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SES821S - Small Enterprise Support - 1st Opp - June 2022 |
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nAmI BI AunIVER s ITY
OF SCIEnCE Ano TECHnOLOGY
FACULTY OF COMMERCE, HUMAN SCIENCES AND EDUCATION
DEPARTMENT OF MANAGEMENT
QUALIFICATION: BACHELOR OF BUSINESS MANAGEMENT HONOURS
QUALIFICATION CODE: 08BBMH
LEVEL: 8
COURSE CODE: SES821S
COURSE NAME: SME SUPPORT
SESSION:
JUNE 2022
PAPER:
THEORY
DURATION:
3 HOURS
MARKS:
100
FIRST OPPORTUNITY EXAMINATION QUESTION PAPER
EXAMINER(S) MS. ESTHEROLIV_IER
DR. CHRISVANZYL
MODERATOR: MS. A TJIUEZA
INSTRUCTIONS
1. This examination is an open-book assessment.
2. Study the attached articles and answer the questions.
3. Answer ALL the questions and in essay format.
4. Write clearly and neatly.
5. Number the answers clearly.
PERMISSIBLE MATERIALS
1. Study Notes
THIS QUESTION PAPER CONSISTS OF 2 PAGES (Including this front page)
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r
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QUESTION 1
[30 Marks]
How could Namibia benefit from the findings of Xu and Dobson {2019) who studied the challenges of
building entrepreneurial ecosystems in peripheral places? Your answer must refer to the following
aspects:
i. Finance
ii. Talent
iii. Socio-cultural environment
iv. Market
v. Policy
QUESTION 2
[20 Marks]
Describe how you would manage a start-up Micro Enterprise in the fishing industry in Namibia.
Distinguish between the following dimensions of management for this start-up enterprise:
i. Operations Management
ii. Supply Chain Management
iii. Logistics & Distribution Management
QUESTION 3
[50 Marks]
•
Based on Bruneel, Ratinho, Clarysse, and Groen {2012)
How would you describe the evolution of the business incubator value proposition process, and why is
this process necessary for Namibia?
TOTAl MARKS: 100
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L,
The cumnt issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/2045-2101.htm
Challenges of building
entrepreneurial ecosystems in
peripheral places
Zimu Xu
InternationalCentrefor Tra-nsformationaElntrepreneurship,
CoventryUniversity,Coventry,UK, and
Stephen Dobson
Schoolof Pe1forrnancaend CulturalIndustries,
Universityof Leeds,Leeds,UK
Challenges of
building
entrepreneurial
ecosystems
Ra:eivedZ2Marchall9
Aa:Epted25Aprilal 19
Abstract
Purpose - The purpose of this paper is to investigate challenges of building entrepreneurial ecosystems in
peripheral places. The entrepreneurial ecosystem concept is developing a rising popularity among both
academics and policymakers in recent years where much of the attention has been put in major urban cities.
However, on the way to achieve balanced growth and equity, peripheral places should not be neglected. Thus,
this paper links literature on ecosystem with peripheral region studies in creating a conceptual framework of
developing entrepreneurial ecosystems in peripheral places.
Design/methodology/approach - The paper first reviews literature on entrepreneurial ecosystems and
challenges that peripheral places facing in paiticular. Then, taking into consideration of literature from both
fields, a conceptual framework is developed. In order to better illustrate the framework, a case study on
Guildford's digital gaming industry is reviewed based on secondary data.
Findings - Though facing various challenges such as smallness, remoteness and lack of resources,
peripheral places can take advantage of the digital technology and build an enh·epreneurial ecosystem of its
own kind through holistic collaborative approach to tackle issues around finance, talents, socio-culture
environment, infrastructure, markets and policy.
Originality/value - The paper is among the first to focus on developing a holistic conceptual framework in
building enh·epreneurial ecosystems in peripheral areas. It can lead to a range of further research topics and
conttibute to develop viable practices paiticularly for policymakers.
Keywords Entrepreneurial ecosystem, Rural entrepreneurship, Rural area, Entrepreneurship policy,
Gaines industry, Pe1ipheral places
Paper type Conceptual paper
Introduction
It is widely acknowledged that entrepreneurship brings value to local and national
economies as well as generating social and community-level impact "It drives innovation,
creates jobs, develops human potential and satisfies new customer demands" (Jaen et al,
2013, p. 16). As such, entrepreneurship is accepted globally as an important element of
national development sh·ategies (Pretorius et al, 2005; Bosma et al, 2008; Gibb and
Hannon, 2006). It not only conh·ibutes to wealth and job creation, but also potentially
connects the region to a worldwide economy. The level of entrepreneurial activity in some
studies is found to be positively correlated with GDP growth (Acs et al, 2014), with
high-growth small- and medium-sized enterprises (SrvIEs)seen to positively contribute to
the majority of job creation worldwide (Yeung, 2015). Entrepreneurship is considered an
essential part of this and has become an increasing focus for indush·ies, government and
academics resulting in the establishment of numerous support programmes; although the
full effectiveness of many of these initiatives is questioned (Henry et al, 2017; Dobson
et al.,2018).In studying how to best support entrepreneurship and maximise the chances
of high-growth SrvIEs, the entrepreneurial ecosystem concept has emerged as an
important factor (Mason and Brown, 2014).
Journalof Entrepreneurshiapnd
PublicPolicy
;:, Erner.lidPublishingLimited
2015-2!01
DOI!0.1IQSIJEl'l'-03-2019-0023
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..:
]EPP
However, if we explore the role of entrepreneurship in rural or developing country
contexts a somewhat different picture emerges. For example, Total Early stage
Entrepreneurial Activity levels in Sub-Saharan Africa are extremely high (c40 per cent)
(GEM Data) compared to the UK or USA, yet GDP contribution in these developing
economies does not match this level of activity (Valliereand Peterson, 2009; Van Ste! et al,
2005).Here, we may consider "subsistence" or "necessity" entrepreneurship (Acs, 2006)as a
symptom of market failure and a result of high unemployment levels. Research into the
optimum ecosystems necessary for a thriving environment of opportunity-driven
entrepreneurship points toward high levels of institutional and infrastructural support
(Isenberg, 2010; Mason and Brown, 2014). Therefore, the more notable enh·epreneurial
ecosystems are understandably reported in major urban centres such as New York City,
Boston, London, Shanghai, Berlin and Paris. While many rural policymakers have
attempted to drive economic growth through entrepreneurship with limited success, little
attention has been placed on rural or peripheral areas in building an entrepreneurial
ecosystem. In this paper, "peripheral places" are defined as rural or marginal regions (e.g.
smaller/dispersed urban areas, towns, areas of low density population) rather than major
cities or centres for development.
In comparison with major urban centres, peripheral places often exhibit scarcity in
resources, fewer key institutions, lack of infrastrnctural connectivity (transport and/or
informational), low skilled labour or lack of labour diversity (Henderson, 2002;OECD,2016).
It is this absence of many critical ecosystem characteristic which subsequently poses often
inswmountable challenges for local entrepreneurship development (North and Smallbone,
2006; OECD, 2016). Moreover, Arya! et al. (2018)find that urban businesses are better at
capitalising their resources in comparison with peripheral areas. High-growth SfVIEsare
particularly rare due to the limited existing resources and the impaired ability of
entrepreneurs to acquire then externally. These barriers are f01med due to the lack of
business centrality in network of connections. Partnerships between public and private
sectors have a crucial role in bringing resources from both sectors to better serve the society
(Zhang and Chen, 2013).Private sector resource investment is invaiiably profit driven, and
therefore investment in this area is rare unless with clear retmns for the investing firm
(Economic Insight, 2015). However, public sector investment is often driven by the need to
increase national competitiveness and reduce regional inequalities (Duffy-Denoand Eberts,
1989;Tao et al, 2010).Public policy support may seek to influence these objectives through
a variety of forms, such as fw1ding, training and education programmes, incubation or
acceleration programmes, taxation or other business support policies. Thus, this paper
conceptualises how public policy can support the development of enh·epreneurial
ecosystems in marginalised, peripheral places to ultimately support the reduction of
regional inequalities.
Entrepreneurial ecosystems
In aiming to understand the role of externalities upon enh·epreneurial activity, research
has shifted emphasis from more traditional behavioural or characteristics-based
approaches (Gartner, 1989) due to the perceived lack of consideration for environmental
context. Many studies therefore seek to consider the importance of the wider environment
within which entrepreneurs are situated in (Dodd and Anderson, 2007; Spigel and
HatTison, 2018). Earlier research either contributed or established initial frameworks
on how entreprenems and their ventures can be impacted by socio-cultural, economic and
political factors (Dubini, 1989; Spilling, 1996; Malecki, 1997; Neck et al, 2004; Spigel and
Harrison, 2018). Isenberg's (2010) seminal work "The big idea: how to start an
entreprenemial revolution" in the Harvard Business Review was one of the most
influential publications that drives the rising popularity of the ecosystem concept.
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Other publications, such as Feld's (2012) book Startup Communities:Building an Challenges of
EntrepreneuriaEl cosystemin Your City,also contribute an increased appreciation of the
building
importance entrepreneurial environments among policy practitioners and academics. In these
studies, there is an acknowledgement of the co-evolutionary relationship between
entrepreneurs, institutions and other actors within the ecosystem which supports local
entrepreneurial
ecosystems
economies and start-up rates. An appreciation of the enti-eprenemial ecosystem is now widely
considered an important means of fostering economic growth often with focus on chiving
employment and high-growth firms (Mason and Brown, 2014; Spigel and Han-ison, 2018).
Therefore, practitioners and academics have focussed much on understanding the
characteiistics of the ecosystem and how this should be best nurtured and supported.
Governments have paid considerable attention to the creation of favourable environments
which lead to the emergence of entrepreneurship ecosystem[l] concept (Zacharakis et al, 2003;
Isenberg, 2010; Mason and Brown, 2014). Entrepreneurship is at the core of the
entrepreneurship ecosystem and can be defined variously. For instance, Ferrante (2005)
defines entrepreneurship as: "the ability to discover, select, process, interpret and use the
necessaiy data to take decisions in an uncertain world and then to exploit market
opportunities" (p. 169).Sahlman and Stevenson (1991)suggest that
[... ] enh·epreneurship is a way of managing that involves pursuing opportunity without regard to
the resources CutTently controlled. Enb.-epreneurs identify opp01iunities, assemble required
resources, implement a practical action plan, and harvest the reward in a timely, flexible way. (p. 1)
Audretsch (1995,2003) and Kao (1993)regard the act of generating change or innovation as
the essence of entrepreneurship. In defining entrepreneurship, some attention has been
focussed it being a process of identification and exploitation of opportunities (Corbett, 2005;
Wempe, 2005; Ardichvili et al, 2003; Eckhardt and Shane, 2003). Dubin's (1978) theory
building framework underpins much thinking in this area whereby opportunity
identification is seen as resulting from a combination of personality traits, social
networks and prior knowledge. Interest in the psychology and traits of the entrepreneur
have given rise to work focussing on cognition and learning (Corbett, 2005; Zahra and
Nambisan, 2012). The lack of consensus about entrepreneurship reflects its
multidimensional nature (Audretsch, 2003) and so it is unsurprising that a variety of
definitions of entrepreneurial ecosystems exist.
Cohen (2006) defines the concept as "an interconnected group of actors in a local
geographic community committed to sustainable development through the support and
facilitation of new sustainable ventures" (p. 3). Subsequently, a number of articles have
attempted to provide definitions such as Isenberg (2010),Acs et al (2014),Mason and Brown
(2014),Stam (2015) and Audretsch and Belitski (2016).More recently, Autio et al (2018)
emphasise the importance of digitalization and define the ecosystem as "a digital economy
phenomenon that harnesses technological affordances to facilitate entrepreneurial
oppmtunities pursuit by new ventures through radical business model innovation"
(p. 74). With the aid of digitalisation, the concept has also been applied in a non-geographical
context (Brown and Mason, 2017). However, majority of the literature has studied the
concept as a "spatial concept" where the ecosystem may have strong connections outside
the place (Brown and Mason, 2017). Although the definitions of the entrepreneurial
ecosystem are varied, four key properties can still be derived from the above table. First,
there are vaiious actors and resources involved in the ecosystem such as entrepreneurs,
customers, firms, venture capitals, universities, culture and market. Second, it is essential for
actors within the ecosystem to maintain continuous healthy and dynamic interaction. Third,
the ecosystem needs to be productive, with productivity potentially realised in different
forms such as jobs or revenue growth. Last but not the least, whilst ecosystems may vary in
size, there should be an element of spatiality/locality.
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JEPP
Cmrent ecosystem studies have commonly focussed on certain localities where urban
cities or regions tend to be the popular choice like Silicon Valley, Boston, Washington and
Chicago (Feldman, 2014; Harper-Anderson, 2018). Within those literature, high-growth
ventures and innovative business models have gained significant ath·action where much of
the literature have almost exclusively devoted to use ecosystem as a framework to
investigate how can those ventures be best nurtured (e.g. Mason and Brown, 2014;Autio
et al. 2018). At the same time, urban cities or regions tend to have such supporting
infrastructure ready with significant concentration of talents and enterprises than
peripheral places (Henderson, 2002;OECD, 2016).Thus, it is arguably easier to study the
concept in those urban areas. However, we argue that the study on entrepreneurial
ecosystem should not only focus on places where there is already a more or less established
ecosystem but also on peripheral places that have been neglected in the past. Such
peripheral places are often in a disadvantage positions on aspects like infrastructure, ability
to attract talents and businesses compared with urban areas. In striving for reducing
dispa1ity, the entrepreneurial ecosystems concept may serve as a framework to improve on
regional resilience and local productivity in peripheral places. Moreover, it is because of
these difficulties that can make the early focus on peripheral places valuable as it can act as
a pe1iect context to trace the emergence and evolution of the ecosystem.
Entrepreneuriael cosystemand sustainableregionaldevelopment
Traditionally, entrepreneurship studies have tended to focus on entrepreneurs as
individuals and their intrinsic characteristics (Shane, 2003; Bmissenko and Boschma,
2016).However, criticism of emphasising individual traits has resulted in an increase of
attention on the wider socio-economic environment that the entrepreneurial activities are
undertaken within (Dodd and Anderson, 2007;Borissenko and Boschma, 2016;Spigel and
Harrison, 2018).As a result of the shift from individual to a more systemic context described
above, entrepreneurship literature has seen an increase in studies considering the role of
regional resources and conditions in supporting entrepreneurs and entrepreneurial activities
(Neck et al, 2004; Mason and Brown, 2014; Stam, 2015).This emphasis on locality and
regions is reinforced in enh·epreneurial ecosystem studies (Isenberg, 2010; Frenkel and
Maita!, 2014;Mason and Brown, 2014)and the long-term sustainability of a region may be
seen to depend on its ability to response and adapt to changes and shocks (Christopherson
et al, 2010). This ability is referred to by academics and policymakers as "regional
resilience" (Christopherson et al, 2010;Pike et al.,2010).So, whilst enh·epreneurship may be
considered a driving force for innovation and job creation, entrepreneurial ecosystems are
particularly seen as an important factor in building resilient economies (Mason and Brown,
2014; Szerb et al, 2015; Spigel, 2017; Spigel and Harrison, 2018). Regional economic
development can be significantly affected by various externalities such as a changing
political system and new policy implementation, economic recession, socio-cultural shifts,
industrial and technological change (Palekiene et al, 2015) and environmental disaster.
Thus, resilience plays a key role in the sustainable development of the region in the long nm
(Palekiene et al, 2015).The importance becomes more visible when the place is experiencing
or recovering from some kind of external shocks (Palekiene et al, 2015). Three main
principles are summa1ised from the literature in building a diverse and coherent
entrepreneurial ecosystem to support regional resilience. These are: t·ansitional causes,
recycling of outcomes and outputs and interaction of factors.
Model evaluation
Various models have been proposed in studying the concept of entrepreneurial ecosystems
(e.g.Isenberg, 2011;Vogel,2013;Mason and Brown, 2014;Stam, 2015)which may be broadly
classified into two types: flat sh·ucture or causal. Isenberg's (2011)influential flat strncture
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model stressed the uniqueness of nine dimensions which are offered as equally weighted Challenges of
"ingredients" of the ecosystem. These are: policymakers and public leaders; financial actors;
building
culture impactors; support organisations, event organisers; educators and developers of
human capital; and corporations. In comparison, Stam's (2015)model focusses on capturing
the causal relations within the whole ecosystem. Stam criticises the effectiveness of the
entrepreneurial
ecosystems
entrepreneurial ecosystem approach and provides an alternative model by unifying key
elements, outputs and outcomes as shown in Figure 1. The elements that Stam includes in
the systemic and framework conditions resemble much what presented in Isenberg's
model. The framework endeavours to provide explanation how value is created through
transitional causes; how the outcomes and outputs can be recycled into those fundamental
conditions; and how different factors within the system can interact with each other
(Stam, 2015).
While the above models are valuable in understanding the components of a successful
entrepreneurship ecosystem, there are other critical aspects that those models do not
sufficiently consider. For instance, how do various factors influence the development of the
ecosystem over time? Are those factors equally important in the evolution process? Is there a
basis by which stakeholders within the ecosystem may raise the ecosystem to the next level
as may be considered in the notion of transfo1mational entrepreneurship (Ratten and Jones,
2018; Schaar, 2010). In this sense the evolutionary and dynamic nature of entrepreneurship
ecosystems is of direct importance to those wishing to operationalise them (Mack and
Mayer, 2016).
Evolutionmy ecosystems
Whether we subscribe to a flat strncture or a causal model of the ideal entrepreneurial
ecosystem, it is equally important to understand how those ecosystems may evolve over
time. A dynamic and self-sustaining ecosystem cannot be immediately implemented and
often involves decades of continuous and collective effott (Neck et al, 2004; Mason and
Brown, 2014; Mack and t,.tfayer,2016). The history of Silicon Valley, for example, may be
traced back to as early as the 1970s, and development of Zhong Guan Cun (China's Silicon
Valley equivalent) started in early 1980s and will not be where it is today without a serial of
government supports. Some scholars divide the evolution process into several stages which
broadly map to an organismic model used to describe firm growth, containing the phases of
birth, growth, sustainment and decline (Mack and Mayer, 2016).Different forms of support
for the ecosystem are acknowledged throughout this lifecycle with the emergence of an
Outcomes
Outputs
Systemic
conditions
Framework
conditions
Source: Stam (2015)
Figure 1.
An entrepreneurship
ecosystem
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entrepreneurial ecosystem often thought to be closely linked to geographic locality to which
talent is ath·acted (Mack and Mayer, 2016). During this "birth" stage, the area can expect to
witness rapid increase of start-ups for a relatively short period. Depending on the local
conditions, constraints which can hinder business development are revealed relating to the
factors identified above (i.e. how value is created through h·ansitional causes; how the
outcomes and outputs can be recycled into those fundamental conditions, and; the presence
and interaction of systemic factors) (as shown illustrated in Table O.
As ecosystem evolves over time, activities, such as spin-offs and entrepreneurial
recycling, are taking place more and more frequently (Mason and Brown, 2014).
Enh·epreneurs may also benefit from networks which start to fmm within the ecosystem
(Mack and l\\!Iayer,2016).Support demanded in this stage also starts to shift priorities and
often involves aspects such as network development, scale-up funding and talent
specialisation. This is a critical time for the newly emergent ecosystem and resilience to
shocks from the internal and external environment (such as technology, industry or market
change, or sudden removal of support from policy and/or finance) may lead to decline or
complete collapse of the ecosystem.
However, it is important to sh·ess that each ecosystem (or potential ecosystem) should be
considered as distinct, which unique characteristics and as such requires location-specific
programmes and support. For example, Isenberg (2010) urged governments to "stop
emulating Silicon Valley" but "shape the ecosystem around local conditions". To recover
from the economic downturn in 1990s, and encourage venture creations in the early
twenty-first centw·y, one of the barriers that Japan needed to overcome was the lack of
knowledge about enh·epreneurship and the negative cultw-al perception of start-up.
Canada's thriving games indushy benefited greatly from government tax incentives which
ath·acted large industry players like Ubisoft to relocate to the country, becoming an anchor
organisation for the indush·y of the region.
So, whilst a matw-ed and well-functioning enh·epreneurship ecosystem is the result of an
evolutionary process (Neck et al, 2004; Mason and Brown, 2014; Mack and Mayer, 2016).
However, much of the attention has been given to the components of a successful ecosystem
while limited discussions are on its evolution process over time (Cohen, 2006; Mack and
Mayer, 2016).
Mack and Mayer (2016) attempt to contribute to this subject by studying Phoenix in
Arizona as an example. Their conceptual model of ecosystem evolution contains four stages:
birth, growth, sustainment and decline. Features of each stage are fllliher explained from
eight aspects: firm entries and exits, policy, finance, culture, suppmi, human capital,
markets and policy implications.
Similarly, Mason and Brown (2014) believed that locations, where talent workers are
attracted to, play an essential role when an entrepreneurship ecosystem first emerges. The
process of spin-offs and entrepreneurial recycling activities are regarded as key in growing
and developing an ecosystem. Changes of internal and external environment, such as
technology advancement, may hinder the ecosystem development process (Mason and
Brown, 2014). Mack and Mayer's (2016) model comprises Mason and Brown's (2014)
explanation to some extent. For instance, they both identified the evolution natw-e of an
entrepreneurial ecosystem and classified it into several stages, though the exact
classification may vary. The spin-offs and entrepreneurial recycling activities cover
various aspects as indicated in Mack and Mayer's (2016)model such as the re-investment of
wealth which can be coined into the increase of finance. In addition, Mason and Brown
(2014)provide an example with detailed explanations of reasons for the decline phase where
Mack and Mayer (2016)discuss the outcomes. Specifically, in the decline phase, Mack and
Mayer (2016) outline the situation where firm death rate increases dramatically; market,
support, financial capital become unviable and culture also shifted away from
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Birth
Growth
Sustainment
Decline
Challenges of
building
entrepreneurial
ecosystems
Finn
entries and
exits
Policy
... ... ··-.
Finance
Culture
Support
Birth rates>
death rates
Traditional
economic
development
focussed
Becoming
· available but
limited
Few success
stories and
figures; lack of
tolerance to risk
and failure
Emergence of
. early support
institutions
. Human
capital
Markets
Only general
degrees are
available; no
serial
--· e_ntrepreneu_r~..
Not yet
developed
Policy
implication
Lower barrier for
venture creation;
forn1
entrepreneurship-
favoured support
-·----·------•--·-•--·---··
Birth rates>
Birth rates<
death rates
death rates
------·----
Birth rates < death
rates
More
Widespread and
entrepreneurship targeted policies
focussed
for
...entrepreneurship
More trust build Harder to access
and easier to
as trust weaken
-a-cce..s..s..... ---
Networks gains Success stories
recognition;
is essential as
social norm may more firms close
change to favour down
EE"
Non-
Non-
governmental
governmental
supports
suppo11s
becoming
diversify
entrepreneurial possibly away
oriented
from EE
Serial
Decline of serial
entrepreneurs
entrepreneurs
and targeted
programmes
en1erge_.
Regional,
Decline of
national and
market
international
opportunities
opp01tunities
and networks
~t~rt_t_o d~vel_op..
Rising support Networks
on finance and enhancement
networking
oppo1tunities
Favouritism in
entrepreneurship
decline and maybe
shifted to other fields
Decline
EE favoured culture
deteriorated
Support decline and
disappear
Entrepreneurs not
regarded as viable
career path
Vanish of market
opportunities and
networks
-.. ·•--· --··. --·-
Loss of EE actors as
they avert to stay in the
EE
Note: aEE, entrepreneurship ecosystem
Source: Summarised from Mack and Mayer (2016), p. 2122
entrepreneurial oriented. In comparison, Mason and Brown (2014) point out that an
ecosystem could periodically or even permanently cease if not it is not able to sufficiently
respond to industry or technological change. Moreover, Mack and Mayer (2016)argue that
the various components cany different weights in the ecosystem development process. For
instance, market opportunities, human resources, finances and culture are seen to be critical
Table I.
Ecosystem
evolution model
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at the birth phase; whereas cultivated support programmes and policies are more important
in development and sustainment phase (Mack and Mayer, 2016). When it begins to reach the
decline phase, stimulation for the restoration process sta1is to become crncial (Niack and
Mayer, 2016). While acknowledging its positive impact, the significance of venture capital in
the initial stage has been questioned Saxenian (1994), Feldman (2001), Garnsey and
Heffernan (2005)and Mason and Brown (2014).For instance, Brown and Lee's (2014)report
claims that only 4.8 per cent of UK HGFs benefited from venture capital in their funding
stage. A Kauffman report looks at Kansas City also reviews that only a small portion of
HGFs out of the INC 500 companies had access to ventw-e capital or angel investors
(Motoyama et al, 2013). However, it is worth noting that the examples mentioned above
have generated data and based their argument on HGFs in general, i.e. it is not clear whether
those firms are in any entreprenemial ecosystems. Nevertheless, it still provides valuable
insights for the subject.
Methodology
We adopted a traditional literature review approach in this paper. It allows researchers to
review previous studies and identify key themes and patterns and gaps in the current
research landscape (Cooper and Hedges, 1994; Shkedi, 2004; Arksey and O'Malley, 2005).
In particular, a traditional literatw-e review can also capture rising issues in social work
without being overly dependent on quantitative data (Rozas and Klein, 2010). In addition, it
is also widely used as a method to conceptualise new research or reconceptualise more
established research (Torraco, 2005). Thus, it is particularly useful in our paper to propose
an initial conceptual framework on this topic. While there is a 1ising population on
entreprenew-ial ecosystems studies, the focus on peripheral places is rather limited. Thus,
some basic assumptions derived from cw-rent ecosystem study are helpful in understanding
the challenges facing in building one in peripheral places. A coherent report can then be
produced (Rozas and Klein, 2010). In this paper, we used two main sow-ces to gather
literatw-e for reviewing: Google Scholar and Coventry University Library Online System.
Literature search are pe1iormed by combining themed phrases with defining phrases (rural,
peripheral places, smaller/dispersed w·ban areas, towns, entreprenew-ship). The six
themes phrases are the assumptions derived from ecosystem literatme: finance, talents,
socio-cultural environment, infrashc1ctw-e,markets and policy. The results are thematically
presented in the next section.
Challenges of building an entrepreneurial ecosystem in peripheral places
Finance
Finance is an important con)Pc,-menftor an entreprenewial ecosystem. However, a great
to.b. e number of literature has shown that_a__company'sgeographi@I location affects itsJ.ii}anc;:ing
·-, capability WQ.~1!j!J.nQy.9,tai_nyd~growth-oriented comp,g1ies.t~!id
influenced the ·mosf ':J
(Henderso11:2002B; ~uwn,2"0i8frn ·particular,peripheral localities such.as~pe1:iphera_al_Jid rw)il
··· areas with "sparse bank branch" are seeing the worst impact (Brown, 2018). One of the main
reasons IS-causedby the operational distance defmed as tne distance betweenlocal.borrowers
have· and the decision-making centres such as HQ (Alessandrini et al, 2009; BrO\\vn,2018).Various
studies shown the increasecLoperati9nal distance has hindered the SME's financing
ability (Alessand1ini et al, 2009;Flogel,2016).There is also lack of equity fu1~idi.npgi·Qvide(s·in
..rural ai·eas (Markley, 2001; Henderson, 2002). For instance, in the UK, venture capital and
business angel focus their attentions mainly in central paiis of the count1y such as London
and South-east of England (Mason and Pienakis, 2013).However, limited evidence has been
presented on whether or to what degree traditional financing options such as debt finance has
been affected by companies' geographical location (Brown, 2018).
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\\.::i OECD (2012)believes that substantial investments can be attracted if the importance of Challenges of
_perip)leral_areas_to_n_ational economies_can be recognised. In fact, the documented annual
GDP growth per capita n OECtf(20lr6wf:arareas is.afi.Tper cent during 1995 to 2011
period which is higher than the urban rate at 1.5 per cent. Take the "green economy"
initiatives as an example, over $1 trillion-have been invested by OECD (2016)countries in
building
entrepreneurial
ecosystems
green energy technologies where a large propotiion is located in rural areas.
Talents
. -, Supporting talents, especially those with high skills, is an essential drivi_QgJ.9rc:~J2~hind \\
\\) business (Henderson, 20_02)_andeconomic gro~vth(Venhorsfefa( 2010).-However,the skill
\\ ancfeaucitfon level of entrepreneurs in peripheral localities is on average lower than major
urban cities at least in some countries (Henderson, 2002; OECD, 2016). The urban-rural 2._
educationalg.ap~s _a signjficant_challeJJge_globally_(Theobald,2018; Kenyon eFal,2001;
Hannum, 1999). This lack of skilled workers can lead to higher production cost and less ·),
competitive advantages (OECD, 2()T6r-C>nthe other ha~d, while it is well accepted that
people\\virh-higher- education levels are associated with higher level of spatial mobility,
specific situations ~_dep__e_nd_QJlIQ_gg_rnnq_it_i_a5n)d11ssubject _to_indiyidual restrictions·7
(Van Ham et al, 2001; Venhorst et al, 2010). For--iri.stance,young skilledFrench workers \\
leave the n.u:al areas for employment (Detang-Dessendre, 1999) whereas unskilled rural.._j
Turkish workers are found to move to urban cities for jobs (K.u:darand Saracoglu, 2008).
Female university graduates showed higher mobility level in UK (Faggian et al, 2007) and
Italy (Coniglio and Prota, 2008). Thus, it is important to understand location conditions in u__
developing an _entrepri;neurialecosystem.---------- -·- - ----------- --- ··· ----
- High potential individuals are often opportunity-driven and therefore more likely to -~
move _in see~ing of better opportl!nities (Venhorst et al., 2010; Lekhanya, 2018).
(Tncomparison, -pet:iphei=ai'areas·tend-to· provide. fewer opportunities which subsequently ..i,
keep l suffer from net loss of hu111ancapital (Venhorst et al, 2010).Thus, policymakers are keen to
,_finlways'fo
local university graduates to stay in the region as well as attract talents
from outside (Venhorst et al, 2010). In addressing the skills gap, various training i!nd
educational programmes have been- es-tabl'fshec:I°by .government and non-profit..,_
organisations (Henderson, 2002). Some have close relationships· with local colleges or
universities in various foims such as specific technical or general entrepreneurship degrees
(Henderson, 2002). Entrepreneurship education has received enotinm.is academic interest
over the past few decades resulting in an expansive atTay of chronologies and reviews (e.g.
Hemy et al.,2017; Nabi et al.,2017; Kuratko, 2005; Katz, 2003).However, entrepreneurship
ecosystem education (EEE) is far less represented in the literature and remains a significant ·
gap in educational research given the emergence and importance of the ecosystem in
entrepreneurship studies and local economic development (Caiazza and Volpe, 2017;
Audretsch and Belitski, 2013): "there is a gap in the literature on the unit of analysis when
researching university-industry-government partnership and key enablers of EEE"
(Belitski, and Heron, 2017, p. 165).
Socio-culturaelnvironment
Entrepreneurship development requires a suppmiive socio-culture environment (Dabson,
2001; Isenberg, 2010). For instance, Naminse et al (2018)found a stronger positive relation
between a supportive socio-culture capabilities[2] and entrepreneurship growth than
education or economic capabilities among Chinese rural fatm entrepreneurs. Particularly,
earlier researchers (e.g.Granovetter, 1985;Johannisson and Nilsson, 1989)showed that culture
plays an important role in suppoiiing the success of economic actions. Similarly, various
researchers (e.g.Knack and Keefer,1997;Cookeand Wills,1999;Temple, 2002;Westlund etal,
2014) argued that social capital is key to economic success especially in the long term.
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\\ \\J
More recently, Fortunato and Alter (2016)revealed that higher enh·epreneurship communities
regard creating a supportive local culture at much higher importance level than lower
enh-eprenew·ship communities by compaiing data from six communities in three US states.
Rooks etal (2016)found that socialcapital varies among different cultural contexts. Whilesocial
capital is impo1iant for ent:repreneurs,it should not be viewed individually (Rookset al, 2016).
Thus, understanding local conditions of whether it hinders or encourages entreprenelllial
activities is valuable for regions that ai-e keen to build an entreprenewial ecosystem
However, there tend to be less recognition of entreprenemial activities in peripheral
localities compai·ed with major cities (Henderson, 2002).Poorer social-cultural environment
for entreprenemship in peripheral places can also come from the policymakers' lack of
understanding on local conditions. Vai·ious attempts have been made and can be made in
raising entrepreneurship profile in the local communities such as organising business or
entreprenew- h·aining comses, awards, press releases and competitions (Henderson, 2002;
Isenberg, 2010;North and Smallbone, 2006).In particular, North and Smallbone (2006)
believe that it is important to offer a more inclusive entreprenew-ial training programme
that can particularly benefit the self-employment groups. Equally such programmes need to
be coordinated to avoid duplications or gaps.
lnfras tructure
The emphasis on infrastructme requirements differs depending on the natme of the
business. For instance, the needs of businesses that primai·ily serve the local community
(e.g. cafe, restaurants and shops) are different from businesses that are digital based and
aim to serve national or international clients (e.g. e-commerce and digital gaming).
Peripheral places tend to suffer from poorer transpoti infrastructure like frequent buses,
trains or flights (Henderson, 2002).Such conditions pose batTiers on goods transportation
and knowledge sharing process and hinder the process of developing critical masses
(Henderson, 2002),which, in tmn, make it challenging to build an ecosystem where business
concentration and effective floating of infonnation and resow-ces are key.
Internet is widely used in today's business world and played essential role digital
businesses (Grimes, 2003).However, despite the high internet coverage, peripheral localities
are still lack of high-speed broadband compai·ed with big w-ban cities which make it difficult
to both attract digital business to locate in peripheral places and hinder the development of
such businesses (Henderson, 2002; Grimes, 2003). The costliness for peripheral located
stai·t-ups and SNIEs to gain high-speed internet access imposes a competitive disadvantage
to its mban competitors especially in the digital economy and potentially widen the gap
between peripheral and w-ban areas (Grimes, 2003).In the meantime, affordable access to
broadband telecommunications infrashucture should be supported by necessai-y skills and
services to uncover the maximun1 potential (Grimes, 2003).
Marhets
The economic and entreprenew-ial potential of each peripheral places vai·ies depending on
many factors like available resources (exploited or untapped}, industries distribution,
geographical characteristics, changing needs and shoti-tetm trends in or outside the
community (Henderson, 2002;OECD, 2016).For instance, locations with exquisite natural
scene1-yattract tow-ism-related business (Henderson, 2002).Some tural ai·eas may already
have business with lower staii-up cost such as restaw·ai1ts (Henderson, 2002).North and
Srnallbone (2006)point out that there the rural areas should work on diversifying the farming
and land-based industries in order to adapt to the changing mai·ket.Statistically, agiicultme is
no longer the main source of employment and income in many peripheral areas (OECD,2016).
Other geographic characteristics such as population, distance to other communities,
transportation infrastructure, internet accessibility or education institutions can also affect
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the entrepreneurial act1v1t1es and the responsiveness to market in peripheral places Challenges of
(Henderson, 2002;OECD,2016).For example, quality internet accessibility is a fundamental
building
infrastructure requirement for digital businesses. It also provides a way for entrepreneurs in
peripheral places to access the global market (North and Smallbone, 2006). Due to the
generally low population density and small local market, businesses located in peripheral
entrepreneurial
ecosystems
places need to look out for larger market (OECD, 2016).The digitalisation enables the
marginal located businesses to response to the outside market and develop own competitive
advantages in surviving the global environment (North and Smallbone, 2006).
\\J Policy
It is crucial to take the local condition into consideration when supporting entrepreneurship
activities in peripheral places (Nmth and Smallbone, 2006;OECD,2016)as well as building an
entrepreneurial ecosystem (Isenberg, 2010). While peripheral localities may face similar
challenges in tenns of lack of resources, each place is different and has its own circumstances.
Entreprenew-ship policies are commonly realised in form of tax relief or credit and financial
aids (Assibey-Yeboah and Mohsin, 2011).For instance, the Swedish Business Development
Agency views investment tax credits, venture capital funds, seed and risk financing as critical
elements in suppmting early stage enh·epreneurship activities; seed funds intend to
commercialise university-based R&D outputs are provided in counb.ies such as Australia, the
Netherlands and UK (Lundsh-omand Boter, 2003;Lundstrom and Stevenson, 2005).While the
pressure for measuring the effectiveness of those policies is increasing, it is also accepted that
such effects can only be shown in a long term because aspects such as culture embeddedness
and transfom1ative influence require time to show the outcome (Tominc and Rebemik, 2007;
UNCTAD, 2012;Figueroa-Atmijos and Johnson, 2016).
However, it is commonly found that many entrepreneurship policies are made based on
policymakers' understanding or their assumptions on market inefficiencies which is
questionable on how well those presumptions reflect the real situation (Assibey-Yeboah
and Mohsin, 2011; Mason and Brown, 2014; Figueroa-Armijos and Johnson, 2016). For
example, the tax credits which are commonly used to support technology invention or
more risk inherent research (Wu, 2005;Figueroa-Armijos and Johnson, 2016).Although it
is designed to provide support to the fotmation, growth and survival of the businesses
against market competition and failure, both scholars and policymakers have presented
conflicting views and evidence, namely, increased competition and inequality among
businesses and reduction of government income, etc. (Fritsch and Mueller, 2004; Mueller
et al., 2008; Assibey-Yeboah and Mohsin, 2011; Hicks and LaFaive, 2011). As Johnson
(2007) argues that local circumstances such as culture, existing businesses, market,
funding accessibilities are all great influencers toward entrepreneurship development,
same or similar policies may receive distinct results. For instance, research on the tax
incentives provided by Michigan Economic Growth Authority Credits to businesses
during 1995 and 2002 did not find any positive effect on employment and income at
county level (Hicks and LaFaive, 2011). In comparison, various tax credit incentives
together with other supporting programmes are commonly regarded as key toward South
Korea's advancement in entrepreneurship, particularly in the technology sector (Gilbert
et al.,2004).Therefore, in recognising the significance of geographical characteristics, the
"one size fits all" approach needs changing (Mason and Brown, 2014;Mirzanti et al.,2015).
Conceptual framework of building entrepreneurial ecosystems in
peripheral places
As discussed in earlier sections, peripheral located communities often suffer from limited
social, cultural and economic resources and lack of critical mass which are building blocks
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for entrepreneurial ecosystems. Thus, in order to build a well-functioned sustainable
entrepreneurial ecosystem, peripheral regions need to overcome those ban-iers through
collective efforts and holistic approach. As shown in Figure 2, in the process of developing a
nascent community with potential into a matured entreprenew-ial ecosystem, various
aspects need to be addressed such as finance, talents, socio-culture environment,
infrast:ructure, markets and policy.
Threepiinciplesfor buildingan entreprenewialecosystem
Adopt a collaborativeapproach.A number of attempts have been made to conceptualise a
successful entrepreneurial ecosystem (Isenberg, 2011; Vogel, 2013; Mason and Brown, 2014;
Stam, 2015). Whilst opinions va1y on the precise components of an ecosystem, actors and
elements can be broadly grouped into cultw-al, social and material (Spigel,2017).In this case,
a supportive culture may be considered as encouraging entrepreneurial activities and
contributing to the sustainability of the region (Fritsch and Storey, 2014; Spigel, 2017).
Social resources are described by Spigel (2017)as including network, ventw-e capital, talents,
mentorship and dealmakers. Material elements comprise of the local institutions and
organisations which support enh·epreneurship (e.g. universities, incubators or accelerators,
legal, infrastrncture, public policies and programmes). However, for an effective ecosystem,
it is not sufficient to simply have all the resources in isolation (Mack and Mayer, 2016). It is
essential for different actors to work collaboratively in petiorming and supporting
entrepreneurial activities (Roundy et al, 2017; Malecki, 2009).
Local context is central.There are no two regions with identical conditions and so an
underlying principle of any ecosystemic approach should be that even the smallest of
differences at the local level may combine to create complex and uncertain outcomes over time
and at the broader scales. Merely h-y to copy ''best practice" that worked successfully in other
places without considering local context (e.g. socio-cultural environment, local networks,
available resources and physical conditions) is more likely to cause problems than bringing in
any tangible benefits (Isenberg, 2010; Mason and Brown, 2014; Motoyama et al, 2014). For
instance, the "one size fits all" philosophy used by some policymakers in developing
entrepreneurship policy has been questioned and c1iticised by various scholars (Mason and
Brown, 2014; Mirzanti et al, 2015). Entrepreneurship policies are fmmed based on incomplete
understanding and assumptions made about market inefficienciesand so it is debatable as to
whether these match expectations and local realities (Assibey-Yeboah and Mohsin, 2011;
Mason and Brown, 2014; Figueroa-Armijos and Johnson, 2016).As Johnson (2007)points out
Figure 2.
Conceptual framework
of the entrepreneurial
ecosystem in
peripheral places
Nascent
community
with potential
Source: Authors' own
Finance,
Talents,
Socio-culture
environment,
Infrastructure,
Markets,
Policy
Matured
entrepreneurial
ecosystem
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C
that individual's local conditions vary in aspects like culture, market, funding, infrastrncture Challenges of
are all potentially fatal influencers on the region's entrepreneurship development, same or
building
similar policies may well result in very different outcomes. Therefore, it is key take specific
local context into consideration when building an entrepreneurial ecosystem particularly in
peripheral areas (Isenberg, 2010).
entrepreneurial
ecosystems
Time (having a wng-tenn vision). A well-functioned sustainable entrepreneurship
ecosystem does not appear overnight, there is a long evolutionary process involved
(Neck et al, 2004; Mason and Brown, 2014; Mack and Mayer, 2016). Indeed, Feld (2012)
believes that it requires minimum 20 years with continuous and appropriate collective
efforts to build such an ecosystem in a place. Dw-ing this long journey, various aspects need
to be addressed like culture, key actors, resources, networks and systems (Isenberg, 2010;
Mason and Brown, 2014). In order to sw-vive and grow in this dynamic world and response
to the ever-changing market, key stakeholders within the ecosystem need to response wisely
to changes, may it be internal or external. As shown in Table I, support mechanisms'
priorities change as the ecosystem evolve at different stages: talents, market, finance and
culture are key at the birth stage; carefully designed support programme and policies that
suits local needs are essential at later stages (Mack and Mayer, 2016).However, it also worth
noting that, while government plays a key role in nwtw-ing an entreprenewial ecosystem in
a peripheral area, long-term sustainability is the goal which implies that policymakers
should be carefully to develop an ecosystem that can gradually grow out the potentially
over reliance on public subsidise (Isenberg, 2010). In this process, success can build on
success: a successful "role-model" like company can not only conh·ibute to the ecosystem in
twns of ath·acting resources but also having the spill-over effect.
Casestudy: unpackingthe dynamicevolutionaiyconceptuaflrameworlz
As an illustrative case to support the conceptual development of this paper from the
literatw-e, we will now explore the developing entrepreneurial ecosystem in the case of a
digital gaming cluster in Guildford, a town with in the UK. The main reasons of choosing
gaming industry are threefolded. First, it is a fully digitalised industry and therefore can
demonstrate the potentials and opportunities that digital economy brings. Second, gaming
businesses do tend to concentrate a geographical location over time and demonstrate
the dynamic evolutionary process of an emerging enh·epreneurial ecosystem. Last but the
least, the indust1y has a high requirements on talents and needs coherent support like
legal, accountancy, investment and policy and therefore a good example to put theories
into context.
The early development started in the 1980s with one person, Peter Molyneux, who
co-funded the Bullfrog Productions Ltd and then brought a leading publisher, Electronic
Arts (EA),on board back then (Heritage, 2014;Batchelor, 2015).After developing several hit
titles, the studio was then acquired by EA in 1995 which then triggered a gwwth period of
the region with more studios established in the early 1990s. Later, various acquisition
activities took place in the region. With this initial concentration of talents and companies,
game developers then started to move between companies or set-up their own ventw·es in
Guildford. For instances, companies like Lionhead Studios, Mucky Foot Productions, Media
Molecule, Intrepid Computer Entertainment, Big Blue Box Studios and 22Cans were all
originally set-up by game developers who previously worked at Bullfrog. Echoed with
Ruggill et al's (2016)work, the development of the Guildford's gaming ecosystem benefited
from the larger companies spill-over effect and the resources recycling processes. The
expansion of the original companies started with initial investment which then attracted
1ight talents into the region. When talents are present in the region, their entrepreneurial
behaviow-s can be triggered for various reasons. As Mason and Brown (2014) suggested
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(
JEPP
that the decisions could be more proactive as entrepreneurs decide to take the risk and set-
up new ventures to explore opportunities. In the contrast, it may be a more passive action
that employees are forced to response to unfavourable situations such as businesses
contraction or closure (Mason and Brown, 2014). For instance, it is reported that Peter
MolyneLucfounded the Lionhead Studios because of his frustration on focussing too much
on the commercial side of the business in his previous position. It also worth noting that
developing global-recognised successful games is at the heart of this development: it is
owing to previous successes, continues resources can be attracted to the company and
subsequently the region.
As the regional ecosystem become more successful and increasing recognised in the
global market, resources started to be attracted to the region such as funding and talents.
In Guildford case, funding comes from places like USA, China, Japan and Korea. With
sufficient finance, studios then able to hire more people and naturally grown the community
over time. Gradually, a supportive socio-cultural environment is developed. As Batchelor
(2015)writes "such a high centration of developers has created a friendlier community than
you might expect. While rivalries exist, they never escalate into animosity". However, to
achieve further growth, a more coherent and holistic support mechanism is demanded
(Isenberg, 2010; Mason and Brown, 2014). For instance, in order to retain and enhance
Guildford's global reputation as a significant games development hub, this entrepreneurial
ecosystem still need to work on b.-aining,retaining and attracting right people to the region,
accessing more funding opportunities, providing appropriate professional support and
accessible and convenient infrastructure (Hurley, 2017).In a digital age, a lot of the resources
can be sourced beyond the local region and look at in a global context. In case of Guildford, it
may not too far to think about bring investment companies into the region, but it has
already attracted investments from outside the countries like the USA, China and Korea
benefiting from the increasing connected digital economy. Similarly, while it may be most
convenient for businesses if professional supports like legal or accountancy located nearby,
businesses can still get required services from providers located outside the region.
Therefore, in developing an entrepreneurial ecosystem in peripheral places, it is impmiant
to realise that many resources that are lacking locally can potentially be accessed nationally
or internationally in this digital age.
A matured and sustainable entrepreneurial ecosystem in peripheral places may look
different than the ones in major urban cities. Due to the relatively low population
concentration, it may never have all the players desired (e.g. investors, marketing or PR)
located in the same area. However, resources can be accessed globally if the appropriate
infrastructure and support mechanism were set-up. Thus, it is a key to understand the local
potential and approach the region with a flexible mindset. In case of Guildford's developing
entrepreneurial ecosystem, unique competitive advantages come from the h·aceable
reputation on producing quality and popular games. In maintaining and exploring such
advantages, the fw1damental local resource is talents. Other aspects such as finance,
socio-cultural environment can follow after. However, governments and policy play an
unneglectable role in shaping the ecosystem. For instance, broadband and transport
infrastructure development and upgrade rely primarily on government efforts.
Discussion
A well-functioned sustainable entrepreneurial ecosystem consists of various actors and
resources that are located in a close proximity (Isenberg, 2010;Mason and Brown, 2014).
Rich in resources such as finance, human capital, socio-culture capital, infrastructure,
supports and demand is an essential characteristic of an entrepreneurial ecosystem
(Isenberg, 2010;Mason and Brown, 2014;Stam, 2015;Spigel and Harrison, 2018).However,
peripheral places often suffer from a lack of finance and the right talent (Henderson, 2002;
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Brown, 2018).Low entrepreneurial profile region are often associated with less supportive Challenges of
socio-cultural environment (Fortunato and Alter, 2016). Peripheral places tend to have
building
poorer transport infrastructme (Henderson, 2002)and quality broadband coverage (Grimes,
2003) which poses challenges for the regions to develop their own competitive advantage
and compete in the global market. Governments play an important role in developing an
entrepreneurial
ecosystems
entreprenew-ial ecosystem (Mason and Brown, 2014).However, there are various challenges
to develop appropriate supportive policy that best suits the particular peripheral place. For
instance, local governments need to change their mindsets and work on diversifying the
land-based businesses profiles (North and Smallbone, 2006; OECD, 2016). To do so,
governments need to be able to recognise the potentials that emerge from the local region
and nurture it to grow into a potentially entrepreneurial ecosystem. However, in many parts
of the world, politicians still have a reputation for developing policies and programmes out
of assumptions which later become more damaging than supportive (Assibey-Yeboah and
Mohsin, 2011;Mason and Brown, 2014;Figueroa-A.tmijosand Johnson, 2016).But it should
be well recognised that right policy interventions can become the engine of entrepreneurial
ecosystem development in peripheral areas and it should be. For instance, the "green
economy" initiative brings in large bulk of a $1 trillion investment in rural areas (OECD,
2012).Zhong Guan CW11S development is resulted from the Chinese Government's initiative
to develop a technology-driven entrepreneurial ecosystem.
As illustrated in the conceptual framework, peripheral place can take advantage of the
digital technology and building an entrepreneurial ecosystem of its own kind through a
holistic collaboration to tackle issues around finance, talents, socio-culture environment,
infrastructure, markets and policy. Exiting urban ent·epreneurial ecosystems (e.g. Silicon
Valley, Boston, New York, Shanghai) tend to have all key resources concentrate within the
region. However, this strong regional focus can be challenged in this digitalised era. With
the help of digital technology, resources can be obtained beyond the local region to
support entrepreneurship activities and subsequently the development of entrepreneurial
ecosystems in peripheral places. It is also critical to understand that those resources
should not be situated in isolation but integrates and collaborate as a whole to offer a
coherent and holistic supporting environment for entrepreneurs and businesses to grow
(Mason and Brown, 2014). For instance, in case of Guildford's gaming industry, talents
attract investments and investments then bring in more talents which then build the
foundation of the emerging ecosystem. However, it would not be the case if appropriate
infrastructure was not set-up and the wider global market was not accessed.
Governments' recognition of the importance of the industry also helps the development
of the ecosystem.
As Neck et al. (2004),Mason and Brown (2014)and Mack and Mayer (2016)argued, the
entire maturity process of an entrepreneurial ecosystem takes decades. In this
evolutionary process, activities and interactions are dynamic and change over time
which requires actors within to react accordingly particularly the policymakers. In
peripheral places, critical observation and carefully crafted support programme are the
foundations of growing with its growing ecosystem. In case of Guildford, the initial
development requires appropriate infrastructure so that development activities can take
place. However, as the ecosystem evolves focus is placed upon the need to not only attract
and train the right talent, but also how to retain it - particularly under the W1certainty
brought about by Brexit. As the ecosystem keeps growing, requirements on infrastructure
evolves as well. For instance, more and possibly larger office space is demanded as
companies grow which signals that there is need to review the town planning to meet the
growing needs. Thus, it is essential for policymakers and other actors within the
ecosystem of peripheral places to take the local context into consideration and plan with a
long-term evolutionary and critical view.
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Conclusions, limitations and future research
Peripheral places face many challenges in building well-functioning, sustainable
entrepreneurial ecosystems due to its remoteness and lack of resources. However, as
illustrated in the conceptual framework, coherent and holistic efforts to develop finance,
talents, socio-cultural environment, infrastructure, markets and policy can help foster
vibrant ecosystems. However, stakeholders and policymakers need to consider the three
main principles of building an entreprenew-ial ecosystem: adopting a collaborative
approach; grounding interventions in the local context; and building with a long-term vision.
This conceptual framework of building an entrepreneurial ecosystem in peripheral places
integrates research on the increasingly popular concept of the ecosystem with the specific
contextual issues of peripheral places.
Often in a disadvantage position, it is difficult for peripheral places to attract necessary
resources to develop and nurture an effective and sustainable entrepreneurial ecosystems
compared to their urban counterparts. While private institutions are generally
profit driven, policy need and can play an influential role in driving the process of
developing entrepreneurial ecosystems in peripheral places. First of all, policymakers
should adopt an entrepreneurial mindset and understand the local circumstances and
what the local places might have on offer and identify entrepreneurial potentials. Such
potential could come from the land itself such as the natural views and agriculture
products. But it could also relate and explore ways to branch into higher value added
industries. However, essential infrastructures such as quality internet, workspace, energy,
transport are required make this happen. Policy could contribute in terms forms like
investments or incentives. Dedicated investments programmes and incentives can be used
to attract talents and businesses to the region. For instance, Shenzhen, transformed from
the once desolate little finishing village to now the third largest city by economic output in
China, was benefitted from a serial policy support since 1980s. The serial policies are
carefully crafted and designed for the place and revised regularly. Thus, it is also
important for policymakers to understand that building an entrepreneurial ecosystem
is a continuous process that requires decades' of dedicated effort. Thus, while it is
important to have short-term goals, it is essential to have a long-term vision. Future
research could investigate this perspective further, particularly with empirical evidence
from peripheral places.
The paper discusses characteristics of an entrepreneurial ecosystem and identifies
challenges that peripheral places face and the possible ways to address these. The focus has
been on developing a conceptual framework to inform future empirical research with data
from peripheral places. Potential research avenues may also look at how digital technology
can transfo1111peripheral places and support entrepreneurial ecosystem growth and
development. Moreover, specific conditions of peripheral places vary dramatically, thus a
further typological work will enhance our understanding of impacts of local context.
Furthennore, we acknowledge that the conceptual framework is not monumental and
particularly still requires further empirical inputs to enhance the generalisability toward
wider scenarios. Thus, future research could contribute to the discussion and further
develop the framework.
Notes
1. "Entrepreneurship ecosystem" and "entrepreneurial ecosystem" have been used interchangeably
in reviewed literatw-e, thus the two phrases are treated as synonymous.
2. Socio-cultural capabilities of farm entTepreneurs include a democratic environment (freedom of
expression), transparency in the management of village issues, and openness in decision-making
processes (Naminse et al, 2018).
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Corresponding author
Zirnu Xu can be contacted at: zimu.xu0@grnail.com
For instructions on how to order reprints of this article, please visit ow· website:
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Technovation 32 (2012) 110-121
Contents lists available at SciVerse Sc.ienceOirect
Technovation
journal homepage: www.elsevier.com/locate/tech
novation
The Evolution of Business Incubators: Comparing demand and supply of
business incubation services across different incubator generations
Johan Bruneel a.b, Tiago Ratinho c.*, Bart Clarysse a.b, Aard Groen c
·'Imperial CollegeBusinessSchool. Imperial CollegeLondon, South Kensingron Campus. Landon SW7 2AZ, UK
"Faculty af Economicsa,id BusinessAdministration. Ghenc University, Haveniersberg24. 9000 Gene.Belgium
'Nikos. Ducch lnstirute for Knowledge Intensive Entrepreneurship, University of Twente, Postbus 217, 7500 AE Enschede. The Netherlands
ARTICLE
INFO
Available online 3 December 2011
Keywords:
Business incubation
Business support
Entrepreneurship
ABSTRACT
Business incubators (Bis) have been established around the world to stimulate new business creation.
Whilst it is accepted that incubation models have evolved, little is known about whether existing
incubators have adjusted their value proposition to incorporate recent incubation paradigms or have
simply remained operating as originally founded. We present data collected within seven Bis and their
tenants regarding service provision and selection criteria. Our findings show that whilst Bis of all
generations offer similar support services, tenants in older generation Bis make less use of the Bi's
service portfolio. We suggest this is a consequence of slack selection criteria and the absence of clearly
defined exit policies. These results imply that older generation Bis should update their service portfolio
while simultaneously imposing stricter selection criteria and introducing exit policies. Finally, we
discuss the wider implications this raises for Bis' managers. prospective tenants and policy makers.
© 201 I Elsevier Ltd. All rights reserved.
1. Introduction
Business incubators (Bis) are popular tools to accelerate the
creation of successful entrepreneurial companies. There are about
900 Bis in the European Union (EC, 2002) and over 1400 in the US
(Knopp, 2007), numbers showing a marked increase in recent
decades. As Bis are often publicly funded (Lewis, 2001: OECD,
1999, 2010), this corresponds with a growing interest of policy
makers in making Bis a central tool in economic rejuvenation
programmes. Bis typically support new ventures in the hope they
will later develop into self-sustaining, thriving companies. This
support encompasses several dimensions such as office space,
shared resources, business support, and access to networks (e.g.
Barrow, 2001: Smilor and Gill, 1986).
Practitioner publications often claim the benefits of Bis (Lewis,
201 O; NBIA, 2011 ). There is, however, little systematic evidence of
Bis' efficacy in promoting job and wealth creation (Massey et al.,
I 992; Phan et al., 2005). Furthermore, research has found little or
no evidence ofBls' contribution to university-industry interaction
( Rothaermel and Thursby, 2005a, 2005b ), innovation activity
(Colombo and Delmastro, 2002), or firm performance (Pena,
2004). Hackett and Dilts (2004) suggest that this is a consequence
of the recurrent absence of an adequate theoretical lens to
• Corresponding author.
E-mail addresses:j.bruneel@imperial.ac.uk U-Bruneel).
b.clarysse@imperial.ac.ul< (T. Ratinho), tiago.ratinho@utwente.nl
a.j.groen@utwente.nl (A. Groen).
(B. Clarysse).
0166-4972/S - see front matter '""2011 Elsevier Ltd. All rights reserved.
doi: 10.1016/j.technovation.201 I. I 1.003
consistently analyse Bis' activities. We argue that understanding
the evolution of Bis' value proposition over recent decades is vital
to understand and assess their impact on incubated firms.
Bis became widespread in the 1980s. primarily as providers of
office space, agglomerating companies under the same roof
(Adkins, 2002; Lalkaka and Bishop, 1996). This value proposition
evolved quickly during that decade when lack of business exper-
tise became evident as a similarly important barrier to new firms'
success. Throughout the 1990s. Bis expanded their value proposi-
tion beyond offering infrastructure, providing in-house business
support services geared towards accelerating new firms' learning
process (Lalkaka and Bishop, 1996). Recently, the value of these
networks for new firms triggered a new type of Bis that include
preferred access to networks as part of their value proposition
(Hansen et al., 2000). Current Bis constitute the third generation
of incubators typically focused on new technology-based firms
(Aerts et al., 2007), in contrast to the first generation emphasizing
real estate provision and the second generation including intan-
gible services. Yet extant literature largely overlooks how this
evolution of Bis' value proposition has affected service portfolios
and management practices. Large scale and industry studies, for
example, (EC, 2002; Knopp, 2007; OECD, 1997, 1999; Tornatzky
et al., 2003) show differences in Bis' value proposition but fail to
offer an explanation. Moreover, findings from previous studies
including only first and/or second generation Bis may not neces-
sarily apply to the current generation. Hence, our first research
question: to what extent has the value proposition of first and
second generation Bis evolved to meet that of the current
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Ill
generation? Arguably, differences between Bis' value propositions
would only be observable if assessed by tenants themselves.
Therefore, our second research question seeks to understand the
extent to which the value proposition of each generation of Bis
caters to their tenants' needs.
2. Business incubators' value proposition
Despite the relative maturity of Bis both as a practice and as a
research field, a consensual definition for Bis is yet to be found
(Table 1). In their comprehensive Bl research overview, Hackett
and Dilts (2004) state that a "business incubator is a shared office
space facility that seeks to provide its incubatees ( ... ) with a
strategic, value-adding intervention system of monitoring and
business assistance" (p. 57). This echoes the commonalities found
between other definitions advanced by industry associations
(NBIA, 2007; UI<Bl, 2007), large scale studies (EC, 2002; OECD,
1997) and in academic work (Aernoudt, 2004; Sherman and
Chappell, 1998) (Table 1). In summary, Bis are property based
Table 1
Definitions of business incubation.
National Business Incubation Association {NBIA.2007). Business incubation
is a business support process that accelerates the successful development of
start-up and Oedgling companies by providing entrepreneurs with an array of
targeted resources and services. These services are usually developed or
orchestrated by incubator management and offered both in the business
incubator and through its network of contacts. A business incubator's main
goal is to produce successful firms that will leave the programme financially
viable and freestanding. These incubator graduates have the potential to
create jobs. revitalize neighborhoods. commercialize new technologies. and
strengthen local and national economies.
United l<ingdom Business Incubation (Ul(BI. 2007). Business Incubation is a
unique and highly nexible combination of business development processes.
infrastructure and people. designed to nurture and grow new and small
businesses by supporting them through the early stages of development and
change.
European Commission (EC. 2002). A business incubator is an organization
that accelerates and systematises the process of creating successful
enterprises by providing them with a comprehensive and integrated range of
support. including: Incubator space, business support services. and clustering
and networking opportunities.
By providing their clients with services on a ·one-stop-shop' basis and
enabling overheads to be reduced by sharing costs. business incubators
significantly improve the survival and growth prospects of new start-ups.
A successful business incubator will generate a steady Oow of new businesses
with above average job and wealth creation potential. Differences in
stakeholder objectives for incubators. admission and exit criteria. the
knowledge intensity of projects, and the precise configuration of facilities and
services. will distinguish one type of business incubator from another (p. 9).
Organisation for Economic Co-operation and Development (OECD, 1997).
Technology incubators are a specific type of business incubator: property-
based ventures which provide a range of services to entrepreneurs and start-
ups. including physical infrastructure (office space. laboratories). management
support (business planning. training. marketing). technical support
(researchers. data bases). access to financing (venture capital funds. business
angel necworl<s). legal assistance (licensing. intellectual property) and
networking (with ocher incubators and government services) (p. 4).
Aernoudt (2004) An interactive development process where the aim is to
encourage people to start their own business and to support start-up
companies in the development of innovative products. ( ... ) Besides
accommodation. an incubator should offer services such as hands-on
management. access to finance (mainly through links with seed capital funds
or business angels). legal advice. operational know-how and access to new
markets (p. 127).
Sherman and Chappell ( 199S). Business incubator is an economic
development tool primarily designed to help create and new businesses in a
community. Business incubators help emerging businesses by providing
various support se1vices. such as assistance in developing business and
marketing plans. building management reams. obtaining capital, and access to
a range of more specialized professional services. They also provide flexible
space. shared equipment. and administrative services (p. 3 I 3 ).
initiatives (Phan et al., 2005) providing their tenants with a mix of
services encompassing infrastructure, business support services
and networking (Bergek and Norrman, 2008; Hansen et al., 2000;
Lalkaka and Bishop, 1996; Peters et al., 2004 ).
The goal and some impacts of Bis are also part of most
definitions made by industry and large scale studies. The NBIA
(2007) exemplifies this in claiming that graduating companies
will be sustainable, and also help support technology commer-
cialization and regional development. The EC study (2002) high-
lights the tenant firms' superior growth and their increased
survival prospects. Researchers' definitions tend to focus more
on their business support portfolio. specifying areas such as
access to professional services (Sherman and Chappell. 1998) or
capital (Aernoudt, 2004) as part of Bis' value proposition. Impor-
tantly, the NBIA definition emphasizes the role of the incubation
manager and the relevance of providing services targeted at
tenant companies' needs.
The concept of business incubation evolved since the estab-
lishment of the first Bis. Academic research has accompanied this
evolution although. most published studies are descriptive and
use no consistent theoretical lens (Hackett and Dilts. 2004). We
advance the worl<ing hypothesis of a generational sequence of Bis.
and demonstrate that each generation of Bis added one dimen-
sion to their value proposition. Furthermore, we link each
dimension to a different theoretical insight, namely economies
of scale, learning, and networking theories.
2.1. Evolution of business incubation: extending the value
proposition
2.1.1. Infrastructure: economies of scale
The first Bis were established in the USA in the 1950s (Adkins,
2002). The concept became widespread in the 1980s and spread
to the rest of the world in a variety of forms (business centres,
innovation centres, etc.) (EC, 2002). These first generation Bis
offered affordable office space and shared resources (Barrow,
2001: Lalkaka and Bishop, 1996). Infrastructure is the basic
function common to all kinds of Bl and the core of their value
proposition (Allen and McCluskey, 1990); it consists of office
space rented in favourable conditions to incubatees ( Bergek and
Norrman, 2008). Furthermore, Bis often have small production
facilities or mixed units available to tenants (OECD. 1997).
Provision of space is critical to business incubation and has been
identified by tenants as the most beneficial feature of Bis (Chan
and Lau, 2005 ). Shared resources such as reception. clerical
services, meeting rooms, conference rooms or car parking (EC.
2002; McAdam and McAdam, 2008) often complement office
space and are normally available in Bis. More specialized
resources, such as laboratories and research equipment. can also
be regarded as part of an infrastructure proposition (Grimaldi and
Grandi, 2005).
Tenants profit from existing economies of scale within Bis
when renting office space together with shared resources. First.
the existence of scale economies reduces tenants' overhead costs:
each tenant enjoys office space together with a shared resources
bundle including energy, water, telecommunications and clean-
ing. Second, Bis provide new firms with services they probably
would not otherwise have access to during such early develop-
mental stages, such as meeting rooms, reception services and
private parking spaces. Third, this offer also eliminates the burden
of planning, setting up and paying individual providers. Tenant
companies do not have to put effort and time in managing
complementary services. allowing them to concentrate on their
core activities. Finally, the economies of scale are, in many cases,
strengthened by Bis' subsidy generating capacity, which they
partly share with their tenants.
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}. Brunee/ er al./ Tec/111ovacio3121 (2012) 110-121
2.1.2. Businesssupport: acceleratingthe learningcurve
Governments in Europe and in the US were confronted during
the 1980s with accelerating unemployment in mainstream sec-
tors such as automobiles and heavy engineering (Reich, 1991 ). It
became clear that innovation and technology were becoming the
cornerstones of economic growth and that new strategies were
necessary to revitalize economies. Bis became a popular tool to
promote the creation of new technology-intensive companies
(Lewis, 2001 ). Such companies need additional specific services
beyond just affordable office space and shared resources. Nascent
technology-intensive companies typically lack business experi-
ence and marketing skills and therefore may have limited chances
for survival. Bis in this period reacted by including knowledge
based services in their value proposition. As a result, this second
generation of Bis already represented much more than just a
physical arrangement for start-up companies (Smilor and Gill,
1986).
New firms often lack the necessary management skills and
experience to cope with sudden environmental shifts and rapidly
changing environments. Through a process of learning-by-doing,
new firms change their behaviour and develop novel sets of
routines. These routines include forms, rules. procedures. and
strategies around which organizations are constructed and
through which they operate (Levitt and March, 1988). People
evaluate and make sense of the effects and organizational out-
comes of past actions, and draw conclusions. which reshape their
cognitive orientation (Bigley and Wiersema, 2002) and changing
behaviour within the company. Developing routines and capabil-
ities through experiential learning is a slow and gradual process
(e.g. Dosi et al., 2000). The absence of such routines in firm's early
stages contributes to a higher failure propensity (Freeman et al..
1983). At the same time, imperfect knowledge makes identifying
and hiring relevant expertise very difficult. Moreover, founders
may benefit from active coaching in addition to training (Clarysse
and Bruneel, 2007; Kirwan et al., 2006). Consequently, incubated
firms may avoid a process of trial and error and ascend more
quickly the learning curve. As a result, these new ventures should
be able to make better and faster decisions, resulting in better
strategies and, eventually, higher firm performance (Eisenhardt,
1989b). Moreover, training sessions on relevant topics may
contribute to increase ventures' knowledge bases and therefore
positively impact on their development and performance
(Colombo and Grilli, 2005; Davidsson and Honig, 2003).
Business support services such as coaching and training are
crucial elements of learning within Bis. Coaching is typically
mentioned as an important service that Bis provide to their
tenants (Hansen et al., 2000; Mian, 1996). ·coaching' refers to
one-to-one support initiatives geared to accelerate tenants' learn-
ing and skill development processes, generally involving tenant
firms being assigned coaches or mentors, either for a fee or free of
charge (e.g. Barrow. 2001; Knopp, 2007). Such coaching typically
covers both scientific and managerial areas of expertise (Clarysse
and Bruneel, 2007). Coaching interactions between the incubated
company and Bl management increases tenants' understanding of
buyer preferences (Scillitoe and Chakrabarti, 2010). Business
support also is critical to tenants' timely graduation (Peters,
et al.. 2004), via its impact on firm development (cf. Robson and
Bennett, 2000). Training is also often available within Bis (Aerts
et al., 2007; Barrow, 2001) and has been found to positively
influence tenants' performance (Peiia. 2004).
2.1.3. Networks:facilitating accessco external resources,knowledge
and legitimacy
The third generation of Bis emerged during the 1990s with an
emphasis on providing access to services via external networks
(EC, 2002; Lalkaka and Bishop, 1996). Network exploitation by Bis
provides tenants with preferential access to potential customers,
suppliers, technology partners and investors (Hansen et al .. 2000;
Scillitoe and Chakrabarti. 201 OJ.Institutionalized networks estab-
lished and managed by Bis ensure that networking is no longer
dependent on individuals' personal networks or contacts
(B0llingtoft and Ulh0i, 2005). Hansen and colleagues posit that
networking is the most important factor in successful Bl pro-
grammes (2000), and empirical evidence suggests that access to
networks is critical for Bis' tenant companies' development
(McAdam and McAdam, 2008). In essence, facilitating access to
external networks by Bis eases the acquisition of resources and
specialized expertise, provides learning opportunities, and allows
new firms to build up legitimacy faster.
In providing access to networks, Bis are contributing to
helping new firms overcome their inherent resource scarcity.
The lack of financial capital, experienced management teams,
and capabilities hinders start-up companies' development and
subsequent growth. Research shows that these firms can over-
come their resource constraints through networking, and thereby
accelerate firm growth (Zhao and Aram, 1995). Larson (1992)
argues that entrepreneurial companies use networks to access
resources beyond their financial capacity. Bis build networks with
early stage investors such as business angel networks and venture
capitalists, which reduce the search costs for tenants companies.
Alongside providing necessary funds, venture capital investors
can also play an important role in the professionalization of the
venture (Gorman and Sahlman, 1989). Venture capitalists typi-
cally have a control function, supervising the firm's activities to
safeguard their own investment, in tandem with supporting the
growth of their portfolio companies. Consequently, venture capi-
talists contribute to the firm's development by meeting their
financial needs as well as professionalizing organizational struc-
ture and managerial processes (Hellmann and Puri, 2002). Simi-
larly, new firms can seldom access established networks for hiring
specialized advice on highly specific topics such as technology
development via linkages with academic institutions (Schwartz
and Hornych, 2010), strategy consulting (Lee and Osteryoung,
2004) or patent attorneys (Rice, 2002). For instance, a venture
seeking professional advice on a specific field of IP expertise
might lack the financial means to pay high consultancy fees.
Partnering with other organizations also offers the opportunity
to acquire new knowledge (Vii-Renko et al., 2001) and develop
new capabilities (Lane and Lubatkin, 1998). Building knowledge
and capabilities through inter-organizational relationships is
faster than where the firm to internally develop the knowledge
and capabilities (Bruneel et al., 2010). The acquisition of knowl-
edge and real-time information is especially important in high-
velocity markets where knowledge is advancing rapidly
(Eisenhardt, 1989b). Networking with other companies also
provides firms with greater legitimacy in the market place
(Aldrich and Fiol, 1994) which in turn has a positive impact on
their survival chances. Several studies have demonstrated that
new firms have little organizational legitimacy, thereby limiting
their opportunities for resource acquisition and reducing their
survival propensity (e.g. Freeman et al., 1983; Hannan and
Freeman, 1984). Singh et al. ( 1986) showed that the acquisition
of legitimacy through exchange relationships with other organi-
zations increases firms' survival chances. Table 2 summarizes the
evolution of Bis and the theoretical rationale of each dimension.
2.2. Selectioncriteriaand exit policy of business incubators
Alongside the service portfolio, business incubation also
requires appropriate selection criteria and exit policies. These
managerial features have been considered to be among one of Bis'
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113
Table 2
Summary of the evolution of business incubation's value proposition.
First generation
Second generation
Offering
Theoretical rationale
Office space and shared resources
Economies of scale
Coaching and training support
Accelerating the learning curve
Third generation
Access to technological. professional. and financial networks
Access to external resources. knowledge, and legitimacy
most important management features (Aerts et al., 2007; Lee and
Osteryoung, 2004; Lumpkin and Ireland, 1988). If Bis select their
tenants from a variety of sectors, for example, then providing
tailored infrastructure, business support services and access to
networks is more difficult than for a more homogeneous or
sector-specific tenant population. Indeed, sector-specific Bis can
achieve higher levels of economies of scale as their offerings are
more specialized and tailored, with specialization increasing Bis'
added value for tenant companies (Hansen et al., 2000; Schwartz
and Hornych. 2008~
Firm age plays an important role in building organizations'
capabilities and routines (Autio et al., 2000). In contrast to older
organizations, young firms must actively shape their organiza-
tional structure. processes, and routines. Older organizations have
developed substantive capabilities (Zahra et al., 2006) which
hampers their ability to change their existing capability set and
makes it more difficult to unlearn established routines. Organiza-
tions' needs also change as they grow, mature, and become more
established (Clarysse and Bruneel, 2007) as do their typical
problems encountered (Kazanjian, 1988). This is illustrated by
the need for financing. which evolves in different stages, with
those stages themselves changing in the different phases of the
company lifecycle (Cieply, 2001 ). More generally, heterogeneity
in terms of firms' age implies that Bis must implement different
kinds of support mechanisms as firms' needs change as they
develop (Vohora et al.. 2004). But, as Bis' primary function is to
support new venture creation (Aernoudt, 2004), there need be a
recognition that services should focus firms' needs early in their
life cycle, rather than helping relocating businesses.
Bis' exit policy should underpin an reasonable turnover of
tenants, thereby also contributing to a more specialized service
portfolio. An important characteristic of Bis is therefore timely
tenant graduation (Rothaermel and Thursby, 2005a). Bis should
enforce graduation within a 3-year period, a relatively conserva-
tive time window (Rothaermel and Thursby, 2005a). Bis thus
often incrementally increase rental rates to induce tenant gradua-
tion (Allen and McCluskey, 1990; Peters et al., 2004 ).
3. Research design
3.1. Researc/Jcontext
We utilize the multiple case study method to research the
differences among generations of Bis. By doing so, we seek to
advance the incubation literature by focusing on the "how" and
"why" rather than the "what" questions (Hackett and Dilts, 2004).
We therefore selected a small number of representative cases,
following Eisenhardt and colleagues' recommendations ( 1989a;
2007). First. we wanted a representation of three generations of
Bis. Hence. we selected Bis established in different time periods
( 1980s for the first generation, early 1990s for the second genera-
tion. and late 1990s-early 2000s for the third generation). Second.
we selected Bis with a clearly stated mission of supporting new
business creation. Whilst such a mission might seem a universal
property of Bis, in reality some Bis seek to help existing companies
to grow. We acknowledge that this research approach entails
some shortcomings, especially with respect to generalizability and
interpretative bias, and we therefore focused on a few best
practices within each generation rather than the adoption of a
general standard. Case study research is considered a powerful
empirical research method to produce often unanticipated
insights, and our case can be categorized as exploratory since
our research question is to gain insights in the evolution of the
value proposition of Bis (Yin, 2009).
The data for this paper was collected in two large projects
exploring European Bis' best practices. In both projects. partici-
pating Bis were self-selected, denoting a willingness to improve
incubation practices as well as to learn with peers. Also. research-
ers and practitioners worked collaboratively to ensure rigour of
the topics explored as well as relevance of the results obtained
(Schiele and Krum maker, 2011 ). Whilst this does not constitute a
random sample. we contend that such cases provide a represen-
tative example of each Bl generation. We note that previous
studies have also used similar project-based data to overcome the
difficulties of obtaining data on Bis and incubated companies (e.g.
Carayannis and von Zedtwitz, 2005; Grimaldi and Grandi, 2005;
Pena, 2004).
We study the Bedrijfs Technologisch Centrum Twente (NL) and
Technologief6rderung Munster (DE) as examples of first generation
of Bis. The Bedrijfs Technologisch Centrum Twente (BTC) com-
menced operations in 1982. Located adjacent to the University of
Twente campus in Enschede. the Bloffers tenants about 4700 m 2 of
office space, workshops, and laboratories. The centre is profit
oriented with its shareholders the University of Twente. Saxion
University of Applied Sciences, ABNAMRO and Ten Hag, a regional
real estate company. Its current mission is to house innovative
high-tech companies with a preference for spin-out companies
from the University of Twente. In recent years, BTC has been
involved in several international projects sharing incubation best
practices. Technologief6rderung Munster (TFM) founded its first
building in 1985. Principally owned by the City of Munster (88%). it
provides its tenants with 6900 m2 of office space, workshops,
laboratories and mixed use units. TFM is a non-profit regional
development agency, promoting entrepreneurship courses in the
region as well as managing regional networks in specific knowl-
edge areas (e.g. Geonet2werk Munsterland), often in partnership
with local universities and research centres. In this study, we only
consider companies located within the TFM's Technology Center.
The cases included in the second generation Bis are the
Erasmus European Business & Innovation Center (BE) and Jtilich
Technologiezentrum (DE). The Erasmus European Business &
Innovation Center (EEBIC) was created as a for-profit incubation
centre in 1992 at the initiative of the Brussels-Capital Region
and the Universite Libre de Bruxelles. The 6000 m2 centre aims to
stimulate and support high-tech entrepreneurs in the region. The
incubation centre has a strong link with the Universite Libre de
Bruxelles and plays an important role in university's research
valorisation. Alongside an annual subsidy, EEBIC generates
income from coaching services it provides to tenants, and office
space rental. Jiilich Technologiezentrum UTZ) is part of a large
network of German Bis (360 in total) and located in the Cologne-
region. The centre was created to stimulate research commercia-
lization of the nearby Research Centre through the creation
of spin-off activity. With this purpose in mind, the regional
government and the city of Julich made an initial investment of
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j. Bruneel er al./ Teclmovacion 32 (2012) 110-121
15 million Euros. The centre did not receive further subsidies after
founding nor does it take shares in the tenant companies. making
office space rental JTZ's sole revenue source.
We selected Chalmers Innovation (Se), Normandie Incubation
(Fr), and the Innovation Centre (UK) as cases to represent the
third generation Bis. Chalmers Innovation (Cl) has been widely
recognized and subsequently discussed in the literature as a best
practice (e.g. Jacob et al., 2003). Chalmers Innovation's creation
resulted from a five million Euro donation from "The Sten A.
Olsson Foundation for Research and Culture" in 1997. This
enabled the development in 1999 of a new 5000 m2 centre for
"innovation related activities" - Chalmers Innovation -near to
Chalmers University of Technology. Given the strong link with
Chalmers University of Technology, the centre focuses on the
incubation of technology-oriented start-ups. Cl's business model
is based on three components: office space rental, subsidies and
revenues from investing in the tenants. Normandie Incubation
(NI) was established in 2000 as a direct result of the so-called
French Law on Innovation and Research. This legislation sought to
improve the valorisation of public research and made available in
total 30 million Euros to set up Bis across France. NI brought
together the Universite de Caen Basse-Normandie, the Ecole
Nationale Superieure d'lngenieurs de Caen and the Grand Accel-
erateur National d'lons Lourds as founders. Besides those three
high education institutions. there are 14 further associate mem-
bers (mainly regional public and private research institutes). NI
selects nascent ventures based on their innovativeness and it
allocates a maximum of 50.000 Euros for 24 months to support
their establishment. NI is a small non-profit Bl (300 m2 for
tenants) deriving its revenue primarily from national and regional
public institutions. its members and European projects. Its
tenants are required to pay rent with a two year lag and no
interest. The Innovation Centre (IC) at DeMontfort University was
founded in 2001 within its Leicester City Centre campus. The IC
has 18 office units including two dedicated workshops for small
production manufacturing and prototyping. The centre operates
on a not-for-profit basis: revenues come primarily from the public
sector (75%) and tenants' rental payments (25%). Table 3 provides
an overview of the seven Bis' main characteristics.
3.2. Data collection and methods
We employed a two-step research design that spans a quali-
tative study of the selected Bis and a quantitative study of their
tenants. First. we performed in-depth case studies of the supply
side of incubation (Bis). The qualitative research methodology
was preferred given the need for a deep understanding and local
contextualization of the topic (Miles and Huberman, 1994). As
suggested by Yin (2009). we undertook a comparative study to
benchmark the different generation of Bis. The data for the first
step was collected during semi-structured face-to-face interviews
with key staff of Bis including as the manager and business
developers; they are seen as expert advisors in their Bis. The
number of key staff interviews ranged from three to six per Bl.
depending on the size of the Bi's management team. Interviewing
multiple informants per Bl permitted triangulation of the data
(Yin, 2009). These interviews had two goals: (a) to gain insight
about the Bi's background, covering characteristics including
shareholders. strategy, and brief history; and (b) to map the value
proposition offered to tenants in terms of infrastructure. business
support services, and access to networks. The use of semi-
structured interviews allowed interviewees to formulate their
view on the Bl through dialogue rather than simply answering a
strict set of questions (Kvale, 2008). The semi-structured inter-
view format serves as a guide to ensure all topics are covered. The
length of the interviews was typically between 60 and 90 min.
The material was first read by all the different researchers
involved, when points of interest were noted (Bryman, 2007).
These different points of interest were then divided into several
dimensions and combined with existing literature in order to
identify differences and similarities between the cases (Easton.
1992). In this exercise, dimensions such as distinctive strategic
objective (for-profit or not-for profit) (von Zedtwitz and Grimaldi,
2006), range of services offered (Chan and Lau, 2005), and sources
of funding (Campbell and Allen. 1987) emerged. and the findings
of this analysis are discussed further in Section 4.
In the second step of data collection, we interviewed a member
of tenant companies' senior management - typically a founder or
CEO - using a standardized questionnaire. Together with general
company information (including age, size. and sector of activity), a
key issue for these interviews was to gain insights into the extent
to which tenants regarded the value proposition of their Bl
positively. The answers where then coded dichotomously corre-
sponding to asking closed (yes/no) questions concerning usage of
each available service. The data collection was carried out from
early 2005 to late 2006. In total, we interviewed 71 tenants with a
Bl response rate ranging from 40% (EEBIC) to 75% (NI). To ensure
data triangulation (Yin, 2009), we duly collected additional data
about the seven Bis and the 71 tenant companies via a range of
secondary sources such as websites. organization brochures,
annual reports, newsletters, and press releases. To reduce the
potential of researcher bias, data collection at the Bis and tenants
was shared among five researchers (all with prior interview
experience). To increase data collection procedure uniformity
across the different countries. the surveys were developed in
English and all interviews were conducted in English.
4. Supply side of business incubation
This section focuses on the analysis of the supply side of
business incubation by looking at Bis' value propositions. We
Table 3
General characteristics of the researched business incubators.
first generation
Second generation
BTC
TF Munster
EEBIC
Jiilich TZ
foundation date
Region
Business model
Office space (m 2 )
Maximum number of
tenants
1982
Overijssel
(NI)
Profit
4700
68
1985
Miinsterland
(De)
Not-for-profit
6900
42
1992
Brussels-Capital Region
(Be)
Profit
6000
23
1992
Cologne area
(De)
Not-for-profit
8000
36
Third generation
Chalmers
Innovation
Normandie
Incubation
1998
2000
West Sweden (Se) Lower Normandy
{fr)
Profit
Not-for-profit
5000
300
18
18
Innovation Centre
@DMU
2001
East Midlands (UI<)
Not-for-profit
650
18
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j. Brunee/ er al. J Teclrnavacion 32 (2012) 110-121
115
compare what Bis provide in terms of infrastructure, business
support, and access to networks; we then discuss their selection
criteria and exit policies. We group the analysis by Bl generation.
4.1. Value proposition
4.1.1. Infrastructure
No significant differences regarding infrastructure across gen-
erations of Bis were found (Table 4). All provide turnkey office
space, with the majority also offering small workshops and mixed
premises for prototyping or small scale production. Reception,
clerical services, parking and meeting rooms exist in every BI.
4.1.2. Business support
Bis of every generation provide coaching to their tenants
companies (Table 4). although there are differences in the way
they provide this kind of service. Erasmus European Business &
Innovation Center (EEBIC),Chalmers Innovation (Cl) and Norman-
die Incubation (NI) stated they have in-house coaches: EEBICand
CI assembled a team of experts while within NI, the management
team is the main source of coaching. Bedrijfs Technologisch
Centrum Twente (BTC) and the Innovation Center (IC) provide
tenants with outsourced coaches: BTC through one coach who is
also an BI tenant while IC do this via a limited group of experts.
Technologieforderung MUnster (TFM) did not mention formal
coaching either in-house or externally.
We considered training as consisting of formal organized
workshops, seminars and access to complementary information.
All generations of Bis provide this service to their tenants. While
some frequently organize training sessions covering a range of
small business and entrepreneurship topics (EEBICand IC). others
provide further training passively (BTC and TFM frequently
distribute newsletters and announcements to their tenants) or
grant access to workshops of some of their stakeholders UUlich
Technologiezentrum and Cl).
4.1.3. Access to networks
Professional business services are available for all generations
of Bis. Access to these services may be provided passively by co-
locating with these services, including university technology
transfer offices, consulting firms. insurance companies and pro-
ject management firms (e.g. JUlich Technologiezentrum) within
the Bi's premises. Conversely, Chalmers Innovation (Cl) nego-
tiated preferential agreements with major accounting, law and
consulting firms to provide their tenants with a minimum level of
pro bona advice hours. Normandie Incubation (NI) subsidizes its
tenants to support access to professional services including
scientific equipment and materials. The Innovation Center (IC)
grants its tenant firms access to professional services through a
regional network of Bis, the East Midlands Incubation Network
(EMIN). This network provides the East Midlands' incubators with
online training, workshops, seminars and frequent consultation
with experts. Finally, first generation Bis - the Bedrijfs Technolo-
gisch Centrum Twente (BTC) and Technologieforderung MUnster
(TFM) - are similar in that provision of professional services is
done by request and on demand.
Only the second and third generation Bis claimed to provide
access to financial resources to their tenants. JUlich Technologie-
zentrum UTZ) refers to one of their shareholders as the source for
venture capital. whilst EEBIC established a business angel net-
work. and Cl a venture capital fund, as well as cooperating
intensively with local venture capitalists. NI and the IC mentioned
preferential access to finance resources within their networks.
4.2. Selection criteria and exit policy
Bis of all generations seldom mentioned a structured set of
selection criteria. Yet, criteria such as technology focus. innova-
tive products, high growth potential of the company were always
preferred. BTC also demands solvency of the company whilst
EEBICplaces greater store by the analysis of the entrepreneurial
team. TFM houses only biotechnology, nanotechnology and !CT
companies. NI is the only Bl having an comprehensive selection
procedure: to be selected, prospective tenants must present a
business plan to a committee composed of representatives of
several shareholders. Additionally, NI occasionally provides busi-
ness plan writing support. None of the Bis in any of the genera-
tions had clearly specified exit policies. EEBICloosely mentioned
time and performance criteria, with companies having to gradu-
ate after reaching a certain level of maturity, while BTC.TFM and
JTZ stated no such criteria. The IC has the strictest criteria for exit:
all tenants should leave after 36 months within the Bl.
In summary, the three generations of Bis do not differ greatly in
terms of what they offer to tenants. All generations provide their
tenants with the same kind of infrastructure in terms of offices and
shared resources. Furthermore, business support is also present in
all generations of Bis, apart from TFM which did not mention any
coaching/mentoring services. Access to resources is also similar
across generations. The selection and exit policy are also similar
across the three generations of Bis. Selection criteria are vague and
poorly defined and a clear exit policy is often absent.
5. Demand side of business incubation
This section focuses on the demand side of incubation services,
examining the extent to which tenant firms utilize the different
dimensions of the value proposition. This is done by enquiring
whether tenants make use of the offered infrastructure. business
support services, and access to networks. We look more closely at
the tenant profile in terms of their age, incubation period, size and
entrepreneurial team characteristics. We group the tenant firms
by BI generation which in turn allows us to perform statisti_cal
analysis in terms of group independence. The selected statistical
test was the Kruslcal-Wallis test. This one-way analysis of
variance method allows us to test equality of population medians
among groups. We also grouped the tenants by sector (biotech-
nology, micro-electronics, !CT, consulting, and other sectors) and
repeated the analysis. The results of these additional Kruskal-
Wallis tests (using sector as a group variable) show that the usage
of business incubation and the profile of the tenant companies are
not statistically different between different industry sectors.
5.1. Business incubation services
Infrastructure was compared using the constructs ·space' and
'shared resources·. Space was described to tenants as available
office or workshop space; shared resources was described as any
complementary infrastructure-related shared service such as
reception. car parking, meeting rooms and commodities. We did
not find any statistically significant differences between the three
generations regarding the usage of infrastructure (Table 5 ).
The situation is different when looking at the extent to which
tenants use business support services, either coaching or training.
We asked tenants about assigned coaches, either part of the Bl
team or provided through the Bl. We found statistically significant
differences for coaching (p:;; .001 ). Almost all tenants in third
generation Bis used coaching while older generation Bis' tenants
tended not to use this service: half of the tenants in first
generation Bis use coaching while less than a third of tenants in
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T.1ble 4
Supply of business incubation in the rese.,rchecl Bis.
First generation
Second generation
Third gener,,tion
UTC
TF M(inster
EEIJIC
J(ilich TZ
Chalmers Innovation
Normandie Incubation
Innovation Centre
@DMU
lnfr,1structure:
- Space
- Shared resources
Business support:
- Co,iching
- Training
Access to Networks:
- Professional services
- Finance
BTC provides
turnkeyturnkey office
space. Further shared
resources include
parking, reception ,ind
meering rooms.
Tenants access coaching
on an ad hoc basis via
incubator manager. One
tenant is a consult,111cy
firm who provides
coachingon ,1
commercial basisand
partially funded by
external sources.
Further training is
offered by the coaches
and consists of
newsletters ..
Access to professional
services is provided by
request and on demand
via incub,1torstaff.
ABN is one of the
shareholders who may
provide financial
resources.
TFM provides
rurnkeyrurnkcy office
space as well .1s
production facilities and
mixed units. Further
shared resources
include reception,
p,1rking ,ind meeting
rooms.
No formal coaching team
exists. Training is offered
to tenants in the form of
inform,1tion brochures,
emails newsletter or
punctual group sessions.
EEUICprovides turnkey
office sp,1ce as
production facilities,
l,,boratories and mixed
units. Shared resources
such ,1s parking,
reception and meeting
rooms ,1realso ,1vailable.
j(ilich TZ IC provides
turnkey office sp.1ce as
well ,1s production
facilities and
l,1boratories.
Chalmers provides
turnkey office space as
well as l,1boratories.
Shared resources sm·h
as parking, reception ,llld
meeting rooms are .11s0
,wailable.
NI provides turnkey
office space to tenants
who only pay for it after
graduation and interest-
free. No further shared
resources are included.
Coaching team of three
in-house dedicated
experts. Their
backgrounds cover fields
such as accounting,
finance, marketing or
engineering.
Coaching is provided by
a team of two coaches on
a part time basis.
Training session such as
seminars ,ind workshops
are organized on
regularly b,1sis in
collaboration with
Aachen Chamberof
Commerce.
Own coaching team of
five multidisciplinary
experts: accounting,
finance, commercial and
business consulting
experience.
Coaching team of two
dedicated project leaders
.,nd a coach manager.
Their background is
mainly scientific.
IC provides office
turnkey space as well
•1s small production
facilities (2 units) .
Further shared
resources include
parking and reception.
Coaching is provided
by outsourced coaches.
Their backgrounds
cover fields such ,ls
man.1gemcnt,
marketing or finance.
Access to professional
services is provided by
request and on clem,1ncl
via incubator staff.
A loc,11s.wings bank
owns G%of the incubator
who may provide
fin,1ncial resources
Professional services
such .1s patent attorneys,
legal counselling or
strategy consulting ,,re
,1lso ,wail,1ble. EEBICalso
created its own business
angel network in 1999
with as office within the
premises.
Professional services:
one of the tcIh1nts is thr
Technology Transfer
Office of that rese,1rch
centre. Also,<l legal
consulting firm, an
insurancecompany .1nda
project m.11h1gcmcnt
consulting firm arc
loc,ited within the
premises.
One sh,1reholder is a local
venture ca11italfund and
it is based within the
centre.
Close coll,1bor,1tion with
Centre for Intellectual
Property. Other
professional services
include t:ontr.1clual
c1greemcntswith
.1ccou11ti11lgcl,W .111d
business consulting
firms.
Chalmers nh111.:1gcitss
own seed and venture
capital funds. Also, it
cooper,1tes with local and
regional ,iuthorities,
private venture
capitalists and business
angels.
Chalmers ,1lso
collaborates intensively
with CONNECT.
NI provides a subsidy
which can be used fur
,,ccessing professional
services (external advice
,ind expertise) ,is well ,ls
scientific equipment ,ind
materials.
Access to finance is vi,1 a
network of contacts
including business
,1ngels, public and private
financial organizations
The IC is pan of a
rcgionc1l network to
exchange best pr,1cticc
both for incubators and
incubatees which
includes ,1 grand total
of IG Bis. Through this
network, tenants can
access professional
services such as
tr.1iningor online
support. Through this
network, tenants can
also access preferred
sources of finance.
-,
ul
,-
C;:o,
[
"'
---
5g
~f
w
""
0
0
I
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}. Brunee/ er al./ Tecilnovacion 32 (2012) 110-121
117
Table 5
Usage of business incubation per generation of business incubator(%).
First
generation
{N=25)
Second
generation
(N=19)
Third
generation
(N=27)
p-value
Infrastructure
Space
Shared resources
100.0
100.0
Business support
Coaching/
48.0
Mentoring
Training to develop 24.0
business skills
Access to networks
Professional
48.0
services providers
Seed or venture
12.0
capital
100.0
100.0
31.6
21.1
63.2
52.6
100.0
100.0
96.3
81.5
96.3
70.4
n.s.
11.S.
$.001
,;.001
,; .001
,; .001
second generation Bis use such services. The results also show
statistical difference between the three generations of Bis for the
usage of training services by tenants (p $ .001 ): less than a
quarter of both first and second generation Bis' tenants make
use of this kind of service. Conversely, the overwhelming majority
of third generation Bis' tenants make use of training services.
The access to networks shows the same pattern as the
dimensions previously discussed. We enquired concerning
tenants' usage of professional business services and access to
finance. Professional business services are specialized support
services the BI provides in a formalized manner through their
network of contacts. These include accounting, legal or adminis-
trative support, as well as more specialized services such as
strategy consulting or patent attorneys. Data suggests that it
was principally the third generation Bis' tenants that made use of
professional service providers. Only about half of both the second
and third generation Bis' tenants used this kind of service. The
differences are statistically significant (p :s:.001 ). The same is true
for seed or venture capital (p $ .001 ). Whilst more than two-
thirds of third generation Bis' tenants were able to access
financial means through their BI, only about half of their second
generation counterparts stated the same, and. first generation Bis'
tenants barely mentioned this.
These results show that tenants value their Bi's value proposi-
tion differently. More third generation Bis' tenants make use of
the entire service portfolio (including infrastructure, business
support services, and access to networks) than their counterparts
housed in older generation Bis. In terms of business support, first
generation Bis' tenants enjoy more coaching and training than
their second generation counterparts (Table 5).
5.2. Selection c1iteria and exit policy: profile of tenant companies
We researched the selection criteria and exit policy by looking
at the tenant profile. Tenants' characteristics ( including age at
entry, share of serial entrepreneurs, and share of relocated
companies) can be translated into the selection criteria. We start
by looking individually at each of the variables we considered
reflective of the selection criteria. Table 5 shows that there is a
significant difference between the tenants firms regarding their
age at entry (p $ .05). Third generation Bis' tenants are very young
(less than one year old) at the moment they enter the Bl. First
generation Bis' tenants are almost two years old while the firms
located in second generation Bis are more than seven years old.
To complement the tenants' profile, we also examine whether
there are differences among the firms' entrepreneurial teams.
Table 6
Profile of tenants per generation of business incubator.
First
generation
(N=25)
Second
generation
(N=19)
Third
generation
(N=27)
Entry age
Relocated
tenants (%)
Years in
incubator
Firm size
Serial
entrepreneurs
{%)
1.76
44.0
5.12
3.68
25.0
7.1
52.6
5.00
8.21
36.8
.85
22.2
1.70
2.33
53.8
p-value
,; .OS
$.10
$.001
$.01
$.10
through the extent to which they have previous experience in
starting businesses. Table 6 shows that the majority of third
generation tenant firms are established by entrepreneurs who
have previously founded a company. Conversely, less than half of
the second generation, and only a quarter of the first generation
firms, have serial entrepreneurs in their team. Summarizing, we
find that the tenants' profile differ significantly between the
generations of Bis. Finally, we looked at the percentage of
relocated firms in the Bis at the moment of data collection. We
considered relocated firms as companies created one year or more
prior to entering the Bl. Almost half of the first generation Bl
tenants, and more than 50 per cent of the second generation Bl
tenants were founded one year or more before entering the Bl
(Table 6). Conversely, only about a fifth of the third generation
Bis' companies were neither created at the Bi's premises nor
moved there in their first year of existence.
We now turn our attention to the exit policies by looking at
the length of the firm's incubation period, i.e. the number of years
elapsed since each tenant's entry to the Bis, and the firm's size.
Third generation Bis' tenants stay less than two years in their
respective Bis whereas their first and second generation counter-
parts stay for much longer periods (p $ .001) (Table 6). Since the
tenants of the first and second generation Bis are significantly
older when entering the Bl and show longer incubation periods, it
is unsurprising to see that the first and second generation Bis
tenants are significantly larger in terms of employees (p $ .01 ).
In summary, we see a significant difference in the usage of
business incubation and profile of the tenant companies between
the different Bl generations. First and second generation Bis'
tenants are older when entering the Bl and typically stay longer
in incubation than first generation Bis' tenants. This implies that
tenant companies in the first and second generation have built
greater stocks of knowledge, and developed more capabilities and
routines than have their younger counterparts in the third
generation Bis.
6. Discussion and implications
Our study conceptualizes Bis in a new theoretical framework
representing the evolution of their value proposition. This effort
responds directly to a recent call made by Hackett and Dilts (2004)
to develop a more theoretically grounded approach to incubation.
We embed the value proposition of Bl in theories of economies of
scale, learning, and networking. Economies of scale refer to the
most basic service of Bis: offering infrastructure and shared
services. Bis also provide coaching and training support through
its management team. Finally, Bis have a boundary-spanning
function in facilitating access to different types of resource and
service providers through institutionalized networks.
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r
I
rJ 18
}. Bruneel ec al./ Technovacion 32 (2012) 110-121
We confirmed our working hypothesis of the existence of
generations of Bis showing that. indeed, there are differences in
the way service portfolios are used by tenants located in Bis
founded in different points in time. Yet, when looking exclusively
at the Bis, we found similar service portfolios. This means that,
over time, first generation Bis extended their value proposition by
adding business support services (characterizing the second
generation) and access to networks (characterizing the third
generation) to their offer. We also observed this phenomenon
for the second generation Bis, who had added networking to their
value proposition. As a result, today's Bl landscape appears very.
homogeneous in terms of the value proposition. This could
potentially be a result of industry attempts to standardize Bis
through professional associations (e.g. NBIA, Ul<Bl) and the
pressure to comply with every stakeholder's expectations.
The confirmation of the existence of Bis generations identified
by service provision levels advances in our understanding of Bis.
Despite the typologies found in previous work (e.g Carayannis
and von Zedtwitz, 2005; von Zedtwitz and Grimaldi, 2006), our
generation argument introduces a tenant-centred view of Bis.
Categories typically relate Bl ownership to service profiles (von
Zedtwitz and Grimaldi. 2006) or goals to managerial practices
(Clarysse et al., 2005). Our results show that even if those
typologies are true, older Bis tend to not achieve major changes
in their offer and therefore their complete value proposition is
relevant only to a low share of their tenant companies. These
findings also differ fundamentally from Allen's (1988) argument.
Allen (1988) suggested that each Bl evolves from an initial focus
in infrastructure to business support and only later providing
access to networks to incubated companies. Our evidence sug-
gests that other forces may keep Bis in their first stage of
development (i.e. focused on infrastructure).
Bis operate in a politically charged environment where they
must demonstrate the success of their activities in order to justify
public support (Hackett and Dilts, 2004). The subsidy-dependence
of Bis enforces compliance with industry and government views
on how they should operate. As a result, Bis "need to look good in
the eyes of policy actors in order to gain increased income"
(Aaboen. 2009, p. 667). Aaboen argues that Bis must satisfy both
the tenants and policy actors equally as their most important
customers. Our study shows that first and second generation
focus efforts on satisfying policy actors by expanding their
portfolio beyond mere infrastructure and intangible services.
They appear to be less concerned with assessing the alignment
of their service portfolio to their tenant profile. In contrast. third
generation Bis succeed in serving policy actors' as well as
tenants' goals.
Third generation Bis' tenants are younger, smaller and have
shorter incubation periods than tenants housed in first and
second generation Bis. These findings suggest that third genera-
tion Bis differ in terms of their tenant target group from first and
second generation Bis. Third generation Bis are more focused on
starting up companies, shown by the higher number of companies
established within the Bl; first and second generation Bis have a
significantly higher number of relocated companies. Also, these
tenants graduate within less than three years on average suggest-
ing that third generation Bis are acting as engines for new venture
creation. In contrast. the turnover of tenants in the first and
second generation Bis is significantly lower. Data suggests that
both generations house tenants less likely to use the full range of
services available, but for different reasons. Tenants located in
first generation Bis enter at a young age, remain relatively small
and show little growth ambition: only around l 0% seek access to
external financing such as business angels or venture capital.
Conversely, second generation Bl tenants enter at a mature age,
have long duration tenancies and are larger. They also tend to be
more actively looking to attract external financing which signals
greater growth ambition. These phenomena can be seen as the
revealed mission of each Bl generation. Our study therefore
answers the question of why so many older generation Bis fail
to provide their promised incubation and support services
(Hansen et al., 2000).
First and second Bl generations provide fewer tenants with
services. This means that these older generation Bis are inte1ven-
ing less often and in fewer companies that their third generation
counterparts. To some extent, first and second generation Bis seem
to function as science parks (SP) and are therefore complementary
to those of the third generation. (We gratefully thank an anon-
ymous reviewer for raising this point.) Bis and SPs are two distinct
types of initiatives fulfilling different roles in the value chain of
support activities. Bis typically facilitate the creation of new
ventures as well support them throughout their initial stages of
development. SPs aggregate companies while also providing some
business support services and therefore can be useful for gradu-
ated incubated companies, making Bis potentially tenant-feeders
to science parks (Ratinho and Henriques, 2010). Our findings
suggest that tenants located in first and second generation Bis
might be much more similar to those located on SPs rather than
those in third generation Bis. We extend previous work that links
differences in usage of incubation services according to the
venture's lifecycle stage (e.g. McAdam and McAdam. 2008).
providing evidence that not only each service becomes less
important but it also might be rendered superfluous.
The potential value creation of each Bl generation is quite
different to their stated mission. All Bis in our sample claim to be
in the vanguard of new firm creation as well as having enhancing
their tenants' long term survival and performance. Yet only third
generation Bis seem able to contribute actively to new company
creation. First and second generation Bis reveal the practice of
housing established companies. First generation Bis select young
companies, allowing them a long stay without promoting or
encouraging their growth. Second generation Bis recruit more
mature companies seeking perhaps to guarantee more stable
revenue. Both generations of Bis show a greater concern in
renting out property rather than creating new companies, parti-
cularly the second generation since they allow relatively large
companies as tenants. Finally, third generation Bis show a great
focus in selecting nascent companies and graduating them
quickly, keeping a reasonable turnover in the Bl and supporting
a larger number of companies. This finding is in line with l<uratko
and Lafollette ( 1987) who found that Bis' selection criteria and
exit policy should be aligned with their objectives. If not, Bis are
unable to fulfil their role in nurturing and supporting new
ventures. Previous work has already assessed different strategies
to incubate new ventures (e.g. Clarysse et al., 2005). Our data is
complementary in revealing Bis' activities by looking at their
tenants rather than at their missions and public activities.
6.1. Implications for Bl managers, prospective ce11a11casnd policy
makers
Our results yield several important implications for Bl man-
agers, prospective tenants and policy makers. First. third genera-
tion Bis are unlikely to be profitable because they select nascent
ventures. Although their tenants are often serial entrepreneurs
and therefore more experienced in starting business. they have
less-well developed business processes and are possibly more
aware of their shortcomings. As a result, their tenants are more
likely to use the complete service portfolio whilst in the process
of establishing their companies. Being nascent ventures. these
tenants do not generate enough revenue to cover Bis' operational
costs for offering business support services and access to
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). Brunee/ er al./ Tech11avacio1312 (20 I2) I I0-121
119 r
networks. Therefore, this generation of Bl requires significant and
long-term public funding to be sustainable, or other alternatives
such as taking stakes in, or a percentage of future turnover of,
their tenants. Conversely, first and second Bis may aim for a self-
sustainable model with limited government funding. The limited
usage of business support services suggests that first and second
generation Bis' tenants are already experienced, having developed
a capability base and a set of business routines. In other words,
these companies are relatively more mature and therefore more
likely to have established a stable revenue base.
Second, if no adequate tenant turnover is promoted and
supported by clear selection criteria and exit policies, tenants
will develop skills and capabilities through experience, and no
longer require business support services. This has been even more
pronounced where first generation Bl have added access to
networks to their service portfolios. Our results show that first
and second generation Bis select older tenants that stay longer in
the Bl. thus needing less business support services and access to
networks than newly founded ventures.
Third, progressing from providing infrastructure to coaching
and networking turns out to be a very difficult step for Bis and
involves much more than establishing an extended service
portfolio. First and second generation Bis extended their value
proposition while not adjusting their selection criteria and exit
policy (most Bis in our sample do not have clear selection criteria
and exit policies in place). We found that first and second
generation Bis are selecting more mature companies and, in case
of second generation Bl, even permitting tenancies beyond the
typical incubation period of three years (EC. 2002). The length of
the incubation period is also much higher in first and second
generation Bis. As a result, a mismatch emerges between the
tenant profile and the services offered and, ultimately, renders
those services inadequate. Therefore, Bl managers should be more
aware of the impact of updating their value proposition. Adding
dimensions such as business support and access to networks only
makes sense if combined with adequate Bl management prac-
tices. Appropriate selection and exit procedures guarantee the
admission of tenants who are more likely to use services such as
business support or networking and ensure that tenants graduate
in timely a way. As the value proposition for the three generations
is similar, all generations of Bis should accommodate new
ventures as they are most likely to use all three components:
infrastructure, business support, and access to networks.
Fourth, prospective tenants should look at their future fellow
tenants to better assess and select an appropriate Bl in addition to
assessing the Bi's profile (Schwartz and Hornych, 2008). While
this may sound counter-intuitive, it better informs prospective
tenants than checl<ing the Bis' offering. As shown, Bis across
generations tend to standardize their value proposition and state
a similar mission. Yet our analysis of tenants' population and the
extent to which they use business support and access to external
networks uncovers a different picture; if the prospective tenant is
looking for a dynamic, vibrant environment then it should look
for a third generation Bl. Here, the prospective tenant will
encounter fellow tenants that are confronted with similar chal-
lenges thereby offering more opportunitie~ for mutual learning
and exchange of experiences.
Fifth, policy makers should be more aware of the extent to
which different generations of Bis affect their tenants. If the
ambition of policy is to stimulate and support new venture
creation then planning to upgrade older generations of Bis is
counterproductive if not accompanied by a simultaneous shift in
management practices. More specifically, policy makers should
enforce an adjustment of selection criteria and exit policies by Bl
managers, ensuring support tailored to nascent companies and a
healthy turnover of tenants. However, our findings reveal that Bis
do not always implement their stated selection criteria and exit
policies. This calls for further monitoring of Bis' operations and
practices to ensure their contribution to policy objectives. A
possible reason for not changing these procedures might be found
in Bis' financial goals. Renting property is an important base for
the sustainability of Bis, they cannot change their tenant compo-
sition from stable tenants to (the more insecure group of) nascent
entrepreneurs without any financial compensation. Another rea-
son may be the marketing role of Bis to policy makers. Bis often
function symbolically for policy makers to demonstrate their
commitment towards innovation and entrepreneurship
(Schwartz and Hornych, 2008). Policy makers may therefore be
tempted to provide further funding to older generation Bis to
update their service portfolio to current standards.
Therefore, policy makers should make more careful assess-
ments of Bis before allocating funding to support these institu-
tions. From a policy perspective, it is therefore important to study
the tenant profile as this highlights the extent to which Bis do or
do not require public funding. Our study reveals that first and
second generation Bis house tenants that are more mature and
generate more stable revenue streams. These findings are in line
with M0nsted's (2000) who suggests that science parks are also
more likely to fill up units with any rent-paying activity rather
than exclusively supporting novel entrepreneurship. Although
their initial mission was to generate high technology growth,
limited subsidized office space for innovative start-ups forced
science parks to turn to mature companies as tenants able to
afford the high rental fees. First and second generation Bis appear
to similarly select tenants able to generate sufficient rental
income allowing the Bl to cover its operational expenses. In
contrast, third generation Bis select nascent ventures that typi-
cally do not have fully developed business models, very limited or
no revenues and thus involve a much higher risk. These Bis will be
forced to provide office space for free or at a fee significantly
below market prices. In addition, tenants in third generation Bis
are likely to use the service portfolio more extensively as they
regard it as being valuable. As a result, the first and second
generation of Bis may require less public funding compared to
their first generation counterparts.
6.2. Limitations and further research
This study is not without limitations, which provide avenues
for future research. Our paper is based on a detailed analysis of
seven Bis in North Western Europe and 71 of their tenant
companies. Future research should use larger-scale studies in
other geographical regions including more Bis per generation to
provide further validation of our findings. A longitudinal exam-
ination of Bis' service portfolio and longitudinal usage of these
services by tenants would also bring more insights into the
dynamics of business incubation.
Further developing our theoretical framework should be the
basis for future research. Our analysis suggests that anchoring Bis
in three dimensions is useful. Yet when discussing the results, Bis'
long-term strategic goals emerged as possible explanations for
our findings. As a result, our framework would be greatly
improved by adding Bis' features beyond service provision, and
further research may wish to consider the role of the Bis' business
model in the extent to which value proposition and tenant profile
are aligned. For example, it may be that the business model of
first and second generation Bis is more dependent on rental
income because they receive less subsidies than their third
generation counterparts. Similarly to science parks (M0nsted,
2000), the former Bis may need to house mature firms that can
pay the high rental fees thereby avoiding bankruptcy.
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j. Bruneel er al./ Technovario1132 (2012) 110-121
Whilst beyond the scope of this paper, an interesting avenue
for future research is to study the impact of location at different
generations of Bl upon tenant performance. The three identified
generations of Bis house tenants with very different character-
istics. Tenants of third generation Bis are new firms created by
serial entrepreneurs whereas first and second generation Bis'
tenants are typically older when they enter the Bl, having been
founded by novice entrepreneurs. By tal<ing into account these
differences between the three generations of Bis, future studies
may reconcile some of the contradictions in studies on the
performance implications of business incubation.
From a methodological point of view, we focused on Bis that
offered physical office space and therefore excluded virtual Bis
(Durao et al., 2005; Nowak and Grantham, 2000). This type of
business Bl focuses efforts on providing business expertise and
facilitating access to strategic partnerships (Nowak and
Grantham, 2000). It does not, however, offer the key function of
the first generation: economies of scale through shared infra-
structure and basic services. Future research that also considers
this very recent type of business Bl would clearly complement our
findings.
A final addition to our study would be to collect additional
data for each service in at least two ways: the method/quality of
provision and the intensity/frequency of provision. For example,
although eve1y Bl claims to provide coaching to its tenants,
significant differences exist in the way coaching is provided and
between the background/experience of the coaches. Additionally,
the time dedicated to each service potentially differs across Bis.
Future research should take this into account and thereby
complement this study's insights.
7. Conclusions
We set out to research whether older generation Bis updated
their service portfolio to cover today's incubation paradigm, and
the extent to which the service portfolio fits each generation of Bl
tenants. Based on seven case studies representing the three
generations of Bis, we observe no significant differences across
generations in terms of their service portfolio. However, using
survey data of 71 tenants collected within the same seven Bis, we
find that only firms located in third generation Bis make full use
of the service portfolio. Furthermore, older generation Bis select
older tenants and allow them to stay longer. This suggests that it
is this lack of selection criteria and exit policies within the Bl that
are at the root of the mismatch between supply and demand for
business incubation. Our findings also indicate that Bis might
experience a lcind of imprinting effect: older generation Bis are
not capable of fully adapting to the newer models of incubation
not so much because of difficulties in establishing new services,
but due to rigidities in their management practices. We hope that
our study encourages researchers in the field of business incuba-
tion to take our approach as a departure point for large-scale
longitudinal studies.
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