A Focus on the Incubator’s Selection Process

Key point: Being the key determinant of an incubator’s effectiveness in option creation, the selection process should be properly managed.

A properly executed screening process ensures that resources are channeled only to those potential incubatees that truly need it. Hacket and Dilts state that “ideally, only those firms that are ‘weak-but-promising’ (weak due to lack of resources, but promising in the sense that they have built a compelling business case) should be considered” (2004a). Merrifield (1987) proposes to ask three basic questions during the selection process: Is this a good business to be in? Does the applicant have the competence to engage in it? And is incubation the most appropriate way to pursue it? Hamdani (2006) and Merrifield (1987) elaborate on the three questions below.

Attractiveness of business is evaluated on six factors, which cover:

  1. Sales and profit potential;
  2. Regulatory and social constraints (e.g. antitrust, environmental);
  3. Growth potential of the business;
  4. Competitive environment, including proprietary technologies and patents, rate of product and technological obsolescence, monopolies, etc.;
  5. Risk distribution by ensuring sufficient differentiation among selected candidates to pre-empt cannibalization among them; and finally
  6. The scope of opportunities offered by industry to segment the market or create new markets.

If the applicant receives a satisfactory score on business attractiveness, it is then tested for the fit, which covers the following:

  1. Sufficient capital to fully exploit the opportunity;
  2. Competence to meet the growth potential of the market;
  3. Sufficient marketing and distribution competence to provide market penetration within the expected product life cycle;
  4. Sufficient technology base to provide customer service, product improvement and diversification;
  5. Material availability; and
  6. Supportive top management.

The final question then would be: Is incubation the best route to take or would other methods of entry such as a joint venture be more appropriate?

For a backgrounder on the incubator-incubation concept and for a complete set of references, see my earlier post.

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2 Comments

Filed under Business Incubation, Incubator

2 responses to “A Focus on the Incubator’s Selection Process

  1. Ntshadi

    Hi Mark,

    Good idea keeping a study journal on the blog, I have not thought about it. How helpful has it been?

    I just want to find out if you have come across studies that explain differences in new venture creation among business incubators.

    Thanks – Ntshadi

  2. Hi Ntshadi,

    Thanks for visiting!

    For me, I find it useful as it allows me to review my thoughts and do some sort of a self-correction whenever possible. I feel though that I did not get enough reaction earlier on from visitors although that’s probably my fault as I wasn’t too active in soliciting comments from my then classmates and professors.

    Regarding your other question, I believe I came across something close to what you’re looking for. One of my references in this post might point you to the right direction.

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