Technology Business Incubation

Role of Tech Business Incubators In SADC Countries Mauritius 24 – 27 February, 2003

Technology Business Incubation : Planning, Operating and Enhancing Performance Rustam Lalkaka Business & Technology Development Strategies LLC New York, NY, USA [email protected]

Entrepreneurial forces >>>>towards economic growth National social, political & economic framework

Entrepreneurial Opportunities

Business Dynamics

Established Firms

Market Entrepreneurial Capacity

Entrepreneurial Dynamics

Entrepreneurial Support Framework

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International System

Economic Growth • • • •

Jobs Incomes Taxes Innovation

Entrepreneur-Incubator-University Linkage

Technology Entrepreneurs Need Access To:

1. Techn/trade information 2. Knowledge and skills 3. Technical advice 4. “Smart” personnel 5. Equipment for R&D 7. Markets 8. Work space, facilities 9. Access to capital 10. Strategic alliances

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Incubator and University Can Organize To Provide: Doc center, database, alumni Special courses, cyber-learning Faculty, mentoring Graduate students, interns Labs and personnel e-commerce, web, subcontracts Affordable, flexible lease Image, contacts --angels, VC Expatriate network

Incubating the Incubator: Mission-Strategy-PerformanceSustainability Opportunity & Market

Resources for incubator and tenants

Governance + Management Services

Business Plan

Shared Vision Mission

Implement Operate

Sponsors State-Private

Community support

Entrepreneur development

Monitor operations

Technical infrastructure

University/ professional linkages

Evaluate results

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Technology & social trends

Consolidate Internationalize

Re-engineer the organization

Cost-effective performance

Reputation & Impact

Sustainability

Incubator Development Timeline ‘Father’s Oldsmobile’ Speed But IT Economy incubators call for acceleration at ‘Internet speed’ Project Preparation: Build consensus 6 - 8 Months Planning: Business Plan

8 - 12 Months*

Implementation:

2 - 4 Years

Initial Operations:

2 - 4 Years

Monitor & Replicate:

?

Globalize:

Start Incubator

Facility Established

Sustainable Operations

International Operations © BTDS LLC

Sources of Incubator Income 1. Workspace –Initially close to but below market

rates 2. Facilities - IT infrastructure, etc. at market rates 3. Training, Counseling, Facilitating Services Basic services, e.g. business planning may be subsidized Specialized services provided at market rates 4. Other sources – ‘Out-wall’, ‘anchor’ tenants,

referrals, securing finance, leasing, purchasing, royalties, etc. 5. Equity - Big potential upside, but difficult to implement 6. Affiliation to Technology Park © BTDS LLC Initially, services cost recovery is limited and

Why do incubators fail? For similar reasons as their client ventures: ➨ Under capitalization (or too much, as in dot-

boms!) ➨ Inadequate preparation to assess market or bizmodel ➨ Poor location, small workspace, unhelpful layout ➨ Inadequate mg. board and management skills ➨ Poor operating practices, faulty entry-exit processes ➨ Poor biz-model, no innovative ways to raise revenue ➨ Weak linkages to the knowledge base ➨ Lack of value-adding client services, only cheap space © BTDS LLC

Enhancing incubation performance 1. Planning ➨ Prepare a careful feasibility study, including

realistic market analyses, to determine if incubator is feasible

➨ If feasible, develop a business plan, including

financial analyses, marketing strategy and implementation plan

➨ Mobilize initial funding for incubator and for

clients

➨ Identify sponsors, champions, stakeholders

and develop consensus among them on objectives

➨ Choose location and building to generate

revenues, Flexible and modular layout, functional security, 24/7 availability of all services © BTDS finish, LLC

Enhancing Performance: 2. Operations ➨ Quality of board and management is key to

success ➪ Business experience, pay linked to performance ➨ Practical services more important than workspace ➪ Identify ‘Good practices’ globally, re-engineer locally ➪ Balance between “hardware” vs. “software” ➨ Build network of synergistic partnerships with universities, professional service firms, banks, citystate governments ➨ Milestones should defined, indicators quantified ➪ Structured curriculum with tracking of client progress ➨ Access to seed capital for clients, explore angels/VCs © BTDS LLC

Enhancing Performance: 3. Consolidation

➨ Run the business incubator like a business

➪ Initial support, with breakeven in say 5 years ➪ But balance micro efficiency against macro impact ➨ Monitoring & evaluation essential to long-term success ➪ Establish MIS to monitor incubator, client performance ➪ Conduct periodic internal and/or external audits ➪ Compare performance against similar incubators ➨ Strive for ‘continuous improvement’ in business model and innovations in operating procedures ➪ Participate in incubator associations ➪ Keep abreast of emerging incubation trends

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Enhancing Performance: 4. Nationwide

➨ Establish incubation as an integral component

of National Innovation, SME and ED strategies

➨ Initiate ED courses, Promote respect for

entrepreneurs

➨ Develop programs to train and accredit

managers

➨ Do not restrict incubation to technology firms.

Develop models for empowerment, arts, flowers, etc

➨ Persuade planners for investments in

knowledge base, ICT and business infrastructure

➨ Promote national & regional incubator

associations for disseminating information, advocacy, mentoring © BTDS LLC

Desperately Seeking Selfsustainability ➨ Self-sustainability implies that effective operations of a

support system can be continued from internal income even after external subsidy declines. Three-quarters of incubators in OECD countries depend on some subsidy ➨ They are considered to be part of the business infrastructure, to be supported by public funds (like schools, armies and airports) ➨ Recent incubator evaluations indicate that one $ of net public subsidy, gives back about $ 5 as taxes, ➨ If indeed so, why financial self-sustainability? BECAUSE: With change of policy and priority, subsidy inevitably declines (cf. Mexico). And sustainability is one measure of satisfaction of the market at value of services provided

Objective should be to reach high-level of selfreliance after the initial operations, say in 5 years © BTDS LLC

Ten Strategic Approaches for Southern Africa  Promote policy support for fiscal incentives,

less regulations, innovation, entrepreneurship,  Strengthen infrastructure for ICT, transport, IPR protection, competitiveness and exports  Develop active board/management for incubator  Build strong partnerships: with State-City, other B. D. Services, university, publicprivate, national-international, based on trust and respect  Rigorous networking with business partners, © BTDS LLC programs for investment, marketing, out-

Ten Strategic Approaches (contd) 6. Pursue social concern of removing inequalities, develop new generation of innovators & entrepreneurs, reconcile social agenda with good business sense 7. Mobilize political support and investment towards developing education, research, entrepreneurial culture 8. Explore seed Venture Capital for deferred revenues and income potential of growth to future Technology Park 9. Help convert ‘brain drain to brain gain’, as in TOKTEN © BTDS LLC 10. Learn from the experiences (and mistakes) of

Evaluation Modes: internal monitor/audit/assess Parameters: Impact Relevance Effectivene ss

Efficiency Sustainabili ty Less: Displaceme nt

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•Additional enterprises & jobs created (direct, indirect), taxes paid, technologies commercialized, change •Extent to which culture incubator services meet stakeholder & client needs (e.g., occupancy rates, services demand) served, disadvantaged •Number of enterprises groups reached, extent to which incubator achieves goals clients relative to client results •Costs of its serving (e.g., cost per client served, job created, etc.) •Financial sustainability of incubator, stakeholder satisfaction, durability of results, replicability •Crowding out of enterprises competing with incubator •clients and service providers competing with incubator

Benchmarking Methodology Benchmarking is the process of continuously measuring and comparing an incubator’s operations against leaders in the field to gain information that can help performance.  Step 1 -enhance Model: Develop a generic business incubator model, set out basic operating procedures for group of comparable TBIs.

 Step 2 – Tech-business Incubator Data: Carry out field surveys to obtain information on current incubator performance.

 Step 3 – Best Practice Issues: Define a number of ‘best practices’ that drive good performance and provide benchmark indicators.

 Step 4- Enhancing performance: Organize process for anonymous reporting of data & ranking of TBIs by indicator Purpose not to blame but raise poor performers to higher levels, Evaluation of incubators demonstrates the market-test that they perform to satisfaction of clients & stakeholders, 6

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Europe: Performance Indicators & Benchmarks Starting & Operating Average Range Capital investment cost

€3.7 mill

€1.5 to €22 m

Operating costs

€480,000./yr

€50,000 to €1.8 m

% revenue from subsidy Incubator space No. of management staff % managers’ time on client Survival rate of client firm Growth in client turnover New jobs/incubator p.a. Cost per job (gross)

37% 3,000 m² 2.3 staff 39% 85% 20% p.a. 41 jobs €4,400

(BM 25%) (BM 3000) (BM 2 min.) (BM 59%) (BM 85%) 5% to 100% p.a. 7 to 197 (BM 6000)

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Initiate the incubator preparation process, because Even the journey of a thousand li begins with one small step But plan with a bold vision, because You cannot jump across a wide chasm one small step Business &with Technology Development Strategies LLC International Consultants © BTDS LLC