The limits of incubators

A Wellington-based business researcher’s latest findings suggest people who want to create new products shouldn’t automatically assume they also need to create a start-up.

Jenny Douché, who is also Victoria University’s masters of innovation and commercialisation programme director, graduates with her PhD in management this week. Her latest research explores how business incubators influence new companies and their products.

In 2012, Douché decided to do a PhD and chose to focus on incubators because they were part of her own business history. “I totally believed in the concept and was intrigued by how they influence companies.”

Thirteen years ago Douché started the publishing company responsible for producing the Smarter Than Jack book series and was part of Creative HQ when it was first formed in 2003. At the time creating a start-up was an unusual thing to do and Creative HQ's first companies (of which there were about six in the early days) felt united in the scary and exciting ventures they were creating. “Being part of Creative HQ was fantastic and gave our companies access to people and expertise that we could not have got otherwise,” Douché says. “Former mayor of Wellington Mark Blumsky headed Creative HQ up at the time and his influence was amazing.”

Douché sold the company in 2007, and in the next few years worked for Creative HQ managing their pre-incubation programme, Activate. But her latest findings show that while some business incubators offer short-term programmes that encourage start-ups, it’s not necessarily the best approach. “These programmes can substantially reduce the business incubator’s ability to influence the strategies of companies on the longer-term programmes, potentially limiting the company’s growth potential.”

Douché says business incubators should provide tools, advice and resources that work towards improving the companies and their products, rather than fostering the creation of more start-ups. “There’s a wider perception that you can’t create a new product without a start-up, which is seen as the ‘in’ thing. But incubators should recognise that most people don’t want to start a whole business, they just want to create new and better products. Incubators, and entrepreneurship educators in general, should focus on teaching the concepts of new product development.

During her research, Douché surveyed and interviewed the chief executives of six business incubators and the heads of 37 companies that have been supported by incubators. She also examined how common support tools used by incubators - such as advice on product development, marketing and strategy, funding and physical provisions – can shape the development of new companies.

Her findings could have implications for incubators, firms, central and local government, investors and universities, she says. Douché found that one of the variables that determined an incubator’s degree of influence was whether they tailored their approach to the needs of an individual company. The ones that did had greater influence over the companies than the incubators that created generalised support programmes.

Jenny Douche

Another variable that affects an incubator’s influence is the company’s product type: physical or digital . Douché found that sometimes incubators can have limited influence on physical product-based company’s strategies due to the firms having made a substantial investment in product development. “These incubators should review their selection criteria and assess whether they are targeting firms that are at an appropriate stage of development.”

Douché suggests that incubators should ensure the needs of firms are addressed individually as opposed to making all firms go through the same strategy development programmes. As the needs of firms change after raising capital, consideration should be given as to if and how the provisions should differ in the pre- and post-capital-raising.

From a firm’s point-of-view, an incubator should be chosen based on the company’s own objectives. “Entrepreneurs should carefully consider their needs and choose an incubator accordingly, that is, whether they are looking to gain external investment and build a high-growth firm, or whether they are looking to develop their entrepreneurial skills.”

Despite her research proving that incubators aren’t affective in a one-size-fits-all method, Douché says one of the most important elements of an incubator is how they help businesses direct their focus.

“The key influence of the incubators strategy development appears to be their ability to make firms take an outwardly-focused and evidence-based view of their strategies. Whereas, without the incubators’ support, strategies may have been developed from an insular perspective.”

Douché’s thesis was supervised by Professor Sally Davenport and Associate Professor Urs Daellenbach. Daellenbach says the research is crucial in highlighting how the standard incubation process isn’t necessarily the most effective way to make significant changes within a business. “Incubators are often set up to provide services perceived to be international best practice, many of which are generic and readily available via online resources. As Jenny’s research demonstrates, these practices only become particularly effective when they are customised to the companies.”

Douché’s thesis recently won an award at the Australian and New Zealand Academy of Management Awards for best paper in the entrepreneurship, start-ups and small business category.