What is a Business Incubator?

This is an excerpt from my paper on business incubation. From this point on, I will post the results of my studies in smaller, more manageable parts.

Extant literature is yet to provide a standard definition of business incubators and business incubation. Definitions can be as all-encompassing as that of Kuratko and LaFollete where they state that

“the business incubator seeks to effectively link talent, technology, capital, and know-how in order to leverage entrepreneurial talent and to accelerate the development of new companies” (1987).

This definition, however, classifies organisations such as chambers of commerce as incubators thus widening the field of incubator-incubation research to a nearly unmanageable point. Meanwhile, Rice provides a narrower definition by stating that

“business incubators…nurture and grow start-ups in the Internet economy. They offer fledgling companies…office space, funding, and basic services such as recruiting, accounting, and legal advice—usually in exchange for equity stakes” (2002).

While this definition makes the analysis of incubators more feasible, it is insufficient in two ways. First, it limits business incubators to those that incubate Internet-related firms. Second, it reduces the incubator to a provider of shared services. However, similar to a corporation not being merely composed of a building, the incubator is also not limited to the physical facility and its shared services. Instead, it is composed of a group of people working together to improve the probability of success of new firms. Thus a more useful definition of the incubator-incubation concept might be the one by Hackett and Dilts:

“A business incubator is a shared office-space facility that seeks to provide its incubatees with a strategic, value-adding intervention system (i.e. business incubation) of monitoring and business assistance. This system controls and links resources with the objective of facilitating the successful new venture development of the incubatees while simultaneously containing the cost of their potential failure…when discussing the incubator, it is important to keep in mind the totality of the incubator…[it is] also a network of individuals and organisations” (2004a).

Hackett and Dilts (2004a) also graphically depicted the incubator-incubation concept as being composed of four inter-dependent levels: community, incubator, incubation process, and incubatees (See figure below).

incubator-incubation-concep.gif

It is worth noting how this concept has significantly evolved from the archetypal incubators of the 1950s. In this conceptualisation, more attention has been paid to the interaction between the community and the incubator. First, the community has been recognised to have a significant role in shaping the types of services that should be provided by the incubator. Second, the community is also seen as a major source of the value provided by the incubator to its incubatees. This value may come in the form of professional services, laboratories and equipment from universities, early market feedback, a quality pool of potential employees, as well as partnership opportunities from external firms (including those that have “graduated” from the incubator). Third, launching a new firm requires a considerable amount of resources, monetary or otherwise. An incubator is based on the idea that gathering these resources in one place will help achieve economies of scale for the community. Finally, more than just savings provided by resource pooling, an incubator may also be a useful means for a local economy to channel valuable resources from areas of less productivity to areas of high productivity and with higher probability of success. Thus, in this new conceptualisation, the incubator is no longer seen as an independent entity, but rather, as an organisation whose success largely depends on the degree of its integration with the community.

In part two, I explore incubator taxonomies and how they might contribute to the analysis of incubators.

References

Albert P. and L. Gaynor 2001. Incubators – Growing Up, Moving Out: A Review of the Literature. CERAM Sophia Antipolis.

Allen Consulting Group, The 2003. Evaluation of the BITS Incubator Program and the Intelligent Island Incubator.

Allen, D. N. 1988. Business Incubator Life Cycles. Economic Development Quarterly. 2(1): 19–29.

Allen, D. N. and R. McCluskey 1990. Structure, Policy, Services, and Performance in the Business Incubator Industry. Entrepreneurship Theory and Practice. 15(2):61–77.

Allen, D. N. and S. Rahman 1985. Small Business Incubators: A Positive Environment for Entrepreneurship. Journal of Small Business Management. 23(3):12–22.

Anthony, R. N., Govindarajan, V. 2000. Management Control Systems (10th Edition). Boston: McRaw-Hill Irwin.

Bøllingtoft, A. and J. P. Ulhøi 2003. The Networked Business Incubator–Leveraging Entrepreneurial Agency? Journal of Business Venturing. 20:265–290.

Brooks, O.J. 1986. Economic Development Through Entrepreneurship: Incubators and the Incubation Process. Economic Development Review. 4(2):24–29.

Campbell, C. 1989. Change Agents in the New Economy: Business Incubators and Economic Development. Economic Development Review. 7(2):56–59.

Campbell, C., R. C. Kendrick, and D. S. Samuelson 1985. Stalking the Latent Entrepreneur: Business Incubators and Economic Development. Economic Development Review 3(2):43–49.

Copeland, T. 2002. The Real-options Approach to Capital Allocation. IEEE Engineering Management Review. 30(1):82–85.
Daft, R. 1983. Organization Theory and Design. New York. NY:West.

Eisendhardt, K. M. 1989. Agency Theory: An Assessment and Review. Academy of Management Review. 14(1):57–74.

Hackett, S. M. and D. M. Dilts 2004a. A Systematic Review of Business Incubation Research. Journal of Technology Transfer. 29: 55–82.

Hackett, S. M. and D. M. Dilts 2004b. A Real Options-Driven Theory of Business Incubation. Journal of Technology Transfer. 29: 41–54.

Hamdani, D. 2006. Conceptualizing and Measuring Business Incubation. Statistics Canada, and Innovation and Electronic Information Division Science.

Hansen, M. T., H. W. Chesbrough, N. Nohria and D. N. Sull 2000. Networked Incubators: Hothouses of the New Economy. Harvard Business Review. September:75–83.

Kuratko, D.F. and W.R. LaFollette 1987. Small Business Incubators for Local Economic Development. Economic Development Review. 5(2): 49–55.

Markley, D. M. and K. T. McNamara 1995. Economic and Fiscal Impacts of a Business Incubator. Economic Development Quarterly. 9(3):273–278.

McGrath, R.G. 1999. Falling Forward: A Real Options Reasoning and Entrepreneurial Failure. Academy of Management Review. 24(1):13–30.

Merrifield, D. B. 1987. New Business Incubators. Journal of Business Venturing. 2:277–284.

Mian, S. A. 1996. Assessing value-added contributions of university technology business incubators to tenant firms. Research Policy. 25: 325–335.

National Business Incubation Association (NBIA) 2006a. Tips for Developers. http://www.nbia.org/resource_center/developers_tips/index.php accessed April 9, 2007.

National Business Incubation Association (NBIA) 2006b. Principles and Best Practices of Successful Business Incubation. http://www.nbia.org/resource_center/best_practices/index.php accessed April 9, 2007.

Peters, L., M. Rice and M. Sundararajan 2004. The Role of Incubators in the Entrepreneurial Process. Journal of Technology Transfer. 29:83–91.

Plosila, W. and D. N. Allen 1985. Small Business Incubators and Public Policy: Implications for States and Local Development Strategies. Policy Studies Journal. 13:729–734.

Rice, M. P. 2002. Co-production of Business Assistance in Business Incubators: An Exploratory Study. Journal of Business Venturing. 17: 163–187.

Robillo, O. 2007. Manpower and Skills Survey. http://ittalks.robilloblog.com/2007/04/09/manpower-skills-survey accessed 12 April 2007.

Scott-Kemmis, D., A. J. Jones, and B. Heslop 2004. ANU Enterpreneurship Development and Enterprise Support Centre: An ACT-ANU Collaboration. Innovation Management and Policy Program, National Graduate School of Management.

Shcerer, A and McDonald D. W. 1988. A Model for the Development of Small High-Technology Businesses Based on Case Studies from an Incubator. Journal of Product Innovation Management. 5:282–295.

Sherman, H. 1999. Assessing the Intervention of Effectiveness of Business Incubation Programs on New Business Start-ups. Journal of Development Entrepreneurship. 4(2):117–133.

Sherman, H. and D.S. Chappell 1998. Methodological Challenges in Evaluating Business Incubator Outcomes. Economic Development Quarterly. 12(4):313–321.

Smilor, R.W. 1987a. Commercializing Technology Through New Business Incubators. Research Management. 30(5):36–41.

Smilor, R.W. 1987b. Managing the Incubator System: Critical Success Factors to Accelerate New Company Development. IEEE Transactions on Engineering Management. EM-34(4):146–156.

Temali, M. and C. Campbell 1984. Business Incubator Profiles: A National Survey. Minneapolis: University of Minnesota. Hubert H. Humphrey Institiute of Public Affairs.

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7 Comments

Filed under Business Incubation, Definitions, Incubator

7 responses to “What is a Business Incubator?

  1. Pingback: what is technopreneurship

  2. Meghna

    has anyone till now tried to define what an incubatee really means?

  3. ghd

    Your article is write very well, I like it very much ~

  4. You’re getting there – and it’s very interesting – but the real issue these days is “do we even need to include the building when discussing incubation”, due to the presence now of “virtual incubation” and hackerspaces, drop-in incubation spaces, mobile incubation, affiliate incubation, etc. I like your post – it’s becoming more and more of a “fluid industry” every week…

  5. Mark

    very interesting question, incubatorblogger! from my point of view, there is a need for physical proximity between incubatees and the incubator (which may or may not require a building). i explain this in the rest of the posts on this series.

  6. Hi there! I just would like to give a huge thumbs up for the nice info you have right here on this post.
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  7. Hiya! I simply want to give a huge thumbs up for
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