[2004]business incubation –hatching or start-up

8/6/2019 [2004]BUSINESS INCUBATION HATCHING OR START-UP

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BUSINESS INCUBATION HATCHING OR START-UP?

Wing-Ki Wong, Ph.D. candidate

Department of Manufacturing Engineering & Engineering Management,City University of Hong Kong, Hong Kong Special Administrative Region, Room B 1473, Tat Chee Avenue, Kowloon Tong, Kowloon, Hong Kong

Abstract: The fundamental goal of business incubation is to nurture youngfirms to survive and grow during the start-up period. However, mostincubators mainly focus on securing sustainable funding rather than onimproving the start-ups performance during the incubation process. Thispaper examines what can be learnt from the origins of incubation chickhatching process. The chick hatching metaphor is used to develop aconceptual model called Incubatee Hatching Process (IHP) that providesmany useful insights into how a start-up business could be nurtured. The maininsights relate to six stages: preparation for start-up, incubation process,performance measure of incubatee, exit policies, parental care, anddisconnect incubator. The stage of preparation for start-ups is the focus of thispaper. A diagnostic matrix is suggested to evaluate the entrepreneurialcharacteristics for incubation program applicants.

Implications will be provided from IHP through Hong Kong sustainable high-technology incubated firms cases base on business founders personal traitson entrepreneurship such as global innovativeness, need to achieve, risktaking propensity, locus of control, attitude towards entrepreneurship, self-

efficacy of feasibility, mission trait and vision. The purposes of this paper areto explore critical factors for improving incubated firms sustainability andidentifying barriers to survival and to business expansion.

Keywords: Business incubation; Entrepreneurship; Performancemeasurement; High technology; Start-up

Introduction

It is generally agreed that business incubation means the nurturing youngfirms at the early growing stage. However issues concerning the incubatees

performance have not received due attention in literature so far. The purposeof this paper is twofold: (i) to propose a conceptual model that providesinsights into how a start-up business could be nurtured until it has reached aself-sustaining state; and (ii) with the aid of four case studies of high-technology incubated firms in Hong Kong, to identify the critical factors withregard to how business performance is generally influenced by theentrepreneurial characteristics of the founders. The chick hatching metaphor is used to develop a conceptual model called Incubatee Hatching Process(IHP) that provides many useful insights into how a start-up business could benurtured. This metaphor was originally suggested by Joe Mancuso to studythe development of business incubation in the period 1950-1957 in New York.The metaphor was utilized to study how the firms were nurtured duringincubation process. This metaphor is used in the present paper to identify the

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following six stages: (i) preparation for start-up; (ii) incubation process; (iii)performance measure of incubatee; (iv) exit policies; (v) parental care; and (vi)disconnect incubator (see Figure 1). Evidence of these stages is obtainedthrough four case-studies of incubatees in Hong Kong Science Park (HKSP).It is found that the personality traits of the founding entrepreneur can have

positive impact on the firms growth performance. In particular, the followingtraits are found to be important: global innovativeness, need to achieve, risktaking propensity, locus of control, attitude towards entrepreneurship, self-efficacy of feasibility, and mission trait and vision.

Over 98 percent of local economy in Hong Kong is composed of small andmedium-sized enterprises (SMEs). SMEs are defined as manufacturingenterprises with fewer than 100 employees and non-manufacturingenterprises with fewer than 50 employees. 1 Hong Kong Productivity Council(HKPC) has been conducting a survey on Business Operating EnvironmentIndex of SMEs that presents an analysis of the SMEs expectation of businessgrowth and profit for the next 12 months. 2 Further, the majority of the SMEs inHong Kong were originally developed through individual entrepreneurship.Clearly, entrepreneurship plays a key role in Hong Kongs economy especially in high-technology driven small firms.

Literature review

Business incubation and entrepreneur.

Entrepreneurship is a global issue. According to OECD (1998),

entrepreneurship plays an essential role in society by brining job opportunityand creating wealth. It is generally agreed that the founder a new venture, theentrepreneur, should be a well-rounded and strong person who is willing toinvest the time and effort needed to overcome the challenges and difficultiesarising in the early stages. Hisrich and Peters (2002) note that entrepreneur isone who brings all kinds of resources into combinations that make their valuegreater than before. The entrepreneur must possess the characteristicsneeded for withstanding the challenges that come along during theentrepreneurial process. Entrepreneurs are those people who are ready for changes. They must be capable of exploring new ideas so that their businesses could survive and grow in the modern, constantly changing world.

Business incubation provides the financial, business and technical supportsfor starting a new entrepreneurial venture at the early stage. According to thedefinition of the European Commission, a business incubator is a place where newly created firms aim is to improve the change of growth and rate of survival of these firms by providing them with a modular building with common facilities as well as with managerial support and back-up services Science parks play an important role by helping firms expand their capacity,

___________________ 1SMEs in Hong Kong, SME Information Centre- http://www.sme.gcn.gov.hk

2

Hong Kong Productivity Council, Local SMEs Cautious Towards Hong Kongs BusinessOperating Environment, press release, 18 July 2002, http://www.hkpc.org.hkpc/html/

2
http://www.hkpc.org.hkpc/html/http://www.hkpc.org.hkpc/html/


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build up their manufacturing potential, and market their innovative results(Koschatzky, 1997). In Hong Kong, a world-class science park has beenestablished to create clusters of enterprises in the segments of electronics,information and telecommunications, biotechnology, precision engineering,and advanced manufacturing. One of its missions is to offer full-service

incubation program for technology start-ups.

Personal traits of an entrepreneur.

The French term entrepreneur was originally directed towards one whoentered and took charge of royal contracts (Legge and Hingle, 1997).Subsequently the term has been used to describe enterprise foundersintending to take charge of all business projects in managing business anduncertainty. A successful entrepreneur should have many qualities sincehe/she is the final decision-maker (Say, 1971). Therefore, certain kinds of personality traits should be possessed by the entrepreneur. The traits arederivable from theories most commonly applied in research onentrepreneurship: McClellands (1961) theory of the need to achieve, andRotters (1966) locus of control theory. According to Gray (1998), bothentrepreneurs and small business managers tend to score highly on varioustests designed to measure both need to achieve ( n-ach ), and locus of controlwhen compared with most other groups of employees or non-businesspopulations.

An entrepreneur must have the ability to effectively deal with uncertainty whilecreating a new venture. Risk-taking is an important part of personal growthand is useful in conducting business activities (Wadhaw et al. 1998)Entrepreneur must not only have the risk-taking intention, but also haveinnovativeness to generate new ideas concerning the product, process, or service being offered. Ward (2003) suggests that a successful entrepreneur must generate valuable ideas for new goods or services target to identifiablemarket with potential opportunities. Business founders should also be able toevaluate themselves honestly (self-evaluation). However, even thoughsomeone has high score on entrepreneurial personality, it does not mean thathe/she will become an entrepreneur without a definite intention of becomingone.

During the evaluation process of incubation program applicants to the HongKong Science Park, the park requires them to submit solid business plansstating their respective business goals, objectives and missions, etc. It guidesall organizational members in taking responsibility for identifying their respective strategic directions. According to Lipton (2003), a mission is onlyabout what an organization does while vision is about purpose.

Looking at the origins of business incubation.

The notion of business incubation was originally derived by Joe Mancuso in1952 from chick incubation in Batavia, New York (Hayhow, 1996). Since, the

heavy-equipment manufacturing was pulled out of Batavia, he tried to fill theshell left behind by people who would hire other people. A Connecticut-based

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chicken hatchery was one of the first businesses he recruited. Thus was bornthe Batavia Industrial Center (BIC). The resources and services provided bythe center included low market rent real estate, shared office services, capitalraising, and business advice. The idea was to foster the growth of new smallbusinesses that would in turn create new jobs and reinvigorate the local

economy. This work led to the new concept called business incubation . Thechick-hatching process has now become a useful metaphor leading to theIncubatee Hatching Process model.

Metaphorization.

The word metaphor comes from the Greek metapherein , meaning to carryover, to transfer. Metaphors are used in literature to clarify a situation or notion. However, they cannot tell the whole story. According to Lakoff andJohnson (1980), a metaphorical concept could keep us from focusing on other aspects of the concept that are inconsistent with that metaphor. However,according to them, [i]f we are right in suggesting that our conceptual systemis largely metaphorical, then the way we think, what we experience, and whatwe do every day is very much a matter of metaphor. This indicates thatemploying metaphors as conceptual is an easy way to interpret complexconcept into simpler understanding. Schn (1963) explains that a metaphor works by treating something unfamiliar as something familiar, therebychanging our understanding of both in the process.

Schn also thinks that a metaphor can contribute by generating new concepts: a way of treating the new as old, neither comparison, nor error, nor theapplication of concepts to instances, but a displacement of old concepts tonew situations resulting in extension of the old. It implies new concepts canbe developed from our daily life experience. Likewise, Zikmund (1982)proposes that a metaphor is a figure of speech in which one thing is likenedto another. Hunt and Menon (1995) use metaphor-writing to describemarketing strategies. They explain that a metaphor may be used to stimulatethe kinds of creativity that will lead to long-term, systematic, programmaticresearch. One of the metaphor sources they suggest is organism. Theymention that many writers use firm is organism metaphor because thismetaphor is capable of describing a companys growth in terms of life-cycle,growth, adaptation, nutrition, niche, environment, resources and progress, etc.

This paper follows the metaphorical approach by examining what can belearnt from the artificial chick hatching process - a kind of biological process. Itwill be shown that the metaphor is capable of leading to a conceptual modelcalled the Incubatee Hatching Process (IHP) that provides insights into howa start-up business could be nurtured from its pre-startup stage until enteringthe competitive world.

Chick hatching process and business incubation metaphor.

Oxford Dictionary defines hatching as a process by which a young bird, fish,

or reptile emerge[s] from its egg (Pearsall, 1998). In zoology, chicks arecategorized as oviparous animals, i.e., they are produced by means of eggs

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Stage 3: Performance measure of incubatee

During the chick hatching, the eggs are tested to determine whether theembryo lives or dies at specific growing days. With respect to businessincubation, performance measures can be used as a means of control (Neely,

1998). Incubator can use performance measures for easily understandingwhere their incubatees are now and how their performance can be improved.

Stage 4: Exit policies

The purpose of incubation is to ensure as many as offspring through properlymanaged. Due to highly sensitivity of hatched eggs to temperature variation,the incubator must have sufficient knowledge about hatching process. Alike,the experienced business incubator is capable of providing professionalknowledge and experience to nurture incubatees towards graduation.

Stage 5: Parental care

Young birds pip its way through the shell into two stages: piping a hole toacclimate its lung to the outside atmosphere; and then free from the shell byvigorous shove. A short rest is taken between two stages for energy storageto pip again. Similarly, fresh graduated incubatee may not be well establishedto operate their businesses independently. A parental period can make themstronger to compete with others.

Embryoevaluation

(Egg)

Hatchingprocess byincubator

Evaluatechick quality

The newly hatchedchick pips a hole to

adapt outsideatmosphere

The chick pipsaway from its

shell

Disconnectincubator

Chick

Incubation

Preparationfor start-up

Incubationprocess

Performancemeasure of incubatee

Exit Policies

Disconnectincubator

Business

Incubation

Parental care

Figure 1. Six stages of chick incubation and business incubation

Stage 6: Disconnect incubator

After the parental period, the chick is chipping at the shell to break off the

eggshell and emerge as an independent chick. Business incubatees areready to become an independent firm to enter the competitive world finally.

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Case studies on sustainable Hong Kong incubatees

Methodology

The exploratory cases are incubatees of incubation program in HKSP. Allinterviewees are the business founders who are in some way involved withhigh-technology development. Yin (2003) suggests case study research continues to be an essential form of social science inquiry. The method is appropriate when investigators either desire or are forced to cover contextual or complex multivariate conditions and not just isolated variables,and to reply on multiple and not singular sources of evidence. Case studyresearch examines a phenomenon in its natural setting. This study wasconducted in the pilot phrase to identify what critical personal traits thatinfluenced business performance. Research in entrepreneurship hasparticularly emphasized characteristics of entrepreneurs, such as globalinnovativeness, need to achieve, risk taking propensity, locus of control,attitude towards entrepreneurship, self-efficacy of feasibility, mission trait andvision.

Data collection methods

Data was collected through structured interviews. All cases are incubatedhigh-technology categorized by the HKSP into four aspects: electronics, IT &telecommunication, biotechnology, precision engineering, and others. Thedata from interviews consist of direct quotations from those founders abouttheir experiences, opinions, feelings, and knowledge (Bryman and Burgess,

1999). They mention the purpose of gathering responses to open-endedquestions is to enable the research to understand and capture the points of other people without predetermining those points of view through prior selection of questionnaire categories. A common set of open-ended questionswas designed to elicit a discussion of the nature of those incubatees. Allinterviews were either taped or written down for later transcription.

Data Analysis

The number of items was summed up accordingly to give a summated scorefor each attribute. Respondents indicated on a 7-point Likert scale the degree

of disagreement or agreement to each item, where 1 represents stronglydisagree and 7 as strongly agree. Certain statements are negativelyphrased to prevent respondent fatigue. To avoid the problem of differentnumber of items in each attribute, we normalize the score of all attributes for easy comparison. Then, we use unfolding analysis to distinct strengthen andweakness of the four business founders. From the 7-point Likert scale in thisstudy, 4 represents a neutral disagreement or agreement to the statement.We subtracted all the normalized score by 4, either negative or zero or positive results were shown finally (see Table 1).

From the results on Table 1, we simplified the data by + indicates a stronger intention of the entrepreneurs characteristics attributes than to the neutral;

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- indicates a weaker intention of the entrepreneurs characteristics attributesthan to the neutral; and N indicates as the neutral. This evaluation matrixidea is borrowed from a technique which has to undertake product designspecification activity (1984). It is used to make a preliminary comparison of the cases using the above scheme. The score is represented by +s, -s, and

Ns relative to the neutral. These scores are used for evaluating the businessfounders and predicting their business success or failure at early start-upperiod by examines the added up scores.

Table 1: Evaluation Matrix for the cases (elaborated from A guide to designfor production, Institution of Production Engineers, London, 1984 )

Firm A Firm B Firm C Firm D

Incubation background:

Firm historySustaining business over 5 years after incubation

programNow beingincubated

Field of industry IC Design Software &System Video electronictechnology SoftwareDevelopmentEntrepreneurs characteristics

Global innovativeness - + + +

Need to achieve + + + +

Risk taking propensity + + + +

Locus of control - - + +

Personal desirability + + N +

Attitude towards entrepreneurship - + N +

Self-efficacy of feasibility + + N +

Mission trait + + + +

Vision + + + +

Summation of + 6+ 8+ 6+ 9+

Summation of - 3- 1- 0- 0-

Business performance

Sales growth (during 3-year of incubation period)

High todramatically low

Low to high NA Low to high

Number of employment (betweenthe time entered the HKSP andcurrently employed)

Increase from 2 to5

Increase from10 to 53

Decrease from 3to 2

Increase from 3 to7

Discussion and Implications

From the results of cases, it seems more +s the founder got, the higher business performance resulted (see Table 1). While, the more -'s the foundgot, the lower business performance resulted. The evaluation matrix acts likea diagnostic tool for predicting the performance of entrepreneurial firms atstart-up preparation stage.

Four cases indicated preliminary evidence showing critical sustaining factorswith respect to their personal traits. Those who got positive intentions of needfor achievement, risk taking propensity, mission trait and vision as expresseda positive performance growth. In other words, they have confident to start a

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[2004]business incubation –hatching or start-up

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