Tenant firm progression within an incubator: progression toward an optimal point of resource utilization.

Todorovic, Zelimir William ; Moenter, Katherine "Meyer"

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 set up 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, 1990). 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.

REVIEW OF RBV PARADIGM

This paper is based on the theoretical precepts of the resource-based view. The resourcebased view (RBV), first advocated by Penrose (1959) in her book The Theory of the Growth of the Firm, suggests that a firm's capability to achieve continuous rent (or profit) stems from its internal resources, land, labor, and capital. RBV makes a substantial contribution to strategic management by encouraging managers to focus on the resources in addition to the products of the firm (Wernerfelt, 1984).

There are two approaches in RBV: the process approach and the structural approach. The structural approach focuses on the unique resources possessed by the firm, with the emphasis on market processes. Consequently, this is a focus on rare, inimitable, immobile resources (Barney, 1991; Wernerfelt, 1984), building on the assumption that sustainable advantage is reached through those rare resources. Richardian (physical) resources and land are the focus of consideration, while management skills and competencies are assumed comparable among competitors. The process approach, on the other hand, focuses on internal organizational processes seeking quasi- and efficiency rents. By contrast to the structural approach, this approach assumes that efficiency rents are available within a firm and can become a source of competitive advantage (Miller & Ross, 2003).

If the resources provided to tenant firms by incubators are valuable, rare, inimitable, and nonsubstitutable (VRIN), they will help firms achieve sustainable competitive advantage (Mian, 1996). Within incubators, however, these resources are provided only temporarily, until the tenant firm develops firm-specific capabilities and competencies building their competitive advantage. Alvarez and Busenitz (2001) argued that entrepreneurship is an integral part of RBV and define entrepreneurship as "the recognition and exploitation of opportunities that result in the creation of a firm that seeks to obtain entrepreneurial rents" (p. 757).

Entrepreneurship, however, is not seen as the activity of starting a new venture, but rather "entrepreneurship is a mechanism by which society converts technical information into these products and services" (Shane & Venkataraman, 2000, p. 219). Stevenson and Jarillo (1990) considered entrepreneurship an approach to management, defining it as a "process by which individuals--either on their own or inside organizations--pursue opportunities without regard to the resources they currently control" (p. 23). It is through this process that entrepreneurship provides for alternate uses of resources leading to a competitive advantage; therefore, entrepreneurship is an intricate part of RBV (Alvarez & Busenitz, 2001; Barney, 2001; Bruton & Rubanik, 2002).

As entrepreneurs engage in the exploitation of new opportunities, they have many obstacles to conquer, especially in the earlier stages of venture development. To this end, the incubator is seen as providing the temporary supporting resources that lead to the development of a firm-specific competitive advantage (McAdam & Marlow, 2007; Zedtwitz & Grimaldi, 2006). Incubators often serve to provide tenant entrepreneurs with basic resources such as copiers, reception and business support, making a nurturing environment available to new start-ups (Mian, 1996).

INCUBATORS

In the past ten years, between 60 and 80 percent of net new jobs have been created by small businesses (Economic Development Administration, 2007; US Census Bureau website, 2007). Knaup (2005) and Headd (2003) found that two-thirds of new businesses survive at least two years and 44 percent survive at least four years. In 2005, there were 671,800 new businesses started, while at the same time 544,800 businesses were shut down (US Census Bureau website, 2007). As discussed, incubators provide various resources to the tenant firm (McAdam & McAdam, 2006). Building on the process approach of RBV, we attempt to evaluate the effectiveness of these resources in supporting tenant firm growth.

As of October 2006, there are presently over 1,400 business incubators in North America (National Business Incubation Association, 2007). The NBIA describes business incubators as programs to assist young companies during their most vulnerable stage, the start-up period. Incubators offer support services and resources, which are essential for survival. Incubation programs also have broader, community related goals--increasing the number of jobs, creating an atmosphere of innovation, preserving companies, supporting local industries, and diversifying the local economy (National Business Incubation Association, 2007). Wiggins and Gibson (2003) established five objectives for incubators to succeed: leadership, clear goals, valuable services, a well thought out selection method, and the resources needed.

Allen and Rahman (1985) suggested that management problems and under-capitalization are the most common reasons for early stage business failure. Business incubators can help with these issues; considering the potential positive results in job creation and lessened chances of business failure, businesses incubators could be instruments leading to success. Business incubators are designed to encourage entrepreneurship and innovation, offering experienced and knowledgeable staff members, comprehensive facilities, and decreased rent. Sherman (1999) included other infrastructure and services as resources, such as development of business plans, marketing plans, management structures, and capital acquisition, as well as access to additional knowledgeable experts, shared equipment, variable working space, and clerical services. Allen and McCluskey (1990) discussed the benefit of an environment that encourages innovation and survival. MultiIncubator staff members can "provide the assistance that fills the knowledge gaps, reduces early-stage operating costs such as rent and service fees, and introduces entrepreneurs to a local enterprise support network" (Allen & Rahman, 1985, p. 13; also see Allen & McCluskey, 1990).

Incubators can be categorized as private (for-profit) or public (not-for-profit), with different goals. Allen and Rahman (1985) found that private, for-profit incubators often emphasize property development. They also recognized that public, not-for-profit facilities, such as those sponsored by the government, focus on creating more jobs and enhancing the local or national economy. Allen and Rahman (1985) recognized educational incubators, both public and private, associated with universities or other schools, as having goals of continuing research and training students.

Initially, incubators emerged in close proximity to universities--mostly as a function of technology transfer. As such, incubators pursue three basic objectives, which are: technology transfer, promotion of entrepreneurship and leading edge research (McAdam & McAdam, 2006). Establishing the effectiveness of incubators, however, has proven to be elusive thus far. For example, incubators are found to contribute relatively few important financial management and professional consulting services (Allen & Rahman, 1985). Colombo and Delmastro (2002), in their study of 43 Italian firms, established only marginal differences between incubator tenant and non tenant populations. On the other hand, Sherman (1999) found that incubators significantly decrease the possibility of failure compared to that of companies not associated with incubators. Further demonstrating the controversy, Peters, Rice and Sundararajan (2004) suggested that an incubator model may have a weakness by removing the initiative from the entrepreneur. In other words, a part of the attraction of entrepreneurship, that is, the challenge, may be reduced in an incubator. Mian (1994, p. 515) argued that incubators "provide an environment conducive to the development of new technology-based firms," a position maintained by a number of other authors and studies (e.g., Campbell, 1989; Rothaermel & Thursby, 2005; Smilor, 1987). While the incubator's goals of job creation and community business creation and sustainability are much needed, it is the entrepreneurs who are the critical factors in the creation of new businesses and, in turn, new jobs (McAdam & Marlow, 2007).

In a survey of 169 incubators, Hansen, Chesbrough, Nohria, and Sull (2000), found that, while many incubators are merely office buildings, those with strong networking had more successful tenants--a success often attributed to partnerships, knowledge sharing, and other relationships. Networking activities include contact with outside authorities, internal and external meetings, access to experts serving as board members, as well as financial incentives (i.e., tenant profit sharing). There is also evidence that, although incubators provide much-needed support for newer entrepreneurial organizations, the tenants who stay at the incubator longer than necessary may actually be worse off (McAdam & Marlow, 2007).

Allen and Rahman (1985) grouped the incubator offerings into three categories: "rental space, shared office services, and business consulting assistance" (p. 12). Peters, Rice & Sundararajan (2004) grouped incubator offerings as infrastructure, coaching, and networking, noting that infrastructure includes physical space and equipment consisting of laboratories, internet lines, and other administrative tools. Allen and Hendrickson-Smith (1986) found that incubator tenants are often charged less for outside services because the supplier hopes to eventually gain additional full paying customers. But, despite these cost savings being financially helpful, Reynolds (1987) and Kazanjian (1988) found that these services alone are not factors in creating successful incubator tenants. The key part of incubator service is the provision of experienced staff members and community contacts for other services needed when starting a new business (Reynolds, 1987; Kazanjian, 1988). For example, it is important to have mentors specializing in business planning, marketing, and legal assistance provided by incubators as well as coaching, which can also consist of instruction and learning seminars (Peters et al., 2004).

Gumpert and Boyd (1984) viewed incubators as places where entrepreneurs could be in the company of other people who had similar circumstances when first starting out. Allen and McCluskey (1990) identified mentors as fellow tenants and knowledgeable professionals from the community who can appreciate what the entrepreneur is encountering, provide information based on experience, encourage the entrepreneur to succeed, and possibly become involved with the entrepreneur as a provider or partner. Peters et al. (2004) also included "administrative, management, financial, legal, and insurance consultants as well as scientists, academicians, prospective customers" (p. 86). The studies all emphasized the development of capabilities and competencies. In fact, it is posited that development of capabilities and competencies are the principal benefits of incubators, as opposed to simply subsidizing costs.

University-Based Incubators

Although university incubators represent approximately 20 percent of all North American business incubators, (National Business Incubation Association, 2007), we still have a limited understanding of how university involvement with incubator tenant firms actually works. A university incubator is a program sponsored by a university to nurture new and small businesses by providing support throughout the early stages of development. Most university incubators provide specialized resources, such as technical or other research capabilities that are not otherwise available to the firm.

A large body of research on incubators emerged in the USA (1985-1995) and has since developed in other countries, such as the UK, France (e.g., Clarysse & Moray, 2004), Canada (e.g., Cooper & Park, 2008), and Australia (e.g., Christian & Michael, 2007), China (e.g., Aruna, Wei, & Tim, 2007), Brazil (e.g., Etzkowitz, Mello, & Almeida, 2005), South Korea e.g., (Sung, 2007), and regions of Eastern Europe (e.g., Abetti, 2006).

The initial research on incubators focused on defining an incubator. More recently, the focus has been on factors leading to effective incubators, with an emphasis on the role of the incubator facility (Hackett & Dilts, 2008; McAdam & McAdam, 2008). According to NBIA (2008), the firm's incubation process is much more important than the incubator facility itself. Studies on the incubation process are sparse. Peter, Rice, and Sundarajan (2004) studied the impact of infrastructure, coaching, and networks on the graduation rates from university incubators. Their study of 14 university incubators in North America indicated that customization of coaching programs and network formations help client companies gain a competitive advantage and encourage their survival. Drawing from RBV and learning theory, Peter, Rice and Sundarajan (2004) suggested that coaching should match governance structure and incubator goals. In-depth interviews with tenants and incubator center directors were suggested as a useful method to identify appropriate resources.

Moray et al.(2005) developed a framework of taxonomies found within European institutions, based on an in-depth analysis of seven cases from 13 European regions. Moray et al. (2005) identified three distinct models for managing the spin-out process (low selective, supportive, and incubator), which require very different resources. They argued that there is a distinction between simple creation of spin-outs and the creation of spin-outs with the ability to generate significant wealth. This model supports some critical assumptions of this paper, including the need for heterogeneous capabilities and resources, and the recognition of complexities involved. This model represents a suitable base to use in understanding the spin-out process within an incubator.

Lichtenstein, Levie, and Hay (2007) tested the validity of the life cycle and stage model in the incubation process and suggested that there is no specific sequence in the stages in the development of business firms. They proposed a new theory that identifies different stages of development with stages defined in terms of an overall business model yielding an arrangement of activities, resources, and structural relationships. Each stage assumes that management attempts to match internal organizing capacity with external market demand in the most efficient manner. This more dynamic approach allows us to better capture the phenomena.

Abetti and Rancourt (2006) agreed that there is no specific set of stages in the incubation process. They conducted three in-depth studies of university incubators in the USA, Ukraine, and Finland and found that there were some similarities and significant differences in the creation, management, and performance of incubators. Their findings suggested that incubators should (a) be located on a university campus to optimize networking, (b) have a full time professional manager, and (c) insist on close linkages between the incubator and the university technology transfer office to speed up commercialization.

The proximity to the university and the approach taken by the university influence the effectiveness of research parks and, by extension, incubators (Link & Scott, 2005). Certain university activities seem to add greater value EN.CITEEN.CITE.DATA(Allen & McCluskey, 1990; Hernandez-Gantes, Sorensen, & Nieri, 1996; Mian, 1994, 1997). Morey and Clarysee (2005) found that establishing the structure for university incubators involves a substantial learning curve for the university, the incubator, the new venture, and the community. No prior research was found that examines optimization of university involvement with incubator tenant firms, and identifies competencies needed for effective university involvement with their incubators. It is likely that management of these incubators will have corresponding dramatic effect on the benefit received by tenant incubator firms. Therefore, effective university involvement should be more likely to lead to increased tenant firm performance.

Networking

The literature defines networking as entrepreneurial resources (Julie Juan, 2005; Peng & Shekshnia, 2001; Ramachandran & Ray, 2006), and we believe that this notion merits a further discussion. Networking is the process of building and managing relationships in the business environment (Hoang & Antoncic, 2003). This network can be utilized to: (1) provide an access to new ideas and resources that support the entrepreneurial process; (2) obtain credibility and reputability through collaborating with reputable partners; (3) share knowledge and promote learning; and (4) provide support from other entrepreneurs going through similar phases.

Networking at incubators provides relationships with vital external consultants such as tax accountants, patent and other lawyers, business consultants, marketing experts, and public relations firms (Adams, Chiang, & Starkey, 2001; Cooper, 1985; Peters et al., 2004). Such relationships can be crucial to the development of the start-up firms because network incubators lay down foundations for these companies to grow their contact lists more quickly amidst different constraints facing entrepreneurs, e.g., time, information, and resources. This networking process improves the efficiency and effectiveness of start-up firms, allowing them to achieve goals and sustain growth (McAdam & McAdam, 2006). Nevertheless, developing an efficient network demands considerable resources (effort, time, and money), which may require a devoted entity to support the networking process, referred to as "quasi-firms" by Etzkowitz (2003).

Incubator Funding

One of the underlying assumptions of this paper is that the different benefits obtained from incubators are not equivalent. This assumption is balanced on two pillars of thought: (1) public funds are utilized in incubator operations, and (2) public funds are scarce, necessitating resource maximization. Incubator funding is usually from multiple sources.

One obvious source of income for incubators comes from the rent received from tenant firms. Besides tenant rent income, US incubators are funded through government entities, subsidies, universities, private donors, community businesses, foundations, and economic development organizations. For example, Kidwell (2007) interviewed the CEO of the Wyoming Technology Business Center (WTBC) and found out its funding included $5.3 million from the state of Wyoming, $1.6 million from a foundation, $1.6 million from the U.S. Department of Commerce Economic Development Association Administration, and $1.85 million from Federal Housing and Urban Development. The Economic Development Administration (EDA) has an annual investment budget of $300 million and has $5 billion under investment at any given time (Economic Development Administration, 2007), with goals of regionalism, innovation, and entrepreneurship. In North American, sponsors are: universities (25%); government (16%); economic development organizations (15%); for-profit agencies (10%), multiple sponsors (5%), and others (National Business Incubation Association, 2007). The same report shows that only 19% of incubators have no sponsors, implying self-sufficiency.

RESEARCH DESIGN

Our study attempted a better understanding of the present situation at American incubators. We conducted thirty in-depth interviews of publicly funded, university-based incubators. Incubator tenant entrepreneurs were randomly selected, spanning twenty different incubators in nine states of the USA. The use of CEOs or middle managers as single informants is generally the practice in entrepreneurship related research (Allen & McCluskey, 1990; Kwaku, 1996; Nahavand & Chestech, 1988; Pearce, Kramer, Tracy Robertson, & Robbins, 1997; Ruppel & Harrington, 2000). Hambrick (1981) showed that CEO and manager perceptions were closer to objective measures of the same phenomenon than were those of other organizational members. Our methodology used face-to-face and telephone interviews of CEOs of incubators in Alabama, Indiana, Louisiana, California, Oklahoma, New Mexico, New York, Tennessee, Texas, and Virginia.

There were at least two respondents from each state, with most respondents coming from Indiana and Alabama. All reported some type of a working relationship with a local university or a college and claim to foster the development of new technology.

Qualitative methods are often used to develop theory (Creswell, 1994). Qualitative methodology, however, does not lend itself very well to the quantitative manipulations needed for quantitative methodology which may be used in subsequent studies (Schneider, Wheeler, & Cox, 1992). Because the theoretical constructs are not well understood, we employed content analysis methodology (Krippendorff, 1980) of the transcripts and notes of interviews. Content analysis is a methodology that is positioned between quantitative and qualitative methods (Schneider et al., 1992), a procedure of coding information obtained from interviews (Holsti, 1969; Krippendorff, 1980; Schneider et al., 1992). Once the coding is done, data is amenable to quantitative data manipulations (Schneider et al., 1992). This process involves the development of coding themes for the statements made by the participants (Schneider et al., 1992). Schneider et al. (1992) found that content analysis provides results that can be utilized in quantitative data manipulations, such as may be useful for later studies.

To offset potential bias, data was collected and analyzed by one researcher, and then independently re-analyzed by another researcher. Once both sets of analyses were completed, results were further analyzed and synthesized by both researchers. One of the problems encountered in this research was the management of the large quantity of data. Using Peters et al. (2004) groupings discussed earlier, responses were categorized in three groups: infrastructure, coaching/business support, and networking (Appendix A contains the interview protocol).

FINDINGS

Although it has been suggested that the optimal length of stay within an incubator is three years (National Business Incubation Association, 2007), 63.3% of incubator tenants responding have been in an incubator for at least three years. Of these 30 tenants, 50% plan to stay at the incubator for at least five years and 30% plan to stay indefinitely. These statistics appear to support our contention that cost subsidy may be a more significant factor than was previously assumed. Various aspects of infrastructure support were often the primary answer to the first question: "What are the greatest advantages of staying at the incubator?" We observed that one of the most significant benefits was the low rent of incubator space, often accompanied by many amenities. These amenities or shared services include copiers, conference rooms, computers, a receptionist, and other necessary equipment.

"Common resources--admin, copies, computers, space; access to staff--advisors; contacts with accountants, HR, attorneys; helps establish credibility" (Q1)

"Low cost; networking; services; resources" (Q1)

"Networking; front office staff; accommodations; low cost" (Q1)

"Networking; staff support; less expensive; shared equipment; resources" (Q1)

A number of respondents indicated that coaching and business support are major contributions of the incubator, which supports previous research. More specifically, the answers were focused on marketing, planning, and business plan development as dominant avenues. For example, in answers to question #4 (most valued characteristic of incubator staff), responses included:

"We benefit mostly from activities that increase sales--marketing; understanding taking the product to market; ... depends on what phase you're in ... have only a couple staff who interact with business development" (Q4)

Another answered the same question with the following statement:

"... Would like to see more involvement and help with marketing" (Q4)

In fact, marketing came up in eight interviews, with seven occurrences in questions #3 (activities that would make the incubator more effective) and #4 (valued characteristics of incubator staff). Only once did marketing come up in question #1 (greatest advantages / reasons to stay).

Likewise, planning and business plan development came up in five interviews each, and responses to questions #3 and #4 included:

"... more strategic planning opportunities with director; doors open for tenants" (Q3)

"More help for business--capital funding, action plans; marketing/sales/sales channel help. Entrepreneurs have ideas but don't know what to do ..."(Q3)

Interestingly, business plan development came up only once as an answer to question #1 (greatest advantages / reasons to stay).

The term "networking" came up in 19 interviews, of which 15 were responses to question #1 (the greatest advantages / reasons to stay); however, most respondents referred to networking in some form. This suggests that incubators are seen by the tenants as being fairly effective in fostering networking opportunities (Hansen et al., 2000). Of course, a great number of these opportunities may be occurring between the different entrepreneurs residing in the incubator, rather than being a result of any specific activity or engagement of the incubator. The following statements are good examples of the responses received:

"You're not alone-other companies encountering similar problems, staff, you can talk to someone immediately; networking; partnerships can be tough-nice to have others around;" (Q1)

"Start up cost low; networking with people with similar experiences" (Q1)

All thirty respondents listed some type of infrastructure as the greatest advantage of being in an incubator. Further, 21 subjects (70%) noted reduced cost as a primary benefit. Our findings strongly support the suggestion that cost subsidy is perceived as the greatest benefit of incubator tenancy.

There appear to be distinct twin foci of the tenant firm interviews. Nine CEOs that were interviewed emphasized coaching/business support. These tenants also appeared to focus their energies on growth and expansion (Growth Emphasis). On the other hand, the remaining twenty one CEOs focused on infrastructure fortifying activities, and also appear to embody the cost minimization focus (Cost Emphasis). It is also significant that very few subjects mentioned both infrastructure as well as coaching/business support. The length of incubator time with the first population (coaching / business support) appears to be lower (mean of 26.16 months) than that of the second one (infrastructure focus) (mean of 46.39 months).

Using these emphases, data was examined to see if certain industries or sectors are more likely to have one emphasis rather than another. Contrary to expectations, this study did not produce any evidence to suggest that certain industry sectors have one emphasis as opposed to the other. Although these findings may simply be a function of the sample size, it is also possible that the entrepreneurial nature of tenant firm CEOs may be a factor.

This study also suggests, from the RBV perspective, that incubators provide a different type of a set of resources for their tenant firms. Simply providing resources is not sufficient for competitive advantage. These resources must be rare, inimitable, immobile resources (Barney, 1991; Wernerfelt, 1984). Therefore, the perspective of the RBV agrees with the finding of this study; when an incubator becomes simply a subsidized rental space, it serves little or no benefit to the community. The incubator must provide a resource that the tenant firm cannot find elsewhere (e.g., networking, entrepreneurial synergies, or business advice). Once the incubator tenant firm relationship reaches a point where the only resource it is providing is the subsidy of physical space, then the incubator space can be better utilized by another tenant firm. Rental space is readily available from commercial sources and, because such a resource is no longer rare, it represents inferior resource utilization.

Figure 1 is a summary of the findings from the interviews conducted. Vertical axis of Figure 1 pictorially represents the two clear emphases found amongst the incubator tenant firms. In every interview, one of the two emphases was identifiable (although this observation was not realized until analysis was done). Although growth and cost minimization are positioned on the same axis, they do not represent opposite concepts, but rather two fields of influence.

[FIGURE 1 OMITTED]

Another focus of the respondents was the importance of business networking. Almost all the interviews touched upon some element of networking and business contacts. Networking is a benefit achieved through the proximity of different ventures, experts and professionals rather than any specific activity undertaken by the incubator.

As mentioned before, the coaching/business support population, represented by nine tenant firms, emphasized growth of their organization and the search for opportunities that allow future growth. A much larger population of twenty one tenant firms focused on infrastructure fortification, emphasizing cost minimization. Both are pictorially represented in Figure

DISCUSSION

Business incubator activity has become very popular in the USA during the last couple of decades, growing from twelve in 1980 to over 1,400 in 2006. The literature does not conclusively define the benefits of business incubators. Using 30 in-depth interviews, we attempted to clarify constructs involved in incubator based new venture development.

The basic purpose of an incubator is to promote growth of small businesses, so one would assume that this would be the primary goal of incubator tenant firms. However, our results show that only 30% of the respondents had a growth emphasis. In fact, it appears that incubators have become a rent subsidy for the small firms fortunate to reside within them. The length of stay at the incubator is also a concern. As Figure 1 also shows, cost minimizing tenants stay substantially longer within an incubator than do growth oriented firms (26.16 compared to 46.39). This would suggest that public resources are utilized longer by firms that are simply oriented towards minimizing their expenses rather than being focused on growth. We believe that growth is the primary purpose of an incubator.

Our study clearly shows that there are two dissimilar populations of incubator tenants. As researchers continue to probe this interesting topic, they need to control the two populations, which are likely to make skew observations, or perhaps even counteracting findings.

LIMITATIONS AND FUTURE RESEARCH

This study has a number of limitations. First and foremost, the sample size is a significant limitation. Thirty interviews of tenant firms, found at twenty incubators, across nine states raise concerns about the external validity of the findings. However, this is an initial attempt to quantify incubator effectiveness.

This study may also suffer from the social desirability bias, in that participants may be motivated to present a picture that is more favorable than is reality. To address this, all participants were told on a number of occasions that the study is anonymous and that only aggregate data will be used. To enforce this point, no personal data (other than the mail code) was collected.

This study examined incubators in the USA. Funding practices and consequent incubator actions may vary in different political environments. Further, public opinion regarding the use of public funds towards tenant firm subsidy may be different in other countries and cultures, thereby suggesting a variation in optimal tenant activity.

Further research is needed to evaluate some of the conclusions gained in this study. Such research must consider other national entities and environments. Our research indicates a need for further case work and quantitative analysis examining the benefits of different resources provided by incubators to their tenant entrepreneurs.

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Zelimir William Todorovic, Indiana University--Purdue University

Katherine Moenter (Meyer), Monarch Capital Management