Abstract
As technology-based enterprises (TBEs) are more promising than non-technology firms, there is a strong case for their incubation and promotion. However, TBEs use incubators not as support providers for idea incubation but to control costs incurred to develop and implement their ideas, thus defying the objective of incubation. Different types of incubators, such as commercial, social and university business incubators (UBIs), have different types of tangible and intangible resource offerings for their incubatees. Entrepreneurs utilize these resources based on their needs to save costs and reduce risks. Drawing from the conversations with the serial incubatees it was evident that once their access to resources at one incubation centre is exhausted, they move to another incubation centre for further fulfillment of their enterprise’s needs. Our analysis based on 20 interviews with the entrepreneurs of TBEs reveals a need-heed gap between the incubatees and incubators, which will have to be reduced for incubators to remain relevant to firms and effective for entrepreneurs.There is a need for a ‘hybridized incubation’ arrangement for TBEs in which incubators will have to pay heed to their roles as providers of specialized resources from both academia and industry.
Keywords
Introduction
Phenomenon of Incubation
Previously, entrepreneurship was centred on new products, gradually it shifted to become service entrepreneurship, and currently it is technology entrepreneurship that rules the roost. Technology products, Techno-entrepreneurs and Technology based firms are acquiring the centre-stage in schemes, mechanisms and polices that facilitate their growth and development (Montiel-Campos & Palma-Chorres, 2016; OECD, 2010). Realizing the role and contribution of technology-based enterprises (TBEs) in greater economic and social returns, public and private offices strive to promote technology innovation and stimulate the growth of TBEs by setting up private, public and university incubators and accelerators (Mian et al., 2016).
The role played by incubators in fostering innovation and entrepreneurship during the initial days of venture conceptualization and operationalization has been recognized since the 1950s (Schwartz & Hornych, 2010). Established in 1959, the Batavia Industrial Center, located in Batavia city in the state of New York was the first business incubator in USA (Allen and Bazan, 1990; O’Neal, 2005). The service-focus of the incubators did evolve with the changing contexts: incubators were focussed on providing infrastructure facilities in the 1980s, learning (business expertise, not technology expertise) in the 1990s, networking in the 2000s, and knowledge (technology expertise) in the 2010s (Bruneel et al., 2012; Mian et al., 2016). The technology focus seems to be a die-hard trend that continues to dominate the incubators’ objectives due to its advantage of minimum investment and maximum return, which has led to the increasing emergence of business incubators (BIs). A distinctive form of incubator focussing on the early-stage growth of startup ventures is known as the accelerator, which was created since the beginning of the twenty-first century to cater to the need for intensive cognitive expert advisory support for entrepreneurs in the areas of technology development and deployment (Cohen & Hochberg, 2014) and thereby promote faster growth (Cohen, 2013).With the advent of accelerators, the expertise (knowledge) and networking (especially with financiers) roles of incubators was becoming more significant for the technology-based enterprises (TBEs) (Pauwels et al., 2016).
The first-generation BIs were loosely formed around the idea of decreasing the developmental costs by using shared resources, which then became the underlying reason for granting extended gestation periods for the incubating firms. However, sooner than later, they had to realize their roles as providers of support for the start-up period of the firm’s formation, and not as an extended low-cost facility. The latter concept has re-emerged in recent times in the form of ‘co-working spaces’. Early-stage companies and like-minded individuals are more focussed on providing an affordable work environment with the required infrastructure than co-working spaces. Unlike an incubator, a co-working space does not necessarily offer training programmes or opportunities; and it would focus more on retaining its clients and generating sustainable revenues when compared to an incubator, which would focus on graduating companies (InBIA, 2017). Incubators therefore continue to focus on identifying high-potential ventures and supporting them only to the extent needed. Thus, the selection criteria for the incubatee firms to help incubate the right candidates in the right environment at one end and devise an exit strategy at the other end are seen as the key design parameters of incubator success (Bruneel et al., 2012). While the support provided by incubators is generally confined to the nascent stage of the venture, there are also a few of them catering to the other stages of the enterprise life cycle (Mrkajic, 2017).
In short, incubators are a form of enterprise that houses many enterprises. It can be looked at as a business enterprise with several departments (incubatees). This enterprise (incubator), like any other enterprise, follows a strategic approach towards its business, which affects the kind of firms it houses, support systems that it renders, and the performance of incubatees and the incubator.
Even with the investments, resources, polices and systems for innovation, technology and entrepreneurship in place, India is unable to make inroads into global technology leadership positions (Zanni & Rios, 2018). According to the NASSCOM (2019) report, India has the 3rd largest ecosystem for startups after the USA and China and has 385 incubators, which is expected to increase to more than 500 incubators by 2025. Hence, this article attempts to understand the low innovativeness of Indian startups by studying the incubation centres that house TBEs. The attempt is to understand the shortfalls of the incubation system in fostering the success of the TBEs.
Literature Review
Theoretical Underpinnings of Business Incubators
The two major types of support that incubators render to entrepreneurs are low cost shared resources (financial, knowledge, expertise and infrastructure) and networking opportunities (investors, suppliers, employees and customers). Hence, to throw better light on the contributions the BIs are making towards TBEs’ growth, it is important to borrow the theoretical understanding of the resource based view (RBV) and the social network theory (SNT). Shared resources that BIs offer at low cost and networking and collaboration opportunities that exist within (co-incubatees) and outside (investors) create a greater acceptance of the role of BI in the creation of business ventures and sometimes its growth (Hausberg & Korreck, 2020). During their phase of germination, there are a lot of constraints on their resources, particularly those that are novel, rare and difficult to replace thus resulting in start-ups suffering from the ‘liability of newness’ and ‘liability of smallness’. The ‘liability of smallness’ limits their affordability of the resources, and ‘liability of newness’ restricts the opportunities to develop sufficient network capital that they can utilize to draw resources. Incubators with their support systems provide these incubatees with not only available resources but also avenues to network for additional resources—financial capital, social capital and physical capital that could be supplemented by the required knowledge capital. Incubators play the role of connectors among different network actors that could facilitate mutually beneficial arrangements (Van Weele et al., 2017). Thus, the BIs bridge the RBV tenants with the SNT to help firms in general get access to resources and/or providers of those resources.
Brooks (1986) defined a BI as ‘a multi-tenant facility which provides entrepreneurs with: (1) flexible leases on small amounts of inexpensive space; (2) a pool of shared support services to reduce overhead costs; (3) some form of professional and managerial assistance; and (4) access to or assistance in acquiring seed capital’ (p. 24). However, another definition of BIs provided at the turn of the twenty first century by CSES and European Commission (2002) highlighted the extended role played by them, by stating that a BI was ‘an organization that accelerates and systematizes the process of creating successful enterprises by providing them with a comprehensive and integrated range of support, including: incubator space, business support services and clustering and networking opportunities’ (p. 11). A definition of a similar nature has been observed in more recent times, with Marlow and McAdam (2015) visualizing it as a physical space ‘where entrepreneurs, business advisors and external professionals can meet and engage; thus, new firm owners and those acknowledged as experts in shaping and enhancing entrepreneurial legitimacy are positioned in proximity’ (p. 796). A more comprehensive definition of the BI was given by Entrepreneur India (2014) as ‘an organization designed to accelerate the growth and success of entrepreneurial companies through an array of business support resources and services that could include physical space, capital, coaching, common services and networking connections’ (also mentioned in Albort-Morant & Ribeiro-Soriano, 2016, p. 1776). All these definitions point to the role of incubation as not an end unto itself but a part of a bigger value chain that contributes to the nascent stage of the business life cycle of the incubated firms (NBIA, 2009). For it to be more effective, it must be an active part of an economic development strategy that provides higher order expertise and support to facilitate the conversion of fledging enterprises into stable enterprises that attain growth and profitability (Colbert, 2009).
While evaluating the performance of incubators, researchers have come up with ambivalent findings about the relative success of specialized (homogeneous) and general (heterogeneous) incubators in terms of their contribution to the growth of incubatee firms (Aerts et al., 2007; Van Weele et al., 2020). The argument in favour of specialization is that the core competency of the incubators depends mainly on concentrating on niche business areas (Barbero et al., 2012). The assertion that special incubators would do better than general ones militates against the theory of creativity that proposes the beneficial impact of diversity on facilitating creative ideas and innovative processes (Sternberg & Lubart, 1991). Such contradictory findings might make it difficult for entrepreneurs to choose between the two types of incubators for their idea development. What prevails in such situations are the views of the providers and policymakers, which decide the selection of the incubatees, and the infrastructure offerings, whereas the perspective of the incubated companies is largely ignored (Theodorakopoulos et al., 2014). This study uses the conversations with the entrepreneurs of incubated firms to identify the true role played by incubators in the entrepreneurial journey of enterprises.
Business Incubators and University Incubators
Researchers do have differing views about the relative merits of accelerators and incubators. It is mentioned in favour of the former that they launch their clients onto a growth track within a limited period by providing a limited set of services, mainly related to financing. The latter (incubators), in contrast, offer a variety of services for a much longer period of time and help their clients overcome the problems they encounter in the start-up and nascent stages. In addition to providing stability, producibility and sustainability, BIs also increase the profitability of incubatee firms (Mas-Verdú et al., 2015). As noted above, BIs are known to help firms with a wide range of support systems that include financial, legal, advisory, training, marketing and networking services (Albort-Morant & Oghazi, 2016).
Promotion of industrialization and the presence of a cluster in a city are also key factors aiding the establishment of BIs, as pointed out by Bala Subrahmanya (2017) in his study on Bengaluru, India. Between the 1940s and mid-1980s, the city was a hub for many public sector undertakings (PSUs), and post the mid-1980s, the establishment of information technology (IT) and biotechnology (BT) firms gained prominence, which was also aided by economic liberalization. There was also the establishment of local R&D outfits affiliated with multinational companies (MNCs). Such developments helped reputed educational institutions such as Indian Institute of Management Bangalore (IIMB), Indian Institute of Science (IISc.) and International Institute of Information Technology (IIIT) in establishing their own BIs (Bala Subrahmanya, 2017).
Entrepreneurial activity could also emerge as an indirect consequence of education and research in universities and could lead to student start-ups and corporate spin-offs (Siegel & Wright, 2015). The university could be both a technology-generating organization and the intended beneficiary of commercialization of new technologies. There have also been cases of established firms licensing university-developed technologies (Kirchberger & Pohl, 2016). In another study on the Centre for Creative Industries, which forms part of the S&T Park at the University of Porto, Portugal, Franco et al. (2018) have described the strategy of clustering and defined the role of the incubator, which is ‘to respond to the global challenges of the new creative economy by aggregating the knowledge and competences developed at the University of Porto in various areas of the creative and cultural industries’ (p. 251), emphasizing further the synergy between the two institutions. Universities are also uniquely positioned to foster and develop student entrepreneurship through a series of support activities such as organizing conferences, providing access to seed funds for student ideas or projects and supporting venture ideas from an early embryonic stage to the next stage of development, which could include support through either an accelerator or an incubator (Wright et al., 2017).
In their study on a Canadian BI, Sá and Lee (2012), have classified the different types of network support available to small and medium enterprises (SMEs) as: (a) advisory networks—through which they seek professional advisory services such as accounting, auditing and legal documentation; (b) spin-off networks—which define the relationship with the parent entity or university from where the new venture emerged; and (c) strategic networks—through which new ventures could gain knowledge of their prospective markets, newer sources of funding, R&D knowledge and different client bases (Sá& Lee, 2012). Universities are a hub of innovation in that they are the key to the generation, codification and communication of basic knowledge (Kolympiris & Klein, 2017). In their study involving both academics and entrepreneurs from both developed and developing countries, Grzegorczyk and Trzmielak (2015) found that commitment and a good understanding of each other’s requirements were two attributes ranked highly to enable facilitation of technology commercialization and transfer of knowledge. This highlights the need for better industry-academia collaboration (Grzegorczyk &Trzmielak, 2015).
Among the two dominant strategies that govern incubators are: the technology development strategy and the market growth strategy (market exploration and market exploitation) (Soetanto & Jack, 2016). University-based incubators overcome their shortcomings of limited financial support by helping incubatees develop strategies that are a combination of technology deployment and market exploitation (than market exploration) using the university’s research and expertise. This approach seems to contribute to better performance in terms of innovation and profitability for the spinoffs (incubatees) and the incubator (Soetanto & Jack, 2016).
Best Practices of Business Incubators: Insights from Emerging Economies
BIs have been found to have higher rates of tenant revenues and tenant employment, including a higher number of patent applications per tenant firm (Phillips, 2002). In their study in a developing country context on 31 BIs and 100 companies in Sao Paulo, Brazil, Fernandes et al. (2017) found a positive relationship between the number of new product launches and formal agreements with research centres, and also between the number of new product launches and funding received from external entities, especially the funding agencies, underlining the significant role of knowledge and relationship assets provided by BIs, in addition to the physical support they offered in terms of infrastructure and testing labs (Fernandes et al., 2017).
Emerging economies, which are characterized by institutional gaps (Khanna & Palepu, 1997), utilize incubators to help entrepreneurs overcome such systemic deficiencies. Incubators play a critical role in these economies by providing the required support that the government, market and community organizations fail to provide (Manimala & Wasdani, 2015; Mrkajic, 2017). Though the concept and practice of BIs were developed in the west, the incubation models for providing support for nascent enterprises soon spread to other parts of the world. However, the models differed according to the business and social environment prevailing in different countries; in other words, the role the incubators got redefined in response to the prevailing institutional set-ups. Thus, the incubator models tend to differ between developing countries and developed countries (Dutt et al., 2016).
The culture in the emerging economies is generally not tolerant of entrepreneurial failure, and so entrepreneurship is not considered to be an attractive career option for youngsters (Manimala & Wasdani, 2015). BIs in these economies would also aim to foster a positive entrepreneurship culture (Jamil et al., 2016). Since many of these incubators are operated by reputed organizations, the incubatee firms will have a share in the incubating organization’s reputation, which would help them gain respectability and better access to their potential customers, financiers and other stakeholders, besides having access to the business services provided by the incubator (Stokan et al., 2015). Additionally, the fact of being selected into an incubator can also boost the confidence of the incubatees, as they have been able to meet the rigorous selection standards of the incubator, which has assessed the innovative and commercial merit of the business idea and its potential to do well in the future.
Another important assistance provided by incubators in developing countries is with the internationalization of their incubatees. The limitations of SMEs from developing countries in internationalizing their operations arise mainly from a lack of information about customers in other countries and the latest developments in the technological field. BIs, especially those focussing on innovations in technology development, are better positioned to help enterprises internationalize faster by utilizing their technology deployment initiatives as well as their international network. Some of them may also provide funding support for developing innovative products and gaining foreign market entry with such products (Engelman et al., 2015).
India’s innovation has been led by policy-driven incubation systems, which were first introduced in the 1950s through state-supported programmes. In 1982, the Department of Science and Technology (DST) established the National Science and Technology Entrepreneurship Development Board (NSTEDB), with the twin goals of enabling TBEs and promoting self-employment. Between 1987 and 1990, three pilot BIs that concentrated on technology development were established in India with the support of the United Nations Fund for Science and Technology (UNFS&T) (Lalkaka, 2002). Among these three, Birla Institute of Technology and Science (BITS) Pilani, MITCON Pune and Shriram Institute, Delhi, only MITCON survived beyond the pilot period even after funding support from the United Nations ended and no state support was forthcoming (Somasekhar, 2001; Tang et al., 2010).
It was in 2000 that India launched a focussed BI programme under the aegis of the NSTEDB (Tang et al., 2010). Until then, there were 18 software technology parks (STPs) and 15 science and technology entrepreneurship parks (STEPs) set up in the 1980s by the DST that were actively operating and contributing towards the national incubation efforts (Somasekhar, 2001; Tang et al., 2010). STEPs were established on the premises of technical universities with support from the DST. With a view to providing such specific support to the IT industry, the Department of Electronics initiated the Software Technology Parks of India (STPI) programme. An STP provides a prospective software company with a range of services, such as: custom-bonded warehouses, duty-free imports, exemptions on income tax and smart workspaces, to name a few (Lalkaka, 2002).
By this time, the Chinese, who had also been supported by UNFS&T in 1988, had already put in place almost 200 BIs. The Chinese had drafted five Indian experts to help them in preparation and in laying the foundation of their programme. The BI focus in the Indian context was to act as a starting point for SMEs, from where they could graduate and move towards an industrial estate or a technology park (Somasekhar, 2001). By 2009, India had approximately 120 BIs: 53 TBIs (including some STEPs) were promoted by NSTEDB in collaboration with academic institutions and research organizations; 40 of these BIs were STPs promoted by the Ministry of Information and Communications Technology; and 30 of them were either other government department or privately promoted (NSTEDB, 2009a). In 2010, a Task Force from the Prime Minister’s Office (PMO) recommended the creation of 100 BIs in national-level science and technology (S&T) research institutions (NSTEDB, 2009b; Srivastava & Chandra, 2012). Currently, the number of BIs promoted by NSTEDB alone is 130 (NSTEDB, 2019).
These STEPs and technology business incubators (TBIs) have successfully promoted several TBEs. According to ESCAP (2004), these TBIs and STEPs have provided ‘more returns to the government in terms of direct and indirect taxes and employment opportunities’, and are hence more ‘commercially lucrative from a long-term societal point of view’. There has been a propagation of the university incubator model too in academia, and it can be categorized as an ‘excess intellectual capacity’ that must be properly utilized. However, India faces challenges in terms of promotion of TBEs given a limited history of their promotion in the market and evolving intellectual property (IP) policies and innovation incentives.
It is required that the support provided by the government or public agencies be tailor-made to suit the specific requirements of the BI classification. The commonly observed BI classifications are: (a) university incubators versus corporate incubators (public or private); (b) social incubators (not-for-profit) versus commercial incubators (for profit); (c) research incubators versus economic incubators; and (d) physical incubators versus virtual incubators. These classifications are made on the basis of various parameters such as: the support system, type of technology, purpose, mission and mode of operation. In an evaluation study of BIs, it was found that research-based incubators in the private sector yielded a better return on investment as compared to other combinations of the incubator types (Barbero et al., 2012). Hence, it is important for policymakers to understand the differences among incubators and to make specific or targeted policies based on the needs of each type of incubator, which vary in their objectives and goals (Mas-Verdú et al., 2015). Policies based on a ‘one-size-fits-all’ attitude are unlikely to work.
Key Dimensions of Incubation
In his study in a Portuguese context, Gaspar (2009) identified the role played by incubators in seeding entrepreneurship and helping entrepreneurs in realizing their start-up opportunities. Universities themselves are no longer just centres for knowledge dissemination but are turning into hubs for university-industry collaboration, which can promote student interaction and the incubation of their innovative ideas (Bodolica & Spraggon, 2021). In a study in Kwara State, Nigeria, Raheem (2021) established the significance of business support, infrastructural support and networking opportunities provided by an incubator on the sustainability of start-ups. Incubators provide an appealing and conducive setting for entrepreneurs to start-up. Clarysse et al.’s (2005) classification of incubator models, which slots them into three models, provides an insight: (a) the low-selective model aims to create ‘as many start-ups as possible’; (b) the supportive model provides more focussed and multi-disciplinary support, including IP services and industry liaison; and (c) the incubator model, which remains focussed on a type of technology and provides access to financial resources and capital, with staff having deep expertise. Bala Subrahmanya et al. (2019) noted that TBIs help with the self-sufficiency and viability of enterprises by guiding them from a vulnerable stage to an independent stage through incubation programmes. They also proposed that, with due consideration to demand and supply factors, there needed to be further investigation into the role played by the pre-incubation process and the complementarity that existed between the resources and strengths of incubatees and the incubator. Incubation programmes could be offered in partnership with a university or public and private organizations, and research-focussed universities have a pivotal role to play in the modern knowledge economy (Mian, 2011). Both the incubator and the incubatee could be involved in a co-production relationship that creates shared value (Rice, 2002). Effective co-creation is an outcome of ‘maintaining a joint sphere of interaction and mutual influence’ (Eriksson et al., 2014, p. 395). In their study in a Swedish context, Aabonen et al. (2008) found that incubators can address their liabilities of newness vis-à-vis their incubatees by focussing on increasing the robustness of their processes, reducing their cognitive distance with universities or academic institutions, and by branding themselves as acceptable mentors. When compared to non-technology based firms, TBEs have a lower rate of disappearance and a higher potential for creating jobs and generating wealth through business growth (Doutriax and Simyar, 1987; Phillips, 2002). With these key aspects in mind, the authors carried out a qualitative study with an open-ended approach, correlating entrepreneurship and incubation with a focus on entrepreneurial journey, decision to begin an enterprise, use of technology, incubation process and benefits and challenges of incubation, which would be faced by the TBE entrepreneurs. Each aspect was assessed by using two to five open-ended questions.
Research Questions and Data Collection
Data Collection
Data Collection Instrument
Data collection for this study was done using a semi-structured interview technique with open-ended questions. In order to examine practically the benefits obtained and challenges encountered by TBEs that have chosen to participate in business incubation in a developing country (India) setting, the authors decided to undertake a qualitative empirical study in the Indian context. In view of current circumstances, the authors also queried the respondents about the impact of the COVID-19 pandemic on their enterprise and incubatee status. Finally, the respondents were also asked for their views on practices, features and services that they thought could be added, continued or stopped based on the experience of their TBE with the incubation system. The authors also got the questionnaire they had developed vetted by one academic and one industry expert each prior to data collection.
Research Questions
This study is an attempt made by the authors to qualitatively assess the benefits and challenges for the incubatees, more so with the understanding that each incubator (or type of incubator) would have different features and facilities on offer. The primary questions intended to be explored by the authors in this study were:
What are the main motivations for TBE entrepreneurs to go in for incubation of their enterprises? What are the main facilities or features that TBE entrepreneurs avail from the incubators during their entrepreneurial journey through the BI system? What are the challenges encountered by TBE entrepreneurs during the incubation process? What are the expectations TBE have from the incubation centres? What are the features that should be continued or removed in the BI system?
Respondent Sampling
Purposive sampling was used in this study to survey TBE entrepreneurs in a developing country context. The TBE entrepreneurs whose enterprises had undergone at least one tenure of incubation at a BI were identified as the best respondents for this study. The unit of analysis was one enterprise, which was usually represented by one or more founders as respondents while addressing the authors’ questions. The understanding of a TBE as a respondent in this study was that of an enterprise which used technology intrinsically as a core part of its unique value proposition (UVP), either as a product or as a service.
Data Collection Method
After this understanding, a potential target group of around 50 respondents was contacted for their responses through BI administrators of BIs located in commercial, social and university settings. Given the specific nature of this study, probabilistic sampling wouldn’t have been a suitable option. A total of 20 TBE entrepreneurs whose enterprises had undergone at least one incubation tenure responded positively to the authors’ request for data. An incubation tenure can be understood as a time period of incubation that is agreed upon between the TBE and the incubator during which it receives incubator support and access to incubator features and facilities. For the incubatees who participated in this study, this tenure would usually begin with a term ranging from 8 months to 1 year (annum) and could later be extended further either based on mutual agreement or based on some performance criteria set by the incubator being met by the incubatee. Alternately, some of the incubators also offered only fixed incubation tenures, after which the incubatees had to look elsewhere. Of the total of 20 respondents, 10 each were interviewed either telephonically or in-person by one author, and their responses were recorded. The interviews were conducted in English and lasted between 45 min and an hour. The interview recordings were then transcribed by the authors. Researcher bias was addressed in two ways: (a) after initial data collection, the authors’ consulted with each other regarding the validity of their findings, which was in line with the concepts of persistent observation and peer debriefing as outlined by Bitsch (2005), and (b) after an initial scanning of the responses received, the respondents were contacted at least once by the authors to correct any discrepancies in their responses and any ambiguities in the authors’ understanding of the same by presenting to them the transcribed versions of their respective interviews, in line with the member check procedure (Guba & Lincoln, 1989; Hoffart, 1991).
Data Analysis
The authors employed the technique of thematic analysis using the grounded theory approach to analyse the data collected (Glaser & Strauss, 1967; Lincoln & Guba, 1985; Nowell et al., 2017). The authors used a grounded theory approach with some introductory knowledge of the key aspects they intended to examine and did not use a phenomenological approach (Baker et al., 1992). A discussion on the major themes that emerged on the issues of choice of incubator, effects of the COVID-19 pandemic, and benefits and challenges of incubation is presented in the following paragraphs. Further, to assess the key features and services availed by the incubatees, the authors coded the major features and services that emerged out of the data collection process, and these are outlined in Table 2. A summary of themes about the expectations of TBE entrepreneurs from the incubation system is shown in Table 3.
Respondent Profile
All of the 20 TBEs whose founders responded to our request for data were operating on a reasonably high technology base and were active in various business sectors ranging from the use of technology in agriculture, assisted movement, education, electronic design (semiconductors), finance, hospitality, legal, railways, sales and marketing, space technology and veterinary services. The classification of BI types was based on the types of BIs encountered in the responses, and wasclassified as: (a) commercial business incubators (CBIs); (b) social business incubators (SBIs); and (c) UBIs based on whether they were a commercial incubator, a BI with a social cause or commitment, or a BI located in an academic institution or university. Of the 20 TBEs, ten of them were currently incubated were currently incubated in a UBI, four in an SBI and six in a CBI. Eight of these TBEs were in the early stage, nine of them were in the growth stage, two were in mid-stage and one had been sold off by the founders. The locations of BI were in the southern Indian states of Karnataka, Kerala and Tamil Nadu. Thirteen enterprises had undergone or were undergoing their first tenure of incubation, six enterprises were in their second tenure and one was in its third incubation tenure. The incubations were primarily physical, but due to the COVID-19 pandemic, some incubations were going on virtually. The summary of major data points and respondent profiles can be seen in Table 1.
Summary of Responses from TBE Entrepreneurs.
Choice of Incubator
One entrepreneur who underwent incubation at a CBI mentioned the reasons for investor and technology connections and market access for the same. The TBE entrepreneurs who were incubated in SBIs gave both business and value-oriented reasons for their choice, including mentioning that the incubator had reputed backing and was a match with their own vision of providing societal benefits, though an entrepreneur working in the agricultural technology space did mention that the SBI had a good brand name and could offer suitable connections to grow the business. On the other hand, entrepreneurs who were incubated in UBIs put forth the option of industry-academic collaboration, technical advisory and the option of using laboratories and space for their own fabrication and testing as a major driver of their decision. In a few cases, this option had been chosen by students who were alumni of and professors, working at the same institution at which the UBI was located. There was also mention of recommendations by former incubatees as a reason for the choice of a particular UBI. However, one entrepreneur who chose an SBI was critical of UBIs, mentioning that UBIs were often led by academicians who had little or no practical experience in entrepreneurship and ended up assessing ventures in a manner just as similar to how they would evaluate a business plan or case study solution in their classes. Entrepreneurs who were incubated in CBIs mentioned reasons such as access to potential customers, business model refinement, marketing and financing opportunities as reasons for their choice of incubator.
Choice of Commercial Business Incubator
An entrepreneur who had completed two incubation tenures of his TBE in a CBI mentioned that ‘Incubators usually have connects to investors, technology companies and also provide market access’ (Respondent 4). ‘As a lawyer and legal consultant myself, I was looking for connections to High Net worth Individuals (HNIs) and corporations who would like to use our product and thought that contacting a commercial incubator was a sensible thing to do’ (Respondent 16). ‘Working on AI to assist the differently-abled, I thought a commercial incubator may help in helping our enterprise with the right contacts’ (Respondent 17). Another TBE entrepreneur whose product was a touch-free charging console, mentioned the reason for his choice of incubator as being ‘because the big gun VCs were regular visitors here’ (Respondent 19). Some respondents were optimistic, mentioning that ‘since we were operating in the financial technology space, it made sense to approach an incubator that had housed similar companies’ (Respondent 18). One TBE entrepreneur also added that ‘the legal support required for my venture in the agriculture technology space’ was the reason for his choice of a CBI (Respondent 20).
Choice of Social Business Incubator
The reasons for the choice of an SBI stemmed from the aspects of both business support and connectivity and the brand value of the incubator. TBE entrepreneurs incubated in SBIs mentioned that ‘comes with the backing of a reputed trust’ (Respondent 2), and ‘brand name and network connections’ (Respondent 11), while another mentioned the reason of choice to be ‘business building support, network and funding they provided us with’ (Respondent 5). Another TBE entrepreneur was comprehensive in the assessment of the support provided by the SBI in terms of vision match and resources, stating that ‘multiple great connections for us in getting some large customers, providing great feedback and acting as a sounding board for ideas on marketing, sales, products and adding big value in the next round of fundraising by interacting with new investors’ (Respondent 6).
Choice of University Business Incubator
There were varying experiences and reasons for TBE entrepreneurs to choose a UBI. Some of them were quite experienced in their corporate job roles, and some were experienced (serial) entrepreneurs. One respondent who had had a bad experience in a CBI prior to moving to an SBI mentioned the reason as ‘feedback from a few ex-incubatees that mentorship was good’ (Respondent 1). Then there was a serial entrepreneur who mentioned the choice of a UBI for his TBE to be ‘to get technical and financial support’ (Respondent 7). Three TBE entrepreneurs whose products evolved out of experimentation mentioned reasons such as ‘promised the test facilities for our product’ (Respondent 3), ‘access to knowledge capital, labs and resource capital to start off with our venture’ (Respondent 9). The second major reason cited by TBE entrepreneurs for the choice of UBI were centred on the availability of human resources (HR) and opportunities for knowledge sharing, with reasons like ‘easy access to students and better testing facilities’ (Respondent 10), ‘plethora of academic disciplines, access to faculty and students were the major reason for us to choose a university incubator’ (Respondent 12) and ‘cohort of variety of startups helped learn from one another’ (Respondent 13). Thus, the anchors for CBIs and SBIs were funding and clientele, and for UBIs were innovation-enabling facilities and infrastructure (labs and leads).
COVID-19 Effects
The COVID-19 pandemic has brought about its own set of challenges and benefits for enterprises. While the TBEs that operated through the Internet, mobile or cloud-based platforms reported that they continued to work from home (WFH) and also got a chance to access WFH talent from tier II cities in India, the situation was very different in the case of manufacturing enterprises, whose operations were hit due to closure of industries and offices, social distancing requirements and internal migration of their workers back to their hometowns. However, some TBEs, particularly those whose offerings were related to essential usage and had a web or mobile presence, reported increased usage and a customer base during this period.
Benefits of Incubation
One of the major benefits of incubation that was cited by the respondents was knowledge support, be it advisory, technical or business mentorship. The entrepreneurs also mentioned that business mentorship provided an external validation of their business models and ideas. The next major benefits mentioned by the respondents were networking support (with VCs, prospective customers, other entrepreneurs and suppliers), financial support and support for hiring or accessing trained manpower. Entrepreneurs benefitted greatly from the feedback they received on different fronts. There was also specific mention of benefits such as provision of space for fabrication and testing (for manufacturing firms), options for hiring students from the university housing the UBI as interns in their enterprises, and access to curated events.
Challenges of Incubation
The mention of challenges encountered, as expected, was more specific to each entrepreneur. Some entrepreneurs mentioned that they did not quite get the kind of access to trained manpower that would suit their enterprise requirements. Others mentioned issues in support for implementation of their plans or projects, lack of specialized practical knowledge in their domain and the provision of legal compliance and support services for enterprises that initially operate at a low-scale.
Facilities Availed by Entrepreneurs
A more comprehensive view of the types of facilities availed from the incubator by each respondent is provided in Table 2 (which is based on the sub-categories mentioned in Section 5 of the questionnaire).
Incubators’ Features and Services Availed by TBE Entrepreneurs.
From Table 2, we notice that the provisions most commonly availed by the surveyed entrepreneurs were business model refinement and financial support (80%). A little over half (55%) of entrepreneurs reported using the legal and compliance services and 50% reported the use of technology commercialization features provided by the incubator. Only 30% of the respondents availed of the trained manpower and 15% of them used the technical training and certification provisions. The key other features available were the access and use of laboratories, mentorship and guidance (in the case of UBI incubatees) and collaboration opportunities and market access (as reported by SBI and BI incubatees, respectively). Table 3 shows the summary of expectations from the incubation system outlined by incubatees using the major themes derived from the data in descriptive terms.
Summary of TBE Entrepreneurs’ Expectations from the Incubation System.
Discussion
The key findings of this study can be understood as follows: (a) incubated TBE entrepreneurs don't categorize incubators based on their association or funding (university, trade organization, or socially funded); instead, they use them based on the type of resources provided by the incubator and according to their needs; and (b) even TBEs that are relatively mature (in their mid or growth stages) use incubation because of relative ease and cheap access to resources. The use of incubators for cost advantage was observed to be a major driver for the incubation decision and process by the TBEs.
The role of incubators in the success of ventures is one side of the story. The incubatees’ perception of the support systems provided by the BIs is the other side of the story. The rate of utilization of support systems by start-ups has been relatively low due to the differences between expectations, needs and options offered (Van Weele et al., 2017). The three types of knowledge that the incubators provide to start-ups are: technological knowledge, business knowledge and market knowledge. Obviously, it would be difficult for a single incubator to cater sufficiently to all three types of knowledge, and even for those focussing on technological knowledge, it would be difficult to have expertise in all the technological fields.
Academic and Managerial Implications
The authors found that TBEs prefer incubation at different stages of the enterprise life-cycle for a variety of reasons. In the context of TBEs, incubators are no longer the preserve of the novice and start-up entrepreneurs. Serial and experienced entrepreneurs of established firms also availed themselves the support of incubators in order to address their own priorities. It would be difficult for a single incubator entity to cater to all the three different types of knowledge; the authors, however, propose that there needs to be a start by looking closely at the themes that have emerged that showcase the different types of features and services that the TBE entrepreneurs would like to have available, even if they may not be availing of those currently, which is shown in Table 3. The authors are of the opinion that this provides a unique opportunity for both industry and academia to assist in the incubation of TBEs in India. For example, universities can assist TBEs in providing manpower and in refining their legal and intellectual property rights (IPR) issues like technology commercialization; while industry interface can be used to provide technical training and certification of manpower and refinement of business models and marketing strategies. Given the specific technology requirements of the TBEs, especially for those operating in diverse areas such as agriculture, hospitality, railway and space technology, the authors would like to propose a ‘hybridized incubation’ arrangement by means of which TBEs located in a particular town or city can be provided with different types of services that meet their specific technological, business and marketing needs under a single incubation scheme. Under this scheme, a TBE could be affiliated with more than one incubator simultaneously (possibly a combination of a UBI and/or SBI) during a single incubation tenure and could benefit synergistically from the offerings of academia and industry.
Limitations and Future Research Directions
This study was restricted to 20 TBE entrepreneur respondents only. Future studies can be carried out on a larger scale with more such respondents from geographically diverse locations. Part of the interview data collected for this study also showcased a phenomenon of entrepreneurs moving on from one incubator to another at the cost of diluting their ownership or bearing the cost of services (membership fees). Based on the needs of the start-ups, the entrepreneurs shifted from one incubator to another to gain from the expertise offered by each one. There is scope for further research to study this question and to examine the specific reasons for the movement of an incubtaee from one incubator to another in the context of both similar and different incubator types.
Conclusion
This qualitative exploratory study was an attempt to understand the key reasons behind the choice of an incubator and the expectations of incubatees from them and was based on the data provided by 20 respondents. However, more research is required to find specific answers to the challenge of under-utilization of the support systems from the perspective of both incubators and incubatees. The entrepreneurs interviewed for this study placed a lot of emphasis on the integration of generally overlooked administrative, accounting and legal needs of the entrepreneurs as incubator support services. They mentioned two supporting arguments for this: the lack of volumes of business generated at the initial stages of their enterprises meant that they couldn’t afford to hire an exclusive company secretary (CS) or chartered accountant (CA); and, entrepreneurs in general would like to have a more simplified understanding of their rights and liabilities as small enterprises operating in an incubated setting vis-à-vis the complexity of applicable company laws in the country. The authors concluded that this was an example of entrepreneurs using incubators to achieve what they would like to call the ‘need-heed’ gap; a major reason why entrepreneurs were found to use incubators was not merely as facilitators of an idea to product conversion but also as an avenue of cost control by utilizing the resources the incubators offered to them either on a shared or on a discounted basis. While incubators do have a role as reduced cost service providers that help TBE entrepreneurs who have tight budgets and profit maximization objectives, the authors propose a ‘hybridized incubation’ model that synergizes the benefits offered by both academia and industry in addressing TBE requirements under a single incubation scheme.
Footnotes
Declaration of Conflicting Interests
The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.
Funding
The authors received no financial support for the research, authorship and/or publication of this article.
