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Technology-based business incubation: A study of the differences and

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 PICMET 2009 Proceedings, August 2-6, Portland, Oregon USA © 2009 PICMET

Technology-Based Business Incubation: A Study of the Differences and Similarities

between Private, University, and Government Incubation
Cory R. A. Hallam, Natalia DeVora
The University of Texas at San Antonio, Texas, USA.

Abstract--A study of technology-based business incubation II. DEFINITION

was conducted to investigate and contrast the differences and
similarities between private, university, and government
According to the National Business Incubator Association
incubation. Sample operating models from existing universities
are explored demonstrating the various permutations and (NBIA), a business incubator is an economic development
combinations of operating philosophies. The operating models tool designed to accelerate the growth and success of new
are reviewed in light of their broader fit within the realm of entrepreneurial companies through an array of business
technology entrepreneurship, commercialization, and support resources and services. The traditional view has been
management in the United States. Using these results, a 9-step one of a space, or real estate, but in fact the broader trend has
checklist for creating an incubator is promulgated with the been to expand this definition from “incubator” (a facility) to
intention of being used at each stage of incubator development,
including the feasibility study stage, the launch stage, and the “incubation” (a process). This process perspective includes a
maintenance, operation, and improvement stage.. Finally, a myriad of facility types including universities,
series of recommendations are made for establishing a research/science/business parks, private centers, and even
technology-based incubation program in the Canary Islands in organizations without a physical presence through virtual
response to their desire to move the region from a purely incubators [23]. In this context, the incubator is about
tourism-based economy to a more diverse economic make-up providing the technology entrepreneur with access to a range
that includes technology-based business incubation spinning off
from Canary Island universities.
of capabilities that he/she may not have in their existing
company structure and which the incubator provides access to
I. INTRODUCTION in order to translate company ideas into sellable products and
services.
Over the past few decades, the concept of business Technology-based economic development includes a view
incubators has emerged as an important strategy for new of incubators to have the objective of helping create jobs,
enterprise development at the international level [39],[50]. urban economic revitalization and/or the commercialization
Indeed, there are more than 900 business incubators in the of university innovations [21]. However, given the typical
European Union [15] and according to the National Business lack of depth of resources to most technology start ups, the
Incubation Association (NBIA) Survey of Business main purpose of an incubator is to increase the chances of an
Incubators [29] there were approximately 950 business incubatee firm surviving its formative years [2] and then
incubators operating in the US in 2003, up from 550 in 1997, when they leave the program, to be financially viable,
and the numbers continue to rise. New business incubators freestanding and more long-life success probability that
have been opening at the rate of about one a week since 1986 companies that have not pass through an incubation process.
[29]. Historically, NBIA member incubators have reported that
Business incubation has become a key component of 87% of all firms that have graduated from their incubators are
many regional and national economic development strategies, still in business. In the general population, 66% of new firms
with the intention of supporting and accelerating business survive at least two years and 44% survive at least four years
growth across all sectors, especially in the realm of [37]. It is important to note that these figures are not directly
technology-based economic development. However, it is comparable, due to differences in survey methodology, time
important to note that business incubation programs can be an frame and other factors. However, looking at them side by
important part, but not the only part of an overall regional side does suggest that business incubation reduces the risks of
technology-entrepreneurship development program [43],[15]. small business failure and offers a valuable comparison.

A. Services offered by incubators

Baron and Shane [4] explain that the entrepreneurial
process unfolds over time and moves through a number of
different phases:

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Figure 1: Entrepreneurial process, adapted from Baron and Shane, 2003 [4].

Every step, from the idea to the successful firms, are cannot afford or often neglect or ignore [1]. The use of a
affected by individual-level factors such as skills, motives, professional address or the possibility to use incubator
and personal characteristics of entrepreneurs; group-level meeting rooms and reception area help communicate a
factors such as ideas, inputs from others, effectiveness in positive image and credibility to outsiders.
interactions with funding parties, customers, and potential
employees; and societal-level factors such as government C. Business assistance related services
policies, current economic conditions, and the technology Technology entrepreneurs need both strong technical and
environment [28]. For technology-based companies, business strong business management skills to be successful [37].
assistance related services must consider this entrepreneurial Technical skills are those necessary for carrying out the
process in identifying the gaps that the entrepreneur needs functions of the business in which the entrepreneur work,
filled [42]. For example, in the U.S. small and minority while business management skills, range from financial
owned businesses have the potential for significant federal control to human resource management, are necessary for the
funding due to set-asides in budgets and contracts, however, a day-to-day operations of a company. Incubators help
strong capability with the Federal Acquisition Regulations entrepreneurs to get the skills through the provision of
(FARs) is necessary to successfully contract. By definition business assistance and related services, which are produced
this is a significant capability that most small businesses lack by the incubator or purchased from the incubator network
and thus precludes them from successfully contracting with service providers. Typical services included in this category
federal agencies. By contrast, an incubator could play a are consulting services, financial and legal services and the
significant role by providing FAR-capable staff to support the training and educational workshops [3],[6],[8],[10],[11].
local community of entrepreneurs who are seeking these Even if some of the services offered by the incubator are
funding sources and help them expedite and successfully under-utilized initially, the availability of such services will
enter in to contracting relationships with the federal induce “self-reflexive consideration” on the part of
government. In order to support the new technology incubatees as to what is needed for their new venture to
entrepreneur during the early stages of firm launch and develop [21].
growth, incubators must provide access to physical resources,
business assistance and networks. D. etworks
Incubators provide their incubatees access to networks of
B. Physical resources individuals and resources that in other circumstance would be
Commonly incubators provide clients with affordable and difficult to access. Networking may involve linking business
flexible space. Affordable means that rent is usually charged together, linking individual entrepreneurs together or
at a rate below market rents while flexible in terms of both connecting entrepreneurs with providers of crucial resources.
leasing arrangements and changing needs of incubator clients. Network relationship building is considered the most
Flexibility from a physical perspective means that the size of important value-added component of the incubation process
space can be increased or decreased as clients’ needs change, [41],[42],[44],[46]. Hackett & Dilts 2004 [21] define an
and from a financial perspective that the clients can repay the incubator as a network of individuals and organizations
rent in a myriad of ways, including equity, stock options, or including the incubator manager and staff, incubator advisory
installments over a period of time. board, incubate companies and employees, local universities
Other physical resources needed by the technology and university community members, industry contacts and
entrepreneur and start up company include conference and professional services providers such as lawyers, accountants,
meeting rooms, restaurants/lunchroom, building security, and consultants, marketing specialists, venture capitalist, angel
other amenities that start-up ventures require but typically investors and volunteers/advisors.

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Networks play a central role in the business incubation incubator graduates and the existing clients [1], as shown in
process; indeed the literature suggests that the development Figure 2.
of such networks enhances the probability of survival over
time [27], because in the early stages of new firm creation,
networks represent an important resource for the
entrepreneurial firm and access to them can help the small
entrepreneurial firm to overcome the liabilities associated
with newness and smallness. The development of cooperative
relationships can prove critical in the early start-up and
development stages of the firms. According to Lendner and
Dowling 2007 [27], network ties to financial institutions and
other industry and government partners may be the key to the
success of the firms in the incubator and therefore to the
business incubator itself. They suggest that young firms that
have a choice should look for an incubator with the strongest Figure 2: The Incubator as a Network Node Point
set of such relationships. The two types of networks created
by the incubator are the internal network and the external V. TECHNOLOGY INCUBATOR FAILURE AND
network. SUCCESS
III. INTERNAL NETWORK The most common incubator resources were discussed in
the previous section, including such as physical resources,
By locating clients under one roof and providing them business assistance and related services, and the access to
with a common meeting rooms or cafeteria, incubators can internal and external networks. The premise for all incubators
create opportunities and an environment conducive to clients is that incubators engage in the provision of these resources
to interact and create synergy among them. According to due to the fact that the majority of start-up businesses do not
Abduh et al. 2007 [1] if the right environment is created have all of the necessary resources and/or critical factors
clients will interact and closely communicate with one needed for business success, and that by providing them at a
another, share resources and experience and learn from each critical point in the early venture phase the probability of
other and share the ups and downs. On the other hand it has technology venture success will be increased. Commonly,
been found that university business incubator located in the new technology companies lack capital, access to financial
Republic of Ireland that companies located over there (all in resources, managerial and business skills, market
the early stages of growth and conscious of their information, physical operating space, and access to
susceptibility to failure) appeared to be reluctant to engage in expensive equipment/laboratories and/or highly specialized
the exchange of ideas among them and that the only skill sets.
information exchange centered on generic issues such as Even though the main raison d'etre of an incubator is the
marketing, venture capital and accommodation issues, which provision of the services showed below, it is useful to
were common to all the small firms, and which represented remember what NBIA point out as the common reasons for
“safe issues”. incubator failures as:
Shared space may be the first step in order to create a 1. A majority of the incubators focused only on
internal network in the incubator, but before the information infrastructure
exchanged can begin, people need to trust each other, and for 2. The choice and availability of resources for
that reason, incubator managers must play an active role in entrepreneurs was limited
creating an environment where people can meet, interact, and 3. Incubators failed to deliver the services they had
form network relationships. promised
IV. EXTERNAL NETWORK To counter these failure mechanisms, the incubators must
focus on several strategies for success, namely:
Clients’ admission into an incubator facility implies that 1. Be clear about incubator services
the clients will have access to the incubator’s external 2. Segment the clients
network. This external network provides services that are not 3. Deliver the services promised and ensure they are value
offered by the incubator, and helps incubatees establish added
contact with universities, government and future investors.
Moreover if the incubator creates a graduate/alumni Before entering into the incubator, it is vitally important
association, it is implied that the alumni network will help to to communicate to the potential clients the services that will
foster the wider external network interaction among the be offered, avoiding differences between clients’ expectations
and the incubator’s menu of services [1]. To be a viable

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incubator, incubatee or customer satisfaction should be a A. Types of incubators

priority. If the incubatees are satisfied they are likely to see The priority of the incubators is dependent of its source of
the benefits of incubator program positively and provide funding, whether it is founded by a private investor(s),
verbal word-of-month that will help the incubator to attract government, or university. While most incubators have
new incubatees. certain common services and activities, they also offer
In order to provide services to the incubatees, incubator distinct services that reflect their own customer-base as well
managers need to consider that incubatees are not as the specific resources available within their respective
homogeneous, as they differ in age, size, industry, phase of communities. Independent of the incubator type all of them
development and firm strategy. Consequently, the incubators extend to their incubatees benefits such as defined by Smilor,
should segment the client firms in order to provide the right 1987 [44]:
services to the right firms. Furthermore the services required x Development of credibility with a range of stakeholders
by the incubatees will change over time as a consequence of including investors, suppliers, customers and employees
the phase of development of the firms. which is a critical issue for new firms
While it is easier to offer space or training to the x Shortening of the entrepreneurial learning curve
incubatees, according to Lindelöf et al. [28] what distinguish x Quicker solution of problems
a successful incubator from others is related mostly to the x Access to an entrepreneurial network
presence or absence of coaching and access to networks. In
fact, after a survey in different business incubators Abduh et Based on their governance structures and business models
al. [1] identified that incubatee dissatisfaction was mostly three types of incubators, namely non-profit, for-profit, and
common in the areas of counseling and business assistance university-based have traditionally been identified. In fact,
services, the same specific services that have been identified the appropriate discussion of the description of the type of
as critical to the incubation process. Incubators should have incubator should be based on three categories, namely the
qualified staff that can provide value-added assistance to the founding entity, the location, and the business model, as
incubatees. In the case that there is a lack of adequate shown in Table 1. The result is a total of 12 types of
professional staff in the incubator, the effective use of the incubators based-on the combinations of categories.
networks should be a priority and thus the incubator
management must dedicate effort to create, nurture, and grow
its own networks.

TABLE 1 – TAXONOMY FOR DESCRIBING TECHNOLOGY-BASED BUSINESS INCUBATORS

Founders Location Business Model
Government Physical For-Profit
University Virtual Not-For Profit
Private

B. on-profit models C. For profit incubators

The non-profit models include government and For profit incubators try to accelerate the start-up process
community based-incubators. Funded through local, national of highly promising technology-based firms by providing
and international government initiatives and at lowest extent entrepreneurs with pre-seed, seed and other early investments
through the fees for the services they provide, the main that have been traditionally offered by angels and early-stage
objective for non-profit models is job creation, encouraging venture capitalists. Their primary objective is generate profit,
entrepreneurship in the community and diversifying the therefore for-profit incubators charge service fees to the
economic base [20]. Commonly this type of incubator incubatees and often take a portion of equity in the new
provides its services to entrepreneurial initiatives, which venture. Incubator services include the completion of the
target local markets. In general, non-profit incubators offer its entrepreneurs’ business models, validation and vetting, the
incubatees the opportunity to start up a company at a lower provision of experienced operation staff, recruiting
price, with the benefit of local visibility and local contacts mechanisms, instant infrastructure, networks of relations with
with public and private institutions. A common example of key strategic entities; access to a network of domain experts
this type of incubator called BICs (Business Innovation for all aspects of business, including concept validation and
Centers) can be found in Europe [7]. The incubating activity construction; provision of technology to accelerate product
of BICs consists in offering a set of basic services to tenant development or support, including master relationships with
companies, including the provision of space, infrastructure, strategic partners, not ordinarily motivated to deal with or
communication channels, and information about external adequately service any but large accounts [16].
financing opportunities, and visibility [16]. An example of this type of incubators is the Y
Combinator which runs programs for promising
entrepreneurs in Cambridge, Massachusetts

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(http://www.ycombinator.com/) and that according to its E. Virtual Technology Incubator: “I don’t need an office, I
website is a new kind of venture firm specializing in funding need help”
early stage startups. The company invests mostly in software Many assert that “business incubation is a process, not a
and web services and prefers entrepreneurs with a lot of place” and therefore virtual incubator is a possibility that
technical depth. Other similar initiatives are Techstars communities may integrate on their economic initiatives. An
(http://www.techstars.org) and Seedcamp incubator without walls or a virtual incubator is a program
(http://www.seedcamp.com). that helps entrepreneurs to turn their ideas into viable
business without providing them with the physical amenities
D. University-based available at most incubators. A virtual program doesn’t offer
University based incubators may be non-profit or for specialized space or equipment therefore the incubator’s
profit. Usually funded by the university and co-funded by operating cost are minimal, and resources can focus on the
local, national and international government and public core services: business assistances and networking
agencies and organizations, they provide support and services opportunities, such as at http://www.blellow.com/, a recent
to new knowledge-based ventures. University based launch in San Antonio Texas.
incubators provide a series of university-related benefits The virtual incubation process may be incorporated as a
different to that offered for a traditional non-university single initiative or couple with a “traditional” incubator to be
incubator (non-profit), such as access to laboratories and the service network for the physically located companies.
equipment, as well as to scientific and technological Virtual incubation offers the possibility of assisting more
knowledge and to networks of key relations, but they are less clients in the community because there is a not physical
‘time sensitive’ than the private incubators in terms of constraint on space and the network can extend beyond
reducing their incubatees’ time-to-market. Furthermore, traditional regional bounds typically limited for physical
university incubators do not typically resolve such problems interaction. On the other hand the lack of physical presence
as the provision of capital and of advanced management and can create extra challenges in some areas, such as attracting
financial competencies [20]. clients and offering personal attention.
In the 1980s, a number of national reports in the U.S.
strongly asserted that the academic community, through its F. US Universities: From Incubator to Incubation
contribution to technological change, would be a key factor in According to the Global Entrepreneurship Monitor [19]
the U.S. economic competitiveness. In fact, during the last the factors affecting different levels of entrepreneurship are
few decades, institutions of higher education all over the the perception of opportunity, a culture that respects
world have experienced a transformation by broadening their entrepreneurs and accepts wide disparities in wealth creation,
traditional mission of teaching, research, and public service to supportive entrepreneurial policy and business
include a more active participation in their region's economic infrastructures, investments in tertiary education, and
development. demographics. Considering the above, there are some issues
There had been an emerging trend on the part of some in which is more difficult to produce changes such as the
entrepreneurial American universities for a more direct culture, but is possible to create the right policy and business
involvement in supporting the development of innovative infrastructures or improve the education system in order to
new businesses. Indeed, several state governments, local foster entrepreneurship within the community.
business leaders, and some entrepreneurial universities are Some government initiatives for boosting entrepreneurial
collaborating to promote the development of technological capacity focus on macroeconomic conditions or access to
based firms in their regions [33], [34]. One mechanism for finance (the most frequently used policy tools to promote
this purpose is the establishment of business incubators in or entrepreneurship) or in the creation of incubation and
around the university campus. This proactive role, though mentoring programs. Such policies are important for
generally motivated by a desire to participate in regional broadening the base of individuals with incentives to start up
economic development efforts, also served to develop a business and with access to the necessary means, but these
partnerships with new companies, and reap benefits from the policies alone are not enough. The Accelerating Collegiate
commercialization of the university's own research [30]. In Entrepreneurship (ACE) model [22] provides a
1992 over 50 US universities or colleges had their own comprehensive view of the link between the formative
university incubators [33], [34] and according to a survey by entrepreneurial development actions fostered by universities
the NBIA in 1998 approximately 19% of all US incubators that lead to the increase in propensity for entrepreneurial
were run by universities or colleges. In the past decade these intent.
numbers have continued to grow.

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Figure 3: Accelerating Collegiate Entrepreneurship Model

Considering the above, universities have the immense 1972 [25]. By the early 1980s, over 300 universities were
opportunity of affecting how individuals change their reporting courses in entrepreneurship and small business, and
entrepreneurial intentions through the education and by the 1990s that number grew to 1,050 schools [25]. Today,
provision of experiences to their students. Ultimately, new entrepreneurship education has exploded throughout the
firms are formed by individuals who make the critical world to more than 2,200 courses at over 1,600 schools [17].
cognitive decision to perform the entrepreneurial activity Only more recently have universities incorporated the
necessary to create a new business [9]. Each individual brings incubation role into this view of creating a technology
an accumulation of unique combinations of factors resulting entrepreneurship culture. The following are representative
from background and disposition that either encourage or technology incubation models, from simplest to most
discourage entrepreneurial activity [36]. Therefore, the role complex, used by existing universities in the U.S.
of entrepreneurship education coupled with technology
incubation is to strengthen effects of background and CASE I: Hatcheries in the Babson College Center for
disposition to encourage new firm creation. Entrepreneurship
US Universities have worked in the entrepreneurial field Hatcheries represent incubators focused on undergraduate
for some time. The University of Southern California and graduate students at a university with the main objective
launched the first MBA concentration in entrepreneurship in of foster entrepreneurial experiences among students.
1971, followed by the first undergraduate concentration in

Figure 4: Hatchery example

The Hatcheries function like incubators where student CASE II: The Center for Entrepreneurship at Drexel
entrepreneurs - undergraduate and graduate - have access to University
professional and semiprivate workspace to grow their The Drexel University Center for Entrepreneurship
businesses and increase their entrepreneurial experience base follows the first case but works very closely with the
while involved in their educational process. university’s Office of Technology Commercialization. In this
model they are actively working to spin out new technologies
from the university through the incubated companies.

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Figure 5: Hatchery example + Office of Technology Commercialization

Opened in March 2001, the Baiada Center contains ƒ Facilitate the successful commercialization of
significant incubation space for student teams creating revolutionary new technologies through the creation and
businesses while at Drexel. This space has been conceived in support of new companies.
direct response to student input as a unique, full-service ƒ Contribute to student education in Technology
incubator, with mentoring and collaboration space for the Entrepreneurship and Commercialization.
entrepreneurial community at Drexel. ƒ Foster an entrepreneurial environment among faculty and
students of the university.
CASE III: Boston University ƒ Create strong interactions between Boston University
Boston University’s Business Incubator hosts up to fifteen and the greater Boston business and financial
technology start-up companies. All companies are engaged in communities.
commercializing new technologies and financed through ƒ Contribute to economic development of the region by
leading venture capital firms, accredited angel investors, and launching new businesses and job creation.
corporate and government sources. The mix of companies
includes Life Sciences, Bio-tech, Medical Devices, Companies entering the program are encouraged to
Photonics, Clean Energy and Engineering. Unlike Drexel, the engage with faculty and students to enhance the
companies originate from within Boston University (BO) or entrepreneurial culture within the university. Companies may
from outside of BU. The Business Incubation Program is hire student interns, collaborate with faculty or participate in
designed to: funded university programs. Other interactions may involve
incubator companies participating as real-world case studies
for student education in entrepreneurial management.

Figure 6: Boston University Incubator example

The incubator includes companies founded by Boston CASE IV: The University of Central Florida (UCF)
University faculty and/or students to develop technologies This case is perhaps the most complex university model
owned by the University and licensed to the company as well that is tightly coupled with the business community. The goal
as external companies wishing to access the university’s of the UCF Incubation Program (UCFIP) and its community
resources. Some efforts have been made to make it a “landing partners is to facilitate smarter, faster startup and growth of
pad” incubator for international companies wishing to set a emerging companies as a major source of regional
footprint in the U.S. market. technology-based economic development (TBED).

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Figure 7: University incubator example + Venture Lab.

In this case entrepreneurs may begin to maturate their incubator, the types of companies the incubator wants to
ideas in the Venture Lab, as a partnership with researchers, attract, and how the success of the incubator will be
academicians, and students before entering into the measured. Based on the literature and best practices from
technology incubator. These are for very early stage incubators, the Figure 8 is a structured check-list of necessary
technology ideas and assessments that align well with elements that need to be addressed in starting and operating
preliminary market exploration, but are not yet ready for an incubator for technology-based businesses. The checklist
business incubation. According to the UCF, the Incubator of nine items needs to be revisited a minimum of three times
opened in 1999, has served over 90 emerging companies throughout the lifecycle of the technology incubator.
(including nearly 50 current clients), which have generated
over 900 new jobs and more than $200 million in annual
revenues for the region. To be eligible to participate in the
UCF Incubation Program, applicants should meet the
following criteria:
ƒ Company demonstrates strong market for products or
services
ƒ Company offers potential for significant job creation in
Central Florida area
ƒ Company plans to remain headquartered in Central
Florida
ƒ The office of the President/CEO will be located in the
Incubator (unless off-site or virtual applicant)

The applicant companies are required to complete the

Excellence in Entrepreneurship Certificate Course offered by
Figure 8 - Strategic Development Process for University Incubators
the Incubator and the University of Central Florida College of
Business Administration. The course is mandatory and in
The first round is the feasibility study round in which a
order to enter into the incubator, applicants will be assessed
complete assessment of the 9 items on the checklist is
according to participation in the course and the details of their
performed in view of understanding the environment for
application and business plan. The incubator offers the option
establishing and launching a technology incubator. This
of being located onsite or being offsite (virtual).
round will provide the basis for a go/no-go decision on the
incubator. Lack of coverage of any of the items on the
G. Checklist for Starting up a Technology Incubator
checklist will reduce the probability of making a successful
Establishing an incubator for technology-based businesses
is a challenging task and before starting one, especially for go/no-go decision. Round 2 involves the launch of the
technology incubator after a successful go/no-go decision. In
universities, and several issues need to be considered.
this round, the elements of the checklist are worked in much
Starting up an incubator is like starting any business
enterprise, therefore a business plan needs to be in place greater detail and involve the full development and roll out of
the facilities, staff, services, business model, and incubatee
defining the operating model, location, staffing, services, and
program. Round 2 represents the highest level of detail use of
financial plan. Usually incubators are set up based on the
input of multiple stakeholders such as local and national the checklist as the checklist elements help create the
operating protocol and procedures by which the technology
governments, universities, and/or private entities. It is critical
incubator will function. Finally, round 3 is the continual
that the stakeholders agree on the main objective of the

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revisiting of the checklist to maintain, operate, and improve may participate in the technology incubation process. For
the technology incubator program. Given changing business example, universities may have multiple stakeholders,
and technological environments, stakeholder desires, and the including the administration that sets policies and procedures
makeup of the local technology-based business community, for enabling participation in regional technology-based
continual monitoring and adjustment of the checklist economic development, faculty and labs that may serve as
elements will help ensure the long-term success of the key technology providers to the incubated companies, faculty
technology incubator. The nine elements of the checklist are and staff that may actively participate as consultants and
discussed in greater detail in the following sections. founders of small technology companies, and students that
may be involved in internships or start ups themselves. In
Checklist Step 1: Market eeds each stakeholder case, there will be a distinct set of
It must be clear whether or not a technology incubator is stakeholder values and desires that will play into the success
the right response to the market conditions in the region and or failure of the incubator depending on how the stakeholder
in an affirmative case, what type of companies will be values are addressed and managed.
incubator clients and what resources/services will they need.
The choice of which companies to target has important Checklist Step 3: Technology Incubator Mission and
implications for the incubating models because company Goals
profiles will define the infrastructure, counsel and business Establishing a clear goal and strategy for the technology
services, networking relationships and access to finance that incubator program is critical factors [26]. Beyond the
the incubator will need to provide. Furthermore, the more common objective of participation in the economic
clearly an incubator defines the incoming new technology development, facilities articulate objectives differently
venture profile, the better the incubator will be able to depending on their stakeholders’ and sponsors’ interests.
leverage its given competencies as well as create potential Stakeholders may have different goals and objective as well
synergy effects among already resident start-ups [55]. as asynchronous timelines for achieving these goals,
Experience suggests that the more successful incubators are therefore, incubator managers and sponsors need to reach
the ones that have a particular technology and business focus consensus regarding realistic outcomes their incubators are
typically associated with defined market segments and/or trying to achieve that will avoid misunderstandings in future
local technology-based industry clusters [37]. By focusing on [43]. The mission must clearly explain to the broad
a target market segment, or technology cluster, managers of stakeholder community the philosophy of the technology
incubators have been able to build internal and external incubator while the goals must enumerate the intended
networks of specialized skills that can directly impact the outcomes of the venture.
growth and success of incubated companies.
Checklist Step 4: Organizational Design and Governance
Generally, all incubator facilities are run by various types
of boards with varying degrees of, regional, local
government, university and private sector representations.
These boards provide overall direction. The incubator itself is
an enterprise with its own developmental life cycle [21] and
therefore as a venture itself, the incubator will need to
construct a team and a business plan. Designing the structure
of the organization and the form of governance should follow
directly from the first three steps on the checklist.

Checklist Step 5: Staffing

Top incubators are well managed, which mean they
provide appropriate salaries and benefits to individuals who
have the skills to help companies grow. Incubator staff
members themselves typically must understand
entrepreneurs, enable a nonbureocratic operating environment
Figure 9 – University Incubation Stakeholders for the incubatees, and recognize that they are in fact a
service provider to these incubatees [37]. The number of
Checklist Step 2: Stakeholder Values administrative and professional staff will depend on the size
The Technology Incubator may have a myriad of and nature of the incubator, and a mix of localized and
stakeholders, that can generally be placed in one of four distributed virtual support can be utilized to increase the
categories, namely government and community, university, service availability while minimizing the operating costs.
local technology entrepreneurs, and external business and Depending on what services the incubator will offer, it must
industry. Each category in turn has multiple stakeholders that

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be clear what human resources to have in-house, contracted, o Fit with the incubator’s resources/mission
and/or available in the broader incubator external network.
If an incubator is solely interested in rent one could argue
Checklist Step 6: Detailed Business Plan it is not an incubator but a property management firm. As
Whether it will be a for-profit or non-profit enterprise, the discussed earlier, the ability to help the companies grow
incubator needs to have a fully defined business model, a produces positive economic returns to the community, and is
well-defined incubatee plan, and financial projections that based largely on the internal and external networks associated
represent the venture being proposed. The business plan itself with the incubator. As young companies develop new ideas
will use the checklist as a major outline providing and grow, within the networks, creating sound intellectual
descriptions and details for each step. property support mechanisms, which may only need to be
basic education for some firms, will be necessary to build the
Business Model including Services and Pricing desire for new companies to join the incubator.
It is necessary to determine the composition, organization, It is useful to establish formal periodic and informal
and legal structure of shared services, management tenant performance reviews to ensure that they are
assistance, consulting and business financing program in the performing as planned and to put in place the necessary
incubator. At one extreme, government and community measures if the things are not doing as were planned. In
funded incubators that are seen as engines for economic technology incubators where facilities and services are
development may have no cost recovery from the incubatees. exchanged for equity positions in the companies, this may
At the other extreme, fully private for profit incubators will involve more direct participation in the start-ups including
be looking for a significant return on their investment and helping staff the management team and retaining board
will typically be involved in the funding, management, and positions. This also helps the incubator manager to create a
equity position of the technology companies. The general better understanding of the incubatee needs and continue to
population of technology incubators fall within this spectrum improve the facilities and services to accelerate company
of business models. The choice of the makeup of this model success, especially as the incubator enters Round 3 of the
will then dictate the how the incubator will define the checklist.
following: Incubatees must graduate at the moment that incubator
o Sources of Investment (and desired return) ceases to produce value added to them, and /or they cease to
o Facility-use pricing provide value added to other technology companies in the
o Service pricing incubator. According to Hytti & Maki [23], relatively young
o Investment/equity positions firms that have not extended their stay at the incubator for
over two years benefit most from the incubator and therefore
Incubatee Policies the incubators should impose strict graduation criterion
Hackett and Dilts provide a categorization for potential around this two-year threshold. However, the type of
technology incubator companies into three general categories, technology sector will influence the duration of the company
namely: in the incubator. A pharmaceutical start up may need 5-10
x Those that cannot be helped through business years to reach product launch while and internet-based
incubation software as a service company may be operational over the
x Those that do not need incubation period of several weeks. Thus instead of fixed incubation
x Those that should be incubated due to the periods, the incubators should develop graduation criterion
existence of some resource gap(s) adapted to specific market segments based on diminishing
returns of value added. Exit criterion can be defined in terms
Incubator managers must evaluate applicants in order to of levels of achievement in one or more of the following
decide in which group they are and if there is a good fit categories:
between incubatee needs and the business assistance services o Sales
that the incubator is capable of providing. Furthermore, Culp o Employees
1996 [12] suggests that incubatees should be those that are o Space need
weak but promising: weak due to a lack of resources, but o Acquisition
promising in the sense that they have built a compelling o Level of funding secured
business case. Criteria for categorization should include o Self-sufficiency for services
o Growth potential o No longer contributing to incubator internal network
o Solid strategic plan
o Qualified management team There should also be a criterion for termination of
o Commercializable product/process/services incubation for companies that are only receiving ‘life
o Existing cash flow stream support’ from the incubator without any real potential for
o Ability to pay for facilities/services independent firm development. In these cases, the companies
o Investor commitment are not meant to last and should not continue to consume

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incubator resources and time. The lack of performance on the Moreover, incubator managers must evaluate outcomes to
above criteria for graduation provide a clear set of measures demonstrate success and to identify where program
for determining the need for termination of incubation. improvements are needed. Evaluation results can be used for
attracting sponsors, strategic partners and high-quality clients,
Checklist Step 7: Funding and Cash Flow and to convey to the public in general the importance of the
As with any venture, cash flow is critical to maintaining incubator. However, maintaining this kind of tracking
day-to-day operations. Successful technology incubators program requires resources and tie commitment on the part of
establish a level of funding (including lines of credit) that the incubator and needs to be built into the staffing plan. The
ensure enough cash flow to get through the start-up and NBIA suggests ten basic metrics that should be collected
growth period of the incubator to prove out the business annually in order to track the business incubator’s economic
model. Tracking the performance to these metrics is critical impact in the community, including incubated companies and
in judging the long-term success of the venture. graduated companies, as the latter will be having a greater
impact on the community. For universities, additional
Checklist Step 8: etwork Development measures are included to demonstrate the university’s role in
Establishing strong internal and external networks for the the incubation process and to relate to the educational and
incubator and its technology companies remains one of the R&D objectives of universities as well.
single most critical elements for long-term success in Incubators for technology-based businesses create other
technology-based economic development. In both cases the outputs in addition to profits and jobs. The impact of a
incubator must actively create an environment that promotes technology incubator could be measured in terms of the
network growth. This includes internal polices, facilities, development of technology-based entrepreneurial activity in a
procedures, and events to encourage cross-fertilization of region, the increased of regional knowledge and skills, more
companies, while externally this means continually building business awareness or increased client networking. These
relationships. For incubator companies, this may also take the outcomes are defined by Voisey et al. [53] as “soft
form of agreements to continue to work with the incubator measures”. Considering soft measures, the early closure of
companies upon graduation, thus extending the network of non-viable businesses when in an incubator may be seen as
industry collaborators. success and not failure, as it reduce overall losses by early
termination. A business that does not survive the incubation
Checklist Step 9: Measuring business incubator’s process and ceases operations as quickly and cheaply as
economic impact possible when it becomes apparent that there is not sufficient
The majority of incubators are non-profit entities [21] potential to justify continued investment may be included in
therefore financial dependency forces incubators to operate in the list of successful outcomes for the incubator. Similarly
a politically charged environment where they must constantly when applying purely “hard” business metrics would view
demonstrate the “success” of the incubator and its incubatees this only as a loss [53]. As Hackett and Dilts [21] noted the
in order to justify continued subsidization of incubator positive result for the incubatee is the potential to
operations with public funds. Such a politically charged “reincarnate” at some future time, using the technology-
environment can tempt incubator stakeholders to underreport entrepreneurship lessons learned. The creation of a solid
failures and over-report successes. Therefore incubators must technology entrepreneurship culture may have a broader
have a clear and transparent policy when measuring their real impact on technology-based economic development than a
impact in order to dissipate doubts about their efficacy. high return on investment from one incubated company. The
goal is to try and achieve both, the growth of the technology
entrepreneurship community and the long-term financial
returns to the region.

Figure 10 – Basic Metric for University Incubators Figure 12 – Additional Metrics for University Incubators

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VI. CANARY ISLANDS entrepreneurs in the region with both physical and virtual
incubation
The authors have been working closely with the Canary 6. Establish a formal relationship with the 2-3 existing
Islands to understand the state of incubators for technology- small incubators that have largely been independent
based businesses in the US, and their application to the efforts and use the checklist as a tool for establishing the
Canarian environment, as one of the authors is a Canarian regional strategy and direction for fostering and
herself. The Canarian economy is characterized by its incubating regional technology-based economic
Tourism and Trade sector, which represents over 80% of the development.
Gross Domestic Product (GDP). This high concentration in
tertiary sector is the pattern of the Spanish and Canary Islands VII. CONCLUSIONS
economic structure. Tourism and the services associated with
it and construction related sectors are the main engine for the This paper has provided an overview of technology
economy, which has traditionally been a healthy sector in the incubation, including a taxonomy of incubator types and
past decade. However, with the current economic downturn services commonly found in an incubator. Focusing on
and the extreme dependence of this sector on disposable universities as a part of regional technology-based economic
income, the Canaries have been working to improve their development, a series of incubation models were reviewed
economic diversification through the development of new from simple hatcheries to complex multi-tier incubation
clean industries that are compatible with the existing tourism schemes involving university-industry collaborations. Based
industry. on the best practices, literature, and observations, a 9-step
The Canary Islands Government is aligned with the checklist for creating an incubator has been proposed, to be
Lisbon Agenda or Lisbon Process (Agencia Canaria de used at each stage of incubator development, including the
Investigación, Innovación y Sociedad de la Información feasibility study stage, the launch stage, and the maintenance,
Strategy Plan 2007-2010) an action for the European Union operation, and improvement stage. Finally, the development
intent on making the EU "the most dynamic and competitive of this study and the checklist are incorporated into a series of
knowledge-based economy in the world, capable of recommendations for the Canary Islands as they move to
sustainable economic growth with more and better jobs and evolve into a knowledge-based economy thus reducing their
greater social cohesion, and respect for the environment”. dependence on the tourism industry. Through the creation of
Universities are seen to play an important role in this education and incubation, the Canary Islands can begin to
evolution, as they can encourage students and faculty to be establish a technology entrepreneurship culture that is
more entrepreneurial as outlined earlier in the ACE model essential for establishing their knowledge-based technology
[22] while fostering the creation of technology incubators for economy.
new companies that help to diversify the economy. Future work will track the progress of the Canary program
Based on a survey of existing infrastructure ad programs development using this incubator checklist and a baseline
in the Canary Islands, technology entrepreneurship and study of technology entrepreneurship awareness and attitudes
incubation are in their extreme infancy, with only a few cases will be conducted to understand the current state of the
of technology business incubation. Based on the work islands. Even with strong inclinations and intentions, the
outlined in this document and the findings of the review of transformation of the business culture may be a significant
Canarian capabilities, the following recommendations outline challenge, especially in the absence of strong technology
how the Canary Islands can improve Technology entrepreneurship and management training in their
Entrepreneurship Incubation, with the objectives of fostering universities.
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