This article provides an overview of some of the most common models for innovation and entrepreneurship promotion, what incubation is most commonly used for, and how one should go about determining whether or not incubation is the right choice.
There is a spectrum of possible services to support innovation and entrepreneurship. A challenge for policy makers and stakeholders is to decide which is appropriate, without ignoring important improvements to the enabling environment (business conditions). Analysis of the needs of SMEs is a necessary step in determining what is appropriate; if support services are not market driven and focused on their customer’s needs they are likely to be irrelevant and unlikely to achieve meaningful outcomes. The most common services are summarized in the following table.
|
Support Activity |
Key Features |
|
Business Development Service (BDS) and Business Development Centre |
Generic services for small enterprises and business aspirants typically providing:
- Information
- Training
- Advice
Most variants rely upon private sector service providers, coordinated by the service. |
|
Business Incubation |
- A focus on growth oriented firms
- A process to help firms establish and grow successfully
- Providing a range of services including communications, office equipment and a business development program tailored to the needs of the market
- Often involving buildings, at least as a hub for broader activities
- Varied models suited to local conditions, ranging from highly intensive services for a small number of firms to less intensive services for a larger number of firms
|
|
Technology Park – also called Cyber Park, Science Park, Research Park and Techno pole |
- Linked with educational or research institutions
- Provides infrastructure and support services for businesses, particularly real estate and office space
- Performs a technology transfer function
- Accommodates [SJA1] large and established businesses
- Often involves business incubation of new companies
- May focus upon a particular industry, often ICT, or be more general in nature
- Often focused on exports
|
|
Industry Cluster |
- Geographic concentration – spatial proximity of businesses
- Specialization around a core activity to which all actors relate
- Multiple Actors, including firms, public authorities, academia, members of the financial sector and collaborative institutions
- Competition and cooperation between the actors
- Critical mass to achieve the necessary inner dynamics
- The cluster life cycle with a long term perspective
- Innovation, with firms in the cluster involved in technological, commercial or organizational change[1]
Business networks are different to clusters, although the two terms are sometimes used interchangeably. Business networks are generally closed organizations, generating external economies for members by sharing costs of resources, expertise and information. Clusters are open and derive external economies from the market. |
Other possibilities include Special Trade Zones, Investment Promotion Agencies and Micro Enterprise development programs.
Convergent or hybrid models
Business incubation is not an isolated concept and has many synergies with Technology, Cyber or Science Parks and industry clusters, in that each involves a ‘place’, processes and growth companies, and complements BDS services and Telecentres with more focused and intensive services for their clients with growth aspirations and prospects, as well as greater leverage for engaging policy makers on improving the business environment given the number of clients (entrepreneurs) that they work with intimately.
The main difference to Parks and Clusters is that business incubation focuses on growth processes for early stage companies, which will graduate (i.e. leave the process) at some point in time, something that makes no sense with clusters or Parks. Technology business incubators are a common feature in Technology Parks, whereby a Park ‘grows’ tenants for the Park in the business incubator and some clusters have an business incubation component. Where there is limited critical mass, such as in small isolated economies and SIDS there are good arguments for them all to be combined, to maximize critical mass and capability, with convergent or hybrid models - perhaps in the form of ‘hubs’ and ‘spokes’.
At the other end of the spectrum are Business Development Services, which support small enterprises, mostly micro enterprises and family based, and business aspirants, without a focus on growth but serving large numbers of people and community based Telecentres, providing ICT training and access. Incubation complements and can be integrated with these services providing more focused support for growth oriented clients.
Is Business Incubation The Right Tool?
Business incubation is adopted as a tool for innovation and entrepreneurship for varied reasons, the most common of which are:
- Technology transfer
- Technology commercialization and adaptation
- Economic diversification, or to grow a particular sector
- To reduce business failure rates – typically, in quality business incubation environments, up to 85%+ of firms that have been incubated survive
- To create employment and wealth
- As a test bed or catalyst for SME development
The effectiveness of the tool is documented in many publications and evidenced by the expansion of the industry globally. Some headline performance indicators are:
- Business Incubation Works (1996), still the most respected study into business incubation outcomes in the USA, reports: good job creation outcomes with an average of 468 direct jobs and 702 total jobs created by each business incubator and with a public subsidy cost per job of $1,109; 87% of business incubator graduates were still in business; healthy average growth in firm sales of $239,535 (on average, 400% since they commenced business incubation); 84% of graduates remain in their local communities; and, a return in terms of public investment in terms of taxation revenues of $4.96 for every $1.0 of public operating subsidies.
- The European Union’s approximately 900 business incubators generate 40,000 new jobs per annum at a public cost per job of around €4,000 and with a firm survival rate of 85%. The European Commission Enterprise Directorate General report, Benchmarking of Business Incubators suggests, “business incubators are a very cost effective instrument for the promotion of public policy objectives…they are a very effective method of promoting knowledge intensive, new technology based activities” .
The first step on the design path is to decide whether or not incubation is applicable, followed by consideration of the type of incubation that is appropriate for the particular environment. This is not always easy and stakeholders may not have all the knowledge, understanding or data to make informed decisions. Commonly, stakeholders will convene workshops about business incubation to raise awareness and to develop a business case for investment in the design process and the business incubation process as a whole. The design process and in particular a needs assessment survey may lead to subsequent decisions that incubation is not feasible and that other models are more appropriate, but more commonly helps determine the type of incubation that is applicable and for which a market exists. Even though it takes time and money a feasibility study, involving a needs assessment, is an important step prior to a final decision about proceeding with business incubation. Flexibility should be built into the design, so it can be changed readily as a part of implementation and evolve organically over time. Design and planning are important, but are improved by experience. Flexibility in terms of the service offering and revenue streams will allow sustainable and relevant models to be developed incrementally over time.
[1] The Cluster Policies White Book, Andersson, Serger, Sorvik & Hansson, IKED, 2004.
[SJA1]