Table of Contents
Provide services: Coaching and Mentoring
Start an incubator
Business incubators have proven to be an effective way for fostering sustainable business growth and stimulating entrepreneurship. But establishing a business incubator is a challenging task. This section helps readers decide whether or not an incubator is the most appropriate business development tool for their circumstances, and sets out the feasibility and planning issues that underpin the establishment of a new incubator.
Feasibility Study and Planning
A feasibility study is an important and necessary step, to design the business incubator and assess whether or not and how an incubator might be feasible. Upon developing an understanding of your target client’s needs, and concluding that starting an incubator is the right response to the market conditions in your environment, many decisions are still ahead of you.
You will need to decide on what type of business incaubtor, what services to offer, how to finance your start-up, how to set up your governance structure, what human resources to have in-house vs. contract out, etc. The articles in this section seek to help you navigate this decision-making process and provide you with ideas for how to best plan your incubator.
Incubators around the world have many different types of legal structures; they can be stand-alone or connected to another institution, structured as a 'non-government organization', a 'foundation' or a 'for-profit' enterprise, etc. This section seeks to provide an overview of the various legal structures as well as the common legal documents needed to run an incubator.
Good Practice: Types of Business Incubators
Good Practice: Business Incubation: Definitions and commonly used terms
Good Practice: Challenges for business incubation in developing countries
Good Practice: Undertaking a Feasibility Study
Good Practice: A Brief Introduction to Business Incubation
Good Practice: Defining Legal Status
Description/Purpose/Function
The definition of the legal status of the incubator means, firstly, deciding whether it will be an independent unit (with its own legal structure) or if it will be connected to an existing institution (a university, company, research center, etc.).The definition of the legal status is a strategic decision and the flexibility of the incubator will depend on this decision. There are advantages to each of the legal situations cited above:
Independent Unit:
- Advantages:
- Flexibility in obtaining funding.
- Managerial/decision-making agility.
- Lesser possibility of political interference.
- Flexibility/agility in complying with agreements/contracts.
Connected Unit:
- Uses the administrative structure of the "maintaining body" (financial statements, finances, materials, etc.);
- Benefit from the "name"/credibility of the "host body";
- Facilitate interaction with other departments of the "host body". For example: in the case of a university, the incubator will have easier access to researchers in different departments.
Stages/Critical Issues
The team responsible for defininition of the legal status should consider several points:
- Connected Unit
:
- Clearly define the degree of autonomy (budget, spending decisions, hiring, etc.);
- Ensure managerial continuity;
- Obtain a source of internal and external support. Even though it is a connected unit, it must not become a simple "internal project", but must create strong ties to other organizations. Apart from diminishing internal resistance, this can facilitate entry of companies into the market.
- Specific legal status:
a detailed analysis is made of advantages/disadvantages of the types of legal status permitted by local legislation. Among incubators that are already operating, there are two leading types of legal status: the Non Government Organization (NGO) and Foundations.
Responsible Parties
The team in charge of the project must determine the legal status of the incubator using professional legal advice to provide direction on advantages/disadvantage of the various options.
Results
Definition of the legal status of the incubator makes it possible for the team responsible for the project to comprehend the different types of interaction with other institutions, as well as marketing potentialities/difficulties.
Keywords
Legal status of the incubator, NGO, foundations.
Publications and Other Forms of Reference
- DORNELAS, J.C.A. Planning Business Incubators. São Paulo: Campus, 2003.
- LAVROW, M. and SAMPLE, S. Business Incubation: Trend or Fad?
- MARKLEY, D. and McNAMARA, K. T. A Business Incubator: Operating Environment and Measurement of Economic and Fiscal Impacts. Available on-line: http://www.agecon.purdue.edu/crd/pdffiles/wp0594.pdf.
- PEREIRA, E.G. & PEREIRA, T.G. Planning and Implementation of Business Incubators. Brasília: ANPROTEC, 2002.
- PIRES, Sheila O. Incubator Leadership and Management. Available on-line at: http://idisc.net
Good Practice: Identifying whether incubation is the right response
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]
Good Practice: Analysis of Local Conditions
Stages/Critical Issues
- Survey of corporate profiles and local vocations: identification of the characteristics of the industrial trade and services sectors, the size of each segment and the companies, the main areas of action, the vocation of the region etc. This survey is designed to identify production chains and market niches that offer opportunities to develop new enterprises, as well as companies that could work in partnership with the incubator in order to generate new businesses and technologies (See attachment Feasibility Study for the Incubator).
- Survey of existing infrastructure: identify communications, transportation and sanitation facilities, as well as local buildings and paved surfaces that could be used by the incubator or the incubated companies. At this stage, buildings may also be identified that could be assigned for the incubator operations. The infrastructure analysis helps decide on the best site for the incubator and what type of investments will be required in infrastructure. In order to support these companies in the ICT area, for instance, it is necessary to know whether Internet access in the region is available by cable at high speeds, etc (See attachment Feasibility Study for the Incubator).
- Existence of teaching and research institutions: the link between incubators, research centers and teaching institutions is very fruitful, particularly when the incubators are technology-based. Consequently, it is important that the incubator should be supported by these institutions right from the start. In order to analyze the feasibility of the incubator, a survey should check whether there are any universities and research centers in the region, what areas of action and lines of research they follow, the availability of their technical staff for consultation, their experiences in university-enterprise relationships, etc. This helps to find the type of technological services that could be offered to the incubated companies (See attachment Feasibility Study for the Incubator).
Responsible Parties
- Technical experts from the institution wishing to set up the incubator.
Indicators and Goals
- Time and Costs for the Development of the Feasibility Study;
- Resources brought in and political support achieved through the Feasibility Study.
Results
The outcome of this analysis is the identification of possible areas of action for the incubator and the infrastructure either existing or to be implemented, which could underpin the activities of the incubator.
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Good Practice: The Role of the Incubator Board
Objectives
Skilled management professionals play key roles in any successful organization or enterprise. This Guideline looks at how this core concept relates to business incubation by considering the characteristics, profiles, responsibilities and composition of an incubator’s Board, as well as their relations with stakeholders, mentors and consultant networks.
By way of example, Meeder cites a case from 1991-1992 during a training program for incubator managers run by the NBIA which involved more than 240 people from the United States and Canada. In a survey taken during the event, it was noted that a very large number of managers listed their boards of directors as being their most pressing problem. Many of these participants described situations that were sufficiently serious to threaten the very feasibility of their programs. If this sampling is representative of the business incubator industry as a whole, one can conclude that the relation between the manager and board of directors is a factor of crucial importance to incubator management. So, it is worth having a closer look in this topic.
The Board of Directors is also known as the Executive Council, Technical Council, Guidance Council, Curator Council or Deliberative Council. It is composed of representatives of the management entity; of the partners included in the incubator; and of organizations that provided the (financial and material) resources needed to establish the incubator. The Board has the task of defining the policies of the incubator, strategic planning, evaluating performance and proposing improvements or alterations as required by the incubator’s services. Other Board responsibilities encompass the definition of criteria and parameters for selection of businesses that are candidates for admission to the incubator; managerial supervision; and resolution of administrative questions that are beyond the purview of management (Medeiros et alii).
According to Greco, the Board of Directors also “plays a key role in recommending, reviewing and approving companies for inclusion in the incubator facility”. Dornelas stresses the fact that the activities of the Board or Council involve exploring new credit lines, the pursuit of new partners and development of the network of contacts.
Greco stresses, among other golden rules to be followed in incubator management, “the boards of directors are generally responsible for policy development and not day-to-day operations, which are left to the incubator manager. Bureaucracy, in the case of government-sponsored incubators, should be kept to a minimum”.
Wolfe presents a study in which the size and composition of the board of directors must reflect the needs of the incubators at the various stage of development. “Initially, the board must have the minimum number of members required for performing its role of providing strategic support to the director or president of the incubator. However, it is important to calculate the time that will be needed for the director and staff to provide support to each additional member, as compared to the benefits that the person can provide to the incubator and its clients. In any successful incubator, the board will have a mix of individuals with varying characteristics and skills”.
The President of the Incubator Board
According to Rice and Matthews, “despite the difficulties with which the sponsors and staff may have to cope in selecting the president, this is one of the most critical tasks before them.
The authors also suggest that the president of the board should be a person who:
- Is active in this role of supporting entrepreneurial activities.
- Recognizes every task as a means to achieve the central mission.
- Has the ability to face the challenges of the start-up process.
- Must be able to deal with the development of a highly successful incubator and incubated companies.
- Must be ready to help entrepreneurs come up with the resources needed for their growth.
The president of the board is also responsible for:
- Representing the incubator’sBoard.
- Directing the incubator Board’s work, paying attention to the incubator statutes.
- Calling and guiding incubator Board meetings.
- Observing incubator Board decisions and ensuring that they are obeyed.
Key Issues
- Identify main partners and invite them to join the board. Sally Hayhow advises in “How to Have the Best Board of Directors” that the members of a board should be selected from every area in which the incubator has needs. As the incubator evolves, the it may need to change the composition of its Board. According to Rice and Mathews, a good start may be to have “leaders/champions committed to the success of business incubation, networkers, real estate and business operations professionals, business assistance providers, investment professionals, entrepreneurs, product/services assessment professionals”. See the Guideline on Stakeholder Identification.
- Establish a clear mission and a statute. The Incubator (and Board) should have a clear mission and legal framework. This avoids interference in management and divergent objectives between board members themselves and managers. It also creates and makes clear the incubator’s internal procedures. See the Guideline on Strategic Planning.
- Define regular board meetings. The prior definition of a regular agenda (it can be annual, semestral or trimestral) allows the Board members to set their schedule ahead, avoiding absences or delays. Also, the prior agenda allows better activity planning and follow up, once Board members are aware of the main topics to be discussed at the meetings. See example of a Prior Meeting Agenda.
- Be ready to remove inefficient Board members. Hayhow suggests that incubators should have “staggered terms, and in some cases term limits. For the staggered term, the first year’s board members draw lots to determine who will be one-year, two-year, or three-year members. From then on there’s pretty steady turnover”. She also points out the possibility of having specific board members fully responsible for a specific assignment.
Responsible Parties
Incubator managers or/and Incubator director.
Indicators
- Definition of the management system of the incubator
- Definition of the performance assessment models.
- Increase in the number of projects analyzed by the board.
Results
To have a pro-active incubator board, which helps to define the strategic vision of the incubator and properly conducts management focused on results, performance, efficiency and effectiveness.
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Good Practice: Physical Infrastructure
Objectives
During implementation of an incubator, those managing the institution have to cope with the challenges caused by the building in which it is sited. A business incubator is a program rather than just a building, however, constructing or refurbishing the right building plays an important role in the incubator’s daily operations and services.
According to the European Commission – in their Final Report Benchmarking of Business Incubators (2002), “the provision of workspace is central to the incubator model. Standard good practices now exist with regard to the most appropriate configuration of incubator space”.
Based on the type of company to be incubated, the building characteristics of the incubator may vary in terms of the size of the workspace and services offered. To help determine the size of the incubator structure, try to identify the profile of the companies that will be incubated and attempt to identify the infrastructure they need. See (iDISC Paper Incubator Infrastructure and Services).
Once the targeted market niche has been identified, a key step is to visit already operating incubators with similar characteristics to those of the project in mind. These visits give the advantage of learning from the experience of other incubators in order and avoiding any problems they may have had. This helps to:
- Determine the size of the incubator
- Establish the architecture of the incubator workspaces
- Find out how many workspaces there are
- Work out the size of each workspace
- Decide on the basic infrastructure (telephone outlet, Internet connection outlet, water outlet, electric outlets, etc.)
The next step is planning the operations of the incubator, particularly the services provided. This should not only indicate the facilities considered ideal but importantly those that can feasibly be made available by the incubator.
Rice & Matthews in Growing New Ventures, Creating New Jobs (1995) emphasize: “the right building can provide the basis for the financial self-sustainability of the incubator and an environment in which the entrepreneurs and incubator staff can work together to grow new businesses. The wrong building can lead to failure – and wrong buildings are one reason incubators have not met expectations”. They also suggest a set of questions that can be of help when choosing the right facility:
- Does it meet the size requirements of the financial model to enable the incubator to achieve self-sustainability?
- Does it require minimal renovation?
- Are there any environmental hazards that will come back to preoccupy the incubator later?
- Can the facility be easily maintained?
- How much will it cost to operate the facility?
- Are the acquisition terms favorable or will the long-term costs cripple the incubator?
- Can walls be moved and spaces reconfigured as companies grow?
- Are there enough common areas that can be shared, for example: conference rooms, a library, a kitchen and a business service center?
- Is the incubator building and surrounding area safe/secure so that entrepreneurs can work day or night?
- Is there adequate parking?
Key Issues
- Renovation/Construction: there are advantages and disadvantages in choosing to adjust a building to the needs of the incubator or constructing a building specifically for the project. Sometimes refurbishing an unsuitable building is more expensive than the cost of acquiring a suitable one. Independently of whether the incubator building is built or adapted; the core aim is to create an atmosphere favorable to the development of business.
- Size: What should the size of the incubator be? The decision about the ideal size of the incubator is essential to ensure its independence from external resources and its further self-sustainability. Sometimes a small building can make the incubator unfeasible, since costs could be high and there will be little to attract public and private investments. Disadvantages can also be found in large buildings, since a low occupancy rate could be viewed as a sign of project failure. The right incubator size is a challenge that a well developed business plan can help overcome.
- Surrounding Areas: the location of the building is important. The area surrounding the incubator must be assessed for transport facilities, parking space, the existence of postal and banking services and even the right type of neighborhood to avoid future problems.
- Companies/Incubator Interaction: One of the useful benefits offered to incubated companies is the opportunity for contacts with other businesses. Interaction among different companies and with the incubator management team results in an enriching learning process.
Responsible Parties
- Party responsible for managing the incubator and the architect
Indicators
- Satisfaction rate of companies towards infrastructure and services
Results
- Self-sustainability of the incubator through fees charged for the use of infrastructure and services provided.
- Rise of capacity to attract entrepreneurs to the incubator.
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Good Practice: Strategic Plan
Objectives
Planning is a process; a set of tasks carried out to reach common goals and set up objectives and then arranging the best way of achieving them. This results in focused efforts and the most efficient use of resources. Strategic planning means thinking about the organization as a whole in terms of its surroundings, and looking to what could be ahead. This gives rise to the importance of analyzing the environment in order to define a mission and select strategies (positioning). Effective planning serves as a basis for the business plan as well as a strategic analysis of the incubator. The main items covered by strategic planning are:
- Identity of the incubator (Vision, Mission and Values)
- SWOT analysis
- Strategic objectives
- Strategies, tactics and plan of action
Key Issues
- Definition of the Incubator’s Vision: The Vision presents what management and partners want the incubator to represent to its environment (the biggest, the best, a center of excellence etc). The Vision provides a map for the incubator’s direction, and should create an identifiable image of its future, while inspiring commitment to its performance. It should stress what the incubator could be and explains what it should be.
- Definition of the Mission of the incubator: The Mission reflects why the incubator exists, what it is and what it does to meet the demands of the outside environment. The mission turns into reality what was conceived of as an ideal. It should be straightforward to ensure a clear definition of the strategies of the incubator’s mission.
- Definition of Values: The Values of the incubator are the understandings and expectations that describe how the incubator’s professional staff should behave, as the basis for organizational relationships.
- SWOT Analysis: Strengths, Weaknesses, Opportunities, and Threats: This is widely used by organizations as part of their strategic business planning. The SWOT analysis assesses the strong points, the weak points, the opportunities and the threats to the organization and the market within which it operates. This tool is widely used during the incubator planning phases.
- Definition of Strategic Objectives: These are the considered planning benchmarks that the incubator is aiming to achieve, and they are written in a way that allows them to be measured, compared and assessed. The objectives are the major concerns that the incubator needs to meet in order to fulfill its business mission as it works towards its vision. They indicate the general intentions of the organization and the basic way for achieving its aims.
- Strategies and plan of action: The strategy consists basically of deciding where the incubator wishes to go and what it should do in order to get there. Once the strategies are established, it is necessary to clearly define who will be in charge of the performance of specific actions, how and when these will be implemented, what schedule will be followed and what will be the cost.
Responsible Parties
Managers and technical experts from the organization that wants to set up the incubator.
Indicators
- Time and costs for the development of the strategic plan
- Funding and political support built up through Incubator Planning
Results
- Definition of the Vision, Mission, Objectives and general Strategies of the business
- Information about the variables and positive factors that affect the activities of the incubator, both directly and indirectly.
- Definition of strategies for making good use of opportunities and avoiding any possible threats, and the plan of action.
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Good Practice: Central Legal Documents
Objectives
The objective is to enlarge on documents that govern the incubator’s relations with other institutions and with the incubated companies.
Generally, the documents are detailed as follows:
- Statutes: these instigate the entire structure of the incubator, determining its objectives, organizational structure and system of operation;
- Internal Bylaws: an incubator’s rules, which spell out its operations, with due respect for that specified at higher levels of authority;
- Contract with Incubated Businesses: defines the principals governing relations between the incubator and the incubated businesses;
- Other Legal Documents: the creation of documents that formalize the specific services rendered by the incubator, agreements with other institutions, commercial contracts, etc.
Key Issues
The following should be included in refining the incubator’s documents:
Internal Bylaws:
- General provisions (general and specific objectives, concepts, etc.).
- Activity, headquarters and operations (objective, location and functioning).
- General structure of the incubator (description of the flowchart and organizational functions).
- Capital and resources (furniture and fittings, properties, means of obtaining revenues).
- Process of selecting companies (selection phases, time periods, criteria, etc.).
- Secrecy and intellectual property (confidentiality, etc.).
- Use of incubator’s infrastructure (conditions for working together, earnings, etc.).
- Admission, permanence and exclusion (system of entry and withdrawal of the incubated companies).
Contract with the Incubated Companies:
- Identification of the project to be developed
- Obligations of the company
- Obligations of the incubator
- Validity and extensions
- Costs, deadlines and fines
- Situations for rescissions.
Responsible Parties
In general, lawyers create the incubator’s documents. Despite this, the incubator’s management team should participate in setting up the documents, to provide the specific characteristics of the incubator that is being created.
Results
Detailed understanding of the incubator’s legal documents results in formalization of its internal activities, and facilitates/conditions relations with other institutions.
Good Practice: Planning the Incubator
Objectives
Planning is the process of establishing objectives and deciding what should be done in order to attain them. It allows the performance of the incubator to be overseen through analyzing the targets, objectives, strategies, and paths that an organization should follow in order to achieve positive results. The planning process should provide answers to three basic questions:
- Why will the business be successful?
- What is the objective to be attained?
- When will the incubator achieve self-sustainability?
Planning is essential for the incubator, with the following purposes in mind:
- Underpinning decisions on the implementation of the incubator;
- Providing a technical plan for establishing the incubator and bringing it into operation;
- Setting the course for the incubator, with its current and future strategies;
- Publicizing and promoting the incubator;
- Attracting entrepreneurs;
- Attracting partner institutions;
- Obtaining financial support.
Is there a need for incubators?
Yes, according to Chinsomboon in the Incubators in the New Economy (1990), there is a need for business incubators because they play many roles. In their building process, incubators can provide a subset of services to their own organization including:
- Capture potentially successful deals missed by venture capitalists
- Facilitate idea creation (“ideation”)
- Enhance products and services
- Accelerate implementation speed
- Provide supplemental management
- Offer more “hand holding” than a typical venture capitalist
- Give access to expertise in marketing, operations, human resources, technical, management, strategy, business development, financial, and others
- Facilitate business development and partnerships
- Help in finding clients
- Facilitate sources of funding, now and at later stages
- Set up a portfolio of seed-stage ventures
- Provide additional deal-flow and vetting of deals for later-stage investors
According to Lalkaka & Abetti, in Business Incubation and Enterprise Support Systems in Restructuring Countries (1999), “the key success factors that contribute to the ultimate economic, social and political success of a new business incubator”, are divided into four phases: preparing the incubator’s plan; the implementation phase; the onset of incubator operations; and a sustainability scheme. The summary of these necessary [success] factors is:
Preparatory Process:
- Reconnaissance surveys to selected locations
- Local consultants who are familiar with local conditions
- Careful identification of a strong sponsor to take local implementation responsibility
- Resolution of issues concerning feasibility, particularly analyses of the entrepreneurial pool of potential tenants, linkages to universities, the support services network, the availability of suitable (vacant) building space, and financial cash flow estimates
- Commitment by governmental agencies
The Implementation Process:
- A strong management board with advisory groups
- Appropriate legal status for the incubator
- Careful selection, training at home and abroad, proper remuneration of managers
- Screening of the technical business and market potential of tenants
- Prudent capital expenditures on building renovation and furnishing
- A promotional campaign to mobilize community support
- Sound international technical assistance to supplement local skills
The Start of Initial Operations requires:
- Access to equity, credit and royalty facilities by tenants
- Involvement of the private sector
- Continuing programs for improving management skills of incubator staff and tenants
- Links to other SME programs
- Exchanges of information and bench marking
The Sustainability of Incubator Operations needs:
- Proactive pursuit of business opportunities
- Imaginative ways of raising income
- An objective evaluation of the incubator experience, and replication as warranted
- Political stability, macro-economic policy structure and regulatory framework that encourage entrepreneurship
Responsible Parties
- Leaders involved with the initial idea of the incubator
Indicators
- Time and costs for the development of the Business Plan and the Strategic Plan
- Funds brought in and political support built up through incubator planning
Results
- Business plan and strategic plan drawn up in a clear and straightforward manner
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Good Practice: Business Plan
Objectives
Preparing a Business Plan is an essential stage for incubators. It is useful for seeking funds, and also for systematizing ideas, processes and techniques. The Business Plan provides answers to questions about the Incubator before it is established.
Key Issues
- Executive summary. This the main section of the Incubator Business Plan (ICB) and is the last part to be drafted; its contents depend on the general plan definitions. The executive summary offers an overview of the enterprise, abbreviating the ICB content to the main points. (See attachment How to Draft the Executive Summary).
- General Characterization/Concept of the Incubator. A brief overview of the incubator organization is given along with its track record and current status. The unique characteristics of the incubator are stressed, highlighting its benefits and advantages.
- Business Model. The business model presents the type of incubator, its area of action, the target markets etc. The feasibility study information is central to the general model adopted by the incubator. The legal framework of the incubator may depend on its managing organization and partners, or established with its own legal status, or run as a program by one of the affiliated institutes. The Business Model should state:
- What the enterprise intends to do
- Who/what market or segment it intends to reach
- Which competences/experiences/technologies it is based on
- What market trends encourage it.
- Marketing Plan. The Marketing Plan is an essential part of the Business Plan. It sets out how the target market will be defined and reached. In addition it documents the incubator’s comparative advantages over the competition, and the ways of steadily bringing in clients/ incubated enterprises. The incubator should be familiar with the market where it operates/intends to operate and in this section the market and its potential is analyzed and defined. The target market, the segmentation strategies, trends, competition, and competitive advantages of the incubator are also defined, in addition to the marketing mix.
- Operational Plan. This defines the procedures for reaching the incubator’s objectives. This prevents lack of coordination and makes the incubator’s function coherent and avoids unnecessary expenditures. The Operational Plan provides detailed descriptions of tasks required to render the incubator services, their flow diagrams, the names of the people in charge, etc. Decisions are made about which technologies should be adopted to implement the procedures and processes of the incubator.
- Administration/Organization Plan. This defines the resources required by the incubator (equipment, furniture etc.), and its control systems. This includes the legal documentation and standards for the incubator (statute, internal regulations, access rules etc.). The administration plan also charts the organizational staff requirements, their duties and responsibilities. It defines the Board of Directors structure and the role of each member, in addition to relationship links
- Financial and Investment Plan. This allows the anticipation of short and medium-term financial modelling and action. The initial investments required can be defined, as well as costs and expenditures, cash flow etc.
Responsible Parties
Managers/technical staff from the organization which wish to set up the incubator. The overall manager should be involved in the business plan from the start.
Indicators
- Time and costs for the development of the strategic plan
- Funds and political support built up through the incubator planning.
Results
To have a well defined plan of Business Model procedures, market analysis and the operation’s financial plan.
- Defined incubator model
- Clear administrative structure/organizational chart
- Completed financial spreadsheets
- Definite service portfolio and price strategies
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Good Practice: Modeling a Business Incubator
Defining the incubator model means answering the strategic and tactical questions that provide the basis for planning the Incubator (See Guideline “Planning a Business Incubator”). Defining the incubator model is an intermediate topic, as it uses the information collected from the “Initiating a Business Incubator Project” phase and defines the aspects that will be used in planning the incubator, as demonstrated in the following diagram:
Defining an incubator model helps deal with decisions such as the deciding the focus of the incubator, the locality, purpose and any other issues.
Key Issues
In the process of defining the incubator model, several decisions depend on others. This process consists of two phases:
Phase 1 – Strategic Decisions
- Purpose: define whether the incubator will be a profit-seeking group or a nonprofit association. For details, see the guideline Definition of the Purpose of the Incubator.
- Focus: define what the supported companies’ activities are: traditional, technological, etc. For greater details, see the guideline Definition of the focus of the Incubator
- Operational Model: according to Aranha (2003), the operational model “determines the way in which the incubator will be organized and operate”. As Lavrow and Sample stress, the operational model of an incubator “dictates its structure, its scope of services it provides, its funding opportunities, and its level of external alliances”. For details, see the guideline Definition of the Operational Model of the Incubator.
- Locality: locality choice for the incubator depends on which focus is chosen and the operational model to be implemented. For details, see the guideline Definition of the Purpose of the Incubator.
- Stage of the Enterprises: the support and services offered to the incubated companies depend directly on the development stage of these businesses (or what they are). For details, see the guideline Definition of the Stage of the Enterprises.
Phase 2 – Tactical Decisions
- Legal Status: the incubator may have its own legal status or may be tied to an existing institution. For details, see the guideline Definition of the Legal Status of the Incubator. For details, see the guideline Definition of the Legal Status of the Incubator.
- Documents: For an incubator to be operable depends on a number of different documents, such as statutes, internal bylaws, contracts with the different companies, etc. For details, see the guideline Elaboration of Documents.
- Organizational Structure: must define the authority and duties of the different functions that exist within the incubator. For details, see the guideline Definition of the Organizational Structure of the Incubator.
Responsible Parties
The incubator model should be defined by the team that is elaborating the project. At least one representative of each institution should be involved in this stage of the project. This guarantees that all interests and all points of view are considered.
The team responsible for the project should use professionals who are specialists in technical areas, such as evaluation of the locality where the incubator is to be installed, definition of the legal status of the incubator and others.
Results
At the conclusion of this phase of the project, the team responsible for it will have the basic information required for planning the incubator, including:
- Purpose
- Focus
- Operational Model
- State of the Enterprises
- Legal Status
- Documents
- Organizational Structure
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Good Practice: Stakeholders Identification
Objectives
The purpose of this process is to identify local leaders, then organize meetings and interviews to identify the people, enterprises and organizations that could be partners of the incubator; supporting the program with both resources and technical input.
Key Issues
1) Identification of local leaders: this crucial stage identifies the entities, people, enterprises, and government bodies that could contribute to the planning and development of the incubator. These contributions could include:
- Political backing
- Financial backing/investment/sponsorship
- Infrastructure support, etc
This process should consider issues such as:
- The links or convergence between the institutional and political interests of each entity in terms of the incubator.
- Relationships among the institutions, to avoid signing up institutions with conflicting relationships as partners.
- Personal backgrounds (manager/technical staff) should be analyzed, as well as the track records of the institutions, to learn how effectively and seriously they participate in the programs that they support.
2) Meeting and visits: during the Feasibility Stage, it is important to organize meetings with potential partners. This presents the idea of incubation to them and heightens their awareness of the need for support. For an adequate analysis of the project’s feasibility, it is essential to identify potential partners and sources of resources. This will indicate whether it is possible to obtain their effective support, mainly in the financial field. For these meetings or visits, it is valuable to have available:
- Information on the enterprise incubation segment, with data on the progress of these programs in the local country and elsewhere in the world; the number of incubators in the host nation and in the region, their main objectives, achievements, etc.;
- List of information on institutions already supporting the initiative in order to demonstrate the credibility of the program;
- Clear proposals for the entity action (planning process, incubator board, mentoring, technical support, sponsorship, etc)
These meetings are necessary to ascertain the expectations of the entities in terms of the incubator, the role that they should play in this process, to avoid future misunderstandings and conflicts of interest.
(See attachments Feasibility Study for the Incubator and Table Identifying Potential Projects, below).
Responsible Parties
The technical staff and management of the institution wishing to set up the incubator.
Indicators
- Time and costs for the development of the Feasibility Study
- Resources and political support obtained through the Feasibility Study
Results
The analysis outcome is the recognition of possible stakeholders for the incubator program, identifying the expectations of each in terms of the program, and networking for partner support and commitment.
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Good Practice: Resources Identification
Objectives
Resource identification is the process of finding economic and financial resources as part of a feasibility study as well as finding capital for the implementation and operational stages of the incubator. The types of resources should be identified along with ways of obtaining them. These resources may be available from government (at the local, state and federal levels) or private sources.
Key Issues
- Potential partners: a survey of government departments and non-government and private institutions that may offer support, along with their contact persons. Support may include finance for entrepreneurial activities, support for technical innovation, the development of ICT tools, establishing new companies etc. This information includes key objectives and the kind of organizations involved. This survey may be carried out through the Internet and associates with experience in this field.
- Detailed survey: organization of the institutions and lines of support into groups according to the type of support offered (economic or financial resources). Analysis of projects already supported by organizations to identify support priorities and opportunities for bringing funds to the incubator.
- Analysis: a critical analysis is undertaken of the tabulated information. The analysis determines the potential for presentation and approval of a fund-raising proposal thereby establishing the next steps. (See attachments Feasibility Study for the Incubator and Table identifying Potential Projects).
Responsible Parties
Managers and technical experts from the institution wishing to set up the incubator.
Indicators
- Time and Costs for the Development of the Feasibility Study
- Resources brought in and political support obtained through the Feasibility Study
Results
The outcome of this analysis is the identification of possible sources/institutions that could provide economic and financial support for the activities of the incubator from the planning stage onwards.
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Good Practice: Feasibility Study for the Incubator
Objectives
The initial planning stage for the incubator consists of the collection and preliminary study of information on the social, economic, political, business and cultural situation in the region. The influences of these factors on the incubator are considered. Awareness of these variables will help define the general strategies and objectives for the incubator.
Why conduct a feasibility study? According to Meeder in Forging the Incubator – How to Design and Implement a Feasibility Study for Business Incubation Program (1993), the major reasons for conducting a feasibility study are:
- To forge a consensus among key civic leaders and organizations regarding the definition of the type of incubator that best serves their community’s needs and to identify the proper stakeholders and managers for the program.
- The process can become the catalyst to motivate participation by a number of local resources that can provide facilities, equipment, human resources, funds, competitive offers that produce better prices, etc. that otherwise might not have contributed.
- The establishment of this process is the best method for generating creative ways to overcome obstacles. Someone once said, “Strategy is the springboard for creativity.”
- A proper feasibility study includes the completion of a facilities and service program business plan.
- Solicitation of most federal and state and local funds requires a feasibility study.
- After more than ten years of growth in the incubation industry, there are many examples of programs that have made critical errors in such areas as facility selection, governance structure, and formation of value-added management assistance service programs. These errors are numerous enough to demonstrate the importance of a feasibility study that identifies the best practices and avoids the patterns of error.
- Many political leaders, local business owners, and other civic leaders have just enough knowledge about business incubation to be “dangerous”. Conducting a feasibility study should include substantial community education. Otherwise, the project begins with hidden confusion as key people; attempting to do good things, base their decisions on an incorrect or incomplete concept of incubation that is out of sync with their colleagues’ concepts and with the informed practice of the incubation industry.
- Many incubation projects are conceived and developed by local leaders before the incubator manager is identified and/or employed. The feasibility study is a valuable document that records the early history and activities of the project enabling the succeeding staff and board to have a reference point from which to work.
- It is important to make contact with a number of successful incubator programs in communities that are similar to yours. There are enough programs with more than three years of operating experience to permit you to identify several from which to learn. Their experiences – good as well as bad – from development to operation, when combined with the wealth of information that the NBIA has accumulated on contacts, research, and recommended practices, should significantly reduce your margin for error and increase the productivity of time spent on the study.
- A proper feasibility study will help you avoid two “classic errors”: The temptation to accept the worst building in town and the temptation to treat your management assistance program as something that will take care of itself with a few referrals for business plan assistance and a few office practice services.
The main objectives of this study are:
- To identify institutions that could be partners of the incubator, i.e. the stakeholders;
- To ascertain acceptance of the program among the community;
- To survey sources of funds;
- To define the most appropriate model for the incubator;
- To analyze the main local requirements.
The Feasibility Study is essential for the success of the incubator because:
- It fosters consensus and encourages the leaders of local associations/societies to be involved in the planning process;
- It finds alternatives for dealing with barriers;
- It identifies important points in the business plan;
- It identifies weak points in other projects, in order to avoid making the same mistakes.
Key Issues
- Analysis of local conditions (See Guideline Analysis of Local Condition).
- Identification of availability of economic and financial resources (See Guideline Resources Identification).
- Identification of the stakeholders (See Guideline Stakeholder Identification);
- Identification of justifications, benefits and advantages of implementing the incubator (See Guideline Identification of Justifications, Benefits and Advantages of Implementing the Incubator).
Responsible Parties
- Leaders involved with the initial idea of an incubator.
Indicators
- Time and Costs for carrying out the Feasibility Study
- Funding brought in and political support built up through the Feasibility Study
Results
A clear straightforward document to be used with potential partners, the community and clients to prove the feasibility of implementing an incubator.
Good Practice: Identification of the Justifications, Benefits and Advantages of Setting up the Incubator
Objectives
The reasons and motivations for setting up the incubator should be identified. This includes the expectations of the local community, partners and potential clients, as well as their views on type/general characteristics of incubator that is to be established.
Key Issues
When establishing the incubator, the management institution should be clear about the program benefits expected by stakeholders and the community. It is also essential that the institution is well aware of the reasons or motives prompting the incubator’s establishment. In aligning expectations and preventing future frustration it is imperative to find these motivations and justifications at an early stage. It is vital to know:
- How the community views the program and what its expectations are;
- Stakeholder’s (Government and private institutions) expectations;
- The incubator’s interactions or integration with local policies supporting new businesses development. In general, incubators put forward the following proposals, which are allied to the social, economic and technological development program:
- Job generation;
- Incentives for entrepreneurialism;
- Local/regional economic development;
- University-enterprise relationship;
- Local/regional economy diversification;
- Encouragement of entrepreneurialism among minorities;
- Technological research and development;
- Bringing in profits and opening up investment opportunities;
- Obtaining other benefits for the management entity;
- Encouraging exports and internationalization;
- Formation of clusters and production arrangements, etc.
Essentially, it should be made clear during the feasibility analysis stage that the incubator does not consist merely of physical space. Setting up the incubator is a process with clearly defined stages and rules and there is a concern with physical and “soft” infrastructure.
The lack of success among incubators often stems from an over-emphasis on physical space and infrastructure, while setting aside “soft” infrastructure factors such as: quality staff and services; and the process of selecting, overseeing and assessing the enterprise (See attachment Feasibility Study for the Incubator).
Responsible Parties
Managers and technical staff of the institution who wish to establish the incubator.
Indicators
- Time and costs for development of the feasibility study
- Funds raised and political support built up through the feasibility study
Results
The outcome of this stage is awareness of the reasons, motivations and opportunities justifying the establishment of the incubator. These could be deployed at meetings held to network and enhance awareness of the importance of the program.
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Good Practice: Defining the Stage of Enterprises
The process of creating and developing businesses can be shown to have four distinct stages, as shown in the figure below:
- Conception: the entrepreneur identifies a market niche / need on the part of a specific target public and decides to open a company. The focus of this stage is development of a consistent business plan.
- Emerging Company: based on the already elaborated Business Plan, entrepreneurs begin developing the product and/or service to be offered. The objective at this stage is to have at least one prototype of the product to be offered. The legal formalization of the company may also occur in this stage.
- Consolidation: the next stage in the evolutionary process of the company is consolidation in the market in which it has opted to function, with growth in the number of clients.
- Growth: as of the company?s consolidation, the business will seek out new markets and expand its field of activity.
Stages/Critical Issues
On defining the stage of the enterprises that are apt to submit proposals, the incubator limits the scope and variety of the services to be offered. Based on the figure above, the incubator can support the following processes:
- Pre-incubation: the incubator supports enterprises that are in the stages of conception and emerging company or, in other words, it is not necessary for the company to be defined in legal terms or to possess a product or service that is ready for marketing. Just as in the case of the Projects Hotel put forward by the CDT of the University of Brasília, it is often true that the entrepreneur does not even have to have the business plan fully elaborated, since this will be created during the pre-incubation process.
- Incubation: in this process, companies already begin with a defined legal personality and with products and services available for marketing.
Responsible Parties
- The team that is elaborating the project must do definition of the stage of the enterprises to be supported by the incubator. Thus, it is important that at least one representative of each institution be involved in this stage of the project. The objective is to guaranty that the interests and points of view of all the institutions involved be taken into consideration.
Results
- Definition of the stage of the enterprises to be supported by the incubator facilitates the choice of the services to be offered, since the needs of the enterprises become clearer in this way. Parallel to this, it also becomes clear just who is the target audience, thus facilitating elaboration of the incubator?s marketing plan.
Keywords
Stage of the Enterprises, pre-incubation, incubation.
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Good Practice: Defining the Organizational Structure
Objectives
To define a structure that makes management of the incubator possible. There are two groups of activities generally present in an incubator:
- Those related to operation of the incubator as an independent organization (a business); and
- Those related to developing the incubated companies.
As noted by Pires (2003), the management structure of an incubator “is normally composed of three managerial levels”:
- Board of Directors: also known as the Executive Council, Technical Council, Guidance Council, Curator Council or Deliberative Council, it has representatives from each one of the organizations that participated in the incubator’s formation and/or aided in making it operational, and/or provided economic/financial support.
- Incubator Management: this level includes the president or director of the incubator, the manager and his/her staff, which may include the secretary, mentors and tutors.
- Consultant Committee: specialized consultants who aid the manager in his/her task of orienting the companies.
Key Issues
In conceiving the organizational structure of the incubator, defining the responsibilities of each role is essential. In general, the following definition of responsibilities is found in incubators:
- Board of Directors: Among the responsibilities of this body, the following is highlighted, as proposed by Rice and Mathews (in PIRES, 2003. p. 7):
- Develop and improve a strategic plan for incubator policies;
- Develop policies about how the team operates and the role of the president;
- Control the external relationships of staff and the incubator;
- Support the business operations of the incubator;
- Support development of incubator companies.
- Incubator Management: generally consists of the president, manager and secretary, each with the following responsibilities:
- President: this person plays a political and strategic role for the incubator, including interaction with the different institutions, creation/broadening of the contact network and monitoring of the incubator’s growth and consolidation.
- Manager: has direct contact with the incubated companies and is directly responsible for monitoring the evolution of these companies. The success (or failure) of an incubator can be generally credited to work of the manager. The role of the manager may involve the following:
- Management of facilities;
- Maintenance of shared services;
- Management of staff and trainees;
- Management of marketing for incubated companies;
- Management of the accounting and finances of the incubator;
- Procurements.
- Secretary: supports the manager, and the liaises with the incubator’s external public;
- Mentors/Tutors: these may be, in some incubators, entrepreneurs who have already created their own successful company and assist in orienting the incubated companies.
- Consultant Committee: the incubator needs access to a varied group of professionals, so as to meet all the needs of the incubated companies. A diversity of professionals are not part of the incubator management team but rather contracted separately to respond to specific needs.
Responsible Parties
The team that creates the incubator must work out the organization’s managerial structure in detail. The participating organizations must be proactive in defining the incubator’s organizational structure.
Results
The result of this topic is a clear definition of all the functions that will exist in the incubator. After this, the size and characteristics of staff can be defined
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Good Practice: Defining the Legal Status
Objective
The definition of the legal status of the incubator means, firstly, deciding whether it will be an independent unit (with its own legal structure) or if it will be connected to an existing institution (a university, company, research center, etc.).The definition of the legal status is a strategic decision and the flexibility of the incubator will depend on this decision. There are advantages to each of the legal situations cited above:
Advantages of an Independent Unit
- Flexibility in obtaining funding.
- Managerial/decision-making agility.
- Lesser possibility of political interference.
- Flexibility/agility in complying with agreements/contracts.
Advantages of a Connected Unit:
- Uses the administrative structure of the “maintaining body” (financial statements, finances, materials, etc.);
- Benefit from the “name”/credibility of the “host body”;
- Facilitate interaction with other departments of the “host body”. For example: in the case of a university, the incubator will have easier access to researchers in different departments.
Key Issues
The team responsible for definition of the legal status should consider several points:
Connected Unit:
- Clearly define the degree of autonomy (budget, spending decisions, hiring, etc.);
- Ensure managerial continuity;
- Obtain a source of internal and external support. Even though it is a connected unit, it must not become a simple “internal project”, but must create strong ties to other organizations. Apart from diminishing internal resistance, this can facilitate entry of companies into the market.
Specific legal status: a detailed analysis is made of advantages/disadvantages of the types of legal status permitted by local legislation. Among incubators that are already operating, there are two leading types of legal status: the Non Government Organization (NGO) and Foundations.
Responsible Parties
The team in charge of the project must determine the legal status of the incubator using professional legal advice to provide direction on advantages/disadvantage of the various options.
Results
Definition of the legal status of the incubator makes it possible for the team responsible for the project to comprehend the different types of interaction with other institutions, as well as marketing potentialities/difficulties.
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Good Practice: Defining the Incubator´s 'For Profit' or 'Not For Profit' Status
Objectives
The key aspect of the this definition is whether or not the incubator will be a profit seeking organization. This is important because it establishes the objectives, goals and indicators of the incubator.
This definition depends on the organization that is leading the incubator planning and implementation. The government (municipal, state or federal) and public universities generally create nonprofit incubators. When the leading institution is a private company, the tendency is to establish a profit-seeking incubator.
Key Issues
Nonprofit and profit-seeking incubators usually have different objectives. Despite these differences, incubators can contribute to the development of the region in which they are located; independently of their purpose.
- Profit seeking: according to Neal Young (in ARANHA, 2003), this type of incubator tends to receive “equity in incubated companies as either full or partial payment for the incubator”. The objectives of this type of incubator depend on the principal organization:
- Companies from the traditional sector: these companies are interested in motivating an entrepreneurial style in their employees. They hope to maintain their best staff, and develop new technologies, processes and products.
- Technology companies: aside from the objective of maintaining talents, incubators created by this type of company want to expand their competitiveness and speed in launching new solutions.
- Venture Capitalists: interested in supporting companies that can generate a higher return than the rates paid by the market.
- Nonprofit:
- Government: the objective of the government in supporting an incubator’s establishment can vary. The following is highlighted:
- Broadening of employment and income opportunities;
- Development of economic alternatives;
- Enhanced competitiveness among dynamic and/or strategic sectors of the economy;
- Development of new technologies;
- Universities/Research Centers: in general, the objective is scientific and technological development and commercialization.
- Communities: normally led by charitable organizations, this type of incubator is targeted mainly at expanding employment opportunities in the region.
Responsible Parties
Defining the incubator’s purpose is the task of the team that is driving the incubator project. When more than one organization is involved with the project, at least one representative of each should be involved at this stage of the project.
Results
The team responsible for the project can define the objectives and goals of the new incubator with greater precision.
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Good Practice: Defining the Incubator´s Operational Model
Objectives
Defining the operational model establishes how the incubator will be organized and operated. As Lavrow and Sample stress, the operational model “defines the structure of the incubator, the scope of the services offered, financing possibilities and external alliances.” The operational model is influenced by the incubator’s focus or the companies’ area of activity, and the incubator’s structure/services may vary.
The following operational models are suggested by current literature:
- Bricks and Mortar (BAM): the most traditional model of the incubator is centered on offering physical facilities to those using it. The entire incubation process and services offered are concentrated in a building. An advantage of this model is that interaction, the formation of partnerships and resolution of common problems can be stimulated by the proximity of the entrepreneurs. Depending on the incubator’s focus, this is the “natural” model and is widely used amongst traditional incubators.
- Virtual: also called a Portal or “Without walls”, this incubator model does not provide a building for the incubated businesses. Support and services are offered over the Internet. An advantage of this model is that entrepreneurs from different regions can be integrated. This model has been used to support the generation and development of “dot com” companies.
- Mixed: an incubator that offers a building to house some entrepreneurs and also supports the generation and development of companies over the Internet. Some authors designate this the “HUB/Venture Incubator” model.
Normally, definition of the operational model imposes conditions on the types of services to be offered by the incubator. The BAM model can offer the services of a virtual incubator but may choose to emphasize services offered in its own building/office. The tendency, with widespread use of the World Wide Web, is that incubators will offer many services over the Internet.
Key Issues
Significant to the definition of the operational model is:
- Services: for incubators to be successful, the services offered by the incubator must be adequate to its area of activity and to its stage of development. As already stressed, BAM incubators offer a limited quantity of services, since these are restricted to the incubator’s office/building. Virtual incubators are not limited in the same way, as they do not provide offices but center on offering services over the Internet.
- Network of Relations: a key aspect in incubator success is the quality and scope of its network of relationships. What may occur is that BAM incubators limit their networks of relationships to their physical area of activity. This can reduce the quality of the network of relationships. On the other hand, since they do not have an office/offices, virtual incubators can highlight improvements in the quality and scope of their networks of relationships.
- Financing: lack of finance may lengthen a company’s incubation period. BAM incubators generally do not offer financial support from their own resources to incubated companies. On the other hand, virtual incubators may seek to provide financing alternatives, based either on their own resources or those of third parties.
Responsible Parties
The team that is developing the incubator project must define the incubator’s operational model. At least one representative of each organization should be involved at this stage of the project. This ensures that the interests and points of view of all the institutions involved are taken into consideration.
Results
Definition of the incubator’s operational model aids in the definition of the services and support offered to incubated companies. This includes the network of relationships as well as financial options.
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Good Practice: Defining the Incubator´s Location
Objectives
The best definition of the preferred location is choosing an area that satisfies the incubator’s current and future needs. As highlighted by Aranha (2003), “the location is a part of the economic development plan of the region in which the project is being carried out”.
The location depends on the incubator’s focus, since the companies’ activities may demand characteristics found in few of the region’s localities.
According to the NBIA, location differentiates incubators into the following categories:
- Urban: incubators located in the city. This is more common for technology-based, traditional, mixed and sectoral incubators that do not need large areas nor have “assembly lines” with high noise levels.
- Suburban: these incubators are located in areas surrounding the city and can be part of the overall plan designed to recover, revitalize or develop a given region. Social and cultural incubators commonly use these localities.
- Rural: incubators located in rural areas and, generally, connected to centers of agricultural production.
Key Issues
Choice of an incubator’s location must give due consideration to its focus and the specific characteristics of the region in question. Several critical questions must be dealt with:
- Infrastructure: an evaluation is made of whether the locality has adequate infrastructure for generating companies. This includes transportation systems, sanitation services, electricity and communications. The existence of a good infrastructure in the locality may not have a direct influence on the incubator’s demand; but a deficient infrastructure may reduce the number of companies interested in the incubator’s support.
- Flexibility: the incubator project must take account not only of current demand, but also future growth in both the physical facilities and its focus. If the available area does not allow for expansion, the incubator may rapidly reach its limits, thereby hampering its performance.
- Focus: the activities of incubated companies may directly influence the locality for the incubator. For example: a technology-based incubator may need to be close to a university to encourage interaction among entrepreneurs, academics and students.
- Master Plan: in defining the incubator’s locality, the city’s master plan is taken into consideration, so as to adequately position the incubator within the city’s growth strategy. On the other hand, depending on the incubator’s focus, the location may be defined as being in areas that are underprivileged. For example: social incubators.
Responsible Parties
The team charged with detailing the project will choose the location of the incubator. Local government should be contacted for information on the master plan and the infrastructure of different areas of the city in which the incubator may be installed.
Indicators
To assist with the choice of localities the following are taken into account:
- Ease of access
- Availability of communications
- Availability of basic sanitation services
- Availability of transportation
Results
Siting the incubator at an appropriate location can help publicize the incubator within the community.
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Good Practice: Defining the Incubator´s Focus
Objectives
This definition is derived from an analysis of the region’s needs and potentialities.
Definition of the incubator’s focus determines the structure and types of services offered. An incubator can be classified as:
- Traditional Incubator: supports development of companies linked to sectors of the economy that possess broadly disseminated technologies, such as textiles and footwear. As Pereira and Pereira (2002) emphasize, “the objective is to aggregate value to products and processes through utilization of new technologies”.
- Technology-based Incubator: incubators that include companies with products, processes and/or services that are the result of scientific research and represent a high combined value. These incubators support biotechnology, informatics, and electronics companies, among others.
- Mixed Incubator: provides support to both traditional companies and technology-based companies.
- Cultural Incubator: supports cultural activities such as music, sculpture, photography, and cinema.
- Social Incubator: as stressed by Pereira and Pereira (2002), these are incubators that support “undertakings that originate in social projects connected to traditional sectors that have knowledge that is in the public domain and that meets demand for employment and income and improvements in the quality of life of the community”.
- Agribusiness Incubator: encompasses crop/livestock undertakings and have the objective of stimulating entrepreneurism and technological innovation in the area.
- Sectoral Incubator: supports activities in a single area. In this sense, an incubator can be sectoral and technology-based, for instance, supporting only companies in the area of software.
Key Issues
Definition of the incubator’s focus must consider the local circumstances in which the incubator is to operate and the region’s strategic objectives. In this sense, some critical questions must be raised:
- Vocation: in defining the incubator’s focus, survey the networks and clusters in the region. This survey could, for example, demonstrate that there are a large number of software development companies in the region. The incubator could then define its focus as a technology-based and sectoral incubator. Thus, the incubator could support companies that meet the demands of already existing companies as well as those developing products for new markets.
- Weaknesses: the incubator’s focus can be defined in terms of the recognized weaknesses of the region. The objective would be to support generation of companies that could eliminate/diminish the identified weaknesses. In one region, for example, the level of competitiveness in the textile sector might be low. Then a traditional incubator is needed to support companies that develop products and/or services for the textile sector. Another possibility is establishing an incubator to create opportunities for minority groups, such as indigenous people, people with disabilities, and other minorities.
- Potential: an interesting alternative is to establish an incubator to generate companies in an area that has not yet become one of the region’s strengths, but that has perceived potential. In this case the area should be evaluated for professional workers and a consistent, growing demand for products/services.
- Leading Institution: the incubator’s focus is strongly influenced by the needs and interest of the leading organization. If this is a private company, for example, a profit-seeking incubator could be built to generate technology-based companies. A public university, on the other hand, may be more interested in improving the quality of life of needy communities so the focus may well be a social incubator prepared to form cooperatives.
- Entrepreneurial Culture: a critical aspect of the incubator’s focus is the existence of entrepreneurs to generate new companies in the chosen area. For this, it is important to assess the number of schools, universities and professional training programs with an entrepreneurial profile. Should there be a shortage of organizations involved in creation of an incubator then publicity about entrepreneurism is needed.
Responsible Parties
Definition of the incubator’s focus is the task of the team elaborating the project. When the project is the responsibility of more than one organization, at least one representative of each one should be involved at this stage. Contact should be made with different sectors of the local community, even if they are not participating in creation of the incubator.
Indicators
Information gathering related to the region’s needs and potential is essential, as well as deciding the strategic objectives to be attained. The following indicators can aid in defining the incubator’s focus:
- Number of technical schools
- Number of university courses
- Number of professionals (technicians and university students) trained in the different areas
- Number of companies involved in the regional major sectors
- Number of jobs generated by the companies from different sectors
- Evolution (growth/decline) of the region’s principal sectors
- Evolution (growth/decline) of the principal sectors at the national level
- Evolution (growth/decline) of the principal sectors at the international level
- Number of entrepreneur training programs
Results
An adequate definition of the focus can facilitate the incubator’s integration into the community, making it easier to obtain funding. At the same time, meeting the needs of the community can facilitate development of entrepreneurialism in the region and broaden demand for projects submitted to the incubator.
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Select clients
A resource intensive activity like core business incubation is by necessity selective and not for any or all businesses. It is vital that proposals from prospective clients are assessed and only those that will benefit from and meet the objectives of the business incubation environment and its stakeholders are selected. The entry or selection policy will differ from one incubator to another, depending on the local environmental circumstances and the objectives of the incubator.
In this section you will find information that aims to provide some insight into how to attract and select the “right” clients.
Good Practice: Forwarding, Presenting and Evaluating a Business Plan
Objectives
Identification of the business proposals more likely to succeed.
Key Issues
1) Business Plan forwarding, presentation and assessment (See attachment Request Form for Participation in Business Incubator).
2) Presentation of selection process results to enroll in the incubator
Responsible Parties
Professionals trained in business plan analyses.
Indicators
- Number of proposals received for selection purposes;
- High percentage of feasible business plans selected.
Results
Increase the percentage number of successful companies at the post-incubation phase
Good Practice: Business Selection Process
Objectives
The function of the business selection process is choosing, from amongst candidate companies, those with the greatest pot