Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Russian business incubator program _ prospect development and strategic plan 2002


Published on

It is the purpose of this report to examine ‘best practices’ of setting up and operating
business incubators. Hence the strategic plan is a form of blueprint for the proposed pilot
project, identifying the parameters, goals, and processes of business incubator
development. The investigation of these components is referred to as PHASE ONE. The
purpose of PHASE ONE is to investigate the prospect development, thus setting the
direction for initiating PHASE TWO – the establishment of a Business Incubator Pilot
Project in Russia.
Finally, long-term and short-term objectives as well as potential stakeholders and funding sources are identified within the proposed three-phased 8-month strategic action plan

  • Be the first to comment

Russian business incubator program _ prospect development and strategic plan 2002

  1. 1. RUSSIAN BUSINESS INCUBATOR PROGRAM PHASE ONEPROSPECT DEVELOPMENT & STRATEGIC PLAN By: Michael Lazarowich M. John Wojciechowski Prepared For: Institute for the Economy in Transition Moscow, Russia School of Planning University of Waterloo Waterloo, Ontario Canada April 18, 2002 1
  3. 3. EXECUTIVE SUMMARYWhile incubators have grown in numbers, the uneven performance and poorsustainability in many situations have become serious issues with the governments andsponsors who continue to subsidize many of them. There has been much recent interest inidentifying ‘best practices’ that could then be used elsewhere. But these practices arelocation-, culture- and time-specific, and can only be adapted to the conditions prevailingin local situations.The successful development of business incubation programs, often measured in terms ofimpacts, effectiveness and sustainability, depend essentially on five inter-linked rings:public policy, private partnerships, knowledge affiliations, professional networking andcommunity involvement. The successful mix of these ingredients however, is dependanton the presence and identification of local assets, human skills and potentials.Understanding the local assets-base is the most important factor in the successfuldevelopment of business incubation and yet it is often the least explored in the initialstages of the project.It is the purpose of this report to examine ‘best practices’ of setting up and operatingbusiness incubators. Hence the strategic plan is a form of blueprint for the proposed pilotproject, identifying the parameters, goals, and processes of business incubatordevelopment. The investigation of these components is referred to as PHASE ONE. Thepurpose of PHASE ONE is to investigate the prospect development, thus setting thedirection for initiating PHASE TWO – the establishment of a Business Incubator PilotProject in Russia.Finally, long-term and short-term objectives as well as potential stakeholders and fundingsources are identified within the proposed three-phased 8-month strategic action plan. 3
  4. 4. OUTLINE OF THE PROSPECT DEVELOPMENTThis prospect development component of the report examines business incubators (BI) asa component in the local strategy contributing to job growth and economic development.The findings are subdivided into four sections: 1) Competitive analysis of BI models andprocesses; 2) Situation analysis of BI in Canada and EU; 3) Evaluation of ‘BI Graduates’– processes and findings and; 4) assessment of setting up and operating BI. Each sectionwill proceed with an outline of the objectives and will conclude with a set ofrecommendations.The first section defines the term business incubator and examines the competitiveness ofthe four legal forms of business incubators identifying the physical structure (formal vs.virtual), their adequateness to a market niche, the type of tenants that the businessincubator will attract/retain, the predominant success factors and the benefits of theincubator type to the local economy, the ‘graduates’ and the business incubatorsthemselves. The section concludes with a summary of identified benefits from asuccessful implementation of a business incubator for each of the stakeholders.The second section will assess the magnitude, structure and effectiveness of differentincubators in US, Canada, EU. This section is based on a number of case studies fromsecondary research conducted by the EU Commission, the National Business IncubatorAssociation (NBIA), as well as academic research. Special emphasis is placed onstrategies directed towards the business incubator’s ‘graduates’. Numerous cases studiesare used to report on the findings complimented by primary research of 2 incubators inCanada. Furthermore this subsection assesses the monitoring techniques, and identifiesthe data type that should be collected.The third and final section assesses the process of setting up and operating a businessincubator. Size of the incubator, types and numbers of tenants, start-up and annualoperations costs, and funding sources are examined based on the EU Commission Report(2002). 4
  5. 5. 1.0 THE COMPETITIVENESS OF BUSINESS INCUBATOR MODELSOutline of Objectives 1. Define the generic business incubator model and its role in the entrepreneurial activity and local economic development 2. Examine the four legal structures of business incubators determining their structure, purpose, industry niche, tenant characteristics and success variables 3. Clearly state the benefits of each model to the business venture, the various stakeholders, the business incubator and the local community/economy1.1 Definition and Function of Business IncubatorsBesides start-up capital, many new and growing businesses also need a place to dobusiness and to receive timely advice, as they face the challenges of starting a business.Business incubators furnish both the physical location and the expertise that newbusinesses need to get started. Business incubators assist emerging businesses byproviding various support services such as assistance in developing business andmarketing plans, building management teams, obtaining capital, and access to a range ofother more specialized professional services. In addition, incubators provide flexiblespace, shared equipment, and administrative services. Firms generally remain in theincubator for about two-and-one-half years, after which it is intended that they graduateto become independent, self-sustaining businesses (NBIA, 1996).Incubator facilities help new companies survive the critical early stages of development,thus lowering the failure rate. They encourage entrepreneurship and minimize obstaclesto new-business formation and growth. Most incubator facilities and programs aresponsored by one of four kinds of groups: public (non-profit), private (for-profit), private(non-profit), or educational. Funding sources are drawn from any combination offoundations, banks, venture capitalists, and all levels of government and government-sponsored commissions. The following subsections will define the generic businessincubator model, examine the four types of incubator facilities identifying their unique 5
  6. 6. organizational structure, the type of businesses they attract and the incubators’ benefits tovarious stakeholders.1.2 Components of a Generic IncubatorAlthough business incubators can take a variety of shapes, there is a basic form that thetypical generic incubator takes. Nijkamp (1988) identified some of the rudimentaryelements that makes the existence of a business incubator possible. Supported by anumber of studies in the literature, Nijkamp concludes that any type of business incubatorshould include at least these elements to be present in the community. Figure 1 illustratesNijkamp’s (1988) interpretation of a generic business incubator. At the bottom is thelocation of potential entrepreneurs with universities, corporations, the generalcommunity, the public sector, research laboratories and inventors being the most likelysources. The presence of a local entrepreneurial base or culture is perhaps the mostimportant the yet the most underestimated variable in the success of the businessincubator. The next phase of the process is the identification of market opportunities bythe entrepreneurs. Demand will then be created for an incubator and there are two maintypes of incubators that may be established. They can be either formal or informalfacilities. A formal business incubator consists of a physical building that houses andassists the small business clients through services and counseling. The informal type islimited more to a consulting role, and businesses are not housed in a central facility. Theinformal type of business incubators are today also known as virtual incubators or‘without walls’.Smilor (1986) then identifies the building blocks necessary for an incubator. Theserange from presence of venture capital in the community, to pre-existing businessnetworks and an entrepreneurial base. The presence of both debt and equity financing ishighly desirable and should be complimented with a pool of ‘patient investors’ – that is,investors who understand that the start-up phase of any entrepreneurial venture involveshigh risk and hence must be supportive in this very crucial phase. The findings in theliterature indicate that the most significant contributing factor to attract ‘patient investors’is a sound legal and regulatory framework and high levels of trust, which are interestingly 6
  7. 7. brought about by the other building block – the business network. The network shouldinclude a variety of formal ties with local institutions, the educational system andbusiness associations as well as informal ties with local clubs, organizations andindividuals thus extending the channels of information flow. The public and privateinfrastructures, as the names imply, refer to the supportive network of physical facilities(eg., vacant buildings and lots with adequate access) and technological capabilities (eg.,high-speed internet connection), which would both reduce the costs of starting thebusiness incubator and facilitate the growth of the tenants. All of the listed items arenecessary for the successful implementation of an incubator program. The very top ofthe figure indicates the possible sources of funding and/or legal status: universities, localgovernment, state/provincial or the private sector (Smilor 1986). 7
  8. 8. Regardless of the sponsoring organization, however, the goals of business incubators areto nurture young firms and to help them survive and grow during the start-up period,when they are most susceptible to failure. Generally, incubators provide hands-onmanagement assistance, access to financing and support, such services as officeequipment, meeting areas, support staff, accounting, roundtable discussions, research andlibraries, and computer facilities, all at lower costs than usual.According to the National Business Incubator Association, "An incubation programsmain goal is to produce successful graduates-businesses that are financially viable andfreestanding when they leave the incubator, usually in two or three years. Thirty percentof incubator clients typically graduate each year." (, 2002)1.3 The Four Types of Business Incubators & Benefits IdentifiedThere are predominantly four types of incubators even though variations de exists areoften representative of the specific location, culture, availability of resources and time ofdevelopment/implementation. These are classified on the basis of sponsorship andobjectives. There public (non-profit), private (for-profit), private (non-profit), oreducational.Public non-profit incubators are sponsored by local government, industrial or enterprisedevelopment corporations and community based development associations. These typeof incubators attract manufacturing enterprises and new businesses with light productionprocesses. These are usually formal incubators – or physical structures with larger squarefootage than average. Their benefits are job creation, economic diversification, linkageswith existing firms and tax base expansion (Allen 1986, 177). Revolving-loan fundprograms are set up to provide capital to start-up businesses that cannot get funding fromother sources. According to the U.S. Chamber of Commerce, there are more than 7,500revolving loan funds in the United States today. Most are managed by local or stateeconomic development commissions, which provide partial funding in partnership withbanks or other financial institutions. The loans are usually within the range of $15,000-$80,000. Frequently, these programs are set up to stimulate business growth or to fill 8
  9. 9. gaps and encourage financial participation by banks or other institutions. Some loans areearmarked for revitalizing an urban slum or an enterprise zone.Aid from other programs is granted to help develop otherwise undesirable rural placesthat are trying to attract businesses. For most gap loans, public financing programs take aposition on assets behind the primary lender(s). As a rule, revolving-loan fund programsare careful not to use public funds to compete with private sources.Each local economic development commission has its own policy on profitability. Someprograms strive to make a return on investment similar to that of banks, while others havea break-even policy. Still other programs contend that, because they are using publicmoney for high-risk investment, they should make higher-than-normal returns. Allprograms agree, however, that, when public monies are to be used for the public good, itis in the best interest of the community to create jobs and improve the local economy.Both private for profit and private non-profit incubators are sponsored by one or a fewprivate corporations. Hence it is possible to conclude that the creation of these types ofincubators can be facilitated by the entrepreneurial climate in the region – that isdepending on the network interactions between larger firms and local providers and/orsuppliers. The private non-profit incubators usually attract enterprises that demonstratethe potential for the creation of local employment. The objective of these incubators isthe fostering of local entrepreneurial ventures and local economic development.The private for-profit incubators attract new firms that show the ability to grow.Basically, these incubators can be described as venture capitalist establishments were thetenants exchange equity for the services and/or locale provided. The benefits of theseprivate incubators is to make profit on surplus commercial and industrial space andcollect on the equity shares once the firm goes public. In light of the above, the mostsuccessful graduates from business incubators, originate from this type of incubators.In educational (university affiliated) incubators, the focus is on technology and sciencebased industries. They are likely to be located close to a university and the university isthe primary source of funding. The benefits of these incubators is the product 9
  10. 10. development and commercialization derived from research and the cooperation between universities and industries. Table 1: Four Types of Business Incubators, Industry Niches, Tenant Characteristics and Success Criteria Incubator Formal Niche Characteristics of Success Variables vs. Tenants/Graduates Model Virtual • Manufacturing • Selection criteria • Prioritize short stays • Light focuses on (not more than 2 years) Manufacturing potential of job • The higher the turnover • Transportation creation the better (more jobs • Retail/Services • Mainly tenants created locally) • Administrative from the local • Management should • Tourism community focus on public • Agro-business • Graduates are relations, partnerships • Rural incubators usually micro- with local high schools • Mixed used businesses (with and trade schoolsPublic (non- Formal less than 5 • Financial Responsibility • Empowerment profit) employees) is a must Incubators • Not always growth • Provide basic business oriented assistance, counseling, • Tenants remain in training, the local area after • Workshops and graduating presentations from business consultants • Willingness of the community to contribute • Depending on the • Selection criteria • Take advantage of tax interest/orientation considers job incentives to redevelop of the corporation creation potential old buildings behind the project and creation of (revitalization strategy) • Often correlates to linkages with • Dependant on rents and the regional larger firms other services forPrivate (non- Formal industrial cluster • New and financial balanceprofit) established • Manager(s) familiar businesses with industry • A mix of firms • Presence of belonging to one entrepreneurial climate industry sector 10
  11. 11. • Telecommunication • Technology based • Presence of venture • Biotechnology firms capital and other • Nuclear • The tenants alternative financing • Engineering exemplify a mix of options (business consulting knowledge angels) • Human resource intensive • Proximity to high-tech consulting enterprises clusters • Food processing • Highly educated in • Availability of highly- Formal • Financial services specific field skilled labour • ‘Urban incubators’ • Often more • Manager/President isPrivate (for- & established expert in one of the profit) businesses get technological fields Virtual through the • Manager pursues the selection criteria success of the tenant firms with a venture capitalist attitude (performs due diligence) • Financial gain from IPO of the graduates • Provide advice on global exporting, finances, industry- specific marketing • Industry funded • Telecommunicat • Researchers and • Access to R&D grants ion highly educated • Presence of local • Biotechnology professionals entrepreneurial base • Medicine • Science based and • Presence of venture Formal • Pharmaceutics knowledge capital and business • New materials intensive firms angelsEducational & • Avionics • Large portion of • Collaboration among • Defense/military firm’s costs go to University and industry Virtual R&D • Support from other • ‘technology incubators’ business dev offices • Larger firms in vicinity pertaining to the industry sector • Financial success dependent on university funding 11
  12. 12. 1.4 Selecting the Type of Business IncubatorEvidently not all regions are adequate locations for the development of a specific type ofbusiness incubator. In fact in some regions it may not be feasible to develop a businessincubator in the first place. According to the Global Entrepreneurship Monitor (GEM) studiesby the Kauffman Center for Entrepreneurial Leadership, Babson College and LondonBusiness School, the factors which affect different levels of entrepreneurship are: 1) theperception of opportunity, 2) the culture which respects entrepreneurs and accepts widedisparities in wealth creation, 3) the policy and business infrastructures, investments intertiary education, and the demographics, as men aged 25 to 34 are most likely to start abusiness.If those preconditions are not adequately developed - that is, they are not at carrying capacity- other initiatives such as government funded and managed business development offices andservice providers may be required to pursue concomitant economic development objectiveswith the special purpose to build these preconditions.Recommendations I. To assure the adaptability of the business incubator to the local community and economy, the business incubator must be integrated into the local strategic economic development plan. The support of the local leadership and identification of acknowledged local ‘champions’ is a must. Personalities, business and political, can play seminal roles. By pulling the right strings and pushing open the right doors, the ‘champions’ are able to help overcome barriers and leverage support. II. The type of incubator chosen for the region must coincide with the local potential of individual skills and assets as well as the synergetic effect of the local educational environment, the quality of the regional financial sector, experienced management consulting and most importantly the competitive regional economic base 12
  13. 13. III. A cluster analysis of the local industries is recommended in order to clearly identify the backward and forward linkages between major local employers and the servicing small-and-medium enterprises. The cluster analysis will also identify the interest of firms in innovative solutions, research and development. IV. The systematic identification of the competitive advantage of the region and individual firms will compliment other eligibility criteria (to be a tenant in the business incubator) and thus will set the specialization of the business incubatorIdentification of Benefits to StakeholdersThe benefits of a well-managed incubator can be many-fold for different stakeholders(Molnar 1997): • For tenants, it enhances the chances of success, raises credibility, helps improve skills, creates synergy among client-firms, facilitates access to mentors, information and seed capital. • For governments, the incubator helps overcome market failures, promotes regional development, generates jobs, incomes and taxes, and becomes a demonstration of the political commitment to small businesses • For research institutes and universities the business incubator helps strengthen interactions between university-research-industry, promotes research commercialization, and gives opportunities for faculty/graduate students to better utilize their capabilities, • For business: the business incubator can develop opportunities for acquiring innovations, supply chain management and spin-offs, and helps them meet their social responsibilities. • For the local community: creates self-esteem and an entrepreneurial culture, together with local incomes as a majority of graduating businesses stay within the area. • For the international community: it generates opportunities of trade and technology transfer between client companies and their host incubators, a better understanding of business culture, and facilitated exchanges of experience through associations and alliances. 13
  14. 14. 2.0 BUSINESS INCUBATION AND ECONOMIC DEVELOPMENTOutline of Objectives: 1. Define business incubators according to their functional type 2. Illustrate the fostering elements of business incubator program 3. Identify arguments for and against state funding 4. List and explain the limitations of business incubator programs 5. Examine strategies targeted at different types of Graduates (Case Studies)The National Business Incubation Association (NBIA) reports that throughout the UnitedStates small businesses generate approximately two out of every three new jobs. At almostany time, roughly 7 million people are starting new businesses. All across the country,business incubators are providing entrepreneurs with tools that encourage technology transfer,enhance the local economy, and create new jobs. NBIA has estimated recently that roughly1000 business incubators are operating in the United States alone (,2002). According to a recent study conducted by the European Commission, 3000 businessincubators are operating worldwide. Unprecedented growth of business incubators has beenreported in transitional economies such as China, India, Malaysia, Brazil as well as is EasternEuropean countries.Business incubation programs generally work with new businesses from before they havebrought products to market until they have graduated, that is, obtained sufficient size andearnings stability to be able to survive without on-going assistance. The previous section ofthis report examined the four legal basis of a business incubator program (public [non-profit]private, [for profit, non-profit], and educational). With regard to identifying, measuring andmonitoring the impact and benefits of a business incubator program to local economicdevelopment it is recommended that the type of business incubator be also well defined.Incubation programs can be generally categorized into three major types: 1) empowerment, 2)mixed-use and 3) technology. Empowerment incubators foster the growth of businesseslocated in areas characterized by high unemployment or deteriorating neighborhoods. Theseincubators usually support companies whose founders had to overcome a significant lack ofpersonal economic resources, business literacy and/or education. Mixed-use incubators 14
  15. 15. encourage growth of all kinds of businesses such as light manufacturing, heavy manufacturingand construction firms, and wholesale, distribution, mail order, and professional services.Technology incubators foster the growth of firms involved in emerging technology.2.1 A new Breed of Incubators: The ‘New Economy’ Technology IncubatorsThe Harvard Business School in its recent survey identified 356 such incubators around theworld (Hansen, 2000). Of these 222 are in the US (that is, about 25 % of the total U.S.incubators). The others include Canada (14), UK (28), China-Hong Kong (11), and Brazil(10). The growth of ‘new economy’ incubators is reflected in the fact that whereas in 1994,only 1 out of every 25 technology incubator companies was IT related, by 1999, this figurehad risen to 20. Many of these incubators are associated with major universities and have as aprimary objective commercializing technology (Refer to Exceler@tor Case Study underSection 4.4).‘New economy’ type business incubators are often virtual. New economy incubators areusually funded by venture capital companies or set up by large multidisciplinary consultanciesthat are able to offer a complete range of technological, advisory and other business supportservices to their clients. Large multinationals have also been keen to capitalise on theirexpertise in the e-economy, namely the rapid development of the B2B and B2C sectors, e-commerce, m-commerce (mobile phone commerce driven by WAP technology) and v-commerce (voice activated commerce) by offering advisory expertise to new high-tech start-ups within a virtual incubator model. Amongst technology incubators, a key factor is theextent to which an incubator plays an active role in the broader regional (technology)development strategy of the area where it is based. For new-economy incubators the primaryobjective being is the generation of returns to investment to their own shareholders. Due tothe high risk involved and often low return rates (due to the fierce global competitions) someincubators resorted to selling consulting services to established companies, or to partneringwith local universities and research institutes. An analysis of best practice suggests thatincubators should not be treated as stand-alone operations but rather integrated into a networkof key stakeholders, agencies and schemes that work together to promote innovation,competitiveness, technology transfer and other key public policy objectives.In light of the above the strategic objectives and modus operandi of ‘new economy’incubators differ fundamentally from their ‘traditional’ equivalents: 15
  16. 16. • ‘New economy’ incubators are private-sector, profit-driven with the pay-back coming from investment in companies rather than from rental income; • Secondly, they tend to focus mainly on high-tech and internet-related activities and unlike ‘traditional’ incubators, do not have job creation as their principal aim; • Thirdly, ‘new economy’ incubators often have an essentially virtual presence with financial and business services at the core of the offering unlike their ‘traditional’ counterparts that usually centre on the provision of physical workspace. CONCEPTUAL MODEL AND COMPONENTS FOR SUCCESSFUL DEVELOPMENT OF TECHNOLOGY BUSINESS INCUBATORDepending on the type of business incubator program, numerous support sources will have tobe coordinated and various stakeholders will have to be brought on board. Lalkaka (2001)identifies five inter-related rings, which have the potential to foster venture creation: 16
  17. 17. 2.2 Getting Support (Human, Knowledge, Social, Financial) for Business Incubator ProgramLalkaka (2001), based on a review of a number of incubators from both developed andtransitional economies, lists a number of problems and risks of business incubator programs –often used as arguments against state funding: • Elitist: as it caters to a selected group of potential “winners”, • Dependent on government support: in policy, infrastructure, initial funding, • Limited in out-reach and makes only a marginal contribution to job-creation in the short term, • Not yet demonstrated to provide additionality, as most businesses start outside an incubator, • Expensive: as it provides focused assistance and work-spaces to only a selected few, • Duplicative: as it may undermine existing markets for business development services, • Skills-intensive: as it requires experienced management teams, • Creates dependency by sheltering entrepreneurs from the harsh realities of the market, • Calls for good business infrastructure in a good location, and • Requires external subsidy for some years before it can become self-sustainable.Lalkaka (2001) suggests that although these obstacles are legitimate, the conflicts can beavoided through “realistic briefings to policy-makers, by careful planning of the incubator,consensus building, patient support and strong leadership” (pg. 9). Furthermore he outlinesthe scenarios and arguments, which should be used to gather state support for the businessincubation program: • When it helps overcome market constraints, improves the access to information, finance and divisible work space not freely available, 17
  18. 18. • Extends the state’s role in providing public goods--knowledge, research, infrastructure, • Becomes a visible symbol of the state’s commitment to the creation of good jobs (direct, indirect and through multiplier effects), • Stimulates innovation and entrepreneurship as prime forces in the new economy, • Promotes the cultures of technology commercialization, risk-taking, teamwork, sharing, • Reduces the costs and consequences of business failures, and facilitates the transition from a command to a market economy, • When it empowers backward areas (urban and rural), youth and women entrepreneurs, and promotes employment in the longer term, • Helps develop synergy between university, research, state and civil society, • When support is limited to initiate the establishment, not a continual operating subsidy • Generates taxes paid by corporations and workers, typically in excess of net subsidy, and raises incomes, sales and exports for the community and country,2.3 Limitations of Small Business IncubatorsOne major problem among public and private incubators is their apparent differences inphilosophy. An example of this difference is seen in public incubators stipulating rent belowmarket rate. “This policy increases the benefit to the tenants but hampers the profitability ofthe incubator and its ability to cover operational and maintenance costs – which are both apriority of most private incubators” (Nyrop 1986, 7). This brings us to a larger problemfaced by all incubator managers – incubator finances. In fact financial difficulties are oftenmanifestation of deeper problems. An incubator may be suffering from low occupancy rates,poor pricing structures, lack of capital investment or other such issues that appear to bemonetary problems. Certainly, the vital aspect for all incubator types is the managementteam. Larger and usually for-profit incubators have a wide variety of mangers experts in theirrespective fields including, marketing, finances, strategic planning, product development,public relations etc… However, managers of smaller business incubators usually have toperform all of the above functions. A lot of cases studies report that the reason why businessincubators have failed can be partially attributed to the fact that the management has beenoverwhelmed with the task to improve fiscal matters rather than concentrating on the successof the incubating firms. 18
  19. 19. 2.4 Strategies directed at Graduates’ Success: Two Case StudiesThe retention of the graduates is the most important benefit with regard to economicdevelopment. Not only will the investment of public money be recycled in the community(through income and corporate taxes) but more importantly the entire business incubatorprocess contributes to capitalizing on local entrepreneurial talent and nurturing smallbusinesses. This section examined the strategies undertaken by the TBDC – a non-profitmixed business incubator in Toronto. The business incubator began operating in 1988 andwas originally subsidized by both provincial and municipal agencies. For the past 5 years ithas been self-sustainable relying predominantly on income from rental fees and businesscounseling services provided to both the tenants and other entrepreneurs/small businesses inthe community. At its conception the City gave approximately $65,000 in funds to select thelocation and prepare a business plan. The entire start-up costs were approximately $4 million.2.4.1 The Toronto Business Development Incubator (TBDC)For more than a decade, the Toronto Business Development Center (TBDC) has successfullyaccomplished its mission "to nurture the growth and development of new and existingbusinesses." Since its inception, the Center has been an active participant in the growth andsuccess of hundreds of new and existing business ventures. TBDC is a mixed incubator andapproximately 80% of all graduates is still in business and all but two (over a period of fiveyears) are still currently residing in the Greater Toronto Area (GTA). TBDC’s success can bedirectly linked to its four-stage development cycle, designed to target the possibilities andreveal the full potential of each business. Following a change in management and generalphilosophy, today the business incubator graduates its tenants after 3 years. It is important tonote that the four-step development cycle is costumed to the business depending on whether itis in an early start-up phase or a mature venture.Stage 1: ExplorationThis stage is perhaps the most crucial stage for the management of TBDC. In this stage thepotential client of the business incubator participates in a number of business orientedworkshops which inform the client on business processes, need for funding and the personaleffort required in running a personal business. Often at this stage the management candifferentiate between firms that are in the early start-up phase of the business cycle and those 19
  20. 20. that have enough experience to progress into the second stage. Before a participant of theworkshop can become a tenant he/she is mandated to write a business plan.Stage 2: PlanningTBDC helps its clients to develop a top-rate plan with clearly defined priorities, attainablegoals and a well-charted direction. It is important to note here that an adequate business planis not necessarily directed at investment (both debt or equity), but one that identifies a viableopportunity and provides a ‘road map’ to capitalize on it. More mature firms are often well-equipped with a business plan. In this case TBDC’s management identifies finance sources.Stage 3: ImplementationAt this stage TBDC provides its clients with a thorough understanding of a wide range ofbusiness disciplines including management, finances, administration, marketing, In additionto providing training and consultation in all aspects of business development, TBDC alsoprovides access to a vast network of business specialists, professionals and funding sources.This is perhaps the most important stage for both the business incubator and its tenants. Thenetworking component is particularly valuable with regard to increasing exposure, recognitionand building a stable clientele list.Stage 4: Graduation & MonitoringThe management team at the business incubator makes it very clear to all new tenants thatgraduation is expected within three years. A number of strategies are implemented to pursuethis objective: • Constant adherence to the four-stage model of business development • Increasing rents for more mature tenants • Increase in service fees for consultation servicesSince the new management has been operating at the TBDC (2000), two monitoring reportshave been published with regard to the graduates. The reports indicated that100% of allgraduates are still operational ad that they have generated 126 new jobs in the community.2.4.2 The Axceler@torThe Exceler@tor is an information technology and telecommunications focused incubator,providing infrastructure and services, to accelerate high potential disruptive and platformtechnology businesses globally. The Exceler@tor is a centre for innovation, providing aunique, collaborative environment with direct access to the University of Toronto and the 20
  21. 21. wider resources of Toronto’s technology and financial communities. The Exceler@tor’svision is to be the foundation of a successful technology hub in Toronto, to becomerecognized as a leading International institution, fostering a culture of entrepreneurialopportunity, facilitating wealth creation locally. The Exceler@tor is a joint initiative betweenUniversities, Industry (Technology and Financial) and Government.The Incubator was initialized by the Innovations Foundation (IF) - a technologycommercialization office at the University of Toronto. The twenty year old foundation in2001 investigated the opportunity of establishing a non-profit technology incubator based onclose interaction between six universities (in Southern Ontario allowing maximum use ofresources and opportunities) lead by the University of Toronto, the local high-tech industryand Research Council of Canada – the national agency for coordinating funding and programsfor research and development in both industry and educational institutions.Once a board of senior industry advisors had been appointed, the creation of The Exceler@torbecame a reality, with technology and other support from industrial partners, and a line ofcredit from the Innovations Foundation. Today the business incubator is 12,500 sq. feet andhas a staff of 20 highly skilled technical consultants and managers. However, TheExceler@tor is somewhat different from other incubators. Whereas a traditional incubatorprovides space with very limited technology, infrastructure and business support. TheExceler@tor’s goal is to help companies outgrow it and provide opportunities to add furthervalue to their enterprise. The key success factors for The Exceler@tor are the following: • Strong link with the University of Toronto • Robust operating principles (not for profit) • Low overhead facility (sharing resources with IF) keeps fixed costs to minimum • Technology focused (ITC) with special interest areas (i.e. wireless and e-Health)Tenants of The Exceler@torThe Exceler@tor focuses on information technology and telecommunications. In general, as atechnology incubator, the Exceler@tor admits companies that have unique technologyapplications. These technologies are usually disruptive or a platform technology as they havethe greatest potential to turn into major opportunities. It is encouraging to see technologieswith patents either issued or applied for, but this is not a requirement, especially as in somecases, the patent process is not that effective for software businesses. 21
  22. 22. A focus on specific types of technology allows the greatest synergies in the provision ofservices and enhances networking opportunities as a result of many of the companies workingin similar areas. It also enhances the opportunities for collaboration between companieswithin the Exceler@tor and between them and the external partners and sponsors. The mainentry criteria are constantly being reviewed, but currently include: • Company formed (not individuals) • Company has significant growth potential and aspirations • Technology based in the area of information technology and telecommunications • Sponsor found (usually Innovations Foundation) who will do the initial investigation • Technology unique, usually disruptive or platform (frequently possible to patent – although patenting is not necessary) • Not a direct competitor with an existing Exceler@tee (can be with virtual clients – that is clients that are not physically in the incubator) • Will gain real value from being in the Exceler@tor, especially from the networking opportunities • References available • Have the ability to pay for the level of services they require for at least 3 months. • Willing to sign service agreement and agree to all terms which includes provision of some simple monthly corporate information with which we can track the impact of the Exceler@tor.Companies are allowed to stay in the Exceler@tor provided that:• They are still growing and moving forward on the implementation of their business plan• They are not disruptive to the Exceler@tor as a whole• They remain solvent• They do not occupy more than 25% of the Exceler@tor’s workstationsThe incubator is currently examining the opportunities of developing a local sciencepark/discovery area into which graduates/alumni can move. However, it is expect that allExceler@tees will exit the Exceler@tor within 3 years of entering, although this date is notfixed. In the case when the tenant stays longer than the prescribed three years, service andrental fees increase. Due to the incubator’s early age, there have not been any graduates yet.Networking in the Exceler@torThere are three types of networking opportunities: within the Exceler@tor, within theUniversity/sponsor community and with the external business community. The Exceler@toris organized to maximize the networking opportunities between each of these communities. 22
  23. 23. Within the Exceler@tor, there are a number of events organized to stimulate interactionbetween the various companies. In addition to these events, the social hub of the Exceler@toris the coffee shop on the third floor, which has both an informal lounge and some additionalfacilities such as a pool table. Interaction with sponsors and the University community willalso be catalyzed by a number of events, such as lunch-and-learn opportunities. As well, thereare many interactions with staff and students from Rotman Business School who areinterested in working with Exceler@tees.In addition, sponsors and other organizations participating are keen to see how companies inthe Exceler@tor are progressing. This interaction may range from an informal meeting to aformal mentoring program, depending on the interests of the parties.The Exceler@tor is already establishing itself as a destination for innovation events andnetworking opportunities with the wider business community. These activities will see astream of local, national and international visitors in the Exceler@tor weekly. There will be aformal program where Exceler@tees will be notified in advance of these visits and asked ifthey want to make a short presentation in addition to many other informal opportunities. 23
  24. 24. Recommendations I. The micro-economic framework should stimulate innovation and markets for new goods and services, together with a master plan prepared in consultation with local communities, entrepreneurs and stakeholders. II. Commensurate investments are required in scientific research and technology development, engineering and management consultancy, technical education, environmental preservation, transport and communications infrastructure. III. Long-term plans should be formulated for developing the convergent enterprise support systems encompassing the full range of small business development services, anchored possibly in a business incubator and technology park. Locations for these support complexes should be environmentally attractive and well connected to technical universities and research laboratories, cultural and recreational facilities. While it is easier to start in a developed urban environment, the political wisdom may call for balanced expansion to peripheral regions. IV. The selection of proactive sponsors and organization structure could originate from strong initial government support, with responsibilities moving progressively to knowledge institutions, non-governmental agencies and the private sector. V. Programs are required for kindling nascent entrepreneurship from school onwards, and structured efforts to search for new tenant businesses, their selection and graduation. VI. Networks should be developed with agents at the national and international levels particularly consulting, and service sectors, venture capital, banking, legal and accounting services, business associations and chambers, state and community leaders, together with firm linkages to technical universities and research institutes. 24
  25. 25. Good Practices for Managed Work-spaces & Their Adaptation Good Practice Adaptation 1. Commit to the core In order to avoid misunderstandings and conflicts, the core principles of venture creation principles must be early explained to all the stakeholders of the as the first step. incubator and their commitment obtained as early as possible. 2. Collect and assess salient In many countries, information is often spurious, incomplete and information to decide on biased. It may also be over-optimistic, to "sell" the project and whether the project is feasible obtain funds. or not. 3. Design the services and Business development services, including incubators and parks, facility to be self-sustainable need initial state support, because benefits usually out-weigh the in an overall community net state subsidy when all the employment, income, taxes and context and in a medium-term other benefits are considered. horizon 4. Structure the organization In some countries there is a tendency for the bureaucracy to to optimize governance & interfere or micro-manage, resulting in loss of initiative and maximize assistance to tenant accountability at operational levels and consequently poor companies. performance. 5. Engage stakeholders to Most entrepreneurs in restructuring companies are good at help companies and mentor networking, but this process should be also managed by enlisting the operations. possible academic, government, private and international assistance 6. Recruit staff who will Initially, the local manager may be supported by a carefully manage the facility as a recruited expert for a short period. Hands-on training of staff business and a Director with would be done at a comparable operational facility, or locally by the capacity to help trainers familiar with international practices. companies grow 7. Choose a building that will The buildings should be of high quality, functional and well enable the incubator to equipped (telephone exchange, computers, copiers, faxes, satellite generate sufficient revenue communications) in order to attract international and national and also support business tenants. incubation. 8. Recruit and select firms The director must resist political pressure from stakeholders to that have the potential to recruit companies that do not meet criteria. The business plans and develop their technology reliability of the entrepreneurs should be rigorously evaluated. A product/service, to grow and marketing effort is needed to recruit anchors and tenants with create jobs, income, taxes and business and innovation skills. other benefits. 9. Customize the delivery of The incubator staff must be fully familiar with specific needs of assistance and address the the companies, Foreign advisors may assist the companies and developmental needs of each local staff in the start-up period, with rapid transfer of skills. company. 10. Engage in continuous Careful monitoring of progress and bench-marking of performance evaluation & improvement as should be done monthly by the staff and by the board. Deviations program progresses and needs from plan should be promptly identified and corrected. of clients change.Key Issues in Business Incubator Development 25
  26. 26. • Critical Mass: The size of the community is important. Mobilizing cooperation and demonstrating viability requires a certain scale of operation• Markets: Rather than depend on vagaries marketing and distributing the products of the business incubator communities can be designed to include bulk procurement of materials, warehousing and focused distribution channels. In the community, local business can be supported by making credit facilities and money management training available to local entrepreneurs.• Replicability: Demonstrations of "best practices" and model projects have to be replicated widely if their impact on a national scale is to be significant and sustainable. This requires affordable charges for services, with the prospect of the programs becoming self-supporting in the future.• Improvement Services: Management, quality control, production, commercialization processes and related skills are generally inadequate in many smaller communities and must usually be upgraded if local businesses are to compete in a regional or national market. In specific situations, multi-purpose workshops and shared work spaces for businesses facing similar challenges may be warranted.• Integrated Package: A convergence of support functions in an integrated package including skills enhancement, counseling and financing, is ideal in a business incubator program. Other related national and donor-supported activities should be inter-linked.• Grassroots Involvement: Exhortations regarding "participation" by the local community in design and implementation of development schemes implies that the program is externally imposed on their lives. In most poor communities, working is a part of living itself, not a separate wage-earning activity. The development process also has to become an intrinsic part of living.• Vital Concerns: Growth with equity, gender equality and environmental preservation have to be continuously kept in the forefront of planning. 26
  27. 27. 3.0 STARTING UP AND OPERATING A TECHNOLOGY ORIENTED BUSINESS INCUBATOR PILOT PROJECTOutline of Objectives 1. Introduce the basic components of a business incubator pilot projects 2. Summarize the findings from the CSES report on Benchmarking Business Incubator Performance: a. Selecting location b. Selecting quantity and quality of business incubator clients c. Assess the financing start-up costs and operating costs, associated breakeven points and sources of funding d. Propose sources of funding specific to this project e. Propose an NGO for leading the pilot projectBusiness incubators evokes an image of a specific building or complex where businesseslocate, pay relatively low rents for space, and share common support services. Thesebusinesses also can have access to a wide variety of business development and professionalconsulting services. Incubators offer small business clients financial and professionalassistance that typically includes: • Flexible space and leases. • Access to a network of business and technical consultants. • Relationships with financial institutions. • Use of university resources.An incubators main goal is to be financially stable and produce successful graduates, orbusinesses that are more financially viable and stable when they leave the incubator, usuallyin two to three years. Businesses incubated today often are at the forefront in developing newand innovative technologies, creating products and services that can enrich citizens lives andtheir communities.Perhaps the most important aspect of business incubation is the fact that it uses localinstitutions and resources to build a local capacity for business startup. The incubator employsfinancial resources, professional networks, and intellectual capital to broaden the localeconomy one enterprise at a time. According to NBIA, an incubator program helps build an 27
  28. 28. entrepreneurial culture within a community by pulling together the support of financialinstitutions, business owners, community leaders, schools, government, and businessassistance professionals. Adding this depth to an economy can provide greater insulationagainst the effects of the negative business cycles that occur from time to time. This sectionwill summarize the findings from the report by CSES for the European Commission (2002)on business incubation principles, specifically regarding issues relating to the financing ofincubator start up and operating costs. The study is based on surveys and interviewsconducted with 125 business incubators in the European Union.Location of the Business IncubatorThe location of a business incubator largely reflects the aims it pursues. Thus, a specialisedincubator that focuses on promoting technology-based enterprises may well be located on‘greenfield’ site, for example on a science park adjacent to a university, whilst a multi-purpose incubator could be in an inner-city area or on an industrial estate. New-economyincubators, in contrast, tend to be concentrated in metropolitan areas, particularly in cities andregions that combine strengths in technology, creative talent, entrepreneurship, professionalservices and finance. Large urban centers and prestigious capitals are adequate locationsbecause that is where entrepreneurs and investors work, live, play and network.Very few new-economy incubators are housed in newly built facilities, but for reasons largelyunrelated to cost. At least in the beginning, when they were managing to raise large amountsof funding, it was more important to launch operations as soon as possible, often in citieswhere office space is scarce. For young entrepreneurs and information technology workersthere is also a sort of "shabby chic" appeal in occupying converted lofts, former warehouses,or antiquated offices. The CSES research suggests that to operate successfully, incubatorsneed to have sufficient capacity to accommodate a minimum of around 20 tenants at any onetime and hence to achieve economies of scale. According to the survey, a typical incubatorhas around 3,000 square meters of incubator space. These findings do not however, apply to‘new economy’ technology incubators. Their profitability is much more dependant on theequity shares rather than rental fees. Some of them may host only two or three companieswhile others may operate as virtual incubators that do not provide office space at all. 28
  29. 29. Business Incubator ClientsThe success of business incubation programs is directly dependant on the quality of its tenantsand the ability to provide these tenants with added-value services while fulfilling theirnetworking needs. The strategic selection of incubator clients is hence, pivotal to the successof both the incubator and of its clients. Somewhat related yet perhaps a paradox is the is thenecessity to achieve a critical mass in order to maximize the economies of scale with regard toservice provision and costs. This is perhaps the most complex aspect of selecting the types ofclients, the numbers of clients served (both in the incubator and in the community) and thetype of services provided – all of which become benchmarks also for selecting the size, andexpertise of the business incubator’s management team.In light of the above, the CSES study concluded that a business incubator should have about18-22 clients in the incubator and about 10 other clients in the community providingconsulting services and networking opportunities. On the other hand, new-economyincubators tend to have considerably fewer tenants because of the significant investment theymake in each incubatee (typically ranging from €500,000 to €1 million in the form of seedcapital and support services) (CSES 2002). It is also important to mention a shift that wasobserved in the investment strategies into ‘new-economy’ technology incubators. Althoughinvestors were more interested in early-stage startup firms, they have recently shifted towardsinvestment in more mature technology-based firms to start new businesses.Financing Start-up and Operating CostsAccording to the survey, the average cost of setting up a business incubator is just under € 4million. In terms of the sources of finance typically used during the set-up phase, the surveydata suggests that the overwhelming majority of the financing comes from public sources.Just over a fifth of the set-up costs are subsidized by the EU and other international agencieswhereas almost 50% are funded by national, regional and local authorities. 13% of set-upcosts come directly from private sector sponsors. With regard to operating costs the surveyrevealed that on average typical incubator has operating costs of approaching €500,000 perannum. 29
  30. 30. Payroll and related benefits constitute the highest proportion of outlays. A key performancebenchmark here is the extent to which overheads such as these can be minimized andresources devoted to incubator services that directly benefit client companies. New-economytechnology incubators, which profits come from equity shares in client firms lower payrollcosts by giving stocks to the employees of the business incubator. This strategy besidereducing operating costs also has a positive impact because it helps to align the interests of thestaff with those of the incubatees they serve.Similarly to the funding sources for starting costs, operating costs are extensively reliant uponrevenues from international agencies as well as national and regional authorities (37%).However, and in contrast to start-up costs, operating costs are largely covered by revenuesfrom rentals and service charges (40%). The remaining revenue sources include bank loans,and other private sector organizations. Interestingly, and due to the inability to rely only onequity revenues, technology incubators are now forming hybrid cost-recovery schemes, whichinclude both rental and service fees and reduced equity stakes. Out of the entire sample only40% indicated that a breakeven point has been set in the business plan (primarily because themajority of incubators in the survey is oriented as a public non-for-profit organization). Thefollowing chart illustrates the distribution of estimated breakeven time by the participants inthe CSES survey. 30
  31. 31. Potential Funding Sources for Pilot Project: Multilateral AssistanceThe large regional development banks have, not yet financed incubator-type programs. EBRDis presently supporting a technology park program in Russia. A technical assistancecomponent for incubators was part of a World Bank private sector development loan toPoland. This program was transferred to PHARE. The Bank presently supports micro-enterprise development projects for employment generation with the Polish Ministry of Laborand Social Policy. This includes 37 small business assistance centers and 23 businessincubators and enterprise development funds. The International Finance Corporation has hadinterest in incubator-type arrangements in St. Petersburg, Russia, and Pilzen, Czech Republic.The European Union, through the PHARE program, has been extremely active in central andeastern Europe through TACIS in Russia. For instance, in Poland, it has helped set up 30business support centers and four business incubators in the 1991-95 period. In the CzechRepublic, PHARE helped establish three Business Innovation Centers (BIC’s), as well asvarious consulting, information, training and business promotion programs. In Hungary,PHARE supports the Hungarian Foundation through the Columbus program of EU. EBNplays a leading role in PHARE-assisted Business Support Centers (BSC) and InnovationCenters. For instance, Lodz (Poland) is twinned with Lyon (France) at the level 23 ofBSC/BlC and the chambers of commerce and industry.A potential NGO for the Pilot Project: UNIDO – Strengths and OpportunitiesWithin UNIDO’s (United Nations Industrial Development Organization) prime mandate ofpromoting industrial development, support to small and medium enterprises is one of its sixprogrammatic themes. Business incubators have now become a component of national small 31
  32. 32. enterprise strategies. Further, the majority of tenants in incubators world-wide produceinnovative goods and technical services in agri-based, chemical and engineering sectors andin advanced materials, microelectronics, information and bio-technologies. These are allwithin UNIDO’s competence.UNIDO has specific experience in establishing incubators as an executing agency. Its work inTurkey, Poland, Czech Republic, Romania, and Uzbekistan, and more recently in Columbia,Dominican Republic and Pakistan has provided the basic capability to build upon. UNIDOhas had research experience in preparing publications of guidelines for business incubationand software in financial planning for incubators. Further, a good network of incubatorcontacts and consultants was established. Importantly, UNIDO has the unique capacity ofbringing together a range of specializations, within the organization to address the demand oftechnical assistance services for incubation systems. Incubator development clearly must takefully into account the current priorities in the international dialogue on safeguarding theenvironment, rational use of energy, employment generation and full involvement of womenentrepreneurs in the development process. No other multilateral or bilateral agency has suchintegrated in-house capability,UNIDO has proven skills in the development and implementation of industrial developmentsystems. Focused on a Business Incubation System, such a Strategy would take the lead incharacterization, expansion and diversification of ‘incubator” operations. Using internal andexternal analytical skills, UNIDO would contribute towards better understanding of thenurturing of small enterprises with potential for growth. Implementing these lessons throughan incubator modality would enable UNIDO to leverage limited personnel and financialresources for maximum impact. Support for the incubation process would be consistent withphilosophies to support maximum latitude in individual self-determination. Finally, UNIDO’sconsiderable world-wide experience with larger enterprises and governments would developinto new paradigms for linking small and large enterprises for mutual benefit while advisingon the development of supportive government structures. 32
  33. 33. Recommendations Governments should solicit carefully assistance from the state government both at the federal and regional levels and funding from multi/bilateral organizations such as UNDP, UNIDO, World Bank, European Union funds, to initiate innovative concepts and support local initiatives, within the framework of national priorities and local culture.It is a difficult task to measure the effectiveness of intervention programs that assist start-upbusinesses. The entrepreneurial start-up stage is complex and often requires different types ofinterventions ranging from one-on-one mentoring, to contacts for suppliers, customers andsources for financing. Information reviewed to date indicates that most incubators have notbeen evaluating the effectiveness of their programs, other than by considering the total annualrevenues or the total number of jobs created by the incubated firms. A few facilities havestated that they consider tenancy in their buildings as an important measure of potentialsuccess. In light of the above it is important to understand and implement benchmarkingtechniques with regard to the business incubators’ start-up costs, operation costs, and impactand effectiveness in the initial stages of developing the program and/or pilot project.Furthermore, the development of a benchmarking framework needs to be sensitive to thediversity of incubator models and operations. The EU Commissioned Final Report onevaluating business incubator programs (2002) assessed 125 European business incubatorsand identified a feasible list of benchmarks that would adequately show and evaluate abusiness incubator program’s performance, management and promotion: • Capital investment and operating costs: It is inappropriate to set benchmarks for incubator capital investment and operating costs because these will vary widely depending on the type of incubator. For example, a biotechnology incubator requires dedicated laboratory space as well as office space, whereas an incubator providing just office to new start-ups will require less capital investment. • Proportion of revenue dependent on public subsidies: Whilst the public funding requirements of incubators will inevitably vary depending on location-specific factors such as the dynamism of the regional economy and the extent of market failure, the CSES recommends that incubators should try and increase the proportion of operating costs derived from their own activities (rent, advisory services, etc) rather than rely continuously on funding from outside agencies. • Incubator space/number of tenants: The average incubator space in the survey was 3,000m². There is a good deal of evidence to suggest that a minimum of 2,000 m² 33
  34. 34. space is needed (enough to accommodate 20- 30 companies) to achieve economies of scale. We suggest a range of between 2,000 m² to 4,000 m² as a benchmark depending on the type of incubator.• Length of tenancy: A benchmark of 3 years is suggested. It should be noted that the benchmark applies to the average incubator and would not be appropriate for some specialist types of incubators, e.g. biotech incubators, high-tech R&D and high-tech manufacturing because of the longer product development lead times associated with those business sectors, amongst others.• Number of Managerial Staff/Ratio of Staff to Tenants: The benchmark of at least two managers assumes an average of 20-30 tenants and allows sufficient flexibility to cover absence (training and professional development, conferences, holidays, sickness etc.) while still ensuring that tenant firms have permanent access to managerial-level advisory support at all times. Given that the real added value of incubation lies not in real estate aspects but in the quality, relevance and utility of business advisory, the ratio of incubator managers to incubator tenants should ideally not exceed 1:20.• Proportion of Management Time Advising Clients: Currently, the proportion of management time spent advising clients, highlighted in the survey, stands at 39%. The CSES report recommends that, ideally, it should be possible to ‘free-up’ management so that more time is spent advising tenants and less on administrative matters.• Survival rate of tenant firms: The survey revealed that the survival rate of firms reared in an incubator environment was significantly higher than the business success rate amongst the wider SME community, estimated at 30-50% (over a 5 year period). In the survey, there was a notable clustering of incubators reporting a survival rate amongst tenant firms of 80-90% and the benchmark is based on this. The survival rate of incubator tenant firms operating in more high-risk sectors such as high-tech industry may well be lower. We would emphasize that survival rates are one indicator of the performance of incubators, of more importance is the extent to which incubators can contribute to the accelerated development of innovative, high-growth firms and their capacity to create new jobs.• Job creation - average jobs per tenant company / new jobs per incubator: Whilst employment creation is one of the key objectives of business incubators, setting a benchmark for the number of jobs created per firm or per incubator would be inappropriate because the number of jobs created will vary greatly depending on the type of companies being incubated, the amount of tenants the incubator can accommodate and the amount of available space. The number of jobs generated by a typical tenant company will vary depending on the type of industry the firm specializes in, the extent to which industry is technology or labor intensive.• Cost per Job: The average gross cost per job according to the incubator survey was €4,400. When set-up costs and the amortization of capital are taken into account, the figure rises to €6,700. Rather than setting a benchmark, we have set a range, which we feel is more appropriate given that incubators receive widely differing levels of support from the public sector depending on location-specific factors. 34
  35. 35. STRATEGIC PLAN: SETTING UP A BUSINESS INCUBATOR PILOT PROJECTThis section of the report discusses the 8 Month Strategic Plan presented on page 34. Thefollowing discussion is sub-dived into subsections that correspond to the componentsidentified in the diagramPHASE ONE (MARCH 2002 TO JULY 2002)PROSPECT DEVELOPMENT REPORTThe prospect development component prepared by the Canadian Team (Michael Lazarowichand M. John Wojciechowski), investigates various aspects and strategies of businessincubation. The report was prepared with technology incubators in mind – a direction chosenbased on consultation between Mr. Mau and Mr. Lazarowich. The technology incubatortheme is emphasized in section 1 when examining the four types of business incubators, theirindustry niches, tenant characteristics and success criteria. A more detailed discussion of thedifferences between technology incubators and traditional incubators can be found in section2.1 while section 2.4.1 provides a case study of the Exceler@tor – a technology businessincubator in Toronto, Canada. Finally in the last section of the Prospect Development Report,specific attention is given to the differences in starting and operating costs of setting up atraditional incubator and a ‘new economy’ technology incubator. The findings andrecommendations from this report should be used to assess the feasibility, effectiveness andimpact of pursuing the development of a technology business incubator with regard to itslocation and target market. It is imperative to note however, that the type and location of thebusiness incubator selected will ultimately depend on the assets, skill and potentials of thelocal community and economy.CONTEXT ANALYSIS REPORTThe Prospect Development Report and the Context Analysis Report are vital components ofPHASE ONE. The Context Analysis Report should include information on the local:Infrastructure (both hard and soft) • Economy (and local political will to generate growth in the SME sector) • Technology • The Political Framework • The Socio-Cultural Framework • The Entrepreneurial Framework 35
  36. 36. Once the local socio-economic structures are identified it is possible to compliment thefindings with the recommendations from the Prospect Development Report. It is important tonote that the strategy most suitable for the implementation of the Business Incubator PilotProject is and/or should be determined by the local strengths, weaknesses, opportunities andthreats. The Context Analysis should be well complimented by investigating both positiveand negative experiences from previous business incubator projects in Russia. BothComponents will determine the direction of implementing PHASE TWO – the BusinessIncubator Pilot Project.PRIORITY SETTING MEETING (MID - JUNE 2002)During the meeting the two teams should share the findings from the two precedingcomponents, identify priority issues and divide responsibilities among the two teams.Certainly, the most important issue, is obtaining funding from regional and national levels ofgovernment as well as bilateral and multilateral organizations. TACIS, is particularly wellequipped to provide funding for this type of project but other sources should also be exploredincluding UNIDO and the Canadian International Development Agency (CIDA). Consideringthat the application and selection process is fairly time consuming it is recommended that thisissue be investigated already before the meeting. An Interim Report should be prepared atthe end of the meeting sessions to compile all the information together gathered from theProspect Development and the Context Analysis Reports including a more accurate time tablewith objectives and responsibilities for both the Russian and Canadian teams.PHASE TWO (July – October 2002)PILOT PROJECT PLANNINGThe Strategic Program Development needs a team of devoted government, industry and localstakeholders that can create a steering committee for the project. The steering committeeshould be comprised of local leaders that can persuade the procurement of funding and humancapital for the project from diverse sources.At this stage the teams of consultants, facilitators and steering committee should be involvedin option identification of best suitable location and target market for the business incubator.This strategic process should be based on market testing and/or personal knowledge of thesocio-economic potential and skills and entrepreneurial climate in a certain region or locality. 36
  37. 37. In light of the above it is important to include people local to the community on the steeringcommittee and/or perform local entrepreneurial surveys assessing the local assets.This stage should finally conclude with the application for funding the Business IncubatorPilot Project. Proceeding the Business Planning Component incubator sponsorship andincubator financing should be identified and solidified.BUSINESS PLAN COMPONENTThrough a series of meetings with local government, interest groups, Russian and Canadianconsultants and funding agencies, the planning phase should result in a business plan for thepilot project. The business plan should incorporate the findings from the entrepreneurialsurveys, the operating aims and procedures identified by the steering committee, servicesnetwork, facility specifications, organizations and staffing, costs, revenues and funding. Thebusiness plan must include content analysis of the following sub-sections: OUTLINE OF THE BUSINESS PLAN Mission Statement and Strategic Objectives Incubation Design a) Incubator Type b) Location c) Site and Premises d) Facilities and Services Legal Structure a) Legal Status b) Ownership Organizational Structure a) Steering Group b) Executive Board c) Advisory Committee d) Management Team e) Advisory support (foreign, local) Financial Planning Operational and Procedural Framework a) Promotion of the Business Incubator b) Entrepreneur Detection Procedures c) Admission and Exit Criteria d) Service Provision and Pricing Strategy e) Training and workshops for Staff and Management Evaluation of the Incubator Activity Implementation Strategy Risk Profile 37
  38. 38. PHASE THREE (NOVEMBER - ?)Phase three is the implementation stage. This phase should be a continuously evolvingprocess with the ability to adapt to the location-specific scenario. Functional plans should besystematically revised and consulted to measure progress and/or improve on operations andshould be accompanied by adequate and responsible budgeting of resources, aiming towardsthe predetermined breakeven point and self sustainability. The following diagram illustratesthe implementation stage over a 2-3 year period. This stage should be complimented byongoing evaluation, monitoring and optimization. 38
  39. 39. REFERENCESAllen, N. David. “Business Incubator Life Cycles” in Economic Development Quarterly. Vol.2(1), 1988 19-29Frank, Bruno. “The Fort Collins Virtual Business Incubator” in Public Management. Vol.80 March 1998, 10-13Campbell Candace, Robert C. Kendrick and Don S. Samuelson. “Stalking the Latent Entrepreneur: Business Incubators and Economic Development” in Economic Development Review. Summer 1985, 43-48Campbell Candace and Allen N. David. “ The Small Business Incubator: Micro-level Economic Development” in Economic Development Quarterly. Vol.1(2) 1987 178- 191Carroll, R.R. “The Small Business Incubator as a Regional Economic Development Tool: Concept and Practice” in Northeast Journal of Business and Economics. Vol.12(2) 1986, 26-34CSES. “Benchmarking of Business Incubators: Final Report” Brussels, Belgium: Services European Commission Enterprise Directorate General, Feb. 2002Doloreux, David. “La Papiniere D’enterprises dans le Contexte d-un Parc Scientifique: L’exemple du centre Quebecois D’Innovation en Biotechnologie a Laval, Quebec (Canada)” in The Canadian Geographer. Vol.43(4) 1999, 423-432Finnish Ministry of Trade and Industry. “Seminar on Best Practices in Incubator Infrastructure and Innovation Support” A compilation of Workshop Reports, Papers and Recommendations. Helsinki: Finland, 1998.Reynolds P.D., Hay M., Bygrave D.M., Camp S.M., Autio E. “Global Entrepreneurship Monitor: 2000 Executive Report” Kauffman Center for Entrepreneurial Leadership, 2000Lalkaka, Rustam. “Lessons from international experience for the promotion of business incubation systems in emerging economies” Paper commissioned by the Small and Medium Industries Branch, New York: UNIDO Program, Issue 3, November 1997Lalkaka, Rustam. “Critical Factors in Incubator Development” United Nations Development Program, 1997Lalkaka, Rustam, "Venture Creation and Growth through Business Incubators and Technology Parks,", 2001Lalkaka, Rustam. “Best Practices’ in Business Incubation: Lessons (yet to be) Learned”. New York: Business & Technology Development Strategies LLC,2001 39
  40. 40. Lichtenstein A. Gregg and Thomas Lyons. “Incubating New Enterprises – A guide to Successful Practice”. Aspen: Colorado. The Aspen Institute -Rural Economic Policy Program, 1996Linowes, L. “Lending a Helping Hand to Small Business” PAS Memo, American Planning Association, 1985, 2-4Nanette,Kalis. “Technology Commercialization through New Company Formation”. Athens, Ohio. NBIA Publications, 2001Nijkamp, Peter, Ronald Van Der Mark and Theo Alsters. “Evaluation of Regional Incubator Profiles for Small and Medium Sized Enterprises” in Regional Studies. Vol.22(2), 1988 95-105Nyrop. A. Kirsten. “Business Incubators as Real Estate Ventures” in Urban Land. Vol. 45(12), 1986 6-10O’Dea M. Kelly. “The Small Business Incubator: The Search for an Evaluation Framework”. A major research paper presented to the Univeristy of Waterloo in fulfillment of the major paper requirement for the degree of MAES in Local Economic Development. Waterloo: Canada, 1995Parsons, Robert, Gudmundson Karen and Tanner David. “Orems tech center and revolving loans” in Public Management. Vol. 83(7) August, 2001 21-23Rice, P. Mark and Matthews B. Janna. “Growing New Ventures, Creating New Jobs: Principles and Practices of Successful Business Incubation”. London: Quorum Books, 1995Smilor, R. “The new business incubator: linking talent, technology, capital, and know-how” Lexington, Mass. : Lexington Books, c1986.Tornatsky Louis. “The Art and Craft of technology Business Incubation” Athens: Ohio. NBIA Publications, 1996 40