Ireland Case Study 2002

Benchmarking of Business Incubators

Dublin Business Innovation Centre and Guinness Enterprise Centre, Dublin. 1. National Context: Governmental support of SME promotion and entrepreneurial development in Ireland is a relatively recent phenomenon, compared with other European countries. Government policy until the early 1990s was primarily focused on attracting Foreign Direct Investment (FDI); multinational blue chip companies such as Intel and IBM to Ireland. However, national policy vis-à-vis SME promotion has changed considerably over the past 10 years, as has the public perception, visibility and pervasiveness of entrepreneurship. There is a growing recognition of the need to support the development of indigenous industry in order to service the large number of high-tech multinational corporate inward investors that Ireland has succeeded in attracting. Business incubation is one of the important tools available to assist new business development and catalyse the value creation process. Consequently, incubation activity in Ireland is today considered as an essential economic development tool in both the local, regional and national contexts to promote early stage business creation, accelerate the entrepreneurial process, encourage SME innovation and create new jobs. There are five EC BICs (Business and Innovation Centres) in Ireland, most of which have business incubation facilities (Galway, Waterford, Limerick, Cork, Dublin). There are seven business incubation centres in Ireland. 2. Background and Regional Context: Central Dublin has a population of 500,000 with a further 1,000,000 living within commuting distance of Dublin. Until the mid-1990s, there was high unemployment in Ireland and the economy suffered considerably from the European economic downturn of the early 1990s. Over the past ten years, Ireland has successfully modernised, transformed and revitalised its economy, resulting in a period of unprecedented growth and development, particularly over the past five years. Thanks to a favourable fiscal climate (low corporate taxation and tax incentives to stimulate capital investment), the availability of a highly qualified and young workforce and the development of a major sectoral clustering of IT-related multinationals, Ireland’s economy is booming and it has become a major destination of Foreign Direct Investment. Ireland has developed sectoral strengths particularly in the IT industry (especially software-related and highly skilled IT outsourcing/ call centre operations) and the biotechnology sector. Governmental and EU-supported infrastructure initiatives together with ERDF and ESF Structural Fund interventions have also played an important part in

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Benchmarking of Business Incubators

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stimulating overall business activity. After a number of years of unprecedented growth in national GDP (average 7% / year), economic activity has slowed in pace, reflective of trends in the wider global economy. 3.1 Incubator Operations – Dublin BIC The Dublin Business Innovation Centre (Dublin BIC) was established in 1987 to assist in the creation and development of enterprise and innovation in the Dublin region. Dublin BIC is a not-for-profit organisation initially funded by the Irish Government's Operational Programme for Industry, by the EU and then the European Regional Development Fund and contributions (both cash and in-kind) from local private and public sector organisations. The private sector provided half the set-up costs of Dublin BIC whilst the European Commission provided the remainder. There has been a strong private sector ethos to the incubator and its operations since the inception of Dublin BIC. Dublin BIC’s key objectives, as set out in its mission statement, are to ‘increase the level of entrepreneurial activity and innovation within the region and improve the survival rates and growth prospects of new and existing small enterprises’. The BIC provides practical help and assistance to entrepreneurs involved in developing innovative activities. Over the 1994-99 period, Dublin BIC supported 218 new start-up companies, of which 177 are still trading, a survival rate of 81%. Since it began incubation operations in 1988, Dublin BIC has helped to create 1500 jobs with a further estimated 1800 jobs created indirectly. The BIC currently has £5m of funds under management spread across 3 seed capital funds. Dublin BIC manages the Dublin Enterprise & Technology Centre Ltd., t/a the Guinness Enterprise Centre. Dublin BIC is an active member of both EBN, the 150 strong EC BIC network and of the UK Business Incubation Association (UKBI). Dublin BIC is also a member of the Irish Venture Capital Association (IVCA) and the European Venture Capital Association (EVCA). The admissions procedure for Guinness Enterprise Centre involves a number of stages. The total number of enquiries through to the total number of enterprises actually assisted is rigorously monitored. Details of the stages are shown below. The performance indicators for Dublin BIC provided cover the years 1994-99. Dublin BIC – Key Data Category of Enquiry/ Support

1994 – 1999

Total Project Enquiries

4394

Initial project counselling, training etc.

4076

Preliminary Planning Support

2599

Benchmarking of Business Incubators

Business Planning Assistance Contractual Assistance

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1477 170

Dublin BIC – Services Dublin BIC offers its clients a comprehensive range of business support and consultancy services ranging from project evaluation, business plan guidance through to advice on business expansions. The public sector business support structure in Ireland is well resourced. Whilst Dublin BIC offers its clients a comprehensive portfolio of business support services, it is difficult for an incubator in Ireland to get new start-up firms with limited resources to pay the full cost of such advisory services, firstly because new startup companies by definition have limited resources and secondly because of the plethora of publicly funded organisations offering business support services in the Dublin area and throughout Ireland. However, there are a number of state-led initiatives such as the Feasibility Study grant, available from the Dublin City Enterprise Board, whereby companies pay a percentage of the cost of support services with the remainder of the financing being grant-based. This enables incubation management to recoup some of the costs of the provision of high quality business advisory services and other SME support activities. In terms of relationships with the Higher Education sector, the BIC has instigated a relationship with a number of HE institutions in Dublin including University College Dublin, Trinity College, Dublin City University and the Dublin Institute of Technology. A number of initiatives have been set up to promote entrepreneurship and innovation and encourage familiarity with the BIC concept on HE campuses in the Dublin area. 3.2 Incubator Operations – Guinness Enterprise Centre The Guinness Enterprise Centre (GEC) was inaugurated in January 2001. The Enterprise Centre is a £7.8m (€10 million) joint initiative between Guinness Ireland, the Guinness Workers Employment Fund, Dublin Corporation (public/ private sector org.), Enterprise Ireland, and Dublin City Enterprise Board. The incubation centre is set within a 64 acre site. It covers 60,000 sq feet and houses 77 units ranging in size from 10m² to 160m² for new and established small businesses. In terms of the sectoral make-up of incubator tenants, companies are primarily concentrated in the following industries: software services, small-scale manufacturing, light hi-tech engineering and international/technological traded services. Occupation rates are high given that GEC was only officially opened in January 2001. The Enterprise Centre currently houses 66 firms that collectively employ 286 people. GEC Tenants pay a ‘license fee’ that includes both the rental element and access to shared services provided by the incubator. Another equally important factor, however, is that GEC considers its primary role is to assist fledgling businesses get started,

Benchmarking of Business Incubators

established and move on so that vacated space can be used for other new start-up businesses. Although the Guinness Enterprise Centre is a mixed usage facility housing tenant companies from a wide range of sectors, there is a degree of sectoral focus. During the consultation process prior to construction of the incubator site, it was decided that the incubator would develop a high-tech orientation to support a wider urban development strategy. The incubator is situated close to an area designated the Digital Hub, which forms part of the Dublin Area Development Plan, a strategy which aims to regenerate areas of central Dublin by encouraging sectoral specialisation in high-tech, multimedia and cultural / arts-related activities. In order to ensure that tenants have access to the latest category 6 communications technology and support the development of high-tech start-up firms, broadband access was installed prior to completion of the building work. Subsequently, the Enterprise Centre completed an upgrade to provide access ranging from ISDN to provide a 2Mbit broadband leased line. The capital cost of building the incubator was wholly covered by funds provided by a public private partnership of six partners. Whilst securing public and private sector funding was critical in terms of getting the Guinness Enterprise Centre project off the ground, the medium term objective of the incubator was to achieve breakeven and subsequent financial self-sustainability. Without the burden of paying interest on the entire capital cost of the building, GEC management expects the centre will break even within 18 months of its official opening. This has been achieved through cost control, high quality management, high occupancy rates and a solid rental stream. The rental rates paid by incubator tenants at GEC are set somewhat below the prevailing commercial rate. In addition to the provision of physical space, the incubator also provides management support services such as a business planning and financial modelling, basic shared services (i.e. fax, photocopier, etc.), higher value added services such as broadband internet access and video conferencing. Admission criteria: In terms of admission criteria, the incubator conducts a rigorous assessment of the viability of a prospective tenant’s business plan before granting admission. Admission to GEC is not targeted on a sectoral basis. GEC is a mixed usage incubator although Dublin BIC, which manages the centre tries to encourage sectoral clustering of tenants and the derivative catalytic effects. The incubator was purposely built for mixed usage to reflect the need for economic diversification and the development of indigenous small industry in the early 1990s, a period when the Irish economy was stagnating. In terms of exit criteria, the incubator imposes a maximum tenancy length of 33 months on incubator tenants. The 33 months deadline is determined both by legal constraints and by the belief that the incubator’s role is to assist early stage ventures only. 4. Good Practice Examples

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Benchmarking of Business Incubators

There are several aspects of the incubator’s operations that demonstrate good practice: Provision of Intensive Support Services: The Dublin Enterprise & Technology Centre Ltd. t/a the GEC offers the full range of business support services to clients from feasibility studies and business planning through to marketing, access to finance and strategic development plans. The breadth of services available and the quality of managerial support provides an environment conducive to accelerated SME growth Business Innovation Fund,Dublin Seed Capital Fund, the Irish BICs Seed Capital Fund – the leveraging of private sector support: In 1991, Dublin BIC launched the Irish Business Innovation Fund, followed in 1997 by the launch of the Dublin Seed Capital Fund and in 1998, the Irish BICs Seed Capital Fund was launched by Dublin BIC This Fund operates on a national level. These Dublin BICs-managed seed capital funds were set up with a mixture of public and private sector money, with additional financial support from the EU. The fund is designed to help commercially viable businesses with an innovative focus to get started and set up their operations. Dublin BIC is a member of the European Seed Capital Fund Network, a European Commission initiative. The BIC was a key founding partner of the Irish Seed Capital network. Dublin BIC is a Council member of the Irish Venture Capital Association. The Funds have proved very successful and have been expanded. The maximum amount a start-up firm can borrow has increased steadily over time. Dublin BIC has built up a close relationship with financial institutions that has enabled the BIC to ‘leverage up’ its seed capital facility in order to provide SMEs with additional finance over and above the size of the seed capital fund. The leveraging facility enables the BIC to provide access to loan financing of up to £5m to selected projects meeting predefined criteria. Public Private Partnership (PPP): Dublin BIC initiated a relationship with Guinness, one of Dublin’s largest employers, which led to the setting up of a public private sector partnership called the Dublin Enterprise and Technology Centre Partnership. The resulting enterprise centre, built on the site of a disused former Guinness warehouse, was subsequently renamed the Guinness Enterprise Centre. The PPP was critical in enabling the project to become a reality, with each partner organisation bringing a different area of expertise to the table. The partner organisations were united by a shared desire to stimulate enterprise development and business innovation within the Inner City area, an area suffering from both social and economic deprivation. The shared desire to play a role in the urban regeneration process of partner organisations in the PPP ensured a mutually cooperative approach leading to the fruition of the project without state funding. Financing came exclusively from project partners - Guinness Ireland Group, Dublin Corporation, Dublin BIC, Dublin City Enterprise Board, Enterprise Ireland, and Guinness Workers Employment Fund (GWEF). Urban Regeneration: Incubation plays an important part in the urban regeneration process in Ireland. One good example of a successful regeneration initiative is the Guinness

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Benchmarking of Business Incubators

Enterprise Centre, a joint public private partnership (see above). Opened in January 2001, the incubator accommodates 77 units, employs 300 people and provides 3,500m of space to client companies. The Guinness Enterprise Centre is situated in a deprived area of Dublin with a high level of social and economic deprivation. The initiative has played an important part in revitalising the local area and transforming wider public perception of the area. Incubator management has actively engaged the local community in the planning and consultation process and even at Board of Director level. Community involvement has continued since the inauguration of the GEC, with participation on a number of important committees, including the admissions committee, which evaluates business proposals received from prospective incubator tenants. Community Development Role: Guinness Enterprise Centre has played a central role in community development by tackling some of the educational aspects of social exclusion in the local community. The incubator has agreed to set up evening classes on basic IT literacy skills for local people. The incubator has also lent managerial support on a pro bono basis and has provided financial support to groups of local residents who wanted to set up a horse-riding centre for local disadvantaged and disabled children. Regular Monitoring and Appraisal: Dublin BIC has set up a comprehensive monitoring scheme to evaluate the performance of its graduate companies post-incubation. This enables the BIC to monitor the wider impacts of its activities in terms of wealth and job creation in the wider community by ex-tenant firms. Promotional Activities to encourage Young Entrepreneurs: The Guinness Enterprise Centre plans to run a competition to encourage young entrepreneurship – the promotion will help to raise the profile and visibility of the Enterprise Centre within the local community. Mentoring Scheme with the Dublin Chamber of Commerce: The BIC runs a mentoring scheme for client companies with the Dublin Chamber of Commerce – this provides an opportunity for incubator tenants to receive feedback on overall development and strategy from an external organisation with business expertise. Entrepreneurial Promotion and Training: Dublin BIC has initiated a number of initiatives together with local colleges and has set up area partnerships to promote entrepreneurship and training in the wider Dublin area. One good example of this is the ‘Campus Initiative’ where potential entrepreneurs can learn about the benefits and practicalities of entrepreneurship directly from tenant companies. The BIC also invites local private sector players to the meetings, which provides networking opportunities for tenants. Dublin BIC is planning a similar initiative at Trinity College Dublin. The aim is to bring about a gradual change in commonly held perceptions about entrepreneurship. Traditionally, the Irish have been reluctant to start their own businesses entrepreneurship has only relatively recently been perceived and portrayed in a favourable light.

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Benchmarking of Business Incubators

5. Views on Key Issues In the view of the incubator manager the following points are critical in the successful setting up and management of business incubators: Quality and professionalism of Business Support Services – Incubator management emphasised the overriding importance of having a professional management team with business experience. A commercial-oriented team builds credibility with the local financial and business community and this ‘sheen’ rubs off positively on tenant firms. Strong private public partnership – the need to leverage the support of the public and private sector and the local community was regarded as critical. Dublin BIC has forged strong links with local, regional and international partners. Close partnership was regarded as integral to the success of the incubation concept, in that it facilitated the leveraging of resources and the harnessing of the knowledge and contact networks necessary to maximise the potential benefits of the incubation experience. Importance of Community Involvement – Guinness Enterprise Centre is situated in an area of Dublin suffering from severe social deprivation – encouraging community involvement as a means of bringing on board the community was considered as an essential part of the process. GEC continues to play an active role in Community development and has supported Community-led education and training initiatives. Importance of capacity building and achieving critical mass: The incubator is managed on a commercial basis with a strong private sector management ethos. The management argued that a commercial approach was essential to build credibility with the private sector, achieve critical mass and generate sufficient revenue to provide high quality business support services and build capacity. 6. List of Interviews Name

Position

Tony Prendergast

Director, Guinness Ireland Group

Desmond Fahey

CEO, Dublin Business Innovation Centre

John Mcinerney

General Manager, Guinness Enterprise Centre

Fergal O’Byrne

MD, Web Busters (tenant company)

John O’Donnell

Prime Carrier (tenant company)

Joe O’Reilley

IT Force (tenant company)

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