The Inception Phase

60 software itself as they should take over the current four international clients. From this moment, the owners of Beta Solution approved the split up of the company, and together they started to look for potential investors to launch the new company. To be able to launch the new company an entrepreneur was needed and therefore the board agreed on JHA to lead the company. As mentioned by JHA: “during that time, I had an international background and the other board members did not have” (JHA, 2018).

Figure 8 – Alfa’s Timeline: Pre-Inception Phase

Source: Developed by the Author (2019)

61 Entreprenörinvest is a privately owned organization that invests capital in Swedish firms. This contact was established with the support of the board members from Beta Solution. As noted by JHA:

Peter, a child of one of the board members, is a company advisor at Swedbank, and was once listening to a speech given by the CEO of Entreprenörinvest. During the speech, Peter was aware of the fact that we were looking for external investors and decided to approach the CEO to introduce our business idea. During this conversation, the CEO showed interest and Peter established a connection between the CEO and me which lead to our first business meeting. (JHA, 2018).

Throughout the meeting, they both realized that their paths had been crossed before since Entreprenörinvest is owned by the company Ikea that is actually one of Beta Solutions’ customers. As they were already connected with each other, the CEO was willing to invest in Alfa hence becoming the second external investor.

As for the third shareholder, JHA, therefore, contacted an old business colleague who became an Angel investor, which is an individual and informal financier that provides capital for new ventures in exchange for ownership equity. As for this meeting, JHA described that;

During the informal business meeting to discuss the business idea, my colleague became enthusiastic and decided to invest in the business. With the accomplishment of the requirement established by Almi-Invest, we had finally raised a substantial amount of money to support our first venture operations.

(JHA, 2018).

Therefore, Alfa started operating in September 2016 already started international as they integrated four international customers from the parent company. However, when the company was founded they did not start to operate immediately under their new name in order to be able to build up their new brand. The reason for operating under the old name was as said by JHA:

Because we did not want to let the customers know that we are a new venture with a different management, as we did not want to start any rumors or scare any customers. About two or three months after the establishment, we contacted the international clients that were using the software to inform them about the transition by asking them if they were still satisfied or if they noticed any difference in receiving service. (JHA, 2018).

The first year of operating as Alfa, the company started efficiently. First, an American company became interested in the software product and was eager to collaborate as a reseller for the new venture to enter the US market. Even though the

62 business exchange still has not set off, Alfa still maintains the contact as a prospect network for the future. In addition, Alfa gained their fifth international customer, IC5 from France. The customer approached the company directly and requested a demo through their website, and a few months later IC5 signed the contract.

As of 2017, the business started to grow as they achieved another two international customers both from Germany, IC6 and four months later IC7. The first contact with IC6 was during a trade fair in 2016, and one year later, they signed the contract. Regarding IC7, more time was necessary to sign the contract as their first approach was during the trade fair in 2014.

Figure 9 – Alfa’s Timeline: Inception Phase

Source: Developed by the Author (2019)

4.1.3 TH E GRO W T H PH AS E

In October 2017, the next investment round started as more capital was needed to provide accelerated growth for the product and to open up more job opportunities. To do so, the current investors were informed during a board meeting as Alfa requested help to get in touch with more investors that are external. By activating the stakeholder's networks, external investors emerged as the company was well recognized by the international customers and gained reliability by showing the benefits of the system within this short amount of time. Moreover, something unusual happened that when the word had spread, suddenly the network of the external investors was also interested and started to approach Alfa in order to provide capital. Therefore, when Alfa opened the doors for external investors, they managed to get 50% more of the investment needed.

Apart from international clients, the company also achieved their first domestic client. The initial meeting was in 2016, where JHA approached the head of the client

63 brand protection. During that time, the future customer was setting up a department of brand protection, and Alfa, therefore, introduced the system to them. The potential client was, at that time, not capable of investing that amount of money and had to reject the offer. DMM stressed that, “the current customers of Alfa are global huge brands who experience counterfeit problems and usually have a brand protection department that is able to invest in new technologies” (DMM, 2018). However, since investments in this type of resources are high and smaller businesses are not able to afford, the BG decided to make a new market strategy in order to fill in this gap. Even though Alfa is not able to lower the price of the software without making a loss. To widen the market, they are rebuilding the system to be more available to smaller customers that are experiencing the same problem in order to afford the product. To do so, they set up a pilot where the new system should be more flexible, smaller and therefore available for the more modest customers. As DMM explains: “we are constantly developing our products based on client’s feedback, on their opinions, even if it set us a challenge” (DMM, 2018). JHA also add that: “it is an exchange, how we get the information from them in order to better contribute back to them. This relationship builds trust in us and our offering and it gives access to other clients and their networks. It is an exchange of experiences” (JHA, 2018).

By providing this new system, Alfa was able to provide the domestic client with a pilot customer price. With the new strategy, this new client became their first domestic customer (DC1), in 2018. This new software is currently an ongoing process.

At the moment, Alfa is negotiating with some potential customers. These customers were exposed to the company through the network of the current clients, as there has been no face-to-face contact with them. The current customers are providing word-by-mouth by talking about the software provided by Alfa. Additionally, JHA highlights that:

Through our integration, for example, with React, a global organization, it provides us potential clients because they hear about us, establishing the bridge to connect with new clients and people. Furthermore, some of our clients promote events with suppliers that allow us to meet them and discuss our solution and how to be more efficient, as well as to meet some new people. (JHA, 2018).

For the future JHA emphasize “our prospect is to become a dominant in our niche and to achieve 200 additional customers within the upcoming ten years (JHA, 2018)”, were today the company counts nine customers. To support this, DMM says: “the objective for now on is to maintain a constant contact with our customers, participate in

64 fairs and to have a much more diverse staff, with employees from different international backgrounds that can contribute with different skills and knowledge” (DMM, 2018).

Figure 10 – Alfa’s Timeline: Growth Phase

Source: Developed by the Author (2019)

4.2 PR E-A NA LYS ES O F AL F A’S NE TW O R KS AND NE TW OR K S TR A N SI TIO N S W I T HIN T H E LI F E CYC L ES

Alfa is a corporate spin-off, confirming the alertness highlighted by Zahra (2005) and Oviatt and MacDougall (2005) in which BGs can spun-off by existing companies.

This aspect benefited since it was already inserted in a well-established business setting, providing physical, human and administrative resources. Within the pre-inception phase, the parent company client’s network played as a crucial role for the development of Alfa.

We can identify that IC1, recommended by an intermediate network, was the first network for Alfa as they were the key driver to develop the high-tech software program and therefore the first network to position the product that became later the reason for a new venture establishment. During the process of establishing this software, JHA became the CEO of Beta Solutions as he had a strong vision of the development and the potential of the product within the global market, due to his previous experiences within the internationalization process in the software industry (Anderson & Wictor, 2003).

After the establishment of the software, the second client, IC2, requested for an alliance between the software system and React which was perceived by JHA as a very important business achievement for the software development: “Since I was in a hunger

65 to have a feedback from them regarding how our product should be better organized and structured in order to attend their needs, I went all the way to Lund to have a lunch with them at the company cantina. At that moment, we had great ideas written born in napkin.

These ideas were shortly after put into practice, giving our product more dynamism”

(JHA, 2018). In parallel, align with the literature, Coviello and Munro (1997) found that the use of networks or cooperative arrangements by small firms during internationalization could improve international market penetration by providing access to a network of additional relationships. By integrating those two systems, the network established was perceived as a strategic mechanism for the company to future potential customers, as well as allowing the product to be uniqueness since it was providing an integration of different actors through its software system which served as a common project for anti-counterfeit customers worldwide. Also, conversations often convey information which is essential for producing awareness of products in a market. In this case, the IC1 provided a product demand by informing and recommending IC2 about the software.

Another factor correlated with the business orientation of JHA and also to the literature of BGs is the ability of the entrepreneur to perceive new market opportunities (Knight & Cavusgil, 1996; McDougall and Oviatt, 2000; 2004; Rasmussen, 2002;

Andersson & Wictor, 2003). After developing from scratch an integrated anti-counterfeit product, the entrepreneur vision concerning the product was to further commercialize it on the international market. As JHA highlights: “I asked to the manager of Sony Mobile, who worked with us in the system, how do you find your suppliers? Where do you hang out? What are your networks? From that moment on, we followed his suggestions and started to visit international conferences focused in our new business segment” (JHA, 2018). This information lead to the attendance of the first international trade fair that was an essential network mechanism as they met future potential customers for selling and marketing their product (Evers & Knight, 2008).

According to MacDougall et al., (1994) and Autio et al., (2000) the aptitude to internationalize in an early stage and maintain its growth in the external market is linked with the internal competencies of the firm. This assumption is associated with the concepts of innovation and knowledge. As highlighted by Cavusgil & Knight (2004), innovation is an outcome of one being the internal R&D that accumulates a firm’s knowledge, which in turn supports the opening of a new market or its reinvention. These arguments are specific dependable within the entrepreneur role and its ability to generate

66 uniqueness and the innovative product inside a highly competitive market. The product innovativeness leads to win the innovation prize of the year, received by Almi which helped the company to advance the product further, as well as progressing to an inception phase.

Clear outcomes of this phase are the influence of the parent company organizational networks, more specifically the international clients, in several aspects, such as; i) served as a means for product development in accordance with the industry needs for brand protection; ii) inserted the company in an global cooperative association which exposed the company to other companies and organizations that fights the trade in counterfeit goods; iii) provoked the entrepreneur awareness of its product uniqueness and distinctiveness to further commercialize; and iv) invest in network building mechanisms that provided future international customers and product positioning. These findings lead to the first indicators of internal development competencies, such as: market perception through clients necessity (identification of market gaps); product development, product innovativeness, access to new networks and organizations related to the industry (knowledge exchange), operational competencies in terms of agility for product adaptation, and marketing that allowed the company to move towards the inception phase, as well as its internationalization process since the product already started covering several international clients.

As the company progressed to the inception stage, Almi-Invest represented a key turning point. Due to their investment requirements, the only solution left was to become an independent company solely focusing on the software. Since the company needed to be guided, JHA became the entrepreneur of the spin-off company. In this phase, the firm was concerned with how to finance the new venture. To do so, JHA transferred his assets to establish the new company and had to activate his networks to make his objectives concrete as argued by Gabrielsson et al. (2004).

To fulfil the second requirement of Almi-Invest that contained two more external investors JHA contacted the parent company board, which through Peter provided Alfa access to Entreprenörinvest. As for the second investor, JHA contacted a personal business network that had become an Angel investor and was willing to inject capital in the spin-off company. These network ties made it possible for the new venture to raise enough capital in order to be officially established in 2015 (Gabrielsson, et al., 2004;

Gabrielsson, et al. 2008).

67 Another factor that should be taken into account is the constant follow up that Alfa establishes with its clients. This activity can be observed in several quotations within the case description. The first quotation reflects the inception phase regarding the transition of the venture from its parent company: “Because we did not want to let the customers know that we are a new venture with a different management, as we did not want to start any rumors or scare any customers. About two or three months after the establishment, we contacted the international clients that were using the software to inform them about the transition by asking them if they were still satisfied or if they noticed any difference in receiving service.” (JHA, 2018). In a second moment, in the growth phase, the same argument can be observed in the following quotations; “we are constantly developing our products based on client’s feedback, on their opinions, even if it set us a challenge” (DMM, 2018); “it is an exchange, how we get the information from them in order to better contribute back to them. This relationship builds trust in us and our offering and it gives access to other clients and their networks. It is an exchange of experiences” (JHA, 2018). By examining these arguments, we can explicitly see the concept of commitment as highlighted by Johanson and Vahlne (2009). Commitment means the willingness to act, to maintain, develop and strengthen relationships to obtain network positioning and trust. Trust is an outcome of a long-term relationship in which this relationship provides knowledge. Subsequently, knowledge provides market opportunities, and lower the perception of market risks and uncertainties, which enables foreign expansion via networks.

Overall, this inception phase characterizes itself by using the parent company network ties to open doors for an independent company and the entrepreneur business network as well as institutional networks to overcome resources limitations, more specifically to fulfil capital needs. The network ties were approached intentionally in order to allow the spin-off to: 1) formally establish the venture independently; 2) to generate growth and profitability; and 3) to invest in product development and research.

This finds goes in line with Gabrielsson et al., (2004) and Gabrielsson et al., (2008) which argues that in the inception phase financial support is required to market and sell the product internationally which directly influence on the development of the internationalization process of the firm.

In order to proceed with the company growth and foreign expansion, the company had to rely on trade fairs to provide visibility and recognition of the brand, as well as to penetrate the industry (Evers & Knight, 2008). As Johanson & Mattson (1988) say that

68 through penetration, the position can be developed through the networks that are already positioned to increase resources, such as foreign clients. The trade fairs provided a network where it was possible to follow up with the potential customers merged in these events. As every year, the same and additional companies would join. By constantly attending trade fairs, they were able to gain their first three international customers as a new brand.

As the company reached its growth phase the product and therefore the company needed more capital to provide accelerated growth to increase sales and to constantly make improvements in the software system (Gabrielsson et al., 2004; Trudgen &

Freeman, 2014). For the second round of investment, we can also point the use of networks characterized as the company board, which enables Alfa to access new external investors to fulfil the capital requirements.

Another factor that is correlated with this phase is the organizational capability of the company and its technological competence to adapt their system in order to attend client’s needs. According to Rennie (1993) customization and product adaptation are a dynamic characteristic of BGs which differs them from other companies. This adaptive competence could also lead to a process of acquiring complementary knowledge to obtain competitive advantage.

Furthermore, as the company became stabilized and started to build reputation and increase its international sales, the international clients were seen as strategically important to obtain more customers and to access different markets through partners. As noted by JHA; through our integration, for example, with React, a global organization, it provides us potential clients because they hear about us, establishing the bridge to connect with new clients and people. Furthermore, some of our clients promote events with suppliers that allow us to meet them and discuss our solution and how to be more efficient, as well as to meet some new people” (JHA, 2018). This quotation is a reflection of the ability of the firm to build long-lasting relations of trust with current clients delivering a favorable competitive position against possible competitors.

Summarizing the growth phase of Alfa, it is observed that existing business networks attributed to Alfa’s company board provided more capital to generate competitive advantage by improving marketing and product portfolio. The capital was also needed to sustain the company's future objectives to increase the staff and the company size. Additionally, the establishment of new network ties is much more perceived and strategically oriented in this stage in order to acquire new international