Business incubators: What are they?

Like a hen gives warmth to her eggs, or a baby is provided with extra oxygen in a bacteria-free environment, the young business is protected from the threats of early phase life by a business incubator

A business incubator is defined as a programme where businesses can receive support that accelerates their time to market, establishes a sound operational foundation, increases their access to capital, and improves their opportunities for success.

An incubator offers critical tools, information, contacts and resources (that may be otherwise unaffordable, inaccessible or unknown) through coaching, mentoring, and networking in a proactive manner that provides value to both incubator clients and those who support the programme.

The National Business Incubation Association of America (NBIA) defines business incubation as a dynamic process of business enterprise development.

"Incubators nurture young firms, helping them to survive and grow during the start-up period when they are most vulnerable. Incubators provide hands-on management assistance, access to financing and orchestrated exposure to critical business or technical support services. They offer entrepreneurial firms shared office services, access to equipment, flexible leases and expandable space - all under one roof."

Providing incubation services for new start-up businesses and businesses experiencing fast growth has become an essential business development support tool worldwide. In line with the worldwide development, SA has in the past decade made substantial strides in the implementation and development of business incubators. Considering the amount of unskilled labour, unemployment rates and the need to build our economy the success of business incubation programmes in SA can play a vital role in the development of the region.

There are a number of incubator initiatives varying in maturity in SA, including the newly formed SA Business and Technology Incubator Association (SABTIA) which has 19 registered affiliates. In SA, business incubation is still in its infancy and we can benefit from world experience in incubation.

The earliest form of incubator in SA would be the facility known as Technotron Industrial Developments (Pty) Ltd which was set up on the Highveld Technopark, Centurion in the early 1980s. This institution was a direct result of the labours of the late Prof Louis van Biljon, then Dean of the Engineering Faculty, and later Chancellor at the University of Pretoria who set up the Laboratory for Advanced Engineering, a campus based hi-tech company initiated in 1979. This initiative is a reminder that successful business incubation cannot be run in isolation but requires the support of government, the private sector and educational institutions.

Despite the negative results published in the recent SME Survey 2004 by Goldstuck, the South African government has realised the invaluable contribution that business incubators can make to the SA economy. Through the GODISA Trust, it has established 15 incubators in different industry sectors in the economy. Evidence is there that these young initiatives are very successful.

Business incubation was started in the US in the late 1950s. The first documented incubator was the Batavia Industrial Centre, which opened in 1959 in Batavia, New York, in an old Massey-Ferguson farm implement manufacturing plant. In 1957 the Massey-Ferguson plant was closed as a result of mergers and consolidations in the farm equipment industry putting almost 2 000 local residents out of work. In the small rural community of Batavia the economy was heavily dependent on agriculture and manufacturing, which made the closure devastating to the local economy.

Although the conditions looked bleak, a local family (Mancusos), who were entrepreneurs in real estate and retail trade in Batavia, identified a business opportunity. The family purchased the vacant Massey-Ferguson property, hoping to find a single tenant for the vacant 85 000 square meter building. Unfortunately, the trends in mergers and consolidations that had impacted Massey-Ferguson and forced in the factory`s closure had also spread to other industries. After repeated attempts, the family was unable to find a single user for the property. Fortunately, the Mancusos family quickly decided to take another entrepreneurial approach to filling the building. By dividing the space into small units, the Mancusos used the building to help small companies to get established and grow. These efforts launched a number of new local ventures, and formalised the concept of business incubation as an economic development tool.

In 1964 the concept of business incubation expanded in the US when a 28-member consortium of colleges, universities and academic health centres opened the University City Science Centre in Philadelphia, Pennsylvania. As part of its efforts, the University City Science Centre initiated a programme to support the establishment and growth of early-stage companies in the research parks facility, thus establishing one of the first US urban research parks and incubators.

The early business incubators focused on providing low cost space and a small set of shared administrative services such as copy and facsimile machines, telephone answering and secretarial services, meeting rooms and kitchen facilities.

While the US was expanding its network of business incubators, other countries from around the world began to embrace the concept of business incubation as a viable approach for stimulating, diversifying or even stabilising local economies. Evidence exists that business incubators were beginning to take hold in England from as early as 1972.

These efforts spread throughout Europe and eventually moved into Eastern Europe and Russia. As the number of incubators around the world continued to grow, incubator operators and sponsors began to recognise the level of success garnered by those programmes that went beyond low-cost rent and offered a broader base of support services for their client businesses. In the mid-1990s incubators began nurturing companies that generated astounding results in terms of job creation, capital investment and economic wealth to their communities.

Today there are almost 900 business incubators in operation in North America and an estimated 3 500 worldwide. As evidenced by the efforts in the US and elsewhere around the world, these numbers should continue to grow over the next few decades as more and more communities, countries and private investors recognise the value of this effective tool for supporting new business formation and growth.