Incubator – Definition

Cite this article as:"Incubator – Definition," in The Business Professor, updated March 19, 2019, last accessed August 14, 2020, https://thebusinessprofessor.com/lesson/incubator-definition/.

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Definition Of Incubator

An incubator is an organization that helps to build a startup or growth-business into a larger-scale business operation. It does this by monitoring and facilitating the business progress at all stages of development. Most incubators acquire an ownership interest in the business. These shares serve as a means of payment to the services provided by the incubator, as most start-up business can hardly pay for the service charge of the incubator.

A Little More on What is an Incubator

An incubator offers quite many services which includes

  • Event networking,
  • Renting and provision of office space,
  • Sales and marketing support
  • IT support
  • Strategic coaching
  • Accounting and Legal Assitance
  • Research and development.
  • Access to capital

The primary determinant of the compensation from the business owner to the incubator is the goal and vision of the business owner.

An incubator helps in writing a success story for every small business, by walking with them on their journey to success and greatness.

Listed below are the five major types of incubators, recognized by the National Business Incubation Association (NBIA).

  • Venture capital firm,
  • Academic institutions,
  • Non-profit property development ventures
  • Profit property development ventures
  • Combination of any of the listed incubators above.

The incubators serve different functions.

Private for-Profit Incubators. These types of incubator focus on recruiting new startup business with good prospects of profit-making margin. The incubator may then decide to provide an incubating service in exchange for an ownership share in the business. In the other hand, an incubator can choose to offer services for free on the pretense of investing in the company in the early stage. The most common incubator is the Y-combinator.  There are also Public, non-profit incubators that share this kind of functions as well.

Accelerators– Accelerators are very synonymous to incubators. Accelerators objective is to nurture the growth of a business that has already broken even, rather than just nurture for an extended period, unlike an incubator. Accelerators offer legal advice/assistance, building business connections between businesses and lastly giving strategic advice. Accelerators charge a flat fee for a short period they work with a company.

Small Business Centers– Small business centers funded by the Local, State and Federal government also require the service of an incubator. These entities focus more on economic development, social enterprise, minority or low-income business e.t.c services offered to small business centers differs. A typical example of small business centres is the Small business Development Centers- (SBDC) which is founded by the U.s Small Business Administration.

References for Incubator

https://en.wikipedia.org/wiki/Business_incubator

https://hbr.org/2000/09/networked-incubators-hothouses-of-the-new-economy

https://en.wikipedia.org/wiki/Startup_accelerator

Academic Research on Incubator

  • New business incubator, Smilor, R. W. (1986). Lexington Books.
  • The role of incubator organizations in the founding of growth-oriented firms, Cooper, A. C. (1985). Journal of business Venturing, 1(1), 75-86. One of the major roles of incubator organizations is to help entrepreneurs organize and structure their new business ventures. Considering a sample of over 160  new business ventures, the primary determinant of the business is the relationship between the new business venture and the incubator firm. The hypothesis carried out on the over 160 samples further revealed that business who change their geographical locations a few years after starting the business sometimes don’t change the type of business they do. Instead, they would prefer to be in particular position and harness more knowledge about the scope of the business, this offers little or no opportunities to new startup business to employ more labors because they would want every possible way to maximize profit and reduce the cost of production.  Most prospective founders of non-technical firms are likely to gain more experience as regards an incubator organization.
  • The networked business incubator—leveraging entrepreneurial agency?, Bøllingtoft, A., & Ulhøi, J. P. (2005). Journal of business venturing, 20(2), 265-290. Evolution has eventually caught up with the new incubator model over a short period. “The networked incubator”, which is a hybrid form of the archetypal business incubator”BI”, which is due to economic scope, territorial synergy, and relational symbiosis. This article researched the reason why the new model has a fantastic outcome compared to the older model. A hypothesis was carried out for a period of six months with ethnographic data collected in one of the commonest documented networked incubators. The final section of the paper revealed the implications as regards research works and for practitioners.
  • Structure, policy, services, and performance in the business incubator industry, Allen, D. N., & McCluskey, R. (1991). Entrepreneurship Theory and Practice, 15(2), 61-77. The most relevant tools in enterprise development are Business incubators. Over 350 business incubators are operating all over the U.S. The principal role of a business incubator firm is to provide business development assistance for future business, help to nurture a new business venture and teach them survival and early growth techniques and lastly to provide an affordable and pleasant working environment for new business ventures. This article carefully highlights the importance of incubator policy, structure, and services in relation to growing a new business venture. A surveyed was carried out in over 120 incubating firms on their features of a value-added continuum. The yardstick to measure the performance of a new business venture is to examine, the business and property development empirically. Incubators have p[roven to be poor real estate ventures. The size, workforce, and age are also significant in the type of jobs opportunities created and the level of the firm. Policy, services, and structures are essential variables in explaining business development outcomes.
  • Assessing and managing the university technology business incubator: an integrative framework, Mian, S. A. (1997). Journal of business venturing, 12(4), 251-285. This article explains the conceptual framework for assessing and managing the university technology business incubators(UTBI) as a significant tool in the creation of a new business venture. Generally, UTBIs contribute immensely to the growth of new technology-based firms (NTBFs). The part played by the university relationship is to provide a nurturing environment for the survival and growth of small so that they could scale through the review in the U.S. as a result of lack of historical data. As a result of the void, this paper presents empirical data on three functional UBI framework, which are listed below; Tenants firms growth and survival, The growth and sustainability of the program, The contributions in sponsoring the universities mission. The application of the framework was carried out using four representatives of UTBI cases carefully selected from 35 years or older in a US-based facility with over 25 tenant firms out of 84 firms who were contacted for the survey. A clear comparison between the four cases proves that the framework provides a flexible methodology that acts as a catalyst to the performance of UTBIs. In conclusion, using a set of elements used as a yardstick to determine the performance of UTBIs as earlier discussed. The sole reason for this framework is to shed more lights on the assessments of UTBIs performance, acting as a guideline for operations.
  • University–incubator firm knowledge flows: assessing their impact on incubator firm performance, Rothaermel, F. T., & Thursby, M. (2005). Research Policy, 34(3), 305-320. Technology incubators are University-based technology initiatives that will help in the dissemination of knowledge from the University to the incubator firms. We, therefore, ran on a hypothesis of how knowledge can help with the spread of knowledge from the Universities to the incubator firms. However, we discovered that the rate of knowledge flows on different incubator firms differs. According to the resource-based view of the firm and the absorbent nature of the incubator firms, we, therefore, concluded that knowledge flows has a great role to play in influencing an incubator firm performance. According to the firm level data of 79 technologist ventures incubated between 1998 and 2003 at the Advanced Technology Development Center, a technology Incubator facilitated by the Georgia Institute of Technology, some knowledge flows from universities to Incubator firms was discovered. The evidence gathered proved that Incubator firms absorptive capacity is a great influencer as regards transforming University knowledge into a firm-level competitive advantage.
  • The Evolution of Business Incubators: Comparing demand and supply of business incubation services across different incubator generations, Bruneel, J., Ratinho, T., Clarysse, B., & Groen, A. (2012). Technovation, 32(2), 110-121. Business Incubators( Bis) was established to help stimulate the creation of new business ventures. The incubation process has enjoyed quite a lot of evolution process since inception, although little is known about the difference in functionality between the new model of incubation and the old models. We, therefore, present data collated from seven Bis and their occupants as regards the type of service provided and selection criteria. Our findings revealed that while Bis of all generations dispense almost the same support service, occupants of the older generation BIs rarely make use of the Bis service portfolio. We can say this is as a result of the absence of defined exit policies and poor selection criteria. Furthermore, the results can be interpreted that the older generation Bis needs an update in-service portfolio whole imposing stricter selection criteria, also an introduction of exit policies should be encouraged. Lastly, we discussed the effects of raise for BIs managers, policy makers, and prospective tenants.
  • •        The role of incubator interactions in assisting new ventures, Scillitoe, J. L., & Chakrabarti, A. K. (2010). Technovation, 30(3), 155-167. The development of new technology-based firms (NTBF) in business incubator according to past literature revealed that the small business needs both technical and business assistance to thrive. Furthermore, the research also suggested that this assistance should be made accessible through networking or direct interactions with the incubator management. Though the interaction with the incubator doesn’t justify the type of beneficial assistance the business gets. This study also examines the impact of networking and counseling interactions with the incubator management on both technical assistance and beneficial business for NTBFs. The results of this study show that counseling interactions with incubator management help in the growth and survival of small business ventures. Networking interactions do not influence learning buyer preference. Technical assistance, as regards learning technological know how skills, is best applied through networking interactions with incubator management. Learning technological know-how skills was not applied through counseling interactions. This study, therefore, revealed the importance of networking and counseling interactions with the incubator management to enable the incubation process for forthcoming business.
  • Methodological challenges in evaluating business incubator outcomes, Sherman, H., & Chappell, D. S. (1998).  Economic Development Quarterly, 12(4), 313-321. This research study was carried out by the University of Michigan Business School in collaboration with the National Business Incubation Association (NBIA), Ohio University, and the Southern Technology Council as regards to the proposals issued by the Economic Development Administration. The reason for this study is to determine the most appropriate methodologies that could be used by incubators to assess the impacts of their schemes on local communities. In addition to this, a hypothesis was carried out on a national representative using 50 incubator programs.
  • Technology commercialization, incubator and venture capital, and new venture performance, Chen, C. J. (2009). Journal of Business research, 62(1), 93-103. This study shows the effect of an incubator, venture capital support and technology commercialization on upcoming business performance from the resource-based view. This study made use of the regression analysis to test the hypothesis in 122 new business samples. The findings revealed that the role of technology commercialization as a medium between Innovative capabilities, organizational and new business performance. The empirical evidence also showed that incubators and small business capital supports the moderation of technology commercialization on the growth of a small upcoming business. Lastly, this study discussed the implications and highlighted the directions to channel future research.
  • Economic and fiscal impacts of a business incubator, Markley, D. M., & McNamara, K. T. (1995). Economic Development Quarterly, 9(3), 273-278. This article describes the university business incubator (UBI) as a strategic option for promoting the development of new research/technology-based firms( RTBFs). The business incubator is widely accepted in the most business community as the provider of a suitable nurturing environment and builder of the growth and survival of startup business. The part played by the university relationship is to provide a nurturing environment for the survival and growth of small RTBF that scaled through the review in the U.S. as a result of lack of historical data. As a result of the void, this paper presents empirical data on two functional UBI programs: the Ben Craig Venter at the University of North Carolina located at Charlotte and the Case Western Reserve University. These scenarios provides an insight for policy markers and upcoming entrepreneurs in various management policy, facility design and value-added aspects as regards the use of a modern tool used by some entrepreneurial universities as a tool for supporting the development of new RTBFs Business incubators are the best options to support startup business, on their survival and growth. Incubators provide physical supports for new and young business in all communities. Incubators do not measure the total number of employees in a business payroll and the impact of income generated by the incubator firms. The sole objective of this article is to highlight the fiscal impact and economic importance of a business incubator on how to create more income and employment in the local community. Creation of employment opportunities and generating more profits establishing a bond between firms inside and outside the local economy over a period of time. The startup cost for creating the job opportunities is in par with attracting investors into a local community. Incubators play a significant role in attracting investors into a community that is not well positioned as regards attracting investors

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