Business Incubation Toolkit

Business Incubation Toolkit

iDISC Incubation Good Practice

The chief resource available on the former iDISC.net, the Business Incubation Toolkit is the world's one-stop shop for know-how on business incubation, a step-by-step guide for incubation managers along the entire journey of launching a business enabler, securing funding, finding partners, attracting innovators, connecting them with investors, and more.

Table of Contents

 

 

Module 1: Start an Incubator

 

Defining the Incubator's Focus

Objectives

This definition is derived from an analysis of the region’s needs and potentialities.

Definition of the incubator’s focus determines the structure and types of services offered. An incubator can be classified as:

  • Traditional Incubator: supports development of companies linked to sectors of the economy that possess broadly disseminated technologies, such as textiles and footwear. As Pereira and Pereira (2002) emphasize, “the objective is to aggregate value to products and processes through utilization of new technologies”.
  • Technology-based Incubator: incubators that include companies with products, processes and/or services that are the result of scientific research and represent a high combined value. These incubators support biotechnology, informatics, and electronics companies, among others.
  • Mixed Incubator: provides support to both traditional companies and technology-based companies.
  • Cultural Incubator: supports cultural activities such as music, sculpture, photography, and cinema.
  • Social Incubator: as stressed by Pereira and Pereira (2002), these are incubators that support “undertakings that originate in social projects connected to traditional sectors that have knowledge that is in the public domain and that meets demand for employment and income and improvements in the quality of life of the community”.
  • Agribusiness Incubator: encompasses crop/livestock undertakings and have the objective of stimulating entrepreneurism and technological innovation in the area.
  • Sectoral Incubator: supports activities in a single area. In this sense, an incubator can be sectoral and technology-based, for instance, supporting only companies in the area of software.

Key Issues

Definition of the incubator’s focus must consider the local circumstances in which the incubator is to operate and the region’s strategic objectives. In this sense, some critical questions must be raised:

  • Vocation: in defining the incubator’s focus, survey the networks and clusters in the region. This survey could, for example, demonstrate that there are a large number of software development companies in the region. The incubator could then define its focus as a technology-based and sectoral incubator. Thus, the incubator could support companies that meet the demands of already existing companies as well as those developing products for new markets.
  • Weaknesses: the incubator’s focus can be defined in terms of the recognized weaknesses of the region. The objective would be to support generation of companies that could eliminate/diminish the identified weaknesses. In one region, for example, the level of competitiveness in the textile sector might be low. Then a traditional incubator is needed to support companies that develop products and/or services for the textile sector. Another possibility is establishing an incubator to create opportunities for minority groups, such as indigenous people, people with disabilities, and other minorities.
  • Potential: an interesting alternative is to establish an incubator to generate companies in an area that has not yet become one of the region’s strengths, but that has perceived potential. In this case the area should be evaluated for professional workers and a consistent, growing demand for products/services.
  • Leading Institution: the incubator’s focus is strongly influenced by the needs and interest of the leading organization. If this is a private company, for example, a profit-seeking incubator could be built to generate technology-based companies. A public university, on the other hand, may be more interested in improving the quality of life of needy communities so the focus may well be a social incubator prepared to form cooperatives.
  • Entrepreneurial Culture: a critical aspect of the incubator’s focus is the existence of entrepreneurs to generate new companies in the chosen area. For this, it is important to assess the number of schools, universities and professional training programs with an entrepreneurial profile. Should there be a shortage of organizations involved in creation of an incubator then publicity about entrepreneurism is needed.

Responsible Parties

Definition of the incubator’s focus is the task of the team elaborating the project. When the project is the responsibility of more than one organization, at least one representative of each one should be involved at this stage. Contact should be made with different sectors of the local community, even if they are not participating in creation of the incubator.

Indicators

Information gathering related to the region’s needs and potential is essential, as well as deciding the strategic objectives to be attained. The following indicators can aid in defining the incubator’s focus:

  • Number of technical schools
  • Number of university courses
  • Number of professionals (technicians and university students) trained in the different areas
  • Number of companies involved in the regional major sectors
  • Number of jobs generated by the companies from different sectors
  • Evolution (growth/decline) of the region’s principal sectors
  • Evolution (growth/decline) of the principal sectors at the national level
  • Evolution (growth/decline) of the principal sectors at the international level
  • Number of entrepreneur training programs

Results

An adequate definition of the focus can facilitate the incubator’s integration into the community, making it easier to obtain funding. At the same time, meeting the needs of the community can facilitate development of entrepreneurialism in the region and broaden demand for projects submitted to the incubator.

Defining the Incubator's Location

Objectives

The best definition of the preferred location is choosing an area that satisfies the incubator’s current and future needs. As highlighted by Aranha (2003), “the location is a part of the economic development plan of the region in which the project is being carried out”.

The location depends on the incubator’s focus, since the companies’ activities may demand characteristics found in few of the region’s localities.

According to the NBIA, location differentiates incubators into the following categories:

  • Urban: incubators located in the city. This is more common for technology-based, traditional, mixed and sectoral incubators that do not need large areas nor have “assembly lines” with high noise levels.
  • Suburban: these incubators are located in areas surrounding the city and can be part of the overall plan designed to recover, revitalize or develop a given region. Social and cultural incubators commonly use these localities.
  • Rural: incubators located in rural areas and, generally, connected to centers of agricultural production.

Key Issues

Choice of an incubator’s location must give due consideration to its focus and the specific characteristics of the region in question. Several critical questions must be dealt with:

  • Infrastructure: an evaluation is made of whether the locality has adequate infrastructure for generating companies. This includes transportation systems, sanitation services, electricity and communications. The existence of a good infrastructure in the locality may not have a direct influence on the incubator’s demand; but a deficient infrastructure may reduce the number of companies interested in the incubator’s support.
  • Flexibility: the incubator project must take account not only of current demand, but also future growth in both the physical facilities and its focus. If the available area does not allow for expansion, the incubator may rapidly reach its limits, thereby hampering its performance.
  • Focus: the activities of incubated companies may directly influence the locality for the incubator. For example: a technology-based incubator may need to be close to a university to encourage interaction among entrepreneurs, academics and students.
  • Master Plan: in defining the incubator’s locality, the city’s master plan is taken into consideration, so as to adequately position the incubator within the city’s growth strategy. On the other hand, depending on the incubator’s focus, the location may be defined as being in areas that are underprivileged. For example: social incubators.

Responsible Parties

The team charged with detailing the project will choose the location of the incubator. Local government should be contacted for information on the master plan and the infrastructure of different areas of the city in which the incubator may be installed.

Indicators

To assist with the choice of localities the following are taken into account:

  • Ease of access
  • Availability of communications
  • Availability of basic sanitation services
  • Availability of transportation

Results

Siting the incubator at an appropriate location can help publicize the incubator within the community.

Defining the Incubator's Operational Model

Objectives

Defining the operational model establishes how the incubator will be organized and operated. As Lavrow and Sample stress, the operational model “defines the structure of the incubator, the scope of the services offered, financing possibilities and external alliances.” The operational model is influenced by the incubator’s focus or the companies’ area of activity, and the incubator’s structure/services may vary.

The following operational models are suggested by current literature:

  • Bricks and Mortar (BAM): the most traditional model of the incubator is centered on offering physical facilities to those using it. The entire incubation process and services offered are concentrated in a building. An advantage of this model is that interaction, the formation of partnerships and resolution of common problems can be stimulated by the proximity of the entrepreneurs. Depending on the incubator’s focus, this is the “natural” model and is widely used amongst traditional incubators.
  • Virtual: also called a Portal or “Without walls”, this incubator model does not provide a building for the incubated businesses. Support and services are offered over the Internet. An advantage of this model is that entrepreneurs from different regions can be integrated. This model has been used to support the generation and development of “dot com” companies.
  • Mixed: an incubator that offers a building to house some entrepreneurs and also supports the generation and development of companies over the Internet. Some authors designate this the “HUB/Venture Incubator” model.

Normally, definition of the operational model imposes conditions on the types of services to be offered by the incubator. The BAM model can offer the services of a virtual incubator but may choose to emphasize services offered in its own building/office. The tendency, with widespread use of the World Wide Web, is that incubators will offer many services over the Internet.

Key Issues

Significant to the definition of the operational model is:

  • Services: for incubators to be successful, the services offered by the incubator must be adequate to its area of activity and to its stage of development. As already stressed, BAM incubators offer a limited quantity of services, since these are restricted to the incubator’s office/building. Virtual incubators are not limited in the same way, as they do not provide offices but center on offering services over the Internet.
  • Network of Relations: a key aspect in incubator success is the quality and scope of its network of relationships. What may occur is that BAM incubators limit their networks of relationships to their physical area of activity. This can reduce the quality of the network of relationships. On the other hand, since they do not have an office/offices, virtual incubators can highlight improvements in the quality and scope of their networks of relationships.
  • Financing: lack of finance may lengthen a company’s incubation period. BAM incubators generally do not offer financial support from their own resources to incubated companies. On the other hand, virtual incubators may seek to provide financing alternatives, based either on their own resources or those of third parties.

Responsible Parties

The team that is developing the incubator project must define the incubator’s operational model. At least one representative of each organization should be involved at this stage of the project. This ensures that the interests and points of view of all the institutions involved are taken into consideration.

Results

Definition of the incubator’s operational model aids in the definition of the services and support offered to incubated companies. This includes the network of relationships as well as financial options.

Defining the Incubator's 'For Profit' or 'Not For Profit' Status

Objectives

The key aspect of the this definition is whether or not the incubator will be a profit seeking organization. This is important because it establishes the objectives, goals and indicators of the incubator.

This definition depends on the organization that is leading the incubator planning and implementation. The government (municipal, state or federal) and public universities generally create nonprofit incubators. When the leading institution is a private company, the tendency is to establish a profit-seeking incubator.

Key Issues

Nonprofit and profit-seeking incubators usually have different objectives. Despite these differences, incubators can contribute to the development of the region in which they are located; independently of their purpose.

  • Profit seeking: according to Neal Young (in ARANHA, 2003), this type of incubator tends to receive “equity in incubated companies as either full or partial payment for the incubator”. The objectives of this type of incubator depend on the principal organization:
    • Companies from the traditional sector: these companies are interested in motivating an entrepreneurial style in their employees. They hope to maintain their best staff, and develop new technologies, processes and products.
    • Technology companies: aside from the objective of maintaining talents, incubators created by this type of company want to expand their competitiveness and speed in launching new solutions.
    • Venture Capitalists: interested in supporting companies that can generate a higher return than the rates paid by the market.
  • Nonprofit:
    • Government: the objective of the government in supporting an incubator’s establishment can vary. The following is highlighted:
      • Broadening of employment and income opportunities;
      • Development of economic alternatives;
      • Enhanced competitiveness among dynamic and/or strategic sectors of the economy;
      • Development of new technologies;
    • Universities/Research Centers: in general, the objective is scientific and technological development and commercialization.
    • Communities: normally led by charitable organizations, this type of incubator is targeted mainly at expanding employment opportunities in the region.

Responsible Parties

Defining the incubator’s purpose is the task of the team that is driving the incubator project. When more than one organization is involved with the project, at least one representative of each should be involved at this stage of the project.

Results

The team responsible for the project can define the objectives and goals of the new incubator with greater precision.

Defining the Legal Status

Objective

The definition of the legal status of the incubator means, firstly, deciding whether it will be an independent unit (with its own legal structure) or if it will be connected to an existing institution (a university, company, research center, etc.).The definition of the legal status is a strategic decision and the flexibility of the incubator will depend on this decision. There are advantages to each of the legal situations cited above:

Advantages of an Independent Unit

  • Flexibility in obtaining funding.
  • Managerial/decision-making agility.
  • Lesser possibility of political interference.
  • Flexibility/agility in complying with agreements/contracts.

Advantages of a Connected Unit:

  • Uses the administrative structure of the “maintaining body” (financial statements, finances, materials, etc.);
  • Benefit from the “name”/credibility of the “host body”;
  • Facilitate interaction with other departments of the “host body”. For example: in the case of a university, the incubator will have easier access to researchers in different departments.

Key Issues

The team responsible for definition of the legal status should consider several points:

Connected Unit:

  • Clearly define the degree of autonomy (budget, spending decisions, hiring, etc.);
  • Ensure managerial continuity;
  • Obtain a source of internal and external support. Even though it is a connected unit, it must not become a simple “internal project”, but must create strong ties to other organizations. Apart from diminishing internal resistance, this can facilitate entry of companies into the market.

Specific legal status: a detailed analysis is made of advantages/disadvantages of the types of legal status permitted by local legislation. Among incubators that are already operating, there are two leading types of legal status: the Non Government Organization (NGO) and Foundations.

Responsible Parties

The team in charge of the project must determine the legal status of the incubator using professional legal advice to provide direction on advantages/disadvantage of the various options.

Results

Definition of the legal status of the incubator makes it possible for the team responsible for the project to comprehend the different types of interaction with other institutions, as well as marketing potentialities/difficulties.

Defining the Organizational Structure

Objectives

To define a structure that makes management of the incubator possible. There are two groups of activities generally present in an incubator:

  • Those related to operation of the incubator as an independent organization (a business); and
  • Those related to developing the incubated companies.

As noted by Pires (2003), the management structure of an incubator “is normally composed of three managerial levels”:

  • Board of Directors: also known as the Executive Council, Technical Council, Guidance Council, Curator Council or Deliberative Council, it has representatives from each one of the organizations that participated in the incubator’s formation and/or aided in making it operational, and/or provided economic/financial support.
  • Incubator Management: this level includes the president or director of the incubator, the manager and his/her staff, which may include the secretary, mentors and tutors.
  • Consultant Committee: specialized consultants who aid the manager in his/her task of orienting the companies.

Key Issues

In conceiving the organizational structure of the incubator, defining the responsibilities of each role is essential. In general, the following definition of responsibilities is found in incubators:

  • Board of Directors: Among the responsibilities of this body, the following is highlighted, as proposed by Rice and Mathews (in PIRES, 2003. p. 7):
    • Develop and improve a strategic plan for incubator policies;
    • Develop policies about how the team operates and the role of the president;
    • Control the external relationships of staff and the incubator;
    • Support the business operations of the incubator;
    • Support development of incubator companies.
  • Incubator Management: generally consists of the president, manager and secretary, each with the following responsibilities:
    • President: this person plays a political and strategic role for the incubator, including interaction with the different institutions, creation/broadening of the contact network and monitoring of the incubator’s growth and consolidation.
    • Manager: has direct contact with the incubated companies and is directly responsible for monitoring the evolution of these companies. The success (or failure) of an incubator can be generally credited to work of the manager. The role of the manager may involve the following:
      • Management of facilities;
      • Maintenance of shared services;
      • Management of staff and trainees;
      • Management of marketing for incubated companies;
      • Management of the accounting and finances of the incubator;
      • Procurements.
    • Secretary: supports the manager, and the liaises with the incubator’s external public;
    • Mentors/Tutors: these may be, in some incubators, entrepreneurs who have already created their own successful company and assist in orienting the incubated companies.
  • Consultant Committee: the incubator needs access to a varied group of professionals, so as to meet all the needs of the incubated companies. A diversity of professionals are not part of the incubator management team but rather contracted separately to respond to specific needs.

Responsible Parties

The team that creates the incubator must work out the organization’s managerial structure in detail. The participating organizations must be proactive in defining the incubator’s organizational structure.

Results

The result of this topic is a clear definition of all the functions that will exist in the incubator. After this, the size and characteristics of staff can be defined

Defining the Stage of Enterprises

The process of creating and developing businesses can be shown to have four distinct stages, as shown in the figure below:

  • Conception: the entrepreneur identifies a market niche / need on the part of a specific target public and decides to open a company. The focus of this stage is development of a consistent business plan.
  • Emerging Company: based on the already elaborated Business Plan, entrepreneurs begin developing the product and/or service to be offered. The objective at this stage is to have at least one prototype of the product to be offered. The legal formalization of the company may also occur in this stage.
  • Consolidation: the next stage in the evolutionary process of the company is consolidation in the market in which it has opted to function, with growth in the number of clients.
  • Growth: as of the company?s consolidation, the business will seek out new markets and expand its field of activity. 

Stages/Critical Issues

On defining the stage of the enterprises that are apt to submit proposals, the incubator limits the scope and variety of the services to be offered. Based on the figure above, the incubator can support the following processes:

  • Pre-incubation: the incubator supports enterprises that are in the stages of conception and emerging company or, in other words, it is not necessary for the company to be defined in legal terms or to possess a product or service that is ready for marketing.  Just as in the case of the Projects Hotel put forward by the CDT of the University of Brasília, it is often true that the entrepreneur does not even have to have the business plan fully elaborated, since this will be created during the pre-incubation process.
  • Incubation: in this process, companies already begin with a defined legal personality and with products and services available for marketing.

Responsible Parties

  • The team that is elaborating the project must do definition of the stage of the enterprises to be supported by the incubator. Thus, it is important that at least one representative of each institution be involved in this stage of the project. The objective is to guaranty that the interests and points of view of all the institutions involved be taken into consideration.

Results

  • Definition of the stage of the enterprises to be supported by the incubator facilitates the choice of the services to be offered, since the needs of the enterprises become clearer in this way. Parallel to this, it also becomes clear just who is the target audience, thus facilitating elaboration of the incubator's marketing plan.

Keywords

Stage of the Enterprises, pre-incubation, incubation.

Identification of the Justifications, Benefits and Advantages of Setting up the Incubator

Objectives

The reasons and motivations for setting up the incubator should be identified. This includes the expectations of the local community, partners and potential clients, as well as their views on type/general characteristics of incubator that is to be established.

Key Issues

When establishing the incubator, the management institution should be clear about the program benefits expected by stakeholders and the community. It is also essential that the institution is well aware of the reasons or motives prompting the incubator’s establishment. In aligning expectations and preventing future frustration it is imperative to find these motivations and justifications at an early stage. It is vital to know:

  • How the community views the program and what its expectations are;
  • Stakeholder’s (Government and private institutions) expectations;
  • The incubator’s interactions or integration with local policies supporting new businesses development. In general, incubators put forward the following proposals, which are allied to the social, economic and technological development program:
    1. Job generation;
    2. Incentives for entrepreneurialism;
    3. Local/regional economic development;
    4. University-enterprise relationship;
    5. Local/regional economy diversification;
    6. Encouragement of entrepreneurialism among minorities;
    7. Technological research and development;
    8. Bringing in profits and opening up investment opportunities;
    9. Obtaining other benefits for the management entity;
    10. Encouraging exports and internationalization;
    11. Formation of clusters and production arrangements, etc.

Essentially, it should be made clear during the feasibility analysis stage that the incubator does not consist merely of physical space. Setting up the incubator is a process with clearly defined stages and rules and there is a concern with physical and “soft” infrastructure.

The lack of success among incubators often stems from an over-emphasis on physical space and infrastructure, while setting aside “soft” infrastructure factors such as: quality staff and services; and the process of selecting, overseeing and assessing the enterprise (See attachment Feasibility Study for the Incubator).

Responsible Parties

Managers and technical staff of the institution who wish to establish the incubator.

Indicators

  • Time and costs for development of the feasibility study
  • Funds raised and political support built up through the feasibility study

Results

The outcome of this stage is awareness of the reasons, motivations and opportunities justifying the establishment of the incubator. These could be deployed at meetings held to network and enhance awareness of the importance of the program.

Feasibility Study for the Incubator

Objectives

The initial planning stage for the incubator consists of the collection and preliminary study of information on the social, economic, political, business and cultural situation in the region. The influences of these factors on the incubator are considered. Awareness of these variables will help define the general strategies and objectives for the incubator.

Why conduct a feasibility study? According to Meeder in Forging the Incubator – How to Design and Implement a Feasibility Study for Business Incubation Program (1993), the major reasons for conducting a feasibility study are:

  1. To forge a consensus among key civic leaders and organizations regarding the definition of the type of incubator that best serves their community’s needs and to identify the proper stakeholders and managers for the program.
  2. The process can become the catalyst to motivate participation by a number of local resources that can provide facilities, equipment, human resources, funds, competitive offers that produce better prices, etc. that otherwise might not have contributed.
  3. The establishment of this process is the best method for generating creative ways to overcome obstacles. Someone once said, “Strategy is the springboard for creativity.”
  4. A proper feasibility study includes the completion of a facilities and service program business plan.
  5. Solicitation of most federal and state and local funds requires a feasibility study.
  6. After more than ten years of growth in the incubation industry, there are many examples of programs that have made critical errors in such areas as facility selection, governance structure, and formation of value-added management assistance service programs. These errors are numerous enough to demonstrate the importance of a feasibility study that identifies the best practices and avoids the patterns of error.
  7. Many political leaders, local business owners, and other civic leaders have just enough knowledge about business incubation to be “dangerous”. Conducting a feasibility study should include substantial community education. Otherwise, the project begins with hidden confusion as key people; attempting to do good things, base their decisions on an incorrect or incomplete concept of incubation that is out of sync with their colleagues’ concepts and with the informed practice of the incubation industry.
  8. Many incubation projects are conceived and developed by local leaders before the incubator manager is identified and/or employed. The feasibility study is a valuable document that records the early history and activities of the project enabling the succeeding staff and board to have a reference point from which to work.
  9. It is important to make contact with a number of successful incubator programs in communities that are similar to yours. There are enough programs with more than three years of operating experience to permit you to identify several from which to learn. Their experiences – good as well as bad – from development to operation, when combined with the wealth of information that the NBIA has accumulated on contacts, research, and recommended practices, should significantly reduce your margin for error and increase the productivity of time spent on the study.
  10. A proper feasibility study will help you avoid two “classic errors”: The temptation to accept the worst building in town and the temptation to treat your management assistance program as something that will take care of itself with a few referrals for business plan assistance and a few office practice services.

The main objectives of this study are:

  • To identify institutions that could be partners of the incubator, i.e. the stakeholders;
  • To ascertain acceptance of the program among the community;
  • To survey sources of funds;
  • To define the most appropriate model for the incubator;
  • To analyze the main local requirements.

The Feasibility Study is essential for the success of the incubator because:

  • It fosters consensus and encourages the leaders of local associations/societies to be involved in the planning process;
  • It finds alternatives for dealing with barriers;
  • It identifies important points in the business plan;
  • It identifies weak points in other projects, in order to avoid making the same mistakes.

Key Issues

  • Analysis of local conditions (See Guideline Analysis of Local Condition).
  • Identification of availability of economic and financial resources (See Guideline Resources Identification).
  • Identification of the stakeholders (See Guideline Stakeholder Identification);
  • Identification of justifications, benefits and advantages of implementing the incubator (See Guideline Identification of Justifications, Benefits and Advantages of Implementing the Incubator).

Responsible Parties

  • Leaders involved with the initial idea of an incubator.

Indicators

  • Time and Costs for carrying out the Feasibility Study
  • Funding brought in and political support built up through the Feasibility Study

Results

A clear straightforward document to be used with potential partners, the community and clients to prove the feasibility of implementing an incubator.

Resources Identification

Objectives

Resource identification is the process of finding economic and financial resources as part of a feasibility study as well as finding capital for the implementation and operational stages of the incubator. The types of resources should be identified along with ways of obtaining them. These resources may be available from government (at the local, state and federal levels) or private sources.

Key Issues

  1. Potential partners: a survey of government departments and non-government and private institutions that may offer support, along with their contact persons. Support may include finance for entrepreneurial activities, support for technical innovation, the development of ICT tools, establishing new companies etc. This information includes key objectives and the kind of organizations involved. This survey may be carried out through the Internet and associates with experience in this field.
  2. Detailed survey: organization of the institutions and lines of support into groups according to the type of support offered (economic or financial resources). Analysis of projects already supported by organizations to identify support priorities and opportunities for bringing funds to the incubator.
  3. Analysis: a critical analysis is undertaken of the tabulated information. The analysis determines the potential for presentation and approval of a fund-raising proposal thereby establishing the next steps. (See attachments Feasibility Study for the Incubator and Table identifying Potential Projects).

Responsible Parties

Managers and technical experts from the institution wishing to set up the incubator.

Indicators

  • Time and Costs for the Development of the Feasibility Study
  • Resources brought in and political support obtained through the Feasibility Study

Results

The outcome of this analysis is the identification of possible sources/institutions that could provide economic and financial support for the activities of the incubator from the planning stage onwards.

Stakeholders Identification

Objectives

The purpose of this process is to identify local leaders, then organize meetings and interviews to identify the people, enterprises and organizations that could be partners of the incubator; supporting the program with both resources and technical input.

Key Issues

1) Identification of local leaders: this crucial stage identifies the entities, people, enterprises, and government bodies that could contribute to the planning and development of the incubator. These contributions could include:

  • Political backing
  • Financial backing/investment/sponsorship
  • Infrastructure support, etc

This process should consider issues such as:

  • The links or convergence between the institutional and political interests of each entity in terms of the incubator.
  • Relationships among the institutions, to avoid signing up institutions with conflicting relationships as partners.
  • Personal backgrounds (manager/technical staff) should be analyzed, as well as the track records of the institutions, to learn how effectively and seriously they participate in the programs that they support.

2) Meeting and visits: during the Feasibility Stage, it is important to organize meetings with potential partners. This presents the idea of incubation to them and heightens their awareness of the need for support. For an adequate analysis of the project’s feasibility, it is essential to identify potential partners and sources of resources. This will indicate whether it is possible to obtain their effective support, mainly in the financial field. For these meetings or visits, it is valuable to have available:

  • Information on the enterprise incubation segment, with data on the progress of these programs in the local country and elsewhere in the world; the number of incubators in the host nation and in the region, their main objectives, achievements, etc.;
  • List of information on institutions already supporting the initiative in order to demonstrate the credibility of the program;
  • Clear proposals for the entity action (planning process, incubator board, mentoring, technical support, sponsorship, etc)

These meetings are necessary to ascertain the expectations of the entities in terms of the incubator, the role that they should play in this process, to avoid future misunderstandings and conflicts of interest.

Responsible Parties

The technical staff and management of the institution wishing to set up the incubator.

Indicators

  • Time and costs for the development of the Feasibility Study
  • Resources and political support obtained through the Feasibility Study

Results

The analysis outcome is the recognition of possible stakeholders for the incubator program, identifying the expectations of each in terms of the program, and networking for partner support and commitment.

Modeling a Business Incubator

Objectives

Defining the incubator model means answering the strategic and tactical questions that provide the basis for planning the Incubator (See Guideline “Planning a Business Incubator”). Defining the incubator model is an intermediate topic, as it uses the information collected from the “Initiating a Business Incubator Project” phase and defines the aspects that will be used in planning the incubator.

Defining an incubator model helps deal with decisions such as the deciding the focus of the incubator, the locality, purpose and any other issues.

Key Issues

In the process of defining the incubator model, several decisions depend on others. This process consists of two phases:

Phase 1 – Strategic Decisions

  • Purpose: define whether the incubator will be a profit-seeking group or a nonprofit association. For details, see the guideline Definition of the Purpose of the Incubator.
  • Focus: define what the supported companies’ activities are: traditional, technological, etc. For greater details, see the guideline Definition of the focus of the Incubator
  • Operational Model: according to Aranha (2003), the operational model “determines the way in which the incubator will be organized and operate”. As Lavrow and Sample stress, the operational model of an incubator “dictates its structure, its scope of services it provides, its funding opportunities, and its level of external alliances”. For details, see the guideline Definition of the Operational Model of the Incubator.
  • Locality: locality choice for the incubator depends on which focus is chosen and the operational model to be implemented. For details, see the guideline Definition of the Purpose of the Incubator.
  • Stage of the Enterprises: the support and services offered to the incubated companies depend directly on the development stage of these businesses (or what they are). For details, see the guideline Definition of the Stage of the Enterprises.

Phase 2 – Tactical Decisions

  • Legal Status: the incubator may have its own legal status or may be tied to an existing institution. For details, see the guideline Definition of the Legal Status of the Incubator. For details, see the guideline Definition of the Legal Status of the Incubator.
  • Documents: For an incubator to be operable depends on a number of different documents, such as statutes, internal bylaws, contracts with the different companies, etc. For details, see the guideline Elaboration of Documents.
  • Organizational Structure: must define the authority and duties of the different functions that exist within the incubator. For details, see the guideline Definition of the Organizational Structure of the Incubator.

Responsible Parties

The incubator model should be defined by the team that is elaborating the project. At least one representative of each institution should be involved in this stage of the project. This guarantees that all interests and all points of view are considered.

The team responsible for the project should use professionals who are specialists in technical areas, such as evaluation of the locality where the incubator is to be installed, definition of the legal status of the incubator and others.

Results

At the conclusion of this phase of the project, the team responsible for it will have the basic information required for planning the incubator, including:

  • Purpose
  • Focus
  • Operational Model
  • State of the Enterprises
  • Legal Status
  • Documents
  • Organizational Structure

Business Plan

Objectives

Preparing a Business Plan is an essential stage for incubators. It is useful for seeking funds, and also for systematizing ideas, processes and techniques. The Business Plan provides answers to questions about the Incubator before it is established.

Key Issues

  1. Executive summary. This the main section of the Incubator Business Plan (ICB) and is the last part to be drafted; its contents depend on the general plan definitions. The executive summary offers an overview of the enterprise, abbreviating the ICB content to the main points. (See attachment How to Draft the Executive Summary).
  2. General Characterization/Concept of the Incubator. A brief overview of the incubator organization is given along with its track record and current status. The unique characteristics of the incubator are stressed, highlighting its benefits and advantages.
  3. Business Model. The business model presents the type of incubator, its area of action, the target markets etc. The feasibility study information is central to the general model adopted by the incubator. The legal framework of the incubator may depend on its managing organization and partners, or established with its own legal status, or run as a program by one of the affiliated institutes. The Business Model should state:
    • What the enterprise intends to do
    • Who/what market or segment it intends to reach
    • Which competences/experiences/technologies it is based on
    • What market trends encourage it.
  4. Marketing Plan. The Marketing Plan is an essential part of the Business Plan. It sets out how the target market will be defined and reached. In addition it documents the incubator’s comparative advantages over the competition, and the ways of steadily bringing in clients/ incubated enterprises. The incubator should be familiar with the market where it operates/intends to operate and in this section the market and its potential is analyzed and defined. The target market, the segmentation strategies, trends, competition, and competitive advantages of the incubator are also defined, in addition to the marketing mix.
  5. Operational Plan. This defines the procedures for reaching the incubator’s objectives. This prevents lack of coordination and makes the incubator’s function coherent and avoids unnecessary expenditures. The Operational Plan provides detailed descriptions of tasks required to render the incubator services, their flow diagrams, the names of the people in charge, etc. Decisions are made about which technologies should be adopted to implement the procedures and processes of the incubator.
  6. Administration/Organization Plan. This defines the resources required by the incubator (equipment, furniture etc.), and its control systems. This includes the legal documentation and standards for the incubator (statute, internal regulations, access rules etc.). The administration plan also charts the organizational staff requirements, their duties and responsibilities. It defines the Board of Directors structure and the role of each member, in addition to relationship links
  7. Financial and Investment Plan. This allows the anticipation of short and medium-term financial modelling and action. The initial investments required can be defined, as well as costs and expenditures, cash flow etc.

Responsible Parties

Managers/technical staff from the organization which wish to set up the incubator. The overall manager should be involved in the business plan from the start.

Indicators

  • Time and costs for the development of the strategic plan
  • Funds and political support built up through the incubator planning.

Results

To have a well defined plan of Business Model procedures, market analysis and the operation’s financial plan.

  • Defined incubator model
  • Clear administrative structure/organizational chart
  • Completed financial spreadsheets
  • Definite service portfolio and price strategies

Planning the Incubator

Objectives

Planning is the process of establishing objectives and deciding what should be done in order to attain them. It allows the performance of the incubator to be overseen through analyzing the targets, objectives, strategies, and paths that an organization should follow in order to achieve positive results. The planning process should provide answers to three basic questions:

  • Why will the business be successful?
  • What is the objective to be attained?
  • When will the incubator achieve self-sustainability?

Planning is essential for the incubator, with the following purposes in mind:

  • Underpinning decisions on the implementation of the incubator;
  • Providing a technical plan for establishing the incubator and bringing it into operation;
  • Setting the course for the incubator, with its current and future strategies;
  • Publicizing and promoting the incubator;
  • Attracting entrepreneurs;
  • Attracting partner institutions;
  • Obtaining financial support.

Is there a need for incubators?

Yes, according to Chinsomboon in the Incubators in the New Economy (1990), there is a need for business incubators because they play many roles. In their building process, incubators can provide a subset of services to their own organization including:

  • Capture potentially successful deals missed by venture capitalists
  • Facilitate idea creation (“ideation”)
  • Enhance products and services
  • Accelerate implementation speed
  • Provide supplemental management
  • Offer more “hand holding” than a typical venture capitalist
  • Give access to expertise in marketing, operations, human resources, technical, management, strategy, business development, financial, and others
  • Facilitate business development and partnerships
  • Help in finding clients
  • Facilitate sources of funding, now and at later stages
  • Set up a portfolio of seed-stage ventures
  • Provide additional deal-flow and vetting of deals for later-stage investors

According to Lalkaka & Abetti, in Business Incubation and Enterprise Support Systems in Restructuring Countries (1999), “the key success factors that contribute to the ultimate economic, social and political success of a new business incubator”, are divided into four phases: preparing the incubator’s plan; the implementation phase; the onset of incubator operations; and a sustainability scheme. The summary of these necessary [success] factors is:

Preparatory Process:

  • Reconnaissance surveys to selected locations
  • Local consultants who are familiar with local conditions
  • Careful identification of a strong sponsor to take local implementation responsibility
  • Resolution of issues concerning feasibility, particularly analyses of the entrepreneurial pool of potential tenants, linkages to universities, the support services network, the availability of suitable (vacant) building space, and financial cash flow estimates
  • Commitment by governmental agencies

The Implementation Process:

  • A strong management board with advisory groups
  • Appropriate legal status for the incubator
  • Careful selection, training at home and abroad, proper remuneration of managers
  • Screening of the technical business and market potential of tenants
  • Prudent capital expenditures on building renovation and furnishing
  • A promotional campaign to mobilize community support
  • Sound international technical assistance to supplement local skills

The Start of Initial Operations requires:

  • Access to equity, credit and royalty facilities by tenants
  • Involvement of the private sector
  • Continuing programs for improving management skills of incubator staff and tenants
  • Links to other SME programs
  • Exchanges of information and bench marking

The Sustainability of Incubator Operations needs:

  • Proactive pursuit of business opportunities
  • Imaginative ways of raising income
  • An objective evaluation of the incubator experience, and replication as warranted
  • Political stability, macro-economic policy structure and regulatory framework that encourage entrepreneurship

Responsible Parties

  • Leaders involved with the initial idea of the incubator

Indicators

  • Time and costs for the development of the Business Plan and the Strategic Plan
  • Funds brought in and political support built up through incubator planning

Results

  • Business plan and strategic plan drawn up in a clear and straightforward manner

Central Legal Documents

Objectives

The objective is to enlarge on documents that govern the incubator’s relations with other institutions and with the incubated companies.

Generally, the documents are detailed as follows:

  • Statutes: these instigate the entire structure of the incubator, determining its objectives, organizational structure and system of operation;
  • Internal Bylaws: an incubator’s rules, which spell out its operations, with due respect for that specified at higher levels of authority;
  • Contract with Incubated Businesses: defines the principals governing relations between the incubator and the incubated businesses;
  • Other Legal Documents: the creation of documents that formalize the specific services rendered by the incubator, agreements with other institutions, commercial contracts, etc.

Key Issues

The following should be included in refining the incubator’s documents:

Internal Bylaws:

  • General provisions (general and specific objectives, concepts, etc.).
  • Activity, headquarters and operations (objective, location and functioning).
  • General structure of the incubator (description of the flowchart and organizational functions).
  • Capital and resources (furniture and fittings, properties, means of obtaining revenues).
  • Process of selecting companies (selection phases, time periods, criteria, etc.).
  • Secrecy and intellectual property (confidentiality, etc.).
  • Use of incubator’s infrastructure (conditions for working together, earnings, etc.).
  • Admission, permanence and exclusion (system of entry and withdrawal of the incubated companies).

Contract with the Incubated Companies:

  • Identification of the project to be developed
  • Obligations of the company
  • Obligations of the incubator
  • Validity and extensions
  • Costs, deadlines and fines
  • Situations for rescissions.

Responsible Parties

In general, lawyers create the incubator’s documents. Despite this, the incubator’s management team should participate in setting up the documents, to provide the specific characteristics of the incubator that is being created.

Results

Detailed understanding of the incubator’s legal documents results in formalization of its internal activities, and facilitates/conditions relations with other institutions.

Strategic Plan

Objectives

Planning is a process; a set of tasks carried out to reach common goals and set up objectives and then arranging the best way of achieving them. This results in focused efforts and the most efficient use of resources. Strategic planning means thinking about the organization as a whole in terms of its surroundings, and looking to what could be ahead. This gives rise to the importance of analyzing the environment in order to define a mission and select strategies (positioning). Effective planning serves as a basis for the business plan as well as a strategic analysis of the incubator. The main items covered by strategic planning are:

  1. Identity of the incubator (Vision, Mission and Values)
  2. SWOT analysis
  3. Strategic objectives
  4. Strategies, tactics and plan of action

Key Issues

  1. Definition of the Incubator’s Vision: The Vision presents what management and partners want the incubator to represent to its environment (the biggest, the best, a center of excellence etc). The Vision provides a map for the incubator’s direction, and should create an identifiable image of its future, while inspiring commitment to its performance. It should stress what the incubator could be and explains what it should be.
  2. Definition of the Mission of the incubator: The Mission reflects why the incubator exists, what it is and what it does to meet the demands of the outside environment. The mission turns into reality what was conceived of as an ideal. It should be straightforward to ensure a clear definition of the strategies of the incubator’s mission.
  3. Definition of Values: The Values of the incubator are the understandings and expectations that describe how the incubator’s professional staff should behave, as the basis for organizational relationships.
  4. SWOT Analysis: Strengths, Weaknesses, Opportunities, and Threats: This is widely used by organizations as part of their strategic business planning. The SWOT analysis assesses the strong points, the weak points, the opportunities and the threats to the organization and the market within which it operates. This tool is widely used during the incubator planning phases.
  5. Definition of Strategic Objectives: These are the considered planning benchmarks that the incubator is aiming to achieve, and they are written in a way that allows them to be measured, compared and assessed. The objectives are the major concerns that the incubator needs to meet in order to fulfill its business mission as it works towards its vision. They indicate the general intentions of the organization and the basic way for achieving its aims.
  6. Strategies and plan of action: The strategy consists basically of deciding where the incubator wishes to go and what it should do in order to get there. Once the strategies are established, it is necessary to clearly define who will be in charge of the performance of specific actions, how and when these will be implemented, what schedule will be followed and what will be the cost.

Responsible Parties

Managers and technical experts from the organization that wants to set up the incubator.

Indicators

  • Time and costs for the development of the strategic plan
  • Funding and political support built up through Incubator Planning

Results

  • Definition of the Vision, Mission, Objectives and general Strategies of the business
  • Information about the variables and positive factors that affect the activities of the incubator, both directly and indirectly.
  • Definition of strategies for making good use of opportunities and avoiding any possible threats, and the plan of action.

Physical Infrastructure

Objectives

During implementation of an incubator, those managing the institution have to cope with the challenges caused by the building in which it is sited. A business incubator is a program rather than just a building, however, constructing or refurbishing the right building plays an important role in the incubator’s daily operations and services.

According to the European Commission – in their Final Report Benchmarking of Business Incubators (2002), “the provision of workspace is central to the incubator model. Standard good practices now exist with regard to the most appropriate configuration of incubator space”.

Based on the type of company to be incubated, the building characteristics of the incubator may vary in terms of the size of the workspace and services offered. To help determine the size of the incubator structure, try to identify the profile of the companies that will be incubated and attempt to identify the infrastructure they need. See (iDISC Paper Incubator Infrastructure and Services).

Once the targeted market niche has been identified, a key step is to visit already operating incubators with similar characteristics to those of the project in mind. These visits give the advantage of learning from the experience of other incubators in order and avoiding any problems they may have had. This helps to:

  • Determine the size of the incubator
  • Establish the architecture of the incubator workspaces
  • Find out how many workspaces there are
  • Work out the size of each workspace
  • Decide on the basic infrastructure (telephone outlet, Internet connection outlet, water outlet, electric outlets, etc.)

The next step is planning the operations of the incubator, particularly the services provided. This should not only indicate the facilities considered ideal but importantly those that can feasibly be made available by the incubator.

Rice & Matthews in Growing New Ventures, Creating New Jobs (1995) emphasize: “the right building can provide the basis for the financial self-sustainability of the incubator and an environment in which the entrepreneurs and incubator staff can work together to grow new businesses. The wrong building can lead to failure – and wrong buildings are one reason incubators have not met expectations”. They also suggest a set of questions that can be of help when choosing the right facility:

  • Does it meet the size requirements of the financial model to enable the incubator to achieve self-sustainability?
  • Does it require minimal renovation?
  • Are there any environmental hazards that will come back to preoccupy the incubator later?
  • Can the facility be easily maintained?
  • How much will it cost to operate the facility?
  • Are the acquisition terms favorable or will the long-term costs cripple the incubator?
  • Can walls be moved and spaces reconfigured as companies grow?
  • Are there enough common areas that can be shared, for example: conference rooms, a library, a kitchen and a business service center?
  • Is the incubator building and surrounding area safe/secure so that entrepreneurs can work day or night?
  • Is there adequate parking?

Key Issues

  • Renovation/Construction: there are advantages and disadvantages in choosing to adjust a building to the needs of the incubator or constructing a building specifically for the project. Sometimes refurbishing an unsuitable building is more expensive than the cost of acquiring a suitable one. Independently of whether the incubator building is built or adapted; the core aim is to create an atmosphere favorable to the development of business.
  • Size: What should the size of the incubator be? The decision about the ideal size of the incubator is essential to ensure its independence from external resources and its further self-sustainability. Sometimes a small building can make the incubator unfeasible, since costs could be high and there will be little to attract public and private investments. Disadvantages can also be found in large buildings, since a low occupancy rate could be viewed as a sign of project failure. The right incubator size is a challenge that a well developed business plan can help overcome.
  • Surrounding Areas: the location of the building is important. The area surrounding the incubator must be assessed for transport facilities, parking space, the existence of postal and banking services and even the right type of neighborhood to avoid future problems.
  • Companies/Incubator Interaction: One of the useful benefits offered to incubated companies is the opportunity for contacts with other businesses. Interaction among different companies and with the incubator management team results in an enriching learning process.

Responsible Parties

  • Party responsible for managing the incubator and the architect

Indicators

  • Satisfaction rate of companies towards infrastructure and services

Results

  • Self-sustainability of the incubator through fees charged for the use of infrastructure and services provided.
  • Rise of capacity to attract entrepreneurs to the incubator.

The Role of the Incubator Board

Objectives

Skilled management professionals play key roles in any successful organization or enterprise. This Guideline looks at how this core concept relates to business incubation by considering the characteristics, profiles, responsibilities and composition of an incubator’s Board, as well as their relations with stakeholders, mentors and consultant networks.

By way of example, Meeder cites a case from 1991-1992 during a training program for incubator managers run by the NBIA which involved more than 240 people from the United States and Canada. In a survey taken during the event, it was noted that a very large number of managers listed their boards of directors as being their most pressing problem. Many of these participants described situations that were sufficiently serious to threaten the very feasibility of their programs. If this sampling is representative of the business incubator industry as a whole, one can conclude that the relation between the manager and board of directors is a factor of crucial importance to incubator management. So, it is worth having a closer look in this topic.

The Board of Directors is also known as the Executive Council, Technical Council, Guidance Council, Curator Council or Deliberative Council. It is composed of representatives of the management entity; of the partners included in the incubator; and of organizations that provided the (financial and material) resources needed to establish the incubator. The Board has the task of defining the policies of the incubator, strategic planning, evaluating performance and proposing improvements or alterations as required by the incubator’s services. Other Board responsibilities encompass the definition of criteria and parameters for selection of businesses that are candidates for admission to the incubator; managerial supervision; and resolution of administrative questions that are beyond the purview of management (Medeiros et alii).

According to Greco, the Board of Directors also “plays a key role in recommending, reviewing and approving companies for inclusion in the incubator facility”. Dornelas stresses the fact that the activities of the Board or Council involve exploring new credit lines, the pursuit of new partners and development of the network of contacts.

Greco stresses, among other golden rules to be followed in incubator management, “the boards of directors are generally responsible for policy development and not day-to-day operations, which are left to the incubator manager. Bureaucracy, in the case of government-sponsored incubators, should be kept to a minimum”.

Wolfe presents a study in which the size and composition of the board of directors must reflect the needs of the incubators at the various stage of development. “Initially, the board must have the minimum number of members required for performing its role of providing strategic support to the director or president of the incubator. However, it is important to calculate the time that will be needed for the director and staff to provide support to each additional member, as compared to the benefits that the person can provide to the incubator and its clients. In any successful incubator, the board will have a mix of individuals with varying characteristics and skills”.

The President of the Incubator Board

According to Rice and Matthews, “despite the difficulties with which the sponsors and staff may have to cope in selecting the president, this is one of the most critical tasks before them.

The authors also suggest that the president of the board should be a person who:

  • Is active in this role of supporting entrepreneurial activities.
  • Recognizes every task as a means to achieve the central mission.
  • Has the ability to face the challenges of the start-up process.
  • Must be able to deal with the development of a highly successful incubator and incubated companies.
  • Must be ready to help entrepreneurs come up with the resources needed for their growth.

The president of the board is also responsible for:

  • Representing the incubator’sBoard.
  • Directing the incubator Board’s work, paying attention to the incubator statutes.
  • Calling and guiding incubator Board meetings.
  • Observing incubator Board decisions and ensuring that they are obeyed.

Key Issues

  • Identify main partners and invite them to join the board. Sally Hayhow advises in “How to Have the Best Board of Directors” that the members of a board should be selected from every area in which the incubator has needs. As the incubator evolves, the it may need to change the composition of its Board. According to Rice and Mathews, a good start may be to have “leaders/champions committed to the success of business incubation, networkers, real estate and business operations professionals, business assistance providers, investment professionals, entrepreneurs, product/services assessment professionals”. See the Guideline on Stakeholder Identification.
  • Establish a clear mission and a statute. The Incubator (and Board) should have a clear mission and legal framework. This avoids interference in management and divergent objectives between board members themselves and managers. It also creates and makes clear the incubator’s internal procedures. See the Guideline on Strategic Planning.
  • Define regular board meetings. The prior definition of a regular agenda (it can be annual, semestral or trimestral) allows the Board members to set their schedule ahead, avoiding absences or delays. Also, the prior agenda allows better activity planning and follow up, once Board members are aware of the main topics to be discussed at the meetings. See example of a Prior Meeting Agenda.
  • Be ready to remove inefficient Board members. Hayhow suggests that incubators should have “staggered terms, and in some cases term limits. For the staggered term, the first year’s board members draw lots to determine who will be one-year, two-year, or three-year members. From then on there’s pretty steady turnover”. She also points out the possibility of having specific board members fully responsible for a specific assignment.

Responsible Parties

Incubator managers or/and Incubator director.

Indicators

  • Definition of the management system of the incubator
  • Definition of the performance assessment models.
  • Increase in the number of projects analyzed by the board.

Results

To have a pro-active incubator board, which helps to define the strategic vision of the incubator and properly conducts management focused on results, performance, efficiency and effectiveness.

Analysis of Local Conditions

Stages/Critical Issues

  1. Survey of corporate profiles and local vocations: identification of the characteristics of the industrial trade and services sectors, the size of each segment and the companies, the main areas of action, the vocation of the region etc. This survey is designed to identify production chains and market niches that offer opportunities to develop new enterprises, as well as companies that could work in partnership with the incubator in order to generate new businesses and technologies (See attachment Feasibility Study for the Incubator).
  2. Survey of existing infrastructure: identify communications, transportation and sanitation facilities, as well as local buildings and paved surfaces that could be used by the incubator or the incubated companies. At this stage, buildings may also be identified that could be assigned for the incubator operations. The infrastructure analysis helps decide on the best site for the incubator and what type of investments will be required in infrastructure. In order to support these companies in the ICT area, for instance, it is necessary to know whether Internet access in the region is available by cable at high speeds, etc (See attachment Feasibility Study for the Incubator).
  3. Existence of teaching and research institutions: the link between incubators, research centers and teaching institutions is very fruitful, particularly when the incubators are technology-based. Consequently, it is important that the incubator should be supported by these institutions right from the start. In order to analyze the feasibility of the incubator, a survey should check whether there are any universities and research centers in the region, what areas of action and lines of research they follow, the availability of their technical staff for consultation, their experiences in university-enterprise relationships, etc. This helps to find the type of technological services that could be offered to the incubated companies (See attachment Feasibility Study for the Incubator).

Responsible Parties

  • Technical experts from the institution wishing to set up the incubator.

Indicators and Goals

  • Time and Costs for the Development of the Feasibility Study;
  • Resources brought in and political support achieved through the Feasibility Study.

Results

The outcome of this analysis is the identification of possible areas of action for the incubator and the infrastructure either existing or to be implemented, which could underpin the activities of the incubator.

Identifying whether incubation is the right response

There is a spectrum of possible services to support innovation and entrepreneurship. A challenge for policy makers and stakeholders is to decide which is appropriate, without ignoring important improvements to the enabling environment (business conditions). Analysis of the needs of SMEs is a necessary step in determining what is appropriate; if support services are not market driven and focused on their customer’s needs they are likely to be irrelevant and unlikely to achieve meaningful outcomes. The most common services are summarized in the following table.

Support Activity

Key Features

Business Development Service (BDS) and Business Development Centre

Generic services for small enterprises and business aspirants typically providing:

  • Information
  • Training
  • Advice

 

Most variants rely upon private sector service providers, coordinated by the service.

Business Incubation

 

  • A focus on growth oriented firms
  • A process to help firms establish and grow successfully
  • Providing a range of services including communications, office equipment and a business development program tailored to the needs of the market
  • Often involving buildings, at least as a hub for broader activities
  • Varied models suited to local conditions, ranging from highly intensive services for a small number of firms to less intensive services for a larger number of firms

 

Technology Park – also called Cyber Park, Science Park, Research Park and Techno pole

 

  • Linked with educational or research institutions
  • Provides infrastructure and support services for businesses, particularly real estate and office space
  • Performs a technology transfer function
  • Accommodates [SJA1] large and established businesses
  • Often involves business incubation of new companies
  • May focus upon a particular industry, often ICT, or be more general in nature
  • Often focused on exports

 

Industry Cluster

 

  • Geographic concentration – spatial proximity of businesses
  • Specialization around a core activity to which all actors relate
  • Multiple Actors, including firms, public authorities, academia, members of the financial sector and collaborative institutions
  • Competition and cooperation between the actors
  • Critical mass to achieve the necessary inner dynamics
  • The cluster life cycle with a long term perspective
  • Innovation, with firms in the cluster involved in technological, commercial or organizational change[1]

 

Business networks are different to clusters, although the two terms are sometimes used interchangeably. Business networks are generally closed organizations, generating external economies for members by sharing costs of resources, expertise and information. Clusters are open and derive external economies from the market.

Other possibilities include Special Trade Zones, Investment Promotion Agencies and Micro Enterprise development programs.

Convergent or hybrid models

Business incubation is not an isolated concept and has many synergies with Technology, Cyber or Science Parks and industry clusters, in that each involves a ‘place’, processes and growth companies, and complements BDS services and Telecentres with more focused and intensive services for their clients with growth aspirations and prospects, as well as greater leverage for engaging policy makers on improving the business environment given the number of clients (entrepreneurs) that they work with intimately.

The main difference to Parks and Clusters is that business incubation focuses on growth processes for early stage companies, which will graduate (i.e. leave the process) at some point in time, something that makes no sense with clusters or Parks. Technology business incubators are a common feature in Technology Parks, whereby a Park ‘grows’ tenants for the Park in the business incubator and some clusters have an business incubation component. Where there is limited critical mass, such as in small isolated economies and SIDS there are good arguments for them all to be combined, to maximize critical mass and capability, with convergent or hybrid models - perhaps in the form of ‘hubs’ and ‘spokes’.

At the other end of the spectrum are Business Development Services, which support small enterprises, mostly micro enterprises and family based, and business aspirants, without a focus on growth but serving large numbers of people and community based Telecentres, providing ICT training and access. Incubation complements and can be integrated with these services providing more focused support for growth oriented clients.

Is Business Incubation The Right Tool?

Business incubation is adopted as a tool for innovation and entrepreneurship for varied reasons, the most common of which are:

  • Technology transfer
  • Technology commercialization and adaptation
  • Economic diversification, or to grow a particular sector
  • To reduce business failure rates – typically, in quality business incubation environments, up to 85%+ of firms that have been incubated survive
  • To create employment and wealth
  • As a test bed or catalyst for SME development

The effectiveness of the tool is documented in many publications and evidenced by the expansion of the industry globally. Some headline performance indicators are:

  • Business Incubation Works (1996), still the most respected study into business incubation outcomes in the USA, reports: good job creation outcomes with an average of 468 direct jobs and 702 total jobs created by each business incubator and with a public subsidy cost per job of $1,109; 87% of business incubator graduates were still in business; healthy average growth in firm sales of $239,535 (on average, 400% since they commenced business incubation); 84% of graduates remain in their local communities; and, a return in terms of public investment in terms of taxation revenues of $4.96 for every $1.0 of public operating subsidies.
  • The European Union’s approximately 900 business incubators generate 40,000 new jobs per annum at a public cost per job of around €4,000 and with a firm survival rate of 85%. The European Commission Enterprise Directorate General report, Benchmarking of Business Incubators suggests, “business incubators are a very cost effective instrument for the promotion of public policy objectives…they are a very effective method of promoting knowledge intensive, new technology based activities” .

The first step on the design path is to decide whether or not incubation is applicable, followed by consideration of the type of incubation that is appropriate for the particular environment. This is not always easy and stakeholders may not have all the knowledge, understanding or data to make informed decisions. Commonly, stakeholders will convene workshops about business incubation to raise awareness and to develop a business case for investment in the design process and the business incubation process as a whole. The design process and in particular a needs assessment survey may lead to subsequent decisions that incubation is not feasible and that other models are more appropriate, but more commonly helps determine the type of incubation that is applicable and for which a market exists. Even though it takes time and money a feasibility study, involving a needs assessment, is an important step prior to a final decision about proceeding with business incubation. Flexibility should be built into the design, so it can be changed readily as a part of implementation and evolve organically over time. Design and planning are important, but are improved by experience. Flexibility in terms of the service offering and revenue streams will allow sustainable and relevant models to be developed incrementally over time.

[1] The Cluster Policies White Book, Andersson, Serger, Sorvik & Hansson, IKED, 2004.

[SJA1]

Defining Legal Status

Description/Purpose/Function

The definition of the legal status of the incubator means, firstly, deciding whether it will be an independent unit (with its own legal structure) or if it will be connected to an existing institution (a university, company, research center, etc.).The definition of the legal status is a strategic decision and the flexibility of the incubator will depend on this decision. There are advantages to each of the legal situations cited above:

Independent Unit:

  • Advantages:
    • Flexibility in obtaining funding.
    • Managerial/decision-making agility.
    • Lesser possibility of political interference.
    • Flexibility/agility in complying with agreements/contracts.

Connected Unit:

  • Advantages:
    • Uses the administrative structure of the "maintaining body" (financial statements, finances, materials, etc.);
    • Benefit from the "name"/credibility of the "host body";
    • Facilitate interaction with other departments of the "host body". For example: in the case of a university, the incubator will have easier access to researchers in different departments.

Stages/Critical Issues

The team responsible for defininition of the legal status should consider several points:

  • Connected Unit:
    • Clearly define the degree of autonomy (budget, spending decisions, hiring, etc.);
    • Ensure managerial continuity;
    • Obtain a source of internal and external support. Even though it is a connected unit, it must not become a simple "internal project", but must create strong ties to other organizations. Apart from diminishing internal resistance, this can facilitate entry of companies into the market.
  • Specific legal status: a detailed analysis is made of advantages/disadvantages of the types of legal status permitted by local legislation. Among incubators that are already operating, there are two leading types of legal status: the Non Government Organization (NGO) and Foundations.

Responsible Parties

The team in charge of the project must determine the legal status of the incubator using professional legal advice to provide direction on advantages/disadvantage of the various options.

Results

Definition of the legal status of the incubator makes it possible for the team responsible for the project to comprehend the different types of interaction with other institutions, as well as marketing potentialities/difficulties.

Keywords

Legal status of the incubator, NGO, foundations.

Publications and Other Forms of Reference

  • DORNELAS, J.C.A. Planning Business Incubators. São Paulo: Campus, 2003.
  • LAVROW, M. and SAMPLE, S. Business Incubation: Trend or Fad?
  • MARKLEY, D. and McNAMARA, K. T. A Business Incubator: Operating Environment and Measurement of Economic and Fiscal Impacts. Available on-line: http://www.agecon.purdue.edu/crd/pdffiles/wp0594.pdf.
  • PEREIRA, E.G. & PEREIRA, T.G. Planning and Implementation of Business Incubators. Brasília: ANPROTEC, 2002.
  • PIRES, Sheila O. Incubator Leadership and Management. Available online.

 

Module 2: Pre-Incubation

 

Pre-Incubation

Objectives

The main objective of the pre-incubation stage is to support entrepreneurs (see area ICT-enabled entrepreneurship) in transforming their ideas into legally constituted companies with marketable finished products. The main contribution from the pre-incubation process is that it guarantees that companies entering the incubation process are “ready to be developed”.

Entrepreneurs before the pre-incubation stage may not have legally constituted companies, approved business plans, marketable products and/or services to be offered.

The pre-incubation stage must be organized so that the three main objectives are addressed:

  • a legally constituted company
  • a duly approved coherent business plan
  • a product/service ready to be offered to the market (or at least a prototype).

The company will be ready to start up its incubation stage (see guideline Business Incubation) once these three objectives have been achieved. These two stages (pre-incubation and incubation) can be offered by the same entity (incubator) or by different entities (pre-incubator and incubator).

Pre-incubators are usually (but not always) located in universities and may be focused on supporting technological companies.

Several courses and consulting services can be offered during the pre-incubation stage that enable entrepreneurs to develop their business plans, incorporate their companies and develop their products or services. For further details about services offered, see guidelines Support Services, Operational Support Services, Management and Strategic Support Program and Technology Support Program.

Under this framework, a useful strategy is to use the preparation of the business plan as a catalyst for completion of the pre-incubation stage.

Key Issues

1) Development of a Business Plan (See Guideline Business Planning in the ICT Area)

The business plan format and contents vary in accordance with the intended target (venture-capital investors, incubators, banks, etc). The business plan must contain at least the following information: executive summary, strategic business vision, company description, products and services, market analysis, marketing plan and financial plan.

The objective of the business plan is to function as a brief introductory tool covering the main characteristics of the business. The business plan then becomes an important guideline that will be used to implement every action taken by the company. Furthermore, it is an excellent company-marketing tool.

Some key business planning tasks:

  • Identify risks and propose plans to minimize/avoid them
  • Identify strong/weak points related to the competition
  • Get to know the market, define products/services and marketing strategies
  • Analyze business financial performance
  • Assess investments and estimate return on capital invested

Responsible Parties

Consultants and incubator managers

Indicators

  • Total number of projects already assisted at the pre-incubation stage
  • Number of projects at the pre-incubation stage
  • Total number of projects resulting from entrepreneurial programs
  • Number of projects assisted at the pre-incubation phase that moved on to the incubation stage
  • Level of success of the pre-incubation stage
  • Percentage of projects approved in relation to the total number presented
  • Number of companies, which conclude the pre-incubation stage each year
  • Increased demand of projects assisted at the pre-incubation stage
  • Increased demand of projects resulting from entrepreneurial programs
  • Increased demand of projects assisted at the pre-incubation stage that moved on to the incubation stage

Results

Increase in the number of well-structured business plans presented to incubators.

Examples

The Workshop Methodology in the Social Incubation of Communities, by Genesis Institute, Brazil

Objectives

The Social Incubator of Communities aims to give assistance to low income communities with the objective of achieving acceptable levels of growth and developing economic, social, cultural and environmental aspects. This is possible to attain by training entrepreneurs, by generating and improving a solid base of new ventures, and stimulating the development of new social technologies.

In this perspective, the project "Media ICT", conceived by the Genesis Institute of PUC-Rio, was launched in 2005 in the community of Vila Canoas (São Conrado, Rio de Janeiro) with the objective of creating solid enterprises that use Information and Communication Technologies (ICTs) through the application of the Local Development and the Genesis Workshops methodologies.

Key Issues

  • Local Development: this methodology consists of a survey on socioeconomic, historical and cultural aspects of the community together with a survey on the community’s development potential by identifying internal and external networks, local leaders and potential entrepreneurs. The main objective is to promote an entrepreneurial culture, stimulate pro-activity and, consequently, achieve local development.
  • Genesis Workshops: they aim at helping local entrepreneurs in popular communities improve their productive processes, through the planning and organization of their enterprises. This process is performed through the integration of academic and local knowledge. Intern trainees and professional people related to the business sector help entrepreneurs by adding value to the process and making possible the growth of their initiatives using the entrepreneurs’ knowledge. Local knowledge and  identity are the basis to generate sustainability and to integrate the enterprise with the productive chain.

The workshops that have been conducted are:

- Memory and History Workshop

- Tourism Workshop

- Environment Workshop

- Media and Communication Workshop

The most important point of this methodology is the possibility of integration between university knowledge and the local knowledge produced by community members over time.

Results and indicators

  • The first enterprise in the segment of ICTs appeared as a result of the Media and Communication workshop. The lack of community mass media that may facilitate communication between the communities, together with the need and the desire to make a new venture gave origin to the "Fala Canoa!" newspaper. This was the first initiative in the creation of a medium of information and communication. The first edition of the printed newspaper was launched in August of 2005.
  • After the media group’s work, other people in the area showed interest in developing media projects. That way, Genesis Entrepreneurship Teaching Coordination group, conducted Entrepreneurship Workshops in the community. The Workshops were conducted during period of three months, with the objective of preparing a group of 18 people in Vila Canoas’ community in basic business. The program considered the following: Entrepreneurial Attitude, Professional Life, Planning and Creativity and Innovation.
  • The MEDIA ICT project identified also, ten other opportunities of business in the community. These  promising enterprises would be able to form a value chain in the region, stimulating the tourism and the local economy.

 The opportunities which were detected were the following:

- Handcrafted Sewings

- Gastronomy

- Domiciliary Lodging

- Computers Maintenance

- Recycled Material Furniture

- Garden Design and Garden Automation

- Decorative Products made out of Garbage

- Recycled-Paper Products

- Redesign of Upholstered Products

- Decorative Candles

Based on the opportunities identified, the following ventures were developed:

1. Mass Community Media “Fala Canoa!

2. Favela Receptiva: initiative of Bed and Breakfast

3. Decorative Candles Enterprise

4. Artisan Sewings Enterprise

5. Initiative of Newspaper and Magazines Recycling Art

 

Module 3: Select Clients

 

Prospecting New Entrepreneurs

Objectives

A set of systematic procedures to identify and attract potential customers to the incubator, aimed at achieving a quantitative and qualitative increase in demand. Central to this is:

  • Promote Incubator Facilities: release information about the incubator such as: advantages, type of entry, strenght of connections to graduated companies and partners, networks, outcomes etc.
  • Dissemination: advertising material prepared for incubated companies (folders, posters, billboards, etc.) must mention that the company was supported by a specific incubator; successful incubator cases are mentioned in the press, articles on entrepreneurship and the formation of new companies are featured in the local press; and incubator advertising material is placed in strategic locations. For example: trade and industrial associations, universities and associated institutions.
  • Courses, lectures, and seminars on entrepreneurship; these are offered by the incubator covering topics like setting up a new company and news about entrepreneurship opportunities.
  • Incubator tours: schedule visits by “gatekeepers” – people in contact with potential tenants such as university staff, accountants or lawyers, for example – to learn more about what the incubator can provide.
  • Successful cases: show how an incubator can assist in creating/developing new business opportunities. Present cases fully identified with a real local context. All events designed to attract new projects/companies are usually included in the incubator company marketing strategy.
  • Showcase spin-offs: incubator can promote active prospecting that may include:
    • Spin-off incentives: incubator fosters existing companies (especially large) to support the emergence of new ones. These new companies usually develop new products and/or services that enhance the competitive capacity of the existing company (commonly called “mother or parent-company”).
    • Fostering Spinouts: in view of their research activities, university research groups or institutes have potential to form new companies. These are called Spinout companies.

Key Issues

  • Business Plans Contest (See Guideline Business Plan Contest).
  • Teaching Entrepreneurship (See Guideline Teaching Entrepreneurship)

Responsible Parties

  • Incubator technical staff
  • Professionals in business planning and entrepreneurial capacity building areas

Indicators

  • Number of people interested in incubator vacancies increased
  • Number of people trained/qualified in entrepreneurship increased

Results

  • Creation of an entrepreneurial culture in the community
  • Increase demand for incubator.

Business Selection Process

Objectives

The function of the business selection process is choosing, from amongst candidate companies, those with the greatest potential for success. This is a complex process, because the concept of success is a relative value. Each incubator has its own criteria, that result from the decisions taken during the modelling and planning of the incubator. For more information, see guideline Modelling and Planning an ICT-Enabled Business Incubator. Definitions of partners, mission, vision, objective, focus, model and purpose of the incubator are highlighted

The business selection process must be compatible with the incubator’s internal and external environment. During this process companies are chosen that contribute to improving the indicators used for evaluating an incubator’s performance. See area Evaluating and Reporting on the Incubator.

Key Issues

It is important to ensure that there are a large number of candidate companies. This gives a better chance of selecting high quality companies. That is: the more businesses that take part in the selection process the higher the probability of selecting companies with greater chances of success.

The management team must publicize the incubator at the whole community level and, specifically, amongst potential candidates. See guideline Marketing the Business Incubator.

At the same time procedures must be implemented that make it possible to seek out companies/entrepreneurs to participate in the selection process. See guideline Prospecting for New Entrepreneurs.

The selection process has three critical parts:

  1. Definition of criteria
  2. Process stages
  3. Professionals involved:

1. Definition of Criteria

The choice of selection criteria must give due consideration to the incubator’s characteristics and performance evaluation system. The following aspects are taken into account:

  • The stage of the enterprises: A clear definition about which stage an enterprise will be accepted into the incubator. Several questions must be answered at this point.
    • Must the enterprise be legally constituted?
    • Is it necessary for the enterprise to have a business plan?
    • Should the enterprise already be marketing its products?
    • Must the product be considered a finished product?
    • Can the enterprise be a department/division of an already constituted company?
  • Purpose of the Incubator: The importance of the purpose and objective of the incubator is highlighted in the guideline Defining the Incubator’s Purpose. The incubator’s objective (eg public benefits like job creation, or private benefits like profit-making) will influence the selection criteria. Profit-seeking incubators, for example, favour those enterprises with a greater probability of generating financial returns. For non-profit incubators, the social results of the enterprise may be more significant,.
  • The Incubator’s Focus: normally, the type of enterprises selected aligns with the incubator’s focus. See guideline Defining the Incubator’s Focus. This is evaluated in the first stages of the selection process. If the incubator supports technology-based enterprises, for example, applications that are not in line with this orientation must be rejected.
  • The Incubator Partners: the selection criteria must include companies with attuned aims. That is: companies are selected should have a similar vision to the incubator’s partners. What is important to the incubator’s partners must be evaluated, for example:
    • The number of jobs that are generated
    • Technological innovations produced
    • Level of the enterprise’s potential turnover
    • Alignment with specific economic sector(s)

    Note: the objectives of the partners shape the selection criteria, but do not determine them.

  • Mission, vision and objectives: the incubator’s mission, vision and objectives must be assessed critically. This will produce criteria that aid in selecting companies that are compatible with the incubator. Generally, this information influences all the criteria used in the selection process and shapes the profile of the enterprise to be supported:
    • Are there technological innovations?
    • Are jobs generated?
    • Is there profit for the incubator?
    • Is there economic diversification?
    • Will the applicant’s success contribute to a struggling economic sector?
    • Is there consolidation of a given productive arrangement?
  • Characteristics of the enterprise: criteria must be defined that make it possible to evaluate:
    • Feasibility of the Enterprise: An important assessment is the enterprise’s ability to develop in a consistent, sustained manner, independently of the incubator’s focus. Criteria that can be used are:
      • Economic-financial feasibility: evaluations consist of a check that the quantity of resources required is compatible with the quantity of resources available to the entrepreneurs (or obtained from third parties). The time needed to get a return on investments, plus the rate of return and profitability levels.
      • Technical feasibility: Is the technology required for product development available and/or can be it developed by the entrepreneurs?
      • Degree of innovation: to what extent does the proposed process/product differ from currently existing solutions?
      • Team capacity: Is the experience and knowledge of the nominated team adequate to develop the product/service? An assessment should made of the team’s entrepreneurial profile. This is critical to the success of the undertaking and could be done through interviews with psychologists or through various questionnaires or exercises.
    • Impact on society: the incubated enterprises must contribute to the improvement of society as a whole. Keeping this in mind, the following criteria also need evaluation:
    • Technological impacts: evaluation of the contribution of the enterprise in terms of updating technologies used by companies/communities. See guideline Technological Benefits.
    • Social impacts: the enterprise’s potential to improve the quality of life of society. See guideline Social Benefits .
    • Economic impacts: evaluation of the enterprise’s contribution to the development of the region/country in which it is located. The potential for following must be evaluated:
      • Is there job generation?
      • What is the level of annual income?
      • What is the export potential?
      • What is the potential for generating taxes?
    • Environmental impacts: depending on the focus of the incubator’s actions, an enterprise’s environmental impacts may become significant. A rating could be made of any detrimental environment impact of the processes, products and/or subproducts of the new enterprise.

2. Definition of selection process stages

Selection stages should be planned with an increasing degree of selectivity. The applicant enterprises should be evaluated with regard to their alignment with the incubator’s characteristics, followed by more specific steps for evaluating the merit/quality of the enterprise. Important questions are:

  • Preliminary evaluation: the selection process’s first stage chooses those enterprises most in line with the incubator’s characteristics;
  • Training: will the selection process include a preparatory course for entrepreneurs (Elaboration of the Business Plan, for example)?
  • Interview: time should be planned for the incubator’s management team (or a professional designated by that team) to have contact with the entrepreneurs.
  • Evaluation Committee: The involvement of different professionals is essential to the success of the selection process. Consideration should be given to evaluation of the enterprise/entrepreneurs by professionals from outside the incubator.

3. Professionals involved

It is essential that enterprises are evaluated from different points of view. In general terms, this can be divided into four groups, who could form an Evaluation Committee:

  • Academics: include researchers and professionals knowledgeable in the technical area/technology focused on by the company
  • Market: involves the participation of businesspeople, venture capitalists, and marketing professionals, who can evaluate the enterprise from the business point of view.
  • Government and development institutions: ensure a macro vision of the selection process, by evaluating the impacts of the enterprise on society as a whole.
  • Representative of the incubator’s management team: ensure integration among the different enterprise visions involved.

Responsible Parties

Incubator Managers and Board of Directors.

Indicators

  • Number of candidate companies
  • Selection/stage percentage
  • Variability of evaluations

Results

The final result is the selection of companies with a high probability of success. In terms of the selection process itself, the level of subjectivity will be reduced and the entire process systematized.

Forwarding, Presenting and Evaluating a Business Plan

Objectives

Identification of the business proposals more likely to succeed.

Key Issues

1) Business Plan forwarding, presentation and assessment.

2) Presentation of selection process results to enroll in the incubator.

Responsible Parties

Professionals trained in business plan analyses.

Indicators

  • Number of proposals received for selection purposes;
  • High percentage of feasible business plans selected.

Results

Increase the percentage number of successful companies at the post-incubation phase.

 

Module 4: Graduate Clients

 

Post-Incubation

Objectives

The objective of the post-incubation stage is to offer an opportunity for companies that have graduated to continue benefiting from the services and partnerships available from the incubator.

The major benefit that the post-incubation stage provides is a network of entrepreneurs that can contribute to the sustainable development of the region.

Key Issues

In developing the post-incubation phase, the incubator management team needs to consider the following:

  1. Duration: a post-incubation stage may have been predetermined (or not). In some cases, the incubator may wish to offer a continuing service and support a graduated company through to consolidation on the market. For this reason, the post-incubation stage has a time period that is specifically agreed upon by both parties. In other cases, the post-incubation stage can be used by the incubator to secure a Local Productive Arrangement (LPA) that maintains interactions with companies that have already graduated. An LPA can have advantages for the incubator when the graduated company maintains a strong interaction with the incubator and its partners. For example, a post-incubation connection is common for nanotechnology and biotechnology companies, due to their need for continuing contact with research centres.
  2. Services offered: the management team need to carefully analyse services offered to graduated companies. Aside from assisting in the resolution of the challenges that these fledgling companies face, the services offered post-incubation can be an excellent source of capital for the incubator as companies generally pay market rates for these services using their own funds.
  3. Technological/Industrial Parks: these are a natural progression for recently graduated companies, since there can be interactions with companies already there. Hence, the incubator management team can have a role in creating/consolidating a technological/industrial park, which could be a natural place for the some graduated companies to progress to.
  4. Performance monitoring: the Incubator needs to obtain quantitative information on the success of graduated companies. The management team must implement a system of monitoring the graduated company after graduation. This is independent of whether the company does/does not participate in the post-incubation stage.

Responsible Parties

Incubator management team

Indicators

  • Number of graduated companies that participate in the post-incubation stage.
  • Percentage of incubated companies that participate in the post-incubation stage.
  • Number of graduated companies that set up offices in a (linked) technological/industrial park.

Results

  • Creation and/or consolidation of Local Productive Arrangements.
  • Obtain resources for the business incubator.
  • Possibility of partnerships among graduated companies and incubators.

Examples

ICT Tools

The Pronto! Incubator version is a managerial tool for evaluating the performance of those enterprises incubated by incubator managers. This tool, available as software, contains a set of performance indicators for Financial Administration, Human Resources, Production and Marketing, providing the required information for decision-making by Incubators managers as well as resident entrepreneurs. http://www.inatel.br/inatel/incubadora/pronto.cfm

Environment for Enterprises Follow-up – CELTA – Brazil www.celta.org.br

Graduation

Objectives

After going through the incubation process the company management should be prepared for the challenges ahead:

  • Leaving the incubator
  • Setting up an independent office
  • Consolidating the company in the market of its choice.

The company may appear to be ready to graduate but some support is still needed in order to do this successfully. The incubator must instigate programs/actions that allow the company to obtain additional resources and distribute its product, thereby extending its market operation.

A definition is needed of criteria that allow companies to exit and succeed. In most cases companies wish to remain with the incubator for a longer period of time. As seen in the European Commission Final Report – Benchmarking Business Incubators (2002), “adopting exit criteria ensures a desirable turnover of incubated companies even if the turnover of firms makes revenue levels from rental income and other services less certain.”

Key Issues

Company Graduation

  • Identification of the time when the incubated company will graduate
  • An agreement with entrepreneurs regarding their company’s official exit from the incubator
  • The official start-up, when applicable, of all company post incubation processes

The main challenge is related to the definition of when the company graduates. There is a lack of clear-cut and precise criteria for this purpose.

The identification of when the company exits from the incubator occurs is usually determined by:

  • Follow-up of the company’s performance assessment system
  • Vision held by the incubator manager
  • Perception held by the entrepreneur
  • Timeframe variables which cover the company’s incubation period

The following must be addressed:

  • Adopt, establish and record the average company incubation timeframe (in Brazil the average incubation time is 30 months, in Ireland it is 33 months, in Italy and France 48 months and in Belgium from 60 to 80 months).
  • Establish and circulate the graduation policy adopted by the incubator.
  • Follow-up and evaluate the performance of the incubated enterprises, based on objective criteria.
  • Establish goals to be reached by the enterprises under each criterion.
  • Gradually expose the enterprises to market conditions, by increasing costs and/or reducing subsidies.

Responsible Parties

Professional or team knowledgeable about the incubation process, with sufficient capacity/autonomy to start this process.

Indicators

  • Number of enterprises graduated each year
  • Percentage of graduated enterprises that remain in business
  • Annual turnover of graduated enterprises
  • Rate of increase in the annual turnover of graduated enterprises, in relation to previous years
  • Number of jobs generated by graduated enterprises
  • Rate of increase in the number of jobs in relation to previous years
  • Annual amount of tax paid by graduated enterprises (at Federal, State and Municipal level)
  • Rate of increase in the total amount of tax paid by incubated enterprises, at Federal, State and municipal level, in relation to previous years
  • Percentage of graduated enterprises that are leaders in their respective markets
  • Rate of increase in the percentage of graduated enterprises that are leaders in their respective markets, in relation to previous years

Results

Increased: employment opportunities and income, taxes paid to the State, greater visibility for company incubator programs for a large variety of agents and partners, including the local community, etc.

ICT Tools

The Pronto! Incubator version is a managerial tool for evaluating the performance of those enterprises incubated by the managers of the Incubators. This tool, available as software, brings a set of performance indicators in the field of Financial Administration, Human Resources, Production and Marketing, providing the required information for the decision-making by the Incubators managers besides the resident entrepreneurs. Environment for Enterprises Follow-up – CELTA – Brazil www.celta.org.br.

 

Module 5: ICT Services

 

ICT Tools for Company Management and Planning

Objectives

Implementation of ICT-based management tools can help promote more efficient oversight processes and management for enterprises. From an incubator's perspective these tools can also allow for more effective monitoring of the performance of each enterprise. 

Key Issues

  1. Definition of the ICT-based management system architecture: This definition starts with a survey of all types of information obtained through the management system. Once the desired information has been charted, the basic architecture can be defined for the system to be developed.
  2. Definition of the system functions and modules: Having defined the basic system architecture, the functions and modules of the system should be defined. The architecture defines an across-the-board system module at this stage, while also defining the specific system modules and the specific functions assigned to each module.
  3. Definition of the ICT infrastructure to support the management tool: Once the management system has been selected and designed, with its modules and functions properly structured, the infrastructure should be defined for supporting the management tool. This infrastructure includes machines, cabling, Internet, logistics network and software library.

Responsible Parties

  • Incubator Manager
  • Software Development Team
  • Consultants in the fields of management

Indicators

  • Management system defined and implemented
  • Management information on the companies interconnected to the system, updated regularly

Results

Building up an ICT-based management system implemented in the enterprises

Incubator Characteristics for Supporting ICT Businesses

Objectives

Structure a situation that fosters and promotes the development of new ICT enterprises, supporting their growth and paving the way for their entry into markets of interest.

The incubator characteristics required to support ICT enterprises should be defined through its focus of activity, which is grounded in its planning process.

Key Issues

  1. Physical ICT infrastructure, including Internet, logic network, servers and software libraries for shared use. The physical infrastructure is a crucial factor for the support provided by the incubator that underpins the development of ICT enterprises. Most new enterprises have little investment capital or even none at all. If the incubator provides the entire infrastructure required by the new enterprise, it can allocate its funds to other factors that are important for its success, such as human resources.
  2. Defining the attractive features of the incubator within the ICT industry. Selecting the right attractive features will assist in determining the facilities that the incubator invests in. An incubator focused on a specific field of action can channel its investments towards infrastructure that is better adapted to the enterprises that will be managed, providing specific equipment for supporting this field of action.
  3. Setting up a Board of Directors aligned with the incubator’s approach and committed to the success of the enterprises. Having defined the incubator’s focus, it is easier to select a Board of Directors that is closely aligned with this approach. The professionals selected to foster the development of the incubator and provide support should have profiles that are closely attuned to its core area of action, and should also be willing to help develop the new incubated enterprises.
  4. Introducing the incubator and its enterprises into the ICT fields related to its core activity. Universities and ICT development centers should always be the partners of the incubators and their enterprises. The more closely ICT is acknowledged to be the incubator’s core area, the more new entrepreneurs will wish to set up their enterprises in the incubator.
  5. Formal program promoting incubated enterprises in markets of interest. The incubators should assist the enterprises to attain their strategic objectives. Promoting the incubated enterprises in their markets of interest should be well planned by the incubator. It should draw up a formal program with one of the objectives of its incubator model consisting of the promotion of its incubated enterprises.

Responsible Parties

  • Incubator Manager
  • Board of Directors

Indicators

  • Defining the physical infrastructure requirements
  • Defining the incubation model requirements in order to promote the incubated enterprises.

Results

To have a table listing the minimum requirements for underpinning the development of ICT enterprises including physical items and management activities, as well as actions promoting the incubated enterprises.

Technology Support Programs

Objectives

Establish a program for guiding companies in the area of technology by making available laboratories properly equipped with software and tools for developing new technologies, as well as guidance for registering the latter – intellectual property.

Key Issues

  1. Making available specific types of laboratories: identify the needs of each company based on their products and the processes to be developed, seek to set up laboratories capable of meeting such demands and make technical personnel available to monitor development.
  2. Making available software and tools: identify the needs of each company based on its products and the processes to be developed, identify the software and tools capable of meeting such demands and make technical personnel available to monitor development.
  3. Guidance in relation to intellectual property: identify the needs of each company based on its products and the processes to be developed and seek out professionals capable of providing guidance on the registration process for these new technologies.

According to the Art & Craft of Business Incubation (1996), there is a list of services and practices that could be provided to incubated companies in the research and technology area such as:

  • Access to external technical facilities
  • Loaned/consulting university faculty/ students
  • Location/identification of key technical staff
  • Databases of researchers and technologies
  • Research and development financing
  • Technical review boards
  • Design/initiation of research/technical projects
  • Alpha and beta testing

Advice for Technology Support Services

  • Institutions that do not have laboratory and software infrastructure and the tools to service them can acquire them by partnering with universities or research centers.
  • Access to technical personnel or professionals to meet the demands of technological development or registration can be gained through partnering with institutions already equipped in these areas.
  • Choose as the parties responsible for this activity professionals who have training and experience in the development and registration of technology.

Responsible Parties

Technical personnel from the specific areas to monitor laboratory development and a consultant specializing in registering intellectual property.

Indicators

  • Increase in the demand for new technologies
  • Increase in the demand for registering new technologies
  • Number of companies having developed and registered new technologies
  • Number of companies having commercialized new technologies

Results

Companies that are equipped to look out for and utilize technology solutions in order to compete in the market with other companies.

Use of ICT for Managing Incubated Enterprises

Objectives

The use of ICT for managing incubated companies is defined as the deployment of ICT-based management systems in order to upgrade business performance. Its implementation in incubated enterprises will depend on the ICT policy adopted by the incubator for introducing these integrated management systems.  These systems allow the incubation process to be carried out more effectively and professionally, while also giving the enterprise a longer life expectancy.

The use of ICT for managing incubated enterprises begins through defining business process flows. Next, the key processes and support processes are established, and decisions are made on which of them can be converted into computerized routines and slotted into an ICT-based system. To do so, new business process architecture may be defined, in compliance with ICT principles, to serve as the starting point for specifying the ICT structure required to underpin the new processes.

The use of ICT for managing enterprises generates many benefits, of which the most important are:

  • Lower costs
  • Training and capacity-building for human resources
  • Keener competitive edge for the products of the enterprise
  • More efficient processes with improved performance times
  • Better chances of business success and resulting increase in the life expectancy of new enterprises
  • Introduction of more modern management techniques
  • Slanted towards management by results

Key Issues

  • ICT tools for corporate planning and management (See Guideline ICT Tools for Company Management and Planning).
  • Characteristics of incubators for supporting ICT-based businesses (See Guideline Incubator Characteristics for Supporting ICT Business).
  • Role of the incubator in encouraging ICT-related businesses (See Guideline The Role of the Incubator in Encouraging ICT Business).

Responsible Parties

  • Entrepreneur
  • Incubator manager
  • Management and ICT consulting staff
  • Board of Directors

Indicators

  • Defined ICT policy
  • Management systems developed and made available to the incubated enterprises
  • Management practices handbook prepared and distributed to the entrepreneurs
  • Results assessment system defined and implemented

Results

  • ICT policy for managing incubated enterprises
  • ICT-based management practices handbook for incubated enterprises
  • Scheme for implementing ICT-based systems in incubated enterprises
  • Redefined business process flows
  • Assessment system

 

Module 6: Business Advice

 

Business Plan Contest

Objectives

A business plan contest can be launched by a community as a way of raising awareness about entrepreneurship. This also helps to encourage the establishment of new companies and increase incubator demand. Entrepreneurship must be developed in the region where the incubator is located, promoting community interest in starting new enterprises. Different tools are offered for this purpose, appropriate to the development of good quality proposals (See Attachment Business Plan Contest Examples).

Key Issues

A suggested contest plan follows:

  1. Identification of Sponsors: the success of the contest depends on sponsors and appropriate prizes. The organizing committee’s main task is to find well-known, reliable sponsors from the community.
  2. Drafting the Regulations: all pre-requisites and procedures related to the conditions for participation in the contest must be clearly expressed. The regulations must contain, as a minimum. the following information:
    • Participation requirements
    • Minimum format and content to be presented
    • Assessment criteria
    • Applicable terms
  3. Dissemination: a definition of strategies that will be used to publicize the contest. It also includes the preparation and distribution of materials that will be used for this purpose. Holding talks/discussions with the target market creates publicity about the contest. The organizing committee’s involvement in regional talk shows is another excellent mechanism.
  4. Capacity building and guidance of interested parties: there must be a system by which explanations can be made and questions answered about the contest. Additionally, courses or lectures on how to prepare a Business Plan can be offered.
  5. Prize Awarding Event: the award ceremony is important, not only to the winners but also to disseminate news about the incubator within the community. Authorities (dean, major, governor, congressmen, senators, etc) should be present as they add prestige to the event and, consequently to the incubator’s image.
  6. Final Report: at the end it is important for the organizing committee to prepare a report containing all-important information concerning the contest. This information is useful for organization of future contests.

Responsible Parties

Professionals trained in business plan development and assessment.

Indicators

  • Total number of registered projects
  • Number of appearances in the media
  • Number of participants in prize-awarding event

Results

Greater number of business plans presented.

Management/Strategic Support Programs

Objectives

  • Offer support services (training and mentoring) to incubated companies in specific areas of management/strategy. The major challenge, in developing and carrying out an incubation support program, is to analyze what are the real needs of each entrepreneur.
  • The strategic support program must be tailored to the needs of the business community as actually assessed – not just assumed. A proper assessment allows the incubator to establish valuable partnerships when needed.

Key Issues

  1. Assistance/Consulting in Specific Areas – List of Services
    • Access to databases and networks
    • Joint purchase of materials
    • Courses and training
    • Business diagnostics
    • Publicity and marketing
    • Information on lines of incentives and financing
    • Market information/research
    • Business guidance and consulting
    • Legal and accounting guidance
    • Registration of trademarks and patents
    • Support for the preparation of business plans
  2. Training Develop and present to new business people a program containing courses, consultations and specialized assistance sessions that are available during the incubation period.
    • Preparation of a training schedule (courses, consultations and assistance sessions)
    • Presentation of it to each new business person
    • Responsible team to check that scheduled tasks are completed
    • An assessment is made of the quality of training
    • Team responsible: Professionals trained in incubator management with current knowledge of strategic management of incubators, including their financial position. These professionals should also be capable of managing the tasks derived from the training schedule. Outside professionals may be invited to implement the programs.
  3. Mentoring
    • Action: Identify and present to new business people a group of professionals, either in-house or from outside the incubator, that have the experience and the capacity to mentor the incubated companies in technical and management/business areas.
    • This requires identification of the areas of activity of the incubated companies, followed by identification of mentors who will be able to work with these companies in their respective areas of need.
    • Team responsible: In-house and outside professionals and/or businesspeople, who are highly experienced and qualified in the technical and management/business areas.

Responsible Parties

  • Professionals from the various areas

Indicators

  • Increase in the demand for management / strategic assistance
  • Increase in the demand for training and mentoring
  • Increase in the number of companies qualified in management / strategic planning

Results

  • Companies that are equipped to seek out and utilize management and strategic solutions in order to compete in the market with other companies.

Operational Support Services

Objectives

  • Define, structure and supply a portfolio of operational services to incubated companies. This means that the incubator provides or makes available services such as: reception, secretarial, security, communications, cleaning, kitchen, etc.
  • These are essential services because they support incubated companies by giving them time to concentrate on developing their processes, products and services.

Key Issues

  1. Reception Services: This service is generally provided by a receptionist hired by the incubator; that is, a professional hired for this purpose to work in administering the incubator program. Obviously this only applies when the administration shares the same location as the incubated companies. In this case, the incubator receptionist should have an up-to-date grasp of basic information on the companies in order to be able to provide information when required.
  2. Secretarial Services: At most incubators this type of service involves work such as sending fax messages, filling out invoices, maintaining the collective mailbox of the incubated companies (receipt and mailing of small packages), etc. Employees of the incubator also often provide this type of service to incubated companies.
  3. Security Services: This involves checking on the security of the physical installations of the incubated companies since they usually keep equipment and other valuable items on their premises. Employees that work for the staff of the incubator itself normally offer this type of service to client companies; that is, they already provide this type of service to the incubator management, or through professionals hired to provide this service to the companies.
  4. Communication Services: This involves the provision of communications infrastructure to incubated companies, such as: an internal communications network via Internet, telephones with internal extensions, Intranet, etc.
  5. Cleaning Services: This refers to the cleaning and maintenance of the individual premises and those communal areas used by the incubated companies. Like other services, these may also be available through the staff of the incubator.
  6. Kitchen Services: These services deal mainly with the maintenance of the environment that serves as a meeting place for the incubator, and which is offered for use by incubated companies. This environment is important because it provides the setting for casual interaction among the entrepreneurs.

Responsible Parties

In-house professional or team with the ability and knowledge to organize such services.

Indicators

  • Number of suggestions/criticisms regarding the services provided
  • Companies well served in regard to these operational needs
  • Increase in the number of services that can aid in providing adequate support to incubated companies.

Results

Fully meet the needs of incubated companies in relation to operational services by making them available.

Basic Support Offered to Incubated Companies

Objectives

This Guideline defines the ways in which the incubated enterprises use the basic services provided by the incubator.

Key Issues

  • The procedures that regulate the process of contracting specialized and basic services for incubators, as well as the purchase of materials and equipment, will depend on the level of autonomy that is delegated to the incubator manager.
  • Most incubators do not have this autonomy, and are run by the management entity, and the procedures for these actions depend the nature of this relationship.
  • In general, the incubator’s administration department should detect the needs of the incubator (and the incubated enterprises) and forward an application to the management entity, requesting it to undertake the purchases, contract the services, etc., with the incubator responsible only for the administration of the services rendered.
  • One example of procedure is shown in the flowchart:

Responsible Parties

Incubator managers and staff

Indicators

  • Fast service
  • Assessment of incubator infrastructure
  • Service by support staff
  • Organization
  • Assessment of services rendered by the incubator

Results

The services are made available quickly and effectively, meeting the needs of the incubated enterprises.

Consultants and Advisers

Objectives

This Guideline sets out approaches for incubators working with consultants and advisors to benefit incubated companies.

During the business development and consolidation stages, incubated companies require a range of support measures to improve their performance. It is the incubator’s responsibility to provide the tenant companies with a board of specialists in management and other fields, who are able to guide the entrepreneurs in growing their business. The consulting services offered to incubated companies need to be done with the objective of analyzing the needs of the companies, identifying solutions and recommending measures to be taken.

However, to maintain a permanent board of specialists can be too expensive for incubators, since the knowledge fields required are numerous and diverse. A good option is to establish a network of partnerships with professionals from different work areas.

This external professionals network, if well managed, can assure the entrepreneurs of high quality guidance at low costs to the incubator, as some of these professionals are likely to be willing to work as volunteers. The network could be divided into three main categories: consultants, mentors and advisers.

Consultants are specialists in technical and managerial matters, who help the incubator’s manager in the selection as well as in the monitoring of the tenant companies. They also advise and guide the entrepreneurs in strategies and in business management, according to their expertise. The most common areas are marketing, finance, accountancy and strategic and legal planning. However, other activities such as international commerce, technological management, and intellectual property, may required by some enterprises according to their development stage.

A mentoring group in an incubator is generally formed by successful entrepreneurs with valuable experience, and even by graduated companies of the same incubator that wish to share their experience with new entrepreneurs. These mentors are volunteers who provide their services for free, so the mentors offer great additional value to incubated companies. There could be a mentor for each client company, as well as a mentor for a group of incubated companies. The number and mix of mentors will depend on the capacity of the business incubator to attract and engage a reasonable number of successful entrepreneurs as volunteers.

The advisers are also experienced business professionals willing to provide guidance and support to the entrepreneurs. Many enterprises in the beginning of their activities lack an efficient Board of Directors. Thus, the role of these advisers is to act as a temporary council for the companies until a formal Board of Directors is formed (Wolfe, 2000).

In short, there is an increasing demand for consulting services by those who are determined to improve their competitive capacity. However, just as in any other activity, incubator managers must be careful when forming a network of consultants to ensure that this effort will bring concrete and positive results for the company.

Key Issues

The important stages in the establishment of a professionals network (consultants, advisers and mentoring group) are:

  1. Identification of the enterprises’ needs
  2. Identification and selection of consultants
  3. Identification of successful entrepreneurs willing to contribute to the work of the incubator (may be achieved by consulting entrepreneurs’ associations, etc.)
  4. Establishment of contacts and making the partnerships formal
  5. Establishing rules and criteria for the development of the services, such as deadlines, quality, values.

Responsible Parties

  • Incubator Managers and Board of Directors

Indicators

  • Index of enterprises’ satisfaction in relation to the consultancy services
  • Number of enterprises with defined managerial processes
  • Consolidated boards including external professionals

Results

  • Efficient board of consultants and mentoring group
  • Enterprises with high technical and managerial performance

 

Module 7: Infrastructure and Facilities

 

Physical Infrastructure

Objectives

During implementation of an incubator, those managing the institution have to cope with the challenges caused by the building in which it is sited. A business incubator is a program rather than just a building, however, constructing or refurbishing the right building plays an important role in the incubator’s daily operations and services.

According to the European Commission – in their Final Report Benchmarking of Business Incubators (2002), “the provision of workspace is central to the incubator model. Standard good practices now exist with regard to the most appropriate configuration of incubator space”.

Based on the type of company to be incubated, the building characteristics of the incubator may vary in terms of the size of the workspace and services offered. To help determine the size of the incubator structure, try to identify the profile of the companies that will be incubated and attempt to identify the infrastructure they need. See (iDISC Paper Incubator Infrastructure and Services).

Once the targeted market niche has been identified, a key step is to visit already operating incubators with similar characteristics to those of the project in mind. These visits give the advantage of learning from the experience of other incubators in order and avoiding any problems they may have had. This helps to:

  • Determine the size of the incubator
  • Establish the architecture of the incubator workspaces
  • Find out how many workspaces there are
  • Work out the size of each workspace
  • Decide on the basic infrastructure (telephone outlet, Internet connection outlet, water outlet, electric outlets, etc.)

The next step is planning the operations of the incubator, particularly the services provided. This should not only indicate the facilities considered ideal but importantly those that can feasibly be made available by the incubator.

Rice & Matthews in Growing New Ventures, Creating New Jobs (1995) emphasize: “the right building can provide the basis for the financial self-sustainability of the incubator and an environment in which the entrepreneurs and incubator staff can work together to grow new businesses. The wrong building can lead to failure – and wrong buildings are one reason incubators have not met expectations”. They also suggest a set of questions that can be of help when choosing the right facility:

  • Does it meet the size requirements of the financial model to enable the incubator to achieve self-sustainability?
  • Does it require minimal renovation?
  • Are there any environmental hazards that will come back to preoccupy the incubator later?
  • Can the facility be easily maintained?
  • How much will it cost to operate the facility?
  • Are the acquisition terms favorable or will the long-term costs cripple the incubator?
  • Can walls be moved and spaces reconfigured as companies grow?
  • Are there enough common areas that can be shared, for example: conference rooms, a library, a kitchen and a business service center?
  • Is the incubator building and surrounding area safe/secure so that entrepreneurs can work day or night?
  • Is there adequate parking?

 

Key Issues

  • Renovation/Construction: there are advantages and disadvantages in choosing to adjust a building to the needs of the incubator or constructing a building specifically for the project. Sometimes refurbishing an unsuitable building is more expensive than the cost of acquiring a suitable one. Independently of whether the incubator building is built or adapted; the core aim is to create an atmosphere favorable to the development of business.
  • Size: What should the size of the incubator be? The decision about the ideal size of the incubator is essential to ensure its independence from external resources and its further self-sustainability. Sometimes a small building can make the incubator unfeasible, since costs could be high and there will be little to attract public and private investments. Disadvantages can also be found in large buildings, since a low occupancy rate could be viewed as a sign of project failure. The right incubator size is a challenge that a well developed business plan can help overcome.
  • Surrounding Areas: the location of the building is important. The area surrounding the incubator must be assessed for transport facilities, parking space, the existence of postal and banking services and even the right type of neighborhood to avoid future problems.
  • Companies/Incubator Interaction: One of the useful benefits offered to incubated companies is the opportunity for contacts with other businesses. Interaction among different companies and with the incubator management team results in an enriching learning process.

Responsible Parties

  • Party responsible for managing the incubator and the architect

Indicators

  • Satisfaction rate of companies towards infrastructure and services

Results

  • Self-sustainability of the incubator through fees charged for the use of infrastructure and services provided.
  • Rise of capacity to attract entrepreneurs to the incubator.

 

Module 8: Manage an Incubator

 

The Workshop Methodology in the Social Incubation of Communities, by Genesis Institute, Brazil

Objectives

The Social Incubator of Communities aims to give assistance to low income communities with the objective of achieving acceptable levels of growth and developing economic, social, cultural and environmental aspects. This is possible to attain by training entrepreneurs, by generating and improving a solid base of new ventures, and stimulating the development of new social technologies.

In this perspective, the project "Media ICT", conceived by the Genesis Institute of PUC-Rio, was launched in 2005 in the community of Vila Canoas (São Conrado, Rio de Janeiro) with the objective of creating solid enterprises that use Information and Communication Technologies (ICTs) through the application of the Local Development and the Genesis Workshops methodologies.

Key Issues

  • Local Development: this methodology consists of a survey on socioeconomic, historical and cultural aspects of the community together with a survey on the community’s development potential by identifying internal and external networks, local leaders and potential entrepreneurs. The main objective is to promote an entrepreneurial culture, stimulate pro-activity and, consequently, achieve local development.
  • Genesis Workshops: they aim at helping local entrepreneurs in popular communities improve their productive processes, through the planning and organization of their enterprises. This process is performed through the integration of academic and local knowledge. Intern trainees and professional people related to the business sector help entrepreneurs by adding value to the process and making possible the growth of their initiatives using the entrepreneurs’ knowledge. Local knowledge and  identity are the basis to generate sustainability and to integrate the enterprise with the productive chain.

The workshops that have been conducted are:

- Memory and History Workshop

- Tourism Workshop

- Environment Workshop

- Media and Communication Workshop

The most important point of this methodology is the possibility of integration between university knowledge and the local knowledge produced by community members over time.

Results and indicators

  • The first enterprise in the segment of ICTs appeared as a result of the Media and Communication workshop. The lack of community mass media that may facilitate communication between the communities, together with the need and the desire to make a new venture gave origin to the "Fala Canoa!" newspaper. This was the first initiative in the creation of a medium of information and communication. The first edition of the printed newspaper was launched in August of 2005.
  • After the media group’s work, other people in the area showed interest in developing media projects. That way, Genesis Entrepreneurship Teaching Coordination group, conducted Entrepreneurship Workshops in the community. The Workshops were conducted during period of three months, with the objective of preparing a group of 18 people in Vila Canoas’ community in basic business. The program considered the following: Entrepreneurial Attitude, Professional Life, Planning and Creativity and Innovation.
  • The MEDIA ICT project identified also, ten other opportunities of business in the community. These  promising enterprises would be able to form a value chain in the region, stimulating the tourism and the local economy.

 The opportunities which were detected were the following:

- Handcrafted Sewings

- Gastronomy

- Domiciliary Lodging

- Computers Maintenance

- Recycled Material Furniture

- Garden Design and Garden Automation

- Decorative Products made out of Garbage

- Recycled-Paper Products

- Redesign of Upholstered Products

- Decorative Candles

Based on the opportunities identified, the following ventures were developed:

1. Mass Community Media “Fala Canoa!

2. Favela Receptiva: initiative of Bed and Breakfast

3. Decorative Candles Enterprise

4. Artisan Sewings Enterprise

5. Initiative of Newspaper and Magazines Recycling Art

Success Factors in Enterprises Incubated by INGENIO

Objectives

Between December 2004 and March 2005 an evaluation of the enterprises incubated by INGENIO has been made, the objective was to determinate the main success factors.

Methodology

The methodology utilized in this research was proposed by Carlsson et al. (2002) and includes the analysis of different variables related with:

  • Selective and strategic capacity
  • Functional ability
  • Organizational structure
  • Flexibility

The information was obtained from a survey to entrepreneurs; this survey was complemented with personal interviews with responsible of the incubated project and with meetings with the incubator’s board.

After the analysis of the survey and interviews, an analysis of the enterprises was made, this analysis considered:

  • Objectives
  • Business Plan accomplishment
  • Reached results

The following step was a factorial analysis to identify variables and factors that explain the correlation between the variables and regular characteristics which were observed not only in the projects without success, but also in the graduated projects.   

Results

The results derived in the following conclusions:

  1. The projects which included in their initial phase an important number of technical staff were less prone to fail.
  2. There was a negative correlation between the age of the entrepreneur and the probability to fail.
  3. The management capacity and the labor experience of the board were crucial factors shared between successful projects.
  4. The projects that exhibited more deviation from the original business plan (in time and objectives established) had more probability to fail.
  5. The correlation between the enterprises that failed and the quality of the services that they received was highly negative.
  6. The economic success indexes showed positive correlation with the number of technicians at the beginning and at the end of the process, with the number of people whit expertise and graduate degree and with the time dedicated by them in the project.
  7. The possibility to obtain a patent has a positive correlation with the age of the entrepreneurs and the initial capital.  

 

Module 9: Financial Management

 

Incubator Financial Management

Overview

Like all enterprises, an incubator has revenues and expenses. Consequently, financial management consists of planning, overseeing and controlling the incubator funds, whether they are brought in through services or provided by partners and investors. Mechanisms need to be developed that allow the incubator manager to know accurately the amounts available, the needs and the investment capacity. Additionally, financial management should focus on bringing in new sources of funds for the incubator.

Stages/Critical Issues

For good financial management, it is necessary to develop and use documents for incoming and outgoing funds, in order to identify critical points and investment requirements. Listed below are some important stages for the effective administration of the incubator funds:

  1. Preparation of Investment Spreadsheet. This is designed to bring together information on the uses and disbursement periods of the funds for investments needed to establish or develop the incubator. (for further details, please see the Guidelines Feasibility Study, Resources Identification, Planning the Incubator and Business Plan). In order to oversee the funds required during the various phases of the incubator program, the investments should be separated into:
    1. Pre-operating expenditures: disbursements prior to the actual inauguration of the incubator (shown in the initial Business Plan)
    2. Physical facilities: disbursements required for the adaptation, construction and conservation of the physical facilities of the incubator;
    3. Equipment: disbursements required for the purchase of equipment to start up and continue the operating activities of the incubator;
    4. General expenditures: as this can involve capital investments, this item can include the initial expenditures that may be required for the implementation and inauguration of the incubator;
    5. Reserves: these are the amounts set aside to build up cash reserves (See attachment Cash Flow Related Table).
  2. Preparation of Costs and Expenditures Spreadsheet. This spreadsheet provides information on the uses and disbursement periods, separated into Costs and Expenditures. In order to prepare it, two principles should be taken under consideration:
    1. Core business: the main activities of the enterprise, where cuts would curb its development;
    2. Level of involvement of the disbursement with the activity of the enterprise (See attachment Cash Flow Related Table)
    3. Preparation of Revenues Spreadsheet. This spreadsheet should include all revenues brought in by the incubator, including its own income (brought in through services rendered by the incubator, fees, etc.) and from third parties (provided by backer institutions, development agencies and investors).

Forms: Revenue Spreadsheet

 

  1. Incubator Cash Flow. The Cash Flow is an ancillary document that is crucial to the successful financial administration of the enterprise. This document should be linked to the budget plan in order to monitor the financial performance of the enterprise.

     

The cash flow concept is quite simple. The activities of the business result in income or expenditures. The projection of these variables onto future cash on hand generates the cash flow or financial cycle of the enterprise.

Despite the simplicity of the cash flow concept, its application to a business may result in some difficulties, arising from the following aspects:

  • In a new business, it is hard to forecast the income and expenditures resulting from some activities;
  • It is hard to foresee future cash income and expenditure amounts, due to the uncertainties of the projected scenario; and
  • It is hard to quantify the impact on the cash income and expenditures due to the business risks.

The preparation of an incubator cash flow table will allow its manager to keep a close watch on its bottom line, with a high level of certainty, in order to plan ahead for covering investment requirements and the need to bring in fresh funding.

Hints: Cash flow analysis allows the incubator to:

  • Be fully aware of the availability or shortage of funds, allowing it to:
    • Inject funds / make short-term financial investments.
    • Postpone commitments.
    • Bring projects forward.
    • Draw up alternative strategies.
    • Prepare the investment and operating budgets.Monitor the budget and consequently keep a sharp eye on progress towards financial sustainability.
  • Monitor the accounts payable and accounts receivable on a regular basis, establishing an efficient dual control system.
  • Develop a strategic approach for controlling bank balances and reserves and investing funds.
  • Require all operational areas to be familiar with their activities and needs. (See Attachment Cash Flow Related Table)

Responsible Parties

Management and technical staff of the incubator.

Indicators and Goals

  • Higher incubator revenues and savings through controlling expenditures.
  • Level of self-sustainability: percentile value of its own revenues in relation to the incubator’s total volume of revenues.
  • Cost for square meter: is the minimum amount to be charged by the enterprise for the square meter of occupied area, in order to have the incubator generating the revenue required for coping with its expenses.
  • Incubator’s Capacity for Generating Taxes (CG2I): stands for how much the incubators generate in taxes for each monetary unit invested in the incubator.
  • Taxes Generation by the Graduated Enterprises (CGIG): stands for the total amount of taxes annually paid by the graduated enterprises.
  • Cost of Employment Generation (CGE): stands for the amount required for the incubated enterprises to create a vacancy.

Results

Effective oversight of the financial flow of the incubator, identifying needs and sources for bringing in funds.

 

Module 10: Administration

 

Contracting Outsourced Services

Objectives

Outsourcing is the transfer to an external service provider of the day-to-day operation and management of a business process. The customer receives a service that performs a distinct function that fits into their overall business operations. Many reasons exist to engage in outsourcing, it often makes good business sense and is more cost effective to outsource some services. When to outsource will depend on the severity of existing problems or challenges, as well as the availability of a solution.

This Guideline outlines the process of seeking, selecting and contracting services for the physical infrastructure of the incubator. In order for this process to take place properly, it is essential that the incubator manager has a database listing qualified providers of specialized services.

Responsible Parties

Incubator managers

Indicators

  • Compliance with performance deadlines
  • Quality of service rendered
  • Technical staff
  • Service warranty
  • Customer care
  • After-sale services

Results

The service-providers listing should always be kept up to date, streamlining the process of contracting any service.

 

Module 11: Human Resources

 

Human Resources Management

Objectives

  • This Guideline makes the case for an incubator to use high quality human resource management systems.
  • The management of human resources covers employee (staff member) recruitment and development. This is a complex area that is very important in the incubator, due to the need to cover costs, to make the most of resources, and circulate information quickly.
  • Incubators with a good people management systems will often be better able to reach their strategic aims. Human resources management plays an ever more essential role in helping achieve these aims.
  • New business approaches are demanding new ways to involve people. Speed, flexibility and innovation can only be achieved when good employee management supports the incubator’s business objectives. Incubators (and incubated companies) that understand this will have a competitive advantage.
  • Incubator managers must help organizations to define their strategies and prepare specific programs to develop the people who work for them (human capital). This will help to attract, keep and support the employees needed to carry out their plans. Some motivational tools are also necessary in order to keep workers stimulated. Managers must understand the key working processes and create the environments that will make staff members become more efficient, productive and happy to work for an organization.

Incubators must have ways of assessing the people it employs, including their work performance as well as any areas of need (eg. training).

Key Issues

  • Employee hiring process
  • Professional growth and development
  • Motivational tools

Responsible Parties

  • Incubator manager

Indicators

  • Low employee turnover
  • Long-term employment / employee satisfaction

Results

Use a specific growth and development process and well-defined motivation tools for the candidates, for each one of the positions available within the incubator.

Motivational Instruments

Objectives

  • Motivational instruments are vital to the proper functioning of incubators, because they foster improvement in the working environment. However, human motivation is sometimes seen as a “magic formula” that can solve most organizational problems, which has led to widespread confusion. This Guideline outlines an appropriate role for motivational activities in incubator management and offers some example programs.
  • A major difficulty is that there is no one strategy that will ensure that everyone’s morale (happiness) will be high. Research has found that motivational tools are not universal and common to achievement in all fields of work. We must take human differences into account, whether that seems convenient from an administrative viewpoint or not.
  • Although motivational instruments are of relevance to improving the incubator, care should be taken when using them. There are a wide range of techniques and not all of them can be relied on for delivering the promised results. Therefore, special advice is the best option for those seeking motivational solutions.

Some Motivational Instruments

Training programs – training programs are aimed mainly at improving employees’ competencies and knowledge, which will allow the incubator to achieve its objectives and establish new and more ambitious ones. From the employees’ viewpoint, training programs are the means for professional progress, and training should encourage an employee’s self-development.

The training professional, in turn, should make employees aware of the importance of self-development and the pursuit of continuing education. The mission of training can be described as: integrating new employees; providing them with knowledge; and developing the behavior/skills needed for good performance of one’s job.

Aims:

  • Comply with employees’ requests for improving knowledge needed to achieve their objectives.
  • Comply with managers’ requests for updating the skills and knowledge of their staff.
  • Comply with requests from the Director(s) of the incubator that all employees collaborate to achieve new goals.
  • Assist in capacity building in specific areas for existing professionals or for new professionals who are joining the incubator.

Establishment of a Career Plan (jobs and salaries) In the Career Plan, all professionals and their job positions are listed and remuneration is allocated by level of responsibility, generating salaries suited to each individual’s role within the organization. The major incentive for incubators to develop a Career Plan is the pressing need to organize and professionalize incubators, and structuring incubators for growth.

Aims:

  • Better use of personnel costs;
  • Fewer legal problems;
  • Avoidance of employee dissatisfaction.

Establishment of an incentive and benefits program – flexible benefits packages are seen as a valuable resource for attracting and keeping talented employees, because it gives them the freedom to set up a benefits package that will meet their own individual needs.

Aims:

  • Maintain human resources satisfaction and motivation;
  • Help improve the performance of employees.

Establishment of an internal communication program – Internal communication, also known as “endomarketing,” is one of the most important “products” of the Human Resources area. It guarantees that the incubator has employees that fully identify with the mission and vision of the organization – and consequently are inclined to help it achieve its objectives, at a profit and with social responsibility.

In order for the external market to respond positively, the incubator must guarantee that its internal market – collaborators / employees – is capable of fulfilling the promises made to clients. The internal effort for this to happen depends on various factors, such as stimulating tasks and a motivational work environment.

Aims:

  • Encourage collaborators to respond favorably to the organization’s requirements in terms of absolute commitment to customer satisfaction

Responsible Parties

Incubator managers

Process for Hiring Employees

Objectives

This Guideline maps out important aspects in hiring incubator staff. The objective of the selection process is to find individuals capable of performing with creativity, initiative, and autonomy, who can work as part of a team in pursuit of excellence in customer service. The quality and potential of the individuals need to be identified in order to meet the needs of the business. Three elements of the hiring process that are complex and constantly changing are: the candidate, the company, and the market.

Key Issues

One example of a hiring process is shown the flowchart:

Important Information about the Hiring Process

Interview – Increasingly, companies are choosing to use a formal, objective structure for the interview process. This allows all candidates an equal opportunity to present their abilities and skills in line with the specific requirements of the available position. The resume is commonly used as a starting point for the interview, taking five or ten minutes to discuss its relevant parts.

Competency-based interviews focus on specific abilities or behaviors, i.e. those required for success in a given role. The interviewer will assess each competency for a requisite period of time (usually 20 minutes), and ask a standard set of focused questions. The objective is to find specific evidence that the candidate meets the particular competency being assessed. Using detailed examples, the interviewer will ask a series of questions, sounding out the candidate. As a rule, competency-based interviews last about 2 hours. They are fundamental to the recruitment process and are proving to be highly effective. See attachment Practical Tips: How to Conduct an Interview.

Formulating the interview guidelines – Before conducting focused interviews, it is important to define the ideal competencies for each job position, in order to successfully fill the position in keeping with the overall objectives of the incubator. The guidelines are formulated using questions, based on concrete examples from the candidates’ lives, to determine if their history of decision-making and dealing with critical situations is suited to the requirements of the position. See attachment Interview Script.

Competency-based hiring – Competency-based interviews for selecting professionals provide a real definition of the profile of the candidate best suited for the job and the company. They debunk, for example, hiring based on elements previously considered a guarantee of success, such as only recruiting professionals that graduate from the best schools or those coming from large transnational companies.

Where you acquired the knowledge doesn’t matter, the important thing is that you have it – Nowadays, knowledge cannot be presumed solely from the presentation of credentials that suggest it. Titles are no guarantee of knowledge, or of experience, but rather demonstrate the result of a learning process that qualifies a person as a professional and not as an expert.

People are usually exposed to new theories and models during learning periods, and their learning is usually assessed with a certain degree of stringency, but there is no guarantee of how much knowledge was absorbed from that training. A grade score will show that a requirement was met satisfactorily, with proof that the person received the information, but the extent and usefulness of that information is not known. In selecting talent, depth and breadth of knowledge rather than academic level should be assessed.

The assessment of someone’s knowledge should not be restricted to documents. For example, if they speak another language it should not be supposed it is because he/she has a Diploma stating he/she is bi-lingual. Knowledge is immeasurable and entirely available, especially so in a globalized world where responsible access to the Internet can open a vast array of opportunities, to cite one example. Knowledge today should be measured by the breadth, the range and the impact it can and should have on organizations.

Based on this premise, those responsible for selection should establish a process for improvement and certification of knowledgeable individuals on an empirical and not a formal basis, guiding them to develop their competencies and make use of their potential.

Obviously, not everyone who possesses knowledge will put it into practice or use it to benefit the organization. Depending on the position the individual will occupy in the company, just having the knowledge will not be sufficient for him/her to be recruited.

The value is not in what you know, but in what you do with what you know – As stated, it is possible to have knowledge and still be a useless part of the organization if the knowledge is not put into practice. When selecting talent the candidate’s creative capacity should be investigated. Based on the premise that “The professional is defined by what he does, not what he says he knows,” his/her transformational element should also be assessed. It is in practice that one can measure depth of knowledge, as demonstrated by transforming something abstract, eg. an idea, into something concrete that can be measured and quantified.

The individual should demonstrate an ability to transform his/her environment, crossing the barrier requiring him/her to be “efficacious and efficient” to become one who is “effective” and able to transform theory into practice. It is possible to observe other elements in individuals’ competencies, since from their roles as generators of ideas and solutions based on their knowledge, they become “executors” of the program. At this point their skill as an active leader may be demonstrated.

What one does with knowledge should add value – Based on the above two points, it can be seen that today the search for candidates is quite different from those that were conducted traditionally. While in the past it was important to have a document certifying the individual as knowledgeable, nowadays the important thing is the product of that knowledge. It is at this point that “generating value” makes the difference between what one knows and what one does with what one knows.

Retaining knowledge and putting it into practice in response to an immediate situation has value, but it is not sufficient to show that the individual possesses the talent required by the incubator. Value should be added in any position within the incubator in a constant and sustainable manner; otherwise, the product of knowledge is lost in time, which will erode the quality of the organization’s intellectual capital. The search should be for talented individuals capable of adding value to incubator management, through their ability to acquire and transfer knowledge; and those who are capable of improving the surrounding environment. The positive impact that the person has upon the incubator adds to the energy needed to achieve its goals and objectives with quality.

These three new paradigms do not suggest ignoring academic titles, since that would be denying the importance of the efforts and motivation of many professionals. However, it does question placing an emphasis on it over what really matters to the organization. Companies do not prosper by the simple act of hiring a candidate holding degrees in different fields, but rather through the real results that person achieves. These results add value, and show that the person has strategic impact and the operative abilities that will benefit the organization.

Responsible Parties

  • Manager of the Incubator and Board of Directors

Indicators

  • Low rate of employee turnover
  • Increase satisfaction rate of companies

Results

  • Putting the right person in the right position
  • A well-executed selection process that hires staff tailored to the daily activities of the incubator

Professional Growth and Development

Objectives

This Guideline defines programs for personal development and a methodology for evaluating performance. It is necessary to identify training and capacity building needs, and to have a defined competency base in order to prepare training sessions and systems for monitoring and evaluating employees.

Key Issues

  • Conduct a survey of incubator employees’ competencies and their knowledge for the development of relevant programs
  • Seek to update these competencies periodically with the latest information that exists in the market

What is competency? A competency is defined as a behavior or group of behaviors that lead to excellent performance within a particular work context. Competency means knowledge applied and directed towards improving the performance of an individual, a group or an organization. It is a set of habits or a personal characteristic that leads to a more effective performance, clearly adding economic value to the person’s efforts in a job. Competencies specify precisely how individuals can align their activities with the organization’s key strategies.

Important points:

  • Provide a feedback mechanism that gives those being assessed a clear and precise idea of what is expected of them. It should tell them how they are performing in their functions or how to improve in areas where they haven’t yet achieved the expected performance;
  • Keep a permanent, reliable and cumulative record of data on performance; and
  • Provide the organization’s top management with tools for evaluation that allow them to select, on a factual basis, those who have the best potential to perform other functions involving greater responsibilities in future.

What can go wrong?

  • Dissatisfaction can occur among those being evaluated – caused by a perception of injustice in the “rewards and punishments” system being used, rather than them accepting a real evaluation of performance and potential.
  • Lack of objectivity – no objectivity can exist if the evaluation process does not have a solid statistical basis and if variations are not taken into account.
  • Bureaucratic excess – caused by too much emphasis on a process, which just because it exists does not necessarily mean it is effective.
  • Ignoring clients and client-suppliers – caused by the mistaken notion that the external client is only the stakeholder able to judge staff performance. An appropriate evaluation system does much more and, as it constitutes an instrument for promoting personal and professional growth, it should take into account the needs of the ‘internal clients’ – ie the people that make up the incubator organization.

Responsible Parties

Incubator Managers

Indicators

Increase the level of motivation and knowledge retention of the incubator’s staff, and create a system of evaluation and recognition.

Results

Knowledge of training and capacity building needs, with a competency base established in order to prepare training sessions and systems for monitoring and evaluating employees.

 

Module 12: Operations

 

Planning, Monitoring and Assessment Management

Objectives

This Guideline outlines how to introduce a systematic process of planning, monitoring and assessment into incubator management.

The planning, monitoring and assessment process consists of drawing up the strategic and Business Plans for the incubator, as well as reviewing and updating the outcomes. This is a crucial part of the strategic management process, since it allows the incubator to measure its achievements continuously, and redefine its course when necessary.

It is vital for the continuous improvement of the incubator and its services and products that its strategies are continuously redefined in line with market trends and shifts, as well as to meet the changing expectations of stakeholders and tenants.

Key Issues

  1. Preparation of the incubator’s strategic and business plans: As for enterprises, the main tools of the incubator are the Feasibility Study and Business Plan. The Feasibility Study is applicable when the incubator is being established and set up. The Business Plan is a tool for ongoing use, as it guides the strategic actions of the incubator (See Guideline Planning a Business Incubator – Business Plan).
  2. Updating the Business Plan: As the main management tool, the Business Plan must be constantly monitored in order to be effective, so that updates can be introduced rapidly, adapting it to market demands and ensuring that the incubator offers competitive services to the enterprises. An incubator’s situation may change after it comes into effective operation. Consequently, plans must be updated based on the needs and interests of the clients (incubated enterprises). This updating should be undertaken regularly, if possible every four or six months. At the very least, the Business Plan should be updated annually (See attachment (See Guideline Planning a Business Incubator – Business Plan).
  3. Monitoring and Assessment: Once the incubator strategies and actions are defined, it is necessary to develop operating procedures that will allow the plan to be monitored, assessed, and controlled. It is recommended that percentage standards be established to compare actual achievements with forecasts, on a regular (monthly) basis.

Performance indicators should be developed as part of the assessment and control system. When compared to established standards, these should indicate whether activities are being properly implemented. Stakeholders should be consulted to decide which indicators should be adopted in order to meet expectations. This is not always an easy process, as incubators normally have a relatively large number of backers, and the incubator may have to define its own indicators.

  • Hint: A well-managed incubator can present its accomplishments to its partners and the community transparently, through quantitative and qualitative data.

Responsible Parties

Management and technical staff of the incubator

Indicators

To have a properly developed Business Plan, keeping paste with market trends.

Results

Knowledge of the incubator’s performance and the need for altering its short and long term strategies and objectives.

Strategic Management

Objectives

This Guideline highlights the importance of Strategic Management to incubators.

Strategic Management is a globally-understood process that promotes business effectiveness. It integrates strategic planning (and its focus on efficiency) with other management systems, while at the same time engaging all line managers in strategic development and implementation. Strategic Management is an ongoing decision-making process that shapes the performance of the organization, taking into account the internal and external strengths, weaknesses, opportunities and threats.

According to the European Commission in their Final Report Benchmarking of Business Incubators (2002) “The quality of the management team, and adoption of a business-like approach to running incubators and monitoring clients, is crucial to performance and best practices in this field are becoming standardized” .

The NBIA Training Institute lists 10 principles that incubators should have in terms of quality management:

  1. Concentrate on the development or collection of support services;
  2. Value the growth and development of individual companies beyond their ability to pay rent;
  3. Be judged on your ability to create new business or help nurture emerging companies, not on the number of jobs directly created.
  4. Be structured so that the property element takes a secondary position relative to programs since serving businesses is the core of quality incubation programs.
  5. Be viewed as one possible component of an integrated economic development plan and be designed to reflect the strengths and weaknesses of the region;
  6. Be structured so that program outcomes match both the short and long-term benefits required by sponsors;
  7. Work from a clear mission statement with quantifiable goals and objectives tied to an evaluation process which rewards quality performance;
  8. Be run by highly skilled, street-smart managers who are willing to wear a large number of hats;
  9. Recognize the inevitable tension faced by the manager who functions as both advocate for the companies and landlord of a facility;
  10. Set up and run operational policies and systems in a business-like fashion.

Source: Forging the incubator – How to Design and Implement a Feasibility Study for a Business Incubation Program, 1993.

Key Issues

The main strategic management tool is the planning of the incubator, which includes the Business Plan. The incubator should be managed as a business, just like the enterprises that it supports. Consequently, just like any successful business, the incubator should have its own planning (the planning and structuring stages of the Business Plan are described in Area 2: Modeling and Planning the ICT Enabled Business Incubator). Strategic management means knowledge of the business as a whole. For incubators, this strategic management process can be divided into the following main topics, each of which has an appropriate Guidelines:

  1. Planning, Monitoring and Assessment
  2. Marketing, Management and Public Relations
  3. Financial Management
  4. Raising Funds
  5. Operations/Management
    1. Contracting Outsourced Services
    2. Procurement
    3. Basic Support Offered to Incubated Enterprises
  6. Human Resources Management
    1. Process for Hiring Employees
    2. Personal Growth and Development Process
    3. Motivational Instruments

Responsible Parties

Incubator managers

Indicators

  • Definition of the management system of the incubator
  • Definition of the performance assessment model

Results

Strategic Vision of the incubator and management focused on results, performance and efficacy.

Managing for Quality

Objectives

This Guideline provides a pathway for incubators to develop and benefit from quality management systems.

What is quality? A fundamental definition of quality is conformance to requirements. The term quality means different things to different people. J.M Juran (1988) states "Quality is fitness for use” and Gitlow et al (1989) states “Quality includes the expectation that a product or service exceed the expectations of the customer”.

According to the Vanderbilt University “the field of quality has its roots in agriculture”. Statistical research conducted by R.A Fischer in Britain early this century inspired W. Edward Deming to devote his life to the teaching and improvement of quality methods. After World War II Deming couldn’t find any interest in quality methodologies in the U.S., so he went to Japan where he found a receptive audience for his ideas. The Japanese fully embraced quality ideas and methodologies and commenced to integrate the concepts into their industrial base.

The assurance of quality within an incubator is not easy, since incubator managers are not only under tremendous pressure to adapt and/or enlarge support services but also because quality can be very subjective. An incubator manager’s idea of what constitutes high quality support services is not necessarily the same for other managers in another state, another country or even in the same incubator. Also, their perceptions of quality may be quite different from that of the client companies. To assure high quality within the incubator it is important to have indicators to measure quality provided and received. (See Guideline on Incubator Performance Evaluation)

The implementation of a quality assurance system could include Total Quality Management (TQM), Total Quality Control (TQC), or any other system. Any type of quality program aims to improve operating processes, products and services. They all comprise a series of planned activities that add value to the delivery of a given product/service, reducing the risk of flaws. Total Quality must be integrated with the overall mission, objectives and plans of the organization.

Adoption of internal standards of quality is recommended. According to the US Small Business Administration: “To gain an ISO 9000 registration, a company must meet certain standards for quality assurance in its operations, as certified by a third-party registration agency. The quality assurance system, not the product or service itself, achieves the registration. Any ISO 9000 registration says to customers: This company has a system in place to ensure that any product or service it sells will consistently meet international standards of quality. Companies that gain ISO 9000 registration often benefit from reduced operating costs and increased demand for their products or services. There is no doubt that any organization that adopts international standards gains competitive advantage over its competitors.

One of the ISO 9000 certified incubators in Brazil is the INATEL Incubator, a 12 year old technology based incubator located in Santa Rita do Sapucaí in the state of Minas Gerais. According to Mr. Rogério Abranches Silva, Assistant Coordinator of INATEL, in spite of all the work required and costs involved in the registration process, every incubator manager should pursue the establishment of a quality culture in the workplace. “After 12 months of hard work a professional upgrade was felt within the incubator. Having every process and procedure standardized helped us reduce the costs of doing things wrong and put our management team in touch with our customers, processes and people.”

Key Issues

Client Satisfaction

Usually, a quality program only emphasizes the improvement of processes and procedures. However, Total Quality means completely satisfied client companies on the full range of products and services they receive from the incubator. It is about pleasing your costumers, not only preventing annoyances. Quality assurance should focus both on customer satisfaction and on internal business processes and procedures. Therefore, to achieve a real balance in quality assurance, incubator managers should identify and measure client companies’ needs and link them with improvements. It is about balancing the amount of support services currently available and the way in which these support services are delivered.

Understanding Client Expectations –

Related to the measurement of client satisfaction is the evaluation of client expectations. When measuring client expectations incubator managers should take into consideration several issues like culture, prevailing social structures, existing competitive conditions, the local economic situation and legal and regulatory aspects. However, expectations are not easy to measure since there is a mixture of subjective and objective factors.

Usually, your client will face more difficulty evaluating a service rather than a product. The perception of quality of a provided service comes from the comparison made between their expectation of a service and what is provided.

Innovation –

Quality management and total client satisfaction are particularly important when an enterprise is able to innovate. Innovation in customer service demands creativity and knowing what would interest the client company. Incubator staff should always put their imagination to work, based on their understanding of human needs. Providing your client companies with what everyone else is providing will certainly not surprise anyone or make an innovative difference.

Most incubator products and services are linked to psychological needs. Evaluation of incubator activities should include evaluation of the psychological impact of its support services on client entrepreneurs.

Staff Involvement -

Quality management in service delivery recognizes that people are the most important resource, and that employees have knowledge and experience to contribute. All the incubator team, with no exceptions, should be involved when an incubator decides to implement a quality assurance program. Incubator managers should transform their staff into real entrepreneurs themselves, and should change patterns if their incubator still sees employees as mere “task executors”. Managers need to promote real employee empowerment, and be seen to value initiative and hard thinking to support your client companies, through interest, integration, creativity and dedication of the incubator staff. Decisions should be shared among the team, which leads more to collaborative leadership than management by hierarchy.

Responsible Parties

All incubator members

Indicators

  • Client companies’ level of satisfaction
  • Stakeholders’ level of satisfaction
  • Incubator growth and development

Results

  • Achievement of international standards of organizational excellence.
  • Improvement of operational processes, procedures and client satisfaction, reducing the risk of flaws.
  • Adopting international standards.

 

Module 13: Finance an Incubator

 

Financial Management

Objectives

This Guideline outlines why and how to introduce a structured system of financial management into incubator operations.

Like all enterprises, an incubator has revenues and expenses. Consequently, financial management consists of planning, overseeing and controlling the incubator funds, whether they are brought in through services or provided by partners and investors. Mechanisms need to be developed that allow the incubator manager to know accurately the amounts available, the needs and the investment capacity. Additionally, financial management should focus on bringing in new sources of funds for the incubator.

Key Issues

For good financial management, it is necessary to develop and use documents for incoming and outgoing funds, in order to identify critical points and investment requirements. Listed below are some important stages for the effective administration of the incubator funds:

  1. Preparation of Investment Spreadsheet. This is designed to bring together information on the uses and disbursement periods of the funds for investments needed to establish or develop the incubator. (for further details, please see the Guidelines Feasibility Study, Resources Identification, Planning the Incubator and Business Plan). In order to oversee the funds required during the various phases of the incubator program, the investments should be separated into:
    1. Pre-operating expenditures: disbursements prior to the actual inauguration of the incubator (shown in the initial Business Plan)
    2. Physical facilities: disbursements required for the adaptation, construction and conservation of the physical facilities of the incubator;
    3. Equipment: disbursements required for the purchase of equipment to start up and continue the operating activities of the incubator;
    4. General expenditures: as this can involve capital investments, this item can include the initial expenditures that may be required for the implementation and inauguration of the incubator;
    5. Reserves: these are the amounts set aside to build up cash reserves (See attachment Cash Flow Related Table).
  2. Preparation of Costs and Expenditures Spreadsheet. This spreadsheet provides information on the uses and disbursement periods, separated into Costs and Expenditures. In order to prepare it, two principles should be taken under consideration:
    1. Core business: the main activities of the enterprise, where cuts would curb its development;
    2. Level of involvement of the disbursement with the activity of the enterprise (See attachment Cash Flow Related Table)
  3. Preparation of Revenues Spreadsheet. This spreadsheet should include all revenues brought in by the incubator, including its own income (brought in through services rendered by the incubator, fees, etc.) and from third parties (provided by backer institutions, development agencies and investors).
    Forms: Revenue Spreadsheet
  4. Incubator Cash Flow. The Cash Flow is an ancillary document that is crucial to the successful financial administration of the enterprise. This document should be linked to the budget plan in order to monitor the financial performance of the enterprise.

    The cash flow concept is quite simple. The activities of the business result in income or expenditures. The projection of these variables onto future cash on hand generates the cash flow or financial cycle of the enterprise.

    Despite the simplicity of the cash flow concept, its application to a business may result in some difficulties, arising from the following aspects:

    • In a new business, it is hard to forecast the income and expenditures resulting from some activities;
    • It is hard to foresee future cash income and expenditure amounts, due to the uncertainties of the projected scenario; and
    • It is hard to quantify the impact on the cash income and expenditures due to the business risks.

    The preparation of an incubator cash flow table will allow its manager to keep a close watch on its bottom line, with a high level of certainty, in order to plan ahead for covering investment requirements and the need to bring in fresh funding.

    Hints: Cash flow analysis allows the incubator to:

    • Be fully aware of the availability or shortage of funds, allowing it to:
      • Inject funds / make short-term financial investments.
      • Postpone commitments.
      • Bring projects forward.
      • Draw up alternative strategies.
      • Prepare the investment and operating budgets.
    • Monitor the budget and consequently keep a sharp eye on progress towards financial sustainability.
    • Monitor the accounts payable and accounts receivable on a regular basis, establishing an efficient dual control system.
    • Develop a strategic approach for controlling bank balances and reserves and investing funds.
    • Require all operational areas to be familiar with their activities and needs. (See Attachment Cash Flow Related Table)

Responsible Parties

Management and technical staff of the incubator.

Indicators

  • Higher incubator revenues and savings through controlling expenditures.
  • Level of self-sustainability: percentile value of its own revenues in relation to the incubator’s total volume of revenues.
  • Cost for square meter: is the minimum amount to be charged by the enterprise for the square meter of occupied area, in order to have the incubator generating the revenue required for coping with its expenses.
  • Incubator’s Capacity for Generating Taxes (CG2I): stands for how much the incubators generate in taxes for each monetary unit invested in the incubator.
  • Taxes Generation by the Graduated Enterprises (CGIG): stands for the total amount of taxes annually paid by the graduated enterprises.
  • Cost of Employment Generation (CGE): stands for the amount required for the incubated enterprises to create a vacancy.

Results

Effective oversight of the financial flow of the incubator, identifying needs and sources for bringing in funds.

Raising Funds

Objectives

This Guideline outlines a clear and effective strategy for identifying and negotiating with entities that provide financing or investment funds that contribute to the development of the incubator or the tenant companies.

Key Issues

  • Potential Projects: Detailed analysis of the Incubator’s Business Plan and Strategic Plan, to identify the main elements that require funds and which might attract the interest of agencies involved in fund raising and financing. The result of this stage is a list of potential projects that could be the target of fund-raising.
    Responsible party: Incubator Director(s)
    (See attachment Table for Identifying Potential Projects)
  • Potential Partners: Identification of entities with the potential to sponsor, finance or invest in the project in question, outlining their objectives and form of operation, and a contact person. A survey should be carried out primarily through the Internet and through contacts with partners having experience in the relevant field.
  • Detailed Survey: on projects already supported, with the aim of identifying priorities and opportunities for raising funds by the incubator.
    Responsible party: Technical Team
    (See attachment Table for Identifying Potential Projects)
  • Analysis and Next Steps: Analysis of the survey information and decisions on the presentation of a proposal for funding.
    Responsible party: Director(s) of the Incubator and Technical Team
    (See attachment Table for Identifying Potential Projects)
  • Summary Proposal: Preparation of a summary proposal for funding the project, aimed at clearly establishing the project concept, principal benefits and requirements.
    Responsible party: Director(s) of the Incubator and Technical Team
  • First approach: Approach the supporting entity to establish first contact and define the negotiation process. This approach should be made by those responsible for the allocated project area, using potential strategic partners of the incubator to establish an appropriate channel of communication.
    Responsible party: Director(s) of the Incubator and Technical Team
  • Preparation of the Proposal: In the event of a successful first contact, with confirmation of potential support, proceed to the preparation stage of a detailed proposal, in accordance with the procedures established by the supporting entity.
  • Analysis Process: Having completed the Proposal, the process of analysis, negotiation and approval begins. The time required for this stage will depend upon the supporting entity’s approval process, their attention and availability.
  • Contract Phase: Clear definitions of responsibilities, timetables, issues relating to industrial property, financial disbursements, etc. are required for the project contract.
  • Execution: Following the contract phase is the execution phase, which encompasses monitoring, follow-up and evaluation on the part of the supporting entity.

Responsible Parties

Incubator Director(s), Technical Team and Strategic Partners

Indicators

  • “One-Page” fund-raising proposals approved and presented
  • Volume of funds obtained
  • Investments made to carry out the fund-raising actions

Results

  • Funds raised within workable time frames
  • Areas of investment of interest to the incubator, on acceptable financial terms.

Venture Capital and Financial Institutions

Objectives

This Guideline discusses the role that venture capital and financial institutions can play in enterprise development.

At some time most companies come face-to-face with a situation in which they must expand at a rate that is greater than their financing capacity can support. This is a crucial stage in which the company must expand to move to a new level or face the threat of a degenerative process of sluggish growth that will eventually lead to its demise. The discovery that a company’s available capital will soon be insufficient to support the pace of growth is a consequence of the fact that, sooner or later, the majority of new companies are forced to seek a source of long-term financing to sustain their growth.

Based on these factors, it is fundamental that the businessperson involved seeks out the knowledge that is required to be able to understand and control the systems of capitalization available on the market, with the objective of increasing the success of the company’s growth process.

The major objective of accessing capital is to strengthen the company’s short and medium-term financial position, making it possible to implement new investment plans focused either on the development of new products or the expansion of the company’s market position.

The processes of business capitalization presuppose the existence of investment or business plans involving development of new product lines. Before seeking new capital, it is essential that the company clearly defines and documents the use to which these funds will be put.

Key Issues

Forms of Capitalization

Generally, two sources of capital are available to companies: their own capital and third party capital.

The forms of capitalization depend basically on the origin of the capital. Capitalization through the use of the company’s own capital is normally quite simple and depends on the existence of capital reserves set aside by the company, the resources available to the partners to increase the capital of the company, or resources that are made available by informal sources to the individual person (for example, family resources). The resources normally enter through the company’s cash account or through capital increases that are registered in contract form (in the case of limited liability companies).

Capitalization based on third party capital requires that the company prepare a detailed report of its intentions (plans).

Capital inflows can take the following forms:

  • Loan capital
  • Conventional financing lines

    Operated by commercial banks, these lines are based on loan contracts that require collateral and guaranties. These are usually short-term options and their typically higher costs can make projects unfeasible.

  • Subsidized/special financing lines

    Made available by the government and operated by official financing agencies and commercial banks. The conditions are better than in conventional operations, principally in terms of interest and maturity terms. However, many of these also require collateral.

  • Incentive programs for skill training and development

    Resources made available by the government and operated by the ministries. These are nonrefundable resources and must be reflected in projects developed by the companies.

  • Capital investment
  • Capitalization through new partners

    In the case of limited liability companies, entry of a new partner is affected through alterations to the company’s articles of incorporation. There are no preset earnings defined for this capital and the new partner receives a quota of the existing capital of the company.

    In the case of corporations, there are forms of capitalization that make it possible for companies to obtain capital without resorting to new partners. There is specific legislation for corporations that make it possible for them to issue securities on the financial market in order to obtain needed resources. Depending on the form and the market on which they are issued, these securities can bear specific denominations and series. In the case of small businesses and incubated companies, the mostly commonly used securities are debentures.

Indicators

  • Programs to review formalized investments in incubated companies and graduate companies at least once per year.

Revenue Model for Business Incubators

1. Revenue from tenants and other clients:

Rent (40 to 60+ %) is the most common, but fees for the business support offered (business incubation fees) and other fees for use of facilities and services can be just as important. Hot desking fees (renting a desk and on-line computer by the hour can be important for broader incubation models)

Financially self sufficient, given:
  • "free" buildings
  • Minimum economies of scale
  • Often with anchor tenants
2. Revenue  from sharing in client success by way of small equity positions or royalty agreements on gross sales and brokerage fees on raising finance.
  • Stakeholders with deep and patient pockets – it takes up to 10 years to develop the revenue streams in a way that they can sustain operations into the future.
  • At the leading edge of business incubation environment development and relatively rare.
  • Needs management sophistication, a well developed business environment (so as to be able protect and to from an investment) and, for brokerage fees on finance raised, capital markets.
3. On-going government or donor funding  

The first two models may be expected to be self-sufficient over time, perhaps with the only ongoing support for the first model being ‘free buildings’. A proportion of ongoing government funding is likely to be particularly relevant for SIDS, especially if the social and economic return on investment is greater than for other BDS-like activities. The indebtedness of many SIDS however, may make it very difficult for Governments to afford long term funding or  necessitateor necessitate rigorous cost benefit analyses to compare incubation to BDS and other business development support mechanisms before committing to long term support.  

Taking a small proportion of equity, or a royalty on gross sales for a period can be a very good way to receive payment for a business incubation environment’s value-adding services once the company being assisted has succeeded, rather than up front when the company is short of cash; sharing in success and aligning the business incubator’s mission with that of its clients. More and more technology business incubation environments take a small equity position, or negotiate royalty agreements as a condition of entry to the business incubation environment.  Taking equity only realistically applies to high growth and generally IP driven companies, in situations where there are clear exit mechanisms (e.g. IPO or trade sale) and does not make much sense with most service companies or where exit mechanisms are not clear, where royalties may be a better approach.

Business models reliant upon success sharing with client companies have proven to be somewhat problematic, if returns from the equity position, royalties and brokerage on finance are to be relied upon for financial sustainability in the short term, because it takes up to 10 years to realize returns and a portfolio of at least 20 companies is required to spread the risk, not to mention the high level of management expertise that is required. New Zealand is a good example where this model is being followed, in a strategic way. The Government provides annual funding for a 10 year period, after which the business incubators are expected to replace this financial support with returns from small equity positions (up to 5% typically), royalty arrangements on gross sales for a negotiated period (typically 2% for a 3 year period) and finance brokerage (only possible if there are capital markets, although government funds are applicable as well).  Other business incubators, which rely upon rent and other revenue streams for their self sufficiency, still enter into these arrangements as a way of sharing in the success of the companies they assist, but not as the main strategy for financial self sufficiency.

Business incubation environments reliant upon rent and client fees as their main revenue sources cannot, as a general rule, be financially self sustainable in commercially leased accommodation or where they pay the capital costs of a building, without other forms of substantial ongoing support. Generally this is ongoing financial subsidies by a third party, which can be unreliable and unpredictable. It is very hard for a business  incubation environment to achieve adequate margins in commercially rented accommodation and business  incubation environments that attempt this run the risk of either failing financially, or having to cut costs so that they end up as nothing more than real estate operations. More commonly, business incubation environments access buildings at a ‘peppercorn’ rental (e.g. $1.00 per annum), or secure funds to purchase or construct their own facilities, both of which are more reliable ways of securing ongoing support. With these models there are minimum economies of scale that allow financial self sufficiency, ranging from 1,500m2 in countries like Australia to 3-4,000m2 in Europe and the USA and more than 10,000m2 in China.

Some of the best business incubation environments combine elements of all three of the models outlined above; arguably the best strategy.

Another strategy used is to generate revenue from non-business incubation activities such as consulting. This runs the risk of taking time and focus from the important task of assisting client companies, but on the other hand leads to an entrepreneurial approach. The Jamaican Technology Innovation Centre is an example of an entrepreneurial approach, generating additional revenue from consulting, training, facility rental, ID services, document processing for businesses and study tours. As the business incubator is repaying the substantial loan for construction of the building they have little choice.

Busy Internet in Ghana is an innovative example of a very different business model which involves revenue from ‘hot desking’, internet café, ISP, training facilities and restaurant, as well as the more traditional income streams.

 

Module 14: Market an Incubator

 

Marketing Management and Public Relations

Objectives

Like all enterprises, an incubator should be guided by the market and focus on the public that it intends to reach. This Guideline sets out useful steps in marketing an incubator to the wider community. Marketing planning is crucial for bringing in new partners and retaining current backers, as well as attracting candidates for incubation and achieving recognition in society.

Increasingly, an incubator’s success depends on its capacity to draw positive attention to itself, in addition to external support and goodwill. Public relations activities, based on a broad vision of functions and values, are of the utmost importance. As a marketing tool, public relations constitute one of the main strategies for learning what people want and how to fulfil these wishes.

An incubator’s marketing management is related to the performance of essential activities, such as:

  • Specifying the portfolio of services offered to its enterprises;
  • Decisions on the costs of services offered to the enterprises (which of them will be charged, and how);
  • Selecting how the products will be offered;
  • Developing market communications systems (partners, investors, consultants, etc.);
  • Promotional drives and prospecting new clients.

For effective marketing management within the incubation process, it is necessary to understand the opportunities offered by the market, the behavior of the client (enterprise) and its needs. An essential part of the business plan, the marketing plan is defined when the incubator is being established (See Guideline on Modelling & Planning the Incubator)

Key Issues

The main marketing management actions that staff need to be aware of are:

1. Creating a Brand for the Market. In order for the incubator to become a well-known enterprise, it should create its own brand and position it within the community, so that it is recognized as a benchmark.

  1. Establishing a Business Communications System. An incubator cannot be closed in on itself, meaning that it should be known and acknowledged by society at large. Consequently, the channels of communication, both in-house and outside, are of great importance. For the in-house context, clear definitions of how managerial information and items of interest will reach the incubated enterprises are needed. As people have different ways of understanding, communication channels should be designed to ensure that the information arrives correctly, not distorted. Poorly understood information can cause much turmoil, as indicated by the famous “corporate grapevine”. For the outside context, the incubator should decide how it relates to its backer institutions and society in general, in order to promote its accomplishments, striving to firm up its role in promoting regional development.
  2. Price Policy. For most incubators, setting the fee for their services - the “occupancy fee” - is based on establishing the cost per square meter of the facility. However, this may result in misunderstanding, with the entrepreneur viewing it merely as “cheap rent”, and failing to take into consideration all the associated incubator services. So, the added benefits should be promoted to the entrepreneur. Moreover, it is important to set prices for all these services offered by the incubator to the enterprises. In cases where the services are built into the basic fee, it is necessary to define a strategy for ensuring an understanding of the benefits offered by the incubation system.
  3. Prospecting New Clients. In order for the incubator to build up steadily increasing client demands, it must prospect for new clients. This will be possible only through steady dissemination of its purposes and achievements among the local or regional community, professional entities, universities, etc. Some types of publicity that have brought in good results are:
    1. Hosting community events at the incubator facilities;
    2. Offering technology breakfasts at the incubator facilities;
    3. Participation by the manager in events held by professional associations, clubs and social events;
    4. Organization of lectures and seminars at academic establishments.
  4. Promotion. The incubator should communicate regularly with its target market, disclosing its successes. This is why it should build up good media relations and use all possible communication outlets. In addition, the incubator should produce its own publicity materials, particularly media releases, good news stories, cards, folders, and portfolios that will help consolidate its brand.
  5. Investors. When attracting risk capital investors, the incubator should build up links with them, in order to ensure positive results for both the enterprises as well as the incubator. Examples include:
    1. Visits to institutions managing the capital, to establish inter-institutional links;
    2. Cost-effective media releases, sent out by e-mail;
    3. Workshops run with the specific purpose of showcasing the products and services offered by the incubator and its enterprises;
    4. Inviting decision-makers to attend theme-specific events;
    5. Disclosing positive economic, environmental and quality of life outcomes from the incubator;
    6. Other events that could firm up the position of the incubator and the enterprises.

Hint: A well-managed incubator can display its accomplishments transparently to its partners in the community, through quantitative and qualitative data.

Responsible Parties

  • Management and technical staff of the incubator.

Indicators

  • Increase the number of entrepreneurs contacting the incubator.
  • Stepping up the number of partners and investors backing the program.

Results

  • Effective marketing functions, mainly promotion strategies and ways of attracting new entrepreneurs.
  • Helping firm up the incubator brand.

Institutional marketing for high-growth business incubators

We have focused the article on the following aspects that we think are critical to any incubator, and specifically bring in our own experience in writing this article:

  • Institutional marketing for high-growth business incubators - explaining, describing how important marketing strategies are incubators, exploring the concepts of endo-marketing and strategic alliances to position competitively.
  • What are the challenges and main difficulties with marketing strategies for incubators?
  • What, on the other hand, are the returns and benefits, positive externalities, etc of a well-thought marketing plan for incubators and their clients?

In most developing countries’ incubators, marketing is still is one of those painful things not dealt with properly and aggressively.

We have highlighted the experience from our perspective and discussed this from our experience at IndiaCo (in India and abroad).

Acknowledgments

Author Rahul Patwardhan, Vice Chairman and Managing director, IndiaCo Ventures (P) Limited. www.indiaco.com

The author wishes to acknowledge contributions from Natasha Sharma, Associate Director Venture development, IndiaCo Ventures (P) Limited and IndiaCo for allowing us to write this article draw on the IndiaCo experience.

 

Monitor and Evaluate an Incubator

 

Incubator Performance Evaluation

Objectives

This Guideline discusses the importance of evaluating an incubator’s performance, how to do it and how to use the results.

Evaluation and reporting is an important step as it can provide qualitative and quantitative information on incubator performance over a given period. Evaluation and reporting should consider cultural, economic, social and technological performance within the incubator’s region of operation. See the following Guidelines: Cultural Benefits, Economic Benefits, Social Benefits and Technological Benefits.

According to the European Commission’s Final Report Benchmarking of Business Incubators (2002), “the performance of business incubators should be judged primarily in terms of the results achieved, i.e. the impact they have on businesses, wider economic development and other priorities. An important lesson to be learned is that an incubator can only be assessed by obtaining information from companies. Feedback from companies is also important from a more practical point of view, i.e. client management and networking with graduates”.

Key Issues

The key issue is development and adoption of an incubator performance evaluation system. Such a system must be useful for the program coordinator, managing entity and supporting bodies (partners). A performance evaluation system should also consider development of each economic segment of the incubator and any regional peculiarities.

A performance evaluation system which collects and analyses quantitative and qualitative data is preferable. A system which considers only success/failure or negative/affirmative answers should be avoided.

A continuous performance evaluation system will allow weak points in the incubation process to be identified. This is an important benefit as identifying or foreseeing weaknesses in a timely manner can prevent possible losses.

Within an evaluation system, it is important to develop evaluation criteria. Structured criteria can assist agencies in allocating award incentives. Structured criteria can also assist non-government sponsors in evaluating the efficiency of financial support provided to business incubator(s). A lack of structured criteria may result in reduced award incentives and/or reduced non-government financial support.

A performance evaluation system should also include performance indicators. Performance indicators are tools for planning and control/decision making and therefore should be simple to apply.

By measuring the performance of incubator activities, an evaluation system can assist in decisions on the continuation, interruption or modification of incubator activities.

Generally, an evaluation system includes assessment of the following four components:

  • results or outputs of companies and incubators;
  • resources used by the incubators - financial, technological, material, human;
  • organizational processes; and
  • socio-economic, political and cultural context of institutions most directly involved in the incubation process.

The basic steps to an incubator evaluation system are:

  • identify relevant incubator partners/stakeholders who want to be informed of evaluation results;
  • identify and characterize major benefits expected by partners/stakeholders;
  • define indicators that relate to benefits expected by partners/stakeholders;
  • define indicators that relate to the needs of the incubator;
  • establish and adopt indicators and their goals;
  • define a clear system for collecting data for the indicators;
  • prepare a six monthly report documenting results;
  • seek partner/stakeholder input to identify weaknesses and discuss progress, holding meetings where possible; and
  • develop and implement an Improvement/Corrective Action Plan for the next period.

Responsible Parties

The responsible party should be a professional or team with the capacity and autonomy to make strategic decisions based on the results of the evaluation system. Generally the responsible party is the incubator manager and/or coordinator, and in some cases is supported by a specialist in evaluating the performance of micro and small companies.

Indicators

Number of institutions supporting the incubator

Number of sponsors/partners attracted

Results

The implementation of an incubator performance evaluation system should result in increased effectiveness in decision making and/or coordination by the incubator management. It should also assist in avoiding weaknesses and losses within the incubator and its various partners.

Technological Benefits

Objectives

This Guideline promotes the concept of systematically and continuously evaluating the regional effects of incubator activities on technological development. Technological evaluation should not be limited to “hardware & software”, that is physical objects; the evaluation should include technological development as the result of “a private network of persons, ideas and objects” as Hargadon emphasizes [1]. Results will indicate incubator contributions to generation and/or development of the local innovation systems.

Key Issues

The evaluation must be structured to provide results that objectively demonstrate whether an incubator is contributing to technological development in the region. It is important that the evaluation is consistent with the incubator’s mission and objectives.

Evaluation of technological benefits must include the range of incubator functions in the network of people, ideas and objects. The evaluation can be grouped in the following categories:

  • Internal evaluation of the competencies and products developed by incubator companies. The focus should be how incubator activities support development of innovative products and services. Indicators could include number of products generated, number of patents registered, number of books published.
  • External evaluation of the effects of incubator companies’ products and services on already established companies (industry, commerce and services). Indicators could include number of clients served, percentage cost reduction as a result of technology developed through the incubator.
  • Academic evaluation of the results of incubator activities on creation and/or development of research groups and the number of research projects transformed into products or services. Indicators could include number and diversity of research groups, number of research projects transformed into business opportunities.
  • Integration evaluation of the effect and interaction of incubators on universities/research centers. Indicators could include number of research projects developed as a result of incubator company demands, number of companies that utilize products generated from university research.

Evaluating incubator technological benefits can be outlined in the following steps:

  • Identify interested parties in the incubator’s network;
  • Gather information on technological developments relevant to interested parties;
  • Define indicators and targets with which to evaluate technological developments;
  • Define time periods for obtaining information relevant to the indicators and targets;
  • Define a system of periodically obtaining the information;
  • Define a process to disseminate evaluation results; and
  • Using the results, and in cooperation with interested parties, prepare an Action Plan to correct problems, improve results and take advantage of the opportunities identified.

Responsible Parties

Evaluation of technological benefits can be carried out by the incubator or partners with a direct stake in the results, such as a university, local government or an entity that provides support to innovation and enterprise.

It is important that relevant parties be involved in developing indicators to ensure all needs are met.

It is important that those directly involved in the evaluation have experience with company incubators, research and development or technological innovation.

Indicators

  • Number of products generated
  • Number of patents registered
  • Number of books published
  • Number of clients served
  • Percentage cost reduction as a result of technology developed through the incubator
  • Number and diversity of research groups
  • Number of research projects transformed into business opportunities
  • Number of patents generated
  • Number of projects with universities or research centers
  • Number of research projects developed in partnership with private initiative
  • Volume of royalties obtained by the incubator, university or research center, as a result of projects supported by the incubator.

Results

Evaluating technological benefits can provide information required to broaden university-company interaction and also serve as an efficient marketing instrument for the incubator and its partners.

HARGADON, Andrew. How Breakthroughs Happen: the surprising truth about how companies innovate. Boston: Harvard Business School Press, 2003.

Success Factors in enterprises incubated by INGENIO

Objectives

Between December 2004 and March 2005 an evaluation of the enterprises incubated by INGENIO has been made, the objective was to determinate the main success factors.

Methodology

The methodology utilized in this research was proposed by Carlsson et al. (2002) and includes the analysis of different variables related with:

  • Selective and strategic capacity
  • Functional ability
  • Organizational structure
  • Flexibility

The information was obtained from a survey to entrepreneurs; this survey was complemented with personal interviews with responsible of the incubated project and with meetings with the incubator’s board.

After the analysis of the survey and interviews, an analysis of the enterprises was made, this analysis considered:

  • Objectives
  • Business Plan accomplishment
  • Reached results

The following step was a factorial analysis to identify variables and factors that explain the correlation between the variables and regular characteristics which were observed not only in the projects without success, but also in the graduated projects.   

Results

The results derived in the following conclusions:

  1. The projects which included in their initial phase an important number of technical staff were less prone to fail.
  2. There was a negative correlation between the age of the entrepreneur and the probability to fail.
  3. The management capacity and the labor experience of the board were crucial factors shared between successful projects.
  4. The projects that exhibited more deviation from the original business plan (in time and objectives established) had more probability to fail.
  5. The correlation between the enterprises that failed and the quality of the services that they received was highly negative.
  6. The economic success indexes showed positive correlation with the number of technicians at the beginning and at the end of the process, with the number of people whit expertise and graduate degree and with the time dedicated by them in the project.
  7. The possibility to obtain a patent has a positive correlation with the age of the entrepreneurs and the initial capital. 

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