Business Incubation and Business Incubator defined (part 1)

Evolution of Business Incubation concept

There is no one standard and commonly accepted definition of business incubation or business incubator. ‘Nearly three dozen definitions are available in the academic literature and just as many have been adopted by industry associations and policymakers in different countries, reflecting local cultures and national policies.’ (Bruneel, Ratinho, Clarysse, Groen, 2012) It’s very important to understand that it’s impossible to have one common definition of this concept due to several reasons: (1) it’s constantly evolving (we could count at least three stages of evolution), (2) different countries, economies and societies understand this concept differently (3) among practitioners and academics there is interchangeability between the terms of ‘business incubation’ and ‘business incubator’, despite the fact that one provides another which creates certain level of incomprehension, (4) and last but not least depending on the point of view, typologies and taxonomies, goals, expectations the term could be defined in many ways. Incubators could be profit and non-profit, public and corporate, etc. I will devote special post to classification of business incubators. Differences in definitions are largely in emphasis and detail although some are substantive. However, in this blog I will establish one definition which will be given after analysis of existing ones.

I believe that’s highly important to understand the evolution of the business incubation concept, in order to determine it. For this reason I have analyzed around 15 sources (mostly academic papers and professional associations) to come up with one definition. Below you will find short analysis of terms ‘business incubation’ and ‘business incubator’ and their development through time.

According to respected authors there were three stages of business incubation development:

1)     business incubation provided within physical facility

2)     business incubation as business support service

3)     business incubation viewed from networks’ perspective

Key characteristics are summarized in the table below.

 

First generation

Second generation

Third generation

Name of the period

Infrastructure: economies of scale Business support: accelerating the learning curve Networks: facilitating access to external resources, knowledge and legitimacy

Offering

Office space and shared resources Coaching and training support Access to technological, professional, and financial networks

Theoretical rationale

Economies of scale Accelerating the learning curve Access to external resources, knowledge, and legitimacy

Years

1950s – 1980s Mid 1980s – mid 1990s Mid 1990s – 2000s

Table 1. Summary of the evolution of business incubation’s value proposition (synthesized from Bruneel, Ratinho, Clarysse, Groen, 2012; NBIA, 2012; Lalkaka, 2000).

 Definitions of ‘Business Incubation’ and ‘Business Incubator’ (First and second generation)

First generation of business incubators offered mostly affordable office space and shared resources (Barrow, 2001; Lalkaka and Bishop, 1996). Provision of physical space was critical to business incubation and has been identified by tenants as the most beneficial feature of business incubators. Thus we can find following definitions of 2 terms during this period of time:

1)      “The universal purpose of a business incubator is to increase the chances of a firm surviving its formative years, but the business incubator also adds value by maximizing the firms’ growth potential.” (Allen and Rahman, 1985)

2)      “A business incubator is defined as a facility that provides affordable rent to new and small firms, shared office and logistical services, and arranges business management and financial assistance.” (Allen , 1988)

Second generation of business incubators was on its peak when BIs became a popular economic development tool to promote the creation of new technology-intensive companies (Lewis, 2001). There was need not only in just affordable office space and shared resources but also in additional business support services (training, coaching, mentoring, and other knowledge based services). During that period of time the most common definitions had emphasis on services  and were created by NBIA, UKBI and others:

3)      “Business incubation helps startups by providing their clients with services on a ‘one-stop-shop’ basis and enabling overheads to be reduced by sharing costs, business incubators significantly improve the survival and growth prospects of new start-ups.

4)     Sherman and Chappell (1998). Business incubator is an economic development tool primarily designed to help create and new businesses in a community. Business incubators help emerging businesses by providing various support services, such as assistance in developing business and marketing plans, building management teams, obtaining capital, and access to a range of more specialized professional services. They also provide flexible space, shared equipment, and administrative services.

5)     Dulf (1999). A business incubator may be defined as an organization which offers a range of business developments services and access to small space on flexible terms, to meet the needs of new firms. The package of services offered by a business incubator is designed to enhance the success and growth rates of new enterprises thus maximizing their impact on economic development”

6)     Chinsomboon (2000) takes an interesting approach with his definition of a business incubator in the New Economy, using Merriam-Webster’s WWWebster online dictionary’s definition of an incubator: “One that Incubates: as (a) an apparatus by which eggs are hatched artificially [b) an apparatus with a chamber used to provide controlled environmental conditions especially for the cultivation of micro-organisms or the care and protection of premature or sick babies”.

Chinsomboon then takes this and synthesize it into new business language, yielding the following definition for business incubators: “A controlled environment that fosters the care, growth, and protection of a new venture at an early stage before it is ready for traditional means of sell-sustaining operation.   In  today’s world, where information technology and the Internet are normal parts of the business environment the term “controlled environment” could be either physical (real estate and office facilities) or virtual (networks)”.

 Definitions of ‘Business Incubation’ and ‘Business Incubator’ (third generation)

From the definitions above it is clearly seen that there is a strong emphasis on services that business incubator delivers to its tenants. Third generation gives us additional variable which is networking. At that time appeared also a new concept which had different names: ‘virtual incubator’ or ‘networked incubator’ or ‘online incubator’. I provide several definitions below:

1)     NBIA (2002) Business incubator is an economic development tool designed to accelerate the growth and success of entrepreneurial companies through an array of business support resources and services…’ They regard as critical elements of an incubator issues such as on-site management, marketing and management resources. physical space, shared IT services, etc.  An important aspect to be included in the definition is the assistance in obtaining finance or start-up capital to ensure enterprise growth.

2)     Gonzalez & Lucea (2001) defines a business incubator as  “… a controlled environment -physical or virtual – that cares, and helps new ventures at an early stage until they are able to sell-sustain through traditional means…”. Again the emphasis is on an environment which is conducive to development and innovation and the support required until the venture becomes sell-sustaining.

3)     Lepeak (2000) defines an eBusiness incubator as “a service organization (individual or virtual) that provides a full-services range to design, deploy, and potentially operate an eBusiness, offering post-incubation…”. Some of the services offered include advisory, funding, design, construction, and operations. The ultimate goal is to build an entity that can take an idea and rapidly (within weeks) develop it into a deployed initiative.

4)     Roussel (2001) defines a business incubator as: “The term incubator is used to describe high-tech business clusters, the role of which is to pool resources to provide “brick and mortar” facilities, hands-on help, personal connections and expertise These clusters sometimes provide the seed funding needed for early stage start-ups”

5)     However, according to the European Commission (2002), the term ‘business incubator’ is in its generic sense often used to describe a wide range of organizations that in one way or another help entrepreneurs develop their ideas from inception through to commercialization and the launching of a new enterprise. European Commission(EC, 2002). A business incubator is an organization that accelerates and systematizes the process of creating successful enterprises by providing them with a comprehensive and integrated range of support, including: Incubator space, business support services, and clustering and networking opportunities.

6)     Hackett and Dilts (2004a and b): “A business incubator is a shared office space facility… that seeks to provide… a strategic, value adding intervention system of monitoring and business assistance… with the objective of facilitating the successful new venturing development while simultaneously containing the cost of their potential failure… It is important to keep in mind the totality of the incubator… It is a network of individuals and organizations.”

7)     Aernoudt (2004) states that incubation should be considered  as an interactive and dynamic new firm creation process with the purpose of stimulating people to start their own business and supporting start up enterprises in the development of innovative products. A real incubator it is not an office space with a desk. It should offer management services, financial assistance, juridical support, operational know-how and access to new markets, which can be done both in a physical or virtual space.

8)     Hamdani (2006) Business incubation can be described as an innovative, evolving organizational form to create value by combining the entrepreneurial drive of a start-up with resources generally available to large or medium-sized firms. Business incubators nurture young firms during their formative years when they are most vulnerable, helping them to survive and grow into viable commercial enterprises.

9)     National Business Incubation Association(NBIA, 2007). Business incubation is a business support process that accelerates the successful development of start-up and fledgling companies by providing entrepreneurs with an array of targeted resources and services. These services are usually developed or orchestrated by incubator management and offered both in the business incubator and through its network of contacts. A business incubator’s main goal is to produce successful firms that will leave the program financially viable and freestanding. These incubator graduates have the potential to create jobs, revitalize neighborhoods, commercialize new technologies, and strengthen local and national economies.

10) United Kingdom Business Incubation(UKBI, 2007). Business Incubation is a unique and highly flexible combination of business development processes, infrastructure and people, designed to nurture and grow new and small businesses by supporting them through the early stages of development and change.

In my next post I will come up with one definition of ‘business incubator’ and ‘business incubation’.

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