Business Incubation Defined (part 2)

Viewpoints on Business Incubation

Business incubator is a part of value chain in the innovation system of a regional, national or global economy. Main client and customer of any business incubator is a new venture or an entrepreneur. In order to define two key concepts: business incubation and business incubator / business incubation program, we must establish a view point. Goals of business incubation phenomenon could be considered from several viewpoints:

  • from entrepreneurs’ perspective
  • from innovation ecosystem perspective
  • from macroeconomic perspective
  • from government perspective
  • from venture funds & capitalists, business angels perspective
  • etc..

I believe that there are only two main perspectives: internal (from entrepreneurs point of view) and external (from external players point of view).

Main Reasons of Business Incubators Existence

According to this classification goals or main services of business incubator could be (extracts of definitions from previous post):

  • to increase chances for startups surviving/ enhance the success and growth rates of new enterprises (internal perspective)
  • to provide controlled environmental conditions (physical or virtual)
  • to provide startups with a comprehensive and integrated range of business support
  • to give access to pool of resources
  • to propose business development services to meet the need of new firms
  • to maximize new ventures’ impact on economic development (macroeconomic perspective)
  • to add value by monitoring and business assistance via
    • Decreasing overheads by sharing costs and services
    • Physical services:
      • Shared space
      • Shared equipment
      • Administrative services
    • Virtual services
      • Access to networks
      • And some of the listed below
    • Business development services (business support services)
      • Coaching, training, mentoring
      • Financial assistance
      • Business model and strategy
      • Marketing plans
      • Building management teams
      • Access to a range of more specialized professional services
      • Obtaining finance or start-up capital
      • Personal connections and expertise
      • Provide the seed funding

Some authors define business incubator as facility (which is more connected with first incubators that were mainly physical facilities), others as one-stop-shop for ventures support. External perspective gives us a concept of economic development tool (this is mainly coming from government-supported non-profit types). I prefer to think about business incubator as about value adding service organization or system (if you prefer).

Business Incubator Definition and Limitations

Business incubator is value adding service organization aimed to foster the care of a new venture at an early stage, increase its chances for surviving and enhance the growth potential via providing comprehensive and integrated range of business development services; and decreasing overheads by sharing costs, resources and services; thus, maximizing impact of new ventures on economic development.

This definition I will consider as the main one when I will use “Business Incubator” in my blog. Even though this definition is quite big and gives two perspectives (internal and external) there are some limitations that should be mentioned.

 Limitations of the definition:

  • Concepts of success and growth are relative, and BIs to some extent are not able to control them. There is still ongoing debate of what are KPIs for success graduate projects. Should it be financial indicators or external such as number of jobs produced in the region?
  • Nothing is said about innovative nature of the products or services produced by new companies. Not all incubators produce innovative products.
  • It should be understood that BIs provide controlled artificial environment for ventures, which provide protection one the one hand, and gap from the market on the other hand.
  • Nothing is said about exit conditions and what is early stage really mean (which period of existence, round of financing).
  • Nothing is said about physical or virtual type of services provided by incubators.

Business Incubation Definition

The main difference between two terms is that business incubation is a process which could be done by business incubators or other entities with similar aims. This definition is very close to ones that are given by NBIA, UKBI and Mr. Arnaud.

Business incubation is interactive and dynamic business support process of new businesses at an early stages with the purpose of stimulating people to start their own business and development of innovative products or services. Business incubation is provided through comprehensive array of targeted services, resources and people. Business incubation should also be viewed as unique and flexible combination of business development processes, infrastructure and people.

All limitations that have been described before are valid here also.

Questions to be analyzed in the future which are connected to these definitions are:

  1. Which part of innovation ecosystem value chain business incubation fit in?
  2. What does a success of a venture mean?
  3. Can business incubator really control success? If not control, but may be just have a positive influence?
  4. Why do we need to support early stage entrepreneurs? Is it good to do it through BIs with paradox of market emulation?
  5. Is it key condition for BI to have all services in one place?
  6. What does mature startup mean?
  7. Why do we need to accelerate the growth of the venture?

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