Review of 20 Business Incubation Models – Summary of the series. Problems of business incubation

8 months ago the review of business incubation models was initiated. This series of posts covered around 20 business incubation models which were created, conceptualized and described by researchers, consultants and practitioners since 1985 up to 2013. This series was intented to review existing business incubation models, and assess their historical applicability, performance and efficiency for business innovation purposes.

I need to highlight that I’m partly satisfied with the obtained result. The drawbacks of the research is lack of publicly available information about models. Thus, some parts of the analysis framework are empty. Consequently, we were not able to compare all models in the same way. At the same time, very important conclusions were made due to established and predefined framework. They are listed in the post about Analysis of 20 Business Incubation Models.

Let me summarize the whole series below:

Several outcomes of Business Incubation Models Review

Let me provide you with several conceptualizations.

Firstly, hypothesis that models of business incubation could be described from several viewpoints was proved. Every model was clearly put in one or two of the following dimensions:

  • structure vs process;
  • black-box vs white-box;
  • operations vs development.

This means that that every model tried to describe a business incubator within given dimensions applying only one of possible options. This, consequently, limits the model. For instance, Carter & Jones described process of business incubation, but they haven’t explained what will be the structure of business incubator, it’s resources and so on in order to implement the process. As well as they were concentrated on explanation of internal operations. No information was given how business incubator is interacting with other stakeholders of innovation value chain. Only Hacket & Dilts model tried to conceptualize business incubator in a systemic approach – from mixed viewpoints (process + structure, black-box + white-box). This is the only the model which is close to generic business incubation model.

Secondly, after application of our classification to all models we realised that there is a limited set of meta-models. The rest is modification of base-line models.

Thirdly, we was able to put business incubation in context. This allowed to look at this phenomenon objectively. It’s important not to idealize business incubation. There are several issues about this phenomenon that should be mentioned here:

  • Incubation deals with a tiny portion of SME development
  • It is no panacea, not a solution to vast unemployment
  • Incubation requires a variety of players, playing as a team
  • For success, it must be integrated in national plans
  • It’s about people and process, not only plans and policies
  • Change comes slowly, and failures part of success
  • From the outset, it must involve politicians and community
  • Importantly, incubation must have a ‘champion’
  • Market emulation paradox exists (I’ve wrote about it here)

Forthly, there is possibility to create a generic business incubation model which will be able to cover structure and process, internal and external dimensions of business incubation. There is only one attempt of such model which is created by Hacket & Dilts. My intention will be to create a model with the following perspective:

  • address issues in the analysis of 20 business incubation models
  • put entrepreneur in the center of business incubation process (in some models it’s not)
  • address key problems of entrepreneurs within business incubation process
  • stress on early stage entrepreneurs
  • take into account key business incubation problems and dowm-sides.

Main Business Incubation Problems

Since 1980s when first publications about incubators appeared academics and practitioners investigated a plenty of questions. One of the most important questions was the question about limitations, constraints and challenges of business incubation. Our literature review showed that many researchers conducted research on this issue. I would like to name main works, that have touched the issue of business incubation problems and down-sides:

  1. Lalkaka, 2000
  2. António Carrizo Moreira, Susana Paula Leitão Martins, CRER: An integrated methodology for the incubation of business ideas in rural communities in Portugal, 2009
  3. Christine E. Cooper• Stephanie A. Hamel• Stacey L. Connaughton,  Motivations and obstacles to networking in a university business incubator, 2010
  4. Johan Bruneel a,b, Tiago Ratinho c,n , Bart Clarysse a,b , Aard Groen C, The Evolution of Business Incubators: Comparing demand and supply of business incubation services across different incubator generations, 2011

The combined list of the possible problems could include approximately 20 points. I would like to concentrate on the main ones which were obtained by analysis of scientific articles of the authors mentioned above, interviews of business incubation professionals, analysis of 20 business incubation models, analysis of the world problems, analysis of innovation ecosystem problems[1]. The analysis of the main business incubation problems allowed us to identify several categories of problems that could be relevant for benchmarking different business incubators and models. They are shown in the figure below.

Problems of Business Incubation

Main Problems of Business Incubation

Eventually, we got the following list of the business incubation problems:

  • Model of business incubation
    • Existing models of business incubators can support only limited number of startups (at maximum 450K per year worldwide). Few business incubators implemented a model of virtual business incubators. Out of 9000 business incubators there is only 65 virtual business incubator. At least they call theirselves virtual. I guess only half of them really virtual.
    Number of Business Incubators Worldwide 2013

    Number of Business Incubators Worldwide 2013

    • Few research is done in creating a framework for virtual business incubation, which can potentiall increase total number of supported companies.
  • Elitist – Funnel system of work.
    • It caters to a selected group of potential “winners”. There are tough selection procedures which allow to screen applicants down to 30-50 per incubator per year[2].
    • Funnel structure of the operations. 100 -> 10 -> 1
    • Limited in out-reach and makes only a marginal contribution to job-creation in the short term
    • Current venture industry and as a consequence system of business incubation (as one of the most effective and efficient economic development tools) is built as pyramid where 99 early-stage entrepreneurs are rejected.
  • Limited resources and capacity
    • Limited number of brilliant ideas and talented people.
    • Skills-intensive as it requires experienced management teams.
    • Calls for good business infrastructure in a good location.
  • Incubation process
    • It is highly dependent on risk, Thus, very tough procedures of selection, mediation and exit have been established in most business incubators
  • Dependent on government support – in policy, infrastructure, initial funding.
    • According to different sources from 75% to 93% of business incubators are ran as non-for-profit. Governmental incubators are not organized as businesses which could reduce efficiency and effectiveness of incubation.
  • Old logistics of projects selection and development.
    • Obsolete business processes and low efficiency of business incubators doesn’t allow them to accept more than 30-50 projects per year on average.
    • There is strong emphasis on late stage financing (risks are significantly lower), orientation of profit and reduction of investors risks in the venture industry and consequently in business incubation.
    • It is impossible to support big amount of early-stage entrepreneurs (even 1000 startups per incubator).
    • No more than 0,2 – 0,3% of population of the Earth can be involved in the innovation process (A. Krol, 2012)
  • Paradox of market emulation
    • Creates dependency by sheltering entrepreneurs from the harsh realities of the market.
    • Not yet demonstrated to provide additionally, as most businesses start outside an incubator.
  • Expensive
    • It provides focused assistance and work-spaces to only a selected few,
    • Requires external subsidy for some years before it can become self-sustainable.

[1] See Business Incubation Models Review Series

[2] Figures vary according to a type of a business incubator. However, the maximum limits on average are 30-50 ventures per year.

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