Paradox of Market Emulation
My analysis of key concepts incorporated into business incubation shows that in the heart of it lies support and help for entrepreneurs (See also Business Incubation Defined). It could be expressed in different forms such as providing access to capital, business support services, shared resources, networking and mentoring, etc. However, there is one point that is astonishing for me. In academia it’s called paradox of market emulation (See source 1 or this link). In few words it happens when business incubators (successfully or not) emulate market conditions (i.e., choosing projects according to the same criteria that venture capitalists use in the market increases incubated firms’ success rates) and at the same time provide shelter for their tenants from the market.
I guess only few business incubators aware of this issue and explicitly recognize it, not to mention how to manage this paradox which is an extremely difficult thing.
Karl Marx’s perspective
I want to give a perspective on BIs from post-Soviet point of view. Russia and many post-soviet republics guided by elite were building a socialist and communist country inspired by Vl. Lenin, Karl Marx and Friedrich Engels. I don’t want to give political, cultural, economic, ethical or other assessments of this endeavor. But we all know that this experiment failed. Moreover, ideas of Marx are not popular nowadays. However, some of the capitalism problems that he revealed are still very important.
Countries that build their economy following capitalism foundations can’t escape from contradictions described by Karl Marx. We can call them “ulcers of capitalism”. One important issue is primacy of capital.
Every business from the very beginning fights for survival. Capital rules. For example, this is embedded in the U.S. culture of entrepreneurship. It’s in blood. On the one hand, it is good – the best and strongest wins. On the other hand, obviously (and scientifically proved) there is high concentration of capital in few centers of gravity which gives unfair start for entrepreneurs (60% of world resources belongs to corporations according to Zurich research group) (See source 2 or this link). “Open competitive markets fail to provide conditions that allow many new start-ups to reach a viable size; hence there is need for intervention, in the form of an incubator.” (Shlomo Maital, Shmuel Ravid, D V R Seshadri and Alon Dumanis, 2008)
Thus, it was the U.S. economy, that gave to the rest of the world such a phenomenon as a business incubation. They pioneered this concept being a capitalistic country. In a sense, business incubation is artificial controlled environment in which the business is supported in a “socialistic” way. Why? Because they provide protection from capital rules artificially.
Interestingly, but BIs represent a socialistic element in the capitalist world, which is shown by Paradox of Market Emulation.
Business Incubation Pitfalls as a Consequence of Paradox of Market Emulation
BIs represent the whole layer of the U.S. economy creating huge amount of jobs and attracting large capital being an artificial economic development tool (see NBIA reports f.i., even though they tend to overestimate business incubation accomplishments). To some extent business is completely out of fierce competition and market forces. Moreover, “one of the pitfalls of incubators is that by providing a warm, safe environment, it eliminates the vital sense of urgency, the go-to-market pressure that non-incubator start-ups experience from day one. We have seen numerous incubator projects fail for just this reason.” (Shlomo Maital, Shmuel Ravid, D V R Seshadri and Alon Dumanis, 2008).
So, is it (this situation and business incubation as a layer in the economy) healthy for the economy, incubated business?
Could BI produce successful or innovative business and, thus, strengthen national or local economy if it put “walls” around tenants?
Could BI produce graduate which will be able to commercialize new technologies and create jobs after “business incubation effect” will be finished?
How BI processes should be changed or aligned considering Paradox of Market Emulation?
I put here a question mark.
- “Toward a Grounded Theory of Effective Business Incubation”, Shlomo Maital, Shmuel Ravid, D V R Seshadri and Alon Dumanis, VIKALPA, VOLUME 33-4, 2008
- “The capitalist network that runs the world”, Andy Coghlan and Debora MacKenzie, NewScientist, 24 October 2011, http://www.newscientist.com/article/mg21228354.500-revealed–the-capitalist-network-that-runs-the-world.html