Frontiers of Entrepreneurship Research
1996 Edition
SUMMARIES

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BUSINESS INCUBATORS: LINKING THE NOT-FOR-PROFIT AND ENTREPRENEURSHIP SECTORS


Mark P. Rice
Pier A. Abetti

Lally School of Management & Technology
Rensselaer Polytechnic Institute
Troy, NY 12180

Telephone
518-276-8398

Fax
518-276-8661

Principal Topics

According to the National Business Incubation Association (NBIA), 88% of business incubators are organized as not-for-profit critics, and their sponsors are predominantly not-for-profit organizations as well. Economic development organizations serve as the primary sponsor for 35% of incubators, local governments for 14% of incubators, and universities/colleges for 13% of incubators. Twenty-six percent (26%) of incubators claim hybrid sponsorship, which is most commonly composed of some combination of the above sponsors, or "other." The top four primary objectives of incubators, all relate to local and regional economic development, create a positive environment for startups, create local employment opportunities, and contribute to the community and diversification of the local economy. To that end incubators provide support and assistance to new ventures through a variety of intervention mechanisms. On the one hand incubators and the sponsors they represent are predominantly not-for-profit entities, and on the other hand the clients they serve are entrepreneurs. This paper seeks to explore the organizational behaviors, both entrepreneurial and administrative, of incubators and the impact of those behaviors on their performance.

Method

The imperical data on which this research is based will be derived from three sources: (1) the industry-wide surveys conducted by the NBIA and published in 1989, 1991, and 1995, (2) industry-wide surveys conducted by the Emerging Business Services division of Coopers & Lybrand, and (3) a case study analysis of nine incubators conducted by the author. In the latter study, the sample was constructed to provide diversity along the dimensions of geography, age of program and sponsorship. In-depth interviews and detailed surveys were administered to the directors of all nine incubators and to thirtyfive of their client entrepreneurs. This data set has been explored from other perspectives in papers presented at past conferences. However, this research effort examines the case study data in concert with the industry-side data from the NBIA and Coopers & Lybrand surveys to explore a new set of entrepreneurial issues, in particular, the behaviors of incubator staff that can be considered entrepreneurial vs. those that can be considered administrative.

Given that one aspect of entrepreneurship is accessing resources which are required to pursue an opportunity but which are not under the control of the entrepreneur, and further given that incubators provide entrepreneurs access to resources - either internal to the incubator or by acting as intermediaries to external resources, then one measure of success for incubators may be the extent to which they succeed in providing access to resources. To some extent this may be reflected in the entrepreneurial vs. administrative behaviors of incubators and the ratio of time invested in these behaviors, and also in the degree of synchrony of responses from entrepreneurs and incubator directors to identical questions about the resource access and transfer activities of the incubator. Both of these metrics are employed in the in-depth case study analysis.

Major Findings

1. Mission focus in the face of a panoply of conflicting demands on the resources of incubator programs is critical to their success.

2. Program sponsors generally have failed to structure financial inputs as investments rather than subsidies, and the requirement of ongoing subsidy for the survival of these programs has created a destructive relationship between sponsors and program managers that has diminished the performance of the programs.

3. To the extent that the principals involved in these programs have been unable to balance the demands for administrative vs. entrepeneurial management, the effectiveness of the programs has been diminished.

4. Co-production of incubator services by consumers, i.e., incubator company entrepreneurs and to a lesser extent members of the community knowing how network, has significantly improved the performance of these programs, except where the consumption of resources to promote and manage co-production has crowded out the dedication of resources to necessary activities in the domain of regular producers of services, i.e., incubator staff.

Implications

The environment in which most not-for-profits are forced to operate is undergoing rapid change with respect to availability and commitment of financial resources, availability of volunteers, scrutiny by the media, competition for donors’ dollars, and the increasing discontinuity between the expectations of the not-for-profits’ customers and the capacity of the not-for-profit to meet those expectations. Change, uncertainty, and discontinuity in the not-for-profit sector create opportunities which require entrepreneurial management. At the same time, not-for-profits retain the need for stewardship of financial sponsors and their resources. Excelling at both entrepreneurial and administrative management styles and finding the appropriate balance in their application may be key to the continuing survival and success of not-for-profits.

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