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Academic Entrepreneurship:South African University Spin-offs

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Lionel Lesch

on 12 July 2016

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Transcript of Academic Entrepreneurship:South African University Spin-offs

A presentation by the
South Africans

Business Clusters in SA
David Buchanan-Clarke
Academic Entrepreneurship:South African University Spin-offs
Industrial Economics
Khathotshelo Esther Raphunga

& Intershop

Lionel Lesch
A university spinoff
is “a new company founded to exploit a piece of intellectual property created in an academic institution” (Shane, 2004: 4). University spinoffs therefore are a subset of all start-up companies created by students and employees of universities.
Academic Entrepreneur
- Someone who turns the knowledge created by an institution into innovation, forms new firms, and creates marketable products and services. Meyer (2003)
The need for Academic entrepreneurs in South Africa
1)University spinoffs contribute to the economic development of the locality to which they belong by creating business opportunities and translating research results into workable technologies leading to market solutions.
Secondly, they typically conduct most of their basic activities locally (e.g., hiring) and thus have a significant multiplier effects on local economic activity.
3)Thus they contribute to economic growth and fighting unemployment through job creation
4)Commercialization of university technologies University spinoffs make use of university technologies that might otherwise would go undeveloped
How University Spin-offs are created
Four main phases of spinout creation (Ndonzuau et al.2002):

1)Business idea generation from research
2)Finalization of new venture projects out of ideas
3)launching spinout firms from projects
4)Strengthening the creation of economic value.

Role Players in the creation of university spinoffs
The Government
The South African government presented the Intellectual Property Rights (IPR) policy framework in 2003 aiming to transit South Africa from an economy that is dependent on resources to one that thrives on knowledge or a knowledge based economy
The University
The Entrepreneur (academic)
The Industry
The Role of Technology Transfer Offices
Recognizing the importance of technology transfer, many countries, including South Africa, have introduced legislation to facilitate the process, a key aspect of which is the creation of institutional mechanisms to drive technology transfer. One such mechanism is the technology transfer office

TTOs are ‘intermediaries’ between suppliers of innovations (university researchers) and those who can potentially commercialize them – firms, entrepreneurs and venture capitalists (Siegel et al.2007, p 641)
TTOs are relatively new in South Africa and have not yet been established in all universities and research institutions.
Currently, 18(out of 26) universities and public research organizations in South Africa have established TTOs
Primary reasons for establishing a university TTO

Facilitating the commercialization of research results for the public good.
Rewarding, retaining and recruiting high-quality researchers.
Developing closer ties with industry.

Generating income for further research and education, and thus promoting economic growth.

Example of a spinoff company in S.A
SmartSpot Quality (Pty) Ltd  
SmartSpot will commercialise the technology developed by an elite team of scientists at the Department of Molecular Medicine and Haematology (DMMH).

The technology cost effectively verifies the accuracy of testing for tuberculosis (TB)

The Wits University’s TTO has been intimately involved with assisting in the strategy implementation, including patenting, and the formation of the business plan

Motivational factors creating for university spinouts
University of Cape Town : spinout companies
Spin-offs by Company Activities
Challenges faced by spinoffs
We looked at Academic entrepreneurs in an South African University context.

We looked at the need for academic entrepreneurs in south Africa and How University Spinoffs are created

In conclusion, in order for South Africa to continue creating great university spinouts, entrepreneurs have to overcome specific challenges and TTO have to be established through out all universities.

A cluster is a concentration of specialized firms
that operate in close proximity of one another.
These firms symbiotically draw advantages from one another thanks to their mutual degree of proximation in both geography and operation.
These advantages include, but are not limited to:
labour pooling
specialization of local suppliers
an over flow of shared knowledge
Businesses that operate in a cluster compete and cooperate with one another and, for the sake of this course, rely upon one another.
Silicon Valley
Innovative and dynamic cluster in California, USA
Stanford University has played an important part in the developement of Silicon Valley.
Competing and Cooperating
Since these firms that form part of the same cluster are located so close to one another and operate so similarly, they are obviously in competition with one another. But, since there is a mutual benefit to being part of the same cluster, do the positives of cooperation outweigh the negatives of competition?
Competition is good,but for each competing firm out-competing the competitor is even better.
Cooperation between firms in the same cluster makes it easier to achieve economies of scale and to overcome mutual constraints.
Competition between firms in the same cluster promotes innovation.
Businesses in the same cluster function optimally on a contrasting balance between competing and cooperating, rather than on an uncomplimentary either-or principle.
This contrasting, but complimentary principle is optimally functional when firms can operate without the constraint of involuntary government-mandated or promoted associations.

Corrupt associations only serve to lessen the benefits of cooperation by benefiting one to the exclusion of all others.

Mismanaged associations without a common economic purpose only serves to make firms less competitive.
The purpose of a business cluster should then be the economic by cooperation of the firms within a cluster to increase the competitiveness of a specific business sector.
Examples of clusters in SA
Oyster and mussel farming
Abalone farming
Squid fishing
Prawn farming
Port Elizabeth
Saldanha Bay
The Fishing Industries of the Coasts of South Africa
The Clothing and Textile Industry
The Automotive Manufacturing Industry
The Fishing Industries of the Coasts of South Africa
The locations of these clusters were firstly selected for enviromental factors, but there was some industrial economic thinking factored into these decision.
Unused infrastructure from the former fishing industry could be used again and, more importantly, labour skills could be put back into use.
This could explain why similar firms are appearing in the same areas.
It is more beneficial for these firms to form in clusters. Since the labour force is already skilled, it makes any necessary training easier. The flow of skilled workers and knowledge between firms in a cluster is an important factor in its developement. This is an example of a very informal and small scale cluster, but thanks to the benefits of inter-firm cooperation and competition production has seen a sharp increase.
The Clothing and Textile Industry
A larger and more official example.
Centered in KwaZulu Natal.
The cluster is quite extensive, including everyone from textile manufacturers, actual clothing manufacturers and even fashion retailers. The cluster is spearheaded by leaders of the industry, it aims to indentify and address the constraints they face, such as the cheaper import options from Asia.
Employment in the industry dropped from 120000 to 80000 jobs in a few years.
Those employed in the industry are predominantly black and colored women and it is estimated that the dependency ratio for these people is 1:5.
The industry therefore has a heavy socioeconomic burden over its head.
In order to overcome these concerns and ensure its longevity, the industry has developed certain programs.
Production methods
Management systems
The Automotive Manufacturing Industry
An even larger example, consisting of 7 larger car assemblers and 360 component manufacturers.
BMW, Ford and Nissan in Tshwane
Volkswagen, GM, Mercedes in Port Elizabeth
Toyota in Durban
The industry's production has shifted significantly over the last few years.
Research institutions are important contributors to the creation and development of business and economic clusters.
Spin offs are also essential to the development of clusters.
A spin-off normally occurs when a new firm is formed by individuals leaving an existing firm in the same industry (Garvin 1983) or a by-product or incidental result of a larger project

We can divide Spin-offs into 2 categories
formed in order to pursue new business opportunities (Klepper and Thompson, 2010)
Caused by adverse events such as:
Corporate restructuring, Bankruptcy, asset divestiture and downsizing or relocation
Parent Firm
Or where Employees take the initiative in the aftermath of adverse events
Such as OTTO, the driverless truck company lead by Google’s self-driving car developer, Levandowski. Or by parent company to develop new product
Triggered by "push factors" after the aftermath of adverse event in a parent company (Buenstorf 2009)
Characterised by Buenstorf's study of necessity spin-offs in the German laser industry (1960-2003)
The 3 phases of spin-off emergence:
Employee learning
Triggering event
Formation of capabilities in new firm
Started in 1992 as Netconsult by Stephan Schambach, Karsten Schneider and Wilfried Beeck
Primarily sold computer hardware and networks
Began e-commerce software in 1994 after an idea by Schambach
1995, Intershop Online-the first standard software for e-commerce applications
Intershop was the first German software firm to attract VC funding, thus it started growing rapidly. Then, in a bid to attain market leadership,relocated it’s headquarters to San Francisco, USA

One point- market value of 11.1 Billiion euros

Revenues increased from 0.54 million in 1996 to nearly Euro 123 million in 2000

Worldwide employment rose from 43 to 1,218

This was a crucial move, as it had allowed it to attain
global leaderhsip
In 2000 local operations shifted towards Jenna's tallest 150m glass tower
April 2000, its stock price declined dramatically On a single day early in 2001 it lost 70% of its stock market value
In 2002 headquarters moved back to Jena

In following years, all 3 Founders resigned from management entirely and moved onto their own entrepreneurial activities.

Downsizing, restructuring, relocation
This led to many of the employees looking for new opportunities, and applying the knowledge and skills accumulated at Intershop
Took over Intershops project 4
Sold it to ePages,legal successor to company he started in 1980s
Attracted former Intershop employees
EPages builds on Intershop’s early success, keeping its software affordable for smaller-scale customers
ePages remained active in Jena
Schambach's Demandware
Schambach admittedly decided to start the new firm out of frustration of not being able to apply his changes, after facing massive resistance
In move similar to Intershop, moves company to Boston.Also focusing on software development and distribution.
Works with Intershop spin-offs in Jena and long-term Intershop partner Deutsche Telekom
Most notably, the firm hired Intershop’s former chief software architect, Ulrike Mueller, who was leading the development of its Enfinity software
With currently 120 employees, Demandware is the largest of all new firms spawned by Intershop
Schneider’s Pixaco
Moved into Intershop tower to take advantage of the towers sophisticated IT infrastructure.
Former Vimago employees, an Intershop partner firm
web portal was based on Intershop software
Beeck and Schambach remained active in Intershop’s core market – development of e-commerce software – with their new firms. Even though they focus on different market segments, both firms represent a competitive challenge to at least some of Intershop’s business
The firms downsizing caused a number of employees to start their own businesses. Based on various resources,35 new firms were started by former employees. 18 of the 35 in a strict sense having entered software development or web-based services.

Most follow e-commerce, but depart substantially
Employee Spin-offs
The business models of these spin-offs indicate these firms exploited specific knowledge that their founders gained at Intershop

Direct links can be made from Spin-offs founders and positions they held at previous firms, that leads to spin-offs performing exceptionally well

Spin-offs have a lasting effect on regions, as well as many positive economic effects, developing region, creating new jobs and new technology.
IT employees in Jena and the number of intershop employees (source: Institute of employment research (IAB) employment statistics)
Both figures taken from B2C
The Rise & Fall of Intershop stock price
Joint purchasing
Shared resources or facilities
Learning networks
Policy Issues
Full transcript