A systematic review of business incubation research


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A systematic review of business incubation research

  1. 1. A Systematic Review of Business IncubationResearchSean M. Hackett1David M. Dilts2ABSTRACT. This article systematically reviews the literatureon business incubators and business incubation. Focusing onthe primary research orientations—i.e. studies centering onincubator development, incubator configurations, incubateedevelopment, incubator-incubation impacts, and theorizingabout incubators-incubation—problems with extant researchare analyzed and opportunities for future research areidentified. From our review, it is clear that research has justbegun to scratch the surface of the incubator-incubationphenomenon. While much attention has been devoted to thedescription of incubator facilities, less attention has beenfocused on the incubatees, the innovations they seek todiffuse, and the incubation outcomes that have been achieved.As interest in the incubator-incubation concept continues togrow, new research efforts should focus not only on theseunder-researched units of analysis, but also on the incubationprocess itself.JEL Classification: M13, O2, O31, O32, O381. IntroductionIncubator-incubation research began in earnest in1984 with the promulgation of the results ofBusiness Incubator Profiles: A National Survey(Temali and Campbell, 1984). Underscoring theenthusiasm of early researchers, only three yearspassed before two literature reviews were gener-ated (i.e., Campbell and Allen, 1987; Kuratko andLaFollette, 1987). However, since these earlyefforts to synthesize and analyze the state ofincubator-incubation science, and despite the factthat the body of research has grown considerablyin the intervening years, a systematic review of theliterature remains conspicuously absent.The primary objectives of this article are tosystematically review the incubator-incubationliterature and to provide direction for fruitfulfuture research. Ultimately 38 studies wereincluded in our review. We included a study inour review if it viewed the incubator as anenterprise that facilitates the early-stage develop-ment of firms by providing office space, shared-services and business assistance. When examiningthe literature chronologically, five primaryresearch orientations are evident: incubator devel-opment studies, incubator configuration studies,incubatee development studies, incubator-incuba-tion impact studies, and studies that theorizeabout incubators-incubation. While these orienta-tions are not necessarily orthogonal, we employthem as classifications of convenience that we hopewill facilitate a discussion of the literature.We have limited the review in several ways.First, we confine our coverage of the literature tostudies devoted explicitly to incubators and/orincubation. Although the locus of the incubator-incubation concept is the nexus of forces involvingnew venture formation and development, newproduct conceptualization and development, andbusiness assistance (each of which has an estab-lished body of research), to expand the scope ofthe review beyond research explicitly focused onincubators-incubation would make this researchproject impossible to complete on a timely basis.Second, although practitioner literature has influ-enced academic research, we center our review onthe academic literature, except in cases where thepractitioner literature has proven especially influ-ential and has some intrinsic academic facevalidity. Third, with our long-term researchinterests in mind, we selected literature thatconceptualizes incubators-incubation as a strategy1Vanderbilt UniversityManagement of Technology ProgramBox 1518, Station B, Nashville, TN 37235 USAE-mail: sean.m.hackett@alumni.vanderbilt.edu2Vanderbilt UniversityManagement of Technology ProgramBox 1518, Station B, Nashville, TN 37235 USAE-mail: david.m.dilts@vanderbilt.eduJournal of Technology Transfer, 29, 55–82, 2004# 2004 Kluwer Academic Publishers. Manufactured in The Netherlands.
  2. 2. for facilitating new business development ratherthan as a strategy for developing real estate.While this review is primarily intended forresearchers who are considering potential researchtopics, we also believe that it will be of use toincubation industry stakeholders who are inter-ested in understanding the epistemological evolu-tion of the incubator-incubation concept. Ourcontribution is a synthesis and analysis of con-cepts, empirical findings, and problems related toextant incubator-incubation research, as well as anidentification of potential areas for futureresearch.In this section, we have noted the need for asystematic review of the literature, provided aworking definition of the incubator-incubationconcept, and delimited the scope of our review.The remainder of the article is organized in thefollowing manner. First, we describe the method-ology we employed in identifying and selectingarticles for review. Second, we provide a formaldefinition of the incubator-incubation concept,place incubator-incubation literature in its histor-ical context and review the research along the fiveprimary research orientations described above.Third, we identify several challenges within extantresearch and suggest new avenues for futureresearch. Specifically, we note the need for futureresearch to address the lack of convergence in theterms and concepts of discourse related toincubators-incubation, the lack of theoreticallymeaningful incubator classifications, the lack of abusiness incubation process model, and the long-standing challenges in the definition and measure-ment of incubator-incubatee ‘‘success’’. We con-clude by emphasizing the need to identify andunpack the variables of business incubation with aview toward developing theories that help toexplain how and why the incubation process leadsto specific incubation outcomes.2. Methodology for identifying articles for reviewTo identify the population of publications forreview, we conducted an electronic journal data-base search of ProQuest-ABI/Inform, ScienceDirect and UMI Dissertation Abstracts using thesearch terms ‘‘incubator’’ and ‘‘incubation’’. Ourobjective was to conduct a census of all publishedresearch on incubators-incubation written inEnglish between 1984 and early 2002. Afteridentifying and retrieving all articles archivedelectronically in the databases identified above,we read the bibliographies of these articles toidentify other articles on incubators-incubationpublished prior to electronic archiving or notarchived in the electronic databases, and subse-quently retrieved those articles. We reviewed thosearticles’ bibliographies and found yet more articlesdealing with various aspects of incubators-incuba-tion and repeated the process of retrieving articlesand reading through the bibliographies. Reason-ably confident that all extant articles on incuba-tors-incubation had been identified and retrieved,we then checked all of the retrieved articles againsta bibliography created by the National BusinessIncubation Association (NBIA) in 2001 that listsall (peer-reviewed, non-peer reviewed and popularpress) articles related to incubation in order toensure to the best of our ability that the entirepopulation of articles on incubators-incubationhad been collected. The articles considered forreview appear in the following journals: AmericanJournal of Small Business, Economic DevelopmentQuarterly, Economic Development Review, Entre-preneurship Theory and Practice, Harvard BusinessReview, IEEE Transactions on Engineering Man-agement, Journal of Business Research, Journal ofBusiness Venturing, Journal of DevelopmentalEntrepreneurship, Journal of Product InnovationManagement, Journal of Property Management,Journal of Small Business Management, PolicyStudies Journal, Public Administration Quarterly,Regional Studies, Research Policy, TechnologyManagement, and Technovation.1Ultimately 35 articles (26 empirical studies andnine non-empirical studies), two dissertations andone national survey were included in this literaturereview (a complete listing of the studies reviewed isincluded in Appendix A). The distribution ofarticles among journals was highly skewed towardjournals with an economic development perspec-tive: Six articles appeared in Economic Develop-ment Quarterly and another four articles appearedin Economic Development Review. Considering thehigh number of often-cited publications appearingin these two periodicals, it is clear that theeconomic development perspective has influencedthe field of published business incubation studies.56 Hackett and Dilts
  3. 3. The complete distribution of research perspectivesapplied to business incubation studies is detailed inAppendix B.3. Primary research orientationsIn this section, we offer a formal definition of theincubator-incubation concept. Next we brieflydescribe the historical context in the United Statesin which incubator-incubation research hasevolved. Then we review the literature, using thefive primary research orientations mentionedabove as our organizing principle. When reportingkey findings of each research orientation, westratify the results based on their relevance tothree different units of analysis: community,incubator, or incubatee.What is the incubator-incubation concept?Based on insights gleaned from reviewing theliterature as well as from conducting fieldwork inAsia and North America, we offer the followingdefinition: A business incubator is a shared office-space facility that seeks to provide its incubatees(i.e. ‘‘portfolio-’’ or ‘‘client-’’ or ‘‘tenant-compa-nies’’) with a strategic, value-adding interventionsystem (i.e. business incubation) of monitoring andbusiness assistance. This system controls and linksresources with the objective of facilitating thesuccessful new venture development of the incu-batees while simultaneously containing the cost oftheir potential failure.2Additionally, we offer thefollowing corollary: When discussing the incuba-tor, it is important to keep in mind the totality ofthe incubator. Specifically, much as a firm is notjust an office building, infrastructure and articlesof incorporation, the incubator is not simply ashared-space office facility, infrastructure andmission statement. Rather, the incubator is also anetwork of individuals and organizations includ-ing the incubator manager and staff, incubatoradvisory board, incubatee companies and employ-ees, local universities and university communitymembers, industry contacts, and professionalservices providers such as lawyers, accountants,consultants, marketing specialists, venture capital-ists, angel investors, and volunteers. Figure 1graphically depicts the incubator-incubation con-cept defined here.Historical context of incubator-incubationdevelopment in the USAIt is generally accepted that the first incubator wasestablished as the Batavia Industrial Center in1959 at Batavia, New York (Lewis, 2002). A localreal estate developer acquired an 850,000 ft2building left vacant after a large corporationexited the area (Adkins, 2001). Unable to find atenant capable of leasing the entire facility, thedeveloper opted to sublet subdivided partitions ofthe building to a variety of tenants, some of whomrequested business advice and/or assistance withraising capital (Adkins, 2001). Thus was the firstbusiness incubator born.In the 1960s and 1970s incubation programsdiffused slowly, and typically as government-sponsored responses to the need for urban/Mid-western economic revitalization. Notably, in the1960s interest in incubators-incubation was piquedby the development of University City ScienceCenter (UCSC), a collaborative effort at rational-izing the process of commercializing basic researchoutputs (Adkins, 2001).3In the 1970s interest inthe incubator-incubation concept was furthercatalyzed through the operation of the NationalScience Foundation’s Innovation Centers Pro-gram, an effort to stimulate and institutionalizebest practices in the processes of evaluating andFigure 1. Incubator-incubation concept map.A Systematic Review of Business Incubation Research 57
  4. 4. commercializing selected technological inventions(Bowman-Upton et al., 1989; Scheirer, 1985).In the 1980s and 1990s the rate of incubatordiffusion increased significantly when (a) thepassage of the Bayh-Dole Act in the U.S. Congressin 1980 decreased the uncertainty associated withcommercializing the fruits of federally fundedbasic research, (b) the U.S. legal system increas-ingly recognized the importance of innovation andintellectual property rights protection, and (c)profit opportunities derived from the commercia-lization of biomedical research expanded. In thisenvironment several incubator developmentguides4as well as non-academic reports andarticles5with a geographic and normative focuson current or potential business incubation effortswere generated. This surge in report-generatingactivity in the early 1980s and the formation of theNBIA in 1985 underscore the growth in popularinterest in business incubation in the 1980s.Concurrent to these and other local efforts atstudying and unleashing the potential of businessincubation to foster economic development, aca-demic incubation studies began in earnest. Muchof this early research addresses the questions‘‘What is an Incubator?’’ and ‘‘What do we needin order to develop an effective incubator?’’Business Incubator Profiles: A National Survey(Temali and Campbell, 1984), a ground-breakingsurvey of 55 business incubators, is the firstacademic attempt to address these questions bydescribing in detail the incubators operating in theUnited States. It is comprehensive in scope, takingthe incubator, the incubator manager, the incuba-tees, and the services provided by the incubator asvarious units of analysis. Although this surveydoes not test hypotheses or attempt to buildtheory, its rich descriptive data and insightfulperspective established a platform upon whichmuch subsequent incubator development researchis based.In the late 1990s, fueled by irrationally exuber-ant stock valuations of several for-profit incuba-tors and/or their incubatees, the mediapopularized a fantasy of business incubators asinnovation hatcheries capable of incubating andtaking public ‘‘infinitely scaleable, dot-com e-business start-ups’’ less than a year after enteringthe incubator. This fantasy and the incubator-incubation concept were largely abandoned andleft for dead by the popular press after the collapseof the United States’ stock market bubble.6However, rumors of the demise of the incubator-incubation concept are ‘‘greatly exaggerated’’. Themedia reached its negative conclusions regardingincubators-incubation while fixated on for-profit incubators, a relatively small segment ofthe total incubator population.7The vast majorityof incubators are non-profit entities that continueto incubate below the ‘‘radar screens’’ of mostjournalists.Since the establishment of the first businessincubator, most incubators have been establishedas publicly funded vehicles for job creation, urbaneconomic revitalization, and the commercializa-tion of university innovations, or as privatelyfunded organizations for the incubation of high-potential new ventures (Campbell and Allen,1987). The fact that most incubators are publiclyfunded is not trivial. Despite normative incubationindustry association positions asserting the impor-tance of operating incubators as enterprises thatshould become self-sufficient, profit-orientedintentionality has not been translated into profit-ability for the majority of publicly funded incuba-tors (Bearse, 1998). Financial dependency forcesincubators to operate in a politically chargedenvironment where they must constantly demon-strate the ‘‘success’’ of the incubator and itsincubatees in order to justify continued subsidiza-tion of incubator operations with public funds.Such a politically charged environment can temptincubator-incubation industry stakeholders tounderreport incubator-incubation failures andover-report successes.8For the researcher inter-ested in understanding, explaining and buildingmodels of incubator-incubation phenomena, thepolitically charged environment and the state ofsubsidy-dependency in which many non-profitincubators operate cannot be ignored.Overview of research orientationsWe review the literature along the following fiveprimary research orientations: incubator develop-ment studies, incubator configuration studies,incubatee development studies, incubator-incuba-tion impact studies, and studies theorizing aboutincubators-incubation. These orientations, their58 Hackett and Dilts
  5. 5. key topics, and main research questions arepresented in Table I.Incubator development studiesThe goal of early incubator-incubation researcherswas to accurately and/or normatively describeincubators. Key themes in incubator developmentstudies include efforts at defining incubators-incubation, incubator taxonomies, and policyprescriptions. These themes are addressed below.Defining incubators-incubation. Most researchassumes that incubators are economicdevelopment tools for job creation whose basicvalue proposition is embodied in the shared beliefthat operating incubators will result in more start-ups with fewer business failures (Fry, 1987;Kuratko and LaFollette, 1987; Lumpkin andIreland, 1988; Markley and McNamara, 1995;Rice, 1992; Udell, 1990). Despite the existence ofthis shared baseline assumption, definitionalambiguity vis-a`-vis the terms ‘‘businessincubator’’ and ‘‘business incubation’’ plaguesthe literature. This is problematic because,without precise definitions, it is difficult toascertain the actual size of the incubatorpopulation to which systematic research effortsseek to generalize their findings. There are severalsources of definitional ambiguity. First is thediffusion and repeated adaptation of the originalbusiness incubator concept in order to fit varyinglocal needs and conditions (Kuratko andLaFollette, 1987). Second is the interchangeablemanner in which the terms ‘‘Research Park,’’‘‘Technology Innovation Center,’’ and ‘‘BusinessTable IOverview of incubator-incubation literatureResearchstreamsCharacteristicsIncubatordevelopmentstudiesIncubator configurationstudiesIncubatee developmentstudiesIncubator-incubationimpact studiesStudies theorizingabout incubators-incubationResearch period 1984–1987 1987–1990 1987–1988 1990–1999 1996–2000Main topics . Definitions . Conceptual . New venture . Levels and units of . Explicit and implicit. Taxonomies frameworks development analysis use of formal theories. Policy prescriptions . Incubatee selection . Impact of planningon development. Outcomes andmeasures of success(transaction costeconomics, networktheory, entrepreneur-ship, economicdevelopment throughentrepreneurship)Researchquestion(s). What is an incubator?. How do we developan incubator?. What life cycle modelcan be extracted fromanalysis of businessincubators?. What are the criticalsuccess factors forincubators-incubation?. How does theincubator-incubationconcept work in practice?. How do incubators selectincubatees?. What is the process ofnew venturedevelopment in anincubator context?. What is the role ofplanning and thebusiness incubatormanager?. Do incubatorsachieve what theirstakeholders assertthey do?. How can businessincubation programoutcomes beevaluated?. Have businessincubators impactednew venture survivalrates, job creationrates, industrialinnovation rates?. What are theeconomic and fiscalimpacts of anincubator?. What is thesignificance ofrelationships andhow do they influenceentrepreneurship?. What are the criticalconnection factors tosuccess, e.g., settings,networks, foundercharacteristics, groupmembership,co-production value,and creationprocess?’’. What constitutes amodel for a virtualincubator?. Is the network thelocation of theincubation process?A Systematic Review of Business Incubation Research 59
  6. 6. Incubator’’ are used in the literature (Swierczek,1992).9Third is the emergence of virtualincubators (also referred to as ‘‘incubatorswithout walls’’) that endeavor to deliver businessassistance services to incubatees who are not co-located within the incubator.10Fourth is apersistent tendency to not define the incubationprocess, or—when defined—to disagree on whereand with whom the incubation process occurs.11Cumulatively, if left unaddressed, the above-mentioned sources of ambiguity in the terms andconcepts of discourse will hinder efforts atgeneralizing incubator-incubation research resultsto the incubator population.Early attempts at defining incubators-incuba-tion are careful to draw out a distinction betweenincubators as real estate development efforts, andincubators as systematic business development-business assistance efforts (Brooks, 1986; Smilor,1987b; Smilor and Gill, 1986). Highlighting thisdistinction in a normative description of incuba-tors-incubation, Brooks (1986) describes a two-type incubator continuum where start-ups enter an‘‘economic growth incubator’’ in order to gainaccess to the incubator’s external support network,shared support services, and the resources of alocal university affiliated with the incubator(Brooks, 1986). In this view, once the start-upshave attained a more advanced state of businessdevelopment they can move into a ‘‘real estateincubator’’ which provides office space and sharedservices.Brooks’ continuum is adapted and elaboratedby Allen and McCluskey (1990). They discard thenotion that incubatees would move into a realestate property development incubator afterachieving a critical mass, and instead focus onthe primary and secondary objectives of four typesof incubators that are distributed along a value-adding continuum. From least value-adding tomost value-adding, these incubator types includeFor-Profit Property Development Incubators,Non-Profit Development Corporation Incubators,Academic Incubators, and For-Profit Seed CapitalIncubators. The Allen and McCluskey continuumis reproduced in Figure 2.While the goals and objectives of differentincubator types may be indicative of the amountand type of resources that a certain type ofincubator maintains, the varying goals and objec-tives among types of incubator depicted in thefigure above may have little to say regarding theobjectives of incubatees. Moreover, regardless ofthe stated goals and objectives of the incubator,‘‘the universal purpose of an incubator is toincrease the chances of a[n incubatee] firm surviv-ing its formative years’’ (Allen and Rahman,1985). Similarly, regardless of the incubatorstakeholders’ desire—and political need—todemonstrate the ancillary effects of job creationand economic development, the universal goal ofincubatees is (or should be) to survive and developas a corporate financial entity that delivers value tothe owner(s)/shareholders. This point is often lostin practitioner debates and in politically chargeddiscussions related to the initiation of incubatorfeasibility studies.12As understanding of the incubator-incubationconcept advanced, the concept that the incubatoritself is an enterprise with its own developmentallife cycle was embraced. The incubator start-upstage begins at the time a local community beginsto consider establishing an incubator and endsonce the incubator has reached full occupancy(Allen, 1988). The incubator business developmentstage is indicated by an increase in the frequency ofinteraction amongst incubator manager and incu-batees, stable demand for space within theincubator, and greater support for the incubatorin the local community (Allen, 1988). The incu-bator maturity stage reflects the point when theincubator has more demand for space than it canservice and has become a center of entrepreneurialgravity in the community (Allen, 1988). Therecognition of the incubator life-cycle is animportant advancement. Specifically, it highlightsthe importance of would-be-incubatees performingdue diligence on the incubator in order todetermine whether the incubator has the corecompetencies in business assistance and theresources to provide the kind of value demandedby the venture’s management team.Incubator taxonomies. One of the great challengesof conducting incubator-incubation research is thedifficulty of creating a control group of non-incubated companies whose developmentaloutcomes could then be compared to incubatedcompanies (Sherman and Chappell, 1998). Ways60 Hackett and Dilts
  7. 7. to overcome this problem include adopting the useof matched pairs or comparing the performance ofincubatees to the performance of a virtualincubator’s incubatees (Bearse, 1998). In theliterature, however, taxonomies of convenienceare typically employed to create comparisongroups. These taxonomies classify incubators onthe basis of (a) the incubator’s primary financialsponsorship13(Kuratko and LaFollette, 1987;Smilor, 1987b; Temali and Campbell, 1984), (b)whether incubatees are spin-offs or start-ups(Plosila and Allen, 1985), (c) the business focusof the incubatees (Plosila and Allen, 1985;Sherman, 1999), and (d) the business focus of theincubator (i.e. property development or businessassistance) (Brooks, 1986) (see Table II). Despitethe widespread use of these taxonomies, none ofthe studies reviewed demonstrated an ability topredict or explain variation in incubationoutcomes—presumably the facet of theincubator-incubation phenomenon of greatestinterest to researchers—on the basis of thesetaxonomic classifications.Policy prescriptions. A number of incubator policyprescriptions offered in the literature aresynthesized and analyzed here. Theseprescriptions appear multiple times in theliterature but are drawn primarily from thefollowing sources: (Allen and Weinberg, 1988;Brooks, 1986; Bruton, 1998; Campbell and Allen,1987; Culp, 1996; Plosila and Allen, 1985).First is the need for an advisory board to serveas an incubator ombudsperson. Because theincubator must make difficult incubatee selectiondecisions that require a sophisticated understand-ing of the market and the process of new ventureformation, and because the incubator must relyupon political support from its advisory board inorder to secure annual operating subsidies, theimportance of a strategically constructed advisoryboard should not be understated.Second, the rental income risk associated withthe temporary tenancy of incubatees must bemanaged. Basically, cyclical demands for incuba-tor space are somewhat mediated by the level ofdevelopment and competencies attained by theFigure 2. Allen and McCluskey continuum (Allen and McCluskey, 1990).A Systematic Review of Business Incubation Research 61
  8. 8. incubator and the current state of the entrepre-neurial activities in the local community. With thisin mind, pre-screened incubatees should be waitingin the admissions pipeline prior to the departure ofcurrent incubatees in order to optimize incubatorrental revenue streams.Third, a comprehensive menu of supportservices must be developed in order to be able toproperly incubate the incubatees. Developing andoffering a set of services—even if they are under-utilized—may be significant, as the availability ofthe services may induce self-reflexive considerationon the part of incubatees as to what is required fortheir new venture to develop.15Fourth, the qualitative difference betweenapplicants for admission to the incubator andincubation candidates must inform the incubateeselection process. Specifically, because the incu-bator represents an attempt to help entrepreneur-ial new or young firms overcome some resourcegap(s)16that prevent them from succeeding intheir early stages of development, it is importantfrom an economic rationality perspective todifferentiate the types of applicants for admissionto a business incubator in the following ways: (a)those that cannot be helped through businessincubation, (b) those that should be incubateddue to the existence of some resource gap(s) and(c) those that do not need incubation. Ideally,only those firms that are ‘‘weak-but-promising’’(weak due to a lack of resources, but promising inthe sense that they have built a compellingbusiness case) should be considered incubationcandidates.Fifth, the degree to which incubators should/can assist incubatees with financial matters mustbe considered. Typically, most incubators do notmaintain their own investment fund, servinginstead as a broker that introduces incubatees tosources of capital when the need arises.Sixth, while incubators are not an economicquick fix and while they have numerous limita-tions, they are an important component of a localeconomic development strategy and can serve amarket failure bridging function by enablingentrepreneurship where previously it was toocostly or too risky.Finally, flexible oversight with dynamic read-justment of incubation programs as dictated bylocal needs is important for maintaining thevitality and effectiveness of the incubator in acost-effective manner.Key findings. In sum incubator developmentstudies represent the earliest research conductedon the incubator-incubation phenomenon. Thesestudies are characterized by efforts to define theincubator-incubation concept, to create taxonomiccategories for comparison, and to provide policyguidelines for operating an incubator. While theseefforts have several weaknesses that are discussedabove, it is important to note that incubatordevelopment studies are novel exploratory,conceptual, empirical and normative attempts torender a very young phenomenon. Key findings inthe early research on incubators amount to keydescriptions that are useful for understanding thescope and nature of incubators. These findings aresummarized in Table III.Table IITaxonomies of incubatorsTaxonomy Representative citationIncubator level: primaryfinancial sponsorship14(Kuratko and LaFollette,1987; Smilor, 1987b;. Publicly-sponsored Temali and Campbell, 1984). Nonprofit-sponsored. University-sponsored. Privately-sponsoredIncubator level: business focus (Brooks, 1986). Property development1. Single tenant2. Multi-tenant. Business assistance1. Shared space2. Low rent3. Business support servicesIncubatee level: business focus (Plosila and Allen, 1985;. Product development Sherman, 1999). Manufacturing. Mixed-useType of incubatee (Plosila and Allen, 1985). Spin-off. Start-up62 Hackett and Dilts
  9. 9. Incubator configuration studiesEarly studies often describe the configurations ofbusiness incubators, examining the ‘‘design of the. . . [incubator’s] support arrangement, [and]describing facilities, budgets, organizationalcharts, geographical location, [and] institutionallinks’’ (Autio and Kloftsen, 1998) with a view toascertaining the critical success factors of businessincubation.17The emergence of these studiesindicates the evolution of incubator-incubationscience from an initial exploratory, fragmentedunderstanding of the phenomenon to an increas-ingly holistic, systemic perspective. In order tobetter understand the development of this systemicview of the incubator-incubation concept, weexamine subsets of configuration research thatconsider (a) incubator-incubation configurationframeworks, and (b) the incubatee selectioncomponent of the incubator system.Incubator-incubation configuration frameworks.Several attempts have been made to conceptual-ize incubator configurations and, to a limitedextent, the process of incubation. Building on thesurvey data collected in Temali and Campbell(1984), Campbell et al. (1985) develop aframework offering the first explicit linkage ofthe incubator-incubation concept to the businessdevelopment process of incubatees (Campbell etal., 1985). This framework, reproduced in Figure3, suggests four areas where incubators-incubation create value: the diagnosis ofbusiness needs, the selection and monitoredapplication of business services, the provision offinancing, and the provision of access to theincubator network. Implicitly, with thisframework, Campbell et al. have normativelydefined the incubation process. This is usefulbecause it suggests in detail, and for the first time,how different components of, and activitieswithin, the incubator are applied to facilitate thetransformation of a business proposal into aviable business. Weaknesses in the frameworkcenter on the failure to account for failed ventures(the framework assumes that all incubator tenantssucceed) and the ascription of the framework toprivate incubators only.In Figure 4 Smilor extends the Campbell et al.framework by elaborating various components(incubator affiliation, support systems, impacts oftenant companies) of the incubator-incubationconcept. Unlike Campbell et al., however, theTable IIIKey findings from incubator development studiesLevel Representative citationCommunity level (Allen and Rahman, 1985;. The incubator provides a protected environment in which new ventures—representing opportunitiesboth for local economic expansion and investment—can develop.Campbell, 1989). Business incubators should be one element of a larger economic development strategy.. Net job creation through incubation is minimal, but not insignificant.Incubator level (Temali and Campbell,. Incubators can be classified according to the nature of their primary financial sponsor or the businessfocus of the incubatees.1984; Plosila and Allen,1985; Brooks, 1986). Low priced rent, shared-services, and the existence of entry/exit policies are key characteristics ofincubators.. The incubator support network and university ties are key characteristics of incubators.Incubatee level (Temali and Campbell,. Charging the incubatees below market office space rent is important.. Incubatees assist one another, and sometimes purchase from one another.. Comprehensive business consulting services must be available to incubatees.. University technology business incubators have positive environmental effects on incubatees.1984; Allen and Rahman,1985; Sarfraz A. Mian,1994)A Systematic Review of Business Incubation Research 63
  10. 10. Smilor framework takes an external perspectiveand fails to account for the incubation processesoccurring internally. Utilizing data gathered froma national survey as well as from interviews,analysis of case studies, and observation, Smilorcasts the incubator as a mechanism for reshapingthe way that industry, government and academiainterrelate (Smilor and Gill, 1986). He categorizesthe benefits that incubators extend to theirincubatees along four dimensions: (1) developmentof credibility, (2) shortening of the [entrepreneur-ial] learning curve, (3) quicker solution of prob-lems, and (4) access to an entrepreneurial network(Smilor, 1987a). Smilor also conceptualizes theincubator as a system that confers ‘‘structure andcredibility’’ on incubatees while controlling a set ofassistive resources: ‘‘secretarial support, adminis-trative support, facilities support, and businessassistance’’ (Smilor, 1987b). Smilor’s effort isperhaps the most comprehensive effort at identify-ing and explaining the various components of theincubation system.Hisrich (1988) advances understanding of theincubator-incubation concept by locating theincubator within a complete continuum of innova-tion: The Enterprise Development Center (EDC)approach to incubation aggregates venture capi-talists, student entrepreneurs, corporate intrapre-neurs, the community (Tulsa) Innovation Center,the local Small Business Development Center(SBDC) and two local incubators (Hisrich, 1988).Hisrich asserts that localizing the design of anEDC based on cultural demands, having a highlyplaced champion to promote the EDC, establish-ing the EDC in a step-wise fashion with validationat each step, and educating private and publicsector leaders about the EDC are critical successfactors (Hisrich, 1988). Like Brooks (1986),Hisrich emphasizes the importance of incubatingthe community as much as servicing the needs ofthe incubatees. However, as with the Smilorframework, the Hisrich framework ignores inter-nal incubation processes.Configuring incubatee selection. Having specifiedthe basic configuration of the incubator andconceptualized the incubator as a system, moreintensive studies of the individual components ofthe incubator system were the next logical step inbuilding the body of incubator-incubationresearch. Surprisingly, beyond Campbell et al.’simplicit definition of the incubation process andspecification of the general configurations ofincubators, little effort has been devoted tounpacking the variables associated with theincubation process. What work has been done inthis area is generally limited to examining theprocess of selecting incubatees. Culp’s (1996)position on the need to select what are essentially‘‘weak-but-promising’’ companies has alreadybeen discussed above (see Policy prescriptions,p. 61). Lumpkin and Ireland (1988) use clusteranalysis to categorize incubators on the basis ofthe selection criteria they employed when choosingFigure 3. Campbell, Kendrick, and Samuelson framework(Campbell et al., 1985).Figure 4. Smilor framework (Smilor, 1987).64 Hackett and Dilts
  11. 11. incubation applicants for admission to theincubator (Lumpkin and Ireland, 1988).18Thisresearch provides useful insights into thevariability of selection criteria configurationsacross incubators and offers a new taxonomy,but the study does not suggest whichconfiguration(s) are better or worse than others,nor does it attempt to link the analysis of selectioncriteria used with incubation outcomes.Merrifield (1987) introduces a constraint ana-lysis approach for selecting candidates for incuba-tion. He grounds the approach in three questions,the first two of which are directed at the incubationapplicant: ‘‘Is this a good business in whichanyone should be involved?’’ ‘‘Is this a businessin which [the applicant] organization has thecompetence to compete?’’ These questions formthe basis for constructs that are operationalized ona number of items relating to business attractive-ness and fit.19If a business is deemed attractiveand a good fit, the incubator addresses the finalquestion: ‘‘What is the best method for entry and/or growth?’’ In general, Merrifield’s approach issound. However, his emphasis on a firm’s manu-facturing capability being an integral factor indetermining its fitness precludes the possibility ofoutsourcing. Additionally, his approach is some-what overconfident, presupposing incubatee suc-cess to a degree that seems unrealistic.Kuratko and LaFollette (1987) draw out oneof the biases intrinsic to incubator-incubationresearch by positing that variability in theincubatee screening and selection process canlead to incubator and/or incubatee failurethrough the selection of ventures that do notmerit incubation for either being too strong ortoo weak. This concept is elaborated upon byBearse (1998) who draws a comparison betweenselecting incubatees and selecting students foradmission to Harvard University. Specifically,Bearse asks whether Harvard students (theincubatees) succeed because of what Harvard(the incubator) does to them, or because Harvardselects only students who will succeed regardlessof what Harvard does to them (Bearse, 1998). Inthe absence of a ready answer, scholars stress theimportance of having a good ‘‘fit’’ betweenincubatee needs and the business assistanceservices that the incubator is capable of providing(Autio and Kloftsen, 1998).Key findings. Incubator configuration studies areimportant efforts at drilling down into theincubator’s infrastructure and operations inorder to extend our understanding of theincubator-incubation concept. Although most ofthese studies are atheoretical, they help advanceour knowledge of a very young phenomenonbeyond the definitional level. Key findings fromthese studies are provided in Table IV.Incubatee development studiesLittle progress has been made toward under-standing how incubatees develop within theincubator. This is not surprising, however, becausea stream of literature on new venture developmentthat centers on all new ventures (as contrasted withnew ventures operating within incubators) existswithin the domain of entrepreneurship research.We review here the few articles that focus explicitlyon incubatee development.Observing five clients of the St. Louis Technol-ogy Center, Scherer and McDonald (1988) gen-erate six flowchart diagrams depicting theevolution of a new venture and conclude thatclients benefit most when instructed to balance a‘‘flexible capability for short-term adjustments tomarket feedback’’ with a long-term perspective.They caution against the new venture tendencytoward unrealistic growth projections and ignor-ance of the need for operating funds. Thesefindings are not novel, but they are useful inhighlighting the fact that incubatees suffer thesame shortcomings as their non-incubatee counter-parts. More importantly they highlight the poten-tial for incubator environments to generate passiveinterventions that create a layer of heightenedstrategic-reflexivity (i.e. a greater awareness ofcause–effect relationships embedded within theiractivity sets) amongst incubatees.Stuart and Abetti (1987) focus on the determi-nants of ‘‘initial success’’20of a conveniencesample of new and young ventures located in theRensselaer Polytechnic Institute’s Incubator Pro-gram and Technology Park. Measuring the impactof market, company and entrepreneur character-istics on initial success, the authors find apositive relationship between entrepreneurialcharacteristics and success, and negative relation-A Systematic Review of Business Incubation Research 65
  12. 12. ships between market dynamism, R&D intensity,organic nature of the firm and success. Theyinterpret their findings as indicative of a need forentrepreneurs to maintain tight, centralized con-trol over their ventures.Fry (1987) conducts a census of the members ofthe NBIA to examine the variance among incuba-tees’ intensity of planning activities. A comparisongroup of companies affiliated with a SBDC is usedin an effort to parse out differences betweenincubator tenants and non-tenants. However,because incubator managers were the respondentsto questions on the perceived use of planningamongst incubatees, a statistical comparison withthe self-reported responses of SBDC-affiliatedcompanies is not meaningful. Ignoring this point,Fry concludes that incubatees are ‘‘more activeplanners’’ than non-incubatees and argues thatresults imply that incubator managers shouldactively encourage planning activities amongincubatees.Although his attempt at overcoming thedifficulty in creating a comparison group forexperimental research is novel, it seems likelythat Fry is comparing different types of ven-tures. Although there is no empirical research tosupport the contention that SBDC-affiliatedfirms are lower in potential than are incubateesco-located within an incubator, normatively andintuitively this assumption seems accurate: Thenon-profit incubator is established as a ‘‘public-private’’ engine of economic development whoseincubatees are selected in the expectation thatfostering their success will help fuel localeconomic growth. Alternatively, free-standingSBDCs (i.e. SBDCs that do not provide rentaloffice space and that are not integrated into thelocal innovation development continuum in themanner described in the Hisrich Framework) arepurely government-operated programs that pro-vide general advice to any individual(s) seekingto establish a new venture. The typical SBDCcustomer seeks to establish a lifestyle venture(i.e. a venture that is built slowly over time inorder to replace income from a currently heldjob). Our perceived relationship amongst typesof entrepreneurial ventures and support agents isdepicted in Figure 5 below. However, empiricaltesting should be conducted before unreservedlyadopting this perspective.Table IVKey findings from incubator configuration studiesKey finding Representative citationSources of value: incubator tocommunity(Hisrich, 1988). Designed to cultural values ofthe community. Communication with communityleadersSources of value: incubator toincubatee(Campbell et al., 1985;Smilor, 1987; Autio. Credibility and Kloftsen, 1998). Diagnoses of business needs. Selection & monitoring. Access to capital. Access to network of experts/support systems. Faster learning/solution toproblemsSources of value: incubatee tocommunity and incubator(Smilor, 1987). Economic development. Technology diversification. Job creation. Profits. Viable firms. Successful productsCritical success factors (Smilor, 1987;. Community Campbell et al., 1985;1. Community support Merrifield, 1987)2. Entrepreneurial network3. Entrepreneurial education4. Tie to a University. Incubator1. Perception of success2. Access to finance3. In-kind financial support4. Selection & monitoring forincubatees5. On-site business expertise6. Milestones with clear policies& procedures. Incubatee1. Business attractiveness2. Perception of successIncubatee selection processis important(Culp, 1996; Lumpkinand Ireland, 1988,Merrifield, 1987;Kuratko and LaFollette,1987, Bearse, 1988)66 Hackett and Dilts
  13. 13. Key findings. Incubatee development studies arerather underdeveloped and probably will remainso due to the difficulty of obtaining data fromearly stage ventures regardless of whether theventure is located within an incubator.Nonetheless, key findings from this area ofresearch include the importance of providingdynamic, proactive feedback to incubatees,assisting incubatees with business planning, andencouraging incubatees to introduce controlsystems during the early stages of incubateedevelopment.21Incubator-incubation impact studiesWhen considering incubator-incubation impacts,the fundamental research question is ‘‘Does theoperationalized incubator-incubation conceptmake any difference in the survival rates ofincubatees?’’ In our review, we found one studythat addresses this question squarely: An explora-tion of the relationships between incubator struc-ture, services and policies and incubatee survivalfound that more than half the variation inoutcomes was explained by the age of theincubator (a proxy for level of development ofthe incubator) and the number of incubatees(Allen and McCluskey, 1990). This suggests thatthe stocks and flows of new venture development-related knowledge accumulated and channeled bythe incubator over time (i.e. organizational learn-ing) may be the most important variable forincubating new ventures. Additional incubator-incubation impacts of interest include the number/rate of new start-ups created, the number/rate ofcorporate start-ups created, and the number/rateof new jobs created (Udell, 1990). Most impactstudies that measure these items do so bytabulating simple running counts for eachmetric.22The subsections below review literaturethat studies the impacts of various variables ofincubators-incubation in terms of ‘‘success’’ andeconomic impacts.Measures of incubator success. Campbell andAllen (1987) offer the following ‘‘milestones’’ asmeasures of incubator success (Note: ‘‘tenant’’means incubatee in our context):Creation of a responsive business consulting net-work, participation of financial intermediaries intenant capitalization, the point at which a majority oftenants are start-up firms as opposed to previouslyexisting small businesses, and the synergism thatoccurs when tenants develop trade relations with oneanother such as subcontracting and joint purchasing.(Campbell and Allen, 1987, p. 189)Measures of the above aspects are also indicatorsof the incubator’s level of development, as are thesustainability and growth of the incubator, thescope and effectiveness of incubator managementpolicies, and the ability to provide comprehensiveservices (Mian, 1997). The degree of fit betweenthe business incubation services offered by theincubator and the needs of the local market isanother measure of incubator success (Autio andKloftsen, 1998). Drawing from the performancebenchmarking literature, Bearse (1998) suggeststhat if data is regularly collected and madeavailable, an incubator could also measure itssuccess in comparison to other incubators on avariety of operational and outcome measures andagainst a business incubator industry baselineFigure 5. Types of entrepreneurial ventures and corresponding support agent marketspace.A Systematic Review of Business Incubation Research 67
  14. 14. (Bearse, 1998). Despite efforts by the NBIA suchdata has proven difficult to gather and maintainon an ongoing basis.Measures of incubatee success. The simplestmeasure of incubatee success is ‘‘graduating’’from the incubator upon overcoming resourcegaps and developing sustaining businessstructures. Indeed, in the literature incubatorsuccess has been defined as a ratio expressed inthe following terms: Number of Firms Exiting theIncubator::Number of Firms DiscontinuingOperations While Still a Tenant (Allen andWeinberg, 1988). Beyond this simple measure,firm growth and development measures have alsobeen applied to the incubatees. Growth measuresinclude examining increases in number of jobs orsales over time, while development measures arereflected in ‘‘product innovation, quality of themanagement team, and strategic alliancesconsummated’’ over time (Bearse, 1998; Udell,1990).Incubator variables associated with incubateesuccess. Incubator variables that have beenposited to be associated with incubatee successinclude incubatee selection processes (Kuratkoand LaFollette, 1987; Merrifield, 1987), internalincubator network formation (Lichtenstein, 1992),incubator-industry network and incubator-support services network density (Hansen et al.,2000; Nowak and Grantham, 2000), incubatormanager–incubatee relationships (Autio andKloftsen, 1998; Fry, 1987; Rice, 2002; Sherman,1999; Udell, 1990), incubator effectiveness(Sherman and Chappell, 1998), level of incubatordevelopment (Allen, 1988; Sherman and Chappell,1998), and procedural standardization and policyformalization (Bearse, 1998). However, few ofthese relationships have been empirically tested.While most practitioner studies find a high rate(usually over 80%) of incubatee survival (Bearse,1998), other studies report less optimistic (55%)survival rates (Roper, 1999). When examiningincubatee survival rates, however, directcomparisons with non-incubated ventures’survival rates may not be meaningful as the useof selection criteria in admitting incubatees to theincubator results in a selection bias (Sherman andChappell, 1998).Community economic impacts. Despite theindefatigable and politically correct belief ofincubator managers and government officialsthat incubators create jobs, early empiricalresearch suggests that incubators and theirincubatees are not very good job creators(Campbell and Allen, 1987). However, businessincubators have been found to be more cost-effective economic development tools thanprograms to attract firms to local regions(Markley and McNamara, 1995; Sherman, 1998,1999; Sherman and Chappell, 1998).Key findings in the incubator-incubation impactstudies. There are three key findings in theincubator-incubation impact studies (see Table V).First, the level of incubator development and thenumber of incubatees are positively related withincubatee survival. Second, incubators represent alower cost means to job creation than cost-sharingcorporate relocation programs. Third, the area ofincubator-incubation impact research issurprisingly understudied and represents fertileground for future research.Theorizing about incubators-incubationIn this section, we review theoretical approaches toexplaining the incubator-incubation concepts thatappear in the literature. Given the newness of thefield, it is not surprising that much of the literatureis exploratory and descriptive with little attentiondevoted to theory-building. However, to quoteWeick, ‘‘What theory is not, theorizing is’’ (Weick,1995), and some, but not many, implicit andexplicit efforts at theorizing about incubators-incubation can be found in the literature.Early theorizing. The incubator developmentstudies that address the question of ‘‘What is anincubator?’’ are implicitly engaged in descriptive68 Hackett and Dilts
  15. 15. and normative theorizing about the incubator-incubation concept. The first formal hypothesisventured regarding incubators is as follows:Once extraneous factors that lead to early stagefailure of small businesses (poor management,inability to find early stage financing, high overhead,etc.) are controled or eliminated, the projectedincreased survival rate of new ventures should leadto increased employment and an expanded tax base.(Brooks, 1986, p. 24)This hypothesis is grounded in the ‘‘theory ofeconomic development through entrepreneurship’’which posits that the entrepreneurial process ofconceiving new business concepts and then instan-tiating new firms based on these new concepts isthe basis of economic growth (Brooks, 1986). Thistheory is used to address the gap that occursbetween conceiving the new business concept andactually instantiating the firm.23Brooks contendsthat the incubator and the incubation process areused to narrow this gap. Another perspective onbridging the gap can be found in transaction costeconomics (TCE). In the TCE view a firm gainscompetitive advantage by relentlessly reducing thecosts of doing business (Williamson, 1978). Fromthis perspective the primary function of theincubator is to bridge the gap by reducing thestart-up and other operating costs of incubatees byproviding shared office space and services at lowcost. This frees the incubatee management team tofocus on building the business. A related hypoth-esis suggests that incubators aredesigned to help entrepreneurs develop their businessventures in a supportive business environment.Without the incubator most of the entrepreneurswould either not be in business or struggle to remainin business. (Plosila and Allen, 1985, p. 732)This hypothesis is essentially a market failureargument and is complemented by research thatviews incubators as mechanisms for enabling afirm ‘‘to master the competitive factors linked witheffectiveness within particular industry settings’’(Lumpkin and Ireland, 1988). While such assump-tions are both intuitively compelling and difficultto disprove, many incubatees report that theywould have established their firms even if theincubator did not exist (Culp, 1996). This shouldnot necessarily be taken as evidence against theincubator-incubation concept, however, as theconfidence required to launch a new venture mayalso be associated with unreasonable levels ofconfidence regarding personal capabilities andsuccess (Nye, 1991).Structural contingency theory. Although theincubator configuration studies were atheoretical,inductive compilations of variables of theincubator-incubation phenomenon, implicitly thisTable VKey findings from impact studiesKey finding Representative citationCommunity level (Campbell and Allen, 1987; Sherman, 1999). Incubators are not good job creators, but . . .. Incubators are more cost-effective than programsto attract firms to a region.Incubator level (Campbell and Allen, 1987; Bearse, 1998). There are many proposed incubator measures that rangefrom simple (sustainability) to the more complex (fit). . . .. Unfortunately, there are few empirical results.Incubatee level (Udell, 1990; Bearse, 1998). As with incubator impact measures, there is a widespectrum of measures, most with no empirical support.A Systematic Review of Business Incubation Research 69
  16. 16. approach rests on structural contingency theory.The primary assumption of structural contingencytheory is that the configuration of an organizationand the external environment must achieve ‘‘fit’’ inorder to obtain ‘‘success’’ (Ketchen et al., 1993).Although most configuration studies do not testfor success, structural contingency theory providesa theoretical underpinning for the often assertedneed for the incubator to be tailored to meet localneeds and norms.Interdependent co-production modeling. Rice(2002) explicitly grounds the collaborativeincubator manager–incubatee relationship in theinterdependent co-production equation.24Thisequation models the co-creation aspects of thevalue-adding incubation process. It suggests thatthe time intensity of business assistanceinterventions must be strategically allocated bythe incubator manager to the incubatees, and thatincubatees must be properly prepared to utilize theadvice and insights resulting from the intervention.This perspective is important because it calls ourattention away from the incubator facility andtoward the incubation process. It also reminds usof the importance of properly assessing the corecompetencies of the incubator before entering theincubator and determining whether the incubatorand incubatee are a good fit. If there is no fit, theinterdependent co-production may result in the co-creation of inappropriate, value subtractingincubation processes.Network theory. Commercialization usuallyoccurs within an innovation community ratherthan a single organization (Lynn et al., 1996).Hansen et al. (2000) employ network theory(Nohria and Eccles, 1992) to argue that primaryvalue-added feature of networked incubators isthe set of institutionalized processes that carefullystructure and transfer knowledge throughout theincubator network in order to create conditionsthat facilitate the development of incubatees andthe commercialization of their innovations. Theyfind that degree of entrepreneurial intensity,economies of scale and scope, and networkdesign are important factors for incubationsuccess. The importance of the network designfactor is supported by research that concludes thatnetwork relationship-building is the most import-ant value-added component of the incubationprocess (Lichtenstein, 1992). Network theory isalso useful because it handily addresses the debateregarding the location of the incubation process:Rather than locate the incubation process eitherinside the incubator or in the local community,network theory asserts that the incubation processincludes and transcends the incubator.Virtual incubation: Middleman, enclave, andcollective theories. Middleman theory finds itsroots in Weber (1993) and describes a conditionin which a resourceful minority groupsystematically develops a brokering position in aspecific industry or industries. Enclave theorylocates the spatial positioning of middlemanenterprises in a specific cluster. Collective theorydescribes a form of group-based economicendeavors in contrast to ‘‘lone-wolf ’’entrepreneurs. Greene and Butler (1996) explorethe phenomenon of virtual incubators by drawingon these three lenses. They assert that a virtualincubator drives the entrepreneurial processesamong a group of ethnically distinct minorityimmigrants who consciously position themselvesas brokers in a discrete location and work toimprove and expand the business achievements ofone another.Also theorizing about virtual incubation,Nowak and Grantham (2000) focus on flows ofknowledge in the software industry. They contendthat because leading edge software industryknowledge is geographically distributed andembedded within practices, a virtual incubator isneeded to foster the development of information-intensive new software ventures through informa-tion dissemination (Nowak and Grantham, 2000).This argument suggests a growing importance inthe roles of knowledge brokering and the market-space for ideas (Gans and Stern, 2003).Key findings. There are several key findings relatedto studies theorizing about the incubator-incubation concept. First, from a TCE andmarket failure perspective, incubators are asystematic approach to controlling resources and70 Hackett and Dilts
  17. 17. reducing costs during the early stages of aventure’s development. Second, the incubatorconfiguration must meet local needs and norms.Third, the process by which the incubation systemis managed and created is a collaborative effortbetween the incubator manager and theincubatees. Fourth, the time duration andintensity of incubator manager intervention,coupled with the breath, readiness and fit of theincubator manager–incubatee dyad impact thesuccess of the incubatee. Fifth, networkrelationships and institutionalized knowledgetransfers enhance the likelihood of incubationsuccess.4. Challenges within extant researchIn this section, we review the challenges identifiedwithin extant research and suggest new avenues forfuture research. Specifically, we note the need forfuture research to address the lack of convergencein the terms and concepts of discourse related toincubators-incubation, the lack of theoreticallymeaningful incubator classifications, the lack of abusiness incubation process model, the long-standing challenges in the definition and measure-ment of incubator-incubation-incubatee ‘‘success,’’and the need for deeper theorizing about incuba-tors. Key findings in the literature and ouranalyzes summarizing the challenges within extantresearch are presented in Table VI.Defining terms and conceptsMost researchers agree that incubators-incubationrepresent a systematic method of providing busi-ness assistance to firms in the early-stages of theirdevelopment. Assistance is provided with the aimof increasing firm survival rates. Beyond thiscommon baseline assumption, however, defini-tional and conceptual heterogeneity have madedefining the scope and boundaries of the phenom-enon as well as the development of a set ofaxiomatic statements related to the phenomenonrather challenging. Accordingly, in lieu of incu-bator-incubation theory, research has producedcatalogs of incubator configurations listing thefactors associated with various conceptualizationsof incubator-incubation ‘‘success’’. If incubator-incubation research is to advance in a scientificmanner, a convergence upon a single definitionthat accounts for the scope and boundaries ofthe incubator-incubation phenomenon isrequired. With our formal definitions in thissection we have advanced definitions that webelieve are suitable for anchoring theory-buildingresearch.Incubator classifications: taxonomies vs. typologiesThe taxonomies of convenience that have beenemployed in the literature thus far have not beenuseful with regard to explaining variation inincubation outcomes. Prior research (Allen andMcCluskey, 1990; Rice, 2002) suggests that moremeaningful classifications may be created byfocusing on items such as the competencies ofthe incubator, the incubator’s level of develop-ment, and the incubatees’ level of potential.Theoretically grounded and tested typologies thatuse these metrics have the potential to be muchmore useful for future research than extanttaxonomies.It bears noting that over time a number of theearly entrants into the for-profit incubator space,as well as many of the NASDAQ bubble-era for-profit incubator entrants have exited the incuba-tion industry. This not only raises questions aboutthe utility of using incubator primary financialsponsorship and profit-orientations as meaningfulcomparison categories, it also raises questionsregarding the long-term sustainability of for-profitincubator models. Perhaps the non-profit incuba-tor—with its relatively lower fixed costs andexpectations—might represent a better, morepolitically rational model for allocating commu-nity resources and demonstrating the community’slong-term commitment to facilitating economicdevelopment through entrepreneurship. In thisview the politically mediated infusion of publicresources into the incubator on an annual budgetreview basis and at levels roughly analogous tocurrent economic cyclical demands also has acertain logic.A Systematic Review of Business Incubation Research 71
  18. 18. TableVIKeyfindingsandanalysesofincubator-incubationliteratureIncubatordevelopmentstudiesIncubator-incubationStudiestheorizingaboutKeyfindingsIncubatorconfigurationstudiesIncubateedevelopmentstudiesimpactstudiesincubators-incubation.Incubatorsarenormativelyandempiricallydefinedbutwithoutconvergenceacrossstudies..Mostincubatorsuseamixoffactors,reflectingdifferingperspectives..Incubatorswithanentrepreneurialenvironment,economiesofscaleandnetworkaccessaremorelikelytohavesuccessfulincubatees..Proactivedevelopmentisanimportantfactorinincubateegrowth.Selectionisanimportantcharacteristicofincubateesuccess.Universitiescanprovidearesourcebaseandenvironmenttofosterthecommercializationofuniversityinventions..Developmentandjobcreationviaincubatorsaremorecosteffectivethanattractingexistingfirmstoanewcommunity..Capacitytobenchmarkandevaluateincubators-incubationisimportant..Reducingriskandimprovingsurvivalratesandgrowthratesofincubateesisamorecommonoutcomethanjobcreation..Incubatormanagerplaysacentralroleintheincubationofnewventures..FromaTCEandmarketfailureperspective,incubatorsareasystematicapproachtocontrollingresourcesandreducingcostsduringtheearlystagesofaventure’sdevelopment..Incubatormanagerplaysacentralroleintheincubationofnewventures.Incubatorconfigurationmustmeetlocalneedsandnorms..Theprocessbywhichtheincubationsystemismanagedandcreatediscollaborativeeffortbetweentheincubatormanagerandtheincubatee..Networkrelationshipsandinstitutionalizedknowledgetransfersenhancethelikelihoodofincubationsuccess..Timeandintensityofincubatormanagerintervention,coupledwiththebreathandreadinessofincubateemanager,impactthesuccessoftheincubatee.Needs.Needtoobtaingreaterdefinitionalandconceptualconvergenceinfutureresearch..Needtoshiftfocusfromincubatorconfigurationstoexplanationsofhowandwhythecomponentsworktogether..Needtodevelopaprocessmodeltoexplainhowandwhytheincubationprocessfacilitatesincubateedevelopment..Needtoconductresearchthataddresseswhetherincubators-incubationimpactnewventuresurvivalrates..Needtodevelopexplicittheoryofbusinessincubation.72 Hackett and Dilts
  19. 19. Business incubation process modelDespite the fact that the NBIA has noted on manyoccasions that the incubation process is muchmore important than the incubator facility(Adkins, 2001), the extent of what we know aboutthe incubator-incubation phenomenon is limitedalmost exclusively to the incubator facility. Asinterest in entrepreneurship continues to grow,interest in methods for increasing the likelihood ofentrepreneurial success and preventing entrepre-neurial failure will also continue to grow. Accord-ingly, the development of models of the incubationprocess represents an opportunity to conductincubator-incubation research that is likely to beof interest to a much broader spectrum ofresearchers than studies on incubator facilities.To facilitate a focus on incubation process studies,a moratorium on incubator facility configurationstudies should probably be imposed.Measures of ‘‘success’’The attempt to measure the impacts of incubators-incubation is as important as it is challenging.Measurement is important because most incuba-tors operate with public funds and should be heldaccountable for the outcomes associated with theuse of those funds. Measurement is challengingbecause the full range of data required toimplement experimental research designs thatsquarely address the question ‘‘If the incubateehad not been incubated, would there be anydifference in the survival rate of new ventures?’’is not readily available. Specifically, data onsuccessful incubatees is relatively easy to obtainbecause incubators tend to promote their ownincubation success stories. Data related to failedincubatees is somewhat more difficult to access asincubation failures may carry political implica-tions that can result in a decrease or elimination ofoperating subsidies. Data on the success andfailure of comparable non-incubated companiesis rarely kept and has proven quite difficult, if notimpossible, to obtain (Bearse, 1998).Below, we briefly identify the levels and units ofanalysis available to incubator-incubationresearchers in order to better understand whatkind of variables can be measured in futureresearch efforts.Levels and units of analysis. Specifying the level ofanalysis employed helps to limit the scope of aninvestigation by focusing the research efforts.Figure 1 indicates the multiple levels of analysisemployed in incubator-incubation research. Herewe list all possible levels of analysis in incubator-incubation research with the correspondinggeneric management research label given inparentheses as a guide for future research efforts:Entrepreneur (individual) level, incubatormanager (individual) level, incubatee (group/firm)level, incubator (firm) level, community (local)level, and incubation industry (industry) level.Specifying the unit of analysis is critical forcreating any research design. The range ofpotential units of analysis in incubator-incubationresearch includes (a) the community in which theincubator operates, (b) the incubator as enterprise,(c) incubator manager, (d) incubatee firms, (e)incubatee management teams, and (f) the innova-tions being incubated.Measures of success. The paucity of peer-reviewedincubator-incubation impact studies that measuresuccess suggests a need for more research in thisarea. Interestingly, to justify a renewal of fundingarrangements for the incubator, most incubationindustry stakeholders prepare annual incubationperformance reports. In these reports, theincubator is often the unit of analysis while arunning count of incubation outcomes—measuredin terms of incubatee job growth, incubateefinancial performance, and incubateedevelopmental advances at the time of incubatorexit—provides measures of the incubator’sperformance. Cooperation among researchersand practitioners may result in an increase instudies that report incubator-incubation impactsaccurately and meaningfully for both groups. Thisis not trivial: The level, scope and quality ofincubation-related data management varies widelyamong incubators and access to informationregarding politically sensitive incubation failureswill continue to remain problematic. Accordingly,in addition to measures reviewed in the body ofthis article, we encourage practitioners andresearchers who seek to measure the incubator’sperformance on the basis of incubateeperformance to capture incubation outcomes asA Systematic Review of Business Incubation Research 73
  20. 20. temporary states that are relatively politically safebut also meaningful. Operationally, we believethere are five different mutually exclusiveincubatee outcome states at the completion ofthe incubation process:. The incubatee is surviving and growing profit-ably.. The incubatee is surviving and growing and ison a path toward profitability.. The incubatee is surviving but is not growingand is not profitable or is only marginallyprofitable.. Incubatee operations were terminated whilestill in the incubator, but losses were mini-mized.. Incubatee operations were terminated whilestill in the incubator, and the losses were large.Current approaches to conceptualizing incu-bators-incubation and the praxis of incubator-incubation management suggest that the firstthree outcome states are indicative of incubationsuccess while the last two outcome states indicateincubation failure. It must also be noted that thefirst three outcome states represent only a snap-shot of the incubatee’s performance on ‘‘gradua-tion day’’ and are no guarantee of future successor failure.Theory developmentThe current body of research describes for us the‘‘what’’ of the incubator-incubation phenomenon.Specifically, we have accumulated a number ofempirical and normative descriptions of the factorsthat should be included in attempts at explainingthis phenomenon. However, most of this researchis atheoretical (Mian, 1994; Mian, 1996), andtheory is the lifeblood of any research area. If thearea of incubator-incubation research is toadvance in a theoretically meaningful mannerbeyond simple lists of critical success factors,then we must turn our attention from ‘‘what’’are the important factors to ‘‘how’’ and ‘‘why’’and ‘‘in what context’’ (‘‘who’’ ‘‘where’’ and‘‘when’’) these factors are interrelated. Finally,the long term viability of incubator-incubationresearch depends not only on grounding futureresearch in theory and developing new theory, butalso on demonstrating why incubators are intrin-sically, theoretically compelling.5. ConclusionsIn this systematic review, we have synthesized andanalyzed concepts, empirical findings, and pro-blems related to extant incubator-incubationresearch using, as our organizing guide, the fiveprimary research orientations along which theliterature has evolved. Although a significant bodyof research has developed in the years since Temaliand Campbell (1984) set the standard for describ-ing incubators and their configurations, it is clearthat research has just begun to scratch the surfaceof the incubator-incubation phenomenon. Whilemuch attention has been devoted to the descrip-tion of incubator facilities, less attention has beenfocused on the incubatees, the innovations theyseek to diffuse, and the incubation outcomes thathave been achieved. As interest in the incubator-incubation phenomenon continues to grow, newresearch efforts should focus not only on theseunder-researched units of analysis, but also on theincubation process itself. Indeed, for our under-standing of the incubator-incubation phenomenonto advance, we will need to unpack the variablesassociated with the incubation process and thenuse these variables to build, validate and testincubation process models that help predict andexplain clearly defined business incubation out-comes. Focusing on the process of incubationrather than on the incubator facility and itsconfiguration will draw attention to the underlyingcauses of new venture development in an incuba-tor-incubation environment. This, in turn, shouldlead toward theories of business incubation. Thepath to such theory development undoubtedly willentail multiple research methods, and will requireresearchers to draw from theories that are used inother research domains. In particular, futureresearch may benefit by drawing from the richset of theories that are used to explain phenomenaassociated with new venture formation and devel-opment, new product conceptualization and devel-opment, and business assistance.74 Hackett and Dilts
  21. 21. AcknowledgmentWe would like to thank Germain Bo¨ er forcomments and suggestions on an earlier versionof this paper. Additionally, we would like to thankMr. Dick Reeves, president of Biz Tech (atechnology business incubator in Huntsville,Alabama) who helped motivate our decision towrite this article.Notes1. We offer our thanks to the anonymous reviewers andcolleagues who suggested that we review articles on incubators-incubation appearing in Academy of Management Review,Academy of Management Journal, Administrative ScienceQuarterly, Management Science, and Strategic ManagementJournal. Articles explicitly focused on incubators-incubationhave not been published in these journals.2. Alternative definitions culled from our review of theliterature can be found in Appendix C.3. Established in Philadelphia in 1963, the UCSC is aconsortium of 30 academic and scientific institutions billed asthe U.S.’s largest urban research park.4. E.g. CIE (1984); SBA (1985).5. E.g. Allen et al. (1984); Das and Ferill (1985); Dorf andPurdy (1985); Erdy (1985); Lavelle (1986).6. For examples of the popular press’ disenchantment with(mostly for-profit) incubators see the following articles: Drake(2001); Duvall and Guglielmo (2000); Enrado (2002); Finer andHolberton (2002); Holson (2000); McGinn (2002); Nocera(2001); Schaff (2000).7. The National Business Incubation Association’s mostrecently available figures indicate that 75% of incubators arenon-profit.8. Udell (1990) and Bearse (1998) are particularly insightfulin their criticism of self-reported measures of success providedby incubators.9. In principle, a research park (a.k.a. a science park) is alocation for the conduct of basic research; a technologyinnovation center is a location for commercializing the resultsof basic research; and a business incubator is a location forfostering the development of new or young businesses. Inpractice, a great deal of convergence amongst these threeorganizational forms has emerged; differences are in scale ofoperations and expectations vis-a`-vis outcomes.10. The emergence of virtual incubators is problematicbecause it is questionable whether they can be considered‘‘bona fide’’ (Bearse, 1998) incubators. If they can be consideredincubators, then implicitly any entity that provides businessassistance services can also be considered an incubator. Thissignificantly increases the population and heterogeneity ofincubators, constraining our ability to generalize researchfindings. Because we view the environment inside the incuba-tor—including the effects generated by the aggregation andinteraction of entrepreneurs from different start-ups co-locatedinside the incubator—to be an important facet of the incubator-incubation phenomenon, for academic definitional purposes weadvocate viewing virtual incubators as intervention programsrather than as business incubation programs.11. Campbell et al. (1985) are the rare group of scholars whoattempt a definition, defining the value-adding process ofincubation as follows: ‘‘(1) The diagnosis of the total businessneeds of a new business, from the collective experience of adiverse group of business generalists and specialists. (2) Thecost-effective selection, provision and monitoring of theacquisition, implementation and coordination of the variousbusiness services needed by the new business. (3) The provisionof capital—if needed—to pay for product development and thebusiness services provided by third party professionals. (4) Theprovision of a growing network of business developmentexpertise’’. They locate this process inside the incubator.Alternatively, Brooks (1986) identifies the incubation processas a set of activities occurring in the community where theincubator is located. These activities include educating membersof the community regarding the theoretical benefits ofentrepreneurship and demonstrating the benefits of launchingentrepreneurial ventures.12. The average incubator start-up costs approach $1,000,000(Bearse, 1998) and incubator proponents tend to overemphasizethe ability of the incubator to ‘‘create jobs’’ as a justification forthe large initial capital expense. Readers interested in learninghow to conduct an incubator feasibility study should see thefollowing: Bazan (1987); Meeder (1993).13. See the Allen and McCluskey (1990) continuum for moreinsight on the types of primary financial sponsors.14. ‘‘Publicly-sponsored’’ business incubators benefit fromnational and state-government funding sources, while non-profit-sponsored business incubators benefit from local orcommunity level funding sources. ‘‘University-sponsored’’business incubators are funded and operated directly orindirectly by a university. ‘‘Privately-sponsored’’ businessincubators are self-funded and are operated in a fashion thatresembles hands-on venture capitalists’ involvement in ventureinvestments. They can be run by private investor groups, or bythe new venture development units of corporations. In the pastsome corporations have developed incubator franchises.15. Rice (2002) elaborates in some detail the passiveintervention effects associated with incubators-incubation.16. Resource gaps can include, for example, a lack of access toinformation, a lack of access to potential customers, a lack ofexpertise required to complete new product development, a lackof access to expensive equipment, or a lack of access to fundingsources.17. See for additional examples: Brooks (1986); Campbell etal. (1985); Lumpkin and Ireland (1988); Smilor (1987b); Temaliand Campbell (1984)18. Categories they identified include Experience of theManagement Team, Financial Strength, Market RelatedFactors, and No Selection Criteria.19. Merrifield uses items related to include finance, legal,regulatory, manufacturing, management, marketing, distribu-tion, and technology factors.20. Initial Success is decomposed as Initial Quantified Success(Sales Growth, Employment Growth, Profitability, ROE, Sales/Employee, Sales/Assets) and Initial Subjective Success (OriginalExpectation, Attainment, Probability of Survival, Ability toA Systematic Review of Business Incubation Research 75
  22. 22. Attract Outside Capital, Employee Satisfaction, Contributionsto Society).21. Because, by definition, incubatee development studies areonly at the incubatee level, using the dimensions of communityand incubator to examine key findings would not be meaningfulhere.22. See, for example, Allen and Rahman (1985); Hansen et al.(2000); Markley and McNamara (1995); Safraz A. Mian (1994);Roper (1999); Sherman (1999); Smilor (1987b); Temali andCampbell (1984)23. This gap has been referred to elsewhere as the ‘‘Valley ofDeath’’ (Branscomb and Auerswald, 2002).24. 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