Networked Incubators

Access to a broad range of business advice and knowledge by drawing on a larger pool of advisers then would otherwise be available;
More opportunities for synergies to develop and tenant businesses to network; and
Economies of scale and efficiencies of operation through shared costs of administrative / business advisory staff.

Networking can be arranged the various ways discussed below, and can be beneficial for all Incubators, regardless of age and size. It is particularly important for smaller Incubators wishing to achieve higher levels of financial self-sufficiency. In some cases it may be essential for their survival.

WHO OWNS AN INCUBATOR

To understand options for networking Incubators it is necessary to deal with the incubator ownership issue. Incubator ownership can be seen in a broad sense and a narrow, legal, sense.

Broad ownership refers here to the sense that a community has towards “its Incubator”. Incubators work best in a community if they are part of a wider network of business development approaches. This applies whether for general purpose, community based Incubators or specialized, technology Incubators based in a university or scientific community. While important for the operational effectiveness of an Incubator, broad ownership is not discussed further here.

Narrow ownership is an issue in Australia as Incubators here are owned by a wide range of legal entities including regional / community development organizations, universities, statutory authorities, state and local governments as well as non-profit organizations set up specifically to run an Incubator. There are no fully commercial Incubators in Australia.

The Incubator organization is the legal entity that has ultimate control of the incubation process: i.e. it “owns” the Incubator even if it does not “own” the real estate in which it is housed.

The Incubator organization may manage the Incubator itself or it may opt for a contract management arrangement. It is theoretically possible therefore to have three distinct organizations directly involved in an Incubator project: the owners of the Incubator, the owners of the building and the Incubator management company. If tri-partite arrangements occur at all, they are rare, the most common is where two organizations are involved, usually through the Incubator owner managing its own Incubator in free or lease premises. There are a few examples where the Incubator owns its own buildings and uses a management company to run the incubation program.

There are also cases where the Incubator owns its own buildings and manages the incubator program itself. In terms of financial self-sufficiency this is an ideal situation. But if such independence leads to isolation, it may not be as good as a group of incubators achieving self-sufficiency through networking's.

EXAMPLES OF NETWORKED INCUBATORS

There are three models that have been demonstrated as workable (if you know of any others please let BIIA know):

1. Common ownership

Networked Incubators owned and operated by the same organization avoid the problems associated with different expectations when managing other organisations' Incubators and is usually the preferred model.

It occurs where a successful incubator decides to set up a second incubator in the region, and then a third and so on.

BIIA has seen successful examples of this both in Australia and in the USA. A key factor seems to be proximity. For example, the winner of the 2003 Australian Incubator of the Year, Ballina Employment and Training, operates a network of highly successful Small Business Incubators along the North Coast of New South Wales - Ballina, Byron Bay and Mulimbimby.

Similarly, SPEDD Inc in Pittsburgh, USA which operates a network of 17 Incubators (14 of which it also owns) has them all within a maximum of two hours drive from each other. Attempts at owning and operating Incubators that are far apart do not appear to be successful as the cost of transport and communications makes these arrangements uneconomical, at least at the present stage of incubator development.

2. Shared business advisory staff (pooling of expertise)

The 17 Incubators in the SPEDD network have 8 managers / business advisors who have a wide range of expertise. Although the majority of these Incubators are owned by SPEDD, three of them are owned by other incubator organizations and managed by SPEDD. The economies of scale in this situation are obvious as is the capacity to recruit personnel of a very high standard (higher than a single incubator could afford) and make them available for all the 300 plus tenant businesses in the network.

Less obvious, but in some ways more important, are the synergies and networking opportunities for tenants in this situation. The advisers collectively have a detailed knowledge of 300 businesses and this gives opportunities that would not otherwise arise. For example, there are a number of arts and craft businesses included in the SPEDD Incubator network. Individually they were struggling because of availability to market their output successfully. The Incubator network was able to set a very successful international marketing operation, which arranged large-scale manufacture and sale of select products designed by tenant arts and craft businesses.

There are many examples in Australia where business advisers are shared between Incubators and other business facilitation activities (e.g. with BECs), especially with embedded Incubators, and there is potential for a number of embedded Incubators to network in reasonable proximity to each other to “pool” their business advisory skills.

A good example of this type of networking arrangement is between the Rockhampton, Gladstone and Mackay Enterprise Centre in North Queensland. They have developed a system whereby they pool their expertise on areas such as funding submissions, business advice, training programs and centre management. They hold a 6-8 week meeting to discuss common issues and have developed a common business plan.

Their network came about through isolation. All centres are within a 1-2 hour radius of each other and are not in direct competition with each other. It is important to remember that the people involved play a very important role in ensuring the effective operation of the network. For this type of networking arrangement to work, meetings must be conducted in an environment of openness and frank discussion.

Another advantage of sharing advisers is that it gives opportunities for synergies to develop, not only through linking like with like among the tenant businesses in different Incubators, but also for the unpredictable synergies that come from linking unrelated businesses. For example, a potter who was having difficulty in achieving an acceptable level of uniformity in his designs for his restaurant customers linked with a computer programming business and developed a new product for measuring and sizing clay during production. These unpredictable synergies are a very good reason for networking across different types of Incubators.

3. Shared administrative staff

Managing Incubators is complex. Building and equipment maintenance, tenant billing, adminstrative and financial record keeping are all time consuming and expensive operations that can involve substantial cost savings if operated on a networked basis. For example, CREEDA Business Centre has networked its administrative arrangements across its Incubators, while keeping distinct records of each incubator (i.e. each cost centre). An independent Incubator management company in WA is achieving similar economies on behalf of a number of its Incubator clients.

Again proximity is an important factor. Tenants need to have confidence in the arrangement and know where to go when things go wrong (like when the phone system goes down). Centralized administrative arrangements are not the same as networked arrangements.

It is essential to have an adequate presence on each site.

CONTRACTUAL ARRANGEMENTS

This issue arises when one Incubator or an Incubator management company provides services for another Incubator.

While this is becoming increasingly common, and provides a good way for Incubators to become more self-sustainable, there are traps for the unwary. There have been several cases where managing / servicing other people’s Incubators has resulted in serious differences, and in one celebrated US case, very substantial court battles.

As with any commercial arrangements, BIIA strongly recommends that legal advice be sought in drawing up and signing any management / service agreement for both the provider and the receiver. There are no standard management / service contracts for Incubators available in Australia at present. This is something that BIIA will be working on over the next 12 months.