Business Incubation Services

Transcription

1 S uccess of the business incubation centres depend largely on the array of services rendered by them to the incubatees, and therefore, the importance of having a fit between them cannot be undermined. While in the preceding chapters we identified the services that are not provided adequately, we now provide an analysis of these deficiencies in the policies and deviation in their practices as perceived by the respondents. It is important to analyze these shortcomings in the light of the Indian business ecosystem with a view to provide viable solution for them. Following this, we also make an attempt to figure out the reasons for failure of the Indian business incubation centres to well implement the identified good practices as compared to the global scenario. Business Incubation Services Physical Infrastructure Services The business incubation centres have been found to be providing 2 out of 4 physical infrastructure services: work space and communication facilities to the incubatees during their period of incubation. These services reduce early stage operational costs, save time of the entrepreneurs, enhance visibility, credibility and legitimacy of the incubatee businesses, and yield a synergistic cost advantage. The other 2 services: library facilities and laboratory facilities, however, are not furnished. Library Facilities: The business incubation centres as well as their incubatees need to keep themselves abreast with developments in the business ecosystem and both need to align their strategies in the light of these changes. Responding and adapting quickly to the demands of the business is imperative for success and survival in today s dynamic environment. A dedicated library with literature on market projections, trends, survey reports, technological developments, economic data etc could be very useful to them. However, the business incubation centres usually share the library facilities of the host institution which does not have relevant and usable literature. They do not create library facilities in house because of shortage of space and lack of funds. Secondly, it 155

2 seems that the ease of accessing online information through the use of internet has obviated much of the need for a physical library. Laboratory Facilities: Laboratory facility is a must for all technology based incubatee companies and timely access to these resources can significantly improve and accelerate the development of marketable products and services, thereby increasing their chances of success. However, these facilities are specific to each project and it is beyond the scope of the business incubation centres to provide tailor made support in this respect considering the costs involved in establishing, operating and maintaining the laboratories. They are unable to utilize the set up of the host institution and nearby R&D / technical institutions because of poor coordination and inactive tie up s. Business Assistance Services We found that from amongst a total of 9 services related to business assistance, 4 services namely: human resource management, assistance in securing capital, networking support, and assistance in obtaining statutory approval have been imparted to the incubatees. These services help entrepreneurs access capital, broaden information sources, lower business costs and time, capitalize on opportunities, shorten learning curve and obtain resources needed for business survival and growth. The other 4 services: secretarial services, technical assistance, marketing assistance, and legal services have not been furnished. The product development assistance service has neutral effectiveness. It has also been observed that although networking support and assistance in securing capital is tendered to the incubatees, their effectiveness is not up to the desired level. Secretarial Services: Secretarial services include making and attending to phone calls, follow up activities, sending and receiving parcels, s, scheduling meetings, typing letters etc. These services relieve the incubatees from all the mundane chores and provide time to focus on core business activities. With the availability of laptops, mobile internet 156

3 connections, mobile phones, automatic answering machines etc, much of the need for secretarial services is obviated. This is evident from the fact that only 50 per cent of the incubatees asked their business incubation centres to provide this service to them. However, a receptionist having secretarial skills at the business incubation centre can definitely improve the image and efficacy of the business incubation centres as well as the incubatees. Technical Assistance: Technical assistance includes product identification and development, technocommercial analysis, viability and sustainability assessment, shop floor management, dealing with technology obsolescence, acquisition and related issues. This support is very crucial for technology based start up s and should be provided from the very beginning so that they can call their attention to all these important aspects early in the establishment of their companies. Difficulty in finding technical experts, high cost of hiring consultants, limited and weak tie-up s with R&D/technical institutions, and insignificant industry relations are some of the reasons for inadequate technical support to incubatees. Marketing Assistance: A thorough understanding of the local, national and international markets, positioning, consumer feedback, brand and corporate identity, advertising and promotion, packaging, distribution channels, pricing, access to market information and public relations are some areas where professional help is required by the incubatee companies. In addition, the incubatee companies need assistance in showcasing their products and services through participation in trade fairs, exhibitions, online promotions, listing in trade directories etc. Connecting them to the customers is essential for the success of their companies. Although marketing advice should be furnished to the incubatees not only early in the process of incubation but also in every stage of this process, unavailability of competent and experienced marketing professional in-house, prohibitive cost of hiring marketing consultants, inconsequential supply chain networking, imperceptible use of internet or trade 157

4 promotion events, nonexistent industry support, and lack of initiative are the prime causes of poor marketing support. Legal Services: Legal advice is required in many aspects of company formation and operations such as agreements and contracts with banks, financial institutions, suppliers, buyers, employees, and government departments. Lack of legal help can have long term negative consequences. Provision of legal services is not accorded its due importance and as a result, no serious effort is made to establish contacts with legal experts or legal institutions. Networking Support: The success of the business incubation centre lies in creating, managing, maintaining and utilizing a rich network of professionals and organizations. It serves as a means of broadening sources of information, building markets, lowering business costs, saving time and is also a source of financial, physical, human, and technical resources. It should however be considered that the network is effective only when it comprises of individuals who can most successfully assist the incubatees in meeting their needs. Although most business incubation centres have created a professional network, they do not accord due diligence for its maintenance and value addition. The network often consists of people who are either not competent or willing to assist start up companies. The members have low motivation to assist incubatees and do not find it rewarding. Such a network does not serve the purpose for which it has been created. Assistance in securing capital: Adequate financing of the incubatee company is fundamental to its success. The major sources of funds are: Angel Investment, Venture Capital, Government Finances, Seed Capital, Bank loans and Subsidies. However, sufficient funding is difficult to obtain, especially for new incubatee companies. So far as assistance in securing capital is concerned, the business incubation centres have been successful to the extent of connecting the incubatees to the sources of capital. However, this does 158

5 not suffice since the start up companies lack maturity and are not considered to be investment ready by the investors. The venture capital firms are also not well chosen and the incubatee cases are not presented strongly for investments. The seed fund (In house financing) provided by the business incubation centres is neither adequate nor released timely. The business incubation centres are skeptical regarding direct investment in incubatee companies. Management Guidance and Consulting services In respect of management guidance and consulting services, we observed that 2 out of 4 services: information on business ideas and assistance in writing business plans are rendered to the incubatees. Provision of these services helps the entrepreneurs in securing capital, accessing information, solving problems faster, improving management ability and confidence. The other 2 services: assistance in conducting feasibility studies and business counseling, however, are not provided. Assistance in writing business plans though provided, needs improvement. Assistance in conducting Feasibility Studies: Conducting a feasibility study can achieve a number of important objectives. It is a tool for judging the viability of the proposed firm and calls attention to its strengths, weaknesses, opportunities, and threats. It provides for a thorough understanding of the resource requirements, serves as a blue print for planning, and also reveals critical errors related to selection of product or service, organization set up, income and expenditure projections, funding requirements, market analysis, technical and economic assumptions. It should, therefore, be conducted by a qualified professional and serve as a basis to determine whether to go ahead with the project or drop it. This saves the precious and scarce resources of the business incubation centre and improves its success rate considerably. However, despite the recognition of its importance, the business incubation centres have not been able to conduct thorough feasibility analysis for all incubatee projects due to shortage of skilled staff, nonrepresentation of industry on selection boards, and a tendency to rely on information provided by the applicant incubatee through their business plans. 159

6 Business Counselling: Business counselling involves purposeful conversation in an understanding atmosphere. Through counseling, the business incubation centre leads and assists its incubatee companies to acquire the capability to assess their current situation, advantages and disadvantages of alternatives, and to make an informed decision. Above all, it helps in developing the rapport and trust which assists the incubatees in recognizing and achieving personal, entrepreneurial, and business goals. Counselling should be provided in the full range of business functions including marketing, finance, human resource development, and operations and should not be just a onetime session but an ongoing relationship with regular meetings throughout the period of incubation. It serves all the possible needs of the incubatee company, minimizes mistakes and maximizes performance. Although group counseling may be appropriate in some cases, customized counseling is far more effective and fruitful. Business counselling should ideally be provided by an experienced and competent person, preferably having prior experience of working closely with start up companies. However, most incubators are hosted by academic institutions and are headed by academicians who provide very little business or commercial understanding to the incubatees. Moreover, where the incubation centre heads or managers have relevant experience, they have a constraint of time and are unable to devote time for counselling on a regular basis. Services of external experts also could not be availed due to high cost, low motivation, and difficulty in finding experts, especially in smaller towns. Weak industry liaison rules out the possibility of active industry involvement for incubatee guidance and counselling. It is for these reasons that the business counselling provided by the business incubation centres to their incubatees is reactive and piecemeal. Business plan writing assistance: A business plan is a formal statement of business goals and a blue print for achieving them. It is a decision making tool and represents all aspects of business planning process including sub-plans covering marketing, finance, operations, human resource functions. Business plan writing assistance could range from developing a new plan to 160

7 improving an existing plan. Although the business incubation centres assist the incubatees in developing such plans, they are not reviewed quite often in the light of changes in the business environment. Once developed, they are not improved due to lack of timely, adequate and relevant data. Lack of industry support, shortage of staff, and paucity of time are some of the other major constraints. Enabling Environment services Our findings reveal that 5 of the 8 enabling environment services rendered by the business incubation centres are: synergistic environment, reducing early stage operational costs, accelerating development of firms, establishing incubatee credibility, and prompt grievance redressal. These services help the entrepreneurs interact spontaneously, share resources and experience, learn from each other, share the feelings of ups and downs leading to reduction of isolation, and advance through the start up process. However, the business incubation centres have not been able to reduce time required to develop marketable products/services, minimize chances of failure, and take regular feedback from incubatees. It has also been found that the level of effectiveness in providing synergistic environment and establishing credibility is perceived to be low. Reduced time to develop marketable products/services: Speedy development of marketable products/services is critical in the face of fierce competition. However, inadequate and untimely release of funds, and slow response in providing support and resources to incubatees are apparent reasons for the failure of business incubation centres in reducing product/service development time. Minimized chances of failure: One of the main goals of the business incubation centre is to minimize the chances of failure of the start up companies. However, the protected environment of the business incubation centre may prevent exposure of the newly formed companies to harsh realities of business environment making them prone to failure when they exit the incubator. Many start up companies fail to reach the desired milestone within the 161

8 stipulated time and may have to make a pre-mature exit from the incubator, significantly increasing their chances of failure. Any weak link in the entire incubation process can be detrimental to their success. Regular Feedback: Regular feedback from incubatees is essential for the success of the business incubation centre. It serves as a control mechanism and helps in identifying the areas requiring improvement. The business incubation centres do not actively seek or provide feedback and whenever received, it is not well documented and acted upon. They do not accord due priority to feedback and expect the incubatees to approach them with complaints and suggestions. Synergistic environment: By co-locating incubatees under one roof and providing them with a common meeting room, canteen etc, incubation centres create opportunities and an environment conducive to interact and create synergy. This environment allows incubatees to share resources and experience, learn from each other, share feelings leading to reduction of isolation, and boosts up their morale. Since all of them are at the same phase of their business life cycle, they can empathize with each other and such cohesion improves the performance of all of them. However, synergy is not created merely because of co-location and requires planned effort. The business incubation centres do not make any conscious effort to foster business relationships among the incubatee companies and lack the initiative to encourage networking and cooperation among them. Establishing credibility: The business incubation centres expect to promote credibility of the incubatee companies through the use of incubator s name, network and contacts. However, they do not lay emphasis on inculcating professionalism, trustworthiness and expertise in incubatees as a means to establish long lasting credibility which requires continued effort. 162

9 Analysis of deficiencies related to practices followed by Business Incubation Centres to Promote Entrepreneurship Management Practices Lack of business incubation centre funding: Lack of adequate and regular funding has serious implications for business incubation centres and is a cause of concern as excessive reliance on government grants can be problematic for their success and very survival in the long run. When they face challenge of raising funds, their attention gets diverted to fundraising and public relations activities which adversely affect the incubation services. The various sources of funds are: government grants, revenue from rent and service fee, equity stake in incubatee companies, and consultation fee. The business incubation centres are dependent mainly on government grants since many revenue sources like consultancy projects and equity participation in incubatee companies remain untapped while others such as rent and service fee are not structured properly. Although funding agencies like Department of Science and Technology require them to conduct a feasibility study, they do not make a realistic assessment of the requirements and sources of funds at the time of their establishment. The business incubation centres being hosted in academic environment have philanthropic orientation rather than having the desired commercial approach. Another issue which adds to financial crunch is the tendency to pull on with non performing incubatee companies. They have also not been able to manage cost of developing and operating the incubator. Promotional Practices Lack of awareness about the incubation centre and its services: Major reasons for lack of awareness include: Recentness of the incubation concept in India, high cost of advertising, poor industry liaison, ease of availability of incubatees, and lack of initiative in using low cost innovative means of promotion which is 163

10 evident from the fact that still 20 per cent of the sampled Business Incubation Centres do not have a well maintained website. Networking Practices Lack of understanding of industrial needs: A close interaction with the local industry can prove to be highly valuable for the incubator. An effective liaison can be a rich source of information, technical assistance, mentors, skilled manpower etc. However, in most cases either the industry tie up is absent or is ineffective because of lack of commitment to forge such a partnership. Tenant Management Practices Differences between business incubation centres and incubatees in terms of expectations and priorities: The business incubation centres are just a means and not an end in themselves. They are a tool to facilitate new entrepreneurial companies and should be considered that way. Differences in expectations arise when the entrepreneurs join the incubation centre hoping to find a cure for all their problems and its scope and limitations are not apprised. Roles of the Incubation centre and the incubatee are not discussed up front to avoid mismatch of expectations. Same holds true for priorities of business incubation centres and incubatees. Both are unaware of each other s priorities and fail to align themselves in the most productive manner. Lack of incubatee funding: So far as assistance in securing capital is concerned, the business incubation centres have been successful to the extent of connecting the incubatees to the sources of capital. However, this does not suffice since the incubatee companies lack maturity and are not considered to be investment ready by the investors. The Venture Capital firms are not well chosen and the incubatee cases are not presented strongly for investments. The seed fund provided by the business incubation centres is neither 164

11 adequate nor released timely. The business incubation centres are skeptical regarding direct investment in incubatee companies. Human Resource Practices Inadequate Business Incubation Centre Head salary: The success of a business incubation centre depends heavily on the incubation centre head whose primary role is to ensure high quality services and support to the incubatees. The other responsibilities include governance, administration, marketing, operations, liaison and an ability to attract investors, funding and clients. The centre head, therefore, has to have a rich and successful experience of working with start up companies and paid salaries at par with the market rate. However, there are no set of prescribed norms for salary and service conditions of business incubation head and other incubation centre staff. While staff members drawn from the host institution are paid salaries as per their original position, others are paid salaries at the discretion of the incubator. Shortage of staff: The reasons for shortage of skilled incubation staff include: recentness of the incubation concept, absence of well structured remuneration and growth plan for staff, below market rate salaries, ambiguity in service conditions, unavailability of formal incubation staff training institutions, high attrition rate, low employee motivation, difficulty in finding experienced and competent incubator professionals, weak industry links, and low priority placed on formal staff appraisal, training and development. Equity stake in incubatee companies: The business incubation centres throughout the world are involved in equity arrangements with incubatee companies, which means part ownership of Incubatee Company. It is a kind of a deferred payment and represents a source of funds. The business incubation centre provides its services and facilities to the incubatee company with the understanding that it will receive cash when the company starts making profit or goes public. Incubatee companies also stand to benefit from such 165

12 arrangements as it minimizes their current cash requirements towards payment of services by promising future revenues. However, not all business incubation centres take equity because it usually takes long for the revenues to be realized and there is a risk of not realizing revenues at all. Other drawbacks of equity stake include institutional conflict of interest, difficulty in attracting companies, negative impact on Incubatee Company s valuation, altered legal position of the business incubation centres and adverse effect on the image of the host institution. Assessment Practices Lack of self sustainability of incubation centres: Experts believe that business incubation centres take around 8 10 years to become self sustainable. During their initial years they are dependent on government grants but should steadily work towards becoming self sustainable at the earliest in order to achieve its maximum impact. The major reasons for delay in achieving self sustainability include: Absence of a roadmap with clear milestones, philanthropic orientation rather than businesslike approach, unstructured rent and service fee, inability to explore all sources of revenues, complacency due to continued grant, limited, weak and ineffective industry liaison, unrealistic assessment of costs and revenue, inability to manage costs, inconsistency between incubator design and entrepreneurs need, selection of financially too weak incubatees, lack of periodic assessment of entrepreneurial market and quick response to changes. To conclude, we may infer that out of a total of 25 incubation services, 13 are rendered, 11 are not furnished and one service has neutral effectiveness. With regards to the practices followed by business incubation centres to promote entrepreneurship, we observe that practices such as awareness about business incubation centres and its services, adequate funding, harmony in terms of expectations and priorities, sufficient salary, availability and retention of skilled staff, equity stake in incubatee companies, and self sustainability are major issues which have not been addressed and are adversely affecting the role of business incubation centres in promoting entrepreneurship in India X