research@hec - Issue #20 - (Page IV)

Inventors and the Market: A Profit-seeking Behavior Thomas Åstebro research BIOGRAPHY One day in 1996, when Thomas Åstebro was assisA MAINLY RATIONAL, PROFIT-SEEKING BEHAVIOR The first results were rather surprising: contrary to what the researchers expected, given the inven- While some entrepreneurs seem to try to commercialize their creations in spite of economic sense, a study of more than 1,000 Canadian inventors showed that they in fact did work mainly with the goal of profit in mind. But because some irrationality still taints the decision-making of inventors, Thomas Åstebro suggests pairing them up with business partners for higher commercial success. Thomas Åstebro teaches courses in High Tech Entrepreneurship and Managing Innovation at HEC Paris since 2008 and conducts research in management of technological change and entrepreneurship. He holds a Maste’s in Engineering and an MBA from Chalmers University of Technology in Sweden, as well as a Ph.D from Carnegie Mellon University in Pittsburgh, USA. He has taught at University of Waterloo and at University of Toronto in Canada, and regularly works as a consultant to entrepreneurs. tant professor at Canada’s University of Waterloo, the Canadian Innovation Centre came knocking at the department’s door asking if anyone was interested in doing research on the 14,000 inventors who had used their Inventor’s Assistance Program. The opportunity was too good to pass. So the professor, who had himself made a few less-thansuccessful forays into entrepreneurship, mined the data being offered up to examine economic models of decision-making among inventor-entrepreneurs. After all, many important inventions, from the telephone to the camera, stem from individual creators, so there is good reason to care about their motivations and successes, he wrote. Were inventors all wild-haired mad scientists, so overwhelmed by the sheer joy of creating that they refused to imagine that their gadgets might never become household products? Or were they as rational as any other economic agent, calculating how to hit supermarket shelves and repay their investment? To determine that, Thomas Åstebro and his colleague matched the Canadian Innovation Centre’s evaluations (potential market size, costs, competition, risk) with the inventors’ subsequent successes – or lack thereof. hec tors’ deviation from the norm in terms of unbridled optimism, inventors’ decisions to enter the market mainly did respond to profit opportunities. Comparing the 911 inventions that were not commercialized with the 101 that did enter the market, entrants on average had been rated to have lower investment and manufacturing costs, greater potential sales and less competition than nonentrants, with potential sales having the largest estimated effect. Inventors exhibited just as rational a behavior regarding stated reasons not to commercialize their idea, citing mainly pecuniary reasons: lack of capital (32%), competition from a similar product (22%) or simply a negative assessment from the Canadian Innovation Centre’s evaluators (42%). These decisions to enter the market or not were just as consistent with another logical reasoning, that of risk aversion. For instance, increased development uncertainty deters entry. Yet the profit motive clearly dominated the decision-making process, with low sales volumes (for 31% of respondents) or opportunity costs (14%) cited as reasons for abandoning the commercialization of the product. THE RUTHLESS MARKET PREVAILS Yet the fact that realistic hope for gains was the major factor in the decision-making process of inventors definitely could not be taken for granted. As Thomas Åstebro points out: “While some inventors are very rational and money-oriented, many IV research@hec • April-May 2011

Table of Contents for the Digital Edition of research@hec - Issue #20

Cover & Contents
LBOs: Job Creators and Growth Stimulants?
Inventors and the Market: A Profit-seeking Behavior
Communication Networks How is Information Transmitted?
HEC PARIS Publishing News

research@hec - Issue #20