Journal of Business Venturing 19 (2004) 153 – 167

Executive Forum
Regional transformation through technological
entrepreneurship$
Sankaran Venkataraman*
Darden School, University of Virginia, PO Box 6550, Charlottesville, VA 22906, USA

Accepted 25 April 2003

Abstract

What does it take for a region to foster technological entrepreneurship? Recently, there has been
significant interest in this topic. Most writers on this topic emphasize the tangible infrastructure such
as sound legal systems, transparent capital markets, advanced telecommunications and transportation
systems, etc. Sound legal systems, capital markets, and other structural features are necessary
prerequisites for technopreneurship; however, what I am calling the intangibles of entrepreneurship are
the sufficient conditions that allow, specifically, for Schumpeterian entrepreneurship to thrive in a
locality. Often, governments attempt to promote technopreneurship by injecting risk capital. They
distribute these funds through small business development centers, and several regions and countries
have even attempted ‘‘public’’ venture capital funds. However, my hypothesis is that if only risk
capital is injected, it flows straight to low-quality entrepreneurship. Focusing on only risk capital, the
investing government assumes that the risk capital itself will create all other prerequisites for growth.
This is a major supposition. If risk capital is expected to produce extraordinary wealth, it must be
accompanied by seven other intangibles, including, access to novel ideas, role models, informal
forums, region-specific opportunities, safety nets, access to large markets, and executive leadership.
D 2003 Elsevier Inc. All rights reserved.

Keywords: Regional transformation; Technological entrepreneurship; Low-quality entrepreneurship

$
Keynote address delivered at ‘‘Technological Entrepreneurship in the Emerging Regions of the New
Millennium,’’ Singapore, June 28 – 30, 2001. This paper was written while the author was a visiting scholar at the
Center for Entrepreneurship, National University of Singapore. I thank the Batten Institute for sponsoring this
project. I also thank Mary Summers and Elizabeth O’Halloran for editorial help.
* Tel.: +1-434-924-6892; fax: +1-434-243-5023.
E-mail address: venkats@virginia.edu (S. Venkataraman).

0883-9026/$ – see front matter D 2003 Elsevier Inc. All rights reserved.
doi:10.1016/j.jbusvent.2003.04.001
154 S. Venkataraman / Journal of Business Venturing 19 (2004) 153–167

1. Executive summary

Why do some regions become vital centers of technopreneurial activity while others
languish? Why, for example, has Silicon Valley been more successful than Central Virginia?
Why are Austin and Bangalore booming while Albany struggles?
An important part of the answer is that none of these regions was transformed suddenly on
the strength of a single breakthrough idea. Silicon Valley evolved over a period of 40 years,
and the transformation was possible only because a heady mixture of intangibles—novel
ideas, enterprising people, a culture of risk taking—came together in informal places with
such tangibles as seed capital to produce transformative business ideas. Intangibles, and the
ways in which they interact, are too often overlooked, but understanding them is crucial for
nurturing technopreneurship activity around the globe. And nowhere is it more crucial than in
the world’s developing regions.
The very notion of transformative entrepreneurial activity is countercultural in much of the
developing world. Many developing regions are characterized by cultures that celebrate and
depend on tradition. The most talented people are directed into positions in which they are not
rewarded for making bold bets. As a result, unconventional ideas, companies, projects, and
products do not emerge.
People who become entrepreneurs under these circumstances do so as a last resort. They
may be unemployed, underemployed, or handicapped, and their efforts generally result in
low-quality enterprises. Because the wealthy favor traditional investments such as real estate
and gold, funds for entrepreneurs are provided not by venture capitalists, or other risk capital
investors, but by governments that shun bold ideas and the risks that accompany them.
Consequently, the recipients of these funds enter into franchising, household services, retail or
corner grocery stores, restaurants, and other imitative products and services. In such a
business culture, talented people who do want to create something new emigrate to locations
where it is easier to take chances. This problem is acute now because the barriers that restrict
the mobility of capital, labor, and intellectual talent are crumbling.
How does a region end this drain? The usual solution is to change tangible things: the
region’s corporate and tax laws, capital markets and financial systems, and infrastructure,
including telecommunications and transportation. While favorable legal systems, capital
markets, and other infrastructure facilities are necessary ingredients of transformative
entrepreneurship, more important is a change in the set of interrelated intangibles that allow
the development of the kind of entrepreneurs who are, as Joseph Schumpeter described them,
agents of profound economic and social change.
Take a look at the United States: every county, state, and region has been struggling to
promote entrepreneurship. All have access to capital markets, sound legal systems, and an
exceptional telecommunications infrastructure. But only some areas are flourishing. Why? The
answer may be found in government’s fondness for simple solutions, the most common of
which is to provide seed capital. Such funds are often distributed through small-business
development centers, and some areas have even attempted ‘‘public’’ venture-capital funds.
Seed capital is indeed fuel for transformative entrepreneurship. But if only seed capital is
provided, it flows straight to low-quality ventures.
 S. Venkataraman / Journal of Business Venturing 19 (2004) 153–167 155

For seed capital to create something extraordinary, it must be accompanied by novel

ideas, which originate from creative and unconventional individuals. And such people are
usually found in the neighborhood of the region’s great institutions, the places where talent
congregates and ideas are born. In a modern economy, top-tier universities and research
laboratories are the incubators of a steady flow of technical ideas. It is not an accident that
the areas around Boston and Silicon Valley have produced a significant amount of wealth.
Their educational institutions, and the surrounding informal meeting places such as
restaurants and bars, are a magnet for society’s most capable youth. These are the places
where ideas are discussed and sources of capital are investigated. While a seed may be
planted in a classroom, the development of an entrepreneurial vision happens in more
casual places.
For such a culture to be created and sustained, safety nets for failed entrepreneurs need to
be in place as they are in Silicon Valley, Austin, Bangalore, Tel Aviv, and Dublin. Such safety
nets might be in the form of a job for an entrepreneur to fall back on if the venture does not
succeed, or the opportunity to try again. Furthermore, cultures that promote entrepreneurship
do not stigmatize a failed business but instead welcome the human and social capital that
generated it.
And it is human capital that ultimately ensures the success of a cultural shift. The kind of
human capital we are talking about here is executive talent: talent that is able to generate an
idea, develop it, start a company, make the prototype, obtain the first customer, develop
products and markets, and compete in the rough-and-tumble world of competitive markets.
We are not talking about ‘‘visionary leaders’’ who leave it to others to roll up their sleeves and
get the work done.
By focusing their long-term efforts of cultural change on universities and other idea- or
knowledge-producing centers, regions that lack an entrepreneurial culture can begin the
process of fostering one. The creation of these very important intangibles, however, does not
happen overnight. If governments attempt to do it alone, an entitlement mentality will
emerge. On the other hand, markets have not always solved vicious cycles effectively and
efficiently. They, too, fail. The solution lies in a collaboration among leaders from prominent
firms, market-enhancing governments, universities, and other public institutions. Only
through such cooperation can a region create the appropriate environment and support
structure to foster an enduring culture of innovation.

2. Introduction

The importance of technological entrepreneurship as a factor in the creation of both

individual and regional wealth has recently generated considerable interest. The origins of
this interest can, in some part, be traced to a unique pair of U.S. phenomena: first, the
tremendous individual entrepreneurship that gave rise to the personal computer and internet
industries; and second, the resultant economic growth that the success of these two
industries brought to the communities in which they are located—most notably, Silicon
Valley.
156 S. Venkataraman / Journal of Business Venturing 19 (2004) 153–167

The hallmark of the PC revolution was that, for the most part, it grew up outside
existing corporate structures. It was ushered in by a band of unknown and unlikely players
who created an entirely new industry by founding and growing new firms. Apple,
Microsoft, and Intel are all examples of companies that emerged when entrepreneurs,
some of whom left their jobs at existing companies, founded new firms; within a decade or
two, these new companies and their founding entrepreneurs had become household names.
Their successes provided opportunities for many other young entrepreneurs in Silicon
Valley, and later around the world. The entrepreneurial mystique that these companies had
already come to embody was only heightened with the Internet revolution, which began
when Netscape introduced its browser and, shortly thereafter, had its highly successful
public offering.
But the story of the PC revolution is not just the story of the founding of a new and
exciting industry, and how that industry’s products have altered our patterns of work and play.
Behind this often-told story is the less well-known story of the transformation of a
geographical region. Silicon Valley came to the world’s attention during its period of
explosive growth in the 1970s and 1980s. Impressed, many communities rushed to emulate
the region’s success. What many well-intentioned enthusiasts failed to see, however, was the
fact that Silicon Valley laid the groundwork for its success during the 1930s and 1940s. It is
important that the example of Silicon Valley be carefully examined. Because while people’s
interest in the potential of entrepreneurship for regional transformation is genuine, most
people do not appreciate the many and complex factors that must be properly aligned for such
a revolutionary transformation to occur.

3. The role of technological entrepreneurship in regional transformation

What does it take for a region to foster technological entrepreneurship? Recently, there has
been significant interest in what would be necessary for productive entrepreneurship to
flourish in a country, and perhaps even within specific regions of a country. Most people who
have written on this topic focus first on changing the country’s legal system, making it more
transparent and making changes to corporate and tax laws to encourage changes in the way
companies operate. Other thinkers have suggested changes to capital markets and the
operations of financial systems. Still others have proposed changes in the country’s infra-
structure, including the telecommunications and transportation systems.
Favorable laws and infrastructure are certainly important factors in ensuring the success
of productive entrepreneurship. However, there are equally significant ‘‘intangibles of
regional transformation’’ that are too often overlooked. Sound legal systems, capital
markets, and other structural workings are necessary prerequisites to the existence of
capitalism; however, what I am calling the intangibles of entrepreneurship are the sufficient
conditions that allow, specifically, for Schumpeterian entrepreneurship to thrive in a locality.
Take a look at the United States: many counties, states and regions within the country have
been struggling to promote entrepreneurship. All of these regions have access to capital
markets, the same tax laws, the same legal system, and an exceptional telecommunications
 S. Venkataraman / Journal of Business Venturing 19 (2004) 153–167 157

infrastructure. What explains interregional differences that enable Silicon Valley to be more
successful than Central Virginia? Why is Austin following Silicon Valley while Albany,
New York, is still struggling? Indeed, Albany has been struggling for the last 30 years to
promote technological entrepreneurship. While Austin prospers, Albany—within the same
country, with the same kind of legal and infrastructural systems—struggles. Clearly, the
presence or absence of infrastructure does not adequately explain the differences between
regions. To understand why these differences exist, it is necessary to ask, ‘‘All structural
conditions being equal, why some regions are more successful than others in promoting
technological entrepreneurship?
Technological entrepreneurship indeed plays a central role in regional transformation.
Schumpeter was the first to clearly posit the centrality of the entrepreneur to economic
progress. For Schumpeter, the entrepreneur is essential to the progression of capitalism
because he creates change. And capitalism, according to Schumpeter, is distinguished by a
striving for disruption, rather than stability, as innovations are introduced that reshape the
existing structure of industry. Not only is ‘‘the perennial gale of creative destruction’’ more
typical than continuity in a capitalist economy, but disruption is also, ultimately, the source of
the greatest social welfare as it ushers in the new and the better. Whether through the
introduction of new methods of production, forms of organization, sources of supply,
emerging markets, or products, the dislocation caused by these changes leads to new and
lasting sources of prosperity. Even though such change brings with it ‘‘disturbance, losses and
unemployment’’ (Schumpeter, 1976, p. 68) in the displaced industries, the long-term result is
a permanent improvement in the quality of life for the society as a whole. It is here that the
entrepreneur plays an important role, for it is he who drives the forces of creative disorder by
bringing innovation to market:

‘‘. . .the function of entrepreneurs is to reform or revolutionize the pattern of production by

exploiting an invention or, more generally, an untried technological possibility for
producing a new commodity or producing an old one in a new way, by opening up a
new source of supply of materials or a new outlet for products, by reorganizing an industry
and so on. . . This kind of activity is primarily responsible for the recurrent ‘prosperities’
that revolutionize the economic organism and the recurrent ‘recessions’ that are due to the
disequilibrating impact of new products or methods.’’ (Schumpeter, 1976, p. 132)

It is the entrepreneur who sees a new way and moves forward to pursue ‘‘new combinations.’’
Obviously, Schumpeter’s emphasis on change makes the assumption that the people of a
region are dissatisfied with their present condition. Clearly this cannot be said of every
society. What is often the case, however, is that the aspirations of a population are much
greater than the potential of the people and the available resources in the region at a given
time, causing an asymmetry between aspirations and achievement. In these cases, an ‘‘envy
factor’’ emerges; the region would, if only it could, shape its future along the lines of a
more successful region, perhaps even leapfrogging the model region (Brenner, 1983).
However, change is never easy, and the experience of most regions around the world is one
of limited success. I would argue that many such societies find themselves unable to change
158 S. Venkataraman / Journal of Business Venturing 19 (2004) 153–167

because they have, over time, worked themselves into a state of what I would call ‘‘virtuous
equilibrium’’.

4. Virtuous equilibrium and the negative consequences for technological

entrepreneurship

The histories of society, science, and technology are rich with examples of the resilience of
existing cultural, social and economic models in the face of newly created, and often imported,
models. Citizens, by default, do their work within the limits of inherited paradigms.
Entrepreneurial talent—alert to future possibilities and able to envision the changes required
to create a qualitative improvement in their community’s overall quality of life—represents a
subculture. What is it about some regions that encourages a culture of technological
entrepreneurship, while the patterns of other regions work to stifle, discourage, or at best
ignore technological entrepreneurship and innovation? Let us take the attributes of the latter
first.
A region exists in a state of ‘‘virtuous equilibrium’’ when it has been conducting economic
and cultural activities for long periods and has settled into a predictable and comfortable
position. Such a state exists when patterns of activity have formed and evolved through
historical and local contingencies and through ceaseless competition. In these cases,
competition is not limited to the realm of economics: social and political competition also
contributes to the establishment of these patterns. People in power drive out other people in
power; while people who are well-connected drive out those people who are not so well-
connected. Indeed, in these regions, equilibrium is defined as much by product–market
competition as it is by social and political competition.
This process of weeding out the multitudes in a variety of competitive ways yields a
limited number of very successful institutions. These institutions could be firms, govern-
ment organizations, or certain voluntary or social organizations in the region. These
organizations are the survivors of the local environment of competitive selection. One
could say that from the chaotic process of competition there ultimately emerge a few
dominant institutions. These institutions, by repeatedly practicing certain cultural and
economic activities in the same ways, establish over time certain normative behaviors
and values. It is through the continual maintenance of these norms that the ‘‘virtuous circle’’
becomes established (Fig. 1).
As citizens of the region define success in terms of these successful institutions, the
leaders of these institutions become their role models. People aspire to be like them. High
school and college students are exhorted to emulate these role models. Children grow up
saying, ‘‘That’s the person I want to be when I grow up.’’ These leaders are constantly cited
in classrooms as examples, as well as in conversations with family and friends. Having been
trained and programmed to emulate these role models, the region’s best talents attend
colleges and universities, which are generally regarded as passports to the positions of their
role models. Such role models may be bureaucrats, politicians, or leaders and managers in
certain admired companies. Talent is drawn towards these admired positions, and the critical
 S. Venkataraman / Journal of Business Venturing 19 (2004) 153–167 159

Fig. 1. The emergence of virtuous cycle.

resources in the economy flow toward the talent. Money is then invested in the businesses
where this extraordinary talent is located. This, in turn, feeds what might be called
sustaining entrepreneurship (after the term used by Christensen, 1997), or the ‘‘weak
entrepreneurial force’’ as I have referred to it elsewhere (Venkataraman, 1997). Talent gets
sucked into the prevailing institutions, preventing ‘‘outside the box’’ innovation from taking
place, especially those that might challenge the products and values of the dominant
institutions.
Despite this tendency toward the status quo, entrepreneurship undoubtedly exists in
regions like the one just described; new businesses continue to emerge. But what kind
of new businesses are created? Primarily businesses that support the successful firms and
that still work within the ecology of the existing firms. Rarely does one see the
transformative Schumpeterian model of entrepreneurship. Success becomes defined by
and within the standards of the successful institutions of the region, and any attempt that
falls outside of these standards, is by definition a high-risk endeavor. Used to success
defined by these institutions, there emerges intolerance for failure. Any distinctive
model, therefore, is considered extraordinary. If such a model fails, it is easy to explain
it away: the entrepreneur attempted to do something crazy—no wonder he failed. The
result is that perfection becomes an ideal. The entrepreneur has to be just as perfect in
160 S. Venkataraman / Journal of Business Venturing 19 (2004) 153–167

what he or she does as the region’s well-established, successful institutions are at what
they do.
What happens then in an economy where variation and experimentation are shunned for
long periods of time in favor of the status quo represented by successful institutions? The
mechanisms of that economy’s successful institutions fail to evolve and adapt to changes
that often occur exogenously (perhaps from economies that are less rigid and more open).
For example, over the last 20 years, new, successful models have been developed in places
like the Silicon Valley and Sweden that have created dissonance, accompanied by
dislocation in many regions that aspire to replicate their models. New ideas and
technologies originating from these model regions, in computing, communications, health-
care, biotechnology have emerged to replace the erstwhile industries as the new frontier.
These ideas and technologies represent and embody the desired value or ‘‘the new thing,’’
with promising potential for regional growth and development. These new technologies, the
intellectual capital associated with them, and industries based on knowledge represent the
hope for the future, while those based on the hard physical assets that characterized older
industries are no longer valued. However, when such new developments occur, no role
models exist in the imitating regions that lack the cultural mechanisms for adaptation. The
role models are elsewhere, in other regions where these new models originated and are
taking shape. When this exogenously driven change occurs, the previously workable
virtuous cycle turns out to be a vicious cycle under which change cannot easily occur.
The culture of Schumpeterian entrepreneurship, which involves trying ‘‘new’’ things,
making ‘‘bold bets’’ is nonexistent. Rather, there is only a very narrow, sustaining, and
weak approach to entrepreneurship.
The typical reaction of economic and political leaders in such environments is one of
diffidence and inertia. They might know that they have to choose a new economic model, but
are uncertain as to what the next model should be or how to create it. This is when a region
becomes trapped in a vicious cycle: great ideas and bold bets cannot and does not emerge
(Fig. 2).
The future and potential of an emerging area is contained in its best intellectual talent. If
the culture does not support making bold bets,1 there is ‘‘poor deal flow.’’ Indeed, in many
developing countries the best talent has been moving into occupations where making bold
bets is not encouraged or held in high esteem. Trying bold new things becomes extremely
risky because there is a high probability of failure. Since success is defined by the standards
of the dominant institutions, rather than by the standards of highly uncertain entrepreneurial
endeavors, a fear of failure emerges. Thus, new ideas, companies, projects, and products that
are risky, but which do have the transformative potential, do not emerge. And, without a rich
flow of high risk but high return enterprises, there is no risk capital: venture capitalists would
not invest in the region, as the ‘‘angels’’ know there are not enough good deals with the right
risk–reward potential. The region’s wealthy would rather spend their funds on scarce items—

1
These bold bets may not necessarily mean just large dollar investments, but also includes novel, out-of-the-
box ideas and business models.
 S. Venkataraman / Journal of Business Venturing 19 (2004) 153–167 161

Fig. 2. The trap of vicious cycle.

real estate or gold—or more guaranteed investments than risky new local businesses. Thus,
there is no risk capital – it simply dries up, or ‘‘emigrates.’’
Typically, people who become entrepreneurs under these circumstances are pushed, rather
than pulled, into entrepreneurship. There is no pull into entrepreneurship in the sense that there
are no exciting opportunities for talented individuals facing high opportunity costs. Rather,
within a vicious cycle, most people who endure the risks of starting a new business do not have
many other alternatives; for example, they may be unemployed, or underemployed, or
handicapped in some significant way. From a regional development perspective, these are
the wrong type of people to become involved in entrepreneurship. While it is true that adversity
is a great motivator for trying something new, the nature of such trials are often not the kind of
transformative technological entrepreneurship that regions aspire to, rather they are more of the
imitative kind of entrepreneurship. If no pull exists, the results are low-quality enterprises.
It is therefore not surprising that regional governments often find that when funding has
been funneled into promoting entrepreneurship through a variety of subsidies and loans, they
lead to more investments in franchising, household services, retail or corner grocery stores,
restaurants, and other imitative products and services. This is because the talent with the
necessary intellectual capital to engage in technological entrepreneurship does not find the
culture conducive to their ideas and efforts, while weak or desperate talent rises to benefit
162 S. Venkataraman / Journal of Business Venturing 19 (2004) 153–167

from the new capital that has been supplied. When this happens and the old, successful
models have been shown to be falling behind, the intellectual capital flows to regions that
possess a more friendly culture to technological entrepreneurship and where the new role
models are located. Talented engineers and scientists migrate to those locations where it is
easier for them to take bold chances and, even if not successful, can still flourish
economically. The problem is particularly acute now because the barriers which 30 years
ago restricted the mobility of capital, labor and intellectual talent are crumbling and these
assets are flowing toward more receptive locations.
When efforts to promote entrepreneurship leads mainly to the start of low quality enter-
prises, rather than technological or innovative start-ups, entrepreneurship does not have a high
standing in the region and is dismissed as something trivial or unattractive. Where entrepre-
neurship has a low status, low-quality entrepreneurship is often the only kind of entrepreneur-
ship in evidence. Many regions of the world are currently stuck in this vicious cycle and are
finding it increasingly difficult to overcome.

5. The seven intangibles of regional technological entrepreneurship

Often governments attempt to break their economy’s vicious cycle through a single
solution, the most common of which is to inject risk capital. These funds are often distributed
through small business development centers, and several regions and countries have even
attempted ‘‘public’’ venture capital funds. However, if only risk capital is injected, it flows
straight to low-quality entrepreneurship. My hypothesis is that most such cycles require
multiple and simultaneous solutions. For the risk capital to convert itself into something
extraordinary, other elements in addition to capital must be in place. Focusing on only risk
capital, the investing government assumes that the risk capital itself will bring all other
prerequisites for growth into existence. This is a major supposition. If risk capital is expected
to produce extraordinary wealth, it must be accompanied by novel ideas, role models,
informal forums, region-specific opportunities, safety nets, executive leadership, and access
to large markets.

5.1. Intangible 1: focal points capable of producing novel ideas

The economy of a great region is not built on ordinary or tired ideas. The first question one
must ask is, where do novel technological ideas come from? Novel ideas originate from
bright and knowledgeable individuals. And these knowledgeable individuals are often in the
neighborhood of their region’s great institutions: this is where talent congregates and where
ideas are produced.
In a modern economy, top-tier universities and R&D laboratories are the incubators of a
steady flow of novel technical ideas.2 It is not an accident that the areas around Boston and

2
Of course, it does not have to be a university; but it has to be a place where new knowledge, that has the basis
for creating novel products, is produced.
 S. Venkataraman / Journal of Business Venturing 19 (2004) 153–167 163

the Silicon Valley area have produced a significant amount of wealth. It is not an accident
that some regions in the USA and other parts of the world with extraordinary universities at
their core have produced great innovation and prosperity. Moreover, these educational
institutions are a magnet for the society’s brightest youth. Skepticism is a precondition for
change. Since youth are inherently skeptical of the status quo their presence in large
numbers creates just such an environment. The students’ desire to ‘‘be their own person’’ is
now supported by the focal point institution full of novel ideas. This is an explosive
combination! Conversely, in countries like India, Mexico, South Korea, and to some extent
China in more recent times, the extraordinary talent has gone in search of the extraordinary
university or organization abroad, primarily the USA, France, Germany or England, instead
of going to local universities.
For an aspiring great region if there is no access or connection to an extraordinary
university or organization where new ideas are coming forth through the R&D labs and think
tanks, the desired level of technological entrepreneurship will not be generated.

5.2. Intangible 2: the need for right role models

If risk capital is combined with novel ideas, the result will be success for a few people.
They become the new role models who show their peers that entrepreneurial success is not
a theory. There is existence proof. In this environment, the thought is, ‘‘If that ‘fool’ can do
it, I can do it, too.’’ There is now feasibility proof, which is an extremely powerful
motivator. There is nothing like knowing somebody who has undertaken an entrepreneurial
venture and succeeded to make a challenge seem a feasible reality: which creates
‘‘possibility proof.’’

5.3. Intangible 3: the need for informal forums of entrepreneurship

The access to role models mostly occurs in informal forums. Information, stories and
celebrations about real entrepreneurship rarely happens in company offices or on the job
routine. Entrepreneurial action actually incubates in informal meeting points like bars and
restaurants. It happens here because young people, when they are not in their labs or offices,
congregate at these kinds of places. Tangible innovations are born there because the
atmosphere lowers inhibitions and encourages face-to-face idea exchange, which is
necessary for ideas to come together with talent. Informal forums are necessary to discuss
the trench wisdom that is required to execute these ideas. This is where one talks about
ideas, where one talks about how this or that person did it, and where one learns about how
and where to get seed capital. Execution of an entrepreneurial vision is not learned in the
classroom. While a seed may be planted in the classroom, the real learning happens
accidentally, in informal places. This is where deals are done, mostly verbal and in an
extremely informal way. It is here that entrepreneurs may outline the broad principles of an
agreement, such as the parameters and structure, before involving the lawyers because in the
absence of this informality, the lawyers could ‘‘sabotage’’ whatever deals could have been
made.
164 S. Venkataraman / Journal of Business Venturing 19 (2004) 153–167

5.4. Intangible 4: the need for region-specific ideas to be created

The next point to appreciate is idiosyncratic value. In most aspiring regions, political and
bureaucratic leaders of a region seek to work with technologies that already have been
successful elsewhere. They look for successful products, technologies, and industries and
attempt to invest in them. But it is often too late—they are chasing yesterday’s news. Their
basis for competitive advantage in such technologies may only be cost advantage. However,
cheapness as a strategy is not sustainable nor a basis for continual transformation.3
This brings us back the basic issue of how to build region-specific knowledge and convert
that knowledge to new products that the world has not seen. Sustained success often comes
when it is based on some idiosyncratic or special ingredient that the regions have to offer the
world. Such idiosyncrasy may be based on the regions’ core competence, natural resource, or
some other source of idiosyncratic advantage. And again, this returns us to the issue of talent
and universities. If idiosyncratic value that is region-specific is created, it could be the basis
for extraordinary development. If novel ideas and young people are concocted in an
extremely heady mixture of the wine and other exotic items found in informal forums, the
ideas discussed will not be low-quality enterprises and sustaining entrepreneurship, rather
unusual ideas of entrepreneurial value will emerge. The resulting innovations are the ones that
have the potential to transform the region. Bold new ideas that have never been executed or
built before will be the basis of change.

5.5. Intangible 5: the need for safety nets

Attempts at novelty are always accompanied by failure. Unless there are mechanisms
and institutions that address these failures, new trials will dry up. The need is for safety
nets for entrepreneurs who may fail in their attempts to create something new. When
safety nets are present, a culture of trying new things develops. More importantly,
individuals and institutions start to accept failure. This is a good thing: capital suppliers,
banks, and local companies start to want their new recruits to have tried something new
rather than shunning such experiences as a negative track record. Here, not experimenting
is the basis of failure; not trying is not succeeding. This kind of mentality is at the base of
a cultural shift.
However, for this cultural shift to occur, safety nets need to be put in place. Human beings
have a natural tendency to avoid uncertainty to create a secure life. Trying to defeat that
primitive instinct is quite a complex and big problem. If safety nets are not present in society
to soften failure, it is going to be very, very difficult to encourage Schumpeterian
entrepreneurship. In places like Silicon Valley, Austin, Bangalore, and Israel, many
opportunities exist for entrepreneurs after they have tried something that has not been
successful. These are often in the form of a job in an existing company, sometimes even better

3
Even if it is a basis for transformation, it will probably be very short-lived because, as soon as the region’s
wages increase, somebody else is going to imitate the strategy, unless that kind of resource expenditure leads down
corridors which will create new and great avenues for the region.
 S. Venkataraman / Journal of Business Venturing 19 (2004) 153–167 165

than the one they had before they embarked on an entrepreneurial venture. In addition, in
these places, people do not attach a stigma on a failed business and even if a venture was not
successful for an individual, he still retains human and social capital. Often, the suppliers of
risk capital look for entrepreneurs with previous start-up experience, even if such experience
has led to economic failure. The mind-set changes and a set of safety nets for entrepreneur-
ship are created.

5.6. Intangible 6: the need for gateways to large markets

Entrepreneurs in large densely populated centers have a natural advantage because large
population centers are natural laboratories for testing and introducing new ideas cost-
effectively. Further, good new ideas will be picked up and diffused more easily and speedily
because of the size and density advantages. Unless aspiring and potential entrepreneurs in
regions that do not have such size and density advantages are provided easy access to such
population centers both the quantity and quality of new enterprises and their offerings will be
affected. In addition to access to product markets, easy access is also necessary for exit
markets for investors so that they can easily liquidate their investments in risky enterprises.
Such exit markets for investors have to be available, both when ventures are successful and
when ventures have failed. Without access to such exit markets, risk capital will dry up, or
will not be forthcoming in the first place.
What is more important that physical infrastructure in providing such access (such as the
ability to easily get in and out of such places), it is the intangible social network infrastructure
that is vital. The quantity, quality and density of the social and economic connections that the
business and government leaders of the aspiring region have with the leaders of gateway
cities and their willingness to use it on behalf of the local citizenry will dictate how successful
the region is going to be in achieving its growth aspirations. In addition to social and
economic ties, the creativity with which a region provides access to product and financial
markets will make a difference to its success. This brings us to the final intangible, namely,
the need for executive leadership.

5.7. Intangible 7: the need for executive leadership

When we think of great leaders we generally think of visionaries. However, the leadership
that is important for technological entrepreneurship to flourish is executive leadership. This is
the kind that rolls up her sleeves and does the grunt work. The problem is, when political
leaders want to solve vicious cycle problems, typically they climb up on a pedestal and shout
loudly, point to the hill that needs to be taken, design grand visions and assert, ‘‘This is the
way we are going.’’ But there are not enough people to roll up their sleeves to perform the
necessary grunt work to ensure that the talented youth and citizens have (1) access to
institutions that produce new knowledge; (2) access to risk capital; (3) access to the right role
models; (4) the necessary informal forums for entrepreneurial education and experience; (5)
the necessary safety nets and the culture of accepting failure; and (6) access to gateway cities
and large markets for their products and services (Fig. 3). In most aspiring regions very few
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Fig. 3. The tasks of collaborative leadership.

people are engaged in the process of ensuring that good ideas are being developed, that
somebody actually starts the company, makes the prototype, gets the first customer, develops
the products and places it into a competitive product market situation. Developing that kind of
executive talent takes time. One of the things that are essential, if the circle has to be
completed relatively quickly, is to work on developing and attracting such talent to the region.

6. Conclusion

How can these seven intangibles come together in an aspiring region that lacks them? It
seems as if it was an accidental coming together of these factors that did the trick in places
like the Silicon Valley or Bangalore. Relying on spontaneous or natural forces may not be the
solution for some regions because it may take generations for their problems to be solved.
Clearly, some kind of intervention is necessary. When we think of interventions, our first
reaction is to think of governments and their role in creating the intangible infrastructure
necessary for a culture of technological entrepreneurship. However, if governments attempt to
provide the intangible infrastructure, an entitlement mentality will emerge. Indeed, a culture
with extremely low-risk aversion and a healthy regard for the new is the opposite of the kind
 S. Venkataraman / Journal of Business Venturing 19 (2004) 153–167 167

of institutional values embodied in public (and by nature, political) institutions. Finally,

government bodies have never been good at picking winners and losers, at least not for long.
On the other hand, markets or private institutions have not always solved vicious cycle
problems effectively and efficiently. They, too, fail. The solution lies not in thinking in terms
of the role of markets and governments, but in the role of regional leadership in breaking
through the vicious cycle and creating the necessary intangible infrastructure. Such leadership
will have to be collaboration among executive leaders from private institutions, market
enhancing governments, universities, and other public institutions. Their charter is to
expeditiously and effectively break this vicious cycle and create the appropriate environment
and support structure to foster innovation. While visionary leadership is useful, what is more
important is the executive leadership we identified earlier. A calculated coming together of
such leaders, working collaboratively, offers a greater chance of success than working
through the parochial preferences of individual institutions and leaders.

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Venkataraman, S., 1997. The distinctive domain of entrepreneurship research. In: Katz, J. (Ed.), Advances in
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