Incubation is "a collection of techniques that can be used to prove an idea, develop a team and de-risk ventures for later stage investors. It happens in accelerator programmes, co-working spaces, social venture academies and learning programmes, competitions and through the work of very early-stage investors" (Dee et al, 2015, p. 10). There are thousands of organisations across the world which are using a vareity of methods to provide an environment which reduce the costs and overcome barriers to launching and growing enterprises. 

Certain goals can place restrictions on the business models available for your incubator to choose. For example, incubators focused on student development are unlikely to be able to generate revenue from the incubates as these are likely to be businesses in the pre-start-up or just entering the start-up phase so are unlikely to be generating revenue. This means these business are unlikely to be able to pay rental or membership fees. Additionally, the early stage of the start-ups plus the fact that the pool for discovering high growth businesses is small, means that is unrealistic to expect to generate income through a growth-driven model whereby the incubator takes a share in equity or future earnings.   See the table below for more information on how different business models align with particular goals.

Issues to think about:

• Do your goals influence the stage of business start-up supported and the way you select participants?
• What implications does this have for your incubator’s funding model? 

 

Goals and relation to incubator business models

 

In our survey of entrepreneurship support organisations we found that one of the most commonly cited factors the attributed to their success is the clarity of their mission and goals (SUPER survey report 2016).  This came across even more strongly from new incubators that had been established for less than 5 years. This is not surprising as the mission and goals of your incubator will impact on many aspects of how you design your incubator and how your business training and development programme(s). For example, what stage of start-up your organisation supports; how you select applicants; what services and training you need to provide to help your clients; when you provide this support etc. 

Despite the common aim of helping to launch and grow businesses, the reasons for supporting entrepreneurship vary widely. From our research we discovered a wide variety of missions and goals behind incubators but that most will have one or several of the following seven goals.

• Student development
• Regional development
• High growth
• Commercialisation of knowledge
• Sector development
• Supporting social entrepreneurship 
• Corporate matchmaking

Many university incubators are established to help students to start businesses.  Some students may develop viable businesses that may grow and employ others, but often student-focused university incubators recognise that businesses may be small-scale, be short term or may fail.  However, the process of starting a business, even if it ends in failure or closure after a short time, still allows for students to develop their skills and knowledge. This is seen as a goal in itself for many university incubators that are focused on student development.

Most early university incubation was focused on enabling universities to commercialise the knowledge developed within them rather than on developing students’ entrepreneurial skills. Universities are a crucial vehicle for innovation through research which may lead to inventions and discoveries that can be commercialised through patents, technological transfer and spin-offs (Grimaldi & Grandi 2005).  Incubators which are focused on the commercialisation of new knowledge aim to enable the transfer of scientific and technological knowledge from universities to companies and in particular start-ups and spin-offs.

Incubators are often set up with the aim to support the economic development of their local region through supporting start-ups and businesses that will lead to job creation but also to the creation of a more vibrant local entrepreneurial ecosystem.  The idea that incubators are method for stimulating regional development has been one of the key motivating factors behind local development agencies, governments and other public institutions providing public money to support business incubation for the last 30 years (Grimaldi & Grandi, 2005).  Universities often include regional development as one of the goals for their incubators as universities are seen as a vehicle for developing regional economies (see SUPER survey report 2016).

Whilst in the early days of incubation, incubators tended to accept businesses from all sectors, increasingly as incubators become more and more widespread, they are specialising in supporting businesses which are in a particular sector or focused on solving particular problems. As industries can vary dramatically from one industry to the next, an incubator focused on one sector will be able to provide incubates with more in-depth knowledge of the sector and allows the services and networks provided by the incubator to be tailored more precisely to the incubates.  A sector-focus also enables knowledge dissemination amongst them and the development of mutual interest groups as well as aiding the development sector-based clusters in a certain region or even developing legitimacy for a newly developing sector or technology (Amezcua et al, 2013). One such example is Level 39 an incubator and accelerator based in London focused on FinTech which has done much to promote this new field.  Sensor City in Liverpool is a university based technical innovation centre and university enterprise zone which is aiming to do the same for sensor technology. For universities, a sector-focus can be a way to make the most of particular research and teaching strengths.

In the last decade or so, social entrepreneurship has increasingly come to be seen as an important way of solving the social and environmental challenges that our societies face.  Because of this governments have been keen to promote social entrepreneurship and many provide funding for incubators aimed at supporting social entrepreneurs in order to encourage more people to start social enterprises and then to enable social enterprises to scale (Miller & Stacey, 2014). There are incubators that are set up exclusively for social entrepreneurship such as Bethnal Green Ventures in the UK, but for many university incubators supporting social entrepreneurship is one of several goals and most would support both commercial and social entrepreneurs. However, without a specific goal to support social entrepreneurs, incubators are unlikely to be providing some more specific support that social entrepreneurship need such as expertise on impact evaluation and the greater stakeholder challenges that social entrepreneurs face.

Some incubators are focused on selecting and supporting enterprises that are likely to be able to achieve high growth. Often incubators that focus on high growth run acceleration programmes which are highly selective and provide intensive support over a short period of time (often 3 to 6 months).  These programmes are often designed to eventually be financed by the supported start-ups by generating revenue from equity, taking a share of the start-ups earnings or through appealing to business angels and venture capitalists. This funding model relies on the incubators having access to a stream of high-growth businesses but also backers who are willing to support the incubator for a number of years until returns from investment can be realised.  This requirement means that growth-driven financed programmes tend to focus on ventures in early or later stage and need to have access to a pipeline of start-ups with good potential for high growth.  Universities, whilst often desiring to support high growth ventures, are not situated in an entrepreneurial eco-system which is developed enough to provide a regular supply of high growth potential ventures.   

Incubators are also set up with the goal of connecting large corporations to entrepreneurs and innovators.  Many large multi-nationals have set up their own corporate incubators in the last few years because they are interested in harnessing the dynamism and flexibility that is often more easily developed in start-ups and smaller organisations in order to promote a culture of innovation the corporation and increase amount of innovation in their corporation in terms of new products / services / processes / business models. In corporate incubators this is about co-development, these innovations are developed jointly by the corporation and the start-ups.  Whilst this type of incubator may not seem that relevant for universities, many corporations are interested in connecting to universities and the knowledge generated within them and connecting with a large corporate can provide resources such as commercial networks which it may be hard for universities to provide. An example of incubation in collaboration between an MNE and a university is IDEALondon which is run by Cisco and UCL in order to support digital start-ups in London.  Cisco offers the supported start-ups access to its partners and clients and UCL expertise, consultancy and training and links to academia.

The mission and goals of your incubator will be determined by your stakeholders and particularly important to deciding the mission are funders. A university incubator will tend be interested in either commercialising knowledge produced at the university or supporting students in their entrepreneurial aspirations. Research on stakeholders by Alsos et al. (2011) points out that universities can be difficult stakeholders for incubators as often they are not organisations with one definite set of goals, but rather consist of different individuals and units with differing expectations. Thus one part of the university may be more interested in the student development angle and another part in the commercialisation of knowledge. Unless the goals are made clear could create tensions when deciding what services to provide.

However, often university incubators rely on funding from other sources than the university.  One common source of funds is from government agencies. Governments agencies local, national and European, often provide funds to support incubation with the aim of developing an eco-system of start-ups within a region to enable regional development (Clarysse et al. 2015). Governments have also been placing more and more emphasis on universities making the most of the knowledge they develop for society through commercialisation of research and incubators are method of encouraging the commercialisation of research, often through sector-focused incubations such as Sensor City in Liverpool, an innovation centre and university enterprise zone set up by Liverpool University and Liverpool John Moores University along with local and national government, EU EDRF and industry financial support to create a global hub for sensor technology in order to build on a cluster of academic excellence in Liverpool of around 100 academics who work in this field. As this example shows, incubators focused on the commercialisation of research, also often have a sector-specific focus which builds on the university’s research expertise.  

Universities may also find that actors in the private sector are interested in collaborating and partially funding a university incubator or organisation that enables entrepreneurship. As the Sensor City example shows, private sector actors may also be interested in developing a sector-specific support for entrepreneurship as a way to develop their sector and access research knowledge. IDEALondon, an example introduced in the previous section, shows that private sector actors such as large corporations may also be interested in collaborating with universities in setting up an incubator. In this case, the goal of the large corporation tends to be to corporate matchmaking. 

It is common for university incubators, and indeed incubators in general, to have more than one funder and often these funders have different goals in mind. Funder requirements may also not always align with the needs of incubates. Alsos et al. (2011) report examples of governmental organisations having unreasonable expectations as to how short an incubation period is necessary for incubates to become commercially viable. These different goals and expectations can make stakeholder relations difficult as their goals may not always align which can cause difficulties for incubator managers who are trying to satisfy all stakeholder expectations.

Issues to think about:

• Who are (potential) funders for your organisation?
• What are their goals in supporting your organisation?
• How do these different goals align? Are there any tensions you need to be aware of?

“Monitoring implies the regular observation and recording of activities taking place in an incubator as well as of the results obtained. It is constituted of an intermittent series of observations in time, useful for understanding the extent to which an objective is met and/or the extent of compliance with a standard or degree of deviation from an expected norm.” (Infodev Toolkit). Evaluation is “a process that seeks to determine as systematically and objectively as possible the relevance, efficiency and effectiveness of an activity in terms of its objectives, including the analysis of the implementation and administrative management of such activity” (Papaconstantinou & Polt (1997) in OECD, 2007: 16). Evaluation is more thorough than monitoring, but it not possible to complete an evaluation before first completing monitoring activities.

Monitoring and evaluation should not be a one-off activity considered only at the end of implementation, but that it should be built in as an integral part of the administrative processes of any incubator as it provides information to enable the maximisation of incubation performance (OECD, 2007; Infodev Toolkit). Thus, a plan of how to monitor and evaluate the incubator should be developed right from the start of setting up the incubator.

An evaluation should address the following key questions:

• Objectives/Need: What are the objectives of the incubator? What is(are) the problem(s) that you are trying to address as an incubator?
• Inputs/Resources: What resources are you using to meet these objectives?
• Processes/Activities: What are you doing to meet these objectives?
• Outputs/Outcomes: What are the results of these processes/activities?
• Evidence: How do you know that it is the incubator that has made a difference?
• Lessons learnt: How will you improve your incubator?

As can be seen from the list of key questions above, for any monitoring or evaluation to take place the incubator needs clearly defined objectives, ideally these objectives can be specified in the form of quantitative targets (Storey, 1998:4).  You then need to communicate what activities you are doing to meet these objectives and the inputs/resources used and then assess the outputs and outcomes. Finally you need to consider what evidence you will collect to find out whether it is the incubator that has made a difference and how you will be able to learn lessons from your monitoring and evaluation process.

It is important that monitoring and evaluation are designed to be objective and systematic so that they can fairly assess the merits of the activity without undue influence from the strongly entrenched interests of the recipients and those involved in formulation and implementation (OECD, 2007).

Incubators are shaped by their context both in terms of the local, regional and national economy in which they are situations but also in the case of university incubators, by the differences among universities.  It is important to take into account the fact that universities are very varied. They have different histories, focuses and goals. For example, some universities are very research oriented and international, positioning themselves as global leaders, whereas other are local in focus and may also emphasise teaching over research. Furthermore, within the university there are often competing viewpoints about the role of the university: different departments and parts of the university may view the role of entrepreneurship very differently and thus have different and conflicting goals for an incubator (Wright et al. 2017).

Given these differences in university missions and goals, universities have varying student profiles.  Some universities have more entrepreneurial student bodies, some more academic and others are more oriented towards employability. So it is important to understand how this may affect your pipeline for incubates. It is useful to think about what the profile of your student body means for applicants to your incubator as the type of applicants you can attract will limit to some extent the goals you can achieve.  For example:

Issues to think about:

• • What are the characteristics of your university and your student population?
  • How might these characteristics affect the mission and goal of your incubator?

Monitoring and evaluation is essential in order to see how your organisation is performing and to what extent your university incubator’s overall objectives are being achieved. You can find out what works or not and why and so that you can continually improve the performance of the university incubator. Furthermore, by making incubator data and results available to all stakeholders, the incubator (you) can inform them, manage their expectations and generate further support. Without relevant data collection and reporting on the success of your university incubator, little can be said or done about attracting the right incubator users and the continued support of sponsors - most notably from government or donor agencies whose financial support is often essential to the sustainability of the incubator (Infodev Toolkit).

Your university incubator like any organization manages its resources through setting up processes and activities to deliver desired outcomes, which are defined within wider purpose, strategy and goals of your incubator. The aim of your university incubator evaluation is to verify whether the incubator is meeting its defined goals such as improving the survival and growth rates of incubates through its services.  In order to undertake evaluation, the incubator needs to monitor and measure the inputs, processes and outputs. Examples of three groups of measurement indicators needed to be collected are given in the figure below.

The university incubator may also monitor and evaluate measures on both the incubate company level and incubator level, for example:

In most cases, the incubate measures will then be aggregated at the incubator level for example, the amount finance raised will be aggregated to report the total amount of finance raised by all incubates in a year.

While some of the outcomes / outputs of your university incubator are short term or even immediate there are also important outcomes of long term impact (see table below). Measuring long term impact effectively will enable your university incubator to access more resources from the eco-system and funding organizations.

Unfortunately most incubators do not implement processes which enable them to gather data on the longer term outputs.  In our survey of entrepreneurship support organizations (SUPER Survey Report), the top three most frequent evaluation measures used are short-term outputs, the most frequent evaluation being the number of individuals served with 50% of all organisations using this as one of their top 3 measures. See the table below

Table: Most frequent top 3 evaluation measures used

Focusing only on short-term outputs and ignoring the longer term outputs is a missed opportunity for incubators as it is these longer term outcomes which really allow incubators to demonstrate their worth for the local economy.  Furthermore, by tracking the outcomes of former incubates over the longer term, incubators naturally build themselves a database of alumni to draw upon for mentoring, networking and may be even eventually finance as really successful incubates may become angel investors in the future (Infodev toolkit). 

Another important consideration when setting performance measures for your university incubator is whether the measures you have chosen are actually measuring achievement of the objectives of the incubator and its developmental stage. For example if you are interested in supporting the creation of high growth firms, it is not enough to measure the number of firms created, you need a measure relating to high growth firms e.g. employment growth or revenue growth.  Many university incubators state that student development is a key goal of their incubator. However, none of the incubators we surveyed for the SUPER project actually cited top evaluation criteria that related to this goal. For example, common performance criteria used such as the number of individuals served, does not tell the organisation about any changes their intervention has had on students. As student development is not just about whether they have started a business, it would be good to consider measures of improvement in skills, networks and employability.   

Issues to think about:

• What are your inputs, processes and outputs?
• What output measures should you collect data on in order to evaluate whether the incubator is meeting its objectives?
• Do you have a plan for measuring both short-term and long-term outputs?

To make the most of your evaluation you need to communicate your findings to your stakeholders. First of all you need to identify your audience. Who will you be disseminating your findings to? What do they want to know? This is likely to be different for different audiences. For example, your current and potential incubates and are likely to want to know what you will do to improve the services you provide. In contrast funders are likely to want to know what is and isn’t working and why as well as how you will improve your services.  You also need to remember when reporting that not everyone knows the details of your incubator and how it works so you need to think about what do my stakeholders need to know and understand in order appreciate the impact of your incubator. If you have multiple audiences with very different needs, you may need to write different versions of your evaluation.

Issues to think about:

• Who is your audience? What do they want to know? What do they already know about the incubator and what do I need to tell them for them to understand the impact the incubator is making?