real impact of incubators vs outside success
DESCRIPTION
Figuring out real entrepreneurial success rates is surprisingly tricky!TRANSCRIPT
The Impact of an Enterprise DevelopmentInstitution on the Success
of High Tech SMEs
8 Apr 2023
The Research Project
What is the economic impact of one of the oldest and largest business incubators in Africa?
Interviewed ±100 clients, graduates, stakeholders
Analysed their survival & growthBen Zaaiman2
The Incubator’s Clients & Grads Did Really Well, But How Would They Have Done Without It?
8 Apr 2023 Ben Zaaiman4
8 Apr 2023
First Question: What was the Natural Failure Rate of ICT SMMEs?What is an SMME?What constitutes a failure?Where is the data?
Ben Zaaiman5
8 Apr 2023
What is an SMME?
Ben Zaaiman6
Country
Nascent
Entrepr
eneursh
ip Rate
New
Busines
s
Owners
hip
Rate
Total
Early
Stage
Entrepr
eneur-
ship
Activity
Establis
hed
Busines
s
Owners
hip
Rate
Disconti
nuation
of
Busines
s
Necessi
ty-
Driven
TEA
Improv
ement –
Driven
TEA
South
Africa5.1 3.9 8.9 2.1 4.8 36 31
USA 4.8 2.8 7.6 7.7 3.8 28 51
Source: GEM 2010
8 Apr 2023
Not All Discontinuations Are Failures
Ben Zaaiman7
Not Profitable
Problems Getting Finance
Incident
Personal ReasonsRetirement
Other Job or Bus. OpportunityExit Planned in Advance
Opportunity to Sell100%
84%
0%Source: GEM 2010, Efficiency-Driven Economies 2010
8 Apr 2023
South Africa’s Failure Record is a Tale of Two Economies
Ben Zaaiman8
10 20 30 40 50
GDP per Capita at PPP ($,000)
5
10
15
20
% o
f 1
8-6
4 y
ear
old
s D
isco
nti
nuin
g E
ntr
epre
neuri
al A
ctiv
ity
SA
Source: GEM 2010
8 Apr 2023 Ben Zaaiman9
1 2 3 4 5 6 7 8 9 100%
10%
20%
30%
40%
50%
60%
70%
80%
90%
76%
63%
55%
49%
45%41%
37%34%
30%27%25.0%
14.7%12.5%
10.7% 10.0% 11.1%7.5% 8.1% 8.8% 6.5%
81%
68%
60%
55%51%
48%46%
44% 42% 41% 40% 40% 39%
19.4%
15.1%11.8%
9.3%7.3% 5.8% 4.6% 3.8% 3.1% 2.6% 2.2% 1.9% 1.7%
U.S. Longitudinal Failure / Exit Rates
Still in Business Business Failure RateStill Self-Employed Self-Employment Exit Rate
Scott A. Shane, "The Illusions of Entrepreneurship: The Costly Myths That Entrepreneurs, Investors, and Policy Makers Live By," Yale University (2008)
8 Apr 2023 Ben Zaaiman10
1 2 3 4 5 6 7 8 9 10 110%
10%
20%
30%
40%
50%
60%
70%
80%
90%
75%
59%
48%
40%
34%
29%26%
23%21%
18% 17%
25%22%
18%16% 15% 14%
12% 11% 11% 10% 10%
83%
68%
58%
50%
44%
39%35%
32%30%
27%25%
Survival & Hazard vs. Average Entrant SizeCanada
Small Average Entrant Size Small ASE Failure RateMedium ASE Survival Medium ASE Failure RateLarge ASE Survival Large ASE Failure Rate
8 Apr 2023 Ben Zaaiman11
1 2 3 4 5 6 7 8 9 10 11
Cumulative Survival
0.7500000000000
03
0.585 0.476775
0.400491
0.3444222600000
02
0.3013694775000
02
0.2667119875875
0.2373736689528
75
0.2124494337128
25
0.1912044903415
41
0.1720840413073
87
Annual Fail-ure Rate
0.25 0.22 0.185 0.16 0.14 0.125 0.115 0.11 0.105 0.1 0.1
5%
25%
45%
65%
Estimated ICT SMME Survival and Failure Rates in Western Cape Over
11 Years
1 2 3 4 5 6 7 8 9 10
75%
59%
48%
40%
34%30%
27%24%
21%19%
97%93%
90%85%
81%
75%
69%
63%
58%
52%
25%22%
19%16%
14% 13% 12% 11% 11% 10%
3% 3% 4% 5% 6% 7% 8% 9% 9% 10%
Company Survival & Failure Rate ModelNative Cumulative Survival Rate
Assumed Incubated Cumulative Survival RateNative Failure Rate in YearAssumed Incubator Failure Rate in Year
8 Apr 2023 Ben Zaaiman13
1 2 3 4 5 6 7 8 9 10
27%26% 26% 26%
25%24%
24%23% 22% 22%
27% 27% 26% 26%25%
25%24%
23% 23%
22%
Surviving Company Growth ModelAnnual Growth Rate by Remaining Native SurvivorsAssumed Growth Rate by Remaining Incubated Survivors
8 Apr 2023 Ben Zaaiman14
1 2 3 4 5 6 7 8 9 10
0.9 0.9 1.0 1.0 1.1 1.2
1.3 1.4
1.6 1.7
1.2
1.5
1.8
2.2
2.6
3.0
3.4
3.9
4.3
4.7
Net Revenue Growth In Successive Years
Native Revenue Incubated Revenue
8 Apr 2023 Ben Zaaiman15
1 2 3 4 5 6 7 8 9 10
0.7 0.7 0.7 0.8 0.8 0.9 1.0
1.1 1.2
1.3
1.5
1.8
2.1
2.4
2.7
2.9 3.1
3.3 3.4
3.5
Aggregate Jobs per Initial Job in All Start-Ups
Native Jobs Incubated Jobs
8 Apr 2023 Ben Zaaiman16
1 2 3 4 5 6 7 8 9 100%
5%
10%
15%
20%
25%
30%
Annual Failure Rates Converge to a Baseline
Baseline Native Failure Rate Native Failures Due to Inexperience
8 Apr 2023
DISCUSSION
Ben Zaaiman17
