What is Business Incubation
A Business Incubator is a facility designed to assist businesses to become established and profitable during their incubation period. Incubatees come from individuals interested in promoting an innovative idea that they have so that it becomes a business, yet they may have no skills in business. Consequently they need to learn more to change the concept into business. The second category of incubatees may be people who have clear documented business concepts based on an innovative idea they already have but which again may not be converted into business due to resource constraints. They could also be businesses that are already set up and running but need to be boosted to grow. Each one of them needs a different approach to convert them into vibrant business outfits. The figure above describes the approaches that can be used to implement incubation.
What Services Do Incubator Provide?
WillPower’s incubation programme ensures that an individual seeking to start or promote the growth of their enterprise has easy access to the knowledge, experience in management, and financial resources. Invariably business incubators will provide a variety of resources or resourcefulness which may include the following:
• shared premises
• business advice
• business services
• a full time manager
Why an Incubatee Needs WillPower
The incubation period for an individual business is normally one to three years. Our management, and board of directors, invests time and money in a feasibility studies to lay the groundwork for a successful incubation programme.
Africa needs many business incubators, we need others to come on board and support this focus of business development. For you to set up an incubator, you will need to conduct an effective feasibility study, which will help determine whether the proposed project has all the factors crucial to an incubator’s success which include:
• A solid market
• A sound financial base
• Strong community support and
• A policy support perspective to attract government linkage.
What Is Expected Of An Incubator?
Once established, business incubator must commit to industry best practices in:
• Structuring for financial sustainability
• Recruiting and appropriately compensating management with company-growing skills
• Building an effective board of directors, and
• Prioritizing management’s time to place the greatest emphasis on local support
Whom To Incubate
An incubator should be an institution that has the advisory support services that can promote others to grow. They must therefore be well versed with the governing corporate law, a talented and experienced board of directors which should apply rigorous selection processes to incubatees. They must ensure that only those with a viable business propositions are accepted for incubation expected to last 2-3 years. As described in the diagram in the previous page the incubatees may be:
• Trainees in a business development programme whose innovative ideas attract the financing eye of the incubating institution
• Individuals with innovative ideas and a supporting business concept and an accompanying business plan, or
• Businesses that have gone through the start up phase but now need support to reach proliferation but lack the know-how or financial resources
The level of entry and the effort required to make incubatees rise to sustainable institutions determines the equity premium that the incubator would levy for the incubation effort. Depending on an organization the incubator could take 5-15% stake in return for an incubation period tenancy which could be 1-3 years and the support services received from the incubation.
This equity requirement acts as a filtering mechanism by determining that entrepreneurs wanting to enter the incubator growth programme understand that ultimately, they probably will have to give up equity in order to raise capital. The moral of this equity expectation is to enable the incubator attain financial sustainability and hence reduce dependence on external funding from either donors or government.
What Is Expected Of The Parties To The Incubation?
It is necessary to establish that the seeding stage or startup venture incubatees have the passion to pursue their dream. In the seeding/startup programme, the incubatees prepare business plans to demonstrate that their products (conceptual or real) are marketable. The incubator on the other hand develops a range of support materials and toolkits to help the incubation process. After about three months at the incubator, it becomes apparent whether the incubatees are ready to proceed.
Where technology is the focus of the incubator, a technologically innovative product or service capable of underpinning rapid and sustainable growth in the business opportunity it creates is required. Youthful graduates of local universities and tertiary institutions should provide innovative individuals or partners who should have the energy and passion to match their inventiveness.
Important Facilities And Resources Necessary For Incubator Start Up
Where an incubator does not exist, it is important that the promopters of the intended incubator select the business focus it expects to be identified with. There are those that are product oriented or service oriented. Whether products or services are invovled, the level of technology to be used is critical. The supply of technology has to be provided in a good measure so that the initiative sustains. The most critical of all is access to market or market linkage infrastrcuture to enable the initiative have financial resource flows to retain it in natural existence.
The Best Location Of The Business Incubator
Product based incubators require proximity to the source of inputs which they process to get the final produce or output. Where an agricultural incubator is the focus, there is need to ensure that the incubator is located close enough to the source of the law materials. This is the reason behind many of the agricultural industries being located where their raw materials and labout are obtained from. Where a technology solution is the focus of incubation, there is need to have the rihgt infrastructure – eg power, and telecommunication. With the existence of VSAT terminals, technology incubators can be located in any location that has adequate operational room and power supply. Symbiotic businesses can be incubated from the same location with no loss of benefit so long as their input resource requirements are met. WillPower has been incubating communities and indicuals process agricultural produce from the local farmer training centres. The reason for this has been the cost of the hosting of the facility, the availability of support personnel such as home economists and other support infrastructure.
Should An Incubator Address Products Or Services?
In a rural setting, symbiotic services could be co-located while in urban centers, the choice is dependent much on what has better potential to fetch better returns faster. The major driver for this would be the availability of ancilary support infrastructure and market infrastructure of either product or service. It would also depend on whetther there is a particular social class that the incubator is expected to target.
Indicators To Best Assess The Businesses To Be Incubated
The best indicators should be derived from the business plan but should include the following:
• The business plan itself with all the elements that comprise an effective plan
• Availability of market
• Growth of market out turn
• Sales growth and associated profitability
• A well formed governance structure for self perpetuation
Possible Investors Who Would Encourage Support Of New Technology
• University institutions
• The Constituency Development Fund
• Large corporate institutions
• Government ministries
• Government parastatals
Existence Of Professional Business Consultancy Networks
Not well formed only Kenya Federation of Agricultural Producers (KENFAP) for farmers. The newly formed Farmers’ Competence Initiative (FCI) which seeks to address the Linkage of Production, Value Addition and Marketing to Policy (Link ProVaMP) is another linkage that provides professional support to farmers. The Institute of Mabagement Consultants in Kenya (IMC) and the Institute of Business Advisors in Kenya have no institutional form that can sustain incubation.
Initial Investment In A Business Incubator
The initial investment in an incubator can be reasonably low if the focus is for service development since in that case it will be more coordination, capacity development and linkages to both finance and market that would be a concern. A manager’s salary, office infrastructure, and an operational room is all that would then be required. When products have to be provided, the selected processing kit would have to be costed and quantified as part of the feasibility perspective. This will provide the needed costing which would be aggregated above the manager’s salary, office infrastructure, and the operational office room.
Local Concept Of Supporting Business
It is not acknowledged but most of Kenyans particularly the young generation have not seen serious nurturing of institutions. They have come around when organizations that ever existed were being killed and what has seemed to make sense has been deal making. Nurturing of a business requires patience and persistence, a rare commodity among many Kenyans. There is need for there to be serious mentoring for the incubatees to develop a working culture. Institutions that used to train upcoming small buinsess owners have long collapsed and those that exist do not have the ability to sustaina serious followup of SME creation. There is need to incubate even business mentoring institutions as there are people with the theoretical knowhow to give guidance to those with the practical knack for project implementation.
Feasibility Of Creating Sustainability Of Incubators In Income Generation
WillPower has incubated communities and own businesses with the incubatees taking a lesser proprotion of ownership in the institutions as the entire rist and management is taken in by WillPower. The experience has been that so long as there is desire by the incubatees to work long enough and to be pushed to deliver results, there is enormous potential for success.
So long as the incubatees are willing to allow a small proportion to the incubator, there is enormous potential for incubator success.