bali with swimming pool for €400 per night. By January last year the company had had one million bookings; by July that year it had had more than two million; at the end of 2011 it had had five million and in June it hit 10 million. Over the past 12 months the site has grown by 400 per cent.s Of course, not everything has been a bed of roses. In June 2012, a woman complained in her blog that an Airbnb renter had trashed her house and her story was reported internationally. In response Chesky wrote an apology on the site’s blog and announced that hosts would now be insured for $1 million, backed by Lloyds of London. There would also be a 24/7 helpline manned by customer service agents. This incident prompted the founders to add additional security and trust features to the service such as holding a security deposit against users’ credit cards, adding “trust points” inside the website by using your true name, email and linking your Airbnb user account with your real Facebook and Linkedin profiles. Also, a review system was setup so users could review both their hosts and their guests. Other obstacles have come from outside forces. In 2012, the city of Amsterdam banned Airbnb stating that it is illegal under Dutch law to operate “an illegal hotel”. By illegal hotel they mean “Illegal hotels are locations (private homes or apartments) 27 First Round Capital (n.a.). How Design Thinking Transformed Airbnb From a Failing Startup to a Billion Dollar Business. Retrieved from http://firstround.com/article/How-design-thinking-transformed-Airbnb- from-failing-startup-to-billion-dollar-business
  • 92. 94 that don’t have a hotel permit where tourists can stay in exchange for payment. The legal exceptions are short stay permit owning homes and homes that offer a bed & breakfast service and are registered as such”. So in practice, they are imposing severe fines to people operating “illegal hotels”28 . They were not banning the website itself but were persecuting legally those who offered their properties for rent for short periods without a license (i.e. almost everyone offering their home for rent through Airbnb). In 2013 an Amsterdam court ruled against Airbnb making it the first major touristic city where the popular service was banned. Later that year, Amsterdam’s city council backtracked and announced they had reached an agreement with Airbnb. Hosts could keep renting their property as long as it was the house they lived in, complied with fire and safety codes and did not disturb the neighbors. Also in 2013, the city of New York followed suit arguing that owners of the properties were not declaring the income they received from the properties they rented thus, avoiding millions of dollars in taxes. Additionally, they did not comply with fire codes and safety standards. Although Airbnb is not banned in NY, it operates in a gray area. Currently (January 2014) Airbnb is involved in a legal battle to continue their activities in New York City. Legal problems aside, Airbnb so far represents one of the most clear examples of the new “sharing” economy. Business is booming: they have half a million properties listed from 192 countries and 40,000 cities. 3.7.1 Analysis of the Airbnb Case Study From an entrepreneurial related point of view, the opportunity could be divided in the following phases: Environmental factors: Existence of ICT technologies that facilitate listing a property online. Existence of parallel ICT services like Facebook and Linkedin that help verifying a person’s identity. Since 2008 and following the economic crisis there is the need of people to make extra income renting existing rooms or houses that are unused or underutilized. Factors related to the entrepreneurs’ cognitive style and motivations: The two designer founders are curious and insightful. They wanted to make extra money renting space and realized they could turn that into a business. They used design thinking and their design training to design the best possible booking and travel experience service. Fortuitous discovery: If they had never received a letter from their landlord notifying the rent was going to be increased, maybe the thought of renting their own house would have never crossed their minds and this was the main trigger of the Airbnb original idea. Factors related to opportunity creation: Once they saw the underutilized resources and developed the website, they refined the experience adding security and trust features that really allowed the business to take off, triggering a revolution in the hospitality industry in fact creating a “peer-to- peer” hospitality service that did not exist before. They are actually creating new touristic experiences allowing visitors to feel like a local in different cities around the world. 28 Veldhuijzen Van Zanten, B. (2013) Amsterdam doesn’t ‘ban’ AirBnB but says renting out without a permit is illegal. Do you have a permit? Retrieved from http://thenextweb.com/insider/2013/02/07/amsterdam- doesnt-ban-airbnb-but-says-renting-out-without-a-permit-is-illegal-do-you-have-a-permit/#!r5327
  • 93. 95 The entrepreneurial opportunity in this case was highly problemistic: how to make money on the side allowing people to rent their extra space, the development and execution of the idea allowed the service to take off and actually become profitable. 3.8 Case Study: Instagram Kevin Systrom, a management engineering from Stanford, had always wanted to be an entrepreneur. Although he had stable and safe employment first at Google, and then at a travel recommendation startup called Nextstop.com he wanted to develop his own project. After work and in the weekend he would develop side projects hoping to learn to code. During his first year in university Systrom attended a short course of photography in Florence, Italy. He arrived in Italy with a high-powered camera only to see his photo teacher swap it for a vintage Holga camera. The cheap plastic device produced peculiar square images with soft focus and light distortions that yielded a retro look. Systrom loved the aesthetic. “It taught me the beauty of vintage photography and also the beauty of imperfection” (Markowitz, 2012). This experience would be decisive later on in shaping what would become Instagram. Back in the U.S., in early 2009, Foursquare was receiving a lot of attention and it was becoming immensely popular. Location-based apps were multiplying and investors all over Silicon Valley were focusing on them and actively investing in them. Systrom had developed a few concepts in his spare time, but in late 2009, he concentrated his attention on one: An iPhone application that would combine elements of Foursquare with elements of Mafia Wars, a popular game developed by Zynga. Systrom called his idea Burbn, and the app’s primary functions were to let users check-in to locations, make future plans with acquaintances, earn points for hanging out with friends, and post pictures29 . However, he had neither money nor time to focus full time on developing and refining his product. In 2010, he met two Silicon Valley investors at a party and showed them the prototype of his application. He had positive feedback so he decided to quit his job and dedicate full time to raise money. In two weeks he had raised half a million dollars and decided to look for a team. Systrom’s first hire and eventual co-founder was Mike Krieger, a Brazilian-born 25-year- old engineer. The pair had met at Stanford’s Mayfield Fellows program; a nine-month work-study program at Stanford designed to educate eager young students in running technology companies. Krieger brought different skills. He had majored in symbolic systems, an interdisciplinary program that blends software programming with psychology, linguistics and philosophy30 . During university he had actually developed a photo sharing application that was designed to gauge human emotion. Both co-founders started to work on the Burbn application and were very unhappy with it. It was cluttered with features and it looked too much like Foursquare. They 29 Markowitz, E. (2012) How Instagram Grew From Foursquare Knock-Off to $1 Billion Photo Empire. Inc. com. http://www.inc.com/eric-markowitz/life-and-times-of-instagram-the-complete-original-story_pagen_2. html 30 Sengupta, S. (2012) Behind Instagram’s Success, Networking the Old Way. The New York Times. http://www.nytimes.com/2012/04/14/technology/instagram-founders-were-helped-by-bay-area-connections. html?pagewanted=all&_r=0
  • 94. 96 also noticed that users did not “check-in” (shared their location with friends) as much as they expected and rather, they were mostly only taking pictures and sharing them with their friends. So, both founders decided to delete the application and start over from scratch eliminating everything except the photo sharing, commenting and liking features. The release of the iPhone 4 gave them a perfect opportunity: it had a high-performing camera and could display higher-resolution images. Users could take a picture, modify it, write a caption and share it. They gave it a new name: Instagram. For the next two weeks the two cofounders worked tirelessly to develop a prototype. When they were finished, the prototype was basically an iPhone camera app with social and commenting functions. Neither was too excited about what they had built. Frustrated, Systrom needed a break. He went to Baja California, Mexico for a week’s vacation. While walking down the beach, his girlfriend asked how one of their friends posted such good-looking photos over the app. It turns out his friend was applying graphic filters to the images. Suddenly Systrom remembered his experience with the cheap camera in Florence. He spent the rest of the day researching and designing the first of the Instagram filter that would become one of the most distinctive features of the application. With the filters, Instagram would give camera phone pictures a retro feel. The cofounders let some influential technology bloggers and contacts, like Jack Dorsey, the founder of of Twitter, try a test version of the app before its official release. Soon Mr. Dorsey was using it to send photos to his Twitter followers, and word spread. Soon, celebrities also downloaded the app and started posting pictures of themselves. The application was downloaded over a million times in the first month. 3.8.1 Analysis of the Instagram Case Study From an entrepreneurial related point of view, the opportunity could be divided in the following phases: Environmental factors: Existence of ICT technologies that facilitate sharing images with friends online. Launch of the iPhone 4 with a high-resolution camera that allows taking decent pictures. Factors related to the entrepreneurs’ cognitive style and motivations: Kevin Systrom already was entrepreneurial in spirit; he gave up stable employment opportunities to pursue his idea. Since 2005 he had already noticed the trend of mobile phones becoming more powerful, mobile and engaging so he was actively involved in developing mobile applications. He was fascinated with photography and liked the retro aesthetic that could only be produced from vintage cameras and this was a fundamental element that he later incorporated into Instagram as a key feature. The other founder Mike Krieger had pursued a degree that blended psychology and technology and he had already developed a photo-sharing app that targeted users suffering from Affective Seasonal Disorder during his studies. Fortuitous discovery: Systrom traveled to Italy to attend a photography course where he discovered the beauty of vintage cameras and the peculiar aesthetic they give to the images they produce. This discovery was key and if he had not attended that course, quite possibly Instagram would not exist or would be a different type of service. Factors related to opportunity creation: Both founders “connected-the- dots” and linked together existing elements in a novel way: diffuse use of the iPhone with its advanced camera and Internet access capabilities and the new behavior trend of people taking pictures and sharing their everyday moments
  • 95. 97 with their friends. Giving the service to important and connected people (such as celebrities) served as anchor point for masses of people to adopt the service. Ultimately, Instagram was defined by design more than technology: a number of copycat applications and websites have tried to replace them however they were the first players to incorporate a retro aesthetic to pictures in a social way in mobile devices. 3.9 Discussion: Lessons learned from the ICT Firms. From the case studies of ICT-led firms, there are various insights that can be deducted. First, design is no longer embodied in a product, but rather it was used to shape an intangible digital service. It has moved up the value chain. Whereas before, design- driven companies sold design through their offering (selling designed objects), in these cases design was an instrument to shape the business concepts and the intangible services. In product-based design-driven entrepreneurship (DDE) designers were collaborators who designed products for a firm, now designers are cofounding firms and designing business concepts. Figures17 and 18 show the passage that was observed in these two distinct sets of case studies. Figure 18. Service-based design-driven entrepreneurship: design shapes the business strategy. Another interesting insight comes from the types of entrepreneurial opportunities bothsetsofcasestudiesexploited.Product-basedDDEtendedtocreateentrepreneurial opportunities. They had vague intuitions based in trends, new behaviors or insights from art and culture and acted on them. With time, they refined their offering based on the feedback from the market. However, they rarely used consumers or users as a source of inspiration for the entrepreneurial opportunity; they proposed products to the market and then refined them based on the feedback from those products. These firms however, tend to discover opportunities: they notice users have a specific problem or need and they rush to fulfill it and become the dominant player before someone else does. They refine their offering in time as well, but in general they tend to tackle existing objective needs in innovative ways using information communication technology. Thus, they are much more focused in problemistic search (Chandler, DeTienne, and Lyon, 2003) and user observation to look for potential entrepreneurial opportunities. Figure 17. Traditional role of design in design-driven entrepreneurship: it shapes the business offering or it is the business offering (in the case of design services).
  • 96. 98 Many of the ICT-oriented firms solve “old” problems in a new way. For example, Airbnb solves the problem of helping people find an affordable place to stay when traveling and or renting their own property to strangers, something that in the past decades was very complicated to do. People would have needed the services of a travel agent, a real estate broker or a property rental agency in different cities or countries. Airbnb facilitates the process cutting the middlemen. It is a perfect example of an “old” need solved in a new innovative way. However, this is possible thanks to Internet and information communication technologies and it is not exclusive of companies who have a designer among the founders. Further research is needed to establish what are the specific advantages (or disadvantages) that companies with designer founders have compared with companies that have founders with other professional backgrounds. 3.10 Conclusions The analysis and mapping of the case studies shows us an overview of two distinct phenomena: product-oriented design-driven firms born in the 20th century and ICT firms founded by designers in the 21st century. In the 20th century, design-driven entrepreneurship was mostly product-focused and design had a role shaping the business offering. Service-oriented design-driven ICT firms are instead focused in digital services and design has a role shaping the business concepts and strategies (Images 17 and 18, above). Thus, we can see design is moving up the value chain. Product-oriented design-driven firms tended to create entrepreneurial opportunities, acting and then refining their offering over time. ICT firms tended to discover opportunities tackling existing tangible problems and acting fast to be the first one to fulfill that need. These differences could be attributed to the “methods” used to look for the opportunity (design-driven or user-centered). Although design is moving up the value chain and has the potential to shape business concepts, when people refer to fostering entrepreneurship in designers they mostly think of product-oriented design-driven entrepreneurship in which the product is the focus and design acts to shape the products. The hypothesis of this work is that design could be used even higher in the value chain, as an instrument in shaping business ideas. The theoretical findings and the experiment conducted to test the hypothesis will be described in chapter 5.
  • 97. 99 Chapter 4. Support Systems for Design-Driven Entrepreneurship
  • 98. 100 4.1. Introduction In recent years, the phenomenon of design-driven entrepreneurship has gained massive attention and an evermore-growing system of support institutions and mechanisms has emerged to cater to the needs of design-driven startups. These support institutions first emerged in the United States and quickly spread to places as far as Portugal, The Netherlands, Hong Kong, Serbia and India. Although support systems for startups such as incubators, accelerators and co- working spaces have existed for at least four decades (in the case of the incubators, it’s even longer) apparently design-driven startups are a particular case that requires a particular type of support apart from other types of startups. Theobjectiveofthischapterare:first,topresentanoverviewofexistingsupportsystems for design-driven entrepreneurs; second, to present the insights from the analysis and visual mapping of 21 case studies of actors that support design-driven entrepreneurship to understand the current models that target design entrepreneurs and try to notice possible gaps in the system; and third, to discuss the possible implications of the findings. Overall, the chapter will be a building block of the literature and help putting together the pieces of the phenomenon of design entrepreneurship. This chapter will be divided in three parts. The first part will present an overview of the different type of actors that currently support startups in general, drawing distinctions among the different models and describe an emblematic example of each model. The second part will present the analysis of 21 case studies of particularly interesting support systems. The cases were selected because of their relevance and reputation and the fact that they consciously integrate design competences in some way. Finally the chapter will close with a discussion on the implications of some the findings from a design perspective. 4.2 Historical aspects The first incubator that ever existed was founded in 1959, by Charles Mancuso in Batavia, New York (USA) and its purpose was far from being focused on creating wealth or employment as it is assumed today. Mancuso, a wealthy business owner, bought a multi-storage building that was unoccupied and needed a major renovation in order to serve its original purpose. Instead, he decided to divide the building into small spaces and rent it to small business owners hoping to have enough tenants and make a profit (Huigjevoort, 2012)1 . The incubator format is still active today and set the precedent for the development of incubators as support actors for entrepreneurs. In the last two decades other support systems have emerged such as accelerators, co- working spaces, angel funds, teaching services, etc. among many others. The economic crisis that started in 2008 has further emphasized the need to foster self-employment and the creation of new jobs through new companies, since existing firms tend to destroy more jobs than they create (Kauffman Foundation, 2010).2 1 Huijgevoort, T. van. (2012). The “Business Accelerator”: Just a Different Name for a Business Incubator? Utrecht School of Economics. Retrieved from http://www.dutchincubator.nl/uploads/Documents/49.pdf 2 Kane, T. (2010). The importance of startups in job creation and job destruction. Kauffman Foundation Research Series: Firm Formation …, (July). Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_ id=1646934
  • 99. 101 However, a very large part of these support actors focuses solely in IT based companies and often require aspiring startup founders to have technology-related backgrounds. This attention to nascent software firms stemmed from the fact that they required modest investments compared to hardware companies, the product and business model were nearly always scalable at almost zero cost, development times were relatively short, distribution and reaching customers was extremely easy, fast and affordable thanks to the Internet. However software startups are starting to lose their attractiveness in the eyes of investors for a number of reasons such as: There are way too many Internet startups and a lot of them are followers or copycats of an existing big-name startup. Original ideas and real game changer firms are becoming harder and harder to find. Consumers are beginning to show signs of app and Internet services fatigue. Once an Internet company has become a standard, other followers or copycats will have trouble getting a share of that market space (Chen, 2010)3 . Competition between Internet startups is very intense. It has become a lot easier to replicate competitors’ products and replicate them in very short timeframes. Therefore competitive advantages are becoming short lived. This rise in competition has led Internet startups to spend more in advertising and buying traffic whereas before this was almost free. Social media and digital distribution channels are saturated, so Internet startups are spending more and more in traditional marketing and media. All of these factors obviously raise the costs for nascent firms. These factors are delaying the moment when the nascent firms break even, so Internet startups must raise funding to stay in business for at least 24 months before they can see any profit. Partly because of the saturation and fierce competition in the Internet startup space and partly because of the acknowledgement that different types of firms have different needs, the entrepreneurial system is starting to diversify, catering to different niches. In this panorama, design entrepreneurship has started to gain momentum. Design programs around the world now abound, with thousands or even hundreds of thousands4 of new graduates every year it is becoming increasingly clear that there are more people than vacant design jobs they can fill. In order to foster entrepreneurship among design grads, many of the new systems that support design entrepreneurs have emerged in leading design school around the world. Some of the most emblematic case studies will be described in detail ahead. 3 Chen, D (2010). Internet Startup Bubble and The Supposed Super Seed Crash. The Web and the World of Business Blog. Retrieved from: http://www.dshen.com/blogs/business/archives/internet_startup_bubble_and_ the_supposed_super_seed_crash.shtml 4 During a visit to the Chinese National Body of Design Promotion, our hosts assured us that approximately 100,000 design students graduate every year in continental China alone, where there are already 400 design programs.
  • 100. 102 4.3 Existing models of support systems 4.3.1 Incubators Themostpopularsupportmodelforentrepreneurshipisthebusinessincubator. The concept of business incubator as such started to be widespread in the late 1970s. Back then, a significant economic crisis was putting a toll on employment perspective for graduates, so universities were among the first to experiment with the incubator model as a tool to foster employment and economic development. Themainpurposeofabusinessincubator,istocreateafavorablebusinessenvironment for start-up firms to compensate for the lack of financial, knowledge and networking resources they generally have (European Commission, 2002). Originally this meant only providing affordable office space and affordable shared office resources. Slowly, as the incubator format started to prove to be successful, different services were added such as mentoring, teaching of basic business skills like marketing and management, etc. Ultimately, the purpose shifted from obtaining profits from real estate into helping the incubators tenants reduce the risks involved in starting and running a business. Business incubators have gone through different phases since their inception. The first generation of business incubators became mainstream in the 1980s, and its core value proposition was affordable access to shared infrastructure. Although this was the main feature provided by first generation incubators, it is still at the core of the value proposition of the majority of business incubators today. (Allen & McCluskey, 1990 in Huitjgeboort, 2012). The second generation of business incubators emerged during the early 1990s. During thisdecade,therewasagrowingneedtoincreasesubstantiallytheadded-valueprovided by the original incubator model, in the form of counseling, skills enhancement and networking services. The latter was provided by facilitating the start-up firms’ access to capital, providing training and education in basic business skills and professional external relationships (European Commission, 2002). The third generation, which emerged in the early 2000s put the emphasis on developing the network of the incubator and thus, the network of the tenant firms. The network possibilities within an incubator in the third generation are the main value proposition and it can provide start-up firms with access to potential suppliers, customers, investors and technological partners. (Bruneel et al., 2012 in Huitgjevoort, 2012). The third generation of incubators tends to focus on start-up firms in the ICT industry. In Europe there are approximately 900 incubators, and they make a significant contribution to job and wealth creation. In the EU, some 40,000 new (net) jobs are generated each year by incubators (European Commission, 2002)5 . The UK has approximately 300 business incubators supporting around 12,000 businesses. Estimates of the direct impact of business incubation by industry associations include between 25-40 supported businesses and between 44-91 jobs per incubator. Many incubators (around 60 %) also have outreach programs to support businesses not resident in the incubator. Indirect incubator effects, e.g. additional jobs and wealth generation from providing products/services to incubator and incubatees, 5 European Commission. (2002). Benchmarking of business incubators. Final Report, DG Enterprise, Centre for Strategy and …, (February). Retrieved from http://scholar.google.com/ scholar?hl=en&btnG=Search&q=intitle:Benchmarking+of+Business+Incubators#0
  • 101. 103 globally range between 0.48-1.5 times the direct impacts of incubation (NESTA, 2011)6 . As shown in Figure 1, the “business incubator continuum” shows clearly the type of value that business incubators create (Huigjevoort, 2012). The value provided by the incubator model has been shifting from real estate (in the left) to business development (in the right). Incubators tend to be subsidized by the State or other funding agencies and allow tenants to stay for periods that range from 12 to 24 months (until they “outgrow” the incubator naturally). These are crucial differences that separate them from the accelerator model, which will be discussed in the following section. Regarding design, there seem to be two mainstream approaches to the model of design incubators. The first one consists in encouraging design graduates to be self-employed and provides support to designers willing to start their own professional practice or to commercialize products designed by them (fashion labels, furniture, etc.). Thus, in this approach, design is the content of the business. Design incubators that emerged in design schools formally encourage this approach. a) Case Study Pratt Design for Sustainable Innovation Incubator One of the first proponents of the design incubator came from the renowned Pratt Institute of Design in New York. The design incubators started in 2002. The goal was to support the entrepreneurial talents of designers, artists and architects selected from the Pratt community. The idea is simple: Pratt alumni who want to start a business that addresses the issues of sustainability get free office space with amenities, advice from a network of professionals and mentors, and a peer support system. With that accord, the members are set free to pursue their endeavors. The Pratt Design Incubator does not require businesses to give up a percentage of the company to become a member7 . 6 Dee, N. J., Livesey, F., Gill, D., & Minshall, T. (2011). Incubation for Growth on new ventures with high growth potential. NESTA 7 Matt, S. (N.A.) The Pratt Design Incubator. Retrieved from http://www.one-earth.com/article/ stevenmatt/pratt-design-incubator Value added through Real Estate Collaboration Business Development For-profit property development incubators Non-profit development corporation incubators For-Profit collaborative incubators Academic incubators For-profit seed-capital incubators Real estate appreciation Sell proprietary services to tenants No interorg. collaboration Job creation and enhancing of the entrepreneurial climate Regional/area development Interorg. Collaboration (multi stakeholder collaboration) Capitalize collaborative and symbiotic potentials Network development and nurture Firm-firm collaboration Commercialization of university research Capitalize investment opportunity University- industry collaboration Capitalize investment opportunity Secure availability to risk capital No interorg. collaboration Source: Adapted from Allen, D.N. & McCluskey, R. (1990) Structure, Policy, Services and Performance in the Business Incubator Industry. Entrepreneurship: Theory and Practice, 15(2), 65. Figure 1. The Business Incubator Continuum.(Huigjevoort, 2012. p. 15)
  • 102. 104 Initially the school funded the incubator. It also created revenue through offering workshops and providing design services to various companies acting as a sustainable design consultancy as well as holding workshops and seminars8 . In early 2013, The Empire State Development Corporation awarded Pratt Institute a $500,000 grant through the Regional Economic Development Council as part of a series of awards for job-creation prospects in Brooklyn (where the incubator is located). The grant will support the expansion of the Pratt Design Incubator for Sustainable Innovation. Since its inception, it has helped launch over 25 businesses in clean-tech, social innovation, fashion design, design consulting, furniture design, and product design. The businesses collectively support 60 jobs and generate USD $4 million in revenue per year9 . Figure 2. Some of the companies currently incubating in the Pratt Design Incubator. Another approach to design entrepreneurship is to encourage designers to embrace tech entrepreneurship, using design to shape the offering of the company. In these cases (which were described in chapter 3), design is present not explicitly, but rather it is part of the firms’ culture because it was incorporated by the founders’ sensibility towards design. Incubators using this approach are harder to map because potentially any tech-oriented incubator could serve the purpose of helping designers start their own Internet firm. b) Case Study: Innovation RCA One of the most renowned design schools in the world, the Royal College of Art kick started its incubator, aiming to encourage and mentor its graduate students who want to become entrepreneurs and develop new design-led businesses. The program starts with a two-and-a-half week training prior to selection and the RCA runs a number of networking events to help candidates to understand their own business roles and skills and to match up with appropriate team members; and the RCA handles contractual details, Articles of Association and other documentation, in order to spare incubatees from getting into legal trouble (NESTA, 2012)10 . 8 Patterson, I. & Arnold, C. (2011) An Interview With Debera Johnson, Founder And Executive Director, Pratt Design Incubator For Sustainable Innovation (Part 1). Retrieved from http://www.sramanamitra.com/2011/02/11/ an-interview-with-debera-johnson-founder-and-executive-director-pratt-design-incubator-for-sustainable- innovation-part-1/ 9 The Brooklyn Daily Eagle (2013). State delivers $500,000 to Pratt’s Incubator for Sustainable Innovation. Retrieved from http://www.brooklyneagle.com/articles/state-delivers-500000-pratts-incubator-sustainable- innovation 10 NESTA (2012) John Whatsmore’s Blog – Innovation RCA. Retrieved from http://www.nesta.org.uk/ blogs/john_whatmore/Innovation%20RCA
  • 103. 105 The RCA’s contributions consist of services and cash - including loans. Access to design, prototyping and testing facilities is the essence of the RCA’s contribution to its incubatees. Annual investment evenings (Demo Days) are held with a panel of investors (some of whom come back from one year to the next), for which short, sharp training is provided in pitching. Over the past four years, it has nurtured sixteen new businesses and began to see some return flow from its investments. Like many developing incubators it is still reliant on sponsorship support, in this case from Dyson, the RCA and Nesta - but its business plan shows increasing self-sufficiency as its investments grow. One of the reasons behind the support of James Dyson, is his acknowledgement that hardware is as important for the success of products as software is, and there are not enough support systems in place to support designers or engineers that want to become entrepreneurs, or in his own words: “Talented young minds want to be the next Mark Zuckerberg or Larry Page. But with the world abuzz with digital, we are losing sight of real engineering (…) Hardware is profitable. Don’t be fooled, Apple’s success as a technology company is built on hardware. The current fixation with digital is misplaced. Long-term it is unlikely to generate jobs, growth, and exports. Instead, we need to encourage more young engineers to commercialize their technologies11 .” Some of its most notable startups are LooWatt, a waterless toilet system that generates biogas in developing communities; KwickScreen, a retractable room divider to make shared hospital rooms more private; Robofold, which uses industrial robots to create metal curved folds and Lumberlock, a rounded plug with a square center which allows to, literally, fit a square peg in a round hole (in construction). Figure 3. Two of the most successful startups from Innovation RCA: KwickScreen (right) and Robofold (left). 4.3.2 Accelerators The Business Accelerator model is a short-term program, with some similarities to the incubator model. However, the main characteristics are the short duration of the program, the fact that the accelerator invests in participating firms in the form of a convertible note or an equity investment (mostly between 6%-10%) (Christiansen, 2009; Miller & Bound, 2011 in Huitgjevoort,2012) and that teams are extendively mentored by entrepreneurs with experience and contacts in the relevant industry. 11 Wilson, M. (2012) Why James Dyson Invested $8,000,000 In A Student Incubator. Fast Co.Design. Retrieved from http://www.fastcodesign.com/1670934/why-james-dyson-invested-8000000-in-a-student- incubator
  • 104. 106 One of the most mentioned and popular support systems in the past 5 years is the acceleratormodel.However,thereisverylittletononeacademicresearchregardingthe accelerator model. In 2011, an estimated number of around 110 business accelerators have been reported worldwide (Tozzi, 2011 in Huitgjevoort, 2012). The first accelerator was the California based Y-Combinator, which was founded in 2005 and it still is one of the most prestigious. Y-Combinator has funded somewhere between 550 startups with an estimated value of $7.78 billion by 2010. Currently approximately 41% of those startups are still active (Jorgenson, 201312 ). Another pioneer of the accelerator movement was the Colorado based business accelerator Techstars, established in 2007. Currently operating on four different locations, TechStars has funded 114 companies, from which 98 were still active in 2010. These companies raised a total of $134 million in venture capital and employ around 714 workers (Geron, 2012a13 ). However, there still isn’t a clear-cut definition of what an accelerator is. Nevertheless, some authors have attempted to define the model studying the characteristics of case studies. Some of the main differences with the traditional incubator model are: Rigorous selection of applicants: Unlike most incubators, accelerators perform a rigorous selection of applicants. They require them to have already a defined tech-based product or service idea. If it is already working, even better. Only 2.5 – 3% of the applicants get admitted, a percentage lower than those who get admission to an Ivy League university14 . Company founders are small teams (3 or 4 people maximum) with technology backgrounds. Accelerators provide a small amount of funding in exchange for equity of the firms. Generally, accelerators will provide a small amount of money to cover living expenses of founders for a few months until Demo Day when they will pitch to investors. Incubators generally do not provide any funding. A shorter incubation period: Accelerators, thus the name, fund founders for a short period of time encouraging them to work on their product with an impending deadline: Demo Day. In this way, the pressure of the deadline allows them to focus on the development of the product and advance their product in a very short period of time, unlike most incubators where the incubation period is considerably longer. Intensive coaching and mentoring: Founders will get valuable advice from top mentors and industry experts. Access to a select network: Founders will get to network with the other selected founders and alumni as well as gain access to the accelerator’s network of investors Demo day: A final presentation day when all the startups pitch their products to a select community of investors. Accelerators are mostly private and do not depend on state subsidies and grants unlike most incubators. 12 Jorgenson, N. (2013) What’s the success rate of startups that have been funded by Y-Combinator? http:// www.quora.com/Y-Combinator/Whats-the-success-rate-of-startups-that-have-been-funded-by-Y-Combinator 13 Geron, T. (2012a) Top Startup Incubators and Accelerators: Y Combinator Tops with $7.8 billion in value. Forbes. Retrieved from http://www.forbes.com/sites/tomiogeron/2012/04/30/top-tech-incubators-as- ranked-by-forbes-y-combinator-tops-with-7-billion-in-value/ 14 For instance, Harvard’s admission rate is 5.8%
  • 105. 107 Overall, the value the accelerators produce in the entrepreneurship system is to reduce the risk of business failure for founders and compress the startup time into a short period of time. At the same time, they thoroughly select startups with good potential to reduce the risk of losing money for investors. However,fromadesignpointofviewacceleratorsareanevennewerphenomenon.Most accelerators cater to Internet startups and technology-trained founders. Nevertheless, things are starting to change and new accelerators that cater to designers and engineers who make physical products have emerged. So far, there are two emerging models that are closer to designers’ needs. a) Hardware Accelerators Becauseoftheexcessiveattentiondevotedtosoftwarestartups,newsupportinstitutions that cater to hardware-oriented startups are starting to become widespread. As stated before, many of the advantages Internet companies had in the past decade are now slowly eroding as a consequence of the saturation of the market space. On the hardware side, there are already some advantages over their software-based counterparts. According to Shen (2012), some of them are: 1. Hardware technology is becoming commoditized and cheap. What previously required advanced knowledge and technology is now readily available in chipsets to everyone. Advanced technologies of the past are now commonplace. Prototyping and tooling costs have also reduced notably thanks to the diffusion of 3D printing. 2. Contract manufacturing allows to outsource fabrication, unlike in the past when huge investments were needed to set up factories and tooling. Now it is possible to commission all the manufacturing to contract manufacturers, whether locally or in Asia. Because it is no longer necessary to setup factories and manufacturing, start-ups don’t have to raise money to do so like in the past. It is possible to rely on extended production networks therefore outsourcing affordably many processes. Some of those contractors may be willing to do smaller product runs, allowing start-ups to turn out just a limited number of units. 3. In huge contrast to the enormous quantity of existing internet/software startups and the saturation in the software industry, there is much less competition between hardware startups. This gives hardware startups more time to advance, grow and learn and establish a competitive advantage over other hardware startups. However, they face stiff competition from established hardware manufacturers. 4. Universities are graduating enormous numbers of software engineers and a big part of them moves to creating their own software or Internet startup. Hardware engineers by contrast, are much more scarce. Since these skills are not as widespread as those needed for software startups, hardware engineers have less competitors and thus, could create hardware startups that can face much less intense competition15 . 5. Selling digital services alone is becoming increasingly difficult due to the saturation of the market and the abundance of free services. Therefore, hardware could be a more profitable option. Since, the boundary between tangible and intangible goods 15 Shen, D. (2012) The Case for Hardware + Software + Internet startups. Retrieved from: http://www. dshen.com/blogs/business/archives/the_case_for_hardware_software_internet.shtml
  • 106. 108 is becoming increasingly blurred, with tangible products evermore having a digital component and digital services needing a physical support, 16 it makes sense that startups are diversifying and the support system is doing so as well. The Wall Street Journal quotes Rob Coneybeer, a venture capitalist at Shasta Ventures whohasinvestedinsmartthermostatmakerNestLabsInc.,whosaidthecostofmaking a consumer-electronics prototype has dropped to $500,000 to $1 million today. That’s down from $20 million to $25 million a decade ago, according to industry estimates17 . Today’s hardware start-ups also can cut costs by avoiding holding inventory and warehouses, thanks to more efficient shipping routes from Asia and the ability to manage orders through a website instead of guessing how much product to give a traditional retailer ahead of time (Tam & Vascellaro, 2012). i. Case study: HAXLR8R One of the first hardware accelerators that emerged in the market was HAXLR8R (The name is the mixture of Hack and Accelerator). Haxlr8tr was born almost organically: after starting the software-focused China Accelerator, Cyril Ebersweiler and Sean O’Sullivan received a number of hardware applications. They helped the companies, but their structure wasn’t optimized up to support them. They started Haxlr8r as a more formalized way to accelerate hardware development with the advantages of being located in Shenzhen18 . The program, which lasts 111 days, starts in Shenzhen in order to be close to production and produce a working prototype. Founders receive a seed capital of USD $25,000, intense mentoring in areas such as product design, marketing, distribution, etc. and access to top-facilities equipped with 3D printers, laser cutters, CNC machines, etc. After the three months, teams fly back to San Francisco where they pitch their products to U.S. investors. 16 This bundle of intangible and tangible components is one of the main characteristics of contemporary goods and it is known in design literature as PSS (product service system). 17 Tam, P.W. and Vascellaro, J. (2012) Forget the Web, Start-ups Get Real. The Wall Street Journal. Retrieved from http://online.wsj.com/news/articles/SB10000872396390444900304577577192843536780 18 Lang, D. (2012) Haxlr8r Demo Day. Make Magazine. Retrieved from http://makezine.com/2012/06/19/ haxlr8tr-demo-night/ Figure 4. Two products created by some of the hardware companies in HAXLR8R. Nomiku (right) and Billibot (on top)
  • 107. 109 Some of their most famous startups are Nomiku, a device that allows cooking sous-vide19 using any ordinary pot (figure 4), Billibot, a robotics platform for open-sourced software (figure 4) aimed at hobbyists and university makers and Makeblock, a mechanical kit that strives to fit in the niche between Lego or Kinects and 80/20. The particular aspect of this, and other hardware accelerators is that most of them, in one way or another recognize the importance of design in the creation of the products. Many of them were inspired by the maker movement, which has grown in recent years focusing on creative independent makers of physical products and artwork, and funding sources such as Kickstarter, there are more possibilities for hardware startups (Geron, 2012b20 ). ii. Case Study: The Design Accelerator The Design Accelerator was founded by the Art Center College of Art and Design in partnership with Caltech (California Institute of Technology) and Idealab (an established technology incubator) in Pasadena, California. The program is described both as an incubator and an accelerator indifferently. However, it is an intensive three-month program therefore it fits better the model of accelerator. It is focused on the “power of great design to create market disruption” and is inspired by the success of products such as Apple’s smartphones and Internet companies such as Pinterest. The starting point for providing disruptive product innovations could be user interface design, industrial design or service design. Besides design and technology mentoring, The Design Accelerator also provides business mentorship, access to venture capital as well as the use of Art Center and Caltech’s facilities to prototype and test new business and product concepts (Petersen, 2013)21 . Housed at IdeaLab, the accelerator plans to recruit 15 startups a year, mentor 19 In a vacuum 20 Geron, T. (2012b) Building On Maker Movement, Hardware Startups Pitch At HAXLR8R Demo Day. Forbes. Retrieved from http://www.forbes.com/sites/tomiogeron/2012/06/18/building-on-maker-movement- hardware-startups-pitch-at-haxlr8r-demo-day/ 21 Petersen, S. (2013) Entrepreneurship Driven by Design. The Huffington Post. Retrieved from http:// www.huffingtonpost.com/soren-petersen/entrepreneurship-driven-b_b_3341482.html Figure 5. The Haxlr8r three tracks for startups
  • 108. 110 them, and make small equity investments through an affiliated seed fund. Part of the motivation of the existence of The Design Accelerator, according to the founders, is that art and design students were concerned about finding work after graduation (Tozzi, 2013)22 . By creating their own startup they could become self-employed. So far, the first batch of companies has yet to graduate. One of the most famous couple startups is called Khora (figure 6a), which creates custom-made large images using 3D milling technology and targets the home-décor market. The other, is called The Consciuous Commuter (figure 6b), and developed an electric bicycle with a long- range battery, a modern design and an integrated bike sharing e-service. Although the hardware accelerator and The Design Accelerator are very similar, there are a few nuances that separate them23 . The Design Accelerator is focused on design capabilities and formally trained designer founders however; it tends to encourage the use of technology as an important part of a company’s competitive advantage. Hardware accelerators apparently incorporate design because they need to in order to create compelling products. The background of the founders is irrelevant and extensive design mentoring is provided in most hardware acceleration programs. Nevertheless it seems that design is an instrument while in The Design Accelerator design is the main driver of projects. 4.3.3. Co-working Spaces Another model of support system for entrepreneurs is the coworking space model. These services follow the general trend towards distributed, interoganizational, collaborative knowledge work (Spinuzzi, 2012)24 . According to the aforementioned author, the first one who predicted a future of distributed working was Alvin Toffler 22 Tozzi, J. (2013) Want To Build The Next Pinterest? Focus on Great Design. Bloomberg Businessweek. Retrieved from: http://www.businessweek.com/articles/2013-06-26/want-to-build-the-next-pinterest-focus-on- great-design 23 It is probably too early to claim there is such a thing as the design-oriented accelerator as a distinct model since there is only one case study in existence. Nevertheless it is a very interesting case study and deserved a mention on its own. It is likely that similar institutions may copy the format and open their own design accelerators, as it is the case with design-oriented incubators which are opening around the world. 24 Spinuzzi, C. (2012). Working Alone Together: Coworking as Emergent Collaborative Activity . Journal of Business and Technical Communication , 26 (4 ), 399–441. doi:10.1177/1050651912444070 Figure 6a. A product from the startup Khora. Figure 6b. Electrical commuting bicycles from The Conscious Commuter.
  • 109. 111 in the early 1980s. He predicted that personal computing would lead to the “electronic cottage” in which workers could work at home given that they perform knowledge work and not physical work in a production line. However, working from home is potentially quite isolating and erodes the boundaries between home and work life (Gurstein, 2001; Kjaerulff, 2010; Kylin & karlsson, 2008 in Spinuzzi, 2012). Nevertheless, the trend in employment is to encourage more work from remote locations and more work that is contingent rather than permanent. In synthesis, on one hand, more people can work anywhere, free from the constraints of production lines and manual labor since they are knowledge workers. On the other hand, their freedom to work anywhere often means isolation, inability to build trust and relationships with others, and sharply restricted opportunities for collaboration and networking. One emerging solution to these drawbacks is coworking (Spinuzzi, 2012). The first coworking space was created in San Francisco in 2005 and was called Spiral Muse, a social wellness and women’s network center. The space offered up to eight desks, common lunches, meditation, massages and cycling. Unfortunately, the venture was not successful and closed after one year, but the idea stuck. Mobile knowledge workers needed a place where they could work and network, enjoying the benefits of being in an office. As of 2012, there were 654 coworking spaces in the US and 756 in the European Union. IntheEU,Germanyleadsthecountwith167spaces,followedbySpainandGreatBritain with 114 and 98 spaces each. Worldwide there are approximately 1800 coworking spaces and the areas with fastest growth are Asia, Latin America and Oceania, with the largest increases specifically in Australia, Japan and Brazil (Foertsch, 2012)25 . Although the coworking model seems distinctively clear, Spinuzzi (2012) claims that once it is studied closely there are important differences in the different types of coworking spaces. He identified coworking spaces as three different subcategories: the space that serves as community center, the unoffice (providing affordable office spaces for those who do not work in an office but miss the interactions and amenities of the office environment) and the federated workspace (a space that fosters active connections between coworkers that could result in formal work collaborations). In the case of entrepreneurship oriented coworking spaces, it would seem that they fall in the federated workspace category, since one of their main value propositions is precisely the access to a network of trusted peers. In the case of design-oriented co-working spaces, two aspects seem to prevail: the affordable sharing of facilities and expensive or specialized equipment (such as 3D printers, CNC millers, knitting and sewing machines) and the networking possibilities among the tenants. Some coworking spaces also provide some teaching and seminars for extra fees. a) Case Study: Stitch Factory (Las Vegas) Stitch Factory is a coworking space that caters to fashion designers. The access to the space is almost free ($10USD) howeve,r a premium is charged for mentoring and teaching services andaccess to additional resources (like textiles library, sourcing and subscription to trend database). The space was founded as an answer to the need 25 Foertsch, C. (2012) 1800 Coworking Spaces Worldwide. Desk Magazine. Retrieved from http://www. deskmag.com/en/1800-coworking-spaces-worldwide-700-in-the-us-survey
  • 110. 112 for affordable studio space for the many fashion designers working for Las Vegas spectacles and the need to network into a community just like in many of the world’s fashion capitals like London or New York. Businesses can also be incubated and receive business and administration classes as well as mentorship from experienced people in the fashion industry. Figure 7a & 7b. Images from The Stitch Factory in Las Vegas. 4.3.4 Entrepreneurial systems and events Besides the formal access to incubation or acceleration programs, or the access to a coworking space, creating an system of events is also becoming part of the support systems for entrepreneurs. The major objective of these initiatives is to encourage the networking of different actors that are part of the entrepreneurial system such as founders, investors, potential employees for startups, suppliers and prospective clients. Some of the most famous standardized event formats are: Demo Day: Founders pitch their products to investors hoping to receive a round of funding. Speed Dating26 : Startup founders meet people who want to work at a startup in 5-minute batches and look for a match between the skills they need and the skills the professional attendants offer. Startup Crawl27 : A startup community organizes an evening where they open their doors to the public as well as to other fellow founders from other startups and offer food and drinks. Hackathons:Amash-upofthewords“hacking”and“marathon”,hackathons began in the software programming community as a way to foster collaborative work in a compressed timeframe. Hackathons now involve a variety of profiles like entrepreneurs, graphic designers, programmers who collaborate intensively on a software project. 26 Speed dating is a popular format for romantic dating services in which an equal amount of men and women (or only men /women) meet up as many people as possible for 5-minute periods each. Participants then fill score cards and write down if they liked someone and would like to meet him or her again. The organizers then identify if two participants indicated mutual interest and put them in contact. 27 Originally inspired by the infamous Bar Crawls. In Bar Crawls, people hit many bars of the city until they are completely drunk, hence unable to walk and crawling from one to the other.
  • 111. 113 a) Case Study: Aalto Entrepreneurship Society Aalto Entrepreneurship Society (Aaltoes), founded in 2009, is the largest and most active student-led entrepreneurship community in Europe. Aalto University students aim to inspire entrepreneurs and potential entrepreneurs alike and facilitate the development of their own businesses. In a very short time, Aaltoes managed to create an entire entrepreneurial system. Their activities are divided into four macro themes: Talks, to educate students, researchers, and founders; Trips, taking students to learn and discover interesting case studies related to entrepreneurship and technology; Programs, structured programs that incubate or accelerate startups such as Startup Sauna (a coworking space), Startup Life (a program that provides students with internship at startups) and Summer of Startups (an acceleration program that provides seed capital); and Projects, which includes conferences such as Slush (a major startup and technology conference), Seriesseed (standardized legal documents that help to speed up the legal aspects of startups), Fail Day (a communication initiative that aims at reducing the fear of failure); etc. So far, Aaltoes has been very successful, this and many other public and private initiatives have made Helsinki become one of the most entrepreneurial places of Europe. However, the focus of the whole system is almost entirely on tech/Internet startups. Although Helsinki has a very big and active design community (Helsinki was World Design Capital in 2012), a big majority of designers are not very entrepreneurial and those who do are self-employed as freelancers (Töttermann, 2008). In 2012, I attended an event of Aaltoes dedicated solely to the topic of design entrepreneurs. Five entrepreneurs presented their startups that ranged from design studios to designing and selling different types of consumer goods. I questioned them about the difficulties of starting a design driven company and they all agreed the biggest problem was having access to early stage funding. Most tech startups get early seed funding from TEKES, the national innovation and technology body of Finland. If the product or service the firm offers is strictly tech- based then, the firm qualifies to receive the funding. Design entrepreneurs, on the other hand said TEKES does not contemplate design as a form of innovation therefore denying any funding, which made starting their firms even more difficult. Only one of the entrepreneurs consulted had access to state funding, not from TEKES but from TAIKE- the Arts Promotion Centre of Finland, given that her business essentially promoted Finnish artists and designers in Germany. However, the overall dependence of startups on TEKES funding is a structural deficiency of the Finnish entrepreneurial system (Li, 201328 ), which lacks a venture capital system analogous to the one in the United States. 28 Li, C. (2013) Not Just Saunas and Angry Birds – How The Finnish Startup Scene is Bubbling into a Startup Hothouse. Venture Village. Retrieved from http://venturevillage.eu/finland-startup
  • 112. 114 b) Case Study: The Designer Fund Realizing that it is difficult for entrepreneurs in Silicon Valley to become acquainted with design, The Designer Fund was established to help designers become tech entrepreneurs. The Designer Fund is a network of angel investors, offering seed investment in startups with designer-founders. Beyond financial backing, the fund offersmentorshipandaccesstothenetworkofexperienceddesignerswithbackgrounds in companies such as YouTube, Facebook, Google and Twitter (Bryant, 201129 ). The idea is that, instead of trying to convince entrepreneurs to use design, designers could embed the design culture in the company since its birth, therefore making the creation of a design-driven company much easier. Since so many venture capitalists and investment funds are focused exclusively in technology and in technology-trained founders, founder Enrique Allen created The Designer Fund to facilitate the process of starting off design-driven startups. However, the fund does not replace other actors like incubators or accelerators, but rather, complements them. Allen was inspired by the stories of designers who founded some of the most successful technologycompaniesintheValleysuchasAirbnb,Flickr,Youtube,Android,Slideshare, Tumblr, Vimeo, Pinterest, Flipboard and Slideshare30 . According to The Designer Fund, Designer Founders featured have collectively risen over USD $879 million and some have been acquired for a collective amount of over USD $5.4 billion (The Designer Fund, 201131 ). Although The Designer Fund claims to be concerned about encouraging design entrepreneurship, it still remains heavily oriented towards technology companies. The attention to design comes from the design backgrounds of the founders. Technology firms are preferred, presumably because of their capability to scale and make an impact 29 Bryant, M. The Designer Fund Puts Seed Money into Startups with Designer Founders. The Next Web. Retrieved from http://thenextweb.com/insider/2011/12/01/the-designer-fund-puts-seed-money-into-startups- with-designer-founders/ 30 The companies should have at least one formally trained designer as founder or cofounder. 31 The Designer Fund (2011) Retrieved from http://designerfund.com/infographic Figure 8. Some of the most famous Internet startups that had a designer founder or cofounder. (Source: http://designerfund.com/infographic)
  • 113. 115 internationally. 4.4 Insights from the Case Studies. The case studies were mapped using a diagram in order to visualize the elements of the model. The visualization is made of 6 macro-sections of the common elements or “building blocks” of entrepreneurship support systems: Learn, Network, Invest, Time, People and Share. Learn: Almost all of the actors provide some kind of formal training in business-related subjects, technology and legal aspects. The design- oriented actors also provide design-related training. Network: Nearly all of the actors encourage networking as one of their highest priorities for entrepreneurs. Networking can be among peers, potential investors and employees, potential partners and suppliers and experienced entrepreneurs. Mentoring is included in this category since it is also one of the key value offers of almost all the support systems. Share: This is the basic aspect of almost all the offerings. Shared facilities like office space, studio space, professional equipment (like sewing machines, 3D printers and laser cutters) help startups cut costs in their initial stage when saving as much as possible is critical Invest: This was the most different aspect of all the actors. Most of them however do facilitate connecting with a network of trusted investors even though they may be unable to invest themselves or provide any seed funding. People: Thetargetoftheactivities.Somearecatereddirectlytodesigners. Others are aimed exclusively at engineers or technology-oriented founders. A few make no distinction on the professional background of the founders as a requisite for accessing the program. Time: Last but not least, this aspect also was a key difference with some programs having long timeframes (like incubators and coworking spaces) and no prospective graduation or exit of tenants whereas accelerators compress the process in order to speed up the firms and propose a deadline for graduation. The visualization graphs of the case studies were made in order to visualize immediately the differences between the different models.32 32 The graphs for all the case studies can be seen in Appendix 3 Design Specific Networking MentoringEarlySeedCapital Ve ntureCapital Long/ShortTerm Founders’Backgr ound OfficeSpaceSpecializedEquipment Busi nessAdm in. Related NETW ORKINVEST TIME PEOPLE SHARE LEARN Figure 9: Example of the graphic mapping. Case Study: Design Incubator (Serbia). Elaboration by the author.
  • 114. 116 The case studies were selected because they claimed to use design in some way. It was either catered specifically for designers or design students or they integrated design competences, like in the case of hardware incubators. Since the design-oriented entrepreneurship system is a very recent phenomenon, the quantity of case studies is too low to obtain any type of representative quantitative data (there are only 21 case studies). Nevertheless, some qualitative insights can be deducted from this exercise. Support systems were visually mapped based on having (or not having) different features (such as access to shared facilities, mentoring, access to investment and so on). The first insight is that almost none of the case studies fit exactly into a rigid model. Some of them claim to be incubators, but rather, they act more like an accelerator like in the case of Incubation RCA (figure 10). On the other hand, some accelerators (e.g. The Design Accelerator, Lemmos Labs) take elements from incubators such as the rent of shared office space. Thus, we could say that existing models or formats that support design-driven entrepreneurship are not neatly defined. However, they all try to fit loosely into one definition. Incubators, accelerators and coworking spaces are the most common ones. As a result, it seems like there are many incubators or accelerators while in reality there is a variety of existing models with their own particularities. The second insight comes from the use of design in the entrepreneurial support systems. Most of the actors use design in two distinct ways: Design is the content of the business: this includes setting up design services (encouraging designers to be self-employed) and creation of products with a distinct design and novelty component and high symbolic value (such as furniture, clothes, jewelry). Design is an instrument that shapes the final product: For instance in the case of hardware accelerators, the main objective of using design is Design Specific Networking MentoringEarlySeedCapital Ve ntureCapital Long/ShortTerm Founders’Backgr ound OfficeSpaceSpecializedEquipment Busi nessAdm in.Related NETW ORKINVEST TIME PEOPLE SHARE LEARN Figure 10. Incubation RCA graph. As it can be seen from the graph, the model is stretched is intensive and compressed in time (lasts only 1 – 3 months) in the fashion of accelerator programs.
  • 115. 117 to shape hardware products. In the case of The Designer Fund, designers shape digital services. The fact that most support systems use design either as a tool or as the object to be sold by the venture tells us that they only consider design as an instrument that shapes objects or interfaces. According to Celaschi, Celi and Mata García (2011)33 , the value design can offer to firms is not limited to using design as a tool (figure 11), but rather, using it at a strategic level can create more value. None of the actors active today foresees the use of design by new firms at a strategic level, and as such almost none of them have developed programs or mechanisms to leverage that capacity, this includes thus, using design in earlier phases of the entrepreneurial process in order to create innovative business concepts and systems. In the authors’ opinion, considering design as a mere instrument reduces the overall value design can bring to developing a business offering limiting it to offering good looking products or interfaces. The third insight is the fact that most actors of the system tackle different phases of the entrepreneurial process (figure 1234 ). However, none of them35 tackles the earliest phase of the entrepreneurial process – the opportunity identification phase. Most of the actors require founders to already have at least a business concept or even a working product prototype, thus they assume founders already identified successfully an entrepreneurial opportunity. This points to an area of opportunity in the system, as well as a gap both in practice and in literature. There are very little actors tackling the opportunity identification phase, so there is a space for new actors to fill this gaps and offer services aimed at this early phase of the entrepreneurial process. The fourth insight is that a critical aspect of design entrepreneurship is giving designers access to experienced business mentors and providing business related 33 Celaschi, F., Celi, M. and Mata García, L. (2011), The Extended Value of Design: An Advanced Design Perspective. Design Management Journal, 6: 6–15. doi: 10.1111/j.1948-7177.2011.00024.x 34 Bhave M.P. (1994) A process model of entrepreneurial venture creation. Journal of Business Venturing, 9 (3), pp. 223-242. 35 This does not mean they do not exist however as of October 2013, there were not any actors that explicltly focused on the earliest phases of the entrepreneurial process. Figure 11. The different levels of design value. (Celaschi, Celi & Mata García, 2011) DESIGNVALUE Design Thinking Design as Valuable Asset Design as Tool STRATEGY Design Thinking PRODUCT Design as valuable asset STYLING Design as tool From function to purpose From product to process From user- centered design to co-design Acting to change the perception of a product or service ATO case study Acting to change the perception of a transformation process Design Innovation case study Design new objects that convey values (social or ethical values) Philips case study Design new objects that convey values (social or ethical values) Philips case study Collaborative advanced design Fiat Mio Styling different features with the users Nike ID STYLING PRODUCT STRATEGY
  • 116. 118 education. Designers typically do not have any business training. Tötterman (200836 ) reports the lack of business skills one of the most critical factors that contribute to the difficulties of design entrepreneurs. Also, design-driven entrepreneurs tend to take products or services as a starting point, with a strong emphasis in novelty, whereas other actors like investors, suppliers, manufacturers and marketers first need evidence of solid market needs and prefer to stick to “safer bets” like expanding existing product lines than starting from scratch. Thus, it would make sense that design-driven actors would strongly encourage developing designers’ business skills and development of a business vision compatible with the one other stakeholders have while keeping their creative side. All design-related actors strongly emphasize mentoring and acquiring business skills, presumably to fill this gap. Finally -and this in the authors’ opinion one of the most critical weaknesses of the design entrepreneurship system- the fifth insight is that the largest gap in the system is definitely the INVEST area. Most incubators, coworking spaces and the like do not grant any seed capital or financial support. Figure 1337 shows the gap in the INVEST quadrant of the case studies (lower right part of the diagrams). Accelerators do provide some seed capital however it is only a modest amount in exchange for equity of the firm. The only actor that fills the gap is The Designer Fund, though they only fund technology-driven startups. Low-tech, hardware or non IT- related startups cannot access to The Designer Fund or get any funding as easily as Internet startups. So far, their only choice is to access an accelerator and obtain initial seed funding hoping to raise VC at some time in the future. However, so far obtaining access to early funding and later on scaling and accessing investment capital remains very difficult for design-driven entrepreneurs. 36 Tötterman, H. (2008) From Creative Ideas to New Emerging Ventures. Entrepreneurial Processes Among Finnish Design Entrepreneurs. Doctoral Dissertation Hanken School of Economics. 37 See the last page (the image is quite large to fit here) Figure 12. Different standard formats of entrepreneurial support actors and their positioning along the entrepreneurial process. Adapted from Bhave (1994)
  • 117. 119 4.5 Conclusions In synthesis, design entrepreneurship support systems are in its early days. Most of them are modeled in the shape of its internet-startup counterparts. However, in general all actors share most of these objectives: To reduce the risk of business failure for founders and investors by mentoring, screening and giving constructive feedback. To enable collaboration and networking among the different actors involved in the creation of new ventures. To reduce start-up costs by giving access to shared facilities like office space, shop equipment, etc. Tobridgethecognitivegapsoffoundersinthevariousareasofknowledge necessary to start up and run a business (e.g. providing business training to designers and design knowledge to technology-oriented founders, etc.) Based on the analysis and mapping of 21 case studies, the areas of opportunity for enriching the design entrepreneurship support system are: encouraging the use of design at a more strategic level, tackling the opportunity identification phase (which is a fundamental phase of the entrepreneurial process), reinforcing business and management skills of designers and facilitating the access to funding for design-driven startups.
  • 118. 120 Figure 13. The mapping of the case studies shows clearly gaps in the lower right quadrant, which corresponds to investment and funding. Elaboration by the author.
  • 119. 121 Chapter 5. Insights from the literature and case study explorations.
  • 120. 122
  • 121. 123 Chapter 5. Insights from the literature and case study explorations From the previous chapters of this work, the literature review and the analysis of the case studies, there were many valuable insights that could be deducted and which lead to the development of a hypothesis. a) Existing approaches to design entrepreneurship: Designing the business offering This work aimed in the first place to provide an overall view of the phenomenon of design-driven entrepreneurship. In the literature review and the analysis of the case studies, it became evident that most authors define design-driven entrepreneurship in a similar way. For instance, many authors, like Tötterman (20081 ), Piergiovanni et al. (20122 ), Abecassis-Moedas et al. (20093 ), Boschma and Fritz (20074 ), Hartley (20055 ), Bontje, and Sako (20096 ), Montgomery (20057 ), Pratt & Jeffcut (20098 ) among countless others have analyzed the phenomenon of entrepreneurship placing design among the broader term of creative industries, as proposed by Florida (20029 ). In this perspective, design is at the core of the business offering: it is embedded either; (i) in the objects they sell (furniture, jewelry, clothing, fashion accessories) or in (ii) the services they provide (design consultancy services). Figure 1 shows these traditional approaches to design-led entrepreneurship, both imply providing business know-how to designers and building a company around them so they can offer their products or services to the market. The case studies analyzed also supported the notion that design is confined to the shaping of the business offering in the entrepreneurial process gained traction as seen from some of the examples of companies in chapter 3 (product-based design driven companies) or many of the support systems for design entrepreneurs (chapter 4). For instance, most of the incubators or accelerators that cater to aspiring design entrepreneurs offer to help them design and sell their own products, or to set up their own design studio. Thus, it would be interesting to explore other types of contributions from design to entrepreneurship, other than designing the business offering and overall, acting at the end of the entrepreneurial process. 1 Tötterman, H. (2008). From Creative Ideas To New Emerging Ventures. Entrepreneurial Processes Among Finnish Design Entrepreneurs. Hanken School of Economics. 2 Piergiovanni, R., Carree, M. a., & Santarelli, E. (2011). Creative industries, new business formation, and regional economic growth. Small Business Economics, 39(3), 539–560. doi:10.1007/s11187-011-9329-4 3 Abecassis-Moedas, C., Mahmoud-Jouini, S. Ben, & Manceau, D. (2009). Entrepreneurship in Creative Industries : the Case of Design Consultancies. Proceedings of the 2nd ISPIM Innovation Symposium (pp. 567–575). Retrieved from http://www.ispim.org 4 Boschma, R. A. & Fritsch, M. (2007) Creative Class and Regional Growth − Empirical Evidence from Eight EuropeanCountries.JenaEconomicResearchPaperNo.2007-066.Retrievedfrom:http://ssrn.com/abstract=1023869 or http://dx.doi.org/10.2139/ssrn.1023869 5 Hartley, J. (2005) Creative Industries. Blackwell Publishing. Malden, MA. Pp. 281 - 327 6 Bontje,M., Musterd, S. (2009) Creative industries, creative class and competitiveness: Expert opinions critically appraised, Geoforum, 40(5), 843-852 Retrieved from http://dx.doi.org/10.1016/j.geoforum.2009.07.001. 7 Montgomery, J. (2005). Beware “The Creative Class” Creativity And Wealth Creation Revisited. Local Economy, 20(4), 337–343. doi:10.1080/02690940500298706 8 Pratt, A. C., & Jeffcutt, P. (2009). Creativity, Innovation and the Cultural Economy. London, UK: Taylor & Francis. 9 Florida, R. (2002) The Rise of the Creative Class. Basic Books. New York, NY
  • 122. 124 b) Gap in the literature identified: Lack of attention to discovering/creating entrepreneurial opportunities Another insight that emerged from the literature review was the importance of entrepreneurial opportunities. Entrepreneurial opportunities are a crucial starting point of the entrepreneurial process, however reliable and replicable methods for systematically searching, framing, developing and assessing opportunities are still undeveloped. Consequently, entrepreneurs waste their limited resources (talent and time) in inefficient activities aiming at developing new business ventures. Identifying entrepreneurial opportunities and transforming them into successful venturesisparticularlyrelevantinthecurrenteconomicrecession,especiallyinsouthern European countries like Italy, Spain, Portugal and Greece where unemployment rates are particularly high and entrepreneurship could boost employment. Thus aspiring entrepreneurs need more than ever reliable framing techniques because they need to be more assertive of their options and choices, avoiding wasting valuable resources in the opportunity identification phase. Opportunity identification has not been the subject of study by many scholars on entrepreneurship, partly because it is not acknowledged as a critical junction in the early stages of the process that defines the direction to be taken by a new business venture and partly because much energy has been devoted to defining and refining the entrepreneurial opportunity construct. Design scholars acknowledge the potential of design in the construction of business concepts, value chains and in the front-end of innovation yet there is not still a known contribution of design to the front-end of the entrepreneurial process. While some authors already elaborated (Bragg and Bragg, 200610 ; Rae, 200711 ) on the importance of systematizing the creative process and applying creative methods and techniques to the opportunity generation process, none of them acknowledges any potential contribution from design, which for most scholars still remains a practice difficult to observe, measure and analyse. One of the few exceptions is the work of Barringer and Gresock (200812 ), which became the bridge, linking design as a helpful tool, using the traditional State-GateTM process in product development as a way to structurethefront-endoftheentrepreneurialprocessandapplythesamecompetences 10 Bragg, A., & Bragg, M., (2006) Developing new business ideas: the fast-track to creating viable new businesses for executives and entrepreneurs, 1st Ed, Pearson Education, Glasgow. 11 Rae, D., (2007) Entrepreneurship: From Opportunity to Action, 1st Ed, Palgrave Macmillan, New York 12 Barringer, B. B., & Gresock, A. R. (2008). Formalizing the front-end of the entrepreneurial process using the stage-gate model as a guide: An opportunity to improve entrepreneurship education and practice. Journal of Small Business and Enterprise Development, 15(2), 289–303. doi:10.1108/14626000810871682 1) Traditional view of design’s contribution to entrepreneurship BUSINESS STRATEGY BUSINESS IDEA DESIGN IS THE BUSINESS OFFERING DESIGN SHAPES THE BUSINESS OFFERING Figure 1. Traditional role of design in design-driven entrepreneurship.
  • 123. 125 of product development to the generation and assessment of business ideas. However, the front-end is not considered part of the new product development process. Linear processes such as the State-GateTM model are not deemed appropriate for the front- end of innovation (FEI) because, according to Koen et al., (200113 ), many of the practices carried out during the NPD (New Product Development) don’t apply to the front-end, the nature of the work is fundamentally different and the activities in the FEI are often chaotic, unpredictable and unstructured. Figure 2 shows a graphic representation of the FEI process, which clearly is a non-linear, iterative process. c) Similarities between the FEI of the entrepreneurial process and the New Product Development Process There are many similarities between the front-end of the new product development process and the front-end of the entrepreneurial process. Both processes involve the creation of something new, whether it is a new product or service in an existing firm or an entirely new company in a new venture context. Both processes are also replete with uncertainty and doubt and lack careful planning and analysis. The front-end comprises idea generation, idea development and idea assessment. The front-end of NPD processes tend to have a more fuzzy nature, often with no clear beginning, multiple inputs, no well-defined throughput- process, creativity and serendipity playing crucial roles, participants getting involved and dropping out in unplanned ways, no clear interface with planning part, etc. (Aken & Nagel, 200414 ). The front-end of the entrepreneurial process is often equally fuzzy (Barringer and Gresock, 200815 ). The generation of entrepreneurial opportunities has many similarities with new product or service development: the analysis of the constraints and opportunities; the creative conceptualization; the prototyping and testing; the creation development of networks of actors supporting and assessing execution, reducing the risk of bringing a 13 Koen, P., Ajamian, G., Burkart, R., Clamen, A., Davidson, J., D’Amore, et al. (2001). Providing clarity and a common language to the“ fuzzy front end.” Research-Technology Management, 44(2), 46–55. Retrieved from http://www.ingentaconnect.com/content/iri/rtm/2001/00000044/00000002/art00009 14 Aken, J. Van, & Nagel, A. (2004). Organising and managing the fuzzy front end of new product development. Eindhoven Center of Innovation Studies, Working Paper, (May). Retrieved from http://cms.tm.tue.nl/ Ecis/Files/papers/wp2004/eciswp113.pdf 15 Barringer, B. B., & Gresock, A. R. (2008). Ibid. P. 295 Influenc ingFactors Idea Selection Idea generation and enrichment Concept Generation Opportunity Identification Opportunity Analysis To NPD and/or TSG ENGINE Figure 2. The New Concept Development Model (NCD) provides a common language and a visual representation to the components of the Front End of Innovation. (Koen et al., 2001, p.47)
  • 124. 126 conceptually unsound idea to the market. These similarities open up promising cross- pollination exploration of tools and methods between NPD and FEI, an area of study yet to be explored by scholars and practitioners from the fields of entrepreneurship and design. As it emerged from chapter 2, in the case of business models, design methodologies have already contributed with instruments that allow to co-design, prototype and assess business models. The widespread and successful use of business model design instruments sets a promising precedent of the potential of design strategies and instruments when applied to different fields such as business. Thus, it would be interesting as well as novel, to try to transfer design instruments to the front-end of the entrepreneurial process in order to attempt to add some structure to it. However, special attention should be put to not formalize the front- end in excess because that may be counterproductive, killing potential innovativeness and hampering the learning process that comes when developing different and novel ideas, using disruptive technologies or entering completely different industries (Aken & Nagel, 2004, Herstatt & Verworn, 200116 ). Thus, the potential to produce significantly radical and innovative ideas could be greatly reduced. 5.1 Developing the Research Hypothesis: Using Design Instruments as Aids in the Opportunity Generation/Discovery Phase (FEI) Integrating the above-mentioned insights, the hypothesis of this work began to take shape. What if, design instruments could be transferred to the front-end of the entrepreneurial process in order to help generate the business ideas? Furthermore, what if they could be assessed and prototyped in order to decide which ones could become entrepreneurial opportunities? Thehypothesisofthisworkisthatthedesigndisciplinepossessestools,methodologies, 16 Herstatt, C., & Verworn, B. (2001). The “ Fuzzy Front End ” of Innovation. Innovation, (4), 1–24. Retrieved from http://www.econstor.eu/handle/10419/55454 Figure 3. The design process and the entrepreneurial process shown in parallel. Both have a front-end of innovation, however the front-end of the entrepreneurial process has received little attention. Elaborated by the author and Deserti, A. (2013)
  • 125. 127 frameworks and a “designerly mindset” that could make the creation, framing, positioning, development and assessment of business ideas more reliable and efficient when exploring entrepreneurial opportunities. These toolsets could be transferred from the field of design to that of business to support the construction of new entrepreneurial ventures. The word “construction” is used since some of these tools are a step ahead of prefiguring: they are not just meant to design, but to dialogue, convince, construct, assess, and build a working prototype. (Nesta, 201117 ). 5.2 Why Service Design Instruments? The design discipline in recent years has developed many tools and methodologies that allow the creation and development of complex intangible outcomes such as services. The use of these tools -– originally meant to help designers to give shape to artefacts and to model interactions and behaviour processes through participatory methods with the involved actors and prospective users (Meroni and Sangiorgi, 2011) - was transferred and adapted to the field processes of business innovation by recognizing that the creation of a new business venture idea is quite similar to that of that of designing and developing a new service. Designasapracticehadalwaystodevelopand/oradaptcreativemethodologiesinorder to generate novel yet useful ideas for new products considering multiple constraints. With time, many of these instruments and practices, aimed at creating physical objects evolved and the designer’s attention shifted to more intangible aspects of the value offering such as the branding or services. Thus, the design discipline and its creative methodologies evolved as well. Particularly the shift from products to services required a big leap for design methodologies because of many particular characteristics of services. Specifically, there are four major characteristics that differentiate products from services and they are intangibility, heterogeneity, inseparability of production and consumption and perishability (Zeithaml et al. 1985, Edgett and Parkinson, 1993 in Meroni and Sangiorgi, 201118 ). Intangibility refers to the quality of services that cannot be perceived through touch. They have been described as “performances, because besides not being able to touch them, services require the presence of customers to exist and depend on people- to-people interactions, thus production and consumption cannot be separated. Because services are performed by people for customers over time, the quality of the performance may vary depending on the situation and the participants. This is known as service heterogeneity. Furthermore, services cannot be stored, they are executed and then they end, thus services are said to be perishable. 17 NESTA (2011). Prototyping Public Services. Retrieved from www.nesta.org.uk/library/documents/ PrototypingLearning.pdf 18 Meroni, A. & Sangiorgi, D. (2011) Design for Services. Gower Publishing. Surrey, England. P. 9 DESIGN BUSINESS OFFERING BUSINESS STRATEGY BUSINESS IDEA Figure 4. Hypothesis: Design could enable the generation and development of business ideas.
  • 126. 128 Because design traditionally gave shape to tangible artefacts, and given that services are considered “intangible” and “performances”, entire sets of instruments were developed in an attempt to shape these intangible interactions that have to abide to even more complex constraints than physical products. Service design tools allow for the prototyping and assessment of intangible experiences, which allow testing the ideas before any further resources are committed to implementation. Prototyping of services can be used to give insights into usability, desirability and viability of the projects. (NESTA, 201119 ).The complexity of service design projects calls for more knowledge than any single person possesses, and it makes necessary for many different stakeholders to participate, communicate and collaborate with each other, even though they may have different and often controversial points of view. They need to create a shared understanding that can lead them to new insights, new ideas and new artefacts. (Arias et al., 200020 ). Thus, service design requires designing not only the outcomes of the design process, but also the design process itself as well in order to tackle the many challenges posed by service complexity. The author opted for selecting service design tools as a potentially valid alternative for structuring the FEI of the entrepreneurial process because they enable the framing, design, prototyping and assessment of complex intangible artefacts that require developing networks of actors and partners that support execution (Blomkvist, 201021 ; Meroni & Sangiorgi, 201122 ). Furthermore, another interesting feature of the design tools is that they are not based on the idea to fully prefigure a future situation from the very beginning, but to continuously adjust it along its construction, and even to completely change the direction if some new intuition or unexpected event suggests so. Therefore, achieving immediate incontrovertible proof of the potential success of the idea is not an issue, at least in its very early stages. 5.3 Experimental testing of the hypothesis: a few preliminary considerations Keeping in mind all of the insights above, an experiment was designed in order to test this hypothesis. However, a few preliminary considerations must be clarified. First of all, in the experiment the concept that will be most used will be that of “business ideas”, because as seen in previous chapters, a fundamental difference between a “business idea” or “creative idea” and an entrepreneurial opportunity from a creationist point of view is the fact that the entrepreneur must act on the idea so it can become an opportunity (Dimov, 2007)23 . During the testing of the hypothesis, described in the following chapter, participants will be generating and assessing business ideas and given considerable resource constraints, they will not be able to act on them on a short timeframe. So, the experiment will focus on business ideas, the previous state of entrepreneurial opportunities. This clarification is important for 19 Nesta (2011) Ibid P. 6 20 Arias, E., Eden, H., Fischer, G., Gorman, A., & Scharff, E. (2000). Transcending the individual human mind. Creating shared understanding through collaborative design. In ACM Transactions on Computer-Human Interaction (Vol. 7, pp. 84–113). doi:10.1145/344949.345015 21 Blomkvist, J. (2010). Conceptualising Prototypes in Service Design. Linköping University. Retrieved from http://liu.diva-portal.org/smash/record.jsf?pid=diva2:412916 22 Meroni, A. & Sangiorgi, D. (2011) Ibid. 23 Dimov, D. (2007), Beyond the Single-Person, Single-Insight Attribution in Understanding Entrepreneurial Opportunities. Entrepreneurship Theory and Practice, 31: 713–731. doi: 10.1111/j.1540- 6520.2007.00196.x
  • 127. 129 the readers that have a design background, since in design normally the order of the processes is inverted: first, the designer spots or senses an opportunity and then, he or she develops an idea. However, this confusion is purely terminological between the two fields (entrepreneurship and design). Secondly, what does it mean to “formalize” or “systematize” the front-end of the entrepreneurial process? Following the analogy of the front-end of new product development, a good work on formalizing the FEI of NPD is the one by Khurana and Rosenthal (199724 ) in which they subdivide the front-end into smaller subphases (fig. 5): Pre-phase Zero, Phase Zero and Phase One. The figure has been modified to show the non-linearity and different iterations that often take place during the front-end. The first step in the front-end is identifying opportunities. What issues are worth exploring? Who are the customers? Is there a clear customer need? Is there a new behaviorortrend?Aretherenewtechnologiesormaterialsavailable? Theentrepreneur integrates this information and starts outlining the opportunity and ways that it could be exploited. Some early considerations on cost, time to market and products or services that would allow to exploit the opportunity can be produced. In Phase Zero, product or service definition there should be some judgment about the target market, developing a competitive offering and the time and technological as well as functional requirements. These lead to a choice of product features and functions, target market segments, and design priorities. Finally, the venture starts being prefigured and planned before moving to execution. In the experiment described in the following chapter, participants will be integrating their own tacit knowledge with environmental knowledge and developing business ideas, starting from half-baked intuitions about potential opportunities and iterating them in a non-linear way between the three phases. 24 Khurana, A., & Rosenthal, S. (1997). Integrating the Fuzzy Front End of New Product Development. Sloan Management Review, Retrieved from https://noppa.tkk.fi/noppa/kurssi/tu-22.1500/luennot/TU-22_1500_ pre-reading__1__khurana___rosenthal__1997_.pdf FOUNDATION ELEMENTS Social Political Cultural Context Entrepreneur’s Motivation Cognitive Style Preferences Aspirations Education or Training Pre-Phase Zero: Preliminary Opportunity Identification: Market and Technology Analysis Phase Zero: Product or Service Concept and Definition Phase one: Venture Definition and Planning FRONT-END EXECUTION Specification and Design Prototyping Tests and Validation Technology Setup Organization Setup Market Launch DECISION TO EXPLOIT (OR NOT TO EXPLOIT) EXTERNAL ELEMENTS INTERNAL ELEMENTS INTERVENTION AREA Figure 5. A model of the subphases inside the front-end of innovation with the space that was tackled during the experimentation phase. Adapted from Khurana & Rosenthal (1997).
  • 128. 130 The service design tools used in the experiment will provide a checklist of important aspects that need to be considered, providing loose boundaries (the design space) where participants can act. This is because design is not only thinking creatively “out- of-the-box”, but rather, it is a situated practice based on a tough contextual inquiry, taking into account a wide number of constraints produced by different actors and stakeholders. This point was well defined by Vandenbosh & Gallagher (200425 ): while contemporary managerial perspective on innovation is fraught with the idea of out- of-the-box thinking, what should be learned from design is not a further push towards creativity but the capability to stay “inside the box”. However, a key issue will be to achieve the right level between rigidity and flexibility, since too much rigidity can kill innovativeness and spontaneity – two important factors to come up with creative ideas and too much flexibility can leave participants back to square one, this is, with very little guidance and left to their own devices26 . For this first attempt, it is expected that there will be room for major improvements and refinements. Finally, this experiment is based on the trend that has appeared during the last decade of business games, which aim to encourage creativity and problem solving through games. Games have become a popular business exercise because they have boundaries and rules (like most situations in real life) and they have become a good way to explore ideas in a framework of exploration, experimentation and trial and error (Gray, Brown & Macanufo, 201027 ). 25 Vandenbosh, B., Gallagher, K., (2004) The Role of Constraints, in Boland, R. J. & Collopy, F. (eds.) (2004) Managing as Designing. Standford University Press. Stanford, CA. 26 In my experience as a design researcher and practitioner in Italy the lack of a clearly defined design space is often referred to, jokingly, as horror vacui, literally meaning “fear of the empty” it paralyzes the designer. Since he or she could anything, then does nothing, overwhelmed by infinite possibilities and no constraints. 27 Gray, D., Brown, S., Macanufo, J., (2010) Gamestorming. A Playbook for Innovators, Rulebreakers and Changemakers. O’Reilly Media. Sebastopol, CA.
  • 129. 131 Chapter 6. Field Experiment within the Dream:in China project.
  • 130. 132
  • 131. 133 Chapter 6. Field Experiment Within the Dream:in China Project 6.1 .Background In order to test the hypothesis of the suitability of service design tools as aids in the structuring of the earliest phases of the entrepreneurial process, an experiment was designed. A selection of service design tools could be tested in the context of a two-day entrepreneurial idea workshop, the DREAM:IN project. Thanks to the collaboration with Prof. Teixeira, the opportunity presented itself to collaborate and test the hypothesis during one of his workshops in China in late March 2013. The DREAM:IN project is an open innovation platform that utilizes design-led processes to empower communities in emerging countries. This is accomplished in the first place through ethnographic research that uncovers dreams of communities and secondly by a design driven process that transforms these dreams into social and business ventures (Sheerin et al., 2013)1 . The DREAM:IN project started in India in 2010 and was originally conceived by Prof. Carlos Teixeira, Parsons The New School for Design, School of Design Strategies (New York, USA) and Ms. Sonia Manchanda, founder of IDIOM design and consultancy firm (Bangalore, India). So far, the project has been successfully replicated in Brazil as well, with the Chinese edition expected to start in the fall of 2014. The Dream_In is a project that was developed as a response to the need to systematize innovation quickly, and in a massive scale. For instance, the sheer size of India’s or China’s population is massive, therefore, so is the size of the challenges they face (such as providing food, sanitation and education to billions of people). Current innovation and design methodologies used to address these issues are considered to be too slow as well as unreliable thus, pressing problems take longer to be solved. The Dream:In project also was developed considering people’s dreams instead of needs. Dreams and aspirations are thought to be a source of inspiration of long-term innovation, whereas needs are more urgent problems that quite likely are already being tackled in one way or another. 6.1.1 The Dream:in Project Structure The DREAM:IN project is divided into three distinct phases: Dream, Believe and Realize. During the first phase, teams of university students receive basic training to perform ethnographic research. They travel around the country asking ordinary citizens about their dreams and aspirations. This process is called “Dream Catching”. Afterwards, the most relevant or popular dreams are selected and the interviews are edited into one-minute video snippets that will be used in the following phase as inspirational material. Researchers in Prof. Teixeira’s team perform this work, because it has a key role: the filtering and selection of the dreams will determine the outcomes of the successive workshops. During the following phase, or “Believe” phase, also known as “The Conclave” the students are joined by entrepreneurs, investors, experts, knowledge brokers and knowledge managers in an open innovation workshop. 1 Sheerin, B., Divekar, S., Alcocer, F., & Teixeira, C. (2013). Design Process as Innovation Technology for Creating Value in Emerging Markets The DREAM : IN Project. In Press. P. 2
  • 132. 134 Theobjectiveoftheworkshopistotransformthedreamsandaspirationsofthecitizens interviewed into ideas that could potentially become entrepreneurial opportunities, and perhaps even new ventures. The presence of a variety of experimented and knowledgeable participants allows everybody to have immediate feedback on the originality, feasibility and potential impact of their ideas. Also, local communities and prominent members of the community are involved because of many reasons, namely the sheer magnitude of the tasks to be performed needs local people to collaborate and perhaps even venture as entrepreneurs with the support of local people. Also, once people become involved in solving the challenges present in their own communities, they can be empowered to find bottom-up solutions together. The participants generate insights, business possibilities, policy solutions, etc. As a final result of these efforts, a plan is created to invest in and support entrepreneurs to start fulfilling their dreams through these developed venture proposals. A collection of ideas is presented to a large group of entrepreneurs, business leaders and investment experts who could commit investments and help realize these ventures in the communities where the insights were gathered (Sheerin et al. 2013)2 . The Realize phase is the longest phase and encompasses mentorship and incubation of the new ventures that emerged from the Believe phase. 6.1.2 The core of the project: the Conclave The focus of the experiment was in the second phase of the project, the Believe phase. As parts of the efforts to expand the DREAM:In project to China, a pilot workshop experience was planned within one of the three two-day workshops planned in Beijing, Shanghai and Hong Kong, China. The workshops lasted two full days and involved 100 participants approximately working in groups of 10 people each. The Dream:in workshops have a standard format that is designed to maximize the time, efficiency, creativity, tacit knowledge and expertise of the participants. The format includes seven variables. These seven variables are: (1) project participants (2) time or the structure of activities in minutes, hours, and days, (3) place/space where things happen and how the space is arranged, (4) tools and frameworks used to guide discussions and capture insights and criteria, (5) transactions between people, which hold anecdotal gems of information, (6) transitions between activities that cost time and shift momentum and finally (7) ideas: information, features and ideas that are 2 Sheerin et al., (2013) Ibid. P. 3 1.DREAM Part One 2. D REAM PartTwo 3. DR EAM Partthree 4. DREAM Part Four 5.BELIEVE 6.REALISE Start here > 5. Believe 6. Realise 2-4 days 90 days 1. Dream 2. Dream 3. Dream 4. Dream 30 Days 2 days 8 days 30 days Figure 1. The different phases of the Dream:In project with their respective duration.
  • 133. 135 generated out of design activities (Sheerin et al., 2013). The main objective of the Dream:in workshop is to generate business ideas using ordinary people’s dreams as inspiration and explore and assess their potential to become entrepreneurial opportunities in a fast paced, open, collaborative and efficient environment. Participants are selected based on a role they fulfill according to their background and expertise. According to the Dream:in model, the design process will unfold organically as a result of the interaction of people with different cognitive mental models, as well as the work of a Knowledge Broker and a Knowledge Manager within each team. Knowledge Brokers act as facilitators of the exchange of information while Knowledge Managers structure the resources and the ideas. Both roles drive the interaction between all the other participants, who possess tacit knowledge about their local community and its problems. The questions posed by the Knowledge Broker (What if…?) aim at mining the tacit knowledge possessed by the participants and sharing it with the others in order to use it as source of valuable insights. The other profiles in the teams are Dream Catchers, mostly students that have participated in collecting the dreams; Dream Catalysts, seasoned designers, design consultants or design writers; Dream Leaders, designers and managers usually from design firms and business firms; Dream-vestors, policymakers, CEO’s, community leaders, and thinkers; Entrepreneurs contribute with their ability to turn ideas into reality and Investment experts bring their financial expertise and trained eye to spot promising business ideas (figure 2). Because our experiment was a pilot test of the Dream:in project, participants were not expected to play a specific role (they were mostly students, so many roles would go unfilled) and they were assigned to the tables randomly. Another key element of the Dream:in model is the use of design tools or frameworks. A design framework is a generalized design solution. They describe the characteristics that a design solution must have in order to achieve a particular set of goals in a particular context. A design framework is a collection of coherent design guidelines for a particular type then... and or... ,but if? THE INVESTOR THE ENTREPRENEUR KNOWLEDGE MANAGER THE EXPERT KNOWLEDGE BROKER Fig. 2. Participant profiles for the Conclave workshop and their respective roles. (Sheerin et al., 2013)
  • 134. 136 of design challenge (Kumar, 2013)3 . The data and the information that are extracted from the observation of the Dream videos, abstract ideas, concepts, notions and relationships that could easily be overlooked, need to be externalized and shared so all group members can use them as inputs for the creative process. Frameworks collect and organize information and data and help people make sense of the information and extract key insights (NESTA, 20114 ). Frameworks can be adopted from existing design instruments or they can be designed for a specific design task or for a specific context. Further explanation on what frameworks are and how they were specifically developed for this workshop can be found in Appendix 3, Section V. The Conclave is divided in two days, with each half day having a different theme and a differentpurpose. TheConclaveconsistsoffourstagesofdesigneachwithadurationof half a day: Absorbing, Scenario building, Actionable solutions, and Proposition. The length, timeline and extent of these processes can be modified according to the context. The Conclave requires extensive preparation of the space, selecting participants, selecting media technology, engaging local keynote speakers (known as Big Dreamers), testing sound equipment, designing and printing posters illustrating research and tools and guiding frameworks provided to the participants throughout the Conclave. During the first half-day, in the Absorbing phase, the previously edited video snippets from the citizens’ dreams are shown to the participants. The videos are pre-clustered by topics, these are mostly topics that the interviewees mentioned the most times or wererecurringthemesbehindsomeofthedreams.Participantsaredividedintosmaller groups in the work tables (of two or three people each) where they are given paper, post- its, markers and other tools to take notes on important facts and insights gained from watching the videos. These sessions are followed by open discussions and several interactive sessions where ‘big dreamers’ share their dreams. Short brainstorming exercises serve as warm-up design activities. These reveal insights and potential tracks towards building new social and business ventures (Sheerin et al., 2013). During the second half of the first day, Scenario Building, teams cluster the insights and ideas that are meaningful to the communities. From these clusters, groups can see what topic they are particularly drawn to. They then create a full range of possibilities or options for an imagined ideal future. Teams use mapping and quantitative analysis from the research materials provided along with the qualitative insights of the dreams to narrow their chosen vision of ideal futures into a narrative story and scenario. This task enables participants to ground their ideas, and place their imagined ventures into the scenario. Teams are also encouraged to specify the particular activities, investments needed,andphysicalcomponentstheirventurewouldrequiretofunction.Additionally teams are encouraged to think of how the venture might scale over time and space (Sheerin et al., 2013). One of the key characteristics of the Dream:in model is that ideas are created by combining existing features of products or business ideas. For instance, participants listen to a keynote speaker (a Big Dreamer) who may be an entrepreneur that already launched a successful social venture. Participants are encouraged to take note of the features of her successful activity such as: hiring unprivileged young people, giving microcredits to women, providing free business counseling, etc. Participants then note these features in post-its and recombine them with other features to create a unique idea. This process undergoes several iterations. 3 Kumar, V., (2013) 101 Design Methods. A Structured Approach for Driving Innovation in Your Organization, Hoboken, NJ: John Wiley & Sons. 4 NESTA (2011) Prototyping Public Services. An Introduction to Using Prototyping In the Development of Public Services. London, UK
  • 135. 137 Figure 3 shows the idea development model. On the second morning, teams develop and refine their scenarios by incorporating insights from presentations on design and management thinking techniques that are presented throughout the day. They refine the ideas and start grounding them into actual venture ideas. In this moment, participants must abide by the constraints of business (or social) ventures and specify the conditions necessary for the ventures to succeed. Knowledge Managers encourage critical thinking and assessing feasibility while Knowledge Brokers encourage positive criticism and reframing ideas to fit the constraints before discarding them. By the end of the morning, teams should have developed their venture idea and sketched, written and debated it. Teams use a framework specifically developed for the Conclave after the experience of Dream:in India (Figure 4). This is the final outcome all teams must have at the end of the workshop. Ideas Features Information Transactions: Ideas ,BUT IF? IF? OR... AND, Transactions: Features Figure 4. Dream Ideation Framework. The framework concretizes the venture ideas and considers different items like Startup Investment needed and potential stakeholders. Figure 3. Idea Development Diagram. This illustrates how ideas are created during the workshop. Information is first turned into features and then these features are further developed into an idea.
  • 136. 138 Finally, during the second half of day 2 –Proposition– teams pitch their business venture ideas to investors and leaders in their categories, followed by discussions and critiques. The teams are then nominated to take viable ideas to their realization by using the event as a networking platform, to connect with investors in the industries pertaining to their proposed venture. In the first edition of Dream:in in India, it was decided to establish a Dream Fund would help to channel investments into the realization of these opportunities while an open platform would serve as an archive and help track the progress of these ideas (Sheerin et al., 2013). 6.1.3 The role of design in the DREAM:IN project Dream:in is a very interesting case study of the use of design as a tool to generate business ideas. As we could see in Chapter 4, not many actors are addressing the front-end of innovation of the entrepreneurial process so finding an open innovation platform that relied on design strategies to act during this early phase was not easy. Most existing case studies tend to support entrepreneurs later in the entrepreneurial process. On June 2012, I attended one of the events of Dream:in in India (more specifically in Tumkur, a city close to Bangalore in the southern state of Karnatka) in order to observe it first hand and understand the model. Once the model was codified, with the collaboration of Prof. Teixeira and his research assistants, some opportunity areas were identified. In the Dream:in model, design is considered first and foremost, a knowledge brokering activity (Bertola and Teixeira, 2003)5 . Firstly, interviewees in the first phase and participants in the workshop phase are considered to be holders of tacit knowledge about their communities and their needs that needs to be communicated, codified and shared. Secondly, Knowledge Brokers and Knowledge Managers lead the design process by mining the tacit knowledge from participants, encouraging its sharing and codifying and leading the design process based on this knowledge. Overall, the whole model is strongly based in the principles of User-Centered Design (UCD). For instance, Gould and Lewis (19856 ) identified four basic principles of UCD. The Dream:in model closely complies with these four principles: 1. Focalize since the beginning in users and their tasks: Participants grasp insights they obtain from the interview videos shown at the beginning. Those who attend the first phase also get to interact with target users and observe them directly. 2. Design iteratively through various design cycles, evaluating and redesigning: The design process is iterative, and recombines features and insights (obtained from the videos, the keynote speakers presentations’ or the participants’ tacit knowledge) over several iterations guided by the Knowledge Broker and the Knowledge Manager. Participants redesign several iterations before arriving to a satisfying idea. 3. Evaluate the system with users before arriving to the final execution and verify that it satisfies the requisites: Local community members and leaders are involved in the process so they can provide feedback and offer some preliminary evaluations. 5 Bertola, P., & Teixeira, C. (2003). Design as a knowledge agent: How design as a knowledge process is embedded into organizations to foster innovation. Design Studies, 24(2), 181–194. doi:10.1016/S0142- 694X(02)00036-4 6 Rizzo, F., (2009) . Strategie di co-design. Teorie, Metodi e Strumenti per Progettare con gli Utenti. FrancoAngeli. Milano, Italia. P. 24
  • 137. 139 4. Design with a multidisciplinary team. The model relies heavily on individual thinking approaches described by some authors like De Bono (19857 ), as well as in multidisciplinary design teams. Therefore roles are clearly defined and work groups are defined so there are always different professional profiles working together in the same table. As we can see the format of the workshop is thoroughly designed however, the design process the participants use during the workshop, to design the actual business ideas is loosely structured offering opportunities of intervention. Some other opportunity areas of the model stem from the user-centered perspective used as a basis for the entire model. For instance, the fact that the inspirational material (the dream video snippets shown at the very beginning) participants use is the same for all teams already conditions the outcomes to whatever subject or issue was selected to be shown in the videos. Furthermore, the distinction the interviewers make of dream and need is not as neat as it seems. Some of the dreams portrayed in the videos are simply plain unfulfilled needs that are common in developing countries like India and China such as “I wish we had affordable health care” or “I wish we could buy a house”. Thus, in the end many teams end up tackling already existing and clear needs that other potential competitors may be already tackling as well. Another potential issue comes from the model being based on having a specific type of role assigned to participants according to their professional background. It is not always possible to achieve the desired variety since it depends largely on the host organizations’ interests, as it was the case in the Chinese experience. 6.2 Experiment Design 6.2.1 Premises This context was deemed an appropriate setting for an experiment to test the effect of the use of service design tools during the front-end of the process of business idea generation. The objective of the experiment was to test the effect of the use of service design instruments in one of Dream:in’s business idea generation workshop and assess the results of the use of service design instruments in a small group compared with a control group not using them. Local organizers picked the participants, however participant profiles were quite homogeneous. Nearly all of them were Chinese university undergrads or recent graduates, mostly from the design and business schools. This provided with a uniformity of participant profiles normal Dream:in workshops do not have. It could be inferred that any changes in participant behavior or in the workshop results during the experiment would be the effect of my intervention and not of some participants being better abled or skilled than others. The experiment took into consideration following a checklist (Gawande, 20108 ), so different aspects of creating a business venture were kept in check and complexity would not overwhelm participants. Following this idea, the service design tools chosen would need to cover a checklist of items to ease the cognitive load of participants: Who? (Stakeholders, Consumers), Why? (Is this a clear problem or need? Are there competitors in that space already?), How? (Capabilities and Resources needed to kick 7 De Bono, E. (1985) Six Thinking Hats. Backbay Books. New York, NY. 8 Gawande, A. (2010) The Checklist Manifesto. How to Get Things Right. Profile Books: London, UK.
  • 138. 140 start, and then to run the business, business model), Where? ( Neighborhood, city, online), etc. 6.2.2 Hypothesis and Objectives Thehypothesisofthisworkisthatthedesigndisciplinepossessestools,methodologies, frameworks and a “designerly mindset” that makes the creation, framing, positioning, development and assessment of business ideas more reliable and efficient when exploring entrepreneurial opportunities. These toolsets could be transferred from the field of design to that of business to support the construction of new entrepreneurial ventures. We use the word “construction” since some of these tools are a step ahead of prefiguring: they are not just meant to design, but to dialogue, convince, construct, assess, and build a working prototype. (Nesta, 2011)9 . The objective of the workshop was to test a series of simplified service design tools during a business idea generation workshop, in this case as a part of a pilot test of the Chinese edition of the Dream:In project in Beijing in March 2013. 6.2.3 Research Questions The experiment’s research questions were: Can service design tools be transferred and applied to the front-end of the entrepreneurial process? Would their application affect the process and/or the result, and if so, how? 6.2.4 Methodology As stated before (in Chapter 5), service design tools were selected to be used during the workshop because they were specifically designed to tackle many of the issues the creation of a new venture poses: Dealing with fuzzy and ill-defined problems, creating a network of actors, framing and generating ideas, prototyping intangible concepts and assessing collaboratively feasibility and validity (Blomkvist, 201010 ). Furthermore, selected service design tools were simplified into frameworks so they could be used by non-professional designers. These frameworks guided the actions of participants, “telling” them exactly what to look for and “connect the dots” in order to complete their business ideas. Moreover, the tools were selected according to the type of thinking they encouraged (divergent and convergent) and alternated between them in order to stimulate the participants’ creativity (Gray et al., 201011 ). All the simplified frameworks used during the workshop can be consulted in Appendix 5. However, some frameworks were designed specifically for the workshop. For the experiment the author selected 15 service design tools12 , among a catalogue from over 50 possible instruments. The tools were classified according to their purpose, suitability for entrepreneurial contexts, ease of use, requirement of special know-how or capabilities and type of creative thinking that the tool enables (divergent or convergent). The table with all the service design tools analyzed and the criteria used to select them can be consulted in Appendix 3, section IV. 9 Nesta (2011) Ibid. Pp. 11 - 32 10 Blomkvist, J. (2010). Conceptualising Prototypes in Service Design. Linköping University. Retrieved from http://liu.diva-portal.org/smash/record.jsf?pid=diva2:412916 11 Gray, D., Brown, S., Macanufo, J. (2010) Gamestorming. A Playbook for Innovators, Rulebreakers and Changemakers. O’Reilly Books. Sebastopol, CA. 12 Plus the standard Dream:in Dream Ideation framework described in section 6.1.2, in total 16 tools were used.
  • 139. 141 The chosen service design tools had to be adapted in order to achieve four macro objectives that matched the phases of the Dream:in workshop format, (1) Turn the dreams into themes, (2) turn themes into potential market requirements, (3) turn market requirements into concept proposals and (4) develop a complete business offering from product or service concepts (see Table 1). In order to fit the Dream:in format a workshop planner was designed: all interactions were timed and planned, tools were assigned to each batch of time and the outcomes of every phase planned. The workshop planner can be consulted in full in Appendix 4. The workshop planner allows for the maximization of the time, and keeps participants from reaching dead points or debating about the task flow. In this way they can focus exclusively on the content and the quality of their ideas. So as to compare the effects of the use of the tools, out of 100 participants, only 10 would be working with the tools with one of the authors as facilitator, while the other participants would use the standard Dream:in methodology. The output and intermediate steps of every phase were thoroughly labeled and documented through 1 (1) Turn dreams into themes Objective of Batch Name of the Tool Purpose Thinking Encouraged Dream Analysis card (custom made for the WS) Analyze the dream and evaluate its potential as a business idea Divergent Dream Ranking Tool (custom made for the WS) 2 Rank the dreams according to its potential Convergent (2) Turn dreams into potential market requirements 3 Mindmapping DivergentExpand on two of the most promising dreams Personas Envision potential users Convergent Trend Cards (custom made for the WS) Present trends and incorpo- rate them into the idea Divergent Scenario Canvas Generate a Scenario Convergent 4 5 6 7 (3) Turn potential market requirements into product requirements Value Proposition Tool Define Value Proposition Convergent 8 Product Snapshot Tool Ad Poster Tool Produce a sketch of the product or service Convergent Produce two or more product ideas from scenario 9 Divergent 10 Actors and Stakeholders Matrix Identify roles, capabilities and motivations of stakeholders necessary to create the value chain. Divergent 11 What if? cards Speculate possible improvements or disruptions as a group ConvergentDream Ideation Tool (standard Dream:in methodology format) (4) Turn product or service concept into a business offering concept Define basic features of product and rough estimate of startup investment Divergent Prototype Tool Imagine possible ways to test the product or service Convergent ConvergentBusiness Model Canvas Define the new ventures’ business model 12 13 14 15 15 Questions Tool Verify the robustness of the business idea Convergent 16 SWOT analysis Assess the robustness of the business concept Convergent Table 1. Service Design Tools Used
  • 140. 142 pictures, video taping and collection of all the output produced by the participants. 6.3 The Workshop: Beijing The workshop took place in late March 2013 and was hosted by Tsinghua University in Beijing, China.Mostoftheparticipantswere design students (undergraduate and graduate) or recent grads working in industry. A couple of them were young design lecturers from other Chinese universities. Although the call for participation was open to the public, most of the attendants were business or design students and practitioners. The workshop took place in Chinese with the help of Chinese-speaking team members, however instructions were given in English. The table of 10 people was divided in three smaller groups. Each group was assigned a color and all the outputs produced by that group were labeled using that color. The three teams in day one were Team Red, Team Green 1 and Team Yellow. The first day, in the morning the participants were off to a slow start, partly because of language difficulties. However, once they understood the objective of the use of frameworks, they performed very well, in fact finishing all tasks one hour before the scheduled ending of the day’s activities. Figure 6 shows an image of the first morning of the workshop. Overall, the first day was very positive, participants were enthusiast and worked very well despite the initial slow start. Once they understood how they were supposed to work and began “connecting-the-dots”, their enthusiasm increased, as did their efficiency. Figures 6, 7 & 8 show pictures of the teams using the tools during the first day of workshop. Figures 9 to 12 show some of the participants in the control group (NOT using the tools). The teams using the tools finished doing all of the tasks one hour before the rest of the participants. Figures 13 to 16 show the output of day 1 of the workshop from the teams using the tools. Figures 17 to 19 show outputs from the control group. As it can be seen from the images, teams that used the tools developed a more orderly process (Figure 13), and had a more efficient process doing more work in less time, tackling various aspects of the business offering through the frameworks. All of the frameworks done by the participants can be consulted in full in Appendix 6. On the next day, (a Sunday) many of the participants did not attend, however those who did were highly motivated. In order to continue having at least one table experimenting with the design instruments, another table was selected to use the tools. Thus, during the Beijing workshop in total 20 people experimented the use of the tools versus 60 people not using them. The team that was selected to use the tools on the second day, had been working on their own on day 1 without using the tools, thus they had the chance to experiment both ways of working. The team was labeled Team Green 2. The other team using the tools during the second day was Team Violet. Figures 20 to 22 show the teams using Figure 5. Example of simplified design framework elaborated taking the widespread Mindmapping design tool.
  • 141. 143 Figures 6, 7 & 8. Images from the first day of the workshop of the group that used the simplified service design tools. 6 7 8
  • 142. 144 Figures 9, 10, 11 & 12. Images of the control group (groups NOT using the service design tools) 9 10 11 12 11
  • 143. 145 Figure 13. Overview of all the frameworks produced by the teams using the tools. Figures 14, 15 & 16. Dream Ideation Framework that was considered the final output for all groups. These frameworks were produced by teams using the service design tools. 13 14 15 16
  • 144. 146 Figures 17, 18 & 19. Dream Ideation Framework that was considered the final output for all groups. These frameworks were produced by teams NOT using the service design tools. 17 18 19
  • 145. 147 the tools at work during the second day of the workshop. These new teams started using the design tools and the results of their work were notably more developed and detailed than those of teams not using the tools. For instance, one of the groups (team Green 2) using the tools started to make a rough prototype of their service idea while trying to come up with a business model for the service. They realized that the service features and the business model were closely related and that unless they prototyped and defined the features exactly they could not go on. Thus, they started developing a rough prototype out of their own initiative (figures 21, 22 & 28). Although this is only an anecdote and further testing would be needed, this could be interpreted as an indication of how much the product or service features and the different components of the value proposition and the business model are deeply interrelated. Team Green 2 had been working on their own on day 1 (as part of the control group). The output from that first day of work can be seen in figure 27. In Figure 28, we can see the evolution of their work after using the service design tools. Their idea is much more developed and complete, they developed a business model and value proposition as well as a rough prototype of their service. During the second day, teams using the tools finished one hour before the other teams. Figures 29 to 31 show the final results of teams not using the tools at the end of day 2. Users using the tools developed prospective users profiles, value proposition, business models and even prototypes whereas the other teams did not. Overall, business ideas from the teams in the control group were still a bit raw and unfinished, with many undefined aspects. In the end, all teams used the same standard format to communicate and pitch their ideas (the Dream Ideation Framework), this allowed to scan for differences among the teams that used the service design tools and the control group. 6.3.1 Results Overall the experience in Beijing was very positive. However, there are some important points to be highlighted. First, the use or not of the tools did not influence the content of the ideas in terms of novelty or originality. Many teams (whether using the tools or not) tackled the same issues or thought about similar products or services. This could be explained by the fact that most of the teams had access to the same information for inspiration (the dream videos) and that most of the participants shared the same background or nationality. The tools and the workshop format are designed to help participants valorize their tacit knowledge about their local culture, regulations, partnerships needed and consumer preferences therefore, it makes sense that participants belonging to the same culture and region would share the same tacit knowledge. What the instruments did influence was the quality and consistency of the whole design process. The tools were useful to frame and guide the design process, explore the problems before moving to a solution, spot immediately conflicting issues and maintain a checklist of important aspects of business ideas that should not be overlooked.As one participant said “It’s like you gave us the dots to connect”. This allowed for marked increases in efficiency and in quality of the work produced. A second important point, to be considered when factoring in the results is that of participantdiversity.Mostoftheparticipantswerefamiliarwiththedesigninstruments
  • 146. 148 Figure 20. One of the groups using the SDT during the second day of the workshop (Violet Team). Figures 21 & 22. Team Green 2 using the tools in the second day started prototyping out of their own initiative when faced with the Business Model Canvas tool. 20 21 22
  • 147. 149 23 24 25 Figure 23, 24 & 25. Teams from the control group (NOT using the tools) on the second day of the workshop.
  • 148. 150 26 27 28 Figure 27. Outcome from team green 2 during day 1 of the workshop working by themselves. Figure 28. Outcome from team green 2 during day 2 of the workshop working using the service design tols. Figure 26. Outcome from team purple- during day 2 of the workshop working using the service design tols.
  • 149. 151 29 30 31 Figure 31. Outcomes from control group during day 2 of the workshop working NOT using the service design tols.
  • 150. 152 provided in more or lesser degree or had design backgrounds. This may have facilitated the process. In general, the results of this workshop support the idea that service design tools could be fit to be used in the front-end of the entrepreneurial process and facilitate the generation of new and robust business ideas. Some of the participants even mentioned being inspired to start their own companies based on the ideas developed during the workshop. 6.3.2 Difficulties and insights of potential improvements Obviously the experiment was not perfect, and there were a few hiccups that already point at aspects of the toolkit and/or the workshop format that need to be improved. Figures 32a & 32b. Graphic synthesis of the results of the second day of workshop. Each circle represents a group with the frameworks they produced, how many people were in each group and the time they needed to complete the tasks.
  • 151. 153 a) During the Workshop The most obvious obstacle for the workshop development was the language barrier. The first day, participants were supposed to watch the videos of ordinary citizens telling their dreams to use them as design inspiration. However, the videos were mostly in English or Portuguese (they were taken from the Indian and Brazilian versions of the Dream:in project) with mandarin subtitles and the participants of my table were unable to read them due to the position of our assigned workspace. This left my participants clueless about the material everyone else was using and I had to improvise and ask them to instead use their own dreams as inspiration. One of the first tools they were supposed to use, called the dream ranking tool had the objective of evaluating which dreams were worthy of turning into business ideas. They had to evaluate the potential of the dreams by giving them stars. Five stars were empty for them to fill. However they rated everything with only one star, filling only the one at the edge of page because there was a smiley face on top (figures 33 & 34). I think that for a Westerner it should have been pretty obvious that he or she had to use a ranking system giving more stars if they see more potential, but all the Chinese participants filled them as in figure 33. This was an important insight regarding the design of these instruments. What we may think of as obvious, in a different context and seen through the lens of a different culture is not. Most participants, specially those coming from a design background, had barely any knowledge of many business concepts such as Startup Investment, Stakeholders, Business Model or Value Proposition. As such, understanding the tools and the concepts took them a long time, almost three times more than I had foreseen in the workshop planner, and as I will discuss later, they actually did not understand however they did not ask for help. Some instruments like the scenario tool or the prototype tool were too difficult for them to understand. At some point, I had to ask the teams who were stuck to just skip them. At the end of the day, one of the teams took all their material with them. All I have is some blurry pictures and they are not sufficient to reconstruct their work. Finally, participants that were there the first day did not participate on the second day, thus the sequence of the workshop planner activities was disrupted. I had to start from scratch with new teams. This tells us that activities should be much more loosely structured, in order to allow more room for improvisation and fit various situations. Figure 33. The way participant filled the dream ranking tool Figure 34. How I expected participants to use the tool.
  • 152. 154 b) After the Workshop Some more insights and difficulties emerged after the workshop, when I was able to get the outcomes of the workshop translated from Mandarin into English. The first insight that emerged after analyzing the material was that of fragmentation of the creative process. Many participants did not correlate the different tools to one objective. For instance, one of the groups had chosen as their initial business idea a service that enabled people to quit smoking. Yet, when they used the personas tool they produced the profile of a nine-year-old girl. Now, unless the service was targeted at children who smoke (which is highly doubtful and illogical) this means that many participants did not understand that all the tools were targeting different aspects of a business idea and as such they needed to be coherent with one another. Another insight that emerged after translating the outcomes was the fact they did not understand many concepts such as “network of stakeholders”. For instance, one of the groups filled the Actor Matrix Tools, and wrote as a stakeholder of their business idea “User Experience”. This leads me back on the language barriers and lack of knowledge of business or service design terms. However, participants did not ask me anything, presumably because of cultural issues: Chinese students that come from traditional schooling tend to obey instructions and not to ask questions. Finally, participants tended to keep turning on and on the same concept or idea, using it in the tools in different moments. For example, one of the teams thought of a business ideaofacustom-madefurnitureservice.Yet,whenanalyzingtheoutcomeoftheirwork, in many items they wrote “convenient life”, for instance their value proposition was “convenience”, the potential users “convenient people”, the products were “convenient products” and in their network of stakeholders, they put “the user experience”, which of course, had to be “convenient”. However, I do not have enough evidence to deduct why all of the above happened. Either these participants were not used to designing intangible concepts, such as business concepts, or the instruments need to be more clear, or the facilitator needs to take a much more active role giving instructions and providing definitions of the key concepts before the workshop. Definitely, the toolkit needs to be refined, the workshop format needs to be revisited and more testing is required. 6.3.3 Interpretation of the Findings and Implications On the whole, and despite many of these inconvenients, participants using the service design tools (SDT) developed more their ideas, in less time and using fewer resources. The tools served as frameworks guiding the work process so teams did not waste time deciding how to work or manage their time. The frameworks also provided a checklist of different aspects of a new business idea that should be covered keeping participants from going into information overload. As it can be seen from table 2, groups who used the service design tools produced significantly more work in less time. Therefore, we can postulate the idea that service design tools can add efficiency to the opportunity identification process, which until now was considered unreliable, casual and sloppy and caused entrepreneurs to waste valuable resources like their time, energy and money.
  • 153. 155 TABLE II. time results Team Time needed to complete tasks Using Service Design Tools 7 hours Not Using Service Design Tools 16 hours Thanks to the use of SDT participants were better able to frame, ideate, prototype and assess their ideas. The tools provide participants with constraints and important checklist items they need to cover in order to craft a successful business idea. Teams using SDT produced more in-depth complete ideas,whereas the teams from the control group produced more raw, unfinished ideas. Authors like [3] have acknowledged the importance of planning as one of the most important factors for the success or failure of new ventures. The format of the workshop, as well as the use of simplified SDT as frameworks, allowed maximizing the time and abilities of the participants without losing momentum. The workshop was designed to last two days at most and used a system of simplified frameworks that allowed participants to jump right into designing the content of their ideas without losing time understanding the tools or deciding how to manage their time. The participants using SDT produced 10 different outputs without receiving any previous training on how to use the tools. Unlike traditional design workshops that can take up to a week and require extensive intervention of facilitators and training of participants, our workshop format requires minimum training of participants. Facilitators play the role of knowledge brokers or knowledge managers, working directly with the content of the ideas and not on the use of the tools. The workshop also allowed us to obtain inspirations from the users and use design instruments to transform those inspirations into robust and innovative ideas using both a design-driven approach and a user-centered approach. These approaches to design are often referred to as in opposition to each other, however in this case tools and methodologies belonging to both approaches were used successfully. Aboveall,thisexerciseshowedushowdesigncanplayaroleindevelopingbusinessideas, by becoming an instrument to shape their content and shape the design of the design process itself. SDT were valuable aids workshop participants for designing the content of their ideas, acting like a checklist of important aspects they needed to cover. Design tools were also valuable instruments to design the interactions and the design process in itself. Although many authors may only acknowledge design a role of instigator of “creative thinking” and “out-of-the-box ideas” (divergent thinking), our research and field experience indicates that design is a helpful aid in creating plausible ideas respecting constraints and boundaries (convergent thinking). Also, design instruments provided a structure that clarified the “fuzziness” and the uncertainty of the front-end of the entrepreneurial process. Thus, we propose the use of design instruments as a reliable strategy to generate innovative business ideas that may become entrepreneurial opportunities Understandably, a clear limitation of the experiment is its small scale, however, the results are encouraging and could serve as a basis to design a larger experiment with a larger sample. Many of the pitfalls and hiccups described in the section before need to be addressed in a subsequent version of the tool and refined thanks to the feedback of successive workshops.
  • 154. 156 6.4 Conclusion The early process of designing a new service and a new entrepreneurial venture are similar and face similar issues. The thesis of this work is that both a “designerly mindset” and the above-mentioned service design toolset may be transferred from design to entrepreneurship during the front-end of the entrepreneurial process to support the construction of new entrepreneurial ventures. The field research experiment supports the use of service design tools as reliable instruments that enable the framing, ideation, building, prototyping and assessment of business ideas (products or services).
  • 155. 157 Chapter 7. Conclusions
  • 156. 158
  • 157. 159 Chapter 7. Conclusions 7.1 Synthesis of the research The research began as an overall exploration of the relationship between design and entrepreneurship. It had two general objectives. The first one was to provide a comprehensive overview of the state of the art of the phenomenon of design- driven entrepreneurship. The second one was, was finding out if there were unique contributions design culture could bring to entrepreneurship. As mentioned in the introduction, design thinking (as a managerial methodology) became the first time design and business shared some common ground where an interdisciplinary approach could take shape: the design research and practice moved towards strategy and entered the area of business while the managerial research and practice moved towards innovation and entered the area of design. One of the reasons why design methodologies, like design thinking, have become so popular among managers is because they bring a different type of thinking: whereas business and management tend to rely in efficiency, repetition and tried and tested ideas, design brings flexibility, a trial-and-error mindset and the use of abductive and deductive reasoning. In synthesis, design ability is focused in producing a satisfactory solution. It follows the logic of conjecture, and suggests that something may be. Both the outlining of the problem and the solution are subject of discussion (Cross, 20061 ). Integrating some of these traits into business processes could help managers, according to some authors like Brown (20092 ), to develop innovation using “ (…) the designer’s sensibility and methods to match people’s needs with what is technologically feasible and what a viable business strategy can convert into customer value and market opportunity.” It is becoming increasingly clear that designers are not just designing offerings and strategies, bur rather they are moving up the value chain and contributing to the design of the businesses too. For instance, some visual design instruments have already been transferred successfully to the area of business model design. These instruments have allowed developing scenarios to explore the feasibility of new business model options (Jonda, 2007; Pateli and Giaglis, 2005 in Eppler and Hoffmann, 20113 ), sense customers’ needs and requirements, provide visual artifacts to share information, create knowledge pools and deduct insights (Osterwalder & Pigneur, 20104 ), visualize positions of stakeholders, challenge self-imposed constraints, integrate different viewpoints and prototype business models before implementing them, among many others (Eppler and Hoffmann, 2011). The case studies of chapter 3 illustrate how besides shaping a product or service designers are conceiving entire business ventures and partnering with people from other professional backgrounds in order to acquire the business or technology know- how they lack. The case studies in chapter 4 showed how universities, private and public bodies, such as incubators, accelerators and co-working spaces, are supporting and encouraging this type of designer-led entrepreneurship. However, they focus their efforts (both entrepreneurs and support bodies) in approaching design as an instrument to shape their business offering (in the case of physical products), or as the 1 Cross (2006) Designerly Ways of Knowing. Springer-Verlag. London. P.80 2 Brown, T. (2009) Change by Design. HarperCollins. New York, NY. P. 86 3 Eppler, M. J., & Hoffmann, F. (2011). Challenges and Visual Solutions for Strategic Business Model innovation. In M. Hülsmann & N. Pfeffermann (Eds.), Strategies and Communications For Innovations (pp. 25–36). Berlin, Heidelberg: Springer Berlin Heidelberg. doi:10.1007/978-3-642-17223-6 4 Osterwalder, A., & Pigneur, Y. (2010). Business Model Generation. Honoken, NJ: Wiley & Sons.
  • 158. 160 business offering in itself (in the case of design services). Thus, it would be interesting to propose design contributions in earlier phases of the value chain, since that would be quite unexplored. Following the idea of moving design up in the value chain, the literature review explored the earliest phases of the entrepreneurial process, in order to understand if there was any space for a design contribution. From the review (chapter 1) it emerged that the central construct and fundamental pillar of business ventures is the entrepreneurial opportunity. Although it has been widely acknowledged that the discovery (or creation) of entrepreneurial opportunities isacrucialstartingpointoftheentrepreneurialprocess,reliableandreplicablemethods for systematically searching, framing, developing and assessing opportunities are still undeveloped. Consequently, entrepreneurs waste their limited resources (talent and time) in inefficient activities aiming at developing new business ventures. Identifying entrepreneurial opportunities and transforming them into successful ventures is particularly relevant in the current economic recession, especially in southern European countries where unemployment rates are particularly high and entrepreneurship has the potential to boost employment. Thus aspiring entrepreneurs needmorethaneverreliableframingtechniquesbecausetheyneedtobemoreassertive of their options and choices, avoiding wasting valuable resources in the opportunity identification phase. Opportunity identification has not been the subject of study by many scholars on entrepreneurship, partly because it is not acknowledged as a critical junction in the early stages of the process that defines the direction to be taken by a new business venture and partly because much energy has been devoted to defining and refining the entrepreneurial opportunity construct. While the front end of the entrepreneurial process and new product development process have many similarities, such as the “open-endedness” of modeling multiple options, supporting tools and techniques for framing and assessing ideas are seldom shared by these two processes (figure 1). Figure 1. The design process and the entrepreneurial process shown in parallel. They both have a front-end and could share instruments and methodologies.
  • 159. 161 While some authors already elaborated (Bragg and Bragg, 20065 ; Rae, 20076 ) on the importance of systematizing the creative process and applying creative methods and techniques to the opportunity generation process, none of them acknowledges any potential contribution from design, which for most scholars still remains a practice difficult to observe, measure and analyse. One of the few exceptions is the work of Barringer and Gresock (20087 ), which became the bridge, linking design as a helpful tool, using the traditional State-GateTM process in product development as a way to structurethefront-endoftheentrepreneurialprocessandapplythesamecompetences of product development to the generation and assessment of business ideas. However, the front-end is not considered part of the new product development process. Linear processes such as the State-GateTM model are not deemed appropriate for the front- end of innovation (FEI) because, according to Koen et al., (20018 ), many of the practices carried out during the NPD don’t apply to the front-end, the nature of the work is fundamentally different and the activities in the FEI are often chaotic, unpredictable and unstructured. Thehypothesisofthisworkisthatthedesigndisciplinepossessestools,methodologies, frameworks and a “designerly mindset” that makes the creation, framing, positioning, development and assessment of business ideas more reliable and efficient when exploring entrepreneurial opportunities. These toolsets could be transferred from the field of design to that of business to support the construction of new entrepreneurial ventures. The word “construction” is used since some of these tools are a step ahead of prefiguring: they are not just meant to design, but to dialogue, convince, construct, assess, and build a working prototype. New ventures are characterized by a high level of uncertainty and risk; they need to deal with systemic problems related to the creation of an entire value chain; they need to build new networks to develop and sustain the new businesses and they have to overcome the difficulty of giving incontrovertible proof of the potential success of the entrepreneurial idea. The design discipline in recent years has developed many tools and methodologies that allow the creation and development of complex intangible outcomes such as services. The use of these tools -– originally meant to help designers to give shape to artifacts and to model interactions and behavior processes through participatory methods with the involved actors and prospective users- was transferred and adapted to the field processes of business innovation by recognizing that the generation of entrepreneurial opportunities has many similarities with new product or service development: the analysis of the constraints and opportunities; the creative conceptualization; the prototyping and testing; the creation development of networks of actors supporting and assessing execution, reducing the risk of bringing a conceptually unsound idea to the market. These similarities open up promising cross-pollination exploration of tools and methods between NPD and FEI, an area of study yet to be explored by scholars and practitioners from the fields of entrepreneurship and design. 5 Bragg, A., & Bragg, M., (2006) Developing new business ideas: the fast-track to creating viable new businesses for executives and entrepreneurs. Pearson Education, Glasgow. 6 Rae, D., (2007) Entrepreneurship: From Opportunity to Action. Palgrave Macmillan, New York. 7 Barringer, B. B., & Gresock, A. R. (2008). Formalizing the front-end of the entrepreneurial process using the stage-gate model as a guide: An opportunity to improve entrepreneurship education and practice. Journal of Small Business and Enterprise Development, 15(2), 289–303. doi:10.1108/14626000810871682 8 Koen, P., Ajamian, G., Burkart, R., Clamen, A., Davidson, J., D’Amore, R., e al. (2001). Providing clarity and a common language to the“ fuzzy front end.” Research-Technology Management, 44(2), 46–55. Retrieved from http://www.ingentaconnect.com/content/iri/rtm/2001/00000044/00000002/art00009
  • 160. 162 Since one of the main objectives of this study was to identify design strategies, tools or methodologies that could enable framing, structuring, assessing, developing and evaluating business ideas in the earliest stages of the front-end of innovation (FEI) of the entrepreneurial process, analogously to how its done in new product development processes, an experiment was designed in order to test this hypothesis. A set of simplified service design frameworks was produced and then tested in an intensive 2-day, 100 participants, business idea generation workshop in Beijing, China in the context of the Dream:in project, an open innovation social business co-creation platform. The service design toolkit included 10 design tools that could be used by non-professional designers. The tools were then used by a group of ten people, whilst the remaining 90 people used the standard Dream:in methodology. The output of all teams was carefully labeled, photographed and videotaped. Both sets of outputs were then compared and differences could be attributed to the use of the toolkit. On the whole, participants using the service design tools (SDT) developed more their ideas, in less time and using fewer resources. The tools served as frameworks guiding the work process so teams did not waste time deciding how to work or manage their time. The frameworks also provided a checklist of different aspects of a new business idea that should be covered keeping participants from going into information overload. Compared with the control groups the teams using the tools reduced the time used to generate, develop and assess their ideas by 50%. Thus, a first noticeable consequence of the use of the tools was a marked increase in efficiency. Since the teams did not spend time and energy discussing the work process, they moved immediately to looking for solutions and developing them. Participants using the tools explored more the problems before moving to a solution, developed user profiles and mapped potential stakeholders, developed business models and value propositions and even produced rough prototypes. When assessing possible solutions, participants reported that the tools allowed them to immediately spot conflicting issues, such as users’ needs not aligned with the business model, and speculating new possibilities. Overall, the results from the experiment provide positive evidence that design instruments can bring efficiency and reliability to the front-end of the entrepreneurial process. 7.2 Results and Original Contribution The original contributions of this work can be divided in three levels: Theoretical Production of Instruments Experimental Verification 7.2.1 Theoretical contribution: Similarities between the Front-end of Innovation of the Entrepreneurial Process and the New Product Development Process. This work claims that the similarities between the front-end of the entrepreneurial process and the front-end (FEI) of the new product development (NPD) process allow both processes to share methodologies and techniques. This is particularly true because both processes have the end goal of creating new products or services, either inside an existing organization or independently as a new venture. Nevertheless, as mentioned before, these two processes rarely communicate with each other.
  • 161. 163 The FEI of NPD is considered to be chaotic, unstructured and non-linear in nature. Because of its untidy nature many authors refer to it as “fuzzy”. However, new product development practice, and design in general, has its own instruments and methodologies that allow managing the uncertainty and vagueness that surround this phase. This is particularly important because it has been demonstrated that actions taken during the front-end can give the greatest time savings for the least expense (Smith and Reinertsen, 19919 ) and since these actions determine the direction of any new product path, it is clear that a better understanding of the activities and decisions comprising this starting point ultimately could lead to competitive advantage (Reid and De Brentani, 200410 ). Therefore, if we continue pursuing the similarities between both processes, the entrepreneurial process and the new product development process, actions and decisions made in the front-end of the entrepreneurial process could also have potentially long-term and influential consequences in the life of the business venture. Design can bring to the entrepreneurial process, not only instruments but also a culture of experimentation, trial-and-error, abductive reasoning and solution-oriented activities that may help sparking creativity and innovation. This mindset is particularly valuable because business activities are based upon entirely different principles, almost opposite one may argue. Business activities tend to rely on existing knowledge, and experience of what has worked in the past whereas this is not a guarantee that it will keep working in the future. Design culture may help to overcome this thinking bias. 7.2.2 Experimental Verification: Entrepreneurial Opportunity identification May be Systematized A key moment of the entrepreneurial process is the opportunity discovery (or creation) moment. It is a crucial conceptual node that has received much attention, because it is an ill-defined construct that is still subject to discussion. The phase of opportunity discovery is among the very first activities that take place in the FEI, and it is critical because its correct identification will allow pursuing sound business ideas. Currently the opportunity identification process tends to be sloppy and casual, and entrepreneurs pursue unsound ideas with unlikely success. Thus, they waste limited resources like their time and talent, because they may end up building a business venture pursuing flawed opportunities. One of the central claims of this work is that it is possible to structure the opportunity identification phase in a similar fashion to how it is done in the front-end of the new product development process. Thus, just like in new product development, it may be possible to systematize and structure this phase. Khurana and Rosenthal (199711 ) propose the use of a checklist of items, which a “structured” front-end of innovation should have in product development processes. In the case of entrepreneurial opportunities, these items should help identifying a clear problem (or desire), a target market, willingness of the market to pay for the product or service that solves the need, stakeholders that need to be engaged, etc. 9 Smith, P.G., Reinertsen, D.G. (1991) Developing Products in Half The Time. John Wiley & Sons. New York, NY. 10 Reid, S. E., & De Brentani, U. (2004). The Fuzzy Front End of New Product Development for Discontinuous Innovations: A Theoretical Model. Journal of Product Innovation Management, 21(3), 170–184. doi:10.1111/j.0737-6782.2004.00068.x P. 17 11 Khurana, A., & Rosenthal, S. (1997). Integrating the Fuzzy Front End of New Product Development. Sloan Management Review, Retrieved from https://noppa.tkk.fi/noppa/kurssi/tu-22.1500/luennot/TU-22_1500_ pre-reading__1__khurana___rosenthal__1997_.pdf
  • 162. 164 This work proposes that design instruments and methodologies can be transferred to the front-end of the entrepreneurial process in order to structure it and provide reliability and efficiency. This hypothesis was verified with positive results from in a experimental workshop (described in-depth in chapter 6). Participants who used the design instruments provided for them worked more efficiently, achieving more work done with less resources, explored more problems before moving to solutions, and developed more their ideas including user profiles, business models, vale propositions and rough prototypes unlike teams who did not use the tools and whose ideas were raw and unfinished. The findings from the workshop can be correlated and supported by the literature review. Radcliffe and Lee (1989) in Cross (200612 ) found that “ a systematic approach can be helpful to (design) students (…) The use of more ‘efficient’ design processes (following closer to an ‘ideal’ sequence) correlated positively with both the quantity and the quality of the students’ design results. Other studies have tended to confirm this”. Thus, the fact that the participants performed better using the tools and following a logical sequence was to be expected because, when the design process is designed, according to Radcliffe and Lee (1989) designers tend to produce better results. This could also apply to non-professional designers. The empirical evidence correlates positively the use of design tools with the marked increase in efficiency, reliability and rigor in business idea generation from the participants that used them. This is a promising sign for aspiring entrepreneurs since these instruments could be used systematically to manage the uncertainty and risk and generate valid and robust business ideas in the earliest phases of the entrepreneurial process, a crucial moment in the birth of a new venture. Entrepreneurs could then, focus their time and energy in searching, framing, developing and assessing business ideas in a structured and rigorous manner avoiding inefficient activities and the waste of scarce and precious resources. The positive results from the workshop also point at the potential of the use of design strategiesinthefront-endoftheentrepreneurialprocess.Participantsusingdesigntools produced more detailed and comprehensive ideas, analyzed the issues at stake more deeply, and satisfied multiple constraints and guidelines in a reliable and systematic way. The design tools also enabled the participants to use their tacit knowledge about their culture and personal expertise to contribute and enrich business concepts. This is also an auspicious sign of the potential of design in knowledge brokering. 7.2.3 Experimental Verification: Using Service Design Tools in the Discovery/ Creation of Entrepreneurial Opportunities One of the main original contributions of this work is the application of service design instruments in the early phases of the entrepreneurial process, to help systematize and structure the entrepreneurial opportunity discovery process in a real-life context. The assumption of the experiment was that the challenges in the development of a new venture are similar to those faced in the development of services. Although there is an extensive literature in service design until now no author has explored the possibility of transferring service design instruments to the front- end of the entrepreneurial process. Current service design literature is focused on applications of service design (service design for healthcare, social innovation, 12 Cross, N. (2006) Ibid. P. 27
  • 163. 165 public services, transportation, etc.), service design research methodologies (cultural probes, evaluating user experience) and service design instruments (visualizations, prototyping, platforms, etc.). Meroni and Sangiorgi (201113 ) mapped extensively the current panorama and trends in service design research (figure 2). The diagram has been modified to show the areas of service design research where the contribution of this work could be placed. For instance, the first contribution of this work to service design research could be placed in the image above in the area of facilitate creative collaborations: during the experimental workshop, individuals of different professional backgrounds worked together to try to uncover and develop potential entrepreneurial opportunities. Furthermore, identifying (or creating) entrepreneurial opportunities is considered to be a creative activity in itself. Dimov (200714 ) defined opportunity as “a creative product in entrepreneurship is the progress (idea + action) along a continuum ranging from an initial insight to a fully shaped idea about starting and operating a business”. This was the definition of opportunity adopted by the author and used in this work and this was the first known time that service design instruments were used in the construction of entrepreneurial opportunities and to facilitate the process of co-designing them. The second potential contribution to service design research could be placed in the promoting new value configurations area: service design is in the front-end of the entrepreneurial process, an area that previously was thought to be out of bounds for design. In the front-end of innovation of the entrepreneurial process service design instruments have the potential to amplify their influence and impact, generating value that is “extended” in time, and not confined to a final product or service (Celaschi et al., 2o1115 ). 13 Meroni, A. & Sangiorgi, D. (2011) Design for Services. Gower Publishing. Surrey, England. P. 210 14 Dimov, D. (2007), Beyond the Single-Person, Single-Insight Attribution in Understanding Entrepreneurial Opportunities. Entrepreneurship Theory and Practice, 31: 713–731. doi: 10.1111/j.1540- 6520.2007.00196.x 15 Celaschi, F., Celi, M., & Mata García, L. (2011). The Extended Value of Design: An Advanced Design Perspective. Design Management Journal, 6–15. P. 6 IMAGINING FUTURE DIRECTIONS FOR SERVICE SYSTEMS DESIGNING INTERACTIONS TO SHAPE SYSTEMS AND ORGANIZATIONS EXPLORING NEW COLLABORATIVE SERVICE MODELS DESIGNING INTERACTIONS, RELATIONS AND EXPERIENCES GENERATING FUTURE SCENARIOS PROPOSING NEW BEHAVIORS DESIGN IN G FOR CO-CREATION DESIGNINGFOR CO-EXPERIENCE ENABLING COLLABORATIVE SERVICES DESIGNING INTERACTIONS SHAPING SERVICE SYSTEMS FO STERIN G O RGAN IZATIO N AL CH AN GE DESIGN FOR SERVICES A HUMAN-CENTERED APPROACH Prototyping new service models Supporting Em pathic Interactions Evaluatingand im provingservice andinterfaces M anifesting futurescenarios Engaging and connecting people Applying transform ational and experim ental m ethods Prom otinga hum an-centered serviceculture Promoting newvalue configurations Understanding people’s behaviors, experiences and practices Facilitating Creative Collaborations Applyinga Com m unityCentered Design Approach Buildingand Sharingvisions Areas of service design research where this work may have a contribution Figure 2. Map of areas of service design research. Adapted from Meroni and Sangiorgi (2010)
  • 164. 166 Finally, in this work, service design is operating in the same area of advanced design. According to Celaschi et al. (2011), design has become advanced16 (Celi, 201017 ) because the focus of the value creation has shifted away from the physical product, the object, towards creation of value that begins long before the NPD process starts (i.e., the front end of innovation). Design is taking a role of mediator and orchestra director of this new value constellation generating value for all stakeholders—not just for the end customer. In this work the role of service design as a promoter of new value configurations and operator in the front-end of innovation is a strong novelty (figure 3). The hypothesis that service design may contribute to the framing, generation, prototyping and assessment of business ideas was verified during the experiment described in chapter 6. Participants of the business design workshop who used the tools produced more developed and elaborate outcomes, explored more the problems beforemovingtoasolutionandoverallworkedmoreefficientlywithlessresourcesthan participants who did not use the tools. Nevertheless, the experiment had limitations, which will be described in a subsequent section. 16 Advanced design is a practice that imagines future perspectives by envisioning future products and processes. It mainly deals with extensive projects – extended in time, space, uncertainty and complexity. This disciplinary branch of design mostly acts during the front end of innovation and looks for solutions in complex innovation processes using tools and practices that belong to the design discipline (Celi, 2010. P. 33) 17 Celi, M. (2010) “Prelegomeni allo studio dell’Advanced Design”. In M. Celi (ed.), Advanced Design. Visioni, Percorsi e Strumenti per Predisporsi all’Innovazione Continua. Milan: McGraw Hill, 2010, pp. 25 – 45 DESIGN BUSINESS OFFERING BUSINESS STRATEGY BUSINESS IDEA DESIGN BUSINESS OFFERING BUSINESS STRATEGY BUSINESS IDEA 1) Traditional view of design: it helps shape the business offering 2) Design Thinking perspective (Brown, 2009): design can shape the business strategy 3) The perspective of this work: design can take a role in earlier phases of the entrepreneurial process and act as an instrument to frame, generate, shape, develop, prototype and assess business ideas that could potentially become entrepreneurial opportunities. BUSINESS STRATEGY BUSINESS IDEA DESIGN IS THE BUSINESS OFFERING DESIGN SHAPES THE BUSINESS OFFERING Figure 3. The perspective of this work: design can have a role in the earliest phases of the entrepreneurial process.
  • 165. 167 7.2.4 Production of Instruments: Design of a Service Design Toolkit for the generation of Business Ideas Last but not least, the author produced a simplified service design toolkit that allows framing, generating, developing, prototyping and assessing business ideas. Some of the tools were simply adapted from existing tools used by professional service designers, and simplified to the maximum, others were designed specifically for the workshop format of the Dream:In project, which was the setting in which the experimentation could take place. The tools were adapted to be used in a business idea generation workshop, that was part of a real-life setting of an open innovation platform. Additionally, the instruments were carefully chosen, or purposely designed to cover the basic aspects all entrepreneurial opportunities should have. According to Baron (200718 ) on a very basic level all opportunities must include references to three central characteristics: potential economic value (i.e. the capacity to generate profit), newness (i.e. some product, service or technology that did not exist previously), and perceived desirability (e.g. moral and legal acceptability of the new product or service in society). Furthermore, the interactions of the participants during the workshop were designed as well. The instruments were placed within a larger framework of interactions designed specifically for the workshop: the workshop planner (it can be consulted in full in Appendix 4). The workshop planner was based on the work of Prof. Teixeira at Parsons The New School for Design19 , on the design of interactions during co-design processes in order to maximize efficiency, reliability and obtaining tacit knowledge from participants, enabling the designer to become a knowledge broker (Teixeira & Bertola, 200320 ). The workshop planner developed for this work, included the service design instruments and the checklist of items that participants should cover when constructing a business idea. These tools may be used in a wide variety of settings and with different types of participants and within different workshop or other teaching formats. Although a wide variety of design tool repositories exist (Tassi, 200921 ; Stickdorn & Schneider, 201022 , Kumar, 201323 ) none of them has been fitted or designed to be used in the front-end of innovation. They are mostly aimed at design practitioners who need to design actual services, not business ventures. However, it must be clarified that this is the first version of the toolkit, and several iterations must be done in order to refine it and learn more about its potentialities and limitations. There already some known issues with the tools described extensively in chapter 6, section 3.2. Therefore, more testing is required in order to clarify the issues encountered during the workshop and produce a more refined version of the toolkit. 18 Baron, R. (2006) Opportunity Recognition as Pattern Recognition: How Entrepreneurs “Connect the Dots” to Identify New Business Opportunities. Academy of Management Perspectives. 20 (1) 104 - 119 19 Sheerin, B., Divekar, S., Alcocer, F., & Teixeira, C. (2013). Design Process as Innovation Technology for Creating Value in Emerging Markets The DREAM : IN Project. In Press. 20 Bertola, P., & Teixeira, C. (2003). Design as a knowledge agent: How design as a knowledge process is embedded into organizations to foster innovation. Design Studies, 24(2), 181–194. doi:10.1016/S0142- 694X(02)00036-4 21 Tassi, R. (2008) Design della Comunicazione e Design dei Servizi: il progetto della comunicazione per la fase di implementazione. Politecnico di Milano. 22 Stickdorn, M. & Schneider, J. (2010) This is Service Design Thinking. BIS Publishers, Amsterdam. 23 Kumar, V., (2013) 101 Design Methods. A Structured Approach for Driving Innovation in Your Organization. John Wiley & Sons. New York, NY.
  • 166. 168 7.3 Limitations of the Research Many of the limitations of the research derive from the limitations of the experimental test. Given the limited time and material resources available for this research, it was only possible to test the toolkit once. Thus, the first step in order to have a more solid verification process would be to repeat the test. Furthermore, the test would have to be repeated given the small size of the workgroups that used the design tools during the experiments (only 20 people out of 100). Furthermore, the participants to the workshop were either undergraduate or recent graduates from business and design schools. This may have facilitated the process. People coming from different professional backgrounds, or perhaps even not having a professional background at all may respond differently to the instruments. The participants were also quite young and eager to learn. Participants who are more experienced, either experienced professionals or serial entrepreneurs could react differently to the workshop format and the instruments. Finally, the test took place in China, a highly hierarchical culture in which people are accustomed to obey and do not ask questions to people they perceive to be their “seniors” or “more experienced”. There may have been issues with the toolkit, or the workshop format that participants did not communicate to the workshop facilitators (myself included) so they wouldn’t embarrass us and make us “lose face”. Perhaps in other cultures with a stronger sense of individualism, autonomy and less “respectful” of hierarchy (such as Finland or Israel24 ) the result would be quite different. It also must be kept in mind that these is the first attempt to apply design instruments in the front-end of the entrepreneurial process, as such the research is still quite experimental and needs further verification 7.4 Relevance and Implication of Findings for Academia and Practice 7.4.1 Academic relevance This work has relevance both for service design research and entrepreneurship research. First of all, in service design research it is the first time that service design are applied in the front-end of innovation of the entrepreneurial process. This opens the door to new applications of service design, in different settings than those that have been the focus of service design scholars. Thus, the application of service design instruments in the creation of new ventures shows how entrepreneurship can take advantage of design. It would be interesting to see the opposite, if instruments or methodologies from entrepreneurship can be transferred to design. Regarding entrepreneurship research, this work is relevant, because according to some authors like George and Bock (201225 ), the changes brought on by the new developments in information communication technology (ICT) and globalization are changing the face of entrepreneurship. Whereas before entrepreneurs were limited by their education, past experience, access to networks or established actors, today many of those access barriers are irrelevant or considerably lower. Furthermore, they have a 24 Senor, D. & Singer, S. (2009) Start-up Nation. The Story of Israel’s Economic Miracle. Hachette Book Group. New York, NY. P. 36 25 George, G., Bock, A., (2012) Models of Opportunity. How Entrepreneurs Design Firms to Achieve the Unexpected. Cambridge University Press. Cambridge, UK.
  • 167. 169 chance for the first time in history, to have global impact in a very short period of time. In a nutshell, George and Bock claim that the mental models about entrepreneurs, entrepreneurship and entrepreneurial opportunities are outdated and need to be thoroughly reviewed. This opens new doors to questions that were not applicable before such as: “How do entrepreneurs shape the very opportunities they exploit? How are their entrepreneurial journeys shaped by the novel challenges they face? How do entrepreneurs design26 organizations when the tenets of organizational design lag rapidly changing technological and social capabilities? (…) Entrepreneurs design organizations to realize opportunities and build bridges to span opportunity gaps27 ” The reason I underline the word design is because it is particularly interesting, coming from two renowned entrepreneurship and business scholars. Design used to be completely irrelevant and barely mentioned in entrepreneurship literature. It is also particularly relevant because it overlaps with the trend of design scholars such as Buchanan (2008)28 , Junginger (2008)29 , Deserti and Rizzo (201330 ) and Bolland and Collopy (2004)31 that claim that organizations are man-made, artificial entities and as such they can be designed. This opens up a new potential hybrid research space that mixes management, entrepreneurship and design. This work addressed the construction of entrepreneurial opportunities from a design perspective, hopefully contributing to these new areas of entrepreneurial research and organizational design. 7.4.2 Relevance for Practice The research is relevant for service design practitioners, which being already skilled and knowledgeable of service design tools can apply them to help clients not only shape services that the client briefs them, but rather can enable their clients to find new business opportunities. This possibility is becoming real as design consultancies end up doing more business consulting and business consultancies realize the added value design can bring. For instance, in 2013 consulting giant Accenture acquired design consultancy Fjord hoping to incorporate their design expertise into a coherent holistic consulting service (Vanhemert, 201332 ). This overlapping of fields brings many challenges for design practitioners, because they lack business know-how, they need to gain legitimacy that business consultants already have and perhaps even experiment new business models. Business consultancies, as in the case of Accenture, also need to bridge the gap between them and design practitioners. However, as in the case of Accenture acquiring a design consultancy or studio and internalizing the lacking capabilities can do this. Whether design consultants can do the opposite thing, internalize business consulting capabilities in some way, remains to be seen. The toolkit developed in this work is particularly relevant for entrepreneurs, since it could help them develop and refine their business ideas before committing significant resources to exploiting an entrepreneurial opportunity. This also extends to the 26 Underlining added by the author 27 George and Bock (2012) Ibid. P. 7-9 28 Buchanan, R. (2008). Introduction: Design and Organizational Change. Design Issues, 24(1), 2–9. 29 Junginger, S. (2008). Product development as a vehicle for organizational change. Design Issues, 24(1), 26–35. 30 Deserti, A., & Rizzo, F. (2013). Design and the Cultures of Enterprises. Design Issues, 30(1), 36–56. doi:10.1162/DESI_a_00247 31 Bolland, R.J., Collopy, F. (2004) Managing as Designing. Stanford University Press. Stanford, California. 32 Vamhemert, K. (2013) In Bid for Design Cred, Accenture Acquired Fjord. Fast Co.Design. Retrieved from http://www.fastcodesign.com/1672528/in-bid-for-design-cred-accenture-acquires-fjord
  • 168. 170 teaching of entrepreneurship. The toolkit can be used to teach students about dealing with the uncertainty of the front-end of the entrepreneurial process using design instruments, and then constructing them applying the toolkit. Finally, the toolkit could be used as support material for aspiring entrepreneurs to help them develop new business opportunities by the actors at the forefront of the creation of new ventures: incubators, accelerators and other actors that support entrepreneurship. There are already some weak signals that indicate the trend toward adopting a designerly approach to the creation of new ventures. For instance, there is already a course at the Stanford University’s Graduate School of Business called Startup Garage. The course includes “design thinking methods to help aspiring entrepreneurs uncover unmet customer needs, design new products or services that meet that need and develop business models to support the creation and launch of startup products or services”33 . In the business incubator and accelerator industry there is a rumor that some incubators are building business idea repositories, keeping them, and waiting for the right entrepreneur or team to come along to execute them. Thus, they are taking on the opportunity discovery process themselves. Unfortunately at the moment this dissertation was being written, I was unable to find reliable sources that confirm or dismiss this rumor. Nevertheless, if it were true, it would confirm the trend of business support actors moving towards the front-end of innovation. 7.5 Reflections on Open Questions for Future Research Finally, beyond the limitations of the experiment, there are already some questions that remain open and would need to be dealt with in future research. 7.5.1 The quality and innovativeness of business ideas using this methodology One of the remaining questions after this research regards the quality and novelty of the business ideas produced using the toolkit and how the quality of those ideas may influence the business venture. For instance, some of the questions that derive from the question above are: a. Do ideas generated using this methodology are “better” or “more innovative” than ideas generated using other methods? b. Do these ideas result in “better” or more successful businesses? c. How can “better” be defined? d. What would be the unit of measure for innovativeness and novelty? e. Do novelty and/or originality contribute to a better business performance? Some of these questions might be easier to answer than others, since they are purely methodological (i.e. questions C and D). However, others would be quite complicated to answer. For instance, question B would be very expensive and complicated to verify. First, the toolkit should be applied by aspiring entrepreneurs who intend to actually exploit the business opportunity. Secondly, those entrepreneurs should be closely monitored at different moments of the entrepreneurial process and then, when the venture is launched at different checkpoints (i. e. after 1 year, 5 years, 10 years) and the same thing should be done with entrepreneurs who did not use the methodology to generate their business opportunity. This would entitle several difficulties such 33 Stanford Graduate School of Business (2013) retrieved from http://startup.gsb.stanford.edu/
  • 169. 171 as finding a sufficiently large sample of aspiring entrepreneurs actually willing to use the methodology and willing to participate in a study. A major difficulty of this hypothetical study would be that operating a business is a complicated endeavor that requires multiple skills and depends on numerous factors. Businesses may fail or succeed for a wide variety of reasons that may or may not be necessarily related to the original entrepreneurial opportunity. Thus, it would be quite difficult to attribute the success or failure of a business to one single factor like the use or lack of use of the methodology presented in this work. This in turn complicates advocating for the use of the methodology in quantitative terms and link it to factors like success rate of entrepreneurs using it. 7.5.2 Discovery vs. Creation of Entrepreneurial Opportunities: A Design Perspective? Another interesting sub-area that is worth of exploration regards the discovery or creation perspectives of entrepreneurial opportunities since the two perspectives share interesting similarities with the two mainstream approaches to design research, (understood as the activities of data collection and analysis for a better understanding of a topic): user-centered and design-driven. Neither approach is better or worse than the other, however since they are based upon different premises they yield different results. In the entrepreneurial opportunity discovery perspective, opportunities exist already; they are tangible entities and are discovered by alert individuals. In this perspective, much research and energy has been devoted to understand why some individuals discover opportunities and others don’t. This approach is similar to the user-centered design paradigm (UCD), which will be described subsequently. In this work, resulting business ideas, the seeds of entrepreneurial opportunities, produced by the workshop participants could be classified as discovered, since they were based on actual known issues of their city or country. For instance, many groups that participated in the workshop tackled the issue of food safety, which is a widely acknowledged concern in China. During the experimental workshop that was the experimental part of this work participants were shown throughout the entire two days of the workshop, videos of people talking about their dreams. Since the interviews took place in developing countries like India or Brazil, and many of the people interviewed came from underprivileged contexts many of the “dreams” expressed by the interviewees were actually needs, such as “My dream is to find a good job” or “My dream is to buy my own house” or “ I wish I could afford good healthcare”. Participants then were instructed to base their business ideas on the information and insights from these interviews. The resulting business ideas tackled these issues, and many groups both from the control group and the work using the methodology proposed in this work were very similar. Thus, the ideas lacked originality or novelty elements. However,thisresult,thelackofmoreinnovativeideasand“discovered”entrepreneurial opportunities, could be attributed to the user-centered design perspective used in the Dream:In project. Norman and Verganti (201334 ) arrived at the conclusion that a user-centered design (UCD) perspective can only lead to incremental innovation. UCD starts by analyzing user needs and then searches for a way to better satisfy them. Then, UCD goes through an iterative process of rapid prototyping and testing, each cycle developing a 34 Norman, D. A., & Verganti, R. (2013). Incremental and Radical Innovation: Design Research vs. Technology and Meaning Change. Design Issues, 30(1), 78–96. doi:10.1162/DESI_a_00250
  • 170. 172 more refined, more complete prototype. This cycle guarantees that the needs are met and that the resulting product is usable and understandable. However, this process unwittingly restricts the potential solutions to incremental innovations because by its very nature, it focuses upon things people know already about (Norman and Verganti, 201335 ). Thus, this approach to design research stems from the same basic assumptions than the discovery perspective, the problems already exist, and they must be uncovered through different research methods (user observation, ethnography, participatory design). Although this approach is undeniably useful, it is limited by this mindset to discovering solutions for known problems. For instance, if the problem can be discovered observing users, then everybody can discover it. It just becomes a matter of discovering it first, and acting first to become the dominant player. This approach can lead to incremental improvements, enabling people to do better what they already do, but not to radical change that would enable them to do what they currently do not do (Norman and Verganti, 2013). In the entrepreneurial opportunity creation perspective, entrepreneurs act without having identified a clear-cut need from the market. They propose their offering to the market, wait for its feedback and then refine it. Thus, in acting they create the opportunity. In this perspective, opportunities are subjective phenomena that begin unformed and develop over time. Key abilities of entrepreneurs in this perspective are the ability to envision ideas, to reach consensus and create coalitions from people that want to support the birth of the venture (Wood and McKinley, 201036 ). This research perspective has received much less attention than the discovery perspective. This approach has similarities with the design-driven research approach (Utterback, et al., 200537 ; Verganti, 200938 ). In his most recent work Verganti has subdivided the design- driven innovation term he coined himself into two variants: meaning-driven innovation and technology epiphanies: “Meaning-driven innovation stems from the comprehension of subtle and unspoken dynamics in socio-cultural models and results in radically new meanings and languages, often implying a change in socio-cultural regimes. He gives the example of the invention of the mini-skirt in the 1960s it became a radically new symbol of women’s freedom and echoed a radical change in society. No new technology was involved. Technology epiphanies bring a radical change in meaning enabled by the emergence of new technologies or the use of existing technologies in totally new contexts (…) The term “epiphany” is to be interpreted as “a meaning that stands in a superior position” and “a perception of the essential nature or meaning of something.” This superior application of a technology is often not visible at first, because it does not satisfy existing needs. It does not come from users. Rather it is a quiescent meaning that is revealed only when a design challenges the dominant interpretation of what a product is and creates new, unsolicited products that people are not currently seeking (Verganti 2011; Verganti and Öberg 2012, forthcoming)”. This approach to design research is somewhat similar to the creation approach of entrepreneurial opportunities because its premises and its basic assumptions are similar. Design-driven research explores new meanings that are intended to be applied unto products. Norman and Verganti (2013) recall an example: 35 Norman and Verganti (2013) Ibid. P. 5 36 Wood, M., & McKinley, W. (2010). The production of entrepreneurial opportunity: a constructivist perspective. Strategic Entrepreneurship Journal, 84, 66–84. doi:10.1002/sej 37 Utterback, J., Vedin, B.A., Alvarez, E., et al. (2005) Design-Inspired Innovation. World Scientific Publishing. Singapore. 38 Verganti, R. (2009) Design-Driven Innovation. Changing the Rules of Competition by Radically Innovating What Things Mean. Harvard Business Press. Cambridge, MA.
  • 171. 173 “An example is the research project “Family Follows Fiction” conducted by Alessi in the early 1990s. This project was aimed at creating new knowledge about meanings. It aimed a deep understanding of why people buy products, and how one could transform kitchenware into items that people buy for their emotional, playful and symbolic components as much as for their functional usage. The result redefined the meaning of kitchenware from tools to objects of affection that had the dual value of adding to our theoretical understanding while also delivering a new family of products for Alessi. These products were extremely effective, enabling the company to grow 70% in sales in just three years”. This approach contends that consumers are unable to articulate their needs or desires. However, once proposed with new and unexpected meanings consumers may embrace them. This strategy has been applied particularly by Italian design entrepreneurs (thoroughly described in chapter 3) and is remarkably similar to the creationist view of entrepreneurial opportunities. The entrepreneur has a vision, and decides to pursue it, them s/he follows a sense making process and refines the offer with the feedback from the market. Thus, he or she did not act because s/he sensed a tangible market need. However, regarding the potential overlapping of these two distinct worlds, many open questions remain: Can these two approaches interact with each other and share instruments or methodologies? What design-driven instruments can help entrepreneurs approaching entrepreneurial opportunities from a creationist perspective? How would their application influence the process and/or the results? In the author’s opinion this is a very interesting question that is worth pursuing in future research. 7.5.3 Possible Applications of Service Design Tools in Non-Design Related areas Last but not least, this research applied service design tools in an area that is traditionally out-of-bounds for design. It would be very interesting as well as worthy of research to discover new areas where design instruments and design culture could make a contribution. Particularly, service design with its ability to deal with uncertainty, complexity and intangibility while keeping a human-centered perspective may be helpful to deal with many contemporary challenges, and the fact that it is now being applied in widely differentareassuchashealthcare,transportation,publicservicesandopengovernment is a sign of the times. Asmentionedabove,designpracticeisstartingtoentertherealmpreviouslydominated by business consultancies. Although design consultants offer different skills and services, their areas of operation are beginning to overlap and this poses many issues. Designers traditionally lack business and management know-how, and this sets in disadvantage. Design schools still train students to design posters or toasters and students are seldom aware of the larger role design has today. However before we can train these designers we need to answer a lot of questions ourselves as design scholars. If the object of design is completely intangible and it is as complex as an organization. What are the principles to design organizations? What type of skills should we be teaching design students? What design instruments are useful? What else do we need to know in order to be able to bridge these disciplines? What are the implications of this for practitioners? And what are the implications for researchers? There is a whole set of new questions that open when these three
  • 172. 174 very complex disciplines (design, management and entrepreneurship) blend together. Nevertheless, the fact that all these questions need answers makes this an exciting time to be engaged in design research.
  • 173. 175 Chapter 8. Bibliography
  • 174. 176
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  • 178. 180 Chapter 2. Business Models as Enactors of Entrepreneurial Opportunities: Possible Design Contributions. 1. Amit, R., & Zott, C. (2012). Creating Value Through Business Model Innovation. MIT Sloan Management Review, 53(3), 41–49. 2. Aziz, S. A., Fitzsimmons, J., & Douglas, E. (2008). Clarifying the business model construct. In G. L. Murray (Ed.), 5th AGSE International Entrepreneurship Research Exchange (pp. 795–813). Melbourne, Australia. Retrieved from http://eprints.qut.edu. au/15291/795–813. 3. Bolland, R.J., Collopy, F. (2004) Managing as Designing. Stanford University Press. Stanford, California. 4. Borges, J.L. (1974) Del Rigor en la Ciencia, in El Hacedor, Obras Completas. Emecé Editores, Buenos Aires. 5. Buchanan, R. (2008). Introduction: Design and Organizational Change. Design Issues, 24(1), 2–9. 6. Celaschi, F. 2008. Il Design Come Mediatore Tra Bisogni. In: C. Germak (Ed.), Uomo Al Centro Del Progetto. Torino, Umberto Allemandi & C., P. 19-31 7. Colby, C. C. (2011). The Relationship Between Product Design and Business Models in the Context of Sustainability. Université de Montréal. P. 25 8. Cross, N. (1982). Designerly ways of knowing. Design Studies, 3(4), 221–227. doi:10.1016/0142-694X(82)90040-0 9. Den Ouden, E. (2012) Innovation Design. Creating Value for People, Organizations and Society. Springer Verlag. London, UK. 10. Deserti, A. (2011) Mappe e Strumenti per l’Advanced Design. In In M. Celi (ed.), Advanced Design. Visioni, Percorsi e Strumenti per Predisporsi all’Innovazione Continua. McGraw-Hill. Milan, Italy. Pp. 47-60 11. Deserti, A., & Rizzo, F. (2013). Design and the Cultures of Enterprises. Design Issues, 30(1), 36–56. doi:10.1162/DESI_a_00247 12. Dimov, D. (2007), Beyond the Single-Person, Single-Insight Attribution in Understanding Entrepreneurial Opportunities. Entrepreneurship Theory and Practice, 31: P. 720 13. Eppler, M. J., & Hoffmann, F. (2011). Challenges and Visual Solutions for Strategic Business Model innovation. In M. Hülsmann & N. Pfeffermann (Eds.), Strategies and Communications For Innovations (pp. 25–36). Berlin, Heidelberg: Springer. doi:10.1007/978-3-642-17223-6 14. George, G., & Bock, A. J. (2011). The Business Model in Practice and its Implications for Entrepreneurship Research. Entrepreneurship Theory and Practice, 35(1), P. 83-111. 15. Heirman, A., & Clarysse, B. (2004). How and why do research-based start-ups differ at founding? A resource-based configurational perspective. The Journal of Technology Transfer, (June), 1–65. Retrieved from http://link.springer.com/article/10.1023/ B:JOTT.0000034122.88495.0d. P. 35 16. Junginger, S. (2008). Product development as a vehicle for organizational change. Design Issues, 24(1), 26–35. 17. Keen, P., & Qureshi, S. (2006). Organizational Transformation through Business Models : A Framework for Business Model Design. In HICSS’06. Proceedings of the 39th Annual Hawaii International Conference on System Sciences (Vol. 00, p. 206b–206b). 18. Maurya, A., (2012) Running Lean. Iterate from Plan A to A Plan That Works. O’Reilly Media. Sebastopol. CA. 19. Maurya, A., (2012) Why Lean Canvas vs. Business Model Canvas. Practice Trumps Theory. Retrieved on August 6th, 2013 from http://practicetrumpstheory. com/2012/02/why-lean-canvas/ 20. Nenonen, S., & Storbacka, K. (2010). Business model design: conceptualizing networked value co-creation. International Journal of Quality and Service Sciences, 2(1), 43–59. doi:10.1108/17566691011026595 21. Osterwalder, A. (2004). The Business Model Ontology: A Proposition in a Design Science Approach. Business. Université de Lausanne.
  • 179. 181 22. Osterwalder, A., Pigneur, Y. (2010) Business Model Generation. John Wiley & Sons. Hoboken, NJ. 23. Osterwalder, A., & Pigneur, Y. (2011). Aligning profit and purpose through business model innovation. In G. Palazzo & M. Wentland (Eds.), Responsible Management Practices for the 21st Century (pp. 1–17). Pearson International. Retrieved from http:// pdf.thepdfportal.com/PDFFiles/3049.pdf 24. Osterwalder, A (2012). A New Approach to Designing Business Models. Retrieved on August 6th, 2013 from http://www.youtube.com/watch?v=fEnDHgTR3bg 25. Ramonet, I. (2006) Atlas de Le Monde Diplomatique. Le Monde Diplomatique Chile. Retrieved August 5th, 2013 from http://www.lemondediplomatique.cl/Atlas-de-Le- Monde-Diplomatique.html 26. Ries, E., (2011) The Lean Startup. How Today’s Entrepreneurs Use Continuous Innovation To Create Radically Succesful Businesses. Crown Business. New York, NY. 27. Rintamaki, Timo, Hannu Kuusela, and Lasse Mitronen. 2007. Identifying competitive customer value propositions in retailing. Managing Service Quality 17(6): 621–634. 28. Schmiedgen, J. (2011). Innovating User Value. The Interrelations of Business Model Innovation, Design (Thinking) and the Production of Meaning. A Status-quo of the Current State of Research. Zeppelin University. 29. Shafer, S., Smith, H., & Linder, J. (2005). The power of business models. Business Horizons, 48(3), 199–207. doi:10.1016/j.bushor.2004.10.014 30. Teece, D. J. (2010). Business Models, Business Strategy and Innovation. Long Range Planning, 43(2-3), 172–194. doi:10.1016/j.lrp.2009.07.003 31. Wood, M., & McKinley, W. (2010). The production of entrepreneurial opportunity: a constructivist perspective. Strategic Entrepreneurship Journal, 84, Pp. 66 - 84 32. Zott, C., & Amit, R. (2010). Business Model Design: An Activity System Perspective. Long Range Planning, 43(2-3), 216–226. doi:10.1016/j.lrp.2009.07.004 33. Zott, C., Amit, R., & Massa, L. (2011). The Business Model: Recent Developments and Future Research. Journal of Management, 37(4), 1019–1042. doi:10.1177/0149206311406265 Chapter 3. Creating design-oriented enterprises: case studies 1. Allen, E. (2012) Silicon Valley’s New Secret Weapon: Designers Who Found Startups. Fast Co.Design Retrieved from http://www.fastcodesign.com/1665795/silicon-valleys- new-secret-weapon-designers-who-found-startups 2. Allen, E. And Ye C. (eds.) (2012). Designer Founders. Stories of Designers Who Founded Tech Startups. The Designer Fund and Pre/Post. San Francisco, CA. P. 26 3. Annicchiarico, S. (2012) La Cultura della Plastica in Kartell, The Culture of Plastics. Storace, E., Werner Holzwarth, H., eds. (2012) Taschen. Köln, Germany. Pp. 9 - 19 4. Backhouse Interiors (2010) Plastic Made Perfect. Retrieved from http:// backhouseinteriors.blogspot.it/2010/04/plastic-made-perfect.html 5. Casciani, C., Sandberg, T. (2008) Design in Italia: Dietro le Quinte Dell’Industria. Dworschak, G. (ed.) 5 continents. Milano, Italia. Pp. 65 - 69 6. Castelli, C., Antonelli, P., Picchi, F. (2007) La Fabbrica del Design. Conversazioni con i Protagonisti del Design Italiano. Skira. Milano, Italy. 7. Chandler, G. N., DeTienne, D. R. and Lyon, D. W., (2003). Outcome Implications of Opportunity Creation / Discovery Processes. Babson College, Babson Kauffman Entrepreneurship Research Conference (BKERC), 2002-2006. Available at SSRN: http://ssrn.com/abstract=1783698 8. De Fusco, R. (1993) Storia del Design. 5th Edition. Editori Laterza. Bari, Italy . 9. Dyson Fills a Vacuum. (2009) @Issue: The Online Journal Of Business And Design. (Hirasuna, D. Ed.) 8 (1). 16 – 21. Retrieved from http://www.atissuejournal.com/wp- content/uploads/2009/cs/cs_0801_02.pdf 10. Edison Nation (August 16th, 2011). Interview with James Dyson. [Video File] Retrieved from http://youtu.be/PzCU7fiTXEw 11. Ferrara, M. (2012). Design e produzione in Italia dal miracolo economico all’attualità.
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  • 181. 183 9. Geron, T. (2012a) Top Startup Incubators and Accelerators: Y Combinator Tops with $7.8 billion in value. Forbes. Retrieved from http://www.forbes.com/sites/ tomiogeron/2012/04/30/top-tech-incubators-as-ranked-by-forbes-y-combinator- tops-with-7-billion-in-value/ 10. Geron, T. (2012b) Building On Maker Movement, Hardware Startups Pitch At HAXLR8R Demo Day. Forbes. Retrieved from http://www.forbes.com/sites/ tomiogeron/2012/06/18/building-on-maker-movement-hardware-startups-pitch-at- haxlr8r-demo-day/ 11. Huijgevoort, T. van. (2012). The “Business Accelerator”: Just a Different Name for a Business Incubator? Utrecht School of Economics. Retrieved from http://www. dutchincubator.nl/uploads/Documents/49.pdf 12. Jorgenson, N. (2013) What’s the success rate of startups that have been funded by Y-Combinator? http://www.quora.com/Y-Combinator/Whats-the-success-rate-of- startups-that-have-been-funded-by-Y-Combinator 13. Kane, T. (2010). The importance of startups in job creation and job destruction. Kauffman Foundation Research Series: Firm Formation …, (July). Retrieved from http:// papers.ssrn.com/sol3/papers.cfm?abstract_id=1646934 14. Lang, D. (2012) Haxlr8r Demo Day. Make Magazine. Retrieved from http://makezine. com/2012/06/19/haxlr8tr-demo-night/ 15. Li, C. (2013) Not Just Saunas and Angry Birds – How The Finnish Startup Scene is Bubbling into a Startup Hothouse. Venture Village. Retrieved from http:// venturevillage.eu/finland-startup 16. Matt, S. (N.A.) The Pratt Design Incubator. Retrieved from http://www.one-earth. com/article/stevenmatt/pratt-design-incubator 17. NESTA (2012) John Whatsmore’s Blog – Innovation RCA. Retrieved from http://www. nesta.org.uk/blogs/john_whatmore/Innovation%20RCA 18. Patterson, I. & Arnold, C. (2011) An Interview With Debera Johnson, Founder And Executive Director, Pratt Design Incubator For Sustainable Innovation (Part 1). Retrieved from http://www.sramanamitra.com/2011/02/11/an-interview-with-debera-johnson- founder-and-executive-director-pratt-design-incubator-for-sustainable-innovation- part-1/ 19. Petersen, S. (2013) Entrepreneurship Driven by Design. The Huffington Post. Retrieved from http://www.huffingtonpost.com/soren-petersen/entrepreneurship- driven-b_b_3341482.html 20. Shen, D. (2012) The Case for Hardware + Software + Internet startups. Retrieved from: http://www.dshen.com/blogs/business/archives/the_case_for_hardware_ software_internet.shtml 21. Spinuzzi, C. (2012). Working Alone Together: Coworking as Emergent Collaborative Activity . Journal of Business and Technical Communication , 26 (4 ), 399–441. doi:10.1177/1050651912444070 22. Tam, P.W. and Vascellaro, J. (2012) Forget the Web, Start-ups Get Real. The Wall Street Journal. Retrieved from http://online.wsj.com/news/articles/SB100008723963904449 00304577577192843536780 23. Tötterman, H. (2008) From Creative Ideas to New Emerging Ventures. Entrepreneurial Processes Among Finnish Design Entrepreneurs. Doctoral Dissertation Hanken School of Economics. 24. Tozzi, J. (2013) Want To Build The Next Pinterest? Focus on Great Design. Bloomberg Businessweek. Retrieved from: http://www.businessweek.com/articles/2013-06-26/ want-to-build-the-next-pinterest-focus-on-great-design 25. The Designer Fund (2011) Retrieved from http://designerfund.com/infographic 26. Wilson, M. (2012) Why James Dyson Invested $8,000,000 In A Student Incubator. Fast Co.Design. Retrieved from http://www.fastcodesign.com/1670934/why-james- dyson-invested-8000000-in-a-student-incubator
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