Compendium 2.2.3 Incubators

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2.2.3. Incubators/workspaces


The challenge

Business incubators are environments offering services that help young businesses to grow. Statistics show that they are very successful in improving survival rates – they raise the three-year survival rate of new business from 50% to 85%.[1] They have some characteristics that distinguish them from managed workspaces in general: they tend to recruit entrepreneurs of a particular type, to aim for a good mix of tenants, to charge cheap rents (at least at first) and to set an upper limit on tenancy. Above all, business support is an integral part of their role.

The concept of business incubation has most often been applied to property-based support centres for high-tech businesses. In this sense, a benchmarking study carried out for the European Commission in 2002 (see above) identified around 900 business incubators in the EU, creating 40,000 jobs a year at a net cost of €4,000 per job (€6,700 including set-up and finance costs). It reported that on average incubators cost €4 million to set up, which is usually paid from public sources. Running costs average €500,000 a year (40% being staff costs), of which 40% is recouped from tenants, and 37% is borne publicly. The norm is for an incubator to house 27 firms in a floor space of 3,000 square metres. It recommended that incubators should not be standalone entities, but should form part of broader strategies, for instance regional or sectoral cluster strategies. They should accordingly be operated by inclusive public-private partnerships.

Though they are normally based in physical premises, the key factor in the quality of incubation is the business support provided, and this is divided into four areas: pre-start entrepreneur training, business advice, financial support (usually external) and technology support. Incubators work best where they serve a defined target market that can benefit from synergies. A certain turnover of tenants is desirable, with three years being the normal stay. Graduated rents are a way to encourage firms to move one when they are ready. Aftercare and networking is important in preventing the collapse of firms once they move out.

However the technique of incubation is just as applicable to inclusive entrepreneurship, where the criterion of success is not simply the creation of jobs and wealth, but its distribution. Here, the collective aspect of incubators is a key success factor. Going into business is synonymous with taking a risk – and risk creates a feeling of loneliness. Entrepreneurs therefore often feel isolated, and can benefit from networking with other people who are in the same boat as them. This is particularly important for non-traditional entrepreneurs, who tend to lack the cultural and social capital – the inherited attitudes and family links – that can make going into business seem an approachable challenge.

Intending entrepreneurs also often lack more tangible factors: somewhere to work, for instance to build a prototype, equipment such as computers and photocopiers, friendly and informal hints and tips on topics like book-keeping that – because one does not know the questions that one will need to ask – can if they are available nearby on a friendly and informal basis can turn a chore into a pleasure. Putting the spark into business can be a matter of grouping together in one place a few of the crucial support services and creating an atmosphere of mutual help.

[1] Final Report: Benchmarking of Business Incubators, Enterprise DG, 2002, page 14

How EQUAL has approached the issue – examples

Research on incubators

Within EQUAL, the Cyfenter project in Wales conducted a baseline study on incubators and business premises in the UK in 2004. It found that the Welsh incubators were serving all the target groups of disadvantaged people with the exception of refugees: women, lone parents, young people, over-50s, ethnic minorities and Welsh speakers. However it discovered a mismatch between the services tenants wanted and those incubators actually offered. The incubators nearly all offered mentoring and training, but what the tenants identified as crucial was quite different: a reception service, mail franking, a meeting room, a low rent and advice. Broadband internet and secretarial assistance were also desirable. Despite a low level of childcare facilities, 28% of incubators served lone parents.

The study defined two different incubation models – property-based hot-desking. In the property model, elements of good practice include 'hub champions', a 'knowledge base', 'enterprise gateways' and 'hub directors.' In the hot-desking model good practice involves 24/7 accessibility, an open-plan layout, access to state-of-the-art multimedia equipment and reception facilities.

A rigorous six-month incubation process

Enigma, part of the EXZEPT EQUAL partnership, puts its clients through a rigorous six-month process to create new businesses, mainly in creative industries such as graphic and internet design, film, music and public relations. “.garage” in Hamburg has achieved a success rate of 82% of clients going into self-employment with nearly 90% surviving after two years.

Enigma started in Hamburg in 1998 and has since spread to Cottbus, Kiel, Hannover, Berlin, Essen and Dortmund. Every year it helps around 1,000 unemployed people through the process of starting their own business, and supports about 150 start-ups. Its “.garage” model works as follows.

It does not divide a start-up into strict phases (orientation, planning, start-up and growth) but rather a distinction between long-stay and short-stay clients. The process starts with a half-day selection interview followed by a month-long ‘bootcamp’ phase during which market research and business planning is done. The start-up is supported by individual coaching. It offers 1-3 day seminars and workshops during the preparation phase, business plan support and post-start-up coaching. Clients are supported in-house for a period of six months, following which they benefit from monthly meetings and a hotline for another six months. Thus, a rapid start-up will qualify for a long post-start-up support.

A wide menu of training is on offer, covering, on a monthly basis, idea finding, market strategy, sales, market communication, accounting, finance (preparation for loan requests), legal questions, insurance, business planning, personnel communication skills, time/project management, team development, conflict management and personality development. A public information event happens at 1 p.m. every Wednesday.

Enigma does not offer programmes for specific target groups. Groups tend to be mixed: male–female, non-migrants–migrants, different age groups, students etc. The language and the individual approach are different, but the programme remains the same. Enigma supports its clients in obtaining microcredit, and also runs a qualification programme for business advisers.

Enigma espouses the following principles:

  • Mutual respect between entrepreneur and advisers
  • Confidentiality – no information is divulged without the entrepreneur’s permission
  • Clear terms of reference agreed at the start
  • Market orientation – projects must be commercially viable
  • Expert advice from qualified business advisers
  • Coaching – the entrepreneur is at the centre, and the adviser foes not intervene directly, but supports the entrepreneur to take their own autonomous decisions
  • Expert opinions and objectivity

Quality assurance was made through regular evaluations by the Bundesqualitätszirkel für Gründungsberatung (BQZ) and users’ feedback surveys.

Women’s incubators

The historical focus of incubators on high-tech businesses mean that women have been poorly served. They have different needs from men. As part of the Accelerating Women’s Enterprise (AWE) EQUAL project in the UK, Prowess carried out a study of incubators for women entrepreneurs[2], and identified the following good practice factors:

  • women value flexibility so that they can combine entrepreneurship with childcare, and often want to work part-time or from home
  • women want childcare facilities and opening times that fit with schools
  • public transport is necessary
  • women-only networks and women advisers can be useful to boost confidence, and some groups may prefer women-only premises
  • networking opportunities are important, especially as women tend to be excluded from conventional business networks
  • women typically take longer to start a business, and so require a longer incubation period
  • many women work in services, which grow relatively slowly.

[2] Women-friendly Incubation Environments and Managed Workspaces, Prowess, 2005 [1].

Incubators in disadvantaged communities

The K'cidade project set out to regenerate areas of Lisbon, and therefore planned incubators specifically to attract people facing severe disadvantages in the labour market, such as unskilled women, people with disabilities, ethnic minorities and the long-term unemployed. The incubators provide new businesses with practical support including physical space, equipment, technical support and access to a shared managerial services platform to reduce the risk for the entrepreneurs and increase the chances of success.

Value-led incubators

A different way of establishing a community of interest among the tenant of an incubator, hence encouraging synergies, is to take a value-led approach. An example is the Union Gewerbehof in Dortmund, which has grown out of a squatting initiative that took over some partially disused steelworks premises and launched an incubator for environmental businesses. After a period of negotiations it came to a formal arrangement with the steel company and renovated the premises. It now owns and manages 5,000 square metres of workspace, in the form of a co-operative in which every tenant has a voice. Shared facilities are minimal – meeting rooms, copying and a vegetarian canteen – but the Gewerbehof very rarely has empty premises on its hands. It is attractive to entrepreneurs because it offers a community atmosphere, helped by being built round a courtyard that provides a natural focus for social activity. Another factor is the commercial terms on offer – it is easy to move in and there are no penalties for moving out again if business conditions dictate. The Gewerbehof does not believe in gimmicks – just an approachable management that is in tune with its tenants’ needs, and a corporate structure that puts the entrepreneurs themselves in charge.

Virtual incubators

In Silesia (Poland) the WISP project run by SWR (Stowarzyszenie Współpracy Regionalnej – Association for Regional Co-operation [2]) set up a model start-up support system. It took a proactive approach to bettering the lot of two groups of beneficiaries: unemployed people (especially young and long-term unemployed) and poor farmers. It developed a ‘virtual incubator for the social economy’ and carried out three activities – identifying market niches and developing business ideas, start-up support and consultancy, and development of various consulting tools for social economy start-ups. It developed four such tools:

  • business plan for social economy start-ups
  • recruitment procedure for the unemployed willing to set up business in social economy
  • procedures of risk assessment
  • financial engineering for social economy startups

The start-up process was broken down into five phases:

1. market research
2. writing the business plan
3. setting up a local support network and financial engineering – including training and preparation of contracts
4. documentation
5. initial meeting of assembly

The pilots have resulted in a care co-operative employing 11 women being established, and the ‘Art Roundabout’, an art and gastronomy centre (comprising a social co-operative restaurant and an association promoting young artists) is about to be launched. Several other co-operatives are on the stocks.

Integration factories

A little further east, near Kraków, the Partnership of Initiatives for Nowa Huta (Partnerstwo Inicjatyw Nowohuckych – PIN) piloted a new way of incubating new businesses, which they dubbed 'integration factories'. The project made use of the strong local work ethic, which has been frustrated by the closure of the town’s Lenin Steelworks, and the social capital that comes from having worked as a team. It aimed particularly to help young people who already have some professional career and ambitions, yet are facing exclusion from the labour market. There were four particular groups: young people with a basic education, disabled people, 17-23 year-olds benefit recipients and unemployed people with no benefit entitlement.

The 'integration factories' were initially set up within one of the 12 partner organisations, and the entrepreneurs become employees. Mentors and experts are on hand to guide them in the mysteries of business planning, management, marketing and fundraising. The idea is that the entrepreneurs develop and experiment with their business idea, build up contacts, and after a period of a year or so the businesses will floated off as an independent unit, with a small endowment of stock, experiences, contacts and ideas that they have built up during their sheltered upbringing. The appropriate legal form – co-operative, social enterprise, association or foundation – will be decided at that time. Alternatively, the business might remain within the parent structure. In any event, the idea is that links remain strong, with the parent and offspring keeping up a preferential trading relationship.

Recommendations for mainstreaming policies

  • Inclusiveness: Policy-makers should see inclusive incubation as an innovation practice in itself.
  • Targeting: A variety of forms of incubation may usefully co-exist in the same town, city or rural area. Incubation facilities should be deliberately targeted at potential entrepreneurs from groups identified as being disadvantaged. For instance women’s incubators should offer female staff, flexibility to fit with childcare, and a relatively long incubation period.
  • Diversity of staff: A conclusion from the work of the CEFT transnational partnership is that the content of training offered in incubators is less important than the quality and appropriateness of the business advice that is available – and, crucially, the mix of staff that is on hand to give that advice. If an incubator is to be truly inclusive, it must be welcoming to a wide range of clients and understanding of their attitudes, needs and behaviours. The staff should be as diverse, in terms of sex, age, ethnicity and background, as it is possible to be. Diversity training can be helpful in enabling staff to meet the needs of all clients.

Premises and services are not the whole story: the quality of the accompanying business advice, coaching, networking opportunities and access to finance are all-important.

Links to EQUAL case studies

Other useful links

Guidance supporting Europe’s aspiring entrepreneurs – Policy and practice to harness future potential - CEDEFOP case study 20, Business inclubators

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