THE DYNAMIC CAPABILITIES PERSPECTIVE AND INNOVATION Taking the dynamic capabilities (DC) perspective (Teece et al. 1997;Warren 2002), it is particularly important to apply innovation in a business as it helps the business adjust its capability in the existing resource mix, thereby creating a competitive advantage which might otherwise quickly erode.While the DC perspective regards innovation as critical to a businesss sustainability, it is also the subject of particular challenges in most entrepreneurial businesses: as they are difficult to plan, the nature of innovative activities in most businesses is episodic; improvisation plays an important role in many businesses, and innovation is unpredictable. Thus innovation in the entrepreneurial context is a challenge that needs to be dealt with, planned and incorporated into the business strategy. Finding the balance in innovation which will create and maintain a competitive advantage without facing too many risks and thus endangering it (e.g., by planning the innovation process in terms of when, where and how to apply it) is the ultimate challenge for an entrepreneurial business. One interesting example of the power of innovation as an asset for a sustainable, beneficial entrepreneurial business is that of the Israeli company Mirabilis.1 Founded in 1996, Mirabilis pioneered the internet-wide instant messaging phenomenon ICQ (read: I seek you), making it one of the most successful and popular internet products of all time.With currently close to 400 million downloads, this community of subscribers constituted an extraordinary capital. Mirabilis was acquired by AOL in 1998 for a total of US$400 million. Its impressive success provided a

model for startuppers and helped open the floodgates for numerous Israeli entrepreneurs as well as inspired hi-tech entrepreneurs worldwide. Dr Yossi Vardi,2 the founding investor of Mirabilis, is one of Israels early high-tech entrepreneurs and undoubtedly the leading and most well known of them. He has founded and nurtured over sixty high-tech companies in over forty years in diverse areas of software, energy, internet, mobile communications, electro-optics, clean water and others; but he is certainly most recognized for ICQ and the sale of Mirabilis to AOL.The four young and avid computer users, Arik Vardi, SefiVisiger,Yair Goldfinger and Amnon Amir, who established Mirabilis wanted to introduce a new way of communicating over the internet; the innovation of ICQ, according to Vardi,was that it was just something brilliant,3 as it did not define a need but eventually created one that was still unknown and merely existed, and most of all, derived by the founders own experiences of what was missing users surfed the internet without communicating with each other. Goldfinger perfected the client,Vardi wrote the server, and Visiger designed ICQs whimsical interface: it was he who conceived the ICQ icon,4 the unique flower power. Mirabilis managed to sell both the founders innovative idea of people instantly communicating over the internet, and their innovative product. But their innovation emerged in several phases, from the idea to the exploitation of the opportunity, the application of the product, implementation and sustainability of the product, despite the many competitors who have surfaced over the years (Saperstein and Rouach 2002; Guangya, Ni and Ren 2006). HOW TO STIMULATE INNOVATION Scholars in the field of entrepreneurship stress that maintaining intellectual curiosity, exploring novel ideas and having or developing an openness to new experiences are the factors that have the greatest effect on enhancing innovation; others propose that a proactive search for new experiences and being open-minded fuel innovativeness in business, and can lead to gaining a sustainable competitive advantage; still others propose that innovative ideas and methods, and problem-solving strategies, are or should be used on a daily basis. Innovative ideas reveal where there is a dissonance between reality and the vision or even the perception of reality at the outset. Peter Drucker asserts that when people are satisfied and complacent, their drive to invent something new dissipates. Therefore, entrepreneurs should purposely confront their staff with complex problems and/or dilemmas in the business, thereby creating situations in the business that will activate the staff to invent solutions in order to confront these problems and dilemmas. Satisfied, fulfilled staff are more resistant to new solutions. Other practices for stimulating innovation in entrepreneurial businesses include training the staff to create innovative ideas and solutions in uncertain, challenging situations through training courses, engaging mentors and experts in entrepreneurship and innovation, and benefitting from existing inventors, creators or innovators, inside or outside the business, for a planned process of transfer of learning, i.e., sharing their insights on innovation and innovative ideas with the staff and providing them with a model on how to use innovation in their ongoing processes (Venkatraman and Price 1990; Bull, Thomas and Willard 1995;Valente 1995; Klein and Sorra 1996; Gibbons 2004).

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