Business Incubation - How to Manage the Know-how Transfer

Contents

List of Tables

List of Figures

List of Abbreviations

Acknowledgments

Chapter 1: Introduction
1.1 Statement of Research Problem
1.2 Background to the Research Problem
1.3 Terms and Definitions
1.3.1 Entrepreneur
1.3.2 Entrepreneurial Success
1.3.3 Know-how
1.3.4 Business Formation
1.3.5 Business Incubation and Business Incubator
1.4 Research Aims and Objectives

Chapter 2: Literature Review
2.1 Know-how Transfer
2.2 Success Factors in Innovative Entrepreneurship
2.3 Business Incubation Process
2.4 Focal Theory - A Conceptual Framework
2.4.1 Focus on Self-Reflection and Idea Development
2.4.2 Using External Know-How Components
2.4.3 Creation of an Interactive Virtual Library

Chapter 3: Research Design and Methodology
3.1 Dissertation’s Research Design
3.1.1 Analysis of Secondary Data
3.1.2 In-Depth Interviews
3.1.3 Questionnaire
3.1.4 Semi-Structured Interviews
3.2 Reliability and Validity in Qualitative Research
3.2.1 Reliability
3.2.2 Validity
3.3 Research Ethics

Chapter 4: Empirical Study - Data, Analysis, and Interpretation
4.1 Secondary Data
4.1.1 Selection
4.1.2 Coaching
4.1.3 Mentoring
4.1.4 Networking
4.2 Interviews
4.3 Questionnaire Survey

Chapter 5: Conlusion

Chapter 6: Recommendations
6.1 Empirical Study - What could have been done better?
6.2 Future Research and Outlook

References

Appendices

List of Tables

Table 1: Characteristics of Entrepreneurial Service Provider

Table 2: Typology by Sector

Table 3: Typology by Source of Finance

Table 4: Summary of the Key Findings of the Literature Review

Table 5: Findings of the Best Practice Analysis

Table 6: Interviewees

Table 7: Interview Results

Table 8: Comparison of the Different Incubator Designs

Table 9: Industry Focus and Incubation Programme

Table 10: Which Know-how is Necessary for the Innovative Business Formation?

Table 11: How is the know-how transfer currently carried out?

Table 12: Advantages of the NPA at a Glance

List of Figures

Figure 1: Types of New Business Formations

Figure 2: Definition of Business Incubation

Figure 3: Transformation Process of Know-how

Figure 4: Blocks of Successful Entrepreneurship

Figure 5: The Difference between Efficacy and Outcome Expectations

Figure 6: Required Know-how of Innovative Business Formations

Figure 7: The Enterprise Development Centre

Figure 8: Basic Structure of the Next Practice Approach

Figure 9: Using of Know-how Components

Figure 10: Structure of the Virtual Library

Figure 11: Dissertation’s Research Design

Figure 12: The ‘Filter Model’

Figure 13: Surveyed Incubators

Figure 14: Design of Incubators

Figure 15: Transferred Know-how by Incubators (Top 5)

Figure 16: The Carriers of Know-how Transfer (Top 5)

Figure 17: Means of Know-how Transfer

Figure 18: Access to Incubator Graduates

Figure 19: Buying Expertise versus Internal Acquisition of Know-how

Figure 20: Possibility of a Virtual Know-how Access

Figure 21: Expanding the Focus on the Pre-Incubator Phase

Figure 22: The Modified NPA

List of Abbreviations

illustration not visible in this excerpt

Acknowledgments

There are many people whom I would like to thank for their help in bringing this Masters dissertation to fruition. While I cannot name them all, I would like to express my gratitude to:

- Robert Jones, Anglia Ruskin University, for supervising, coaching, and encouraging me.
- Günter Faltin, FU Berlin, for being my interview partner and giving me interesting insights into entrepreneurship.
- Sven Ripsas, Berlin School of Economics and Law, for being my interview partner and offering me valuable advice.
- Sven Dönni and Guido Neumann, .garage Berlin, for being my interview partners and having shared with me their expertise on the field of coaching entrepreneurs.
- Guido Kurth, for being my interview partner and having shared with me a lot of time with good sausages and drinks.
- Caveh V. Zonooz, for being me interview partner and giving me a very interesting overview of the capabilities of his business straightto.com.

I would like also to say a special thank to all participants in my questionnaire survey all over the world, for supporting my work. I hope my findings will be of great interest to you.

CHAPTER 1: INTRODUCTION

1.1 STATEMENT OF RESEARCH PROBLEM

The starting point of each innovative business formation is the idea of a novel method of problem solving. This idea shall be transferred into a successful company during the start-up process. The realisation of the innovation and the formation of a company demand the deployment of various resources by the entrepreneur, like time and capital as well as a comprehensive know-how. While the technical know-how linked to the idea often is very sound, first-time entrepreneurs mostly lack the complementary entrepreneurial know-how (Ardichvili, et al., 2000). This is a serious circumstance. The lack of entrepreneurial know-how is one of the most important reasons for the downfall of young businesses (ZEW Centre for European Economic Research, 2010). Therefore, the entrepreneur’s know-how is mentioned as a key factor for the start-up success in the academic literature (Dowling, 2003). Hence, the entrepreneur has to make his decision regarding the know-how he still requires with the applicable consideration of its urgency. Due to this reason, many first-time entrepreneurs count on the help of a business incubator for their further development.

It is the business incubator’s main objective to increase the chances of the entrepreneurial success and survival within an incubation programme that normally lasts up to 3 years (Allen & Rahman, 1985). This objective can be achieved if, besides the provision of administrative services, facilities, funding, especially network contacts, as well as the comprehensive transfer of entrepreneurial know-how needed for the start-up success, are given to the entrepreneur efficiently. However, it appears that the great challenge so far has been to enable an efficient transfer. If a transfer of the required entrepreneurial know-how is provided at all, it is mostly done so in a long lasting resource consuming process not tailored to today's possibilities of a high-quality innovative business formation (Faltin, 2008). This means that business incubation still lacks a systematic approach to facilitate innovative business formations efficiently.

1.2 BACKGROUND TO THE RESEARCH PROBLEM

Innovative business formations can lead to productivity improvement of existing industries and / or create new industries. Therefore, successful innovative business formations have a special relevance for the welfare of a national economy, also in terms of technical progress (Egeln, 2000). Unfortunately, the majority of start-up projects already fail in the early development phases (Hamdani, 2006). To increase the success and survival rates of innovative business formations sustainably, politics made several attempts to create a better environment for entrepreneurs in the past. Thereby, among others, innovation centres, founder and science parks as well as the business incubation emerged.

Critical to the definition of a business incubator is, according to the National Business Incubation Association (NBIA, 2011), the provision of management services and support tailored to the needs of innovative business concepts. With these tailored services the business incubator fosters the sustainable development and the entrepreneur’s chance of survival. Therefore, the entrepreneur is offered a valuable support for his future success by the well-directed development of his know-how. In this vein, the business incubator assumes a very important economic responsibility.

1.3 TERMS AND DEFINITIONS

1.3.1 ENTREPRENEUR

The designation of an entrepreneur is not yet clearly defined in literature. But in accordance with Jacobson (2003) the entrepreneur can be defined as a natural person who recognises chances on the market (‘opportunities’) by intuition and creativity, changes them into an innovative business idea to realise it on the market by means of a newly founded business company. In the process, the entrepreneur takes risks, organises, invests and coordinates resources, and brings them to a productive process by which new market requirements and demands are generated and satisfied.

To simplify the readability, this dissertation renounces the additional formulation of the female form. The use of the male form has to be understood as independent of the gender. In addition, the term entrepreneur will be used for one person or a group of persons (founding team).

1.3.2 ENTREPRENEURIAL SUCCESS

Entrepreneurial success designates the entrepreneur’s achievement of his target in a broader sense, on an economical as well as on a non-economical level. In the sense of the dissertation, the success of a business formation can be defined as the reached target of market presence five years after market entrance. The definition of certain figures of turnover or employment is not sensible due to the magnitude of different business concepts.

1.3.3 KNOW-HOW

The successful entrepreneur must know how to master the upcoming challenges. Due to this reason, the dissertation’s research aim does not apply to knowledge, but to know- how.

According to Fink (2000), know-how is the experienced-based practical knowledge that

(1) imparts an ability to solve problems,
(2) is not readily available, means implicit, and
(3) is relevant to persons and issues.

1.3.4 BUSINESS FORMATION

New formations of businesses can be executed in different ways (Figure 1).

illustration not visible in this excerpt

Figure 1: Types of New Business Formations

Source: Author

Generally, innovative business formations can be differentiated from imitative ones. Innovative formations either comprise technological inventions which have, for the most part, a low grade of market orientation at the beginning (Schumpeter, 1997), or they change and newly create established products and processes. A new requirement, as well as a new demand is generated as a result. In this context, Faltin (2008) calls the second form concept-creative formations.

The explanations and targets of this dissertation solely refer to innovative business formations as only they have a substantial meaning for the economical and technological progress of a national economy / society.

1.3.5 BUSINESS INCUBATION AND BUSINESS INCUBATOR

The term business incubation is used for both business support process and instrument of economic promotion (Figure 2).

illustration not visible in this excerpt

Figure 2: Definition of Business Incubation

Source: Author

According to the research aim, the business incubation stands for a business support process which involves people and infrastructure in order to accelerate the successful and sustainable development of companies at their earliest stages by providing targeted resources and services (UKBI, 2009; NBIA, 2011).

illustration not visible in this excerpt

A business incubator is therefore a facility that is designed to assist entrepreneurs to develop and establish their businesses during the start-up process (Achleitner & Engel, 2001). The incubator can appear in both physically with ‘walls’ and virtually, respectively online.

The terms business incubator, accelerator, science and technology parks, and business angels have been used interchangeably for years. But these institutions are very different from each other (Table 1).

Table 1: Characteristics of Entrepreneurial Service Provider [illustration not visible in this excerpt]

Sources: Author, Achleitner & Engel (2001)

Business incubators cannot simply be compared to each other. They differ too much in regard of their objective targets, business models, their sector specialisation and shareholder structure. Up to today there is no consistent approach of characterisation and ultimate typology of incubators (Alberti, 2011). For a simplified overview, two typical typologies are executed with the help of the criteria sector specialisation and sources of finance / shareholders (Tables 2 and 3).

Table 2: Typology by Sector

illustration not visible in this excerpt

Table 3: Typology by Source of Finance

illustration not visible in this excerpt

Sources: Author, Becker & Gassmann (2006).

1.4 RESEARCH AIMS AND OBJECTIVES

The Master’s thesis is addressed to the aim to design a conceptual framework of an efficient know-how management that may be used by business incubators to increase the survivability of innovative business formations.

To achieve the dissertation’s aim, the study will in particular look into the following three research questions:

- Which know-how is necessary for the innovative business formation?

The answer to this question defines the minimum of the required service spectrum.

- How is the know-how transfer currently carried out?

The answer to this question gives important insights in the structure and contents of the best practice processes in action.

- What is the next practice of an efficient know-how transfer?

By means of the gained findings possibilities of improving the transfer process shall be identified.

The answers to these research questions are scientifically relevant due to the following reasons:

- Innovative business formations have an economic importance. An efficient and resource saving know-how transfer may have positive effects on the entrepreneurs’ survival rate and may contribute to an increasing innovation ability of an economy.

- The implementation of an efficient know-how management increases the business incubator’s reputation. The improved performance quality leads to an increased perception of potential entrepreneurs, network partners, investors, and political support.

- Deeper insights into the know-how transfer process allow the deduction of an improved next practice which might be the basis of further academic research.

In this vein, the Master’s thesis, which is limited to a maximum of 15,000 words, is not only dedicated to an increase in understanding, but - in the sense of a practical normative business economics - also to the aim to offer a methodical guidance for business incubators and entrepreneurs.

CHAPTER 2: LITERATURE REVIEW

To reduce the complexity of the research objectives and to clear the subject of the problem, a comprehensive review of the literature existing in the fields of know-how transfer, success factors in innovative entrepreneurship, and internal business incubation processes is indispensable.

2.1 KNOW-HOW TRANSFER

Following Fink (2000), the acquisition of know-how is executed in the frame of a two-step transformation process (Figure 3). In the first step, data will be transformed into information by interpreting them. The interpretation of the data happens on the base of the existing knowledge and the individual values. Information is called factual knowledge or knowing-what. The know-how of a person develops in a second step of transformation afterwards. In this step, the entire factual knowledge is linked cognitively on the base of the gained experience. By this link, practical knowledge to execute a certain activity is generated in the person: the know-how. The entire pool of existing practical knowledge presents the competence of a person (Erpenbeck & von Rosenstiel, 2007).

illustration not visible in this excerpt

Figure 3: Transformation Process of Know-how

Source: Fink (2000), p.24.

Information is transferred from person to person. However, not the sender, but the receiver transforms the information into know-how by cognitive correlation of the meaning in a certain context of facts. By changing the context of facts, for example in case of innovations the existent know-how ‘declines’ more or less significantly. This ‘decline’ is displayed in the figure as a leap between the know-how curves. But not only the range of existing factual knowledge plays an important role for the acquisition of know-how, but also its quality. The more founded a knowledge is, the quicker and less complicating a relation to the existing practical problem can be established (Fink, 2000).

As a consequence, two questions result for the further consideration:

(1) Which know-how is required to meet the requirements of an innovative business formation?
(2) Besides know-how, are there any other characteristics and abilities that have a special relevance for the success of a business formation?

2.2 SUCCESS FACTORS IN INNOVATIVE ENTREPRENEURSHIP

Churchill and Lewis (1983) mention the entrepreneur’s capabilities to master all entrepreneurial requirements as key success factor. They state (1983, pp.9):

`In the early stages, the owner’s ability to do the job gives life to the business. Small businesses are built on the owner’s talents: the ability to sell, produce, invent, or whatever. This factor is thus of the highest importance.`

In their explanations they consider small businesses, and therefore talk about the owner. Still their thoughts can be transferred quite simply on the requirements of an innovative business formation, and thus on the entrepreneur.

It exists a broad consensus that the entrepreneur plays an important role for the success of a business formation (Rice, 2002). But there has been no scientific evidence so far that success is solely a result of the man-of-action characteristics (‘traits’) of the entrepreneur. Therefore, the characteristics rather have a promising effect in combination with other factors of the personality, like for example the existing know-how (Gartner, 1989; Jacobsen, 2003).

Stokes and Wilson (2010, p.51) emphasise that in their ‘Model Entrepreneurship’ (Figure 4).

illustration not visible in this excerpt

Figure 4: Blocks of Successful Entrepreneurship

Source: Stokes and Wilson (2010), p.51.

As illustrated in Figure 4, the entrepreneur must have special abilities and skills in various fields at this approach. Besides profound technical and business managerial knowledge, the entrepreneur must have many personal qualifications for the entrepreneurship, for example leadership abilities, creativity, but also the ability to recognise opportunities and to make decisions.

This model is much more differentiated in regard of the depiction of the entrepreneurial requirements to compare with the one of Churchill and Lewis (1983), but still it is basically similar in its proposition that the successful entrepreneur must be an all-rounder who has to acquire competence in all entrepreneurial and personal fields.

In fact it is precisely this emphasis on being an all-rounder that has to be critically examined. This thinking is no longer contemporary, because the permanently increasing requirements of the entrepreneur’s personality, behaviour and know-how, due to shortlived product and technology cycles and the global division of work, are not considered. The attempt to already meet all these requirements in the early stages of development inevitably leads to a flawed decision-making which can, as shown by the ZEW (2010), lead to the failure of the business formation.

For the explanation, if a person is prepared to face the challenge of a business formation, the concept of self-efficacy by Bandura (1977) is applied. Self-efficacy is “the belief in one’s capabilities to organize and execute the courses of action required to manage prospective situations” (Bandura, 1995, p.2). As it is shown in Figure 5, it is differentiated between two central cognitive components of behavioural control:

(1) The efficacy expectations refer to the estimation of one’s own ability to “successfully execute the behaviour required to produce the outcomes“ (Bandura, 1977, p.193).

(2) The outcome expectations are subjective estimations about the possible consequences related to this behaviour.

illustration not visible in this excerpt

Figure 5: The Difference between Efficacy and Outcome Expectations

Source: Bandura (1977), p.193.

In principle, both components indicate that an acting person estimates his own abilities and forms expectations in the sense of subjective predictions of success before the actual realisation. The psychic phenomenon designated as self-efficacy, namely the subjective conviction to be able to master difficult tasks due to one’s own competence, and therefore also to have a certain control of the success, is of particular importance in the entrepreneurship education context (McLellan, et al., 2009). On the one side, self- efficacy can motivate potential entrepreneurs to start the business formation actually, and on the other side to do it with an even higher motivation and belief in one’s own success (Chen, et al. 1998). Further on, it was empirically proven in studies that self-efficacy increases the work performance by reducing fear and, at the same time, by setting more ambitious objectives (Bandura, 1982). Correspondingly, McLellan, et. al. (2009) require the targeted advancement of abilities to develop and increase the self-efficacy in entrepreneurship programmes.

Landwehr (2005) analyses the know-how of innovative business formations by dividing the start-up process into four sub-phases and considering their phase-specific requirements and problems (Figure 6). A comprehensive description of the single knowhow types can be found in the annex (Appendix A).

illustration not visible in this excerpt

Figure 6: Required Know-how of Innovative Business Formations

Source: Adapted from Landwehr (2005), pp.198.

According to Landwehr (2005), the idea phase is the real core of the business formation. It is the target of this phase to adjust and to develop the business idea on the basis of the criteria customer benefit, competitive advantage, market volume and feasibility. The results of the systematic idea development directly incorporate the development of a basic concept. This has to be understood as a rough planning of the business formation, without mentioning operative measurements to implement the business formation. Light is shed on important aspects from various perspectives by a systematic development of the idea, and at the same time the necessary idea-, opportunity- and strategic management know-how needed for the first two start-up stages is acquired.

The business concept gains a clearly higher grade of detailing by the business plan. In this phase the basic concept is concretised with market and competitive analyses, as well as with tactical and operative measurements. The dynamic and strategic planning process is used for the further development of the business model, and thus for the acquisition of the know-how in business formation and operative business management. The business planning is therefore „indisputable“ for the success of a business formation, and has „become a must“ (Landwehr, 2005, p.156). As far as several people are involved in the implementation of the measurements, the entrepreneur must additionally have appropriate leadership management know-how.

The business is fully functional at the point of time it enters the market. The entrepreneur must have the complete operative and strategic business know-how to develop and run a business in this phase.

Landwehr makes implictly a valuable contribution to the systematisation of an efficient know-how transfer process in the business incubation. Still his work has to be critically examined in regard of the chosen start-up phases and the lack of concern of the entrepreneur’s personality. The successful realisation of the business idea is mainly influenced by the existing know-how as well as by the entrepreneur’s self-belief and confidence in the sense of Bandura’s self-efficacy. At the beginning of the start-up process, it has to be found out if the idea and the entrepreneur really fit together. The precondition for this recognition is the ability of a critical self-reflection, which means an honest self-estimation and -perception.

A further point of criticism of Landwehr’s remarks can be found in the chosen start-up phase Business Plan / Realisation. The importance of the business plan for the success of the formation is questioned more and more in the literature (Timmons, et al., 2004). Ripsas, et al. (2008) have been able to prove empirically that the winners of business plan competitions do not have a higher success rate. In the same way, no positive correlation of quality and intensity of the strategic planning and the success of the business could be proven.

Therefore, a far higher meaning for the success promises the early testing of the business model on the market, especially in today’s world which is characterised by demand-oriented dynamic markets. Only the early feedback of customers gives the entrepreneur the information he needs to acquire know-how in order to make the business model a sustainable success. This testing phase is called as proof-of-concept.

Faltin (2001, 2007, 2008) follows a more modern approach. He sees the entrepreneur as a composer. The entrepreneur has the task to develop the business concept systematically on the one hand. On the other hand, he has to order, control and coordinate the different components needed for the implementation (e.g. production, packaging, accounting, etc.) like a composer. Faltin does not use the term know-how when he describes the different components. Obviously, the providers of components are characterised by their specialised know-how. Due to this reason the components can be defined as know-how components. Their utilisation happens like the usual commissioning of know-how for the own service provision process.

[...]