Overview of business incubators and university business incubators

Hoàng Văn Hải Tạp chí KHOA HỌC & CÔNG NGHỆ 105(05): 81 - 86 81 OVERVIEW OF BUSINESS INCUBATORS AND UNIVERSITY BUSINESS INCUBATORS Hoang Van Hai* College of Economics & Business Administration – TNU SUMMARY Business incubator is a special firm type set up with the aim at assisting young firms through support services, such as infrastructure, capital access, employee recruitment and training, during start –up periods when they are most likely to get failure. Therefore, it is considered as an engine of regions’ development in terms of economic value and job creation and has become deeply respected institutions. The concept of business incubators becomes familiar with communities around the world in recent years, especially in developed countries like United States, western European countries, Australia, and Japan. In contrast, the concept is still a new one and remains virtually unfamiliar with communities in Vietnam. In the attempt of providing an overview of business incubators, in this paper, we first introduce basis knowledge of the special firm type and then briefly describe one of its existences in practice, university business incubators. Key words: Business incubators; University business incubators; Incubatees; Knowledge; Development INTRODUCTION* Business Incubators (BIs) made its first appearance in Vietnam in 2004 with the establishment of a business incubator affiliated with Hanoi University of Science and Technology. Currently, Vietnam has 47 technology incubators. Overall, the incubators have achieved some initially encouraging results in terms of number of scientific and technological enterprises incubated. Some typical examples can be mentioned are the business incubator of CRC-TOPIC nurturing 22 enterprises, centre for high-tech business incubation (HBI) nurturing 4 enterprises and support over 20 businesses, centre for software business incubation of Quang Trung (SBI) nurturing 10 enterprises, and center for high-tech business incubation of Hoa Lac nurturing 25 enterprises. Thus, in some extent, this firm type has gradually proved its importance in regions’ economic growth alongside the other forms of enterprises. Basic information of business incubators, like the definition, the history of development, or the characteristics can be found in existing literatures corresponding. However, the information is scattered in many papers instead of one. Based on the fact, this paper is a * Tel: 0912.697.605 collection of the basic information of business incubators drawn from corresponding literatures thus providing readers with an overview of what a business incubator might be within a reasonable amount of time. In the paper, we first introduce basis knowledge of the special firm type and then briefly describe one of its existences in practice, university business incubators. BUSINESS INCUBATOR So far, in existing literature, there is no single definition of business incubators considered as standard. A definition, which is widely accepted, is defined by Hackett and Dilts. According to Hackett and Dilts (2004: p.57): “A business incubator is a shared office space facility that seeks to provide its incubatees (‘portfolio-‘, ‘client-‘ or ‘tenant- companies’) with a strategic, value-adding intervention system (i.e. business incubation) of monitoring and business assistance [] with the objective of facilitating the successful new venture development of the incubatees while simultaneously containing the cost of their potential failure.[] Furthermore the incubator is not simply a shared-space office facility, infrastructure and mission statement, [] it is also a network of individuals and organizations”[3] 86Số hóa bởi Trung tâm Học liệu – Đại học Thái Nguyên Hoàng Văn Hải Tạp chí KHOA HỌC & CÔNG NGHỆ 105(05): 81 - 86 82 Aiming at providing a clear view of what business incubators might be, these following definitions are worth consulting. At the 1998 Helsinki workshop, a business incubator was defined as: “A place where newly created firms are concentrated in a limited space. Its aim is to improve the chance of growth and rate of survival of these firms by providing them with a modular building with common facilities (telefax, computing facilities, etc.) as well as with managerial support and back-up services. The main emphasis is on local development and job creation.” (1) However, the definition seems focusing too much on physical aspects of incubator operation (Benchmarking of Business Incubators, 2002) [2]. An alternative definition concentrates on other services offered by business incubators are provided by the US National Business Incubation Association (NBIA): “Business incubation is a dynamic process of business enterprise development. Incubators nurture young firms, helping them to survive and grow during the start –up period when they are most vulnerable. Incubators provide hands-on management assistance, access to financing and orchestrated exposure to critical business or technical support services. They also offer entrepreneurial firms shared office services, access to equipment, flexible leases and expandable space – all under one roof.” (2) Broadening the definition of NBIA by including some aspects like entrepreneur training, mentoring and visibility, UK Business Incubation (UKBI) defines business incubators as: “Business incubation is a dynamic business development process. It is a term which covers a wide variety of processes which help to reduce the failure rate of early stage companies and speed the growth of companies which have potential to become substantial generators of employment and wealth. A business incubator is usually a property with small work units which provide an instructive and supportive environment to entrepreneurs at start-up and during the early stages of businesses. Incubators provide three main ingredients for growing successful businesses – an entrepreneurial and learning environment, ready access to mentors and investors, visibility in the marketplace.”(3) The first incubator was established as the Batavia Industrial Center (BIC) in Batavia, New York, in 1959. However, the concept of providing business assistance services to early- stage companies is familiar with communities in the late 1970s. The business incubator concept was generally accepted in the 1980s, when the importance of small firms regarding innovation and growth began to be recognized in economic planning. By early 1990s, there were about 200 incubators worldwide. Today, according to an estimation of NBIA, there are about 7000 business incubators in the world. In 2011 alone, North American incubators nurture about 49 000 start-up companies, providing full-time employment for nearly 200000 workers and generating annual revenue of almost $ 15 billion. Although there are differences among varied incubators, the following characteristics are typically shared among better ones (Nohria et al ., 2000): • They maintain a spirit of entrepreneurship by enabling their incubatees (tenants) to have significant ownership and by preventing them from strategic, bureaucratic and organizational impediments, • They offer preferred rates and terms from leading service providers, through allowing member companies to enjoy economies of scale. For example, business incubators help start-up managers reduce opportunity costs spent for setting up basis infrastructure, finding, negotiating and contracting for each service needed, • They offer preferential access to a network of companies. For instance, a tenant can establish linkages with companies in its incubator’s network under the help of the incubator to obtain advice, or recruit talented employees. [5] Business incubator models are formed from four main components (Hackett and Dilts, 87Số hóa bởi Trung tâm Học liệu – Đại học Thái Nguyên Hoàng Văn Hải Tạp chí KHOA HỌC & CÔNG NGHỆ 105(05): 81 - 86 83 2004)[4]. They are selection, infrastructure, business support, mediation and graduation. Selection refers to decision on whether a venture is accepted in the incubation program. Each incubator generally has its own criteria to select its incubatees. They may include work experience and technical expertise of the entrepreneur or the management team, the properties of the venture’s target market, the properties of the product or service and the venture’s potential profit.(4) From reviewed literature, Bergek and Norrman (2008) indentify four selection strategies which vary in different incubator‘s portfolios of incubatees • “Survival-of-the-fittest and idea”, the portfolio will presumably contain a considerable number of idea owners (or upcoming entrepreneurs) with immature ideas relevant to a wide range of fields, • “Survival-of-the-fittest and entrepreneur”, the resulting portfolio will be diversified, and contains entrepreneurs/ management teams who have strong driving force and represent a broad set of ventures, • “Picking-the-winners and idea”, results in a highly suitable portfolio which consists of thoroughly screened ideas within a quite narrow technological area-often stemmed from the research of highly ranked universities, • “Picking-the-winners and entrepreneur”, the portfolio includes a few handpicked and thoroughly evaluated entrepreneurs, commonly with ideas related to research areas of a nearby university.[8] Infrastructure includes localities, office facilities and administrative service (Bergek and Norrman, 2008) [8] Business support regards coaching/ training activities aiming at developing the incubatees (Bergek and Norrman, 2008) [8]. The business support services generally contain entrepreneurial training and business development advices. The service also includes general business matters such as accounting, legal matters, advertising and financial assistance (Bollingtoft and Ulhoi, 2005; Chan and Lau, 2005; Laikalka, 2003; Lyons and Li, 2003; Mian, 1996)(5). Mediation concerns on how the incubator connects the incubatees to each other and to the outside world (Bergek and Norrman, 2008) [8]. Mediator is one of the important roles of incubators (Peters et al., 2004) (6) .When a firm is in the incubation program, it is allowed to be involved a network of the incubator which include potential customers, partners, employees, university researchers and financiers (cf. Bollingtoft and Ulhoi, 2005; Clarysse et al., 2005; Hackett and Dilts, 2004b)(7). From the network, incubatees can access resources which are vital for the survival of newly startup firms, such as knowledge and technology, financial capital, market related resources and human capital (Begley et al., 2005; Bollingtoft and Ulhoi, 2005; Hindle and Yencken, 2004; Mian, 1996a; Rice, 2002; Rickne, 2000, Collinson and Gregson, 2003)(8) . This compensates for a shortage of established entrepreneurial networks of incubatees and reduces the uncertainty that incubatees experience (Peters et al., 2004; Smilor, 1987; von Zedwitz, 2003)(9). Graduation refers to decisions regarding what circumstance incubatees should leave out the incubation program (Bergek and Norrman, 2008). [8] It’s difficult to find out the most reasonable answer to the question: When is a company ready to graduate? According to a report in 2002 of European Commission Enterprise Directorate General, a company can remain as a tenant in the duration from 3 to 5 years depending on how special an incubatee might be. For example, some specialist types of tenants, such as biotech tenants, high-tech R&D and high-tech manufacturing can remain in the incubation program more than 3 year because of the longer product development. In the same subject, another method worth consulting since it provides a clear view on what the graduation process might be. In the method, a set of existing criteria is created based on factors such as having enough investment to run business in next stages, requiring space beyond the incubator’s capacity, or creating a complete management team (Cammarata and Kathleen, 2003) [1]. Two following examples are used to illustrate for the method. 88Số hóa bởi Trung tâm Học liệu – Đại học Thái Nguyên Hoàng Văn Hải Tạp chí KHOA HỌC & CÔNG NGHỆ 105(05): 81 - 86 84 Example 1 According to Charles D’Agostino, executive director of the Louisiana Business & Technology Center (LBTC) in Baton Rouge, Louisiana, when evaluating graduation process of the clients, his incubator bases on a number of factors: • Have they followed their business schedule • Have they added the necessary employees to meet with growth objectives of the company? • Have they completed a network of advisors and professionals (e.g., attorneys and accountants)? • Have they started generating revenue from sales? • Do they have adequate capital to run the company for the next six months to a year? • Is the management team able to run the company without incubator guidance? Example 2 In the Center for Innovation in Grand Forks, North Dakota, a tenant is ready to graduate once it achieves two of the following conditions: • Reaches $ 1 million in annual sales • Makes a successful public or private stock of more than $500,000 • Exceeds the incubator’s capability • No longer has a tie with universities to be in a university incubator A conclusion drawn from incubators’ graduation process is that whatever the time for graduation is, the key is to have a strong rationale for deciding when a company should run a business on its own and that rationale should be in line with an incubator’s mission and focus (Cammarata and Kathleen, 2003).[1] We have provided basic knowledge of business incubators. In the remaining of the paper, we briefly introduce one of its existences in practice named university business incubators (UBIs). UNIVERSITY BUSINESS INCUBATORS In the existing literature regarding university business incubators (UBIs), there is no standard definition of the concept of UBIs. We can get out here three ways to describe what university business incubators might be: In the first approach, Evans and Klofsten (1998), Radosevic (1995) (10) indicate that UBIs are set up by universities ready to accept a directly entrepreneurial role in generating and spreading scientific and technological knowledge, In the second approach, Heydebreck et al., (2000), Grimaldi and Grandi (2001)(11) mention that UBIs are institutions aiming at nurturing new knowledge-based ventures through provision of services including space, infrastructure, communication channels, and information about external financing opportunities, etc. However, stemming from their educational function, UBIs focus more on the transfer of scientific and technological knowledge from universities to companies, In the third approach, Mian (1996) identifies that UBIs offer their tenants two main categories of services (a) typical incubator services including shared office services, business assistance, access to capital providers, access to business networks, and rent breaks; (b) university - related services like faculty consultants, employment of students, improvement of reputation, library service, labs/ workshops, and equipment, computers, related R&D activity, technology transfer programs, employee ducation and training, sports, and other social activities. [7] Besides common characteristics sharing among business incubators, UBIs have distinctive ones. As indentified by Mian (1996), UBIs have fundamental characteristics as following: • UBIs’ objectives come from interest of those who are states, local governments, or private sectors, • Most UBIs are physically situated on or close to their respective sponsoring-university campuses. Being near university campuses offers UBIs advantages such as access to library facilities, student labor, technical equipment, and experts (Smilor and Gill, 1986) [10], • Governance and Policy Guidance- In general, all UBI facilities are managed by various types of boards with representative of 89Số hóa bởi Trung tâm Học liệu – Đại học Thái Nguyên Hoàng Văn Hải Tạp chí KHOA HỌC & CÔNG NGHỆ 105(05): 81 - 86 85 university, state, local government, and private sector. These boards make overall direction, • Tenant performance Review- Formal and Informal tenant performance reviews are implemented periodically at UBIs. This process is based on criteria of dropouts, annual sales, and employment growth, • Institutional Support- Various UBIs programs get benefit from their respective university technology transfer programs, research centers, and technology and business development assistance centers, • Staffing – UBIs employ different number of administrative/clerical and professional staff, depending upon the size, which is reliant on the number of its tenants and nature of each operation. According to a research done by European commission in 2002, a key efficient ratio between an incubator’s staff and its tenants is 1: 3.2 or 1: 5.0. Concerning the nature of operation, a statistics of National Council for Urban Economic Development (1985), Washington, DC, can be served as an example. The statistics indicates that business incubators employ 1.9 and 2.10 staffs in average for administrative and consulting work, respectively, • UBIs get funds from state and support from sponsoring university for both their operation and mission of supporting the growth of tenant firms, • Technologies and Entrepreneur targeted – the type of technologies targeted for development is generally reliant on the available resources at a particular facility. The types of targeted entrepreneurs such as university – related (students, professors, alumni) or others, depend on incentives and recruiting efforts. Incentives mean UBIs focusing on the characteristics of managers which are in line with a particular facility like entrepreneurs with technology idea relative to the research area of respective universities. Recruiting efforts refers to the UBIs’ endeavor to seek talented entrepreneurs, • Strategic Operational Policies-tenant selection policy, tenant graduation policy, intellectual property safeguards for tenant firms, and the linkage with graduated firms are considered key elements for a successful university business incubator, • Services and Their Valued-Added-There are two main categories of services: (a) typical incubator services, such as shared office services, business assistance, access to capital providers, access to business networks, and rent breaks; (b) university - related services like faculty consultants, students’ employment, improvement of reputation, library service, labs/ workshops, and equipment, computers, related R&D activity, technology transfer programs, education and training, • Survival and Growth of Tenant Firms- The survival and growth of tenant firms are measured based on criteria like dropouts, annual sales, and employment growth.[6] The great advantage of being in UBIs’ incubation program is tenant firms are more likely to access universities’ knowledge, which may be in forms of patent, publications, meetings or conferences, licenses, joint ventures, contract research, consulting and personal exchange (Rothaermel and Thursby, 2005). [9] Nevertheless, since the knowledge is not free, tenant firms have to make payment for using the knowledge, and paying forms are reliant on contractual agreements between both parties (Thursby, 2002; Zucker and Darby, 1996, 1998)(12). CONCLUSIONS Business incubator is the special firm type set up with the aim at assisting young firms through support services, such as infrastructure, capital access, employee recruitment and training, during start –up periods when they are most likely to get failure. Each incubator has its own incubation program which is different in terms of nurturing strategies; however, the program must include four main components including selection, infrastructure, business support, mediation and graduation. University business incubator is one of BGs ‘existences in practice. Besides sharing common characteristics as a business incubator, knowledge transfer is a typical feature of UBIs due to its close relationship with universities. Business 90Số hóa bởi Trung tâm Học liệu – Đại học Thái Nguyên Hoàng Văn Hải Tạp chí KHOA HỌC & CÔNG NGHỆ 105(05): 81 - 86 86 incubators and university business incubators both are regarded as main engine in regions’ economic growth. REFERENCES [1] Cammarata, Kathleen, Self-Evaluation Workbook for Business Incubators, NBIA Publications, 2003 [2] European Commission Enterprise Directorate General (2002)”Benchmarking of Business Incubators”, February 2002 [3] Grandi, A. and Grimaldi, R. (2005)”Business incubators and new venture creation: an assessment of incubating models”, Technovation, 25: 111 – 121 [4] Hackett, S. , Dilts, D. (2004)”A Systematic Review of Business Incubation Research”, Journal of Technology Transfer, 29: 55 – 82 [5] Hansen, M., Chesbrough, H., Nohria, N. and Sull, D. (2000) “Networked Incubations Hothouses of the New Economy”, Harvard Business Review, 74-84 [6] Mian, S. (1996)” The university business incubator: a strategy for developing new research/technology-based firms”, 7(2): 191 – 208 [7] Mian, S. (1996) “Assessing value-added contributions of university technology business incubators to tenant firms”, Research Policy: 325 – 335 [8] Norrman, C. & Bergek, A. (2008)”Incubator best practice: A framework”, Technovation, 28: 20 - 28 [9] Phillips, R. (2002) “Technology business incubators: how effective as technology transfer mechanism?”, Technology in Society , 24: 299 – 316 [10] Rothaermel, F., Thuby, M. (2005) “University- incubator firm knowledge flows: assessing their impact on incubator firm performance”, Research Policy, 34(2005), 305-320 [11] Smilor, R., Gill, M.D. Jr (1986) “The New Business Incubator: Linking Talent, Technology and Kow-How”, Lexington Books, Lexington, MA TÓM TẮT TỔNG QUAN VỀ VƯỜN ƯƠM DOANH NGHIỆP VÀ VƯỜN ƯƠM DOANH NGHIỆP ĐẠI HỌC Hoàng Văn Hải* Trường Đại học Kinh tế & Quản trị Kinh doanh – ĐH Thái Nguyên Vườn ươm doanh nghiệp là một công ty đặc biệt được thành lập với mục đích là giúp đỡ các công ty mới thành lập thông qua các dịch vụ hỗ trợ chẳng hạn như cơ sở hạ tầng, tiếp cận vốn, đào tạo và tuyển nhân viên, trong giai đoạn đầu, vốn được coi là giai đoạn mà doanh nghiệp dễ thất bại nhất. Do đó nó được coi là động cơ của sự phát triển của vùng dưới góc độ giá trị kinh và tạo công ăn việc làm và trở thành công ty nhận được sự tôn trọng. Khái niệm vườn ươm doanh nghiệp trở nên quen thuộc với cộng đồng trên thế giới trong những năm gần đây, đặc biệt là tại những quốc gia phát triển như Mỹ, các quốc gia Tây Âu, Úc, Nhật Bản. Ngược lại ở Vietnam, khái niệm này vẫn còn mới và gần như không quen thuộc với cộng đồng. Với cố gắng cung cấp một cái nhìn tổng quan về vườn ươm doanh nghiệp, trong bài báo này, chúng tôi trước tiên giới thiệu những kiến thức cơ bản về loại hình doanh nghiệp này và sau đó miêu tả ngắn gọn một trong những dạng tồn tại của nó trên thực tế, vườn ươm doanh nghiệp đại học. Từ khóa: Vườn ươm doanh nghiệp; Vườn ươm doanh nghiệp đại học; doanh nghiệp ươm tạo, Kiến thức, Phát triển Note: 1, 2, 3 See in Benchmarking of Business Incubators, 2002: p. 4-5 4, 5, 6. 7 See in Norrman, C. and Bergek, A. (2008)”Incubator best practice: A framework”, Technovation, 28: 20 - 28 8, 9 See in Norrman, C. and Bergek, A. (2008)”Incubator best practice: A framework”, Technovation, 28: 20 – 28 10, 11 See in Grandi, A. and Grimaldi, R. (2005)”Business incubators and new venture creation: an assessment of incubating models”, Technovation, 25: 111 – 121 12 See in Rothaermel, F., Thuby, M. (2005) “University-incubator firm knowledge flows: assessing their impact on incubator firm performance”, Research Policy, 34(2005), 305-320 Ngày nhận bài: 22/01/2013; Ngày phản biện: 17/4/2013; Ngày duyệt đăng: 06/6/2013 * Tel: 0912.697.605 91Số hóa bởi Trung tâm Học liệu – Đại học Thái Nguyên