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  • Published: 03 February 2016

Business incubation and the network resources of start-ups

  • Inger Beate Pettersen 1 ,
  • Jarle Aarstad 1 ,
  • Øystein Stavø Høvig 1 &
  • Anita Ellen Tobiassen 2  

Journal of Innovation and Entrepreneurship volume  5 , Article number:  7 ( 2015 ) Cite this article

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The focus in this paper is to study whether business incubation can provide entrepreneurial start-ups with critical network resources. We make a distinction between incubator-provided network resources and start-ups’ “own” external network resources that are unrelated to the incubator context. Although there has been an increasing number of studies examining incubated entrepreneurs’ network resources, to our knowledge, this is the first study that explicitly compares incubator-provided network resources and start-ups’ own external network resources. Analyzing the results from qualitative interviews with start-up tenants at a technology incubator in Bergen, Norway, we find that network resources acquired by the start-ups’ own efforts (rather than network resources facilitated by an incubator) were most critical in all phases of enterprise development. They played a crucial role in terms of idiosyncratic (non-generic) knowledge generation as drivers of innovation, catalysts for financial contributors, and as a means to organizational reputation and market access. Nevertheless, internal networking with other incubator firms and external network resources facilitated by the incubator were also helpful and complementary, but they were more generic in nature and provided limited idiosyncratic resources. We also found that incubator network resources tend to have traits similar to those of identity-based network resources because they are not mainly governed by economic interests, but at the same time, they are not path-dependent. Inter-tenant network resources, therefore, can have nonbinding weak-ties properties and provide non-redundant information.

The focus in this paper is to study whether business incubation can provide entrepreneurial start-ups with critical network resources. A business incubator is defined as a more or less formalized entity with an infrastructure intended to nurture incubated start-ups with critical resources in the pursuit of survival and growth (partly derived from Allen and Rahman 1985 ). Business incubation can provide the start-ups with resources such as office space, counseling, and other basic services, but their purpose is also to stimulate internal networking and exchange of knowledge between entrepreneurial start-up firms (Hansen et al. 2000 ; Hughes et al. 2007 ; Sá and Lee 2012 ; Kitagawa and Robertson 2012 ). Furthermore, business incubators should help tenants to build networks with external companies, organizations, and other individuals (Hansen et al. 2000 ). All in all, one can argue that business incubators may foster network resources, which we define as a firm’s access to information, knowledge, reputation, and input factors from a variety of sources such as customers, suppliers, competitors, R&D institutions, and governmental bodies (partly derived from Spithoven and Teirlinck 2015 ). The importance of entrepreneurial start-ups’ network resources is clearly recognized in the scholarly literature (Hite and Hesterly 2001 ; Coviello 2006 ; Pettersen and Tobiassen 2012 ; Aarstad et al. 2010 ). Entrepreneurs can use network resources to generate or test ideas, develop new technology, identify market opportunities (Chen and Wang 2008 ; Sullivan and Marvel 2011 ), obtain access to financial funding, and gain legitimacy (Pettersen and Tobiassen 2012 ), to mention a few benefits.

To assess the potential benefits of business incubation, it is therefore critical to study network resources provided by incubators, which include both internal networks among tenants and external networks facilitated by the incubator. Yet to fully comprehend the genuine potential role of business incubation, it is also essential for investigators to compare start-ups’ external networks that go beyond the incubator milieu and stem from the path-dependent trajectory of their own efforts and initiatives. In this paper, we therefore make a distinction between (1) incubator-provided network resources (internal and external) and (2) start-ups’ “own” external network resources (which are unrelated to the incubator context). Accordingly, we emphasize a variety of factors that are expected to ensure critical network resources to leverage the start-ups’ products and services and to enhance long-term growth.

The outline of the paper is as follows: First, we elaborate the concept of entrepreneurial start-ups’ network resources, and next, we review studies that have examined incubated entrepreneurial start-ups’ network resources. In the following section, we analyze and present the results from qualitative interviews with start-up tenants at a technology incubator in Bergen, the second largest city in Norway and located on the west coast. In the final section, we discuss our empirical findings in light of the existing research literature, address the study’s limitations, and suggest avenues for future research.

All in all, we argue that our contribution provides a nuanced picture of entrepreneurial start-ups’ network resources residing within and beyond an incubator. Although there has been an increasing number of studies examining incubated entrepreneurs’ network resources, to our knowledge, this is the first study that explicitly compares incubator-provided (internal and external) network resources and start-ups’ own external network resources. We therefore argue that our study fills an important gap in the research literature on entrepreneurial start-ups in incubation.

Literature review

Start-ups’ network resources.

A network encompasses a set of relationships with various agents or organizations (Walter et al. 2006 ; Lechner and Dowling 2003 ). Each of these can provide a focal firm with critical resources. The capability to acquire network resources is critical for entrepreneurial firms (Lechner et al. 2006 ). Walter et al. ( 2006 ) define firm capabilities such as the ability to initiate, maintain, and utilize relationships with various external partners. According to Walter et al. ( 2006 ), relationships are also an important means of learning about customers’ needs, so that the firm can develop marketable offerings. They found that the performance of university spinoffs was positively influenced by their network capability. Mort and Weerawardena ( 2006 ) found that networking capability facilitates the development of knowledge-intensive products and allows firms to identify and exploit performance opportunities in international markets.

Building networks shortens and accelerates firms’ learning processes (Knight and Cavusgil 1996 ; Zahra 2005 ). This is particularly vital for start-ups in their pursuit of development and growth (Schutjens and Stam 2003 ; Sharma and Blomstermo 2003 ). Their networks are therefore likely to change over time. According to Hite and Hesterly ( 2001 ), identity-based networks, in which the social identity of the ties matters more than the economic functions, are most important in the early stages of growth. However, over time, calculative networks, in which purpose and functions are more important than the identity of the ties, become essential (Hite and Hesterly 2001 ). This dynamic network evolution is seen as reflecting start-ups’ need for resources and the availability of and access to network resources in the various stages of firm development. Thus, in the early growth stage, start-ups basically rely on identity-based networks that are path-dependent because preexisting relationships make them easy to access. Path-dependent networks can provide critical resources but are more restricted, smaller, and less diverse than calculative networks (Hite and Hesterly 2001 ). At a later stage, when the firm has acquired some reputation and legitimacy, it is willing and able to manage its network intentionally and move beyond the path-dependent core networks. This shift is critical because calculative networks can generally provide greater and more diverse resources and are less redundant than identity-based networks (Hite and Hesterly 2001 ).

Generally, it is vital for firms to balance path-dependent networks and calculative networks and to emphasize calculative networks at later stages. Start-ups’ network resources may furthermore be heterogeneous or multiplex, fostering reputation and market access, the sharing of knowledge, innovation, and technology transfer, and access to financial investors (Lechner and Dowling 2003 ; Pettersen and Tobiassen 2012 ). Zheng et al. ( 2010 ) argue that the more heterogeneous the networks are, the more diverse information and other resources the start-ups can acquire. Lechner et al. ( 2006 ) show that having different types of networks is more important for firm development than network size. Studies have also demonstrated that network heterogeneity helps high-tech start-ups to grow and prosper (Baum et al. 2000 ; Powell et al. 1996 ), and Zhao and Aram ( 1995 ) have shown that network breadth (and strength) was associated with start-up growth.

Business incubation and network resources

The literature cited so far primarily emphasizes entrepreneurial networks and network resources in general but does not consider that numerous entrepreneurs are incubated and may hence also profit from incubator-provided network resources. Consequently, it is critical for scholarly research to study both networks that are related to start-ups’ incubation and “private” external networks that extend beyond the incubator. In the following review, we therefore pay particular attention to studies related to incubation and incubator network resources.

Cooper et al. ( 2012 , p. 433) note that “[b]usiness incubators strive to develop robust business and social networks to bring value to their resident companies in the form of intellectual and material resources.” Sá and Lee ( 2012 , p. 243) state that “[o]ne of the central features of incubators is the provision of networking opportunities for tenants to establish collaborative relationships with other organizations.” In line with this reasoning, Hansen et al. ( 2000 , p. 75) note that “[m]ost business incubators provide office space, funding, and basic services. The better ones also offer an extensive network of powerful business connections, enabling fledging start-ups to beat their competitors to market.”

Although Hansen and colleagues found that only 26 % of the incubator executives interviewed perceived that the incubator in fact provides organized networking, the above statements indicate a consensus in the scholarly literature that the leveraging of network resources should be a crucial mission for business incubators. However, in line with the findings of Hansen et al., the following literature review indicates that the empirical findings are somewhat mixed in this regard.

A recent Finnish study has emphasized the crucial role of multifaceted relations between incubator firms and how they can develop through different processes (Pellinen 2014 ). In another study in Denmark, Bøllingtoft and Ulhøi ( 2005 ) investigated various facets of networking between incubator tenants, and their fieldwork revealed that mutual trust is more important than formal contracts. Tenants do not cooperate “on command;” many of the relationships are multiplex (e.g., friendship and business relations), and joint activities appear to be formative for social ties. Physical proximity is a catalyst for relationship formation (Bøllingtoft 2012 ; Bøllingtoft and Ulhøi 2005 ). Similar findings were reported by Cooper et al. ( 2012 ) in their investigation of motivations and obstacles to networking in a university incubator. Cooper and colleagues further reported that “primary obstacles residents face… in networking… include lack of ongoing information about other residents, and lack of trust related to keeping information about innovations and funding sources secure” (p. 433).

Chan and Lau ( 2005 ) evaluated a university technology business incubator program in Hong Kong; their multiple case study of six incubators revealed that only one appeared to have extensive relationships and knowledge sharing between the incubator firms. A study by Schwartz and Hornych ( 2008 ) in Germany examined whether industrial sector specialization incubation would foster internal networking among incubator tenants, but the authors uncovered deficiencies in this regard. A follow-up study did not show that incubator specialization increased internal networking (Schwartz and Hornych 2010 ). According to Battisti and McAdam ( 2012 ), graduate entrepreneurs in incubation face challenges with reference to relational and cognitive dimensions of social capital, which may partly explain Schwartz and Hornych’s findings.

A Taiwanese survey indicated that incubator tenants’ proactive use of incubator social capital is positively associated with technological capability, managerial competence, and incubation satisfaction (Fang et al. 2010 ). Recently, a Canadian study by Sá and Lee ( 2012 ) reported that networks with crucial stakeholders were created in a major technology incubator (e.g., accounting firms, government agencies, venture capital firms, and research institutes). Some respondents reported that “the social milieu of incubators may be a source of networking opportunities that can translate into business opportunities” (p. 248); thus, it appears that incubator facilities can provide access to credibility and an extended network for the tenants. Nevertheless, the same study concluded that it “seemed almost impractical for the incubator to fully address each of the tenant’s networking needs according to their industry and business plans” (p. 251).

Tötterman and Sten ( 2005 ) evaluated three non-profit business incubators in Finland, reporting that “tenants generally experienced that the incubator can, at least to some extent, help them find access to appropriate business networks” (p. 502). “However, each tenant is an individual [firm], and incubators seem to find it hard to systematically tailor-make their services to serve effectively each individual tenant” (p. 503). In a similar vein, a UK-based survey of incubator tenants reported that “incubators often generalize their network support without considering that firms may develop different networks based on their needs” (Soetanto and Jack 2011 , p. 127). A follow-up study concluded that “network support for incubator firms can be improved… [and] not all incubator firms have the same needs” (Soetanto and Jack 2013 , p. 432). Tötterman and Sten’s ( 2005 ) contribution from Finland also reported that relationships between tenants were not particularly sophisticated: “In practice, the existing relationships are mainly basic information exchange, often related to daily issues” (p. 502).

McAdam and McAdam ( 2006 , p. 87) concluded in a study from Ireland that the “incubator environment enhances the development of social networks that act to support the new entrepreneur during the vital stages of firm foundation. Furthermore, the networks have a key role in facilitating the design and implementation of firm growth strategies.” In another study from Ireland, 79 % of the respondents reported that incubation provides increased and productive network with peers, but they rank such networks to be of low importance (Stephens and Onofrei 2012 ).

Taken together, the reviewed studies generally indicate that a crucial mission of business incubators is to enable the tenants to leverage network resources internally and with external agents. However, a number of the studies have reported that these activities have proven challenging. Inter-tenant networking is limited and business incubators’ mission to foster external network resources is also limited and not particularly adapted “to serve effectively each individual tenant” (Tötterman and Sten 2005 , p. 503). It thus appears that network resources shaped through network incubation also tend to be generic in nature. In addition, it is interesting to note that incubation studies are practically silent on comparing the value and characteristics of the path-dependent trajectory of the tenants’ “private” networks established prior to incubation and in parallel with incubation. Sá and Lee ( 2012 , p. 248) addressed this issue when referring to incubator start-ups, claiming that “most of their strategic relations were established before locating at MaRS [the incubator] or through their own effort,” but we lack systematic knowledge of how incubator tenants may combine incubator network resources with “private” external network resources.

No start-up is conceived in a vacuum, and business ideas are generally initiated prior to incubation. To comprehend fully the nature of incubated network resources, it is accordingly crucial to emphasize how start-ups potentially combine “private” external network resources with incubator-provided internal and external network resources. Because most start-ups not only need generic resources but also depend on specific or idiosyncratic resources for their particular business, it is reasonable to assume that “private” network resources will play a relatively crucial role for incubated tenants; we will address and examine this issue further in the empirical section.

This section analyzes the data provided from the 10 incubator firms. First, we describe the external networks of the start-ups that go beyond the incubator and stem from the tenants’ “private” path-dependent trajectory of personal or professional relations. Then, we explain the internal networking within the incubator; finally, we focus on extended network resources facilitated by the incubator management. In the analyses, we emphasize the general experience of the start-ups, and we attempt to reveal their network opportunities both within and beyond the incubator.

Incubator firms’ “private” external network resources

The majority of the entrepreneurs had acquired diverse network resources through education or work experience, which proved valuable for their ventures in their critical start-up phase (i.e., identity-based networks, cf. Hite and Hesterly 2001 ). Four of the firms in the emergence phase, and one early growth firm, had entrepreneurial teams composed of people with whom they had preexisting relations, such as friends or acquaintances from previous work or study. One informant stated that the firm’s present network was mostly composed of “those people we knew before locating at the incubator.”

Most start-ups needed pilot customers, which they had to seek proactively beyond their previously established networks (i.e., calculative based networks, cf. Hite and Hesterly 2001 ). Early growth entrepreneurs in particular had this proactive attitude toward networking. Pilot customers were especially crucial to provide feedback on products and technology and to define the potential market and user preferences. Technology development is costly and time-consuming; hence, it is critical to identify customer needs early. With some exceptions, the majority of the venture ideas were technology driven and not particularly based on user needs. Research-based technologies and advanced technology platforms in particular were far from being specific commercial products. Some pilot customers were financial contributors to research projects and partly financed the firms’ technology development by licensing and buying prototypes and through what has been labelled industrial R&D contracts (facilitated by Innovation Norway, a governmental body).

The pilot customers therefore contributed multiple and multiplex resources to the development and growth of the start-ups. Large and well-known pilot customers additionally functioned as reputational agents enhancing the start-ups’ legitimacy. The incubator firms expected (or wished) that pilot customers would become future loyal customers; yet because of product and technology uncertainties, the pilot customers would not often fully commit themselves to the projects before they were completed.

Access to financial resources was critical for most of the firms in the technology development phase. In addition to pilot customers, most entrepreneurs obtained grants from Innovation Norway. Generally, it was difficult to obtain financial resources from private investors, because early phase ventures were typically perceived as high-risk projects. Nevertheless, four of the start-ups had succeeded in attracting bank or industry investors, albeit for a limited period, while others were in the process of searching for investors. However, a number of the start-ups were skeptical of investors who anticipated a major influence over the venture’s future course. Some therefore preferred to maintain ownership control of their venture at this early stage as they perceived that “selling out” would also mean “losing control.” Research-based technology projects were often funded by research programs, while other complex technology projects without a research base typically struggled to obtain financial resources. Hence, the start-ups relied on various sources to finance the ventures’ early development and growth, such as public organizations (e.g., grants from Innovation Norway), the Research Council of Norway, regional banks, and other industrial investors.

The majority of the firms essentially developed the technology in-house with internal technology knowledge and resources. In addition, some firms outsourced specific programming and developing tasks to external organizations and consultants, in Norway and abroad. These relationships can be labelled knowledge, innovation, and technology networks (Lechner and Dowling 2003 ; Pettersen and Tobiassen 2012 ). As the technology and product are critical assets in the entrepreneurial venture, they preferred to keep fundamental technology development in-house to avoid the risk of copying. Two firms with research-based technologies needed external R&D partners to develop them. External researchers contributed to the development of some of the ventures’ technology. Hence, external R&D partners functioned as knowledge, innovation, and technology networks for these firms. Overall, research-based entrepreneurial firms had extensive R&D networks that were critical to leveraging the enterprise.

For the majority of the firms in the emergence phase, their “private” network had a high proportion of ties where some form of identity-based personal or social relationship motivated their actions. This goes for entrepreneurial team formation, acquiring pilot customers, and technology development. For the firms in the early growth phase, their network was more multiplex, mostly with a mix of identity and calculative ties. As firms in the early growth phase require more extensive and a wider range of resources than were first needed, there is a tendency to move from identity to calculative ties.

To summarize, the “private” external network resources were mainly acquired through the start-ups’ own efforts, rather than facilitated by the incubator. The start-ups’ “private” external networks can be described as critical resources that enabled the firms to develop their technology and venture further. We label these network resources “idiosyncratic” because they satisfied the firms’ specific and individual needs.

Network resources developed internally among start-ups in the incubator

Few start-ups found collaboration partners within the incubator that could provide critical network resources. (The only exceptions were the two firms originating in “start-up communities” that are now collaborating to leverage a spinoff. We will discuss them below.) Nevertheless, the start-ups communicated with other incubator firms and especially emphasized the sharing of entrepreneurial experience. Most incubator firms exchanged knowledge and experiences related to the various phases in developing a business. In fact, they found it valuable to share such experiences, because they could learn from each other and provide mutual moral support. Even though most firms had different technologies targeting different markets, they had to undergo the same critical phases: technology development, production, and sales and marketing. As one informant put it: “Even though we have different products and technologies, and we target a different market from other incubated firms, we evolve through the same stages of emergence and growth. The challenges that we face and the experiences we gain are similar and transferable.” Another informant emphasized the generic resources that the different firms were able to share: “[The sharing of] accounting and auditing tips, tax reduction schemes and those things. Everyone will encounter these, and we should be able to share experiences and discuss them openly without secrecy.” Inter-tenant networking was thus mostly related to general or generic challenges that most start-ups face in the early growth stage: managing technology transitions, preparing for investors, taxation and auditing, and negotiating with customers and other critical stakeholders.

The firms shared these experiences openly without secrecy, because they had a more generic character. Most start-ups recognized that they differed widely with respect to products and markets and it was difficult to find partners with matching knowledge at the incubator. Furthermore, some start-ups were reluctant to share business secrets and their “own” network resources because of potential rivalry. This was especially so for investor resources, which are scarce in Bergen. As one tenant put it: “All start-ups compete for the same money; hence, there is no exchange of information in this regard.”

Another reason for the limited inter-tenant information sharing was the lack of knowledge about other tenants. Without necessary knowledge, it is difficult to identify potential synergies and areas for collaboration. All incubator firms had some contact with other tenants, but they lacked the comprehensive and detailed knowledge about the other firms required to exploit this potential fully.

We have briefly mentioned that two incubator start-ups are now collaborating to leverage a spinoff. Anecdotally, this can be described as “the exception that proves the rule,” but it is worth noting that these are the only entrepreneurs that have emerged from what we have labelled “start-up communities.” This may indicate that such start-ups have a greater proclivity to be flexible and open-minded in terms of generating novel ideas. It also indicates that they are willing to share critical resources with others showing similar attitudes to their own.

Although internal networking was rarely related to critical network resources, the sharing of the entrepreneurial experience was considered valuable for the firms in further development of the business and because of the social and moral support it provided. Since the start-up process can be lonely, with numerous barriers to overcome, interacting with other entrepreneurs facing similar challenges can lessen this burden. It was important for the start-ups to reside in the incubator and be part of an entrepreneurial milieu for these reasons. We can refer to these internal network resources, stemming from within the incubator milieu, as mostly generic in nature.

External network resources provided by the incubator

The incubator management manages an extended network encompassing R&D institutions, public bodies, law firms, regional network organizations, investor groups, a technology transfer office, and diverse industry contacts and networks. Hence, the incubator management could provide contacts and information related to legal counseling and accounting, business development programs, funding opportunities, and other issues that were valuable for the firms. The technology transfer office organized intensive innovation programs for entrepreneurs developing business models and market plans, in which several of the incubator firms participated. These programs were adapted to certain industries or classes of products, and they complemented the services and business counseling directly provided by the incubator. They were reported to be highly valued by the start-ups that participated in them.

Another organization in the extended incubator network-organized events that connected start-ups with potential investors. Some of the start-ups participated in these events, but they reported marginal results, because of the lack of opportunities for matchmaking or forming enduring relationships with potential investors. On the other hand, given that our data stem from “the eye of the beholder,” i.e., business start-ups, it could very well be that potential investors would have a different story to tell, such as considering very few of the participating ventures to be worthy candidates for high-risk investments.

Taken together, the incubator and its extended network contributed business development programs to the start-ups and provided important information, contacts, and networks on legal aspects and funding opportunities, among other benefits. In line with the inter-tenant network resources, these advisory and strategic network resources can be labelled generic in nature.

Synthesis of the findings

The incubator firms mainly relied on “private” external networks beyond the incubator to acquire critical resources. These were identity-based and path-dependent networks established prior to incubation or more recent calculative networks that they had actively sought. Hence, the incubator firms took responsibility for acquiring networks and did not rely solely on the incubator for critical network resources. This implies that the incubator management, and the internal networks between incubator firms and the incubator’s extended network, to a modest extent provided the firms with critical (idiosyncratic) external network resources but instead provided the start-ups with strategic and advisory network resources that are more generic in nature. Hence, the research findings show that practically all tenants had abundant external “private” network resources that can be described as idiosyncratic (non-generic) in nature. All of the tenants had their own story to tell about the development of these network resources, both before and after incubation. These external network resources were most critical for start-ups in all phases of the enterprise development through their provision of R&D knowledge, access to monetary funding, and market access.

Internal inter-tenant networking in the form of sharing the entrepreneurial experience with other incubator firms was also important, but it was more strongly related to the similar phases that start-ups undergo as they evolve. It also served a social purpose, such as satisfying the need to belong to a wider community. We therefore describe these internal network resources as generic, because they satisfy the more common needs of the firms. In contrast, external “private” network resources can be described as idiosyncratic because they satisfy specific needs of an individual firm and are not easily transferable across firm boundaries (Gibbert 2006 ; Aarstad 2014 ). As noted above, the exceptions to these trends were the two incubated software firms that are now in the process of leveraging a spinoff; however, we were unable to identify similar patterns for the eight other firms.

We summarize our major empirical findings in Table  1 . The “internal” inter-tenant incubator network and the external network accessed through the incubator management provide limited idiosyncratic resources but fairly abundant generic resources. Most tenants have fairly abundant idiosyncratic external “private” network resources, but they report that they are in need of generic network resources. In other words, incubation has played a crucial role in allowing at least some of the firms to gain access to generic network resources, enabling them to learn about financial opportunities, legal issues, and so on. The tenants have gained this knowledge through inter-tenant networking and through professional assistance provided by the incubator management. However, in terms of idiosyncratic network resources, the incubator seemed to play a limited role for most firms. In other words, there appear to be few synergy effects in terms of genuine spill-over effects and technological transfer between the firms. In general, tenants report that this results from firm heterogeneity and to a lesser degree from secrecy.

As described above, the majority of networks that ensured critical resources in the different phases of the life cycle of start-ups were external “private” networks that were not related to the incubator milieu. In addition, the start-ups actively sought new network resources (calculative networks) and used their own (path-dependent and identity-based) networks acquired before incubation. The entrepreneurs only to a limited degree relied on the incubator and its extended network to acquire the critical network resources. Several factors may explain these findings.

One possible reason is that the venture idea typically had its origins in previous work or R&D experience before the firms entered the incubator. The majority of the start-ups had extensive networks to draw on when establishing the venture, and searched their preexisting, path-dependent networks, which led to a path-dependent form of evolution that according to Hite and Hesterly ( 2001 ) is quite common for entrepreneurs. At the early stage of establishing an entrepreneurial team, the start-ups mainly drew upon identity-based networks, such as fellow students, researchers, or job colleagues. In the technology development phase, the firms relied on a mix of networks, both identity-based and more calculative and intentionally managed networks. During the late technology development phase, they needed other resources that were not available in previous networks, and they proactively and calculatedly searched for pilot customers and investors. Hence, the start-ups were able to shift to more calculative networks and to balance identity-based and calculative networks, in the manner emphasized by Hite and Hesterly ( 2001 ). Other studies of incubators and networking (e.g., Sá and Lee 2012 ) support our findings, noting that the start-ups “claimed that most of their strategic relations were established before locating at MaRS [the incubator] or through their own effort” (p. 248).

Thus, our findings show that start-ups mainly relied on external “private” networks to access critical resources. It may be evident that an incubator milieu would not provide financial and market resources, because such actors (investors and customers) do not normally reside in incubators. On the other hand, we would expect that the incubator milieu could foster knowledge, innovation, and technology networks. Some of the tenants had in fact used other tenants to assist them in specific development tasks, but these contributions were not perceived as critical for the firms. Except for the case that contributed to an incubator spinoff (noted above), tenants did not engage in extensive knowledge, innovation, and technology-related networking with other tenants.

Even though some start-ups had certain commonalities with respect to technology or market segments, they were nevertheless highly specialized. Tenants therefore experienced difficulties in finding potential collaboration partners within the incubator. Thus, because the firms were heterogeneous and highly specialized, it was difficult for the incubator management to facilitate relevant internal networks. Hence, the firms needed a larger pool of firms and contacts (beyond the incubator) to search for relevant networks and network resources. Consistent with our findings, Sá and Lee ( 2012 ) concluded that start-ups’ networking strategies were only to some extent fostered by networks promoted by an incubator. Tötterman and Sten ( 2005 ) found that an excessively diverse company mix among the tenants limited potential synergies and hence reduced collaboration opportunities. They further concluded that relationships among incubator tenants were not as sophisticated as previous research has suggested: “it seems to be relatively rare that an incubator network is able to systematically provide tenants with resources that would otherwise be unreachable for them” (p. 503).

Rivalry and secrecy among the tenants were other explanations for the scarcity of networking among the start-ups in our study. Tenants differed somewhat with respect to sharing knowledge and network resources. Some tenants were open and willing to share and collaborate with other tenants, while others were reluctant. Some incubator firms feared that engaging in collaboration in fundamental technology and other firm assets would reveal essential business secrets and put the competitive advantage of the firm at risk. With respect to their own networks related to parties such as customers and investors, some emphasized the rivalry dimension and the risk of losing out in competition with others. Previous studies on incubators also refer to these issues. Sá and Lee ( 2012 ) observed conflicts around collaborative aspirations among tenants and obligations to protect their intellectual property. Furthermore, the tenants they studied were concerned about competition because there were overlapping business interests and limited resources, partners, and clients. This is especially the case for shared investor resources, which are considered to be scarce in Bergen. Cooper et al. ( 2012 ) found that a lack of trust among tenants and the fear that information would not be treated confidentially were a barrier to collaboration and a sharing culture. Oakey ( 2007 ) noted that entrepreneurs were reluctant to discuss their new product ideas with other entrepreneurs for fear that their intellectual property would be copied.

A final explanation for the limited extent of inter-tenant information sharing reported in our study was the lack of knowledge about other tenants. Without the necessary knowledge, it was difficult to identify potential synergies and areas for collaboration. All incubator firms had some contact with other tenants, but they lacked the comprehensive and detailed knowledge about the other firms required to exploit this potential fully. The entrepreneurs recognized that internal networking could be strengthened within the incubator. More informal contact, common seminars where tenants present their projects, and a more developed “sharing” culture could remedy this. The above findings have also been identified in previous research (e.g., Cooper et al. 2012 ; Tötterman and Sten 2005 ).

Conclusions

Recently, an increasing number of studies have shown how business incubation can provide start-ups with network resources. Our study adds to this literature in that we have compared incubator-provided network resources, inter-tenant networking, and the tenants’ “private” path-dependent trajectory of external network resources that are not related to the incubator milieu. To our knowledge, this is the first study intended to distinguish and systematize incubator firms’ network resources according to these dimensions. Therefore, our research builds on prior studies, yet contributes to and advances scholarly research by providing a nuanced picture of network opportunities provided by incubators, and by distinguishing the types and nature of different network resources that reside within and beyond the incubator.

Overall, our data indicate that incubation can provide generic network resources but to a lesser extent offers idiosyncratic (non-generic) network resources. It can therefore be argued that incubator-provided networks can complement, but not substitute, tenants’ external “private” networks, which appear to be crucial for access to idiosyncratic resources.

In addition to contributing to the scholarly literature, we argue that our study also has implications for policy makers and incubator managers. First and foremost, incubation in itself appears to be no “quick fix” for tenants to ensure the necessary network resources to develop and grow; nor does it appear that an incubator can serve solely as a catalyst for the provision of critical network resources. Notwithstanding these limitations, an incubator definitely plays a crucial role in that it can provide necessary assistance in terms of generic network resources. Some of the tenants also report that social events can spur inspiration, acquaintance, and a sense of “belonging” (“we are in this together”) in pursuit of leveraging their venture. In particular, it appears that physical proximity propels social acquaintances, which is also in line with studies cited above (Bøllingtoft 2012 ; Cooper et al. 2012 ).

Furthermore, it is interesting to learn that incubator network resources tend to have traits similar to those of identity-based network resources because they are not mainly governed by economic interests, but at the same time, they are not path-dependent. Inter-tenant network resources, therefore, can have a mix of nonbinding weak-ties (Granovetter 1973 ) properties that also provide non-redundant information from different perspectives (Burt 1992 ). These are topics for further investigation in future incubation research.

Future research should finally aim to gain further knowledge about our observation that entrepreneurs emerging from so-called “start-up communities” were able to share idiosyncratic resources, enabling the establishment of a spinoff. We need to know if these findings can be generalized beyond the two cases studied here. This may have implications on recruitment policy and the management of business incubators. To our knowledge, comparisons of different entrepreneurial styles have not been carried out with reference to incubation research.

Data were gathered from only a limited number of firms residing in one incubator. Thus, future researchers should aim to gather data from a larger pool of start-ups residing in a variety of incubators. Data were furthermore gathered retrospectively. Longitudinal studies are therefore warranted in future studies, in which the candidate firms are followed through the pre-founding and pre-incubation stages, the incubation stage, and preferably into the post-incubation stages. Comparative studies should also be conducted in which the networking patterns of incubated start-ups are compared longitudinally with non-incubated start-ups.

Research context

Our empirical data stem from archival information and semi-structured interviews with entrepreneurial tenants at a not-for-profit and publicly funded technology incubator in Bergen, Norway. Criteria for acceptance as tenants are that the start-ups in some way are knowledge-intensive and show potential for growth. Occupancy in the incubator is normally limited to 3 years. The incubator provides the tenants with business counseling that strengthens start-ups and helps them focus on the commercialization and market orientation of the venture. Furthermore, the incubator management organizes seminars on relevant topics, such as how to prepare for investors, choice of intellectual property rights strategy, selling, and contracting. The incubator also offers a social and professional environment with other start-ups, office space (“below market” rent), other relevant infrastructure (e.g., Internet), and access to the incubator’s extended network. In addition to the general manager, the incubator has two business developers who work part-time, one communication manager (part-time), and one student on internship (part-time).

The incubator collaborates closely with an extended network of organizations supporting and fostering innovation. A number of these organizations are localized in close proximity to the incubator. One of them is a technology transfer office, which is responsible for organizing intensive innovation programs to entrepreneurs to strengthen the commercial focus of the start-ups. One organization connects entrepreneurs with potential investors during specific events. A third provider of external network resources is a seed capital fund that invests in Norwegian technology start-ups at an early stage of their enterprise development. The incubator also collaborates with a wider regional network of organizations and networks supporting innovation, other regional incubators, and regional industry clusters.

Our data methodology can be described as an embedded case study (Yin 2003 ) that explores issues occurring in a realistic context and is designed to combine an inductive and deductive approach (Eisenhardt 1989 ). Before conducting interviews with tenants, we conducted a semi-structured interview with the incubator manager to gain an overview of the incubator and the facilities it provides. We also searched publicly available information about the tenants’ financial status and their own presentations on their Internet home pages.

We developed an interview guide in which the questions were grounded in relevant research on entrepreneurs and networks (Hite and Hesterly 2001 ; Lechner and Dowling 2003 ; Lechner et al. 2006 ). Ten interviews with incubator firms were used in the data analyses for this study. At the time of data collection, which took place during early 2013, the incubator had 14 tenants. Two tenants were in “post-incubation” and not relevant to our study. Thus, we have interview data from 10 of 12 relevant incubator firms. Each interview lasted for approximately 1.5 h. The interviews were recorded and subsequently transcribed. During the interviews, our specific intent was to scrutinize the tenants’ perceptions of network resources leveraged or facilitated by the incubator, as opposed to the path-dependent trajectory of their own “private” network resources.

The data were analyzed with reference to Miles et al. ( 2014 ). The analysis began with descriptive coding, process coding, and evaluation coding. We also applied deductive coding based on the initial theoretical framework of the research and inductive coding as the analysis and interpretation of data emerged. Subsequently, we analyzed pattern codes, that is, searching for categories and themes. We also explored eventual causal relationships and explanations in the data and investigated the relationships between individuals and firms. Three of the researchers conducted the interviews, and all researchers contributed to the analyses and interpretation of the data. This research collaboration developed inter-subjectivity and strengthened the validity and reliability of the research and hence reduced potential personal bias and “going native” biases (Miles et al. 2014 ).

Description of the interviewed tenants

The majority of the tenants are knowledge- and technology-intensive firms, developing or producing hardware (e.g., oil and chemical spill recovery systems) or software products (e.g., mobile applications or web-based tools). Four firms target the offshore oil and gas sector, which is important in the region. Other firms are anchored in the regional media cluster or position themselves in relation to other service industries (see Table  2 ).

Three of the firms that target the offshore oil and gas sector deploy research-based technology, and they have relied on research collaboration and research funding to develop it. The founders have acquired research networks through their master’s or PhD studies, but they also have close connections to the industry and potential customers. Five firms are in fields in which the founders have previous experience, while two sprung out of the founders’ participation in and relations with what can be labelled a “start-up community” of young entrepreneurs. Five of the incubator firms have relatively young founders, of which four have founders with limited relevant work experience. Most of the other founders have extensive work experience, either in the region or internationally. The start-ups have limited or no prior entrepreneurial experience. Most start-ups consist of entrepreneurial teams of between two and five employees.

All firms are in an early phase of their life cycle. In terms of a stage approach to the evolution of firms (Lewis and Churchill 1983 ), six of the firms can be classified as being in the emergence phase, where they experience a high degree of uncertainty regarding resources, routines, and product development. Four of the firms are in the early growth phase, where they require both more extensive and a wider range of resources than was first needed, such as technological development resources, pilot customers, investors, and financial funding. We address the issue of network orientation below.

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Pettersen, I.B., Aarstad, J., Høvig, Ø.S. et al. Business incubation and the network resources of start-ups. J Innov Entrep 5 , 7 (2015). https://doi.org/10.1186/s13731-016-0038-8

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Business incubation process and firm performance: an empirical review

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Industrialization is central if any economy is to be successful and the policy attempts at industrialization involve creating systems and institutional arrangements that can help accelerate the process of industrialization. Business incubation is also a system and an institutional arrangement to help nations industrialize by developing the SME sector. This paper hopes to understand how the business incubation process influences firm performance. The methodology adopted is a comprehensive and extensive review of literature on the incubation phenomenon. The review found that firm performance is greatly enhanced when a firm avail itself to an incubation program. Revenue growth, employment or job creation, venture funding, networking and alliance building are the performance indices most impacted by the business incubation process. The paper recommends that prospective candidates for incubation should develop their market, management and financial plans to increase their chance of being selected as tenants. Also, firms are encouraged to access the value-addition services of incubation as this greatly increases their chances of firm survival, revenue growth, employment and job creation, financial resources and networking and alliance building. Furthermore, tenants should not overstay their tenancy in an incubation program as doing so reduces their chances of survival upon graduation.

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Introduction

New venture creation and indeed established ventures operate with the intent of being successful but failure is ever present due to the environment ventures operate in. Evolutionary theorists argue “that the forces of selection that eliminate uncompetitive firms are a necessary phenomena that contributes to the maintenance of healthy populations of organizations” (Aldrich, 1999 ). However, the forces of selection alone cannot be allowed to determine the number of organizations operating in an economy. This has therefore, given rise to attempts at reducing the likelihood of venture failures requiring not only the development of a favorable business environment and climate, but also establishing strong institutions that will assist businesses reduce the likelihood of failure. To help venture survival, governments have developed a unique institutional arrangement called business incubation designed to help business survive and grow in the contemporary competitive environment (European Commission, 2002 ).

The success story of the business incubation process on firm performance has been established. Incubators as cost-effective instrument of entrepreneurial promotion (EC, 2002 ) have impacted positively on firm survival, turnover, employment and job creation (Weinberg et al. 1991 ; Mian & Suny, 1996 ; Headd, 2003 ; Al-Mubaraki & Busler, 2011 ; Voisey et al. 2013 ; Sehitoglu & Ozdemir, 2013 ) with the success of the incubation program dependent on its practices (Lewis et al. 2011 ). However, studies conducted by Schwartz ( 2012 ) and Amezcua ( 2010 ) have reported that incubation has not contributed significantly to the survival, employment and sales growth of incubated firms notwithstanding the time spent in the program. The conflict arising from these findings form the basis for this empirical review.

A review of empirical works focusing on the impact of business incubation process on firm performance is the focus of this paper. The goal is to establish the efficacy of this question: how does the business incubation process influence firm performance? What specific business performance indices are most influenced by the incubation process? Indeed, is entrepreneurial venture creation and promotion facilitated by the incubation framework? These are the questions that this review hopes to answer. This will contribute to our understanding of the incubation phenomenon and its likely impact on firm performance. The benefits of this review would benefit university and research scholars, business incubator managers, policy makers and government and indeed businesses among others on the importance of incubation in contributing to firm performance. Generally, the results and recommendations would contribute towards our understanding of the business incubation process and how it impacts firm performance.

To achieve this objective, the paper is divided into three major parts. Part one focus on the literature review covering the concepts of business incubation, business incubators, business incubation process and firm performance. Part two focuses on the methodology of the study with part three focusing on the empirical review of the related works based on the objectives of the study. Lastly, the paper provides the conclusion and recommendation.

Literature review

Literature review would attempt an understanding of the basic concepts underlying the business incubation phenomenon. This section therefore, attempts to elucidate on the concepts of business incubation, business incubators, business incubation process and firm performance. The objective is to highlight and illuminate the concepts relevant to our understanding of the incubation phenomenon. The review gives us the opportunity to understand what the incubation phenomenon is, who or what an incubator is and most importantly, what the incubation process is.

The Campbell et al. ( 1985 ), Smilor ( 1987 ) and Hackett and Dilts ( 2004a ) models of the incubation process provide a comprehensive perspective of what the incubation process is. The Campbell, Kendrick and Samuelson model is the first attempt at modeling the incubation process with Smilor extending the model by incorporating a network dimension to the model. Hackett and Dilts model gains input from the real options theory in explaining the incubation phenomenon. However, the success of any incubation program is dependent on the practices adopted by such an incubation program. Incubators size, age and local environment have an influence on its success. However, incubator’s best practice is perhaps the most important determinant of its success. Such understanding and exposition therefore, informs the decision to include same in this section.

Concept of business incubation and incubators

Business incubation is a unique institutional arrangement that is primarily concerned with developing entrepreneurial culture in a community. However, the onus remains on the entrepreneur to make the business survive, as they are prone to be affected by what Levakova ( 2012 ) calls the ‘incubator syndrome’. To Brooks ( 1988 ), the whole concept of incubation is attitudinal in that incubation fosters a community attitude of encouraging and supporting emerging firms to be successful with its success dependent on three fundamental factors: “an entrepreneurial and learning environment, ready access to monitors and investors, visibility in the marketplace” (European Commission, 2002 ). Levakova ( 2012 ).

The concept of business incubation is founded on the premise of increasing the survival and growth of firms by developing mechanisms that will ensure the early identification of those firms that have great potentials for success but are constrained by resources. The concept ensures that firms overcome what is called the liability of newness and the liability of smallness thereby creating innovative firms that are competitive, profitable and sustainable (Salvador & Rolfo, 2011 ). The incubation phenomenon is therefore, considered an enabling technology “that capacitate the functionality of critical and possibly strategic technologies” (Hackett & Dilts, 2004c ). Generally, the incubation concept aims at achieving some fundamental objectives which include to create new jobs and businesses, foster a climate of entrepreneurship, commercialize technology, diversify, revitalize and accelerate growth of industry and local economies, reduce company mortality rate, reduce unemployment, increase university-incubation interaction and foster technology development (Bizzotto, 2003 ; Mutambi et al. 2010 ; Al-Mubaraki & Busler, 2011 ).

The objective of business incubation is achieved through business incubators. Incubators are major actors in the entrepreneurial ecosystem by linking talent, technology, capital and know-how (Todorovic & Moenter, 2010 ; Bejarano, 2012 ; Levakova, 2012 ; Al-Mubaraki et al. 2013 ). However, definitional challenges exist on what constitute business incubators or business incubation (Bergek & Norrman, 2008 ). Sources of this definitional challenge arise from the confusion of virtual incubators with traditional incubators that provide in-house tenancy, the inability to properly define the incubation process or define it but fail to identify with whom the incubation process occurs and the use of the terms such as science parks, technology centers etc. interchangeably (Bergek & Norrman, 2008 ; Hackett and Dilts, 2004a ).

The general idea of what research scholars see as business incubators is that they are institutions concerned with speeding up the growth, financial and operational stability of entrepreneurial start-ups by offering them targeted services and support (EC, 2002 ; Bergek & Norrman, 2008 ; Mendoza, 2009 ; Levakova, 2012 ; Moreira et al. 2012 ; Masutha & Rogerson, 2014 ) with a strong emphasis on knowledge agglomeration, resource sharing, innovativeness and competitiveness by creating an environment which help start-ups deal with the challenges of entrepreneurial pursuit (Phan et al. 2005 ; Akcomak, 2009 ).

Bringing a network dimension to the concept, Weinberg ( 1991 ) views incubators as inter-organizational or social partnership organizations that are concerned with addressing “socially-relevant” purposes by harnessing the strength from diverse organizations. Mian ( 1996 ) and Bollingtoft and Ulhoi ( 2005 ) championed the concept of a network incubator “based on territorial synergy, physical proximity, relational symbiosis and economies of scale” with the overall aim of leveraging entrepreneurial initiative and know-how in creating and operating successful companies. In their contribution, Bergek and Norrman ( 2008 ) observe that research scholars disagree on whether a business incubator is an organization or a general term likened to an entrepreneurial support environment. To scholars such as Brooks ( 1988 ), Weinberg et al., ( 1991 ), Lalkaka ( 2001 ), and Phan et al. ( 2005 ), incubators are registered organizations that provide affordable office space, offering targeted support services with the sole purpose of nurturing small fledgling firms into healthy businesses.

Concept of business incubation process

Business incubation program, as a tool for promoting innovation and economic development (Bergek & Norrman, 2008 ; Al-Mubaraki & Busler, 2011 ), is designed to be capable of adding value to incubated companies with the intent of increasing the survival rates of such incubated companies (Bizzotto, 2003 ; Moreira et al. 2012 ). The value adding activities are generally regarded as the business incubation process with several models developed to explain the phenomenon. Bergek and Norrman ( 2008 ) cautions on the limited scope to which most of the incubation models are conceived as focusing primarily on results neglecting the interrelationship of the value added activities to other incubator activities.

Earlier researchers of the incubation phenomenon such as Campbell et al. ( 1985 ) are acknowledged as the first to develop a business incubation process model. The Campbell, Kendrick and Samuelson model has four basic ‘services’ or value addition activities, foci areas where incubators contribute to firm performance. The value addition activities starts with diagnosis of needs, which is applied to prospective incubatee’s new business proposals. When the diagnosis is successful, the successful companies selected for incubation (called incubator tenants) are monitored. The incubator tenants also enjoy additional value addition activities by way of capital investment and access to expert networks with the prospect of venture capital. The tenants then graduate from the incubation program as successful growth ventures or businesses. Hackett and Dilts ( 2004b ), Moreira et al. ( 2012 ) in critiquing the model observes that the model is developed with the fundamental assumption that all incubated companies will survive. The Campbell model is further limited to private incubators only with it not considering the capabilities of the potential entrepreneurs, environmental barriers and a lack of a selection criterion in the selection of potential incubatees.

Smilor ( 1987 ) extended the Campbell model with an emphasis on the external environment (incubator affiliation and support systems) to the neglect of the internal processes occurring inside the incubator. He conceptualizes the incubator as a system that confers ‘structure’ and ‘credibility’ on incubatees while controlling a set of assistive resources. The incubator operates a network of support ‘services’ or value-addition activities with affiliation to the private sector, universities, government and non-profit. The incubator has internal support ‘services’ or value-addition activities in four basic ways: secretarial, administrative, business expertise and facilities. Both the external and internal support systems are designed to achieve the following objectives: economic development, technology diversification, job creation, profits, viable companies and successful products.

A model of business incubation process as developed by Hackett and Dilts ( 2004a ) is based on the concept of ‘black-box’. The process is primarily concerned with what happens inside the incubator (its internal dynamism) with a link to its environment. The Hackett and Dilts model conceives business incubation as the selection of incubatees from pool munificence of prospective candidates who ‘enter’ into the black box of incubation. The incubatees undergo value addition activities in three ways: selection performance (which is also an aspect of selecting prospective incubatees), monitoring and business assistance intensity and resource munificence. The incubatees are then outputted from the ‘black-box’ of incubation as graduated companies having an outcome that is either success or failure. The Hackett and Dilts model has control variables of population size, state of the economy, incubator size, and incubator level of development. In summary, their business incubation process model comprises three fundamental activities: selecting weak but promising firms to be admitted to the incubation program, monitoring and assisting those that would be successful and lastly providing the requisite resources to help them develop and graduate from the incubation program as financially viable and freestanding firms.

To them selection performance refers to the degree to which the incubator behaves like an ‘ideal type’ venture capitalist when selecting emerging organizations for admission to the incubator. The selection from the pool munificence of candidate companies is done taking into consideration four characteristics: managerial characteristics, market characteristics, product characteristics and financial characteristics. It means candidate companies need to be evaluated in the light of these characteristics. Monitoring and business assistance intensity is also another value-addition activity or service offered by an incubator. As defined by Hackett and Dilts, monitoring and business assistance intensity is the degree to which the incubator observes and helps incubatees with the development of their ventures including helping them to learn from low-cost failures and containing the cost of potential failure. This is achieved through time intensity of assistance provided, comprehensiveness of the assistance provided and the quality of assistance provided. The last value addition services of the Hackett and Dilts model is what they call resource munificence which they define as the relative abundance of incubator resources, measured by the following: resource availability, resource equality and resource utilization.

Hackett and Dilts define the outcome of the incubation process as five mutually exclusive outcome states “measured in terms of incubatee growth and financial performance at the time of incubatee exit.” The outcome states are: the incubatee is surviving and growing profitably, the incubatee is surviving and growing and is on a path toward profitability, the incubatee is surviving but is not growing and is not profitable or is only marginally profitable, incubatee operations were terminated while still in the incubator but losses were minimized and incubatee operations were terminated while still in the incubator and the losses were large.

Concept of firm performance

The concept of firm performance and its measurement has bases in the fields of economics, management and accounting (Tangen, 2004 ). The simple objective of performance measurement is to ascertain how well an organization is functioning and is being managed given a set of criteria and standards. A broader view of the concept ensures that the interest of the organization’s publics is considered with effectiveness and efficiency being the two fundamental dimensions of performance (Moullin, 2003 ; Khan et al. 2011 ).

Neely, Gregory and Platts ( 2005 ) define a performance measurement system as the process of quantifying the effectiveness and efficiency of an organization. To Khan et al. ( 2011 ), performance measurement is the process of assigning “value to objects or events in such a way as to represent quantities, qualities or categories of an attribute.” The quantification of the performance of organizations has been based traditionally on financial criteria with dimensions such as annual sales, annual profit, number of clients, and growth among others. However, supporters of the multiple-objective school argue that performance measurements should incorporate the different stakeholders of an organization – a systemic perspective (Malina & Selto, 2004 ; Wu, 2009 ). Kennerley and Neely ( 2003 ) therefore, submit “that financial performance measures are historical in nature, provide little indication of future performance, encourage short termism, are internal rather than externally focused with little regard for competitors and customers.” Contemporary performance measurement systems have therefore, being expanded to include both financial and non-financial criteria (Laitinen & Chong, 2006 ) making it multidimensional in nature.

Performance measurement in incubation literature is also multidimensional. There is no acceptable performance measure in incubation literature (Phan et al. 2005 ) leading to incubator researchers using different performance measures. Furthermore, the definitional challenge of what incubators are has also contributed to compounding the problem of identifying a single acceptable measure of performance in incubation literature. From review of business incubation literature, the following performance indices are used: revenues, finance, venture capital funds, graduation from incubation program, firm survival, networking activity, innovative firms, organizational or firm growth, job creation, sales growth, profitability, patents registered, number of patents application, alliance, technology transfer, employment growth, technology growth or development, research and development productivity, ability to share knowledge and technology and high-tech employment.

Summary of literature review

Business incubation is a policy tool that facilitates entrepreneurial development by creatively initiating and implementing programs that focus on providing targeted resources and services. These services, which are designed to add value to entrepreneurial ventures, are structured to provide targeted and specific benefits for the incubated businesses. The Campbell, Kendrick and Samuelson, Smilor and Hackett and Dilts models of value addition activities by incubators focus on providing targeted services to firms that are selected from a pool of prospective firms. Selection is an important element of the incubation process, which is an activity distinct to incubators and this activity is present in the three models discussed in this review. The Campbell, Kendrick and Samuelson and Hackett and Dilts model focus on internal network of support provided for the selected firms for incubation while the Smilor model focus more on the external network of support from government, universities, non-profit and the private sector. In all of the models, the business incubation support infrastructure is in the form of resources, expert networks, business, secretarial, and administrative support and capital investment.

Earlier research studies on the incubation phenomenon are generally classified as incubator development studies, incubation configuration studies, incubatee development studies, incubator-incubation impact studies and studies that theorize about incubators-incubation (Hackett & Dilts, 2004a ). However, the focus of this review addresses the following questions: does the value addition activities by business incubators have any impact on the firm performance? In other words, does business incubation process have any influence on the performance of the incubated or graduated firms? In what specific ways does the performance of the incubatees or graduated firms impacted? What performance measure is most impacted by the business incubation process? These are the questions this review hopes to achieve.

Study methodology

The methodology adopted for this review was based primarily on review of articles related to the business incubation process and firm performance. The choice of the articles reviewed and included in this paper especially under the empirical review section was dependent on whether the article is empirical in nature. Non-empirical articles were used for the literature review section while empirical articles were used for the empirical review section. The inclusion of only empirical articles in the empirical review section is to highlight the major findings reported by the studies, which will help in achieving the study’s objective of assessing the influence of the business incubation process on firm performance. Furthermore, the time frame covered the period of 1999 to 2012. Only one article was selected in the period before 2000. Nine articles were selected within the period 2000 to 2009 and seven covering 2010 to 2012. Therefore, 41% of the articles selected covered 2010 – 2012 and 53% covered 2000 – 2009. The selection of the papers was therefore, reasonably spread over the period under study.

The selected articles proxied business incubation process as selection of prospective incubatees, monitoring of the firms selected for incubation, provision of business assistance, professional management services and capital/finance to the tenants, and access to incubator internal and external expert networks while firm performance is proxied by firm growth, firm survival/failure, employment/job creation, research and development productivity, research and development expenditure, revenue/sales growth, patents, venture funding and networking/alliance capability. The choice of the inclusion of the empirical studies is therefore, based on the business incubation process and firm performance indices as defined above.

An Internet search of the keywords business incubation, business incubator, technology business incubator, university incubator, network incubator, virtual incubator and firm or new venture performance provided the articles used for this review. The online database used for the Internet search included Google Scholar, EBSCO HOST, Science Direct, Springer Link, Wiley, JSTOR, Emerald, GALE, Pro-quest e-Library and ICAST Gateway. These databases produced journal articles, conference papers, working papers and academic theses, with the selection of an article dependent on the appropriateness of such a article to the objectives of this review. In other words, an article inclusion is dependent on whether it fits the overall objective of the review.

The search returned thirty-one (31) studies on the business incubation process and firm performance with only about twenty-two (22) including some aspects of the variables defined in this study that can satisfy the stated objectives. Nine (9) out of the thirty-one (31) were rejected due to the fact that their variable definition and objectives was in contrast to the objectives and variable definition of this study. Out of the twenty-two (22), five (5) had similar research design with this study but could not be accessed and hence excluded. Its exclusion has not affected the research conclusions. Therefore, a total of fourteen (14) articles were rejected with only seventeen (17) studies used. Out of the seventeen studies, thirteen (13) are journal articles, two (2) each for thesis and discussion papers. The seventeen (17) studies were included because they had similar research design and variable definition with this study and were considered relevant in achieving the stated objectives of this review.

Empirical review of related works

This section summarizes empirical works carried out on the incubation phenomenon with an emphasis on empirical studies that focus on the business incubation process. About seventeen studies have been listed as assessing the impact of the business incubation process on firm performance. The stakeholder’s theory explains that different stakeholders desire to achieve their objectives by identifying with a particular organization and given the numerous stakeholders that a firm deals with, such a firm is expected to at least strive to satisfy the aspirations of its stakeholders. Since the majority of incubators are publicly funded, the stakeholder’s theory is relevant in justifying the diverse incubation outcomes or the firm performance measurement indices employed in incubation impact studies. A tabular presentation best captures the major highlights of the empirical studies reviewed and included in this paper. The Table 1 in Appendix below therefore, summarizes the studies reviewed. It covers the author of the study and the medium through which the research was published, the research question or objectives, methodology employed and variable definition, sample size definition and finally the major findings.

Summary of empirical review

The empirical review focuses on entrepreneurial support mechanisms that are called business incubators. The common denominator for the reviewed works indicates a significant impact of the incubation phenomenon on business performance with the impact showing either a positive or negative relationship. Firm survival/failure, sales/revenue growth, employment/job creation, venture funding/capital and networking/alliance in that order are the most used business performance measures used in business incubation research. Other measures such as technology transfer, firm patents and R & D productivity are less used as measures of firm performance. It is also worthy of note to highlight that the incubation studies attempt to prove that firms participating in incubation programs outperform those that do not assess incubation services with models developed to determine the impact on firm performance with incubation process dimensions defined as selection practices of incubators, monitoring and provision of business assistance, professional services and resources/capital to tenants and exposing tenants to the incubator’s internal and external expert network resources.

The findings of this review shows that out of the seventeen (17) studies reviewed, only three (3) disputed that business incubation process does not contribute positively to improving tenants or graduated firm performance. An overwhelmingly fourteen (14) studies support the proposition lending credence to the argument that incubation creates an entrepreneurial spirit that supports businesses and promote new venture creation, impacting positively on economic growth and development. Specifically, findings from the review indicate that knowledge flows from external networks helps tenants to avoid failure and increases their access to networking resources, graduation from the incubation program and assessing funding. Also, the review shows that participating in an incubation program helps firm survival even after graduating from an incubation program with other benefits such as job creation, profitability and sales growth. Indeed, the evidence indicates strongly that participants in an incubation program outperform nonparticipants in terms of firm survival and sales growth.

In terms of business assistance and advisory, the evidence from the review shows that participants in an incubation program derive immense benefits in the areas of revenue and firm growth, patents application, obtaining finance or capital and establishing alliances. It is also important to point out that the time spent in an incubation program and indeed the age of the incubator also contributes to firm survival. A major theme in incubation literature is the screening of prospective firms and findings from the reviewed empirical studies conclusively show that incubators focus on three primary factors in carrying out screening activities: market, management team and financial factors in that order. However, focusing on only one of the factor is counterproductive implying that a business incubator needs to evaluate prospective incubatees using the factors together. In that way, the probability of survival is higher compared to when the factors are considered separately.

Contrary findings on the benefit of incubation indicate that firm survival is not improved neither is technology transfer, employment and venturing achieved when firms avail themselves to an incubation program. This evidence is not strong enough to vitiate the argument that business incubation encourages entrepreneurial spirit and significantly contribute to enhancing firm performance both within and without the incubation program. Therefore, following from the empirical review, it can be safely and convincingly submitted that business incubation process indeed contributes to improving the performance of firms right from the time they are domiciled within an incubator to when they successfully graduate from incubation as financially independent and viable entities. This is the contribution that this review adds to the literature on business incubation process and firm performance.

Conclusion and recommendation

In contemporary society today, business incubation is regarded as an important tool that has the capacity to support businesses to survive and grow. This paper has sufficiently addressed the fundamental questions raised in this review. Evidence shows that the incubation process improves firm performance. Arguing further, the review shows that the most impacted performance measures in incubation research in the order of importance is firm survival, revenue growth, employment or job creation, venture funding and networking and alliance building. Clearly, this review supports the efficacy of incubators as framework to enhance tenants or graduated firm performance, supporting the view that incubation is a tool that supports entrepreneurial promotion and new venture creation. Indeed, the evidence supports incubation as powerful instruments that must be encouraged and supported as an important component of the entrepreneurial ecosystem, as a framework for business support and the proliferation of new ventures.

To expand and promote incubation as a confirmed promoter of entrepreneurial promotion and SME proliferation, all tiers of government must be encouraged to promote the establishment of incubators and build their capacity to support emerging and new ventures. This recommendation derives from the fact that as confirmed promoters of entrepreneurship, the more capacity is built for incubators and the more support from government, the more equipped they will be able to contribute to entrepreneurship promotion. Indeed, emerging businesses with new ideas would greatly benefit if they participate in the incubation program as participation increases significantly their chances of survival, revenue growth and job creation.

Furthermore, this review encourages new and emerging businesses to avail themselves the business assistance, monitoring, expert networks, resource munificence and advisory services provided by incubators as these value addition activities have the potential of improving their ability to source for finance, improve patents application and the building of alliance. The study also recommends that incubator’s capacity to leverage knowledge flows from its expert external network should be deepened so that incubatees and prospective incubatees should benefit to increase their chances of survival. Also, the study recommends that tenants should not overstay their tenancy in an incubation program as doing so reduces their chances of survival upon graduation. Finally, prospective incubatees to increase their chances of acceptance in an incubation program should creatively focus on improving their market, management and financial proposals since incubators focus on these factors in the selection of businesses to be incubated.

Further research should be conducted to illuminate the blurry aspects reported by few scholars concerning firm participation in an incubation program which they claim does not contribute to firm survival. More comprehensive research studies in this dimension would be helpful. Empirical research would definitely throw more light in this direction. Furthermore, more studies in the area of technology incubators or university incubators not having a significant impact on the transfer of technology would also benefit incubation research.

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Acknowledgment

We wish to acknowledge the contribution made by Mr. Msoo Mee, Executive Director of the Benue Business Incubation Program, Benue State, Nigeria for his inputs during the development of this manuscript. His contribution is highly relevant given his practical experience with the incubation program and process in Nigeria. I also wish to acknowledge Dr. S. Kpelai of the College of Management Science, University of Agriculture for his insight during the development of this manuscript. Their contribution is highly appreciated.

This study is funded by the Federal University, Wukari, Nigeria.

Authors’ contribution

FAA modified the topic and structure of the work while NK read through the work with some modifications and inputs to the content of the work. IAS conceived the idea of the study and carried out the research and write-up of the work. All authors read and approved the final manuscript for submission to the Journal of Global Entrepreneurship Research.

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Ayatse, F.A., Kwahar, N. & Iyortsuun, A. Business incubation process and firm performance: an empirical review. J Glob Entrepr Res 7 , 2 (2017). https://doi.org/10.1186/s40497-016-0059-6

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JPMorgan Chase, TD draw AI talent through research labs

Outdoor shots of JPMorgan Chase and TD Bank Group buildings

JPMorgan Chase's artificial intelligence research team has published more than 400 papers, far more than any other large bank, according to research conducted by Evident. The group produced 45% of all AI research in banking last year. 

"Jamie Dimon went out and said, we're going to be an AI-first bank and we're going to actually be a tech company," said Alexandra Mousavizadeh, founder and CEO of Evident, in an interview. Recognizing that one of the things tech companies have is AI research labs, he hired Manuela Veloso, who had been a Carnegie Mellon University professor since 1992 and who is a "leading brain on AI," to run it.

There are two reasons why AI research labs are important, and why the number of banks doing AI research has jumped from 10 to 40 of the top 50 last year, according to Mousavizadeh. 

One is that doing research in-house helps companies develop artificial intelligence that works at scale, she said. The other is that banks with AI research labs can more easily attract top AI talent. 

AI research labs at JPMorgan Chase, TD Bank Group, RBC and other banks are not ivory towers. They work directly with business units to solve specific business problems and to bring their ideas into production. 

Banks that don't have these in-house groups have to rely on vendors and focus on vendor selection, due diligence and testing, Mousavizadeh said.

Building an AI lab

When Manuela Veloso joined JPMorgan Chase in 2018, it was something of a culture shock.

"It was a big change, after 30-plus years of being in academia," Veloso said. "But on the other hand, it's very exciting. I am a type of personality that loves complex problems and loves thinking about contributing to the success of the place where I am. I feel excited every day about solving more problems."

Of Veloso's team of 110 researchers, 75% have Ph.D.s in computer science, statistics, math or engineering; the rest have master's degrees. All are familiar with writing scientific publications and eager to share their work with the academic community and the rest of the world.

"Nobody asks them to write papers," Veloso said. "They basically have it in their blood like I do."

One recent paper studied how well large language models like GPT-4 can read and understand financial documents, compared to older models specifically tuned to these types of documents.

The papers do not mention JPMorgan Chase data; they use public data. 

"That's why we contribute so much to the advancement of AI in finance, because the research community can start understanding the problems that the finance industry faces, independently from the specifics," Veloso said.

TD Bank Group, which is headquartered in Toronto, acquired AI tech company Layer 6 in 2018 and it's become the bank's AI research lab. Last year, Layer 6 published 14 research papers that were presented at AI conferences. One recent paper on tabular data understanding and generation won an award at the 2023 Neural Information Processing Systems Conference. Layer 6 has also filed more than 60 patent applications. 

electronic health records with the University of Toronto and tech company Signal 1. The paper proposed a deep learning model that analyzes electronic health records to predict future events that could occur to a patient during a hospital stay, so doctors can optimize their care. 

"We're now exploring how this research could be applicable in a banking setting," said Maks Volkovs, senior vice president and chief AI scientist at Layer 6.

Bringing AI products to life

Such AI research teams work closely with other parts of their banks, their leaders say.

At TD, Layer 6 has created machine learning models that have improved predictive capabilities and introduced AI in every line of business, Volkovs said. The team has developed more than 67 AI use cases across the bank. 

"We are closely embedded with business teams and work together to create solutions that are focused on our colleagues and customers," Volkovs said. "Our researchers, who are also involved in applied work, actively participate in all stages from ideation and model development to deployment and ongoing monitoring."

Conformal Prediction Sets Improve Human Decision Making . The paper shows that humans can make more accurate decisions when they interact with machine learning models that provide predictions with high rates of estimated confidence (e.g., the model is 95% confident that a given image is of a book). 

"Our research was used to create a model that applies a similar approach that underwriters use in the residential mortgage pre-approval process," Volkovs said. "We use AI to provide a smooth pre-approval process for our customers and get them credit decisions in only a few minutes." 

At JPMorgan Chase, Veloso's group has monthly meetings with business leaders about the problems they need help solving.

"They don't ask us to do dashboards," Veloso said. In a recent meeting, Veloso's team heard that some salespeople had completed 30,000 client meetings. She offered to summarize and analyze those meetings. 

Veloso always hopes the business people will listen to her team and "have the wisdom and knowledge to decide when to change," she said. 

"That's the role of AI research – for them to be exposed to what can be done," Veloso said. "The more I show them things that they probably have not thought about before, the more success we bring to the firm. It's the level of 'aha,' the level of novelty that we may bring to their thinking." 

Getting models into production can take time, Veloso acknowledged. But for certain very practical projects, like using large language models to read enterprise documents, the process gets speeded up because it's something almost everyone in the bank can use.

"You can cut your time to production down a heck of a lot by having those research capabilities," Mousavizadeh said. "So you're much more nimble. All of the banks are looking at time to production right now because it affects how quickly you can ideate, how quickly you can get things into production."

Attracting tech and AI talent

When AI researchers, data scientists and developers are considering a job at a bank, they still want to be able to publish research, get cited in papers and present at AI conferences.

"It's super important for the banks that they have people [at conferences] because it's also a pipeline of talent," Mousavizadeh said. 

When Layer 6 joined TD, there were 15 people in the group. Today, there are 200 people in TD's AI and machine learning team. They've come from big tech companies, universities and other financial institutions.

A new model rates large banks on their efforts to develop and deploy artificial intelligence technology. 

JPMORGANCHASE-CITI-RBC

Team members have won top honors at a machine learning conference on recommender systems three times, making TD the only bank to have ever done this, Volkovs said. 

"These kinds of accomplishments help us build our brand globally and position us as a destination of choice for top talent," he said.

Mousavizadeh said she has seen an overall shift in banks' interest in AI research.

"You're suddenly seeing HSBC and BBVA leaning into this and doing more research, hiring more researchers, having it in house, being able to distribute it," she said. "It changes the mindset. They're also now able to hire that talent that they couldn't hire before. They're putting a stake in the ground: We're serious. Research is becoming essential." 

The same will soon be true of quantum computing, she predicts. 

An FDIC enforcement action against Lineage Bank is part of a wave of cases involving banks that have partnered with fintechs in recent years.

Tennessee welcome sign

After his aggressive cost-cutting raised profits above analysts' expectations, Block's CEO aims to retool several features of Square and Cash App to enable them to operate like a "social bank."

Jack Dorsey

The Department of Justice appoints Jonathan Mayer as its first chief AI officer, HTLF's CEO Bruce Lee plans to retire, Wilmington Trust's Doris Meister will step down in May, and more in the weekly banking news roundup.

A boat passes in front of the San Francisco skyline as seen from the Port of Oakland.

The USDA forecasted farm profits will plunge 26% this year, potentially creating credit quality challenges for lenders.

AB-FARM DATA-FLOURISH CHART -022124

The two companies in the largest bank merger since the 2008 financial crisis released details of their agreement. It leaves the door open for Discover to field better offers, though the payments company would pay a break-up fee of 4% if it accepts one.

Discover

In the wake of the largest U.S. bank deal in more than 15 years, industry executives offered mixed views about the prospects for more big acquisitions. They also spoke about the deal's impact on competition in the credit card business.

Capital One To Buy Discover For $35 Billion In Top 2024 Deal

IMAGES

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COMMENTS

  1. Developing business incubation process frameworks: A systematic literature review

    The first business incubator was established in New York in 1959 ( Lewis, 2001 ), and the concept of business incubation started spreading in the 1960s and 1970s ( Campbell et al., 1985Hackett and Dilts, 2004 ). However, the evolution of business incubation process did not accelerate until after the 1990s.

  2. Business incubators and accelerators: a co-citation analysis-based

    A long and rich research tradition exists on the phenomenon of business incubators since this kind of venture support institution first emerged. One can observe an increasing heterogeneity of incubation beyond the traditional mainstream focus on regional development and university-based incubators. In the last decade, in particular the phenomenon of accelerators as a particular form of ...

  3. Technology Business Incubation: A Literature Review and Gaps

    A business incubator is a business-support organization that aids in the development of new ventures and increases their chances of survival through the provision of various resources (tangible and intangible) and services, and finally facilitates their successful exit from the incubator.

  4. Challenges and opportunities of innovation and incubators as a tool for

    Several research studies on incubators have been defined. The Business and Innovation Center is a physical place aimed at economic development through supporting start-up companies and their business development as well as existing small and medium companies (InfoDev, 2009 ).

  5. Incubation matters: Measuring the effect of business incubators on the

    Research Paper. Incubation matters: Measuring the effect of business incubators on the innovation performance of start-ups. Silvia Rita Sedita, ... This article explores the role of business incubators on the innovation performance of start-ups; in addition, we also investigate how the incubation effect moderates other important factors driving ...

  6. A Systematic Review of Business Incubation Research

    This article systematically reviews the literature on business incubators and business incubation. Focusing on the primary research orientations—i.e. studies centering on incubator development, incubator configurations, incubatee development, incubator-incubation impacts, and theorizing about incubators-incubation—problems with extant research are analyzed and opportunities for future ...

  7. Business incubation and the network resources of start-ups

    The focus in this paper is to study whether business incubation can provide entrepreneurial start-ups with critical network resources. A business incubator is defined as a more or less formalized entity with an infrastructure intended to nurture incubated start-ups with critical resources in the pursuit of survival and growth (partly derived from Allen and Rahman 1985).

  8. Business incubators in Africa: a review of the literature

    This paper reviews research on business incubators in Africa, as a policy tool for supporting entrepreneurial businesses.

  9. Incubators, accelerators and urban economic development

    Bone J, Allen O, Haley C (2017) Business incubators and accelerators: The national picture. BEIS research paper 7, April. ... Gonzales-Uribe J, Haley C,et al. (2019) The impact of business accelerators and incubators in the UK. BEIS research paper 9, May. London: BEIS. Google Scholar. Boschma R (2005) Proximity and innovation: A critical ...

  10. A Systematic Review of Business Incubation Research

    A Systematic Review of Business Incubation Research Authors: Sean M. Hackett HACKETT LABS David Dilts Dilts+Partners, LLC Abstract and Figures This article systematically reviews the literature...

  11. Developing a Digital Business Incubator Model to Foster ...

    The roles and positive impacts of business incubators, including virtual ones, in promoting entrepreneurship and innovation in multiple industries, and their consequent contributions to fostering sustainable economic growth and social development, have been highly advocated in the extant literature. Nonetheless, several authors highlight the urgent need to further carry out research concerning ...

  12. (PDF) Business incubators and accelerators: a co-citation analysis

    Business incubation is a highly relevant topic for entrepreneurs and hence entrepreneurship research studies the phenomenon extensively since its very beginning. We observe an increasing...

  13. Business Incubators and Survival of Startups in Timesof COVID-19

    Regarding the dynamics with the business incubators during the COVID-19 pandemic, the results concerning negative experiences are consistent with the previous literature [35, 38] related to the...

  14. Hatching start-ups for sustainable growth: a bibliometric review on

    19 Citations 3 Altmetric Explore all metrics Abstract Business incubators hatch start-ups, helping them to survive their early stage and to create a solid foundation for sustainable growth by providing services and access to knowledge.

  15. Technology Business Incubation: A Literature Review and Gaps

    Abstract Technology business incubators are amongst the key stakeholders in the entrepreneurship and innovation ecosystem, and provide various resources (both tangible and intangible) and services for the development of high-tech start-ups.

  16. Business incubator research: a review and future directions

    The purpose of the paper is to analyze the scientific production concerning Business Incubators. For which, 50 business incubation articles published between 1985 and 2012 in the journals...

  17. A Systematic Review of Business Incubation Research

    The Purpose of this paper is to take stock of existing publications and identify the research gaps by systematically reviewing the literature on business incubators and business incubation. The Paper reviews a range of research publications on Business Incubation published during 1980-2012, sourced from EBSCO and PROQUEST databases, which ...

  18. Business Incubators Research Papers

    4,212 Followers Recent papers in Business Incubators Top Papers Most Cited Papers Most Downloaded Papers Newest Papers People Effective Social Incubation -First Insights from Asia Asia is facing simultaneously huge growth potential and increasing inequalities, with often weak national solutions to the social issues at hand.

  19. Business incubation process and firm performance: an ...

    This paper hopes to understand how the business incubation process influences firm performance. The methodology adopted is a comprehensive and extensive review of literature on the incubation phenomenon. ... Hackett, S. M., & Dilts, D. M. (2004a). A systematic review of business incubation research. Journal of Technology Transfer, 29, 55-82 ...

  20. (PDF) Corporate incubators as knowledge brokers between business units

    Findings: Corporate incubators differ significantly from business incubators. Based on an analysis of 45 academic papers, the main features of corporate incubators have been identified...

  21. JPMorgan Chase, TD draw AI talent through research labs

    JPMorgan Chase's AI research group has published 400 papers. TD Bank Group's AI group, Layer 6, published 14 in 2023. JPMorgan Chase's artificial intelligence research team has published more than 400 papers, far more than any other large bank, according to research conducted by Evident. The group ...

  22. (PDF) Can Business Incubators Impact the Start-Up ...

    The purpose of this research is to understand the role and impact Business Incubators (BI) Start-ups success. Can it create an effective alternative source of funding for Incumbent small and...

  23. AGRIBUSINESS INCUBATION: A PATH OF AGRICULTURAL STARTUPS

    Agribusiness Incubation provides of new opportunities for local customization of products, new employment, new technology, creating entrepreneurial talent and leadership that are required for...