DOI10.1068a3558 Constructing innovativeness in new-media sta

1Introduction:the historical and structural context of research on Silicon Alley This paper is about the way participants in the Silicon Alley project between 1995and 2000went about defining their `innovativeness',the celebrated process of creating something new and unique in the digital media for which they have rightly become famous,if not notorious.The idea of `newness'is expansive and includes new web design and content,creating new websites and web services for business clients,developing new commercial applications of Internet technology in the advanced producer services,and adopting organizational innovations such as temporary projects and extensive interfirm 4aed9f896529647d272852ecpared with Silicon Valley,an older high-tech industrial district from the era of `flexible specialization'and better known for its technical inventions and computer-related innovations,Silicon Alley is a much younger district,more volatile,more perse,less concentrated,and more highly focused on web design and content.`Innovativeness',in the last half decade,was `in the air'and had the blessings of the advertising industry,the corporate and public champions of the `new economy',and the investors of venture capital and private capital.This paper connects the empirical,grounded conceptions of innovativeness to the internal project organization of small start-up firms and to the interfirm networks among them.The five-year trajectory of Silicon Alley provides the larger historical background as well as the structural context for what has developed into an extra-ordinarily dynamic industrial cluster.Although the theory of industrial districts is still relevant to the rise and transformation of Silicon Alley,we are dealing with what is in many ways a novel,if not unique case of the collocation,interaction,and agglomeration of vertically nonintegrated network enterprises.To understand the dramatic trajectory of Silicon Alley in the regional context of the global economy (Storper,1997)and of the ``cultural economy of cities''(Scott,2000),Constructing innovativeness in new-media start-up firms Wolf Heydebrand

Department of Sociology,New Y ork University,269Mercer Street,New Y ork,NY 10003,USA;e-mail:wolf.heydebrand@4aed9f896529647d272852ec

Annalisa Miro n Institute for Law and Society,New Y ork University,Butterick Building,161Avenue of the Americas,12th floor,Mail Code 9925,New Y ork,NY 10003,USA;e-mail:am922@4aed9f896529647d272852ec Received 22February 2002;in revised form 29May 2002

Environment and Planning A 2002,volume 34,pages 1951^1984

Abstract.We focus on the social construction of innovativeness in the context of project teams and interfirm networks among new-media start-up firms in Silicon Alley,Manhattan.The analysis is based on a total of thirty-four interviews with firm executives and other informants.A brief discussion of the historical and structural context of the research project is followed by an exposition of the theoretical framework,that is,the theory of industrial districts and the hypothesized connection between innovativeness and interactivity.In each of the three subsequent sections of the paper,the empirical findings are presented and analyzed:the grounded conceptions of innovativeness,the two main variants of project organization (self-organized versus managerially coordinated project teams),and the varieties of interfirm networks such as transactional and mixed networks.Other networking practices documented are client relations and hiring.We consider the effect of state-level legal infrastructure and economic deregulation on the business culture of interfirm networking,information sharing,and innovativeness.

DOI:10.1068/a3558

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especially that of New Y ork and Manhattan,it is useful to recall certain obvious larger forces and events that helped to constitute it.The first and perhaps most important contextual factor was the takeoff phase of the contemporary round of economic globalization after1989^91.It was marked by the end of the Cold War in1989,a new wave of economic deregulation as part of the further expansion of neoliberal economic policy,and the dramatic growth in the liquidity and mobility of finance capital,surpassing for the first time in history the pre-1913levels of foreign investment (Bairoch,2000).In the1990s Silicon Alley new-media firms were predominantly self-funded in the early years as well as in the early stages of start-ups(still50%as late as 2000,according to the August2001``Climate Study''by PriceWaterhouseCoopers).The provision of finance capital from venture investors tripled between1995and1999,from about$6billion to$21billion(Prowse,no date).Investors looked favorably on young, creative entrepreneurs and management teams willing to experiment with new forms of project organization,organizational learning,and the use of`informal'management controls(Pant,2001).Following the organizational models from advertising,manage-ment consulting,and accounting,entrepreneurs were eager to pursue?and investors were eager to sponsor?networking strategies both within and between start-up firms (interview303;(1)Grabher,2001;Heydebrand,1999a,pages65^69;Molotch,2000). Venture and private capital investment can,therefore,be said to have had a major part in creating the Silicon Alley boom between1995and2000.Likewise,the so-called `crash'in the technology stocks after March2000and the current recession as of March2001,not to mention the events of September11,2001,have had a significant role in bringing the boom to an end.

In1992the US economy(and that of New Y ork City)began to emerge from a minor recession that facilitated the positive political reception of the new national administration of President Clinton.This more political element constituted a second factor that promised to offer a deregulatory,services-intensive,technology-friendly `third way',epitomized by an expansive vision of the global economy and a``bridge to the21st century''(former President Bill Clinton's phrase).(2)The incipient economic boom and the unprecedented surge in stock-market valuations created a sense of euphoria that would last about five to six years,notwithstanding the`shakeout' of1996in Silicon Alley and the`global financial crisis'of1997(Soros,1998).

A third factor is closer to the question of the actual innovativeness of Silicon Alley new-media firms:the ready availability of a perse,young,well-educated,computer-literate,and skilled labor force in art,technology,and business drawn from the city's educational institutions as well as a highly persified labor market(interview301; Scott,1999).New-media knowledge workers circulate through small local,regional (NY,NJ,CT),national,and transnational networks.Working in close proximity to each other,they share strategic information,tacit knowledge,and practical know-how (Arora and Athreye,2001;Batt and Christopherson,2001;Matloff,2001;Saxenian, 1999;Zukin et al,1999).Moreover,different metropolitan areas tend to specialize in distinct products or technologies,thus generating variations in employment concentra-tion,patent activity,and venture capital flows(Cortright and Mayer,2000).This perse labor force is highly mobile because of the temporary nature of project organization,the short product life cycles typical of new-media products,the high rate of entry of new start-ups(until2000),the rapid turnover of contingent and freelance personnel,a neolibertarian lifestyle(Borsook,2000;Davis,1998),and a

(1)Interviews are referred to by a three-digit code.The method is described in the appendix.

(2)See also former Vice President Al Gore's slogan,``information superhighway'',and former Labor Secretary Robert Reich's1991references to``symbolic analysts''as central to the``work of nations''under``21st century capitalism'.'

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widely shared``hacker ethic''(Himanen,2001)embracing the tenets of the`open source movement'in software production(Raymond,2001).Not all facets of this demanding and insecure work environment enjoy unqualified praise(Christopherson,2001; O'Riain,2000;Pant,2001;Thompson,1999).The creativity,composition,and intrinsic mobility of this labor force,however,are arguably central preconditions for the innovativeness as well as the diffusion of innovative know-how in Silicon Alley.

In the following,we briefly elaborate the theoretical background for this study (section2).We then present our grounded approach to the construction of innovative-ness,based on interview data(section3).This discussion is followed by a section on project organization as the primary medium of innovative coproduction,coaching,and learning within firms(section4).We then present interview data on the importance of personal and interfirm networking for creative interactivity and information sharing (section5).Finally,we offer a brief discussion of what we see as the intimate connec-tion between the state-level legal infrastructure,economic deregulation,labor mobility, and an open network and innovation-oriented business culture(section6).

2Theoretical background

Knowledge-intensive industrial districts like Silicon Alley in Manhattan are assumed to be central to the development of the`new economy'.They are seen as driven by digital technologies involving short product life cycles and a high rate of innovation (Camagni,1991;Dosi et al,1998).They clearly seem to thrive in a favorable economic climate,including a policy of deregulation,the availability of venture and investment capital,a skilled,perse,flexible,and mobile labor force,and the proximity of markets (Dicken,1998,pages73^78).They benefit from the forces of local agglomeration typically associated with geographically concentrated industrial clusters and nodes (Amin and Thrift,1992;Pratt,2000;Saxenian,1994;Scott,1997;1999;2000;Storper, 1997).

Thus,the notion of a digital business culture represents a holistic combination of these variables,emphasizing a mature information and communication technology, spatial proximity and collocation,project organization of firms,interaction and net-working among firms(increasingly led by large firms),high labor mobility among skilled workers in the art^technology field,a high level of`coopetition'(see section5.3) and innovativeness,the impact of relevant educational institutions and professional services,and the feedback effects of agglomeration.

2.1Innovativeness and interactivity

The central working hypothesis of this paper is that innovativeness within clusters of similarly situated firms is significantly influenced by high levels of interactivity, including practices of information sharing within self-organized project teams and cooperative competition in interfirm networks.It is,therefore,useful to step back for a moment and to reflect on the kind of social interaction and interactivity involved here.

The sociologist Georg Simmel(1971;1978)and his innovative concept of``inter-action''provide a crucial theoretical frame of reference.Simmel and other sociologists working in the structural tradition(for example,Breiger,1990)distinguish between at least two analytical levels at which interactivity can be conceptualized:(1)the qualitative nature of interaction between two or more inpiduals in social groups, networks,or situations(for example,intensity and duration of interaction;formal versus informal;transactional versus personal);(2)the quantitative frequency or rate of interaction within and between groups,that is,interactivity as a structural phenom-enon(see,for example,Blau and Schwartz,1984).Statistically,the rate of interaction is

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expected to increase with the size and persity of groups(perhaps up to an optimal point of manageable interactivity,or a point of density or saturation,when overload may begin to set in).

Two analytical points must be stressed in connection with this otherwise familiar notion of social interaction.First,for Simmel,the central reference points are the reciprocal effects and mutual recognition and influence among interacting persons, not the more or less rational or strategic action among inpiduals.Even where interaction is strategic,cooperative,competitive,or otherwise`rational'in a game-theoretic sense,it occurs on an analytical level that transcends the simplified notions of rational action or rational choice(Brandenburger and Nalebuff,1996;Goffman, 1969;Gomes-Casseres,1996).Secondly,Simmel does not use the terms`role',`norm', or`institution',but the notions of social ties,social forms,social types,and sociation that may result from the crystallization and routinization of repeated interactions. Simmel's concept of culture is the endpoint,not the starting point of a given sequence of interaction and sociation.Thus,Simmel's generic concept of interaction has an emergent,open,and indeterminate character,one that is useful in theorizing the potential unpredictability,inventiveness,deviance,creativity,and novelty of social interaction.

The generic theoretical issue here is that interactivity is the creative source of innovativeness in organizational projects and interfirm networks.Indeed,we find much support in our interviews for the idea that the definition of innovation itself is grounded in the interactivity within the industrial district.Interactivity implies the existence of communicative links and the potential for information sharing, collaboration,and coproduction among people and groups.Interactivity and infor-mation-sharing spawn cooperative ventures,joint projects,and the potential for future collaborative interaction.It is the inherent openness and potential novelty of social interaction that are significant for understanding the innovative role of open networks.This is also why social networking cannot be replaced by symbolic or Internet contact at a physical or geographical distance,but requires informal, personal,face-to-face interactivity,a phenomenon noted by countless observers and confirmed by most studies of industrial districts(for example,Pratt,2000,page428).

A basic ingredient of industrial clusters is to provide material opportunities for the continuity of direct personal contacts and social interaction,not just technical contact through cybernetworks or the Internet(Wellman and Haythornthwaite, 2002)or symbolic contact through public channels of communication.

A final issue in this discussion is the relationship between size,structure,dura-tion,interactivity,and innovativeness.Small start-ups and temporary networks are often seen as showing a propensity for informal,flexible,cooperative,and creative interaction.As small firms grow larger,they are seen as becoming more formal, competitive,institutionalized,bureaucratized,rigid,and prone to routinization rather than innovation.But small families can be normatively rigid and institution-alized,and large corporations can structure themselves into decentralized network enterprises,a condition Harrison(1997)calls``concentration without centralization''. It is therefore useful analytically to separate size,structure,duration,interactivity, and innovativeness:size,structure,and duration seem to be mediating or intervening factors rather than clear-cut determinants of the rate of interactivity and innovative-ness.We hypothesize that small,network-like,self-organized,temporary project teams are likely to be more spontaneously interactive and innovative than highly structured,managerially coordinated units,even if they are organized as projects. Similarly,small interfirm networks featuring mixed personal and transactional ties

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especially in the early phases of their existence are likely to be more interactive and innovative than large,older,formalized,bureaucratized corporations.

In short,we hypothesize that interactivity generates the social potential for creating something new because it is open ended and somewhat indeterminate,self-organized and empowering,and based on a sense of free association and mutual recognition. These factors seem to be central elements that provide genuine pleasure in work,self-esteem,personal inpiduation and identity,and a source of positive self-feeling.The hacker ethic(Himanen,2001)widely reported and commented upon by participants in the Silicon Alley rush may have its origin in the combination of high interactivity and being part of a larger`web of group affiliations''or network of networks.

2.2Theoretical conceptions of innovativeness

In the new-media industry,novel,domain-relevant designs in process,product,and application are at the heart of innovation and innovativeness.Producing new patterns and models displaying a certain degree of uniqueness is what is commonly meant by originality and creativity(Amabile,1996;Kanter,1988).Central to this process is the further idea that innovation is a form of``reflexive collective action''(Storper,1997, page107);it is not so much the result of the thought and action of an isolated inpidual or genius,but the result of social interaction and learning among partic-ipants in perse situations and heterogeneous networks,groups,and organizations.(3) Because Storper emphasizes the qualities of organizational learning and interac-tion,it may be useful to raise a caveat on the potentially conflicting relationship between these two categories.According to Storper(1997,page107),``learning[is] that which allows agents to create dynamic advantages so that the force of imitation is outrun by the pace of innovation;interaction[is]the characteristic of complex systems whether internal to firms or production units or between them and the environment,that articulates the economic phenomena of specialization and coordi-nation.''In offering a critique of the concept of the`learning organization'as a linear construct,Jaffee(2001,page176)points to the potential contradiction between the two terms of this concept,`organization'and`learning'.Jaffee cites Weick and Westley (1996,page440)to the effect that``organizing and learning are essentially antithetical processes,which means that the phrase`organizational learning'is an oxymoron.To learn is to disorganize and increase variety.To organize is to forget and reduce variety. In the rush to embrace organizational learning,organizational theorists often overlook this tension.''This insight,shared by other observers(for example,Pant,2001; Starbuck,1983;Whitley,2000),implies that the capacity for learning may be restricted to more horizontally structured,self-organized project teams and to institutionally less crystallized,vertically disintegrated network enterprises.

In shifting our attention from specific innovations to innovativeness?the capacity for and production of innovations?we distinguish among four pairs of innovative processes each of which may be in tension with the other and bring us closer to the question of what innovativeness might mean in new-media start-ups.One way of conceptualizing innovativeness is the process of tinkering and`bricolage',that is,the creation of novel combinations of old,familiar elements,a process ranging from serendipity(unintended,accidental discovery),to the imitation and reproduction of traditional or conventional practices,to the painstaking effort of trial and error. Such minor,incremental adjustments,adaptations,improvements,and applications must be distinguished from major structural innovations representing a fundamental

(3)An important subset of questions we do not address concerns the nature of uncertainty and the degree of indeterminacy giving rise to innovative change in the first place(but see Langlois and Robertson,1995;Whitley,2000,page866).

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transformation of existing methods,processes,and practices.This distinction refers to ``the simple contrast between incremental and radical innovations''(Whitley,2000, page866).For example,creating a computer-based interactive telecommunications technology in the form of the Internet surely qualifies as a major innovation,but it has now become merely a premise for incremental innovative work in the digital media industry and interactive software development.

Second,a somewhat different set of processes is the use of`reason'and practical rationality in their primordial meaning:discovering or designing a practical,workable, effective,parsimonious,elegant solution for a specific problem,as compared with the potentially innovative theoretical rationality of basic research.(4)Practical innovative-ness based on`applied'and`problem-solving'research is often directed at developing `dedicated products'in contrast to`generic products'(Storper,1997,pages122^125; Whitley,2000,page867).In the post-Fordist age of flexible specialization,creating specialized products for specific customers or market niches tends to become synon-ymous with this type of practical innovativeness.Moreover,whereas the label of pure, basic,or theoretical research used to be accorded higher prestige in the1950s and 1960s in contrast to applied,practical research or`research and development',the distinction has become blurred in some fields,implying an upgrading of the value of applied research,practical problem-solving innovations,and customization.

Third,cognitive innovations and technical solutions emerging from the``instinct of workmanship''(Veblen,1918)and the professional^theoretical impulse to expand knowledge through basic research are processes that may come into conflict with economic innovations oriented toward improving efficiency and reducing transaction costs(Veblen,1921;Williamson,1996,pages81^83,117^118).Schumpeter's well-known concept of``creative destruction'',the replacement of outdated and inefficient forms by more adaptive and flexible ones,points to one version of this potential conflict.

Fourth,organizational innovations oriented toward radical decentralization,dem-ocratic participation,forms of information sharing,and distributed knowledge may come into conflict with managerial strategies oriented toward rationalizing adminis-trative control or the restructuring of existing work and authority relations in the direction of informal mechanisms of control(Pant,2001;Senge,1990).Although this issue touches on older debates over the conflict between different organizational or institutional logics such as market,state,and democracy(Friedland and Alford,1991) or market,state,and professions(Freidson,2001),we want to draw attention to the fact that innovations and innovativeness do not occur in a neutral vacuum but tend to be driven by different structural and institutional interests(see also Burt,1981;Heydebrand and Noell,1973,pages301^303;Kimberly,1981;Powell,1993).The four pairs of innovations?incremental versus radical,knowledge expanding versus applied or prac-tical,cost reducing versus quality oriented,and information sharing versus rationalizing control?represent different types of structural interests(cognitive,technical,economic, political)not all of which may be equally important as we shall see later.(5)

(4)The distinction between theoretical and practical rationality is based on Max Weber's two forms of cognitive rationality,in contradistinction to his two action-oriented forms of instrumental and value rationality,and his two institutional forms,formal and substantive rationality in economy and law.

(5)`Innovativeness'is difficult to measure in standardized terms,yet it is the primary characteristic of high-tech industrial districts.We initially considered using three operational measures to assess innovativeness.First,one could assess innovativeness quantitatively by the number of patents applied for and/or issued[using the United States Office of Patents and Trademarks databases going back to1976(Lambert,1999)].However,this measure is likely to be more appropriate for technical hardware rather than software,content,and process innovations,which are less patentable.

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2.3Industrial districts and deregulation

Neoclassical economists tend to see social networks as`externalities'insofar as``the utility that a given user derives from a good depends upon the number of other users who are in the same network''(Katz and Shapiro,1985,page424).In this view, networks interfere with the operation of markets(Economides,1996).By contrast, sociological approaches to explaining the emergence of markets give greater weight to the constructive(competitive and cooperative)role of social network ties among producers(White,1981).This structural interpretation is supported by a long line of sociological research on the innovative effects of interfirm labor mobility,networking, and cooperation in more or less tightly structured industrial settings(Grabher,1993a). The work of Piore and Sabel(1984)and Sabel(1989)on flexible specialization in industrial districts in northern Italy,southern Germany,and Massachusetts focuses on the effect of production and innovation networks on regional restructuring.There has also been much research on the consequences of interlocks for organizational performance,but the results are mixed,suggesting a``curvilinear relation between interlocking and profitability''(Mizruchi and Galaskiewicz,1993,page57).Recently, Powell et al(1996)explored the notion of organizational learning through social network ties among biotechnology firms.In a study of the network structure of the New Y ork garment industry,Uzzi(1996)found stabilizing and survival-enhancing effects of an optimal mix of`embedded'and`arm's length'interfirm network ties. Significantly,Uzzi's(1997)work reproduces the Granovetter effect in that firms that are highly embedded to the point of having few or no bridges to other networks have lower survival chances(Granovetter,1973;see also Grabher,1993b on the lock-in effects of closed networks).Other analyses of the economic geography of innovation and technical change also suggest the operation of interfirm network effects on the cultural economy and agglomeration of knowledge-intensive industrial districts (Harrison et al,1996;see also Scott,1997;2000;Storper,1997).

Most of the empirical research on the theory of industrial districts is of relatively recent vintage(Amin and Thrift,1992;Camagni,1991)and focuses on the organiza-tional dynamics of knowledge-intensive production and service networks in uncertain and turbulent environments(for a review of the literature see Heydebrand,1999b).At the same time,however,there is a certain degree of indeterminacy in the scientific conclusions emerging from this work,for example,the problem of the viability of a networked social structure over time(Flache and Macy,1997;Podolny and Page,1998, page70;Stokman and Doreian,1997),the impact of governmental and legal policies on the diffusion of innovations(Bianchi and Bellini,1991),and the emergence of ``concentration without centralization''(Harrison,1997,page8).For example,it is still an open question whether the degree of innovativeness rises or falls with economic concentration and social stratification.Although our analysis focuses primarily on interactive and network dynamics as potential determinants of innovativeness,we are (5)continued.

Another way of measuring innovativeness occurred to us,namely getting at the degree of`attrac-tiveness'of new designs,as evaluated by Nielsen/Net ratings(Nielsen/NetRatings Reporter1999, Sblodgett@4aed9f896529647d272852ec).Although these ratings provide the number and average duration of website visits or`hits'per month,such ratings may measure`marketability'more than innovative-ness.Third,we thought about using the percentage of`creative'personnel in web firms,(for example,design artists and engineers,art directors,text writers,and web designers),a process indicator commonly used by new-media and advertising firms.The greater the number of`creative' personnel,it is assumed,the higher the potential for innovativeness.Unfortunately,these indicators of innovativeness are of limited reliability,just as the proportion of MDs in a hospital or of PhDs in an academic department are indicators of`quality'only in a very general sense because they do not measure actual performance.

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also sensitive to the opposite direction of causality.In other words,we are keeping in mind the chance that,over time,successful innovation may be a factor in the formation of status,power,prominence,and network centrality as well as the eventual institu-tionalization of interfirm networks through mergers,acquisitions,and``concentration without centralization''(6)(see Baker,1990,page600;Knoke and Burt,1983).

3Constructing innovativeness

In this section we seek to develop grounded definitions of innovation,gleaned from interviews with Silicon Alley(SA)and non-Silicon Alley(non-SA)executives.Empiri-cally grounded definitions and theories take their cues from the experiences and concepts of the insider participants of a given social field rather than from the categories and concepts of the outside observer(Glaser and Strauss,1967).Grounded definitions thus reflect the ways knowledgeable insiders perceive and construct their relevant reality.Grounded definitions contribute to the discovery of theory,a phase in the research process that provides valuable insights produced by actors from their perspective as participants or participant observers.In a later and often separate phase of research,grounded theories can be tested,verified,or falsified.

As evident in the excerpts below,respondents'understandings of the concept of innovation vary widely,and sometimes in contradictory ways.For example,one(SA) executive asserted that``innovation of design is a huge part of what we try to do'' because``design is changing constantly''(interview108,page10),whereas another (non-SA)executive said that``all innovation generally is disruptive by it's very nature'', therefore a viable innovation is one that``puts the firm's ultimate success ahead of creative thinking''(interview201,page4).Furthermore,in asking executives about their definitions of innovation,we try to get at the distinction between innovativeness, on the one hand,and other business criteria such as profitability,and marketability, as well as market centrality,dominance,and survival of the firm.As can be expected, venture capital investors deny innovativeness can be defined independently of other criteria of business success(for example,interview303,pages5;7^8).Nevertheless, at least three common definitions of innovation can be identified.These grounded definitions,which locate innovation both within a firm context and within a context of interfirm competition,can be summarized as the following:problem-solving innova-tion,client-oriented innovation,and executable innovation.As we shall see,these definitions all describe innovation in pragmatic terms as an incomplete business process.Simply inventing new technology,or unique applications of existing technology, will not necessarily benefit a firm.As one influential informant put it:

(6)Most problematic from the present perspective is the fact that business insiders typically assess the nature and value of innovativeness in the new media industry by hindsight and in conjunction with other criteria of success and performance rather than by itself.For example,a highly influential research analyst working for a prominent New Y ork investment bank and specializing in Internet stocks uses three major criteria for screening candidates for an initial public offering: a large potential market,a`clever'technology,and an experienced management team(Cassidy, 1999,page56).This analyst also advises start-ups and small capitalization firms to find a larger partner and to make use of the increasing returns on`network effects'in the newly emerging ``commercial ecosystem''(Cassidy,1999,page58),whereas survival at more advanced stages is thought to depend on the time-honored business strategy of acquisitions and the expansion of market share(Cassidy,1999,pages60^62;Fox,1999,pages69^72,focusing on 4aed9f896529647d272852ec).

A prominent venture investor whom we interviewed(interview303)uses similar criteria,but in a different order:a top management team,a business product with a large potential market and little established competition,and a networked business model.In these insider examples,the impor-tance of innovativeness is either expressed directly in financial and market terms or in conjunction with other criteria of success such as growth and survival,making it difficult to assess its independent role in the rise of industrial districts such as Silicon Alley.

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``My feeling is the larger the companies,the less effective.There will be no innovation in large companies...your reputation comes from innovativeness....Innovation by itself is not very interesting.It's innovation that applies to making things happen'' (interview301).

The value of innovation lies in its applicability and contribution to problem solving, appeal,and usefulness to the client or consumer,and doability or executability.

3.1Problem-solving innovation

Some firms describe innovation as a deliberate problem-solving process.For them, innovativeness lies not in the invention of new technology,or new design,but in the redefinition of an old problem.For example,in contrast to serendipitously discovering creative approaches to old problems,these firms deliberately identify areas where new solutions are needed.

``I think innovation is the way some people attack problems...basically something is innovative if you can look at a problem and define it in a new way that no one else can think of''(interview206,page17).

Hesitant to commit to a problem-solving definition of innovation,this chief technical officer nevertheless provides the following example of an innovative approach to problems.He states:

``Maybe it's not innovative,maybe it's just I challenged people's assumptions by saying you don't scale a site with hardware,you scale it only with software and then hardware....I said`Give me time to have my team rewrite the code and then it will be faster'.And it is paying off....Is it innovative?...Some of the approaches to the problem,I'm going to say are definitely innovative''(interview206,page17). In this description,innovation is a conceptual shift that allows firms to come up with new,effective approaches to discrete tasks.Innovation is a process resulting in more efficient operations or service delivery.Along the same lines,one firm describes its ``innovative value''in the following manner:

``I think innovation[is]any time you come up with a process or product or a device or anything that helps change the way you do things.Say there's a dramatic shift in the way things work.It's innovation....Our innovative value that we're using is we're innovating cost of phone calls,production and labor efficiency by eliminating data transfer''(interview110,page11).

Thus`business'innovation in Silicon Alley appears to be more important than technological innovation;streamlining business operations,or cutting consumer costs,may not require a high-tech innovation.Instead,innovative value occurs in the deconstruction of an outdated approach to discrete problems.

3.2Client-oriented innovation

How does a firm identify discrete problems where innovation is needed?According to some firms,client needs are the seeds of innovation.

``I think innovation always comes out of listening to the consumer,listening to the customers,what the customer wants''(interview110,page16).

Some firms dramatically describe innovation as empowering the customer, ``or letting the customers empower themselves''(interview108,page6).Thus some respondents assert innovation independent of client needs may be irrelevant to firms: ``I don't think what we do is necessarily innovative.And I don't think the clients necessarily need innovation.I think they need solid delivery and good advice.And so for me,innovation comes from our using new technologies that work for the clients''(interview204,page11).

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However,client needs are not always met by simply inventing a revenue-raising approach;clients require delivery of the innovation.Customer service may in fact be a more significant factor in firm success:

``So sometimes innovation is really great,but innovation is not the key determi-nant.I can be very innovative and be lousy at customer service and I will fail miserably.I can be much less innovative but be really great at customer service and make promises and finish the project and I will be very successful''(interview204, page13).

Of course,a client-oriented definition of innovation makes sense when one singles out `successful'innovation by evaluating the bottom line.For example,one interviewee of a firm,which at one point quoted its revenue at two million dollars,defines innovation as``getting the consumer to act''(interview105,page6).Thus some firms define innovation as new technological applications that further client goals:

``I guess a successful innovation would mean that it brings,it meets the client's business goals.It either...it's cost cutting or revenue generating....When I was at ITP playing games with it,it was just for the sake of seeing if we could do it.

But if you take that and apply and see how you get people to come play with it or use it and get them to pay money for it''(interview305,page12).

Broadly speaking,most interviewees drew a sharp line between innovation and finan-cial profitability.When asked whether he distinguishes between something that is innovative from something that is financially profitable,one interviewee set the record straight?there is no connection between the two concepts.

``I don't think that necessarily people,business types would think innovative versus financial.It's like apples and oranges.Y ou'd say does this make sense,whether it's new or not....I'm not averse to making money whether it's old style,new style,or something else''(interview106,page8).

Though one non-SA executive asserted that`fast'and frequent innovation is key to market dominance(interview205,page12),most interviewees suggested there is no guarantee innovation will lead to market dominance:

``I don't think innovation leads to dominance.Because you can have a great product, but if you don't know how to market it,you could basically not have dominance in the marketplace''(interview110,page15).

Another interviewee provides an example of this principle:

``[We]created in the early flush days of Silicon Alley,created something called the AirMedia Live Internet Broadcast Network,which was a very high profile,break-through wireless network that broadcast out across the country....On the cover of PC Magazine twice.One of the first high profile things in Silicon Alley.Technological success,economic disaster''(interview106,page1).

That innovation does not necessarily lead to financial success may lead some dominant companies to resist it,as it disrupts the flow of proven successful operations:

``Centrality and dominance don't lead to innovation.Very rarely.I worked for Time Warner...innovation was hard to do at Time Warner.So hard...dominant compa-nies are not designed to foster innovation....Anything that gets in the way,that creates friction between the firm and its customers is an impediment to success and guess what?...Y ou're innovative.Y ou're friction.Y ou're out of there....Because all innovation generally is disruptive....Whether it's welcome disruption or not.

Perhaps the better,more generous way to say it is that...a successful employee of

a going firm has a way of creating or presenting innovation in a way that is

contributory and non-threatening to the firm's ultimate success.It puts the firm's ultimate success ahead of creative thinking''(interview201,page4).

Constructing innovativeness in new-media start-up firms1961

The chief technical officer of another medium-sized,non-SA firm,however,states: ``we have...the type of company that I think fosters innovation.No one is scolded for pointing out something.If an intern comes up with something,they are going to be rewarded for it....Maybe as we grow bigger we will fall victim to that but by being a100-person company,people have access to every level''(interview206, page21).

3.3Executable innovation

Though innovation does not guarantee market dominance,most interviewees agree that innovation sometimes leads to financial success if it is executable.Most firms described`successful'innovation in pragmatic terms,as innovation that can be executed and implemented and,as shown above,is applicable to the consumer.Inno-vation is simply the first stage of a successful business development?the stage where new ideas or new ways to use old ideas originate.To complete the process and achieve market dominance the firm needs to execute the new design.Thus,when asked what makes a firm an industry leader,or a central firm,one interviewee emphasizes the importance of execution:

``I think there are a lot of companies here that have done a really good job at sort of coming up with an idea that seems novel,promoting it really well,doing a fantastic job at getting people excited about it,getting people signed up to use it,creating a whole buzz about it.But then when it comes down to deliver...''(interview107, page12).

Working from the belief that smart innovation is executable innovation,one firm has a `conservative'approach to using new technology:

``we are looking at all the new technologies that come out and trying to incorporate them...as soon as it makes sense.There's a certain conservativeness about it....

So there is technology out there that we would love to use but until it makes sense to do so,we're not going to''(interview104,page11).

In contrast to the conservative approach,other firms try to innovate quickly and frequently,perhaps because executed innovation helps them survive competitor copy-ing.Thus in response to the interviewer's question,``Is there anything that you would do if another firm was copying an innovation of yours without your permission'', the interviewee puts it simply:

``I'd probably just simply focus on executing it better.That's really the only barrier.

If you can execute ideas.Because ideas are a dime a dozen.But execution is key'' (interview105,page7).

Another executive corroborates the above statement:

``So while,on the one hand,intellectual property like patents and trademarks are a bonus,you should not rely on it.Y ou've got to just keep innovating and stay ahead of your competitors.And the kind of tag line or the rule of thumb is you have two weeks,two weeks lead time for anything.Once you put it up,in two weeks time, given a good programming team,your competitor will copy that same feature you have...[I]n most cases you don't even have the time nor the money to go sue them which will take you away from running the business''(interview205,page12).

A similar concern comes through from the viewpoint of the investor.Speaking of the value of an innovation,a venture capitalist says:

``Certainly,you want to try and find out:does it work?I mean,does whatever the innovation is actually work?And another issue you are trying to get your hands on is how soon is it likely to be copied?I mean,all innovations are copied eventually.

How hard is it going to be for somebody else to copy it(interview303,page5).

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Thus firms must continue to innovate to endure competitor copying.But how does a firm adhere to the two-week`rule of thumb'?Though not many interviewees articu-lated the necessary conditions for quick and frequent innovation,one interviewee had a sensible and interesting response to these questions:

``I would say that in order to retain innovativeness they would need to execute whatever innovative idea they came up with.So in order to retain their innovations, they would need to have an organized enough structure of management to execute their innovations and therefore retain them''(interview111,page10).

Here execution not only completes successful innovation,but it also maintains the structure that gives birth to innovation.Taking this idea a step further,another interviewee suggests execution is innovation.Referring to her web page with pop-up windows,she states:

``I think everyone had similar ideas,and what stood out,what would be innovative is not,in that case,not the idea but the execution of it''(interview305,page14). 3.4Interim conclusion on the construction of innovativeness

SA executives define innovation in somewhat standard business terms.Innovation is valuable if it can be effectively designed,executed,marketed,and sold to the client and to the provider of the next round of venture capital.If there are`structural interests' that animate innovativeness,they are mainly practical,client centered,and oriented toward incremental problem solving.No interviewees mentioned aesthetic,creative,or humanistic characteristics of innovation.It is possible that at the time of the interviews the excitement surrounding SA innovation had already subsided,and jaded realities of the bottom line had begun to have meaning.Illustrating his insider knowledge of the fading value of novelty,a lawyer we interviewed articulates this point quite clearly: ``I think what's typified the Silicon Alley scene to a large extent is companies that have essentially built their whole business model on something that seems very novel,but not necessarily very valuable.And I just think there's been kind of an unspoken rule that if it's novel and it's Internet-based,that the value just flows from that.And I think that's been very self-perpetuating until recently''(interview321, page12).

Thus in the eyes of these executives,successful innovation is functional:it meets a specific consumer need,solves specific problems,may contribute to financial rebirth, and perhaps protects against competition copying.There are few romantic illusions about innovativeness in the new medium of the Internet.Instead,grounded definitions of innovation are just that?grounded in the dynamic interactivity of Silicon Alley.

4Project organization as a primary medium for innovativeness

Project organization,in Silicon Alley,means by and large what it has come to signify in many postindustrial types of organization.Work is organized around a particular task or set of related tasks to be carried out within a specific geographic and organizational space.It involves the cooperation and coproduction among a number of specialized actors who constitute a team.The constitution of the project team is temporary,that is,it has a definite beginning and end.But in terms of spatial or transorganizational location,projects often have extremely flexible boundaries. Projects are typically built around the needs,ideas,and wishes of a specific client who is temporarily incorporated,as it were,into the project organization and the firm itself.

Managed projects differ from self-organized ones in that the former are set up as distinct organizational units and coordinated by a project manager,whereas the latter are semiautonomous and largely self-coordinated.Among SA firms,it is mainly the

Constructing innovativeness in new-media start-up firms1963

very small ones(2^10employees)who tend to organize themselves as a whole into projects.The whole firm,plus freelancers and part-timers,may be working on a project,and the project may transcend the boundaries of the firm and link up with clients and other firms.Of course,the larger firms(10^100employees)also use project organization,but there tend to be several teams,typically coordinated by a project manager.Managed projects may have budgets and organize their time frame in terms of certain phases such as the definition of the problem,goal setting, planning,design,execution,and appraisal by the firm's chief executive officer or its client.

In self-organized project teams,by contrast,the knowledge or expertise of the perse team members does not correspond to a fixed pision of labor,nor does the coordination of team activities follow traditional managerial principles.This is why phases of the work process may not be strictly sequential,but instead may overlap or occur simultaneously.Problem definition and goal setting are shared,but may involve periodic redefinition.Design and execution may go hand in hand.Self-organized teams may initially appear to be`clueless'and engage in`thrashing around'. But this process is part and parcel of innovation and quickly gives way to a kind of organized anarchy.

Indeed,this elasticity of the relation between conception and execution corresponds to the anarchist principle of`immediatism',that is,the essential indistinguishability of means and ends and the idea that in any project,short term or long term,the realization of goals need not necessarily be preceded by stages of planning and prep-aration[Goodman(1962);see also von Hayek's notion of``spontaneous order''(1991)]. In the absence of a fixed pision of labor,knowledge and information are distributed among members of the project team even though inpidual members and subgroups may contribute special expertise and input at different points of the task process.There is a great deal of self-coordination and sequential decisionmaking among the team members,a process that is activated depending on the precise point where information is needed and by whom it can be provided(Moon and Sproull,2001;Stark,1999; Tsoukas,1996).

Interestingly,some project managers complain that certain projects resist dissolu-tion and disbanding because members bond with each other beyond the duration of projects[reminiscent of the classical Hawthorn experiments where productivity in small teams was shown to rise over time because of bonding,regardless of the experimental interventions(Landsberger,1958)].In smaller start-ups where firm and project boundaries may coincide,bonding is often expected and does not seem to constitute a problem.As one respondent puts it:

``I think small companies,no matter what they do,we are talking maybe under20 people,are more similar to each other than larger companies.There's something about being a small company that's universal.Because they generally run like families.It's much more casual,it's much more intimate.And teams get built faster that way and the commitment level is much higher.When the companies begin to grow,the commitment...either the commitment level or the quality of the commit-ment changes and so it's not as personal,it becomes more corporate.There's a shift from something familial to corporate''(interview305,page9).

Another dimension associated with self-organizing projects is the culture of egalitari-anism in the context of persity.The executive of a very small start-up says:

``We've really sort of tried to keep our corporate culture...as being really egalitar-ian.We've worked with freelancers,there's just been a huge need to sit down with them and have everybody sort of talking about everything.And we will continue to form our firm that way as we grow.Hiring designers that are also a little bit

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programmers,hiring programmers that are also a little bit designers.Kind of keeping the understanding of how technology and art work together.And I think in a lot of companies,that's suffered.The designers work and then they hand it off.It's kind of a Henry Ford model.We tend to be a little more custom,and a little more handcrafted,as much as that can exist in our world''(interview108, page5).

An important variation on the theme of egalitarianism,and one that is close to the spirit of self-organizing projects,is the emphasis on community and the culture of sharing as germane to innovativeness.

``Y ou want to hire people who are also innovative.So even if they're at the lowest point on the totem pole,even the janitor can say,ok,I think that using this cleaning solution is better than using this other one that we've used for years.I want that to happen in our organization.So you feel it in the culture of the organization,so that everybody will be participating in innovating for the company....We're all partners.

We all share ideas....So there's no reporting,you can't report to this other person and all that kind of stuff.Total waste of time''(interview205,page13).

In contrast to self-organizing project teams,managed projects are clearly more structured and their managers are more conscious of their structuring role.As one respondent put it:

``And gradually that role[of producer,creative producer,being the information architect of the site]evolved into more of a project manager...as the industry matured,as projects became more complex''(interview305,page3).

This respondent also perceived an evolving``culture clash''between creative``web people''(working for small web-design and content-oriented firms)and the larger technology companies and their more corporate,service-oriented work style,a clash that affects the makeup of self-organizing project teams.

``The kind of consultants that come from these IT[information technology]con-sulting companies were very different than the people in the web industry who often are more creative and come from a different kind of environment,not a corporate environment.A lot of the IT consultants have spent years working in corporate environments.So there was...a culture clash,definitely''(interview 305,page5).

In specifying the nature of this culture clash,the respondent traces it back to differences in firm size,the pace of work,and the speed of change in Internet versus traditional firms.

``It's my sense that larger technology companies or systems integrators,larger ones that have been around a long time who are changing their business model for the Internet,are going to have a harder time working with web people,because they're not used to the pace.And they're not up to speed on the industry....I mean,every quarter...you reinvent yourself.Every quarter there's new technology,every quarter there's a new role that you integrate into the team.So it's like you change your business model every quarter''(interview305,page7).

The impact on project teams occurs precisely at the point where the differences between (what one informant calls)`creatives'and`technologists'have to be managed and demand different types of project organization.Project teams involving`creatives',or people who have more fluid and open approaches to projects,will do well in terms of self-organization and self-coordination.For`technologists',on the other hand,a managed type of project organization would do better under the auspices of decen-tralized authority and the top-down distribution of knowledge,as the following comment from the chief executive officer of a large,non-SA firm suggests:

Constructing innovativeness in new-media start-up firms1965

``I have a senior management staff that reports to me,about four or five people....I communicate to them business needs,I communicate to them what the business plan is about.I communicate to them what types of deals are being signed by Business and Development and where things are going,And I let them manage.

Laissez-faire.I put them in an environment where they can succeed.I empower them with knowledge and give them the power they need to do what they need to do''(interview206,page11).

Although in this firm there is a degree of decentralization to the level of project managers and even a degree of discretion within projects,the language of managerial control comes through loud and clear.

In addition to the quest for control,however,there is also an economic,even utilitarian perspective on the issue of project teams.One(non-SA)executive puts it this way:

``I believe you need to think in terms of cells of people who come together on a certain project,as opposed to assembly line,and,so that matrix organization thinking I think you don't find very often....It calls for matrices that are cross-organizational.I would say it's an innovation.It's necessary to accomplish the savings...see,I look at it as a saving measure because if I can create two pots of media content from one team as opposed to a web team over here and a print team over there,I'm saving probably30%.That's the way I think about it'' (interview201,page16).

A final question concerns the way in which project organization relates to the make^buy decision,specifically the benefits of outsourcing and`partnering'as com-pared with in-house production(see section5).Both of the following firms are located outside Silicon Alley,but the first one is relatively large and close to an initial public offering,the second one has three employees and no revenues.

``Building[this company]is an architecture I can grow on,an architecture I can bring this company public on.So I got everyone to sign off on that and that is too strategic to have any consultant touch.I want that knowledge based in-house.

I want the people to design it here and I want the people who build it here.'' The opposite viewpoint of the next quote echoes the language of efficiency and strategy,but it is sensitive to the learning opportunities offered by open networks and the`partnering'links to outside information and resources.

``So sometimes it's not as efficient to hire people.Because once they're inside,they are doing one particular job function and they don't get to branch out and learn other things,whereas if you're partnering for those capabilities,all of those companies are the best in their field,in their respective areas''(interview205, page3).

4.1Interim conclusion on project organization

We have found it useful to distinguish between managed and self-organized forms of project 4aed9f896529647d272852ecanizing work in managerially coordinated project teams goes back at least half a century and is a fairly well-established method of breaking up the traditional pision of labor and integrating work units and teams into vertically structured firms.Self-organized project teams,by contrast,are of a more recent vintage and are typical in small SA start-ups.They espouse a culture of egalitarianism and equal opportunity,building community and sharing information.The emergent distinction between`creatives'and corporate consultants or`technologists'suggests that projects must either be managed by someone capable of coordinating these different `cultural'orientations,or else that project teams become differentiated into those that see themselves as creative,on the one hand,and those who affirm a kind of

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elite identity in that everyone becomes a manager,on the other.This managerial orientation,in turn,is associated with a more cautious and competitive attitude toward other firms and toward the practice of outsourcing as potentially compromising one's competitive advantage.Managerial competitiveness seems to be more salient in the few large firms in our sample and in those that provide routinized services.In the small web-design and content-based firms,by contrast,a lively team spirit is associated with the willingness to share information,to participate in projects with other firms,and to see oneself as part of a larger collective enterprise,that is,``being on the brink of something.''

5Networks:fertile ground for innovation

The relationship between networks and innovation has distinct roots in the literature on innovation and industrial districts.As we have shown in our discussion of the theoret-ical background,many authors suggest that networks are the groundwork from which innovation emerges.Describing the``Multimedia Gulch''in the San Francisco Bay area, Egan and Saxenian(1999,page25)write:

``authoring software companies such as Macromedia...had a policy of sharing early release ideas with local title-developers,who were also the main users of the product.From this interaction the authoring companies gained valuable feedback while members of the title-developer networks were able to save on learning time by knowing about new features in advance.Almost all of this interaction was handled informally among people in different companies who knew one another.

Thus agglomeration gave local companies the advantage of responsive feedback on design features.''

Grounded in the idea that interaction plays a large role in innovative processes,this section aims to provide support for the hypothesis that in the mind of the participants interfirm networks facilitate innovation.Saxenian(1994)provided an early formulation of this hypothesis in her research in Silicon Valley,and it is a hypothesis that receives more and more empirical support.But Silicon Alley is very different from Silicon Valley and thus we consider our findings an important replication of previous findings in a different context.

The analysis here consists of(1)describing the creativity of interfirm networks in Silicon Alley and in surrounding areas and(2)identifying the types of network relations firms mobilize when they seek clients and employees.By illuminating how respondents describe interfirm networks,we preliminarily investigate whether these networks provide the framework for fruitful feedback,information sharing,and skill trading,conditions widely believed to be conducive to firm innovation.Similarly,how firms access networks when signing clients and hiring freelance and full-time workers is also relevant to information and resource sharing.The idea explored here is that innovation may develop from loosely structured networks,where employees and clients are referred and shared,and,by extension,information,skills,resources,and ideas are collaboratively accessed and developed.

The creativity of networks depends,among other things,on the location and manner in which they develop,the inpiduals involved,as well as the function the networks serve. Though networks are difficult to define in rigid terms,especially because the nature of networks easily changes over time and in different contexts,a heuristic framework of social ties can be employed so as to analyze the nature of relations more systematically. To that end,we pide network ties into three different types:relational,transactional, and mixed.Relational ties are personal,embedded in family,friendship,school, or training settings.Transactional ties can be considered`arm's length'relations,or strictly formal,business relations(see Baker,1990;Granovetter,1985;Uzzi,1996).

Constructing innovativeness in new-media start-up firms1967

Mixed ties are combinations of transactional and relational ties.Mixed networks refer to partnerships,joint ventures,and business relationships that have become friendships and vice versa.The following section applies the above heuristic framework(relational, transactional,and mixed ties)to interviewees'descriptions of interfirm networks.

It must first be noted,however,that relational and transactional ties often develop into mixed networks.Of course,it is impossible for a relational tie to remain personal in a business context?these networks combine transactional and relational ties and must therefore be considered mixed relations.Some transactional ties remain purely transactional in a business context,whereas others develop into mixed relations.(7) As evident below,pure transactional interfirm networks are rare in Silicon Alley. Transactional and mixed interfirm networks are described below in terms of their origins,shapes,functions,and capacities for information and resource sharing.

5.1Transactional interfirm networks

Only four of seventeen(less than25%)respondents who discussed interfirm networks described them as arm's-length relations.One reason transactional relations may remain purely business is if collocation is lacking,thereby rendering face-to-face inter-actions difficult.For example,in response to the interviewer's question,``The nature of your relationships with these firms,is it purely business or do you have personal contacts there as well?''a non-SA executive responded:

``More I'd say it's purely business.There are some companies that we have done a lot of business with and haven't met''(interview121,page8).

Similarly,outsourcing and subcontracting relations appear to be strictly transactional, especially when this relation stretches across geographical distance.Outsourcing is a unique example of a transactional relation that lies partway between interfirm net-works and employee networks.A firm outsources when it assigns a task to another firm to reduce transaction costs and to increase productive efficiency.Outsourcers reason,``it's a waste of your energy,time,and resources to try to bring everything in-house''(interview121,page6).This statement is especially true if tasks are out-sourced abroad?the above-quoted firm outsources most programming tasks to Sri Lanka.

``Most of our database and back-end operations is done in Sri Lanka.They have very strong IT programmers over there and they are very cheap.For instance,we would have to pay$200an hour for the programmers....But in Sri Lanka we pay 30bucks an hour by outsourcing''(interview121,page11).

Other transactional relationships remain strictly business if collaborative projects are merely in the planning stages,or if they were formed for a narrow,short-term purpose,such as to interest investors.For example,it appears that one executive forms strategic alliances only because they may increase the attractiveness of a business plan: ``I found that VC's[venture capitalists]look for a certain,very specific thing.And originally I didn't have those things in the plan.So now what I'm doing is I'm focused on developing some strategic alliances with some major Internet companies.And I put the alliances in the plan.This will hopefully attract VC's'' (interview105,page2).

It is possible that the above strategic alliance will transform into a mixed network when the firms actually collaborate.However,the possibility of this transformation

(7)Mixed relations occur in many other settings[see for example,Uzzi(1996)for the NY garment industry and Baker(1990)].Again our research replicates in a different setting the finding that mixed networks are open and therefore facilitate information sharing and diffusion of tacit knowledge.

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depends on the perceived risks involved.At least one executive characterizes these risks as the potential for embedded relations to become`dependent'relations:

``We try not to create a dependency on alliances or partnerships.The reasoning is that you can lose your effectiveness if there is a problem''(interview110, pages8^9).

This executive's statement is the sole articulation of perceived risks of mixed interfirm networks.Most interviewees focused on the benefits:increasing efficiency by`swapping jobs',information sharing,and producing work beyond the capacity of the firm.The following section is a discussion of the nature of mixed interfirm relations,including their origins and functions.

5.2Mixed interfirm networks:vague friendships,coproduction and coopetition

The majority of interviewees who discussed the nature of interfirm networks described these relations as mixed.Mixed relations usually evolve from transactional relations, but some stem from personal ties.Only a small number of interviewees who discussed interfirm networks(three out of twenty two)mentioned purely personal relational networks.Most of these ties develop in college or through`friends of friends''.

``The lawyer was a friend of my roommate's,who is also a friend of Ben's [respondent's partner)].Ben was friends with my roommate,that's how I met my roommate.The accountant is my partner's roommate.Is this what you are getting at?All these friends-of-friends type thing...?''(interview108,page12). ``I think what compensates for the lack of entrepreneurial training is the network.

Y ou have this kind of raw network,and you do with it what you want.[New Y ork University's head of the Interactive Telecom Program]was incredibly well-connected,and was sort of,she's the matriach,so she takes care of her kids.We're all her kids.And so if she's aware of what you're doing,she'll always direct you to an opportunity''(interview305,page2).

Although educational networks were mentioned a few times in the interfirm context,most interfirm mixed relations appear to develop out of business relations. Some mixed relations stemmed from past employer^employee relations,others emerge from industry parties or conferences.Generally,these mixed relations begin as`vague friendships':

``Anybody we come across in business we sort of regard vaguely as friends.So there are probably dozens of companies who we would not have a problem referring some-body to,or friends,people who used to work here now going off and working elsewhere.And by extension those companies are friends of ours''(interview106, page14).

Vague friendships develop into more formal partnerships:

``At those parties,you don't necessarily talk business per se,but once you see them, you see them around several times,you become more familiar,and there's a context for making the introductions and opening a dialogue.And once you open a dialogue,then you go to their office and meet and discuss deeper business issues'' (interview205,pages5^6).

Though some mixed relations develop from brief introductions at industry parties or past employment,interviewees made clear that mixed interfirm networks do not always spontaneously emerge from collocation or shared experiences.In fact,one executive explicitly stated that Silicon Alley is not conducive to inclusive networks. For this reason she devised small industry events to construct mixed networks.

``I never found there was an extremely close-knit Silicon Alley network.There were little clusters of companies that knew each other and would hang out together....I would organize things.I organized a women's entrepreneur group because I wanted

Constructing innovativeness in new-media start-up firms1969

to network with other women who had businesses here in NYC[New Y ork City]'' (interview121,page4).

Other executives deliberately cultivate these networks by sponsoring conferences and speaker series.

What are the motivations for cultivating interfirm networks?Besides the intangible benefit of finding out``what's hot,what's going on,who's doing what''(interview101, page3),mixed interfirm relations have at least four identifiable functions:information sharing,job referrals,skill swapping,and collaborative work.First,mixed networks facilitate information sharing,allowing executives to access`smarter'minds:

``I will seek the advice of others.I have a lot of friends in the field....I'm no genius trust me.I come to these decisions by talking to the smartest people I know and hiring people who are smarter than me....And I'm lucky by being on this speaker circuit;I speak at about five or six conferences a year around the world.I have access to some of the greatest minds of the industry''(interview206,page6). Network feedback is especially important with smaller firms,prevalent in Silicon Alley:

``When you own your own company,and especially if you don't have a partner,you have no one to talk to or bounce your ideas off of,you can't do that with your employees''(interview102,page4).

5.3Competition

Some respondents mentioned competitors as their richest source of information.Firms maintain interfirm networks with competitors to learn what does and does not work, and to hopefully reduce direct competition.

``We have always maintained a cordial relationship with our competitors.Because at the end of the day,it really boils down to how well you know them.The better you know the competition the better you can manage and deliver your services....

If we saw that one of our competitors was offering a better service...we'd try to analyze and say what business practice allows them to deliver the better product?

And we try to mimic it.And vice versa...I think the word I would use...is called co-opetition.We are cooperating competitors''(interview110,pages4^5). Another respondent similarly sought out`coopetive'relations with competitors:

``We're getting into a scenario where we are actively trying to solicit people who we would consider competitors of ours....[S]o our goal is that we can supply the part that somebody else needs,we're better off at least getting pieces of their data,then they won't compete with us directly''(interview106,page12).

The above excerpt illustrates a final benefit of interfirm networks,which is perhaps rare between true competitors but occurs more frequently between firms with different specializations.Occasionally firms``supply a part somebody else needs'',or collaborate on discrete projects.One instance where two or more firms may collaboratively work on

a project by piding work according to skill is coproduction.

5.4Coproduction and other partnerships

Coproduction refers to a cooperative relationship between two firms for the purpose of jointly producing a particular service.Coproduction can be seen as involving a relatively stable and continuous form of project organization between two firms. Whereas self-organized projects tend to be internal to a given firm,managed projects are sometimes organized as spanning the boundaries of two firms.Such extended projects are always occurring between firms.Coproduction may result when a trans-actional relation evolves into a mixed relation.This evolution will occur,according to one informant,if the two firms have compatible`cultures'.In her view,the difference between a coproduction succeeding or failing is whether culturally the two firms are

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``very similar'',or instead there is``a big culture clash''(interview305,page7).Speaking more generally about potential partnerships,an SA executive corroborates this perspective:

``[My potential partner]says,your intellectual capital is fine,but he's not interested in buying the intellectual capital.He's interested in having a partner.So he's interested in the person...[T]he chemistry is right for us to come together'' (interview101,page8).

Moreover,trust may be the key factor allowing independent business relations to develop into partnerships,or coproductive relations:

``Companies working well together could be two people who used to be working at the same firm,founding separate companies,saying I know you,I trust you...the trust,the business trust has been built,or the personal trust actually has been built in another context....[A]nd that's where the real network comes from.Well I know this person and this company,they may be new in that company but I trust them so

I trust their company''(interview305,page19).

Although coproduction can be considered a short-term partnership formed to collaborate on a specific project,other types of partnering relationships allow firms to distribute services more efficiently on a more long-term basis.A non-SA executive describes partnering relations that maximize efficiency in a fast-paced industry as a hub-and-spoke model:

``We have fifteen other companies that perform different functions.So one would be

a design company.One would be a production company.One would be market-

ing....So that way,again,it would take us years and years...to build up our own capabilities,because these distributors,they have all the right relationships already.

So if we went out and tried to establish those kinds of distribution channels,it would take us decades.And in this particular industry,the name of the game is speed''(interview205,page4).

Another executive describes partnerships as``job-swapping'':

``We're in the beginning of a conversation with a company called[PP]that we are talking to about sort of taking out some of their technology stuff,which I think they don't have the biggest head for.But they have more clients than we do....So we're working on sort of swapping jobs''(interview108,page14).

This point leads us to a final characteristic of interfirm relations?they may facili-tate client referrals.The following section describes how firms access relational, transactional,and mixed(not necessarily interfirm)networks to find clients.

5.5Client relations:panning for gold

How do SA executives meet new clients?Interestingly,whereas few interviewees dis-cussed specifically how their relationships with clients developed,many discussed strategies in which they personally did not engage.Five out of eight interviewees who discussed strategies for meeting new clients described industry parties as a popular vehicle for meeting clients and competitors.However,none of the interviewees approved of this practice.In fact,one executive expressed disdain for meeting potential clients at industry parties:

``I think that people[at the parties]are panning for gold so they are basically there...to collect cards and put on a hat and not show you who they really are or get information.And my attitude is...I don't present my business plan.I don't show it to people.I don't talk to people about it....My perspective is to put the ducks...in a row and then you sell them.Y ou don't sell the plan''(interview201, pages7^8).

Constructing innovativeness in new-media start-up firms1971

Preferring to strategically sell to interested,familiar clients,this executive describes industry party networking as undisciplined.Two other firm executives similarly judge industry events in moral terms.Juxtaposing large,anonymous New Y ork New Media Association(NYNMA)events alongside respectable,hard-earned net-works,these interviewees described their firm's practice of networking and obtaining clients in terms of the latter:

``We use our personal and professional network that we've built up over the years to let people know that we're in this business....We don't network by going to a NYNMA event where there are four hundred people handing out business cards, because...we want our clients to hire us because of who we are,not just as a commodity,like well,I need a development firm,I'll hire anybody?you look like nice people''(interview204,page10).

Perhaps the above-quoted(non-SA)executives disapproved of industry parties because they resist seeking clients through transactional relations.They view clients as hard-earned rewards for morally disciplined networking.Nevertheless,there may be an alternative explanation to antiparty attitudes:the potential for developing lucrative client transactions is limited.One respondent pointed to the increasing unwillingness to share information during network events.Worse yet,this executive may not attend parties because competitors,not clients,are more likely to greet them:

``A year ago,the industry,there was much more openness and information.This industry is starting to mature,and as a result of the maturing process,we found that people are not as openly sharing information as they were in the beginning.

The other thing is that we find is that the people who attend these industry events like NYNMA and what ever,there are people who are in the same business.And we're not interested in talking to people who are in the same business.We're interested in finding clients''(interview101,page7).

Although there appears to be a negative consensus about industry parties,most executives described their client relations as emergent from pre-existing relational or mixed ties.For example,one SA executive described her strategy of finding potential investors in the following terms:

``Every investor in my company is someone....I've never made a cold call.So I started out with an existing list of people that I knew.And basically I called everyone on that list and said,are you interested in investing or do you know someone who's interested in investing?''(interview111,page3).

The above interviewee appears to engage in a practice similar to`passing out cards', but her potential clients are at least indirectly connected to a preexisting network. Similarly,one informant finds potential clients by accessing her`latent network':

``Because I have this latent network of people...anytime I could say,oh I'm looking to do some consulting,what can I do to help you?''(interview305,page25). Client referrals have also been described as almost a natural result of mixed networking: ``I think the more people you meet,it's good because there's a lot of work,and often times one firm will find a project that's like not quite right for them,or not quite the right size,not quite the right technology...and if you do enough networking around,somebody could say,oh you should call these guys because they'd be perfect''(interview107,8^9).

Perhaps interfirm networks are particularly conducive to client relationships because in the SA context,roles are not rigidly defined.The lines between partners, friends,clients,and bosses are blurred.One respondent puts it simply:

``The question is,what's an alliance?What's a customer?The lines get blurred.And

a lot of things fall under the heading of alliance''(interview106,pages5^6).

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