EVALUATING BUSINESS INCUBATORS

BACKGROUND

It is essential for Business Incubators to undertake a comprehensive review of their operations from time to time.

This may be as part of updating their normal business planning processes, or preliminary to more radical change: restructuring, scaling up or down, adding new services. It is a prerequisite for obtaining additional funding under some government funding programs.

Incubators are infrastructural developments that operate as business enterprises. This makes them more difficult to evaluate than a project directly funded by the government. For example, a typical evaluation criterion, such as "cost per job" is not meaningful for Business Incubators. (The jobs that flow from the incubation process may take years to be realised. A single highly successful incubated business may employ a hundred people a few years after graduating).

Although the Business Incubator was the critical factor that enabled this business to survive its start-up, at what point can the employment outcomes be enumerated? How long after graduation can an Incubator still claim to have contributed to the employment outcomes, and so on.

This paper outlines an approach to evaluating Business Incubators based on Business Incubators in Australia: an Evaluation (Jo Gardner & Associates, 1994) and The Evaluation of Business Incubation Projects (Bearse 1993). It can be used in undertaking a self-evaluation or as a checklist when commissioning an external evaluation.

REMEMBER: Performance evaluation is inevitable. Do it yourself, lest it be done unto you!

WHEN SHOULD EXTERNAL CONSULTANTS BE USED?

Some funding bodies may require an external (i.e. independent) consultant, in which case there is no choice.

When there is a choice, some benefits of an internal evaluation include:

• familiarity with internal operations
• can be less threatening and disruptive
• cheaper

Benefits of an external evaluation include:

• more objective (no history or axes to grind)
• may involve less staff/board time
• brings in expertise not available internally

PURPOSE OF THE EVALUATION

The purpose of any evaluation is to assess performance as realistically and reliably as practicable. The benefits of undertaking a formal evaluation include:

• providing a sound base for future development/planning decisions
• improving the incubator operation and programs
• comparing performance with other Incubators (national & international)
• providing a platform for attracting sponsorship
• meeting requirements of funding bodies (such as AusIndustry)

CRITERIA FOR EVALUATION

Incubators are complex entities involving a number of interest groups and objectives. Interest groups (who could all be expected to have a view point to cover) include:

• stakeholders
• sponsors including funding organisation(s)
• other business advisory/support services
• staff
• board of management

There are also criteria common to all Incubators:

• reduction of business failure
• employment creation
• local economic development
• regional development and diversification
• import replacement
• commercialisation of research
• technology transfer

The purpose of the evaluation is also important. For example when using it as a basis for expansion or downsizing or changing from one type of Incubator to another or adding a new incubator service etc.

Business Innovation and Incubation Australia Inc. (BIIA) have recently published "Incubation work", a 92 page booklet detailing case studies of Australian Small Business Incubators and their impact.  This is a most useful resource for examining Incubator best practice.  This resource is available from BIIA Administration

METHODOLOGY

For both internal and external evaluations:

• Set down goals and objectives (terms of reference) for the evaluation.
• Convene an evaluation task force to consider implementation of the terms of reference and, in particular, identify existing data source, e.g.
  • feasibility studies and business plans
  • financial records
  • manager's report
  • annual and other reports
  • service utilisation reports
  • tenant files
  • leasing records

Discuss usefulness of this data and identify gaps in terms of both qualitative and quantitative data.

For self-evaluations it is simplest to follow an existing questionnaire to ensure standardised definitions are used and your results can be comparable. The questionnaires in both Gardener and Bearse are useful for this purpose.

For an external evaluation, the consultant should be selected on the basis of his/her knowledge of the incubator industry.

Both internal and external evaluations could be expected give consideration to the following areas:

• Market penetration
• defines the market area fairly precisely
• identifies the number and type of new start businesses in that area that are likely to use and benefit from an Incubator.
• takes into account the economic prospect for the region (or area of specialisation in a special purpose Incubator)
• considers the take up rate against the possible market.
• Relations with existing business support services (Incubators work best when part of a range of strategies providing business support).
• Consideration as to whether your Incubator is the most appropriate model of Incubator given the current economic circumstances.
• Are key stakeholders interests being met? (The standard independent model works best when 'owned' and supported by the community).
• Review the management and staffing structure.
• Assess the value of sponsorship (both in kind and cash)
• Appropriateness and quality of the buildings.
• Assessment of the quality and range of services delivered through the Incubator.
• Assessment of financial self-sustainability.

SELECTING A CONSULTANT

BIIA is not able to recommend a specific consultant, and those wishing to engage a consultant to undertake an evaluation study or assess a proposal should check the following:

• knowledge and experience of incubators
• understanding of the incubator process
• access to data relating to the area where the Incubator is located
• personal skills to be able to draw in potential stakeholders, other commitments, time scales and price
• written references from previous clients (followed up if necessary)

Interviewing prospective consultants would enable a judgement to be made about his/her personal capacities and work with potential stakeholders.