Mark P. Loschiavo, Executive Director
Terri Z. McIlhenney, Associate Director
Laurence A. Baiada Center for Entrepreneurship
THE MISSION OF A BUSINESS INCUBATOR
Business incubators provide start-up ventures with an opportunity to do research and development work, begin and refine their revenue generating operations, and increase the likelihood of sustainability by providing space and services that lead to the implementation of innovative ideas, the development of strong management teams, and the cultivation of successful companies.
The mission of a business incubator should be clearly defined and communicated. Incubator directors and staff must be able to deliver their elevator pitch about this mission. There are business incubators that focus primarily in the information technology sector, some in general small business development and others in the life sciences. As an example, the mission of the Laurence A. Baiada Center for Entrepreneurship in Technology at Drexel University is to incubate ideas, entrepreneurs and companies by cultivating sustainable ventures that have the potential to scale rapidly and promote economic development and increased employment in the region. Understanding this mission enables upper management, staff and constituents to stay focused, manage expectations, target specific entrepreneurs for development, and develop relevant programs.
PHYSICAL SPACE AND INFRASTRUCTURE
Physical space is an important aspect of the business incubator. Space can range from individual workstations to suites to laboratory space. Some incubators offer conference room accessibility, storage space, and testing or staging areas depending on the client’s needs and industry sector served. As an example, incubators focused on information technology may have a need for testing and staging areas but it is unlikely that this type of incubator would require the wet lab space needed in biotechnology ventures. Maintaining market focus ensures optimum use of space.
Physical support infrastructure such as internet access, telephone service and voicemail systems, access to printers, fax machines, copiers is also a part of the physical space in many incubators. Determining how robust to make these support systems is critical. These items have significant impact on the incubator’s fixed overhead. The cost of providing an email exchange server with daily backup capability, file servers, and recovery services is higher than the cost associated with basic high speed internet access.
Many entrepreneurs perceive the real estate space and infrastructure that is associated with business incubators to be invaluable. In actuality, the value realized from these aspects is minimal in comparison to the training programs, networking and mentoring that may be offered.
TRAINING AND DEVELOPMENT PRODUCTS
The training and development programs available in a business incubation environment are where the entrepreneur receives the maximum benefit. Educational and skill development programs include academic courses, clinical programs such as workshops that teach business plan or skill development and intense training programs. Legal aspects of entrepreneurship, sales, communications and marketing skills, strategy, business planning, and negotiation skills are just some of the areas where academic and practical training programs place their focus. The Baiada Center for Entrepreneurship offers a Growth Acceleration Program (GAP) to small and mid-size companies. GAP is an intense, five month consultative training program with company-specific deliverables. Areas of training in this program include cash management and preservation, brand development and communication, sales process training, strategic management, and business plan development.
Networking skills develop naturally in an environment where the incubator managers share their business contacts with budding entrepreneurs. Mentoring by experienced entrepreneurs and/or industry specialists and subject matter experts, business and personal development coaching are all elements of successful incubation. Mentoring programs can range from a formal approach by assigning company-specific mentors to a daily mentoring approach that is accomplished by an open-door policy that is made available to companies by many incubator directors and entrepreneurs-in-residence for brief meetings.
The focal point of the business incubator must be on the development of entrepreneurs and new ventures to cultivate the implementation of innovative ideas, the development of strong management teams, and the sustainability of successful companies. The market demand must be for the service product not the physical space. Startup companies should consider this area their top priority when choosing a business incubator.
STRATEGIC THRUST AND FEE STRUCTURE
To improve the success and sustainability rate of startup companies developing in the incubator, the management team must never lose sight of its mission. The strategy must be developed with the mission as its goal. If the goal of the business incubator is to provide a haven for startup companies until they reach a point in their development that they are capable of sustaining themselves in the competitive marketplace, then the strategic thrust must be designed to fulfill that mission.
The strategic thrust of an organization is evidenced by where they focus their attention, investments and commitments. Kepner-Tregoe defines eight categories of strategic drivers for organizations. For instance, a typical hotel maintains a capacity driven strategy—focused on keeping its hotel at full capacity (rooms fully occupied). By contrast, the manufacturer who supplies beds to the hotel may have a product driven strategic thrust—focused on developing, manufacturing and selling beds that are comfortable and easily differentiated from those of their competitors. To provide an example, let us repeat the mission of the Baiada Center at Drexel University. It is “to incubate ideas, entrepreneurs and companies by cultivating sustainable ventures that have the potential to scale rapidly and promote economic development and increased employment in the region”. In order to achieve this mission, the Baiada Center cannot take a capacity driven strategy. A capacity driven strategy in this situation would require that the focus of the incubator is to charge for as much square footage as possible, keeping the incubator filled to capacity. However, once that becomes the primary focus, the mission suffers because the development of the entrepreneur is no longer paramount. Filling the space has taken precedence.
A product driven strategy must be implemented. By taking a product driven strategy, the focus is placed on developing the best training and educational programs and offerings so that strong management teams emerge and grow. That being said, it must be recognized that business incubators are businesses. They must be able to sustain their operations while maintaining their mission. Taking a product driven strategic approach can present challenges to the sustainability of the incubator. One solution to this sustainability issue is to structure fee arrangements with entrepreneurs into two separate categories – physical costs and training costs. By visually dividing the fees, instantly the incubator management has made an effective tool to communicate the value of services. To supplement fees for space and services, sponsorship funds can be solicited from graduates of the incubator if they have built strong, sustainable, profitable companies. This brings the message home. A product driven strategy to business incubation will bring long term results.
SUPPLY OF ENTREPRENEURS
As with any business enterprise, a supply of customers is necessary to continue the operations of the incubator. Feeder mechanisms include students, faculty and alumni from universities and colleges who have participated in business plan competitions, taken courses that teach business plan development or have entrepreneurial inclinations. Some students are admitted into an incubator based on exceptional merit after evaluation of their business plans or business experience.
A unique example of providing supply into an incubator is developed through the Innovation Lab at Drexel University. MBA students take two courses as a part of their curriculum – Technology Management and New Venture Planning. A requirement of the Technology Management course is to conduct market and feasibility research around a technology that has been developed through intense research by a faculty member at Drexel. The deliverable for the course is a commercialization plan and presentation. This same technology is explored further in the subsequent New Venture Planning course where a full business plan is developed. Often these plans are entered into the Drexel Business Plan Competition where the first, second and third place winners are offered space in the Baiada Center’s incubator to develop the plan into a revenue-generating enterprise.
EVALUATION AND ACCOUNTABILITY OF ENTREPRENEURIAL COMPANIES
Entrepreneurial companies benefit tremendously by having a formal review process in place that holds them accountable for progression toward milestones that will lead to sustainable businesses. Quarterly progress reporting and meetings, similar to board meetings are one way to measure and evaluate company development.
In addition, by having an open door policy and frequent face-to-face contact with the entrepreneurs, the incubator director is provided with a deeper insight into the company operations. One of the first warning signs that the company is struggling is evidenced by non-payment of fees for rent and services.
Clear goals should be set by the incubator management as to the expectations for continued tenancy by the entrepreneur.
EVALUATION AND ACCOUNTABILITY OF THE INCUBATOR
Business incubators should operate in a business-like fashion. Advisory boards and boards of directors are often in place to monitor and govern the operations of the facility and its programs. Benchmarking data should be collected from peer organizations to determine what areas are comparable, what areas are superior or what areas require improvement based upon the industry standards. In addition, it is extremely valuable to provide an opportunity for constituents to evaluate programs, activities and physical space in an effort to meet the desired state and mission of the incubator.