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The influence of commercial capabilities and orientations in new technology ventures

by Graaff, Joost Adriaan, MS


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(ongoing) feedback. These activities overlap each other and are iterated in the NPD process.
Although perceived as risky for the entrepreneurs, the study reveals that involving customers early
on leads to a more successful business. Another major contribution in customer building and
involvement is the study of Blank (2005), which advocates validation and discovery of the customer
prior to complete product development. He has developed the “Customer development model”
which includes four steps in order to correctly involve and build customers (see Figure 1).

Figure 1 Customer development model (Blank, 2005)

1. Customer discovery, which involves discovering whether the problem, product and

customer hypotheses in the business plan are correct.
2. Customer validation, which aims to build a repeatable sales road map for the sales and

marketing teams that will follow.
3. Customer creation, which aims to create end-user demand and drive that demand into the

company’s sales channel.
4. Company building, which focuses on building mission-oriented departments that can

exploit the company’s early market success.
This model provides clear guidelines on how to validate and develop customers as a company.
However, it does not focus on how to approach these customers as a small or start-up, a difficult
process for an organization lacking an established position in the market.
2.2.3 Sales orientation
Where young firms are advised to involve customers in the start-up phase, the problem they might
face is how to interact with the customer. With undeveloped knowledge on customer relationship
building, in contrast to large organizations, this problem can be solved by focussing on their sales
activities. Small firms and start-ups should involve and learn from the customer via sales meetings.
As Leslie and Holloway (2006) argue, an organization has a certain ‘Sales learning curve(see Figure
2).

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Figure 2 Sales Learning Curve (Leslie & Holloway, 2006)

The Sales learning curve states that a company will be more efficient at selling when the sales
activities increase and is divided into three phases: initiation, transition and execution. During the
initiation phase, only few customers are willing to buy the innovation and they require many
incentives to close a sale. As the innovation needs validation and adjustment, sales people in this
phase should focus on learning and creating a big interest in the technology. This way, they can pass
on the customer feedback to the R&D function within the start-up team. This phase will last until the
break-even point, where the revenue per sale equals the costs of a sales representative. In the
transition phase, after the break-even point, the firm has built a large customer base and this phase
will last until market validation, ‘traction’, has been reached. In this phase, sales reps will focus on
refining their market position and keep a focus on learning from the customer. When market
‘traction’ has been found, the execution phase commences in which sales reps should be hired who
have capabilities focused on selling a complete innovation and applying traditional sales techniques.
The importance of sales learning is also stressed by Onyemah et al. (2013) with the ‘entrepreneurfriendly
sales model’ generated from interviews with 120 company founders in Hong Kong, Kenya,
Mexico, Nigeria, the United Kingdom and the United States. The researchers distinguish two stages
in the early sales activities of a start-up: idea generation and product execution. The idea generation
stage is aimed at validating and refining the initial idea of the start-up. Sales reps share the idea
with prospects and the start-up team refines this idea when necessary. This stage determines
whether the idea should advance to the next stage, product execution. After developing and testing
a prototype with the initial group of prospects, more leads should be generated from a larger group
of prospects. With these prospects, the product will be explored and objections addressed.
Hereafter, a deal can be closed and the start-up can build its position on the market.

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When learning via sales meetings with (potential) customers as a small firm or start-up, you should
be adaptive and adjust the amount of organizational resources to the feedback of the customer,
which is described as the Lean Start-up method. This method advocates acquiring resources
according to market feedback and is introduced by Ries (2011), making use of the concepts of
customer development of Blank (2005). The method proposes that entrepreneurs should first invest
time and energy in finding customers prior to acquiring resources. With a focus on introducing a
Minimal Viable Product (MVP) to meet the needs of early customers, risks of investing large
amounts of money without a market validation are reduced. An MVP is the minimal version of a new
product which allows a team to collect the maximum amount of validated learning about customers
with the least effort (Ries, 2011). Ries (2011) proposes three stages to launch lean as a start-up:
1. The problem / solution-phase, where the entrepreneur should ask himself whether he has
found a problem that is worth solving and identify early potential users to test this problem.
2. The solution / market phase, where the entrepreneur should focus on how to quickly and
cost efficient introduce a MVP on the market, so he can learn about his audience.
3. The scale-phase, which initiates when the entrepreneur has validated its innovation and
can focus on growing his business as quickly as possible.
Although the Lean Start-up method got world-wide attention as a philosophy for entrepreneurs, it is
mainly based on personal experiences of the author and empirical evidence lacks. Recent effort has
been made by Patz (2013) to link academic concepts to the Lean Start-up method. The findings
indicate that being lean as a start-up has many similarities with having a learning orientation, aimed
at being adaptive to the market. Validating the Lean start-up method with academic concepts is still
undeveloped and little efforts are made by researchers to expand knowledge on this topic.
Conclusion
Although the benefit of being market or selling oriented has been indicated by researchers and
recognized by owners of small and start-ups firms, literature on the topic is still undeveloped.
Studies agree on the benefit of focusing on learning from the customer via sales and thus integrating
sales in the NPD process, which is seen as a crucial aspect of a successful small firm or start-up. By
acquiring minimal resources and thereby launching lean, the start-up has the ability to adapt swiftly
to the feedback of the customer gained via sales activities. Literature on this subject is however still
in a stage of exploration and mainly based on personal experience of the authors with few attempts
to validate this process with academic concepts (Patz, 2013).

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3 Model and hypotheses

This chapter builds upon the introduction and the literature background and bundles findings into an
integrative model for empirical research. Besides the argumentation for the proposed model, this
chapter will provide the hypotheses.

Figure 3 Conceptual model
Model
We have developed a model (see Figure 3) in which we combine the two literature streams
described in the previous section. The first stream of articles regarding commercial capabilities in
small and start-up firms is represented in the bottom half of the model. The articles concerning an
MO/SO & customer development is shown in the upper half of the model in which the components
of an MO/SO are included separately. To combine these two streams we build on Morgan et al.
(2009) who have also studied the interaction between commercial capabilities and MO/SO in
general. We on the other hand focus on the start-up context discussed in the previous section and
distinguish between marketing and sales capabilities, but also shared interpretation by the founding
team. This is explained in detail, next.
We propose that a firm benefits most from an MO or SO when combined with commercial
capabilities of the founding team. According to the RBT, an MO or SO can be seen as a unique
knowledge asset that creates a competitive advantage. Commercial capabilities are viewed in the

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literature as important mechanisms by which valuable market knowledge can be deployed in firms
to generate business performance (Day, 1994). This makes them especially complementary with
market-based knowledge resources, such as MO and SO. An MO or SO thus requires complementary
organizational capabilities if their value to the firm is to be fully realized.
This study chooses to combine marketing and sales capabilities into commercial capabilities. Startups
often lack formal departments and distinctive business functions. In these firms, marketing and
sales activities have a large overlap and particularly the marketing and sales capabilities of the
founders are hard to distinguish. Therefore, we label in line with Pitkänen et al. (2012)both these
capabilities of the founding team with the same term: commercial capabilities.
The model takes the components of an MO and SO into account separately, arguing in line with De
Luca et al. (2010). They investigate the different components of an MO in high-tech context and
reveal a significantly different influence of the three components on the R&D effectiveness of an
organization. The components of an MO include a customer, competitor orientation, based on
Narver and Slater (1990). Analysing these components separately is expected to yield different
relationships between the customer and competitor components on the business performance, in
line with Ledwith and O’Dwyer (2009). Apparently, measuring an MO or SO as one concept is not
sufficient to understand the role of the competitor and customer in start-ups and small firms. We
therefore take the following components into account separately: a customer orientation, a
competitor orientation and a sales orientation.
We propose in line with De Luca et al. (2010) that the founding team should jointly develop a shared
interpretation of the market information in order to benefit business performance. Multiple studies
look at an MO from a contingency view and argue that the benefit of an MO depends on the
characteristics of an organization, e.g. the way information is processed within the firm (Atuahene-
Gima et al., 2005; Kahn, 2001).
Figure 3 also shows that we expect that the more technology driven a start-up is, the higher the
benefit of an MO or SO on the business performance. When developing innovations driven by
technology instead of market demands, start-ups should be even more aware of the market to adapt
this technology to the needs of the customer. We therefore argue that being market and sales
oriented benefits a successful market implementation even more in highly technology driven startups.
Regarding the dependent variable, business performance, literature makes a distinction between
the overall business performance and the innovation performance of an organization. However, in
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the context of the present study, the firms investigated are new technology ventures that are
typically involved in a single product or service and therefore the performance definitions
mentioned are interchangeable. The young technology ventures focus on a single product and
service and therefore measuring the amount of products or services introduced on the market does
not reflect the new venture’s ability to innovate. Therefore, business performance is defined as both
financial performance and market performance of the start-ups in this research.
Hypotheses
In line with the RBT, we state that commercial capabilities can be seen as a unique resource of a
start-up that delivers a competitive advantage. These commercial capabilities, comprising of sales
and marketing capabilities, mainly involve the founders of the start-up and are defined as
commercial skills and knowledge of the founders that distinguish them from the founders of other
small firms” (Pitkänen, 2012). With these capabilities, founders are able to recognize valuable
market information and transform this information into an innovation that delivers customer value.
Especially in start-ups, who are generally commercially undeveloped, commercial capabilities of the
founder can distinguish them from other founders by reacting to market trends and develop
innovations in line with those trends. Moreover, commercial capabilities are needed to identify and
collaborate with reference customers. When the founder is capable of recognizing the needs of the
customer during meetings, it creates the ability to deal with the uncertain market of the firm. Hence,
creating innovations fit for the market will increase the business performance. We therefore posit:
H1: Founder’s commercial capabilities positively affect the firm’s business performance.
With informal and undeveloped marketing activities, small and start-up firms benefit highly from
acquiring market information from their customers. These firms should therefore adopt an
orientation towards the customer. More explicitly for start-ups addressing needs unknown to the
customer, a pro-active customer orientation is needed, which is defined as a provider’s capability to
continuously probe customers’ latent needs and uncover future needs, possibly offering ideas even
before customers realize they had such a need” (Blocker et al., 2011). In general, marketing and sales
in start-ups is underdeveloped, marketing activities are unplanned and unstructured and a
marketing department is often absent. Customer meetings therefore deliver vital market
information and contribute to a better market understanding (Blankson and Cheng, 2005; Blankson
et al., 2006). Especially having a reference customer is crucial for start-up survival and success. Using
a reference customer provides early feedback on the innovation and such a customer is able to refer
the start-up to other players on the market (Popovic and Fahrni, 2004; Ruokolainen, 2005).
Technology start-ups often address latent and future needs of the customer, which are hard to
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express. Being oriented towards the customer does not mean focusing solely on current markets.
The organization should therefore adopt a pro-active attitude focused on asking ‘why’ instead of
‘what’ a customer needs. A pro-active customer orientation is therefore expected to benefit the
business performance. Therefore, we posit:
H2: A pro-active customer orientation is positively linked to the firm’s business performance.
With undeveloped knowledge on customer relationship building, start-ups should focus on their
sales activities to involve and develop customers. The organization should therefore create an
organization-wide SO. In case of technology start-ups, latent and future needs are addressed and
this requires looking further than the expressed needs, which demands a pro-active SO. A pro-active
SO reflects the founder’s desire to change the status quo and by actively initiating new selling
approaches and methods, like experimenting with selling tactics, developing solid sales arguments,
and scanning and identifying sales opportunities in order to sell the products” (Pitkänen et al., 2012).
In small and start-up firms, sales activities can deliver multiple advantages. With the problem of
lacking knowledge on how to approach the customer, selling provides the solution by delivering the
first interaction with the customer. Furthermore, when the start-up is able to learn from the
feedback of the customer in early sales meetings, the innovation can be adapted to that feedback in
order to achieve a product-market fit. When sales is involved early on in the development of startup,
the firm is still able to adapt itself to the market with minimal resources. To benefit from these
sales activities, a start-up should implement a sales culture aimed at identifying sales opportunities
and learning from the customer. This requires an open and proactive attitude since (potential)
customer have trouble articulating their needs in these sales meetings. We therefore posit:
H3: A pro-active sales orientation is positively linked to the firm’s business performance.
Although often neglected due to the over dependence on the customer of small and start-up firms,
an orientation towards the competition is vital for the performance of a new venture (Ledwith and
O’Dwyer, 2009). A competitor orientation can be defined as “the way an organization understands
the short-term strengths and weaknesses and long-term capabilities and strategies of both the key
current and the key potential competitors” (Narver and Slater, 1990). By investigating the competitor
and the technological developments of the competitor, start-ups are able to determine the strategy
of the competitor. Instead of focusing on the needs of the customer, following the direction of the
technology of the competitive players on the market is a way to deal with the dynamic market as a
start-up. This also explains why it is not uncommon in technology firms that their marketing
activities are done by the engineers, instead of the marketing department, who possess the

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knowledge and skills to analyze the technology of the competitor (Workman Jr, 1993). In line with
the findings of Ledwith and Dwyer (2009), we argue that a competitor orientation is crucial for the
business performance of start-ups. Therefore, a competitor orientation is expected to influence the
business performance in a positive direction. Hence, we hypothesize that:
H4: A competitor orientation is positively linked to the firm’s business performance.
We argue that commercial capabilities complement an MO or SO in a start-up. Commercial
capabilities of the founder are needed to recognize valuable market information and transform this
information into customer value. The RBT indicates that it is crucial for an organization to combine
the ‘know-what’ knowledge resources and its complementary ‘know-how’ deployment capabilities
(Morgan et al., 2009). This ‘know-how’ market and sales knowledge is generated by an MO and SO.
In this study, the separate components of these orientations are taken into account, which are: a
(pro-active) customer orientation, a competitor orientation and a (pro-active) SO. Complementary
capabilities are thus needed to deploy these orientations to an advantage and the interaction
between these capabilities and orientations is expected to benefit the business performance. This
leads to the hypotheses below:
H5: The interaction between a firm’s pro-active customer orientation and founders’ commercial
capabilities is positively associated with the firm’s business performance.
H6: The interaction between a firm’s pro-active sales orientation and founders’ commercial
capabilities is positively associated with the firm’s business performance.
H7: The interaction between a firm’s competitor orientation and founders’ commercial capabilities is
positively associated with the firm’s business performance.
As mentioned prior in this section, a shared interpretation by the founding team of the market
information is expected to determine how much an MO or SO affects the business performance.
Sharing market information within the founding team and interpreting this information jointly is
needed to incorporate the market needs into the innovation of the start-up. Narver and Slater
(1990) include the dimension ‘interfunctional coordination’ in their definition of an MO. This
dimension reflects whether the goals of all the business functions are aligned. This stresses the
importance of an organization-wide aspect of an MO. In start-ups, organizational structures are
often undeveloped and business functions have a significant overlap in tasks. This study therefore
chooses not to include this component as such. Rather, we argue that this coordination should be
present within the founding team and involves creating a shared interpretation by that team. Since a
shared interpretation involves processing and translating market and sales information, we propose
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that a shared interpretation moderates the relationship between an MO and SO and the business
performance. We therefore posit:
H8: A shared interpretation by the founding team positively moderates the relationship between
pro-active customer orientation and the firm’s business performance.
H9: A shared interpretation by the founding team positively moderates the relationship between a
pro-active sales orientation and the firm’s business performance.
H10: A shared interpretation by the founding team positively moderates the relationship between a
competitor orientation and the firm’s business performance.
We argue that the level of technology push positively moderates the benefit of the components of
an MO and SO on the business performance. Being technology driven demands a better focus on the
customer, competitor and the sales activities in order to adapt the innovation to the needs of the
market. Compared to start-ups driven by the market, technology driven start-ups have more
difficulty finding an application on the market since these technologies are initiated by firm
resources’ and competences instead of market demands. Therefore, finding the right market
application for such a technology is an iterative process which requires listening to needs of the
customer, focusing on selling and identifying the direction of the competitor. This leads to the
following hypotheses:
H11: The level of technology push positively moderates the relationship between pro-active
customer orientation and the firm’s business performance.
H12: The level of technology push positively moderates the relationship between a pro-active sales
orientation and the firm’s business performance.
H13: The level of technology push positively moderates the relationship between a competitor
orientation and the firm’s business performance.

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4 Research methodology

In this section, the data collection and measurement of the research is described.

4.1 Data collection

The model was tested with a sample of 68 Dutch spinoffs and spinouts involved in technology based
innovations.
To test the model, data of Witte (2012) was extended by collecting extra data from 33 start-ups or
spinoffs involved in technology based innovations in the Netherlands. Contact data of the
entrepreneurs was gathered from websites of several Dutch independent and university based
incubators. In addition, an online search on Google on relevant keywords, such as “Dutch technology
start-up”, was done. For inclusion, the firm had to 1) be based in the Netherlands, 2) be involved in a
medium-tech or high-tech product or service, 3) be founded in the past five years, 4) be a start-up or
spinoff 5) generate revenue.
A member of the founding team of the collected start-ups and spin-offs were notified by e-mail and
followed-up by phone. A phone survey was chosen since it provides a higher response rate, gives the
opportunity to clarify the questions to the participant and is more anonymous than personal
interviews. 111 start-ups and spin-offs were contacted by phone and yielded 33 completed
questionnaires (29.7% response rate). Measurement of the constructs was done in line with the
constructs of Witte (2012) and at least 80% of the constructs were measured identically. A pre-test
of the constructs was therefore not necessary.
After data collection, both datasets were compared and the outcome of the comparison justified
combining the datasets. This generated the final dataset of the study, comprising of 68 technology
start-ups and spin-offs.

4.2 Measurement

All the latent constructs in the conceptual model were measured using multi-item scales based on
contemporary literature. Respondents were asked to indicate their (dis)agreement with a set of
statements using a five-point Likert scale which ranged from completely disagree to completely
agree, with exception of the construct business performance. For this construct, the respondents
were asked to indicate the level of objectives achieved on a set of performance objectives which
ranged from much lower than objectives to much higher than objectives. The measurement of sales
capabilities as well as marketing capabilities were deducted from Pitkänen et al. (2012), which were
based on prior research of Song et al. (2007). Pro-active customer orientation was adapted from
Blocker et al. (2011) and Narver et al. (2004). The competitor orientation construct was based on
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