The Impact of Incubator Practices On The Performance of Incubation Centers

“Being the richest man in the cemetery doesn’t matter to me. Going to bed at night saying we’ve done something wonderful, that’s what matters to me.” Steve Jobs – Founder Apple

Business Incubation has become a pervasive phenomenon in numerous parts of the world and is seen as a tool for creating a startup ecosystem. The reason for the greatest barriers to the advancement of business incubation centers is the need for an entrepreneurial ecosystem and underdeveloped financial assistance & angel investor network for startup firms. Business incubation helps in creating successful startup ventures by providing administrative support services and assistance in creating their ventures. We identify incubators into three categories: 

  • University incubation center (BICs), 
  • Private incubators (PICs), 
  • Government incubators center (GICs) 

To measure the influence of different types of business incubation practices and their performance by using a survey questionnaire from incubation managers across Pakistan. The analysis is conducted on eight Business incubators. Results suggest that the quality of incubation centers is extremely important in this regard. The research anticipated helping policymakers, government officials, and incubation management to utilize business incubation more effectively to “hatch” innovation-based entrepreneurial development. 

As we all know that unemployment is a fundamental problem in developing countries. Many researchers believe that entrepreneurship is the only way to control unemployment; not just in developing countries but also in the developed world. At the beginning of the 1970s, most of the studies show the role of small and medium enterprises in the economy, and there are multiple pieces of evidence that reflects the shift of economic activities from large enterprises to SME in the 1970s & 1980s (Toma, et al., 2014). 

All around the world researchers believe that entrepreneurship became an important source for job creation and play a very important role in economic growth and national prosperity. Business incubation is one of the tools that helps to generate new innovation & entrepreneurial opportunities. In the early 1950s, business incubation began in the United States of America as a path for startup development (National Business Incubation Association, 1985). According to Ndabeni (2008), generally it is worth noticing that business incubators do not replace entrepreneurial activities, but make way better conditions for businesses. The theory of business incubation has gained popularity worldwide for its effectiveness in providing a conducive environment for SME growth. In developing countries, it’s the need to create an entrepreneurial culture to support economic development. The total population of Pakistan is 220 Million and the number of unemployed people in the country has been estimated to reach 6.65 million during the fiscal year 2020-21 

While in Pakistan, the concept of incubation is new, but Govt. institutions, universities, higher education commissions, and policymakers recognized the importance of entrepreneurship and its impact on the economy. In present circumstances, it is extremely important for our Govt. institutions and policymakers to promote entrepreneurial culture among youth. Create local capabilities to foster a startup community and a supportive atmosphere for young entrepreneurs. 

HEC has also played a very important role in directing universities to set up incubation centers to inculcate entrepreneurial culture within the campus. There is also another Govt. supported incubation centres operating since 2012 to create a Startup Ecosystem. But we need impactful incubation centers as compared to traditional incubation center with conventional practices. Because of these traditional practices, it’s impossible to produce successful startups. Quality incubation centers will produce success stories. Successful incubators have a large no. of startup ventures with growth potential, businesses with high survival rates, entrepreneurs friendly and networking environment to create successful startup ecosystem, worked as a bridge between universities, corporate sector, R&D centers, and startups lastly roadmap to provide financial assistance and access to financial markets (Aernoudt, 2004). 

There are almost 3500 incubators around the world, one third are found in North America, nearly 30 percent in Europe, and the remaining 40 percent in emerging economies. With the passage of time, new theories of incubation practices were discovered by the researchers. 

Business Incubation initiatives need to provide entrepreneurs with the necessary requirements for starting up a successful business, like capital, training, and empowerment of the minority groups (Salem, 2014). It is further suggested by Mirza (2017) that all incubation centers should create a training and development center to ensure the availability of skilled staff members when needed. Accepting TIC’S as a tool for developing entrepreneurship, recognition of technology incubation as a method to reduce poverty, creation of wealth & employment and multiplier impact on economic development so Govt. should build more TIC’S and Entrepreneurship development agencies in the region (Ndagi, 2017). Business incubators have a positive impact on job creation but the selection criteria of incubation centers need more improvement (Stokan, Thompson & Mahu, 2015). 

Anderson and Lewis (2018) analyze the relationship between incubator performance and incubation practices, independent variables: incorporate services offered, goals of Incubation center, advisory board members, startup selection criteria & management practices and dependent variables: number of startups, number of employees, number of graduated startups per year, revenue per year, number of the survived ventures. According to the researchers, that association plays a significant role to improve the quality of Incubation practices and setting the road map for incubation output. Existing literature suggests that role of incubation management is very important in this regard they should emphasize the quality of services, networking opportunities, management key performance, and allocated resources, and so on. 

In spite of the fact that this study focuses primarily on results for graduated startups. The sum and development of employment and incomes from incubates, as well as the number of graduates per year, the benefits of the incubator program during their time frame. Measuring the actual performance of incubated startups’ must go further than graduation to examine startup growth and survival insights (Rothaermel & Thursby, 2005; Schwartz, 2011). Revenues and survival rates are considered measures of the success of incubation centers. 

The result shows that incubation practices are the main predictor of incubation performance overall. However, analysis of different incubation practices demonstrates that incubation administration, management practices, and advisory board policy & contribution all have a positive and significant relationship with incubation performance. Looking at the most grounded incubator quality predictors highlights the significance of resources, leadership, and key management practices for anticipating (and subsequently influencing) incubation performance results. Resources straightforwardly influence any program’s capacity to provide services. 

While the qualitative and quantitative analysis confirms the hypothesis that incubation performance is the function of incubation practices perhaps it has a great influence on the results of Incubation centers. The results show consistency with previous literature that highlights the importance of the incubation framework (Aernoudt, 2004; Pauwels, Clarysse, 

Wright & Van Hove, 2016). Ndabeni (2008) highlights the importance of a strong social network and financial assistance but our result shows that lack of advisory board, mentors, and financial support in most of the incubation centers directly affect their outcome. The business incubators give a great platform for the convergence components for supporting the knowledge-based startup firms, in the pre and post-incubation phase. 

The framework explained in this paper, provides in-depth information about three types of incubation: University incubation, private incubation, and Government incubation. Results of GICs and PICs show more appropriate performance and role in creating a startup ecosystem. In combination with an appropriate result indicates, it can be utilized to recognize best practice models or to distinguish between diverse models that are equally effective in accomplishing certain objectives. Both these results would help Incubation management, policymakers, and Govt officials to choose which incubation framework will be effective in achieving the desired results. Generally, it is worth noticing that BIC’s do not replace entrepreneurial activities, but make way better conditions for the Startup ecosystem. 

The purpose of this study is to help policymakers, Government institutes, and universities on how to improve incubation practices to create an entrepreneurial ecosystem to support the economy. The most important tool to measure the Incubation quality is the number of job creation. All around the world, there is a business incubation association that controls all the incubation practices and incubation performance and also gives policy for incubation management. Moreover, the UN and World Economic Forum have their own business incubation models. A few little adjustments and tweaks in the existing ecosystem can create a lot of impact in building a healthy entrepreneurial ecosystem in Pakistan.