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Summary

This chapter explained that you do not always have to create a new company that owns all stages of the value chain from product development to manufacturing to distribution as a way to exploit an opportunity. You can also use contractual modes such as licensing and strategic alliances. Contractual modes of opportunity exploitation are good to use when opportunities are expensive to exploit. They are also good to use when you need to exploit opportunities quickly, and do not have time to build the value chain from scratch. It is a good idea to use contractual modes when you lack the capabilities to exploit the opportunities yourself. You should use hierarchical modes of opportunity exploitation when the technologies that they are exploiting are systemic, based on tacit knowledge, face no technical standards, and where complementary assets are specialized. Finally, you should use hierarchical modes of opportunity exploitation when the information problems of disclosure, holdup, and free riding are dominant; and use contractual modes of exploitation when the information problems of employee adverse selection and shirking are dominant.

Now that you understand rule number nine of technology entrepreneurship, select the right organizational form, we now turn to rule number ten, manage risk and uncertainty, which is the subject of the next chapter.


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