Reports #2

Reports #2

Reports #2

“Global Innovation Index 2020 – Who will finance entrepreneurship?” *

According to the 2020 WIPO Global Innovation Index, firm growth is not that effective on the transformation of innovation into economic benefit, which means that as an innovative company grows, it does not necessarily end up in producing more economic contribution. According to a study, doubling the size of the company can only increase the ratio of R&D to sales by 0.2%.

Since the 2008 economic crisis, we see that government support to entrepreneurial activities has increased, mostly through financial mechanisms. The rationale of these public supports is the positive relationship between employment, economic growth, innovation, entrepreneurship and investment capital, as demonstrated by numerous studies. As we discussed it in a previous article, innovation ecosystems are the architecture of a country’s innovation success. The rest, settles and develops based on this architecture. The main actors of the innovation ecosystem are institutions that produce basic knowledge (universities and research institutions), entrepreneurial companies and financing bodies. The more and more mutual relationships these actors establish with each other, the more successful countries are in innovation.

In the relationship between economic development and innovation, the creative power of new firms had been overlooked by economists for many years. Even Schumpeter, who made the first serious theoretical studies in the field of entrepreneurship, emphasized the innovative advantage of large companies, not small companies.

Over time, this hypothesis seems to have been shelved. The revolutionary technology innovations of small entrepreneurial companies in medical devices, semiconductors, software and especially biotechnology and internet sectors have been remarkable. Even though these companies do not produce key technologies such as genetic engineering or internet protocols, they can be pioneers in terms of “commercial product development success to solve the current problems of humanity”, which is at the basis of the innovation concept. While universities and research institutions are the ones that create key technologies through basic science studies, those who transform this knowledge into commercial opportunities are mostly newly established small companies. This point highlights the importance of technology transfer interfaces and the key role of entrepreneurs in the market. Small innovative initiatives should be financed in some way, more precisely “effectively”, in order to exploit basic knowledge in a way to produce solutions to the current problems of humanity.

However, when looking at the public support for entrepreneurship, it is seen that these are small starting capitals that will cover the required financing just before the valley of death. A study emphasizes the innovative advantage of small entrepreneurs supported by investment capital, and shows that these companies are more successful than those who are able to get public support. Why does this advantage arise, or if we are to associate it with the core question of the report, why should these small enterprises be financed by venture capital rather than public incentives?

In the answer to this question, “risk” comes forward as the main factor here. New companies usually do not possess sufficient data that allows the investor to accurately and precisely analyze their potential. In addition to the lack of data, it is also uncertain whether the entrepreneur will act opportunistically once they have accessed the investment, which increases the risk significantly. Among the mechanisms developed in response to these problems are technology valuation (due diligence) and interview processes that venture capitalists use to make investment decisions. Due to the highly selective nature of these processes (investment rate of 0.5-1%), venture capital is much more efficient than public supports in terms of innovation (not basic research or seed capital) financing.  The staged/rounded financing based on the milestones determined according to the market success or the technological progress made, increases the effect of the investment as it requires continuous interaction between the parties. An idea continues to receive funding as long as the success of the entrepreneur continues. The constant involvement of the investor is a factor that increases this success. Venture capital, while satisfying the financial hunger of young companies striving to overcome the valley of death, contributes to the restructuring needed by scaling companies. Entrepreneurs can invest more in R&D and market activities with this guidance and financing.

As Refo, we attach importance to understanding the nature of the relationship between this economic development and innovation and to shape our activities and services accordingly. We have accelerated our “technology valuation” studies, which we believe are important in terms of meeting young enterprises with venture capital for a strong innovation ecosystem. You can contact us for your support needs.

* This article is a review based on the fifth chapter of WIPO Global Innovation Index 2020 – Government Incentives for Entrepreneurship.

Reports #1

Reports #1

Reports #1

“Global Innovation Index 2020”

The Global Innovation Index, prepared by the World Intellectual Property Organization (WIPO), which comparatively examines global innovation trends in line with the data of 131 countries, was published on September 2. The title of the report, which came out in the shadow of the Covid-19 crisis, is “Who will finance innovation?” This is a topic that directly concerns our field of work as Refo. We will share the important findings of this report with you throughout the month and we will try to learn lessons from the perspective of innovation ecosystems.

The economic contractions expected to be effective over the coming years are expected to lead to resource constraints and a more cautious approach to investments. This brings the issue of financing innovation, which is seen as an important means of getting out of economic crises, to a more critical point. It is very important for the global economy to overcome both the current health crisis and global problems with innovative solutions in terms of employment, creating new markets and reducing costs with lower carbon footprint. Preservation of the future competitive power for large companies depends on the R&D investments they will make during this period. In the report, it is said that there is still hope for continuous R&D spending, which has grown much more than global growth in 2018 (5.2%). Information technologies, biotechnology and pharmaceutical industries are at the forefront of this crisis. In addition to these, some traditional sectors such as tourism, education and retail are being forced to be innovative by the crisis. It may also spark innovation in how work is organized at the firm- and at the individual level, and how production is reorganized locally and globally. Unleashing the potential in these areas and transforming them as a contribution to the economy depends on the continuity of public support and the collaborative models to be established.

Paper Readings #1

Paper Readings #1

Paper Readings #1

“Knowledge-intensive innovative entrepreneurship integrating Schumpeter, evolutionary economics, and innovation systems” by Malerva and McKelvey

According to himself, Joseph Schumpeter was a man who could realise two of his three wishes; being  the best economist of the world, the best rider of Australia and the best lover of Vienna. Many entrepreneurs are familiar (maybe without even recognising) some of his economic insights  from his “creative destruction” or “disruptive innovation” concepts: Being innovative enough to change the rules of the game after having destructed old ways of doing things. This is almost an imperative for entrepreneurial firms in the new paradigm because cutting down the costs has reached its limits and price competition is no longer an option even for larger firms. The only way out of competition is to innovate.

Precisely as Schumpeter foresaw, policy makers are after those “disruptive products” that can overcome capitalism’s inherent tendency for creating crises by being high risk-high gain,being able to create undiscovered markets, satisfying unmet demands, being as unique as possible to avoid the ruthless of competition of red ocean markets and respectful to environment and all life. The mechanisms generating these products are the most effective ways of creating ever changing (growing) and dynamic markets. The most popular one of these mechanisms is innovative firms questioning every incumbent solution available in the market. Another one is the public funds closing the R&D&I investment gap of these high risk projects. Technology transfer agents or technology intensive ecosystems can be other examples.

One can easily observe the increasing share and diversity of sub-programs devoted to high-risk, unbankable R&D&I projects within the framework programs of European Commission in the search for problem solving, market focused disruptive endeavors.

While “disruptive innovation” becomes more popular in theory and in practice, it is as much as important to measure the impact all of this mobilization especially considering the public sources allocated. Malerva and McKelvey’s paper[1] aims to conceptually understand, define, and measure knowledge-intensive innovative entrepreneurship (KIE), the realm of the most disruptive innovators.

Theoretical backbone of the study relies on and integrates three economic concepts:

  • Schumpeterian tradition giving insight about the entrepreneurial  dynamics and the entrepreneur’s   functions on transforming the economy
  • Evolutionary economics on the underlying processes of the interactions between innovation, technology institutions and economic dynamics and
  • Innovation systems approach dealing with ecosystems in which the entrepreneurs operate, their access to knowledge, innovativeness, institutions (suppliers, universities, public institutions, financial institutions etc.) that can affect their interactions with other agents in diverse ways

Metrics of the analytical part of the study are derived from the definitions based on these approaches. Those definitions and key characteristics are given in the boxes.

The research behind the paper (EC 7th Framework Program, AEGIS Research Project 2013) is a project conducted in 10 European countries with 4004 firms younger than 8 years. Firms were chosen according to the KIE definition. In order to analyze key characteristics and examine the relevance of KIE in the economic system, researchers used a large scale database based on survey questions.

Definition of KIE

KIE entrepreneurial firms are new learning organizations that use and transform existing knowledge and generate new knowledge in order to innovate within innovation systems or

KIE ventures are new firms that are innovative, have significant knowledge intensity in their activity, are embedded in innovation systems and exploit innovative opportunities in diverse evolving sectors and contexts


– Is a process with emergent properties

– Involves actors searching for opportunities and generating new knowledge

– Is affected by of the learning, technological and knowledge context

– Involves the co-evolution of knowledge, firms, industrial structure and institutions

– Is affected by the complementarities in knowledge and capabilities of actors linked within innovation systems

– Relies upon existing and new networks and channels through which knowledge is communicated, shared or generated

The key functions of the entrepreneur in the economy

– Acting as a disruptive, disequilibrium force, which arises endogenously in the economy

– Driving wider processes of economic dynamism, which in turn lead to economic growth and societal well-being


– Take risks and reaps profits

– Turn technology and ideas into innovations in the market

– Enable new knowledge combinations

– Face uncertainty about current choices in relation to future outcomes

– Create opportunities, by both driving and adapting to change in the external environment

– Are involved with others in the diffusion, use and creation of knowledge

– Engage in learning and problem-solving activities

– Use knowledge into new combinations for innovation

– Are affected by education, knowledge and experience in their innovative activities

– Are highly dependent upon the knowledge infrastructure, the supporting actors and the institutional context

– Create opportunities but are also bounded by the geographical and sectoral dimensions in which they operate and innovate

This is it for this first part. In the second part we will be telling you about the findings of this research.


Book Recommendation Series #1

Book Recommendation Series #1

Book Recommendation Series #1

“Scrum: The Art of Doing Twice the Work in Half the Time” by Jeff Sutherland

If you ever find yourself questioning the way you work as much as what you work on, maybe it’s time to pause and take a look at your management methodology. This revelation occurred to me during the later days at my start-up. The waterfall method implemented in our engineering projects usually seemed to fall short and quickly diverge from the real situation on our hands. In all my naivety, I nearly convinced myself into believing that all the planning prior to implementation was a tool among many, to convey or present our project to others and just to be discarded once initiated.

Of course the world is not that simple. And neither the waterfall method is all but useless nor we are totally incapable of running a project all by ourselves. With a quick search you can easily conclude that pondering on better project management methodologies is not a new trend. Nowadays you can choose among more popular approaches such as Kanban, Agile, Scrum, PRINCE2 and PMP. They often are not a direct substitute for each other and differ in the way they perform within a project. I am sure you can easily find ample resources on the definitions and basic principles of the aforementioned methods and many more.

Today I want to talk more about Scrum and suggest an introductory level book. Mainly focusing on customer requirements, Scrum methodology is a variation of Agile philosophy. It is best suited for projects that consist of highly focused and skilled teams of less than seven people, where a flexible approach is needed to deliver a product or service. The idea behind this is to be adaptable to what comes up and work in the most efficient manner possible. The product is delivered incrementally and the features are added bit by bit, while incorporating feedback until all the customer requirements are met.

The book Scrum: The Art of Doing Twice the Work in Half the Time tells the story of Scrum that has been evolving at the hands of pioneer Jeff Sutherland since 1993. His simple motto sums up the driving motivation behind Scrum, “More can be done faster and cheaper”. Sutherland draws from his own 30+ years experience and provides many real-life examples where Scrum is used and led to success. Do not mistake it as another regular textbook on Scrum, as his narrative accentuates the backgrounds and reasons towards the creation of what we now know as Scrum.

The definition and theory of Scrum, as well as its fundamental elements, are thoroughly explained in the book, with detailed descriptions of team roles, events and artifacts in a basic application of Scrum. In the meantime, you will also follow general discussions such as the benefits of Plan-Do-Check-Act cycles or the problems with Gannt charts. The book ends with real-life cases where Scrum -even originally developed for software development- is used in a variety of different fields such as education, government and even in social communities. Read this book first and reflect on your current process to figure out what you may have been missing.

At the end of the day, I am not claiming that Scrum is the ultimate project management approach that we all should learn about and implement immediately. It’s only fair to point out that there also are some misgivings about it in the community. For instance, one of my former colleagues who is using Scrum in his company recently told me that some aspects of it fall short and needs improvement for the hardware development projects. However, one cannot be sure about which approach to use without comprehending its principles and testing its performance first. Also it’s better to keep in mind that all project management approaches can be modified towards our particular way of doing things, thus perfected by our particular preferences and unique conditions. So if you are into project management, it’s undoubtedly worthwhile to study different approaches and follow recent trends as much as you can.

One last thing to note; do yourself a favor and stay away from the Turkish edition of the book if you can access the original, English edition. Unfortunately, the translation is riddled with inconsistencies and generally lacks in the way the subject material is presented. I regularly stumble upon somewhat inconsistent phrases, often wondering how that certain part is written in the original form and what it actually means.

I am hoping to make this book recommendations a regular series where I will share my humble thoughts on books about any business-related subject. Until next time, keep reading.

Trade Updates #1

Trade Updates #1

Trade Updates #1

“Covid-19 in 2020/Q1”

2020, the year that the world found itself in a crisis like no other. The economical impacts of Covid-19 on global trade is still unforeseen. The World Trade Organization (WTO) announced its annual global trade forecast with a fall in a range between 13%-32% for 2020. International Monetary Fund (IMF) expects a 3% shrink globally in national GDP’s which is 6.1% for advanced economies and 7.5% for Euro Area. More than 100 countries closed their borders in March and most of them still remain shut for international travellers. World Tourism Organisation (WTO) predicts a 70% loss in global tourism revenues which means up to 1.2 Trillion$ loss.

Unfortunately, this damage report can go on and on. However, this crisis should have its own winners. Who are they? And what about the post-pandemic economy? Here I share some data and analysis as a result of my research about the Q1 global trade records.

In 2020/Q1, Ireland and Switzerland raised their exports unlike most of the other countries. The United Kingdom had its worst quarter for the last 30 years, where USA, Germany, France, Canada and Spain had their worst for the last 4 years and China, Japan and Korea had their worst for the last 3 years. What is the secret sauce for Ireland and Switzerland? Here it is: The formula is, ICT + Medical. Yes, Ireland’s main exports are the information communications technology (ICT) services, pharmaceutical products, machines and medical devices, whereas Switzerland’s main exports are pharmaceutical products, ICT services and precious metals & stones.

We all wish this virus season would end soon but the economists project to see the similar numbers in Q2 this year. Probably the impacts will continue till the end of 2020. Then, what will change for nations/countries/unions? The first response came from the governments that support SMEs with grants, incentives and credits. The second response was from unions and networks with funding programmes focusing on medical and artificial intelligence solutions for Covid-19 and post-pandemic period. Such calls under Horizon 2020 and Eureka Network will support many SMEs and initiatives to build many unique solutions and business opportunities.

Meet our experts for support on R&D&I funds. Refo guides SMEs’ and entrepreneurs’ innovative Covid-19 solutions and post-pandemic business ideas. We write EU grant proposals and build consortiums.