Business Incubator Practice – Term Paper

Rheingau Business Incubator Founders Model

Rheingau Founders in Berlin has been one of the sound incubators known for harnessing concrete business ideas in the industry. From this point of view, the essence of this incubator is a collection of multiple ideas that consolidate into a unique business projection in future. Basing an argument on the Berlin-based business incubator, it is clear that the presence of the incubator has a resultant impact of increased number of new business ideas that collectively seek to resolve social-economic problems in the society. From the development of the Rheingau business incubators in Berlin, the establishment of such initiatives as Team Europe, the Hack Forward and the EPIC demonstrates the real impact of increased number of business incubators to cumulativeness of business ideas seeking investments. This paper analyzes the impact of increased number of business incubators, typically referred to as the ‘incubator gluts’ on business development from the Rheingau point of view.

Reasons for Business Incubators Glut

Business incubators have grown by large quantities since their first emergence in about five decades ago. The concept of business incubators has also been evolving to include different incubation practices aimed at delivering values to distinctcompanies. Khalil (2010) define business incubation a process that focuses towards supporting the development and enhancing growth-oriented of early-staged business enterprises. The process of business incubation also provides proprietors with the best environment for start-up besides assisting in mitigating the costs associated with developing businesses and raising the confidence of entrepreneurs linking them to resources required for the scaling up of the enterprises. In this regard, business incubations are responsible for the accelerated growth of firms which also saves times and money thus, generating social-economic benefits that would otherwise be impossible (Sofouli & Vonortas, 2007, p533).

There has been no standard measure of the performances of incubators an aspect that often makes a comparison between different studies a significant challenge. The precedence of academic studies on the business incubators reveals difficulties involved in answering questions that seem to have a direct inquest to business excellence. There has been very minimal data that can be used in determining the effect of business incubation that can be expressed through different reasons. In addition, incubation can be a complex element to measure since its outcomes can materialize in many years (Qian & Riggle, et al. 2011, p82).  The time taken for incubation to reveal tangible resultsby virtue of an enterprise developing in its market and production scale is often incalculable (Soetanto & Jack, 2013, p438).

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On an average level, it takes about three or four years for an incubated idea to materialize into a successful business enterprise. In this regard, in measuring viability and rates of growth of incubated firms, one must wait for a minimum of three years after graduation. Very few studies, however,captures the entire effect of business incubation such as taking measurements regarding the effect over incubation period compared to longer terms while ignoring entrepreneurial learning subject to market failure. Studies undertaken in New Zealand seem to demonstrate revenue growth and creation of jobs which does not occur until the end of the fourth year since graduation (Schwartz & Hornych, 2008, p439).

In addition, the measurements of the outcomes of business incubations also become a complex process in many emerging economies except such classes as India and Brazil where business incubation has been a relatively novel concept. Another major constraint is the identification of a control group. The growth and development of enterprises may be measured against the benchmarks of the industry in which a business operates. However, this process is often difficult in identifying control groups against which the success of an incubatee can be gauged (Dalberg, 2012, p103). The kind of business ideas acceptable by incubators is often associated with innovative components making them even harder to identify other cases for which comparisons can be made against.

The absence of data due to lack of tracking of results by many business incubators past the number of business units after graduation also complicates the evaluation process of the incubators. Incubators that do not track results generate quite unreliable data. The associations of business incubators can assess data regularly to determine the impacts of business incubators that offer estimates of aggregate performances. However, the type of data provided must also be treated carefully. For instance, the U.S. National Business Incubation Association which is a member organization provides incentives to many members an aspect that translates into inadequate screening of new entrants.  This issue has increased people and corporate confidence in the group’s data set (Amezcua, 2010, p34). The competition that exists for funds has also been forcing many incubators towards demonstrating excellence that may lead to exaggerated excellence while at the same time under-reporting incidences of failure.

The success of business incubation may also attract different interpretations based on assertions whether the incubated ventures survive or experience significant growth during the period in which they are being incubatedrelative to revenue and employment growth rates. Despite the fact that incubators are presumed to have a wide range of objectives, several studies on business incubators show that the ultimate goal of incubators must be enshrined in the survival and growth of the incubate (Aernoudt 2004, p132).  Incubators must also be organized in a manner that the survival of forms and their growths are enhanced. From the literary findings, there are no presumed consensus on the measures of firm’s growth while some academics using growth measurements including growth in cash flows, sales, assets and employee base. In this regard, the most relevant measure of thesuccess of an incubation method is still unclear due to prevailing contradictions (Cameron, 2007, p373).

Another major challenge in the measurement of business innovation is the constraints in the number of studies with robust evaluative approaches in the assessment of economic implications of incubators. The majority of quantitative academic researchers aim at evaluating the effect of incubators on businesses with more conservative impacts compared to the studies within the industry whose findings are often contradictory. Nevertheless, the combination of these studies provides an indicative approach of the possible mechanism of valid measurements of business incubation but short-lived by few studies in the sector as well as the absence of comparability between studies with potential conclusions (Aerts & Vandenbempt, 2007, p264).

Effect of Incubation on New Business

Business incubators have been associated with both positive and negative impacts on new business. However, the incubators are devised to tap the positive influence towards developing new ventures with expansion capacity in future. A study into positive effects of incubators in 2011 showed that the outcomes of the incubators are dependent on portfolio aspect of the incubatees as well as the effect of incubators through portfolios. The extent to which an incubator impacts on new ventures is also reliant on the tools available for incubation as well as other traits of the new business venture (Zhang & Sonobe, 2011, p7).  The measurement of performances of new ventures however remains a major challenge for the industry. Business is typically assessedby their particular shared values and profits. New ventures hardly have either profits or shared values (Studdard, 2006, p215). In this regard, the assessment of the effects of incubators is quite complicated due to lack of consensus by measuring performances of young firms. Besides, the incubation periods is usually shorter compared to the life-cycles of the same firm. The assessment of the effect of incubators is further complicated by the lack of consensus on the measuring the performances of a young firm (Abduh & Burley, et al. 2007, p79).  Besides, since the incubation period is often shorter than a life cycle of a firm, the assessment of the performance of a firm in the incubation period lacks long-term impacts. Individuals in support of incubation claim that the process may assist in protecting incubates against different competitive forces in the external environment besides increasing the possibility of short-term success. On the contrary, another pool of thoughts disputes this claim in the sense that the same process may weaken the ability of a firm to compete besides surviving after graduating from an incubator (Marques & Diz, et al. 2010, p21).

Similarly, a study in Brazil also shows that about 50 percent of new start-ups do not survive in their first year after graduation.