Tenant Firm Progression within an Incubator: Progression toward an Optimal Point of Resource Utilization

Abstract

ABSTRACT The recent popularity of business incubators is evidenced by their explosive growth. Offering experienced and knowledgeable staff members, comprehensive facilities, and below market rent, business incubators are designed to encourage entrepreneurship and innovation. Employing the Resource Base View as underlying paradigm, this study attempts to gain a better understanding of the specific resources that incubators provide to new businesses as they startup. Using a general inductive approach, this examination uses in-depth interviews of thirty informants to identify specific tenant-firm benefit provided by the incubator. Findings suggest an existence of two tenant firm populations, one with coaching / business support needs (growth emphasis), and the other with infrastructure fortifying support needs (cost minimization). A framework is posited that shows an existence of both tenant firm populations, and related implications. By creating a greater understanding of the business incubation process, it is anticipated that this study will improve the effectiveness of business incubator activities, and therefore their contribution to economic growth. INTRODUCTION According to the National Business Incubation Association (NBIA) (2007), as of October 2006, there are over 1,400 business incubators in North America (up from 12 in 1980), with the primary goal of encouraging entrepreneurship and innovation. Of these incubators, 1,115 are located in the United States. Incubators have been defined as institutions that are designed to link talent, technology, capital, and know-how. Business incubators offer experienced and knowledgeable staff members, comprehensive facilities, and decreased rent in the hope of increasing the number of local jobs and community businesses. Frequently, incubators are setup with the goal of leveraging entrepreneurial talent to accelerate new company growth (Smilor & Gill, 1986). The provision of these resources, in turn, suggests that an incubator is part of a support mechanism helping entrepreneurs achieve their goals of growth and success (McAdam & Marlow, 2007). Some studies have examined the effectiveness of incubators in terms of office and business support services (Allen & Weinberg, 1988), and there is a need to identify which of these activities are effective and dominant, to evaluate the efficiency of the investment of public resources. For example, one could consider whether cost prominence (subsidized rent, office services, etc.) becomes a more emphasized incubator benefit than business mentoring and planning. Further, one may question whether the public is prepared to entertain medium and long-term tenant firm cost subsidy as the most effective use of public funds. Consequently, a need exists to identify the most significant resource provided by the incubator to their tenant firms - the dominant emphasis of incubator tenancy. This study examines the following question: What is the dominant emphasis of incubator tenancy and how does it affect incubator effectiveness! This study is based on the theoretical precepts of the resource-based view. Building on Penrose's (1959) discourse, firms (or organizations) differ on the heterogeneity of their resources. A firm's capability to achieve continuous profit (i.e., rent) stems from its internal resources, land, labor, and capital. In addition, human and organizational (intangible) assets are hard to copy, which is a potential for competitive advantage (Prahalad & Hamel, 1 990). Using an inductive (qualitative) approach, results of thirty in-depth interviews of incubator tenant firm CEOs are utilized to gain a broader understanding of incubator-tenant firm relationship. Following a discussion of prior research, focusing on the resource-based view, entrepreneurship, and incubators, the choice of research design is presented and then the discussion of findings. Findings are incorporated into a conceptual model that is posited as a potential guideline to incubators towards maximization of effectiveness. …