Description
Within this detailed outline concerning incubation of new ideas extending incubation models to less favored regions.
3
Incubation of New Ideas: Extending Incubation
Models to Less-Favored Regions
António C. Moreira
1
and Marta F. S. Carvalho
2
1
DEGEI/GOVCOPP/University of Aveiro
2
ISMAI/Instituto Superior da Maia
Portugal
1. Introduction
The search for models regarding the business incubation process is on a multifaceted
road. Existing literature is crowded with a wide range of proposals emphasizing different
foci: some of them focus on results, some address the importance of internal processes,
some present a holistic perspective of incubation by dealing with both environmental
forces and internal aspects, some use virtual approaches and some follow a more
contingent approach in order to address specific issues such as those presented in rural,
less endowed regions.
Considering that incubation models will definitively influence the life of both incubators
and incubatees, it is important to envision the incubation environment. With progressively
complex structures, these environments require an effective and efficient management that
is ready to answer to vivid entrepreneurs, which demand qualified and committed teams
tuned to the objectives defined by the incubator.
Departing from the premise that the "success" (successful management) of a business
incubator is the consequence of the "success" of its incubated companies, the management
business model of the incubator directly contributes to this "success". In this sense, the
incubator macro business process (selection – incubation – graduation) must be organized
and modeled to select good business plans, assess and evaluate the new business
undertakings and graduate successful firms (Bergek & Norrman, 2008; Hannon, 2003).
The main objective of this chapter is to present a review of the literature regarding
incubation services and models. Furthermore, it will extend incubation models in order to
include the incubation of business ideas, specifically targeting less-favored regions.
This chapter is divided in six sections. The introduction covers the first section whereas the
second section presents a revision of the literature regarding incubation and incubators.
Section three covers the incubation process. Section four addresses business incubation
models, in which the most important models are presented and analyzed. Section five
introduces a new concept on virtual incubators. Section six introduces the concept of
incubation of business ideas, which is developed from the specific needs of rural, less-
favored regions. Final conclusions are drawn in section seven.
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2. Incubation and incubators
2.1 Concepts
The globalization process, experienced by most economies in the last years, has unleashed
the importance of the innovative capacity of firms, regions and countries in their search for
competitive advantage and efficiency. In this way, the new technological dynamics imposed
on business environments have generated new forms of organization and interaction among
firms, and between companies and other institutions, thus, assisting in the search for
stronger competitiveness and long term survival.
The role performed by business incubators, by underpinning the generation of new
competitive firms, or by training future entrepreneurs, is of crucial importance. Business
incubators are mechanisms that stimulate the creation and development of new micro and
small companies (technology-based firms, manufacturing firms, service firms or agricultural
firms). By providing the complementary training to young entrepreneurs, both in the
technical and management aspects of the new firm, business incubators have facilitated and
accelerated the process of innovation as well as economic and regional transformation.
Hannon (2003) considers that the business incubation process supports the identification
and exploitation of a successful opportunity for the creation of a new business undertaking.
According to Hannon (2003), the business incubation process should be faced, firstly, as the
environment where new business ideas and undertakings can be developed according to a
set of business support resources.
The business incubator’s public image appears as a network of individuals and
organizations. Included in this network are the incubator’s manager and personnel, the pool
of advisors, the incubatees and their staff members, the local universities, the local
development associations, the industrial contacts and all the services provided by the
incubator, such as lawyers, marketing consultants, accountants, investors and volunteers
(Hackett & Dilts, 2004a).
Although reinforcing this idea, Bergek & Norrman (2008) also claim that the business
incubator should have a network mediating role amongst the incubatees as well as between
them and the environment that surrounds them. Considering that business incubators
should be positioned for actively cooperating in the initial phase of new entrepreneurial
undertakings, this mediating role may bring benefits for the incubatees by increasing their
probability of succeeding in the business arena. According to Bergek & Norrman’s (2008)
position, it is possible to infer that it is the responsibility of the business incubator to make
feasible cooperative relationships that provide incubatees with greater access to the
information generated in the environment in which incubated firms are inserted, thus,
nurturing the development of competences by means of learning processes. As a
consequence, the final objective of the incubation process is to deploy among incubatees the
capability to survive in the business arena and to transform a business idea in a successful
business venture.
Finally, Bergek & Norrman (2008) claim that illustrating a nurturing awareness policy that
contributes to the establishment of cooperative relations is the first step for a business
incubator to establish and promote viable businesses.
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Despite the prominent role of business incubators in the process of nurturing and
underpinning the promotion of new firms, Hackett & Dilts (2004b) consider that they can be
regarded as a resourceful technology that, by itself, is not presented as a tool that guarantees
the new firms’ success. The absence of entrepreneurial capabilities and the lack of marketing
knowledge can lead to the failure of new ventures. Accordingly, they defend that the
incubator must, in this sense, be understood as a means to an end.
If it is correct that the absence of potential/capacity of the incubatee can doom the new
entrepreneurial undertaking to failure, it is not less true that the networking role of the
incubator as a mediator between the incubatee and the external environment is also
important. Nevertheless, we stress that during the initial phase the incubator’s role is
multifaceted. Consequently, we defend Hackett & Dilts’ (2004b) conclusion that though the
network based view of the incubator is important, the structural contingent theory is even
more important to guarantee that there is a “proper fit” between the business incubator and
the external environment faced by new firms.
This mixed concept of network support and structural contingency are confirmed by
Hackett & Dilts (2004b) and Bergek & Norrman (2008) when they try to come up with the
different forms to define an incubator. They define an incubator as a place where resources
can be rationally and dynamically invested. The business incubator is seen as a dynamic
community where selected incubatees can locate their emergent firms in an incubating
environment. This includes routines, procedures, culture, working environment, learning
experience and working costs, which incubatees can hardly obtain by themselves.
2.2 Typology
Many changes have occurred since the establishment of the first business incubators due to
(a) the role they have had in the creation of new firms and (b) the mechanisms for achieving
the technological development they have been using.
Initially, the majority of incubators was positioned, on the one hand, as a public tool for the
creation of jobs, urban rehabilitation, commercialization of university innovations and, on
the other hand, as private organizations for the incubation of new high-growth firms
(Hackett & Dilts, 2004a).
Grandi & Grimaldi (2005) segment incubators in two different types: those with lucrative
objectives, such as private incubators, and those with non-profit purposes, including
university incubators and business innovation centers, such as those that appeared in
Europe during the 1980s. According to Grandi & Grimaldi (2005) the initial objective of
public incubators was to reduce the costs of doing business by offering a set of services,
space, infrastructure, technical experience and assistance in the elaboration of the business
plan. With the changes and evolution of markets, this type of positioning began to change
due to the boom of private incubators. These have as main purposes the creation of new
firms and the obtainment of profit from incubatees as a result of fees charged for new
undertakings.
Through time incubators have been assuming the role of supporting the development of
start-ups with a broad range of services. This has led to the detriment of the initial passive
behavior of offering physical space, basic infrastructures and communication channels to
tenant companies. For Bergek & Norrman, (2008) the services provided by an incubator
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within a typology centered in the provision of physical space and administrative services
resemble the concept of hotel and not of incubation. According to the demands of current
markets and the growing need and sophistication of innovation, incubators should be
prepared to assume themselves as the engines of that innovation, thus, supporting and
nurturing potential entrepreneurs in order to strengthen their potential growth and to
endow them with the business tools that they normally lack to achieve current or potential
opportunities.
Our comprehension of the positioning of an incubator resembles that put forward by Bergek
& Norrman (2008) as a large percentage of potential entrepreneurs are neither able to
prepare their business plans nor start their own businesses as they lack managerial
competences, business contacts and financial resources. They reveal need of a "mentor" able
to support and guide the new firm towards the “right” position, in the “right” moment.
Peters, Rice & Sundararajan (2004) reiterate this pattern as they defend that incubators must
assume the role of organizational developers by contributing to the training, networking
and assistance of incubatees in the initial phase.
It is imperative to fully comprehend the incubation process. However, we must have in
mind that incubators can accelerate the learning process by training entrepreneurs,
counseling them, and supporting their managerial know-how.
3. The incubation process
Following the inherent concepts of the incubators and the incubation process we will now
focus our attention on the process itself. According to the analysis of the different concepts
of the incubator, we can infer that the incubation process can include the support of business
development including: the formulation of the business plan, the recognition of business
potential, the planning of business activities, the preparation of the market study, the
entrance in the market and the sustainable development of the business.
Carter & Jones-Evans (2000) propose a generic five-step incubation process, as shown in
figure 1. One feature of the Carter & Jones-Evans’ (2000) model is that the steps put forward
are focused on the needs of the incubatee, which will be supported by the service provided
by the incubators during the incubation process. Carayannis & Zedtwitz (2005) identify five
services provided by incubators that are crucial for the incubatees:
1. access to physical resources;
2. administrative support;
3. access to financial resources;
4. business/organizational support in the start-up phase;
5. access the networking activities.
Despite the validity of the services provided and of the model proposed by Carter & Jones-
Evans (2000) and Carayannis & Zedtwitz (2005), it is possible to question not only if all
incubators perform the whole range of steps and services, but also if they are effectively
carried out and properly assessed in the incubation process. One of the criticisms put
forward regarding the model is that it does not answer how an in what way incubators
provide their support. As most of the incubators were developed as a response to the
challenge posed by technological pressures, namely university business incubators, business
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innovation centers, science parks, etc. it is also questionable if the model is suitable in rural
areas where pace technologies are rare and there is a scarcity of human capital.
Fig. 1. Key steps in the incubation process
Given the importance of the incubation process, Hannon (2003) affirms that managerial
capacities as well as the level of experience associated to the incubator are vital for the
success of the assessment of the incubation process. The incubator will have to be capable of
correctly managing the incubation environment, supporting the incubatee’s new business
creation during the incubation process, and, of reducing the probability of failure of the new
undertaking and speeding up the process of business creation. In order to deal with these
issues the incubator should have an adequate management profile that includes financial,
analytic, interpersonal, entrepreneurial and bargaining capabilities.
Considering the importance and the relative complexity associated to the incubation
process, we shall address the models and components related to this procedure.
4. Incubation models
Due to the incremental role of incubators in society and in the economy, the comprehension
of the whole incubation process is of key importance. However, the studies and proposals
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carried out throughout time do not present a holistic vision of the process. Bergek &
Norrman (2008) consider that the majority of models are centered on results and do not
intertwine the processes of selection and management of the incubator and its results.
Campbell, Kendrick, & Samuelson (1985) are amongst the first to propose a model that
attempts to conceptualize the incubation process. They tried to explain, as shown in figure 2,
how the different components and activities of an incubator can facilitate the transformation
of a business proposal in a viable new firm.
Fig. 2. Campbell, Kendrick & Samuelson's (1985) incubation model
The model proposed by Campbell et al. (1985) suggests four areas where the incubators
create value: 1) the diagnosis of business needs, 2) the selection and monitoring of the
services provided to the firms, 3) the investment of capital, and 4) the access to the working
network of the incubator.
According to the process described and the components presented by the model, it would
be possible to make a potential business into a viable firm. However, the model fails when
considering that all businesses are potentially viable and does not take into account the lack
of capabilities of potential entrepreneurs and, the environmental barriers that can arise
during the process that might doom the new venture to failure. In addition, the model is not
explicit in what criteria to adopt when selecting a business to support.
Would not a bad or incorrect selection process influence (negatively) the feasibility and
future growth of a potential new business? Moreover, it is still visible that the model is
basically centered on private incubators with little support in rural areas or social programs.
Having in mind the question raised about the selection criteria, Kuratko & LaFollette (1987)
confirm that inconsistent selection of the incubatee can increase the probability of failure of
both the incubator and incubatee. This arises from the probability that selection is not
focused on the value proposition of the business proposal and on the competences of the
potential entrepreneur.
Following this line of thinking, Merrifield (1987) created a selection proposal for potential
incubatees. That approach consisted of three main questions being the first two based on the
potential incubatee: 1) is this a good business in which anyone could be involved? 2) is this a
business in which the (incubated) firm has resources and competences to successfully
compete? With these two questions Merrifield (1987) intended to verify the attractiveness
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and suitability of the new venture. In the case the answers were favorable the last question
would be raised: 3) Which is the best approach for the firm to enter the business arena and
grow?
Although Merrifield’s (1987) approach looks solid, it can be considered as a very
simplistic way of analyzing the potential of a new business undertaking. It is also possible
to assert that the proposal is applicable in technology-based new ventures. However,
it falls short of expectations in less endowed regions. This is the case in rural areas in
which young entrepreneurs do not have the same qualifications and the incubators
capabilities and resources are far from those found in universities or business and
innovation centers.
As was previously referred, Campbell et al.’s (1985) model is open to refinement, and was
addressed by Smilor (1987) who perceives incubators as a transformation mechanism in
which industry, government and university are interrelated. Smilor (1987) categorizes the
benefits that incubators provide to their incubatees through four dimensions: 1) credibility
development, 2) the shortening of the learning curve, 3) faster troubleshooting, and 4) access
to the network of entrepreneurs.
According to Smilor’s (1987) model, there is a strong emphasis on the external perspective,
neglecting the internal one, in which the entrepreneur plays an important role. However, as
the model was developed and proposed having in mind typical innovation-based
entrepreneurs, it seeks to identify the different components of the new business incubation
process. It conceptualizes the incubator as a system that gives incubatees the structure and
credibility for the creation of new firms while ensuring a set of immediate, key resources for
the setting up of the new undertaking. For example, if we take into account the lack of
entrepreneurial capabilities as well as the lack of economic resources in most rural areas, it is
possible to conclude that this systemic approach, encompassing the internal and external
environment, seems to be lacking in Smilor’s (1987) model.
Fig. 3. Smilor’s (1987) incubation model
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In the search of a model that presents the different components of the incubation of a new
firm (either internal or external), we find Bergek & Norrman’s (2008) proposal. They reject
the principle of a black box incubation model centered merely on results. They consider that
it is only possible to evaluate the performance of a business incubator when taking into
account the particular objectives of the incubator, i.e. confronting objectives and results.
They identify a set of components that try to translate the incubation process according to
the internal and external variables:
1. The selection of firms that should be accepted and the ones that must be rejected;
2. Infrastructures, regarding the physical facilities and administrative services to be
provided;
3. Mediation, i.e. the way in which the incubator mediates the relationship between the
incubatees and the external world;
4. Graduation, which concerns the policy defined by the incubator about the moment and
circumstances of exit of the incubated firms.
Fig. 4. Bergek & Norrman’s (2008) incubation model
In regards the selection component, Bergek & Norrman’s (2008) mention that it is one of the
most important tasks. Consequently, the selection criteria must be adjusted to the
characteristics and objectives of the incubator. However, they identify two different
approaches: selection based on the business idea and selection based on the entrepreneur.
When the criterion is based on the idea, it requires that the incubator has the technological
and business knowledge as well as the background necessary in order to evaluate the
feasibility of the business idea. On the other hand, if the criterion is based on the
entrepreneur, the incubator must have competencies to assess the entrepreneur’s personality
traits, personal skills, and capabilities related to the new venture.
The adoption of one or the other is a matter of option and flexibility. Nevertheless, it is
arguable that the “picking the winners” policy is a successful approach. Accordingly, as
Bergek & Norrman’s (2008) suggest, in order to avoid possible evaluation errors it would be
advisable to deploy a selection process that involves both approaches in order to assess
pairs of ideas/entrepreneurs, and winners/survivors. The application of this selection
strategy seems to be more complete, as it involves the two variables that are important for
the new venture to succeed: the business idea and the entrepreneur.
In what concerns the business infrastructure, it is important to remark that beyond the need
of a broad support, it is vital to intertwine that support with the way it is provided.
Concerning the incubator mediation capacity, Bergek & Norrman (2008) defend the
importance of the role of the mediator among incubatees and between them and other
actors. In this manner, mediation capacity is a way of projecting the incubatees in the
market, creating opportunities for them as well as reducing uncertainties.
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A closer look at the components presented by Bergek & Norrman (2008) leads us to consider
the model as properly adjusted as it takes into account the demands of the incubator’s
internal dynamics as well as the external environment. Therefore, it leaves each incubator
with the responsibility of applying the different components of the model and adapting the
incubator to the intricacies of each particular reality. Nevertheless, Hackett & Dilts’ model
(2004b), shown in figure 5, based on Campbell et al.’s (1985) model, also proposed a holistic
vision of the incubation model. Although focused on the results/performance (black box)
approach, they developed a theory, based on the real options theory, as a way to maintain
and complement the model.
Fig. 5. Hackett & Dilts’ (2004b) incubation process model
The incubation process proposed by Hackett & Dilts (2004b) suggests that incubatees are
selected from a pool of candidates, being monitored and supported with resources while
they go through their initial developmental phase. The results are referred to the survival or
failure of the incubates at the moment he/she leaves the incubator.
By analyzing the model it would be possible to pose the following two questions: what
criteria should be considered at the time of the selection of possible incubatees? Would the
existence of predefined criteria contribute to the economic results of incubation?
The answers to these questions are found in the real options theory proposed by Hackett &
Dilts (2004b). These authors seek to resolve how and why the variability in the measures of
the components of the model can explain and forecast the probability of survival of new
undertakings during the development phase. The theory presented by Hackett & Dilts
(2004b) defends that: the performance of incubation depends on the incubator’s ability to
create options through which the selection of weak-but-promising intermediate potential
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firms is interesting. However, it must be implemented with monitoring and counseling, and
the infusion of resources.
The performance of incubation can be measured in terms of growth and financial
performance at the time of incubator exit. As indicator of success Hackett & Dilts (2004b)
identify the following mutually exclusive outcomes:
1. The incubatee is surviving and growing profitably;
2. The incubatee is surviving and growing and is on the road of profitably;
3. The incubatee is surviving but not growing and is not profitable or is marginally
profitable.
4. The incubate operations were terminated while still on the incubator, but the losses are
minimized;
5. The incubate operations were terminated while still on the incubator, and losses are
very large.
In relation to the outcomes, Hackett & Dilts (2004b) consider the outcome number four as a
success factor, according to the real options theory. However, it is possible to pose the
following question: will it effectively be a success indicator or an indicator of a bad option
upon selection of the incubatee? Well, it is indeed possible that the selection of the incubatee
was right and the absence of “luck” played a crucial role. If Hackett & Dilts (2004b) affirm
that according to the real option-driven theory the third indicator should be a failure
outcome, then it looks that a mismatch exists when defending that the fourth outcome is a
success outcome. The issue is simple: would not a “marginally profitable” business be better
than a “dead” business? More importantly, if both are in the incubator, one should pose the
following question: How would their performance be outside in the real world?
Hackett & Dilts (2004b) argue that selection performance is the capacity of the incubator
to behave as a venture capitalist of the undertaking at the moment of selection and
admission of the incubatee. Accordingly, it will be expected that incubators behaving as
venture capitalists adopt selection criteria such as: managerial capacities of the
enterprising team, market and product characteristics and potential, and the expected
financial results. According to Hackett & Dilts (2004b), the existence of a selection
mechanism makes potential candidates more demanding with themselves, leading them
to self-corrective measures.
Regarding the selection performance, it is possible to argue that the model might not be
pervasively used in all type of incubators, especially for those that are targeted for social
minorities or rural areas in which social responsibility plays a crucial role. Accordingly,
although the incubator might behave as a venture capitalist, it must consider what target
groups it is serving. In addition, the incubator must ponder how those target groups can be
served in developing managerial competences. However, this selection criterion is
important as it also allows potential entrepreneurs to understand that they have to cope
with the risks of the new venture. This factor was not considered by Bergek & Norrman
(2008), as they regarded the selection criterion as being centered on the entrepreneur.
In what concerns the intensity of monitoring and business assistance, Hackett & Dilts
(2004b) claim that the more intense the monitoring and the business assistance to the
incubatees, the larger the probability of success of incubation process performance. Hackett
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& Dilts (2004b) consider that the probability of obtaining positive results increases with the
capacity for supporting the incubatees with a variety of resources.
According to the analysis of Hackett & Dilts’ (2004b) model and the description of the real
option-driven theory of business incubation, it is possible to defend that the model tries to
explain business incubation performance. However, it is centered on the incubator
perspective, without strong elements of reference or importance to the incubatee, who the
incubator is supposed to serve.
Confronting the models, we recognize that Bergek & Norrman’s (2008) model effectively
translates a more holistic vision, not being centered on results or performance, and considering
the incubation process as a whole including both the incubator and the incubatee.
Moreover, it is possible to notice that all the models referred above identify internal aspects
of the incubator. Nevertheless, there is no agreement on what criteria can be assumed as
relevant for the process of business incubation. On the other hand, the internal resources of
incubators and the way they are used are extensively used and analyzed according to the
business plan of the incubator. Of equal importance is the fact that incubators closely
scrutinize the costs of all training, consultancy provided, partnerships/interactions the
incubator holds with different agents and all infrastructural costs. In this manner, incubators
are closely monitoring their own business.
Another important issue is that not all the models properly highlight external issues, such as
location and partnerships maintained. The external environment can strongly influence the
incubator, as it will depend on the partnerships gained and maintained with higher
education institutions, technology centers and other research institutions. These
partnerships support the incubator in the development of new firms, thus, fulfilling the
incubator’s own mission. If the location the incubator inhabits does not possess those
institutions, the incubated companies can face some difficulties in reaching stability
(graduating). The same is true if the location does not possess companies that can be clients
of the new firms, which may hinder local development. This is certainly what happens in
many rural areas in which the main markets are far away and technology oriented
institutions are scarce, giving particular attention to rural incubators.
Components seem to be one of the main challenges incubators face in the incubation
process. However, to better articulate the incubation process one must consider a wide array
of criteria that can encompass the type of incubator, its area of influence, the services
provided, and its geographical location, among others. Accordingly, although all incubation
models are suitable, it seems that Bergek & Norrman’s (2008) proposal is an open road that
deserves further development.
Considering the growing tendency and accessibility of internet resources and information
technologies, we have decided to approach new incubation models – virtual incubation – in
order to face and readjust towards a changing reality.
5. Cyber incubation
The growth and pervasiveness of the Internet is amplifying creative processes and leading
to new scientific and technological developments.
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Firms both in developing and developed economies are increasingly hiring professionals
using the Internet to expand research and development projects and to create new
businesses in a networked sustainable development.
Nowadays, we are witnessing a stimulating and proactive participation in cyber work and
cyber business creation. High levels of market competitiveness lead firms to be more active
and competitive in Internet-based business (Ohmae, 2000; Turban et al., 2000). Accordingly,
business incubation is being influenced by the development of new, emerging incubation
models in which talented, skillful people can work at home or in innovative environments
providing e-services or knowledge-based services.
This new concept of incubation will eradicate some of the items related to the components
previously presented, such as physical space, equipment and relationship management
between incubatees. Virtual incubators need to provide valuables resources and e-services
to assist potential entrepreneurs in the creation of their new ventures.
Aernoudt (2004) states that incubation should be considered as an interactive and dynamic
new firm creation process with the purpose of stimulating people to start their own business
and supporting start up enterprises in the development of innovative products. A real
incubator it is not an office space with a desk. It should offer management services, financial
assistance, juridical support, operational know-how and access to new markets, which can
be done both in a physical or virtual space.
Nowak and Grantham (2000) argue that in traditional business development entrepreneurs
face a common challenge: the absence of capital, human resources, and management
capabilities. This leads to the development of new models that facilitate the creation of new
businesses. They propose the creation of a virtual incubation model, based on networked
innovation. They consider that the combination of specialists and information technologies
would assist in establishing strategic alliances between managers, marketing strategists and
specialized engineers, thus, achieving better business opportunities. The components of this
virtual model are shown in table1.
Human resources focus + capital focus = source of integrated resources
Focus on strategic alliance formation helps to underpin all key success ingredients as early
as possible
Intellectual capital valuation and management expertise
Internet-based, distributed resources
Profitable solutions (specially for private incubators)
Private sector plays a leading role, while university and public sector paly supporting roles
Formalized management control systems (accounting, etc.) for generating stability
National and international business and market focus
Work in conjunction with physical incubators when needed
Table 1.
Nowak and Grantham’s (2000) model shows a combination of successful elements applied
to traditional incubation with a new focus on virtual channels and strategic alliances.
Nevertheless, their contribution seems to be in a very embryonic state as it does not explain
the whole cycle of virtual incubation.
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It seems that new technologies will strengthen the proliferation of this new kind of
incubation. However, we think that there are some important challenges to be overcome, in
particular, an extensive application in the primary sector or in rural areas. Hackett and Dilts
(2004a) state that virtual incubators should be regarded as business incubation programs, as
these are much more a provision of services than incubation services. They also defend that
the absence of interaction between incubatees might result in the absence of desired effects
present the traditional incubation environment.
Virtual incubation may go through a dramatic change in the near future, especially with the
provision of e-services for the development of business plans, virtual classrooms, virtual
training and virtual mentoring. Portals may play a crucial role in the creation of a virtual
facility for e-learning purposes. Nevertheless, the traditional roles are not yet set aside.
6. Incubation of business ideas
Rural entrepreneurship plays a crucial role in the economic development of rural and less-
favored areas. These suffer from very particular characteristics that most technology-based
firms do not go through: weak infrastructural facilities, relative remoteness to main markets,
disadvantaged populations, relatively low income and a fragile economic fabric.
Accordingly, new ventures are even more important in less-endowed areas in order to
diversify the local economy and to increase welfare. Rural entrepreneurship can play an
important role in creating new jobs, income and wealth and thus, fighting the main
economic and environmental weaknesses of rural communities. Consequently, the creation
of new ventures seems mandatory for an integrated development to happen.
Entrepreneurial activity is not the same in all countries, regions and cities. Entrepreneurship
is conditioned by various factors settled in the behavior, motivations and knowledge of the
individual. However, it is dependent on opportunities and available resources and on the
conditions of the surrounding environment (Stathopoulous, Psaltopoulos, Skuras, 2004).
Although rurality may be defined using terms such as population density, rate of
population outflows and inflows, settlement size, local economic structure and landscape
(Skuras, 1998), it can also be addressed as a set of rules and resources existing in a certain
space and drawn upon discursive and non-discursive actions (Halfacree, 1995).
Two realities are related to rurality: on the one hand, more developed rural areas,
characterized by their relative proximity to main economic markets and, on the other hand,
remoter areas, characterized by depopulation, infrastructural inadequacies, high
dependence on farming and a weak industrial fabric. As a consequence, rurality has
obstacles and opportunities for entrepreneurship to occur and alters both the
entrepreneurial process and outcomes (Stathopoulous, Psaltopoulos, Skuras, 2004).
If launching new firms is a difficult issue in the entrepreneurial process, the problems are
more specific to rural entrepreneurs due to three types of problems. Such problems are
related to social and economic structures and to the physical environment (Lichtenstein and
Lyons, 1996; Knack and Keefer, 1997). Low population size/density and remoteness make it
difficult for rural entrepreneurs to achieve economies of scale or critical mass. Furthermore,
the difficulties brought upon by the remoteness of rural areas impose a high transaction cost
to rural businesses as it limits accessibility to suppliers, customers, new markets and social
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capital of urban and sub-urban communities. Lastly, the lack of a social capital fabric, the
qualitative characteristics of the civil society, and the activities of other more developed
areas jeopardize the operation of businesses and their networking activities.
As seen above countless business incubation models were developed and used extensively
in business incubation centers, university business incubators, independent private
incubators, corporate private incubators, high-technology business incubators and
technology parks. The particularity of those models is that they depart from technological
backgrounds and specific characteristics that are not valid in most rural, less-endowed
areas. Clearly, the ideal environment for entrepreneurship is where firms can take
advantage of the agglomeration and proximity of sources of information, qualified labor,
technology and capital. Classical incubation models thrive in those environments.
In rural areas, however, where the networks have yet to be developed, where innovation
and technology do not belong to the local culture and economy, and where enterprises
struggle to become more competitive (Keeble and Tyler, 1995), business incubation models
must have the following key attributes:
? They are first centered on entrepreneurs and only then on the business activity;
? They build entrepreneurial support systems to help entrepreneurs develop business
ideas, create viable enterprises and grow sustainable businesses within the rural
community;
? They help build entrepreneurial environments with the support of public and private
sectors;
? They are strategically focused in meeting the needs of rural entrepreneurs.
Moreira and Martins (2009) developed a methodology to support rural entrepreneurs in an
integrative way throughout the following three phases:
? Information and Nurturing entrepreneurship and business creation
? Maturation and Finalization of a business plan
? Test and Experimentation of business ideas
Each phase involves different actions with several tasks. Each action has instruments and
procedures in order to help potential entrepreneurs throughout the process.
In the Information and Nurturing phase, the potential entrepreneur is interviewed and
her/his business ideas are assessed. A file is prepared with the personal entrepreneur
motivations, his/her business ideas and an analysis of the entrepreneur’s needs in terms of
support and/or resources.
The objective of the interview is to analyze the entrepreneur’s profile, his/her technical and
personal competencies, the business idea, the business feasibility and the possibility of
supporting the entrepreneur in the next phases. This action is the most important in the
follow up process as it ends with a business check-up about the entrepreneur/idea/project
concerning the type of support the prospective entrepreneur will be given (or not) during
the following phases of the process.
Clearly, all entrepreneurs must go through this stage as the diagnosis will reveal the
potential of the entrepreneur/idea/project.
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In the maturation and finalization phase the elaboration of the business plan takes place. This
phase begins with the establishment of a contract between the entrepreneur and the
institution, therefore, defining the duration and terms of support and training. In this
manner, the potential entrepreneur develops the skill to prepare the Business Plan.
There are training sessions so that the entrepreneur can prepare the business plan, undergo
market research and collect the necessary information. A tutor provided by the institution
helps the entrepreneur with the search and collection of information, and the training
received by the entrepreneur is expected to help him/her with the preparation of the
business plan.
By the end of this phase, the entrepreneur must have a business plan, an investment plan
and a financial plan and must understand, explain and defend their contents to third parties.
The experimentation and test phase is the most innovative phase of the process. It allows the
entrepreneur to test the business idea before the formal creation of the firm. This phase can
be considered a radical innovation as it gives potential entrepreneurs the opportunity to
incubate business ideas before formally beginning the business.
The entrepreneur has the support of the business incubation structure and his/her tutor in
all main business areas: accounting, finance, marketing, communication, image,
infrastructures, etc. Clearly, during the test and experimentation process, the entrepreneur
has the opportunity to test his/her business without the formal creation of the firm, thus
forming a business idea bed-test. In order for this to be possible, the entrepreneur will have
administrative support from the business idea incubator, which will be responsible for the
invoices and receipts during this phase. In this situation the business incubator is providing
a brand new service in upstream activities of the value chain: the testing of the business
ideas.
According to Moreira and Martins (2009), this type of business idea incubator is very
innovative as it provides a hands-on approach to training prospective entrepreneurs. This
action oriented methodology supports prospective entrepreneurs before the actual creation
of the new business.
The combination of different actions overcomes the obstacles identified by potential rural
entrepreneurs in the preparation of the project: poor access to capital; lack of institutional
support; heavy administrative and bureaucratic burdens; lack of information about support
and programs for business creation.
7. Conclusion
While incubators have been proliferating throughout the world as way of supporting the
creation new start-ups, the way of understanding them is becoming more diverse due to the
need of targeting them to specific situations.
There are several literature-based definitions for business incubators. Some conceptualize
incubators as a place that hosts and shelters new business undertakings, some as the
supporting base of the planning, creation and launching a new business in the market, and
others include the concept of virtual incubation where e-business services are provided. The
concept recently has been stretched to include business idea incubation, extending the
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incubator value chain to upstream activities in order to support less-endowed firms in rural
areas. However, in a general way, all of them aim to stimulate and support the creation of
new firms. Nevertheless, the way they provide the service varies considerably according to
the typology used: private or public incubators, technology or rural incubators, physical or
virtual incubators.
In an attempt to understand all the inherent processes of incubation, it is clearly
understandable that there is no unanimous opinion on how the process should be or how
the model should provide this service to the potential entrepreneurs. The majority of
business incubation models tend to describe the process by attempting to assess the
incubator results, thus, leaving unaddressed several characteristics of the models and
incubatees who they supposedly serve. However the applicability of a global model for all
types of incubators might be very limiting considering that each type of incubator is
targeted to very specific needs.
Bergek & Norrman’s (2008) offer a general structured model in which each incubator can
adjust its services to the three components (selection, support and mediation) it follows in
the process of supporting new businesses. In such a way this model can also be applied to
virtual incubators as well as to business ideas incubators as proposed by Moreira and
Martins (2009).
One important aspect of the incubation models analyzed in this chapter is that classical
models provide services based on the provision of physical facilities. On the other hand,
virtual incubators are targeted to potential entrepreneurs who seek services as virtual
classrooms, virtual set-by-step idea evaluation process, virtual business plan mentoring and
an array of e-services that are very interesting for high-tech entrepreneurs.
Although business incubators, as shown by Bergek and Norrman (2008), tend to provide
three basic functions, Moreira and Martins (2009) have extended incubators to business idea
incubators, where a business idea is pre-tested before the formal creation of the new firm.
This methodology has been of added value as it has underpinned the creation of brand new
firms providing plentiful business skills to potential entrepreneurs during the testing phase.
Other important issues that deserve closer scrutiny are, on the one hand, how virtual
incubators can be used (and of added value) for supporting the creation of new firms in
rural areas and, on the other hand, how the incubation of business ideas can be used to
support new business creation in more technology-driven environments.
In fact, there are several contributions found in the literature concerning incubation models.
However, we have not performed an in depth analysis, which is the biggest limitation of the
article.
8. References
Aernoudt, R. (2004). Incubators: Tool for Entrepreneurship? Small Business Economics, Vol.
23, pp. 127-135.
Bergek, A. & Norrman, C. (2008). Incubator Best practice: A framework. Technovation, Vol.
28, No. 1/2, pp. 20-28.
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Campbell, C.; Kendrick, R. & Samuelson, D. (1985). Stalking the Latent Entrepreneur.
Economic Development Review, Vol. 3, No. 2, pp. 43-48.
Carayannis, E. & Zedtwitz, M. (2005). Architecting gloCal (global?local), Real-virtual
Incubator Networks (G-RVINs) as Catalysts and Accelerators of Entrepreneurship
in Transitioning and Developing Economies: Lessons Learned and Best Practices
from Current Development and Business Incubation. Technovation, Vol. 25, No. 2,
pp. 95-110.
Carter, S. & Jones-Evans, D. (2000). Enterprise and Small Business: Principles, Practice and
Policy, Pearson Education Ltd, Harlow, England.
Grandi, A. & Grimaldi, R. (2005). Business Incubators and New Venture Creation: An
Assessment of Incubating Models. Technovation, Vol. 25, No. 2, pp. 111-121.
Hackett, S. M. & Dilts, D. M. (2004a). A Systematic Review of Business Incubation Research.
The Journal of Technology Transfer, Vol. 29, No. 1, pp. 55-82.
Hackett, S. M. & Dilts, D. M. (2004b). A Real Options-Driven Theory of Business Incubation.
The Journal of Technology Transfer, Vol. 29, No. 1, pp. 41-54.
Halfacree, K. (1995). Talking About Rurality: Social Representations of the Rural as
Expressed by Residents of six English Parishes. Journal of Rural Studies, Vol. 1, No.
1, pp. 1-20.
Hannon, P. D. (2003). A Conceptual Development Framework for Management and
Leadership Learning in the UK Incubator Sector. Education Training, Vol. 45, No.
8/9, pp. 449-460.
Keeble, D. & Tyler, P. (1995). Enterprising Behaviour at the Urban-rural Shift. Urban Studies,
Vol. 32, No. 2, pp. 975-997.
Kuratko, D. F. &. LaFollette W.R. (1987), Small Business Incubators for Local Economic
Development. Economic Development Review, Vol. 5, No. 2, pp. 49–55.
Merrifield, D. B. (1987). New Business Incubators. Journal of Business Venturing, Vol. 2, pp.
277–284.
Moreira, A. C. & Martins, S. L. (2009). CRER: An Integrated Methodology for the Incubation
of Business Ideas in Portugal, Journal of Enterprising Communities: People and Places
in the Global Economy, Vol. 3, No. 2, pp. 176-192.
Nowak, M. J. & Grantham, C. E. (2000). Virtual Incubator: Managing Human Capital in the
Software Industry. Research Policy, Vol. 29, No. 2, pp. 125-134.
Ohame, K. (2000). The Invisible Continent, Nicholas Brealey Publishing, London, England.
Peters, L.; Rice, M. & Sundararajan, M. (2004). The Role of Incubators in the Entrepreneurial
Process. The Journal of Technology Transfer, Vol. 29, No. 1, pp. 83-91.
Smilor, R. W. (1987). Managing the Incubator System: Critical Success Factors to Accelerate
New Company Development. IEEE Transactions on Engineering Management, Vol.
34, No. 4, pp. 146–156.
Stathopoulou, S.; Psaltopoulos, D. & Skuras, D. (2004). Rural Entrepreneurship in Europe. A
Research Framework and Agenda, International Journal of Entrepreneurial Behaviour
& Research, Vol. 10, No. 6, pp. 404-425.
Skuras, D. (1998). Rural Development in the European Union, Cahiers Options
Méditerranéennes, Vol. 29, pp. 143-151.
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Turban, E.; Lee, J.; King, D. & Chung, H. (2000). Electronic Commerce. A Managerial
Perspective, Prentice Hall, New Jersey, USA.
www.intechopen.com
Entrepreneurship - Creativity and Innovative Business Models
Edited by Prof. Thierry Burger-Helmchen
ISBN 978-953-51-0069-0
Hard cover, 190 pages
Publisher InTech
Published online 29, February, 2012
Published in print edition February, 2012
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What are the differences between an entrepreneur and a manager? According to Schumpeter, the main
difference lies in the entrepreneur's ideas, creativity, and vision of the world. These differences enable him to
create new combinations, to change existing business models, and to innovate. Those innovations can take
several forms: products, processes, and organizations to name a few. In this book, an array of international
researchers take a look at the visions and actions of innovative entrepreneurs to be at the source of new ideas
and to foster new relationships between different actors to change the existing business models.
How to reference
In order to correctly reference this scholarly work, feel free to copy and paste the following:
António C. Moreira and Marta F. S. Carvalho (2012). Incubation of New Ideas: Extending Incubation Models to
Less-Favored Regions, Entrepreneurship - Creativity and Innovative Business Models, Prof. Thierry Burger-
Helmchen (Ed.), ISBN: 978-953-51-0069-0, InTech, Available from:http://www.intechopen.com/books/ent...and-innovative-business-models/incubation-of-
new-ideas-extending-incubation-models-to-less-favored-regions
doc_369480292.pdf
Within this detailed outline concerning incubation of new ideas extending incubation models to less favored regions.
3
Incubation of New Ideas: Extending Incubation
Models to Less-Favored Regions
António C. Moreira
1
and Marta F. S. Carvalho
2
1
DEGEI/GOVCOPP/University of Aveiro
2
ISMAI/Instituto Superior da Maia
Portugal
1. Introduction
The search for models regarding the business incubation process is on a multifaceted
road. Existing literature is crowded with a wide range of proposals emphasizing different
foci: some of them focus on results, some address the importance of internal processes,
some present a holistic perspective of incubation by dealing with both environmental
forces and internal aspects, some use virtual approaches and some follow a more
contingent approach in order to address specific issues such as those presented in rural,
less endowed regions.
Considering that incubation models will definitively influence the life of both incubators
and incubatees, it is important to envision the incubation environment. With progressively
complex structures, these environments require an effective and efficient management that
is ready to answer to vivid entrepreneurs, which demand qualified and committed teams
tuned to the objectives defined by the incubator.
Departing from the premise that the "success" (successful management) of a business
incubator is the consequence of the "success" of its incubated companies, the management
business model of the incubator directly contributes to this "success". In this sense, the
incubator macro business process (selection – incubation – graduation) must be organized
and modeled to select good business plans, assess and evaluate the new business
undertakings and graduate successful firms (Bergek & Norrman, 2008; Hannon, 2003).
The main objective of this chapter is to present a review of the literature regarding
incubation services and models. Furthermore, it will extend incubation models in order to
include the incubation of business ideas, specifically targeting less-favored regions.
This chapter is divided in six sections. The introduction covers the first section whereas the
second section presents a revision of the literature regarding incubation and incubators.
Section three covers the incubation process. Section four addresses business incubation
models, in which the most important models are presented and analyzed. Section five
introduces a new concept on virtual incubators. Section six introduces the concept of
incubation of business ideas, which is developed from the specific needs of rural, less-
favored regions. Final conclusions are drawn in section seven.
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2. Incubation and incubators
2.1 Concepts
The globalization process, experienced by most economies in the last years, has unleashed
the importance of the innovative capacity of firms, regions and countries in their search for
competitive advantage and efficiency. In this way, the new technological dynamics imposed
on business environments have generated new forms of organization and interaction among
firms, and between companies and other institutions, thus, assisting in the search for
stronger competitiveness and long term survival.
The role performed by business incubators, by underpinning the generation of new
competitive firms, or by training future entrepreneurs, is of crucial importance. Business
incubators are mechanisms that stimulate the creation and development of new micro and
small companies (technology-based firms, manufacturing firms, service firms or agricultural
firms). By providing the complementary training to young entrepreneurs, both in the
technical and management aspects of the new firm, business incubators have facilitated and
accelerated the process of innovation as well as economic and regional transformation.
Hannon (2003) considers that the business incubation process supports the identification
and exploitation of a successful opportunity for the creation of a new business undertaking.
According to Hannon (2003), the business incubation process should be faced, firstly, as the
environment where new business ideas and undertakings can be developed according to a
set of business support resources.
The business incubator’s public image appears as a network of individuals and
organizations. Included in this network are the incubator’s manager and personnel, the pool
of advisors, the incubatees and their staff members, the local universities, the local
development associations, the industrial contacts and all the services provided by the
incubator, such as lawyers, marketing consultants, accountants, investors and volunteers
(Hackett & Dilts, 2004a).
Although reinforcing this idea, Bergek & Norrman (2008) also claim that the business
incubator should have a network mediating role amongst the incubatees as well as between
them and the environment that surrounds them. Considering that business incubators
should be positioned for actively cooperating in the initial phase of new entrepreneurial
undertakings, this mediating role may bring benefits for the incubatees by increasing their
probability of succeeding in the business arena. According to Bergek & Norrman’s (2008)
position, it is possible to infer that it is the responsibility of the business incubator to make
feasible cooperative relationships that provide incubatees with greater access to the
information generated in the environment in which incubated firms are inserted, thus,
nurturing the development of competences by means of learning processes. As a
consequence, the final objective of the incubation process is to deploy among incubatees the
capability to survive in the business arena and to transform a business idea in a successful
business venture.
Finally, Bergek & Norrman (2008) claim that illustrating a nurturing awareness policy that
contributes to the establishment of cooperative relations is the first step for a business
incubator to establish and promote viable businesses.
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Despite the prominent role of business incubators in the process of nurturing and
underpinning the promotion of new firms, Hackett & Dilts (2004b) consider that they can be
regarded as a resourceful technology that, by itself, is not presented as a tool that guarantees
the new firms’ success. The absence of entrepreneurial capabilities and the lack of marketing
knowledge can lead to the failure of new ventures. Accordingly, they defend that the
incubator must, in this sense, be understood as a means to an end.
If it is correct that the absence of potential/capacity of the incubatee can doom the new
entrepreneurial undertaking to failure, it is not less true that the networking role of the
incubator as a mediator between the incubatee and the external environment is also
important. Nevertheless, we stress that during the initial phase the incubator’s role is
multifaceted. Consequently, we defend Hackett & Dilts’ (2004b) conclusion that though the
network based view of the incubator is important, the structural contingent theory is even
more important to guarantee that there is a “proper fit” between the business incubator and
the external environment faced by new firms.
This mixed concept of network support and structural contingency are confirmed by
Hackett & Dilts (2004b) and Bergek & Norrman (2008) when they try to come up with the
different forms to define an incubator. They define an incubator as a place where resources
can be rationally and dynamically invested. The business incubator is seen as a dynamic
community where selected incubatees can locate their emergent firms in an incubating
environment. This includes routines, procedures, culture, working environment, learning
experience and working costs, which incubatees can hardly obtain by themselves.
2.2 Typology
Many changes have occurred since the establishment of the first business incubators due to
(a) the role they have had in the creation of new firms and (b) the mechanisms for achieving
the technological development they have been using.
Initially, the majority of incubators was positioned, on the one hand, as a public tool for the
creation of jobs, urban rehabilitation, commercialization of university innovations and, on
the other hand, as private organizations for the incubation of new high-growth firms
(Hackett & Dilts, 2004a).
Grandi & Grimaldi (2005) segment incubators in two different types: those with lucrative
objectives, such as private incubators, and those with non-profit purposes, including
university incubators and business innovation centers, such as those that appeared in
Europe during the 1980s. According to Grandi & Grimaldi (2005) the initial objective of
public incubators was to reduce the costs of doing business by offering a set of services,
space, infrastructure, technical experience and assistance in the elaboration of the business
plan. With the changes and evolution of markets, this type of positioning began to change
due to the boom of private incubators. These have as main purposes the creation of new
firms and the obtainment of profit from incubatees as a result of fees charged for new
undertakings.
Through time incubators have been assuming the role of supporting the development of
start-ups with a broad range of services. This has led to the detriment of the initial passive
behavior of offering physical space, basic infrastructures and communication channels to
tenant companies. For Bergek & Norrman, (2008) the services provided by an incubator
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within a typology centered in the provision of physical space and administrative services
resemble the concept of hotel and not of incubation. According to the demands of current
markets and the growing need and sophistication of innovation, incubators should be
prepared to assume themselves as the engines of that innovation, thus, supporting and
nurturing potential entrepreneurs in order to strengthen their potential growth and to
endow them with the business tools that they normally lack to achieve current or potential
opportunities.
Our comprehension of the positioning of an incubator resembles that put forward by Bergek
& Norrman (2008) as a large percentage of potential entrepreneurs are neither able to
prepare their business plans nor start their own businesses as they lack managerial
competences, business contacts and financial resources. They reveal need of a "mentor" able
to support and guide the new firm towards the “right” position, in the “right” moment.
Peters, Rice & Sundararajan (2004) reiterate this pattern as they defend that incubators must
assume the role of organizational developers by contributing to the training, networking
and assistance of incubatees in the initial phase.
It is imperative to fully comprehend the incubation process. However, we must have in
mind that incubators can accelerate the learning process by training entrepreneurs,
counseling them, and supporting their managerial know-how.
3. The incubation process
Following the inherent concepts of the incubators and the incubation process we will now
focus our attention on the process itself. According to the analysis of the different concepts
of the incubator, we can infer that the incubation process can include the support of business
development including: the formulation of the business plan, the recognition of business
potential, the planning of business activities, the preparation of the market study, the
entrance in the market and the sustainable development of the business.
Carter & Jones-Evans (2000) propose a generic five-step incubation process, as shown in
figure 1. One feature of the Carter & Jones-Evans’ (2000) model is that the steps put forward
are focused on the needs of the incubatee, which will be supported by the service provided
by the incubators during the incubation process. Carayannis & Zedtwitz (2005) identify five
services provided by incubators that are crucial for the incubatees:
1. access to physical resources;
2. administrative support;
3. access to financial resources;
4. business/organizational support in the start-up phase;
5. access the networking activities.
Despite the validity of the services provided and of the model proposed by Carter & Jones-
Evans (2000) and Carayannis & Zedtwitz (2005), it is possible to question not only if all
incubators perform the whole range of steps and services, but also if they are effectively
carried out and properly assessed in the incubation process. One of the criticisms put
forward regarding the model is that it does not answer how an in what way incubators
provide their support. As most of the incubators were developed as a response to the
challenge posed by technological pressures, namely university business incubators, business
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innovation centers, science parks, etc. it is also questionable if the model is suitable in rural
areas where pace technologies are rare and there is a scarcity of human capital.
Fig. 1. Key steps in the incubation process
Given the importance of the incubation process, Hannon (2003) affirms that managerial
capacities as well as the level of experience associated to the incubator are vital for the
success of the assessment of the incubation process. The incubator will have to be capable of
correctly managing the incubation environment, supporting the incubatee’s new business
creation during the incubation process, and, of reducing the probability of failure of the new
undertaking and speeding up the process of business creation. In order to deal with these
issues the incubator should have an adequate management profile that includes financial,
analytic, interpersonal, entrepreneurial and bargaining capabilities.
Considering the importance and the relative complexity associated to the incubation
process, we shall address the models and components related to this procedure.
4. Incubation models
Due to the incremental role of incubators in society and in the economy, the comprehension
of the whole incubation process is of key importance. However, the studies and proposals
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carried out throughout time do not present a holistic vision of the process. Bergek &
Norrman (2008) consider that the majority of models are centered on results and do not
intertwine the processes of selection and management of the incubator and its results.
Campbell, Kendrick, & Samuelson (1985) are amongst the first to propose a model that
attempts to conceptualize the incubation process. They tried to explain, as shown in figure 2,
how the different components and activities of an incubator can facilitate the transformation
of a business proposal in a viable new firm.
Fig. 2. Campbell, Kendrick & Samuelson's (1985) incubation model
The model proposed by Campbell et al. (1985) suggests four areas where the incubators
create value: 1) the diagnosis of business needs, 2) the selection and monitoring of the
services provided to the firms, 3) the investment of capital, and 4) the access to the working
network of the incubator.
According to the process described and the components presented by the model, it would
be possible to make a potential business into a viable firm. However, the model fails when
considering that all businesses are potentially viable and does not take into account the lack
of capabilities of potential entrepreneurs and, the environmental barriers that can arise
during the process that might doom the new venture to failure. In addition, the model is not
explicit in what criteria to adopt when selecting a business to support.
Would not a bad or incorrect selection process influence (negatively) the feasibility and
future growth of a potential new business? Moreover, it is still visible that the model is
basically centered on private incubators with little support in rural areas or social programs.
Having in mind the question raised about the selection criteria, Kuratko & LaFollette (1987)
confirm that inconsistent selection of the incubatee can increase the probability of failure of
both the incubator and incubatee. This arises from the probability that selection is not
focused on the value proposition of the business proposal and on the competences of the
potential entrepreneur.
Following this line of thinking, Merrifield (1987) created a selection proposal for potential
incubatees. That approach consisted of three main questions being the first two based on the
potential incubatee: 1) is this a good business in which anyone could be involved? 2) is this a
business in which the (incubated) firm has resources and competences to successfully
compete? With these two questions Merrifield (1987) intended to verify the attractiveness
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and suitability of the new venture. In the case the answers were favorable the last question
would be raised: 3) Which is the best approach for the firm to enter the business arena and
grow?
Although Merrifield’s (1987) approach looks solid, it can be considered as a very
simplistic way of analyzing the potential of a new business undertaking. It is also possible
to assert that the proposal is applicable in technology-based new ventures. However,
it falls short of expectations in less endowed regions. This is the case in rural areas in
which young entrepreneurs do not have the same qualifications and the incubators
capabilities and resources are far from those found in universities or business and
innovation centers.
As was previously referred, Campbell et al.’s (1985) model is open to refinement, and was
addressed by Smilor (1987) who perceives incubators as a transformation mechanism in
which industry, government and university are interrelated. Smilor (1987) categorizes the
benefits that incubators provide to their incubatees through four dimensions: 1) credibility
development, 2) the shortening of the learning curve, 3) faster troubleshooting, and 4) access
to the network of entrepreneurs.
According to Smilor’s (1987) model, there is a strong emphasis on the external perspective,
neglecting the internal one, in which the entrepreneur plays an important role. However, as
the model was developed and proposed having in mind typical innovation-based
entrepreneurs, it seeks to identify the different components of the new business incubation
process. It conceptualizes the incubator as a system that gives incubatees the structure and
credibility for the creation of new firms while ensuring a set of immediate, key resources for
the setting up of the new undertaking. For example, if we take into account the lack of
entrepreneurial capabilities as well as the lack of economic resources in most rural areas, it is
possible to conclude that this systemic approach, encompassing the internal and external
environment, seems to be lacking in Smilor’s (1987) model.
Fig. 3. Smilor’s (1987) incubation model
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In the search of a model that presents the different components of the incubation of a new
firm (either internal or external), we find Bergek & Norrman’s (2008) proposal. They reject
the principle of a black box incubation model centered merely on results. They consider that
it is only possible to evaluate the performance of a business incubator when taking into
account the particular objectives of the incubator, i.e. confronting objectives and results.
They identify a set of components that try to translate the incubation process according to
the internal and external variables:
1. The selection of firms that should be accepted and the ones that must be rejected;
2. Infrastructures, regarding the physical facilities and administrative services to be
provided;
3. Mediation, i.e. the way in which the incubator mediates the relationship between the
incubatees and the external world;
4. Graduation, which concerns the policy defined by the incubator about the moment and
circumstances of exit of the incubated firms.
Fig. 4. Bergek & Norrman’s (2008) incubation model
In regards the selection component, Bergek & Norrman’s (2008) mention that it is one of the
most important tasks. Consequently, the selection criteria must be adjusted to the
characteristics and objectives of the incubator. However, they identify two different
approaches: selection based on the business idea and selection based on the entrepreneur.
When the criterion is based on the idea, it requires that the incubator has the technological
and business knowledge as well as the background necessary in order to evaluate the
feasibility of the business idea. On the other hand, if the criterion is based on the
entrepreneur, the incubator must have competencies to assess the entrepreneur’s personality
traits, personal skills, and capabilities related to the new venture.
The adoption of one or the other is a matter of option and flexibility. Nevertheless, it is
arguable that the “picking the winners” policy is a successful approach. Accordingly, as
Bergek & Norrman’s (2008) suggest, in order to avoid possible evaluation errors it would be
advisable to deploy a selection process that involves both approaches in order to assess
pairs of ideas/entrepreneurs, and winners/survivors. The application of this selection
strategy seems to be more complete, as it involves the two variables that are important for
the new venture to succeed: the business idea and the entrepreneur.
In what concerns the business infrastructure, it is important to remark that beyond the need
of a broad support, it is vital to intertwine that support with the way it is provided.
Concerning the incubator mediation capacity, Bergek & Norrman (2008) defend the
importance of the role of the mediator among incubatees and between them and other
actors. In this manner, mediation capacity is a way of projecting the incubatees in the
market, creating opportunities for them as well as reducing uncertainties.
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A closer look at the components presented by Bergek & Norrman (2008) leads us to consider
the model as properly adjusted as it takes into account the demands of the incubator’s
internal dynamics as well as the external environment. Therefore, it leaves each incubator
with the responsibility of applying the different components of the model and adapting the
incubator to the intricacies of each particular reality. Nevertheless, Hackett & Dilts’ model
(2004b), shown in figure 5, based on Campbell et al.’s (1985) model, also proposed a holistic
vision of the incubation model. Although focused on the results/performance (black box)
approach, they developed a theory, based on the real options theory, as a way to maintain
and complement the model.
Fig. 5. Hackett & Dilts’ (2004b) incubation process model
The incubation process proposed by Hackett & Dilts (2004b) suggests that incubatees are
selected from a pool of candidates, being monitored and supported with resources while
they go through their initial developmental phase. The results are referred to the survival or
failure of the incubates at the moment he/she leaves the incubator.
By analyzing the model it would be possible to pose the following two questions: what
criteria should be considered at the time of the selection of possible incubatees? Would the
existence of predefined criteria contribute to the economic results of incubation?
The answers to these questions are found in the real options theory proposed by Hackett &
Dilts (2004b). These authors seek to resolve how and why the variability in the measures of
the components of the model can explain and forecast the probability of survival of new
undertakings during the development phase. The theory presented by Hackett & Dilts
(2004b) defends that: the performance of incubation depends on the incubator’s ability to
create options through which the selection of weak-but-promising intermediate potential
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firms is interesting. However, it must be implemented with monitoring and counseling, and
the infusion of resources.
The performance of incubation can be measured in terms of growth and financial
performance at the time of incubator exit. As indicator of success Hackett & Dilts (2004b)
identify the following mutually exclusive outcomes:
1. The incubatee is surviving and growing profitably;
2. The incubatee is surviving and growing and is on the road of profitably;
3. The incubatee is surviving but not growing and is not profitable or is marginally
profitable.
4. The incubate operations were terminated while still on the incubator, but the losses are
minimized;
5. The incubate operations were terminated while still on the incubator, and losses are
very large.
In relation to the outcomes, Hackett & Dilts (2004b) consider the outcome number four as a
success factor, according to the real options theory. However, it is possible to pose the
following question: will it effectively be a success indicator or an indicator of a bad option
upon selection of the incubatee? Well, it is indeed possible that the selection of the incubatee
was right and the absence of “luck” played a crucial role. If Hackett & Dilts (2004b) affirm
that according to the real option-driven theory the third indicator should be a failure
outcome, then it looks that a mismatch exists when defending that the fourth outcome is a
success outcome. The issue is simple: would not a “marginally profitable” business be better
than a “dead” business? More importantly, if both are in the incubator, one should pose the
following question: How would their performance be outside in the real world?
Hackett & Dilts (2004b) argue that selection performance is the capacity of the incubator
to behave as a venture capitalist of the undertaking at the moment of selection and
admission of the incubatee. Accordingly, it will be expected that incubators behaving as
venture capitalists adopt selection criteria such as: managerial capacities of the
enterprising team, market and product characteristics and potential, and the expected
financial results. According to Hackett & Dilts (2004b), the existence of a selection
mechanism makes potential candidates more demanding with themselves, leading them
to self-corrective measures.
Regarding the selection performance, it is possible to argue that the model might not be
pervasively used in all type of incubators, especially for those that are targeted for social
minorities or rural areas in which social responsibility plays a crucial role. Accordingly,
although the incubator might behave as a venture capitalist, it must consider what target
groups it is serving. In addition, the incubator must ponder how those target groups can be
served in developing managerial competences. However, this selection criterion is
important as it also allows potential entrepreneurs to understand that they have to cope
with the risks of the new venture. This factor was not considered by Bergek & Norrman
(2008), as they regarded the selection criterion as being centered on the entrepreneur.
In what concerns the intensity of monitoring and business assistance, Hackett & Dilts
(2004b) claim that the more intense the monitoring and the business assistance to the
incubatees, the larger the probability of success of incubation process performance. Hackett
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& Dilts (2004b) consider that the probability of obtaining positive results increases with the
capacity for supporting the incubatees with a variety of resources.
According to the analysis of Hackett & Dilts’ (2004b) model and the description of the real
option-driven theory of business incubation, it is possible to defend that the model tries to
explain business incubation performance. However, it is centered on the incubator
perspective, without strong elements of reference or importance to the incubatee, who the
incubator is supposed to serve.
Confronting the models, we recognize that Bergek & Norrman’s (2008) model effectively
translates a more holistic vision, not being centered on results or performance, and considering
the incubation process as a whole including both the incubator and the incubatee.
Moreover, it is possible to notice that all the models referred above identify internal aspects
of the incubator. Nevertheless, there is no agreement on what criteria can be assumed as
relevant for the process of business incubation. On the other hand, the internal resources of
incubators and the way they are used are extensively used and analyzed according to the
business plan of the incubator. Of equal importance is the fact that incubators closely
scrutinize the costs of all training, consultancy provided, partnerships/interactions the
incubator holds with different agents and all infrastructural costs. In this manner, incubators
are closely monitoring their own business.
Another important issue is that not all the models properly highlight external issues, such as
location and partnerships maintained. The external environment can strongly influence the
incubator, as it will depend on the partnerships gained and maintained with higher
education institutions, technology centers and other research institutions. These
partnerships support the incubator in the development of new firms, thus, fulfilling the
incubator’s own mission. If the location the incubator inhabits does not possess those
institutions, the incubated companies can face some difficulties in reaching stability
(graduating). The same is true if the location does not possess companies that can be clients
of the new firms, which may hinder local development. This is certainly what happens in
many rural areas in which the main markets are far away and technology oriented
institutions are scarce, giving particular attention to rural incubators.
Components seem to be one of the main challenges incubators face in the incubation
process. However, to better articulate the incubation process one must consider a wide array
of criteria that can encompass the type of incubator, its area of influence, the services
provided, and its geographical location, among others. Accordingly, although all incubation
models are suitable, it seems that Bergek & Norrman’s (2008) proposal is an open road that
deserves further development.
Considering the growing tendency and accessibility of internet resources and information
technologies, we have decided to approach new incubation models – virtual incubation – in
order to face and readjust towards a changing reality.
5. Cyber incubation
The growth and pervasiveness of the Internet is amplifying creative processes and leading
to new scientific and technological developments.
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Firms both in developing and developed economies are increasingly hiring professionals
using the Internet to expand research and development projects and to create new
businesses in a networked sustainable development.
Nowadays, we are witnessing a stimulating and proactive participation in cyber work and
cyber business creation. High levels of market competitiveness lead firms to be more active
and competitive in Internet-based business (Ohmae, 2000; Turban et al., 2000). Accordingly,
business incubation is being influenced by the development of new, emerging incubation
models in which talented, skillful people can work at home or in innovative environments
providing e-services or knowledge-based services.
This new concept of incubation will eradicate some of the items related to the components
previously presented, such as physical space, equipment and relationship management
between incubatees. Virtual incubators need to provide valuables resources and e-services
to assist potential entrepreneurs in the creation of their new ventures.
Aernoudt (2004) states that incubation should be considered as an interactive and dynamic
new firm creation process with the purpose of stimulating people to start their own business
and supporting start up enterprises in the development of innovative products. A real
incubator it is not an office space with a desk. It should offer management services, financial
assistance, juridical support, operational know-how and access to new markets, which can
be done both in a physical or virtual space.
Nowak and Grantham (2000) argue that in traditional business development entrepreneurs
face a common challenge: the absence of capital, human resources, and management
capabilities. This leads to the development of new models that facilitate the creation of new
businesses. They propose the creation of a virtual incubation model, based on networked
innovation. They consider that the combination of specialists and information technologies
would assist in establishing strategic alliances between managers, marketing strategists and
specialized engineers, thus, achieving better business opportunities. The components of this
virtual model are shown in table1.
Human resources focus + capital focus = source of integrated resources
Focus on strategic alliance formation helps to underpin all key success ingredients as early
as possible
Intellectual capital valuation and management expertise
Internet-based, distributed resources
Profitable solutions (specially for private incubators)
Private sector plays a leading role, while university and public sector paly supporting roles
Formalized management control systems (accounting, etc.) for generating stability
National and international business and market focus
Work in conjunction with physical incubators when needed
Table 1.
Nowak and Grantham’s (2000) model shows a combination of successful elements applied
to traditional incubation with a new focus on virtual channels and strategic alliances.
Nevertheless, their contribution seems to be in a very embryonic state as it does not explain
the whole cycle of virtual incubation.
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It seems that new technologies will strengthen the proliferation of this new kind of
incubation. However, we think that there are some important challenges to be overcome, in
particular, an extensive application in the primary sector or in rural areas. Hackett and Dilts
(2004a) state that virtual incubators should be regarded as business incubation programs, as
these are much more a provision of services than incubation services. They also defend that
the absence of interaction between incubatees might result in the absence of desired effects
present the traditional incubation environment.
Virtual incubation may go through a dramatic change in the near future, especially with the
provision of e-services for the development of business plans, virtual classrooms, virtual
training and virtual mentoring. Portals may play a crucial role in the creation of a virtual
facility for e-learning purposes. Nevertheless, the traditional roles are not yet set aside.
6. Incubation of business ideas
Rural entrepreneurship plays a crucial role in the economic development of rural and less-
favored areas. These suffer from very particular characteristics that most technology-based
firms do not go through: weak infrastructural facilities, relative remoteness to main markets,
disadvantaged populations, relatively low income and a fragile economic fabric.
Accordingly, new ventures are even more important in less-endowed areas in order to
diversify the local economy and to increase welfare. Rural entrepreneurship can play an
important role in creating new jobs, income and wealth and thus, fighting the main
economic and environmental weaknesses of rural communities. Consequently, the creation
of new ventures seems mandatory for an integrated development to happen.
Entrepreneurial activity is not the same in all countries, regions and cities. Entrepreneurship
is conditioned by various factors settled in the behavior, motivations and knowledge of the
individual. However, it is dependent on opportunities and available resources and on the
conditions of the surrounding environment (Stathopoulous, Psaltopoulos, Skuras, 2004).
Although rurality may be defined using terms such as population density, rate of
population outflows and inflows, settlement size, local economic structure and landscape
(Skuras, 1998), it can also be addressed as a set of rules and resources existing in a certain
space and drawn upon discursive and non-discursive actions (Halfacree, 1995).
Two realities are related to rurality: on the one hand, more developed rural areas,
characterized by their relative proximity to main economic markets and, on the other hand,
remoter areas, characterized by depopulation, infrastructural inadequacies, high
dependence on farming and a weak industrial fabric. As a consequence, rurality has
obstacles and opportunities for entrepreneurship to occur and alters both the
entrepreneurial process and outcomes (Stathopoulous, Psaltopoulos, Skuras, 2004).
If launching new firms is a difficult issue in the entrepreneurial process, the problems are
more specific to rural entrepreneurs due to three types of problems. Such problems are
related to social and economic structures and to the physical environment (Lichtenstein and
Lyons, 1996; Knack and Keefer, 1997). Low population size/density and remoteness make it
difficult for rural entrepreneurs to achieve economies of scale or critical mass. Furthermore,
the difficulties brought upon by the remoteness of rural areas impose a high transaction cost
to rural businesses as it limits accessibility to suppliers, customers, new markets and social
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capital of urban and sub-urban communities. Lastly, the lack of a social capital fabric, the
qualitative characteristics of the civil society, and the activities of other more developed
areas jeopardize the operation of businesses and their networking activities.
As seen above countless business incubation models were developed and used extensively
in business incubation centers, university business incubators, independent private
incubators, corporate private incubators, high-technology business incubators and
technology parks. The particularity of those models is that they depart from technological
backgrounds and specific characteristics that are not valid in most rural, less-endowed
areas. Clearly, the ideal environment for entrepreneurship is where firms can take
advantage of the agglomeration and proximity of sources of information, qualified labor,
technology and capital. Classical incubation models thrive in those environments.
In rural areas, however, where the networks have yet to be developed, where innovation
and technology do not belong to the local culture and economy, and where enterprises
struggle to become more competitive (Keeble and Tyler, 1995), business incubation models
must have the following key attributes:
? They are first centered on entrepreneurs and only then on the business activity;
? They build entrepreneurial support systems to help entrepreneurs develop business
ideas, create viable enterprises and grow sustainable businesses within the rural
community;
? They help build entrepreneurial environments with the support of public and private
sectors;
? They are strategically focused in meeting the needs of rural entrepreneurs.
Moreira and Martins (2009) developed a methodology to support rural entrepreneurs in an
integrative way throughout the following three phases:
? Information and Nurturing entrepreneurship and business creation
? Maturation and Finalization of a business plan
? Test and Experimentation of business ideas
Each phase involves different actions with several tasks. Each action has instruments and
procedures in order to help potential entrepreneurs throughout the process.
In the Information and Nurturing phase, the potential entrepreneur is interviewed and
her/his business ideas are assessed. A file is prepared with the personal entrepreneur
motivations, his/her business ideas and an analysis of the entrepreneur’s needs in terms of
support and/or resources.
The objective of the interview is to analyze the entrepreneur’s profile, his/her technical and
personal competencies, the business idea, the business feasibility and the possibility of
supporting the entrepreneur in the next phases. This action is the most important in the
follow up process as it ends with a business check-up about the entrepreneur/idea/project
concerning the type of support the prospective entrepreneur will be given (or not) during
the following phases of the process.
Clearly, all entrepreneurs must go through this stage as the diagnosis will reveal the
potential of the entrepreneur/idea/project.
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In the maturation and finalization phase the elaboration of the business plan takes place. This
phase begins with the establishment of a contract between the entrepreneur and the
institution, therefore, defining the duration and terms of support and training. In this
manner, the potential entrepreneur develops the skill to prepare the Business Plan.
There are training sessions so that the entrepreneur can prepare the business plan, undergo
market research and collect the necessary information. A tutor provided by the institution
helps the entrepreneur with the search and collection of information, and the training
received by the entrepreneur is expected to help him/her with the preparation of the
business plan.
By the end of this phase, the entrepreneur must have a business plan, an investment plan
and a financial plan and must understand, explain and defend their contents to third parties.
The experimentation and test phase is the most innovative phase of the process. It allows the
entrepreneur to test the business idea before the formal creation of the firm. This phase can
be considered a radical innovation as it gives potential entrepreneurs the opportunity to
incubate business ideas before formally beginning the business.
The entrepreneur has the support of the business incubation structure and his/her tutor in
all main business areas: accounting, finance, marketing, communication, image,
infrastructures, etc. Clearly, during the test and experimentation process, the entrepreneur
has the opportunity to test his/her business without the formal creation of the firm, thus
forming a business idea bed-test. In order for this to be possible, the entrepreneur will have
administrative support from the business idea incubator, which will be responsible for the
invoices and receipts during this phase. In this situation the business incubator is providing
a brand new service in upstream activities of the value chain: the testing of the business
ideas.
According to Moreira and Martins (2009), this type of business idea incubator is very
innovative as it provides a hands-on approach to training prospective entrepreneurs. This
action oriented methodology supports prospective entrepreneurs before the actual creation
of the new business.
The combination of different actions overcomes the obstacles identified by potential rural
entrepreneurs in the preparation of the project: poor access to capital; lack of institutional
support; heavy administrative and bureaucratic burdens; lack of information about support
and programs for business creation.
7. Conclusion
While incubators have been proliferating throughout the world as way of supporting the
creation new start-ups, the way of understanding them is becoming more diverse due to the
need of targeting them to specific situations.
There are several literature-based definitions for business incubators. Some conceptualize
incubators as a place that hosts and shelters new business undertakings, some as the
supporting base of the planning, creation and launching a new business in the market, and
others include the concept of virtual incubation where e-business services are provided. The
concept recently has been stretched to include business idea incubation, extending the
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incubator value chain to upstream activities in order to support less-endowed firms in rural
areas. However, in a general way, all of them aim to stimulate and support the creation of
new firms. Nevertheless, the way they provide the service varies considerably according to
the typology used: private or public incubators, technology or rural incubators, physical or
virtual incubators.
In an attempt to understand all the inherent processes of incubation, it is clearly
understandable that there is no unanimous opinion on how the process should be or how
the model should provide this service to the potential entrepreneurs. The majority of
business incubation models tend to describe the process by attempting to assess the
incubator results, thus, leaving unaddressed several characteristics of the models and
incubatees who they supposedly serve. However the applicability of a global model for all
types of incubators might be very limiting considering that each type of incubator is
targeted to very specific needs.
Bergek & Norrman’s (2008) offer a general structured model in which each incubator can
adjust its services to the three components (selection, support and mediation) it follows in
the process of supporting new businesses. In such a way this model can also be applied to
virtual incubators as well as to business ideas incubators as proposed by Moreira and
Martins (2009).
One important aspect of the incubation models analyzed in this chapter is that classical
models provide services based on the provision of physical facilities. On the other hand,
virtual incubators are targeted to potential entrepreneurs who seek services as virtual
classrooms, virtual set-by-step idea evaluation process, virtual business plan mentoring and
an array of e-services that are very interesting for high-tech entrepreneurs.
Although business incubators, as shown by Bergek and Norrman (2008), tend to provide
three basic functions, Moreira and Martins (2009) have extended incubators to business idea
incubators, where a business idea is pre-tested before the formal creation of the new firm.
This methodology has been of added value as it has underpinned the creation of brand new
firms providing plentiful business skills to potential entrepreneurs during the testing phase.
Other important issues that deserve closer scrutiny are, on the one hand, how virtual
incubators can be used (and of added value) for supporting the creation of new firms in
rural areas and, on the other hand, how the incubation of business ideas can be used to
support new business creation in more technology-driven environments.
In fact, there are several contributions found in the literature concerning incubation models.
However, we have not performed an in depth analysis, which is the biggest limitation of the
article.
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www.intechopen.com
Entrepreneurship - Creativity and Innovative Business Models
Edited by Prof. Thierry Burger-Helmchen
ISBN 978-953-51-0069-0
Hard cover, 190 pages
Publisher InTech
Published online 29, February, 2012
Published in print edition February, 2012
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What are the differences between an entrepreneur and a manager? According to Schumpeter, the main
difference lies in the entrepreneur's ideas, creativity, and vision of the world. These differences enable him to
create new combinations, to change existing business models, and to innovate. Those innovations can take
several forms: products, processes, and organizations to name a few. In this book, an array of international
researchers take a look at the visions and actions of innovative entrepreneurs to be at the source of new ideas
and to foster new relationships between different actors to change the existing business models.
How to reference
In order to correctly reference this scholarly work, feel free to copy and paste the following:
António C. Moreira and Marta F. S. Carvalho (2012). Incubation of New Ideas: Extending Incubation Models to
Less-Favored Regions, Entrepreneurship - Creativity and Innovative Business Models, Prof. Thierry Burger-
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new-ideas-extending-incubation-models-to-less-favored-regions
doc_369480292.pdf