BUSINESS INCUBATION HATCHING OR START-UP?

Wing-Ki Wong, Ph.D. candidate Department of Manufacturing Engineering & Engineering Management, City University of Hong Kong, Hong Kong Special Administrative Region, Room B 1473, Tat Chee Avenue, Kowloon Tong, Kowloon, Hong Kong Abstract: The fundamental goal of business incubation is to nurture young firms to survive and grow during the start-up period. However, most incubators mainly focus on securing sustainable funding rather than on improving the start-ups performance during the incubation process. This paper examines what can be learnt from the origins of incubation chick hatching process. The chick hatching metaphor is used to develop a conceptual model called Incubatee Hatching Process (IHP) that provides many useful insights into how a start-up business could be nurtured. The main insights relate to six stages: preparation for start-up, incubation process, performance measure of incubatee, exit policies, parental care, and disconnect incubator. The stage of preparation for start-ups is the focus of this paper. A diagnostic matrix is suggested to evaluate the entrepreneurial characteristics for incubation program applicants. Implications will be provided from IHP through Hong Kong sustainable hightechnology incubated firms cases base on business founders personal traits on entrepreneurship such as global innovativeness, need to achieve, risk taking propensity, locus of control, attitude towards entrepreneurship, selfefficacy of feasibility, mission trait and vision. The purposes of this paper are to explore critical factors for improving incubated firms sustainability and identifying barriers to survival and to business expansion. Keywords: Business incubation; measurement; High technology; Start-up Entrepreneurship; Performance

Introduction
It is generally agreed that business incubation means the nurturing young firms at the early growing stage. However issues concerning the incubatees performance have not received due attention in literature so far. The purpose of this paper is twofold: (i) to propose a conceptual model that provides insights into how a start-up business could be nurtured until it has reached a self-sustaining state; and (ii) with the aid of four case studies of hightechnology incubated firms in Hong Kong, to identify the critical factors with regard to how business performance is generally influenced by the entrepreneurial characteristics of the founders. The chick hatching metaphor is used to develop a conceptual model called Incubatee Hatching Process (IHP) that provides many useful insights into how a start-up business could be nurtured. This metaphor was originally suggested by Joe Mancuso to study the development of business incubation in the period 1950-1957 in New York. The metaphor was utilized to study how the firms were nurtured during incubation process. This metaphor is used in the present paper to identify the 1

following six stages: (i) preparation for start-up; (ii) incubation process; (iii) performance measure of incubatee; (iv) exit policies; (v) parental care; and (vi) disconnect incubator (see Figure 1). Evidence of these stages is obtained through four case-studies of incubatees in Hong Kong Science Park (HKSP). It is found that the personality traits of the founding entrepreneur can have positive impact on the firms growth performance. In particular, the following traits are found to be important: global innovativeness, need to achieve, risk taking propensity, locus of control, attitude towards entrepreneurship, selfefficacy of feasibility, and mission trait and vision. Over 98 percent of local economy in Hong Kong is composed of small and medium-sized enterprises (SMEs). SMEs are defined as manufacturing enterprises with fewer than 100 employees and non-manufacturing enterprises with fewer than 50 employees.1 Hong Kong Productivity Council (HKPC) has been conducting a survey on Business Operating Environment Index of SMEs that presents an analysis of the SMEs expectation of business growth and profit for the next 12 months.2 Further, the majority of the SMEs in Hong Kong were originally developed through individual entrepreneurship. Clearly, entrepreneurship plays a key role in Hong Kongs economy especially in high-technology driven small firms.

Literature review
Business incubation and entrepreneur. Entrepreneurship is a global issue. According to OECD (1998), entrepreneurship plays an essential role in society by brining job opportunity and creating wealth. It is generally agreed that the founder a new venture, the entrepreneur, should be a well-rounded and strong person who is willing to invest the time and effort needed to overcome the challenges and difficulties arising in the early stages. Hisrich and Peters (2002) note that entrepreneur is one who brings all kinds of resources into combinations that make their value greater than before. The entrepreneur must possess the characteristics needed for withstanding the challenges that come along during the entrepreneurial process. Entrepreneurs are those people who are ready for changes. They must be capable of exploring new ideas so that their businesses could survive and grow in the modern, constantly changing world. Business incubation provides the financial, business and technical supports for starting a new entrepreneurial venture at the early stage. According to the definition of the European Commission, a business incubator is a place where newly created firms aim is to improve the change of growth and rate of survival of these firms by providing them with a modular building with common facilities as well as with managerial support and back-up services Science parks play an important role by helping firms expand their capacity, ___________________
SMEs in Hong Kong, SME Information Centre- http://www.sme.gcn.gov.hk Hong Kong Productivity Council, Local SMEs Cautious Towards Hong Kongs Business Operating Environment, press release, 18 July 2002, http://www.hkpc.org.hkpc/html/

build up their manufacturing potential, and market their innovative results (Koschatzky, 1997). In Hong Kong, a world-class science park has been established to create clusters of enterprises in the segments of electronics, information and telecommunications, biotechnology, precision engineering, and advanced manufacturing. One of its missions is to offer full-service incubation program for technology start-ups. Personal traits of an entrepreneur. The French term entrepreneur was originally directed towards one who entered and took charge of royal contracts (Legge and Hingle, 1997). Subsequently the term has been used to describe enterprise founders intending to take charge of all business projects in managing business and uncertainty. A successful entrepreneur should have many qualities since he/she is the final decision-maker (Say, 1971). Therefore, certain kinds of personality traits should be possessed by the entrepreneur. The traits are derivable from theories most commonly applied in research on entrepreneurship: McClellands (1961) theory of the need to achieve, and Rotters (1966) locus of control theory. According to Gray (1998), both entrepreneurs and small business managers tend to score highly on various tests designed to measure both need to achieve (n-ach), and locus of control when compared with most other groups of employees or non-business populations. An entrepreneur must have the ability to effectively deal with uncertainty while creating a new venture. Risk-taking is an important part of personal growth and is useful in conducting business activities (Wadhaw et al. 1998) Entrepreneur must not only have the risk-taking intention, but also have innovativeness to generate new ideas concerning the product, process, or service being offered. Ward (2003) suggests that a successful entrepreneur must generate valuable ideas for new goods or services target to identifiable market with potential opportunities. Business founders should also be able to evaluate themselves honestly (self-evaluation). However, even though someone has high score on entrepreneurial personality, it does not mean that he/she will become an entrepreneur without a definite intention of becoming one. During the evaluation process of incubation program applicants to the Hong Kong Science Park, the park requires them to submit solid business plans stating their respective business goals, objectives and missions, etc. It guides all organizational members in taking responsibility for identifying their respective strategic directions. According to Lipton (2003), a mission is only about what an organization does while vision is about purpose. Looking at the origins of business incubation. The notion of business incubation was originally derived by Joe Mancuso in 1952 from chick incubation in Batavia, New York (Hayhow, 1996). Since, the heavy-equipment manufacturing was pulled out of Batavia, he tried to fill the shell left behind by people who would hire other people. A Connecticut-based

chicken hatchery was one of the first businesses he recruited. Thus was born the Batavia Industrial Center (BIC). The resources and services provided by the center included low market rent real estate, shared office services, capital raising, and business advice. The idea was to foster the growth of new small businesses that would in turn create new jobs and reinvigorate the local economy. This work led to the new concept called business incubation. The chick-hatching process has now become a useful metaphor leading to the Incubatee Hatching Process model. Metaphorization. The word metaphor comes from the Greek metapherein, meaning to carry over, to transfer. Metaphors are used in literature to clarify a situation or notion. However, they cannot tell the whole story. According to Lakoff and Johnson (1980), a metaphorical concept could keep us from focusing on other aspects of the concept that are inconsistent with that metaphor. However, according to them, [i]f we are right in suggesting that our conceptual system is largely metaphorical, then the way we think, what we experience, and what we do every day is very much a matter of metaphor. This indicates that employing metaphors as conceptual is an easy way to interpret complex concept into simpler understanding. Schn (1963) explains that a metaphor works by treating something unfamiliar as something familiar, thereby changing our understanding of both in the process. Schn also thinks that a metaphor can contribute by generating new concepts: a way of treating the new as old, neither comparison, nor error, nor the application of concepts to instances, but a displacement of old concepts to new situations resulting in extension of the old. It implies new concepts can be developed from our daily life experience. Likewise, Zikmund (1982) proposes that a metaphor is a figure of speech in which one thing is likened to another. Hunt and Menon (1995) use metaphor-writing to describe marketing strategies. They explain that a metaphor may be used to stimulate the kinds of creativity that will lead to long-term, systematic, programmatic research. One of the metaphor sources they suggest is organism. They mention that many writers use firm is organism metaphor because this metaphor is capable of describing a companys growth in terms of life-cycle, growth, adaptation, nutrition, niche, environment, resources and progress, etc. This paper follows the metaphorical approach by examining what can be learnt from the artificial chick hatching process - a kind of biological process. It will be shown that the metaphor is capable of leading to a conceptual model called the Incubatee Hatching Process (IHP) that provides insights into how a start-up business could be nurtured from its pre-startup stage until entering the competitive world. Chick hatching process and business incubation metaphor. Oxford Dictionary defines hatching as a process by which a young bird, fish, or reptile emerge[s] from its egg (Pearsall, 1998). In zoology, chicks are categorized as oviparous animals, i.e., they are produced by means of eggs

which are hatched after they have been laid by the parent, as in birds. There are two distinct types of chick hatching or incubation process: natural and artificial. Artificial chick hatching is a well-understood process involving a series of complex steps. The metaphor of artificial chick-hatching is there used in this paper to model business incubation. A successful hatching is the proportion of eggs laid that eventually hatch from the species (Ainley, 2002). With respect to natural incubation, Ainley claims that determining hatching success is not a simple task because of the need to prevent freezing and maintain warmth. Natural incubation is not capable of reducing eggs lost owing to variations in the natural environment. The variations determine whether the embryo lives or dies. In contrast, artificial incubation provides an indoor stable environment for hatching with optimal physical factors such as temperature, ventilation and humidity control. Basically, there are six development stages on artificial chick-hatching: embryo evaluation, hatching process by incubator, evaluate chick quality, the newly hatched chick pips a hole to adapt outside atmosphere. This paper applies artificial incubation as a metaphor for business incubation under the oversight of an organization such as a science park providing incubating facilities. In addition, we consider the value provided by the process. Increasing the return of profit is the key value for artificial chick hatching process. This paper extends the related notion of hatchability to business incubation.

A conceptual model on incubatee hatching process

The elaboration of the IHP model (see Figure 1) is described as below: Stage 1: Preparation for start-up Before incubation starts, we must evaluate whether the egg is fertilized. Unfertilized eggs are not ready for incubation. Similarly, entrance evaluation could be provided to access the incubation program applicants. They may possess of typical business founders personal traits on entrepreneurship (see Table 1). Generally incubator provides supports for all incubatees to commercialize their products or services. However, some are succeed while others failure. The evaluation for applicants may provide insights into enhancing business performance growth. Stage 2: Incubation process The successful applicants once start their operation, they are able to make progress towards graduation. Too fast or too rush the incubation process may be harmful to performance. For normal embryonic development is possible only within a narrow range of temperature for chick hatching. Overheating will damage the chick growth. Different poultry species have various incubation times and optimum conditions as likely as different types of high-technology start-up have their own particular occasion.

Stage 3: Performance measure of incubatee During the chick hatching, the eggs are tested to determine whether the embryo lives or dies at specific growing days. With respect to business incubation, performance measures can be used as a means of control (Neely, 1998). Incubator can use performance measures for easily understanding where their incubatees are now and how their performance can be improved. Stage 4: Exit policies The purpose of incubation is to ensure as many as offspring through properly managed. Due to highly sensitivity of hatched eggs to temperature variation, the incubator must have sufficient knowledge about hatching process. Alike, the experienced business incubator is capable of providing professional knowledge and experience to nurture incubatees towards graduation. Stage 5: Parental care Young birds pip its way through the shell into two stages: piping a hole to acclimate its lung to the outside atmosphere; and then free from the shell by vigorous shove. A short rest is taken between two stages for energy storage to pip again. Similarly, fresh graduated incubatee may not be well established to operate their businesses independently. A parental period can make them stronger to compete with others.
Embryo evaluation (Egg) Preparation for start-up

Disconnect incubator

Hatching process by incubator

Disconnect incubator

Incubation process

Chick Incubation
Parental care The chick pips away from its shell The newly hatched chick pips a hole to adapt outside atmosphere Evaluate chick quality

Business Incubation
Performance measure of incubatee

Exit Policies

Figure 1. Six stages of chick incubation and business incubation Stage 6: Disconnect incubator After the parental period, the chick is chipping at the shell to break off the eggshell and emerge as an independent chick. Business incubatees are ready to become an independent firm to enter the competitive world finally.

Case studies on sustainable Hong Kong incubatees

Methodology The exploratory cases are incubatees of incubation program in HKSP. All interviewees are the business founders who are in some way involved with high-technology development. Yin (2003) suggests case study research continues to be an essential form of social science inquiry. The method is appropriate when investigators either desire or are forced to cover contextual or complex multivariate conditions and not just isolated variables, and to reply on multiple and not singular sources of evidence. Case study research examines a phenomenon in its natural setting. This study was conducted in the pilot phrase to identify what critical personal traits that influenced business performance. Research in entrepreneurship has particularly emphasized characteristics of entrepreneurs, such as global innovativeness, need to achieve, risk taking propensity, locus of control, attitude towards entrepreneurship, self-efficacy of feasibility, mission trait and vision. Data collection methods Data was collected through structured interviews. All cases are incubated high-technology categorized by the HKSP into four aspects: electronics, IT & telecommunication, biotechnology, precision engineering, and others. The data from interviews consist of direct quotations from those founders about their experiences, opinions, feelings, and knowledge (Bryman and Burgess, 1999). They mention the purpose of gathering responses to open-ended questions is to enable the research to understand and capture the points of other people without predetermining those points of view through prior selection of questionnaire categories. A common set of open-ended questions was designed to elicit a discussion of the nature of those incubatees. All interviews were either taped or written down for later transcription.

Data Analysis
The number of items was summed up accordingly to give a summated score for each attribute. Respondents indicated on a 7-point Likert scale the degree of disagreement or agreement to each item, where 1 represents strongly disagree and 7 as strongly agree. Certain statements are negatively phrased to prevent respondent fatigue. To avoid the problem of different number of items in each attribute, we normalize the score of all attributes for easy comparison. Then, we use unfolding analysis to distinct strengthen and weakness of the four business founders. From the 7-point Likert scale in this study, 4 represents a neutral disagreement or agreement to the statement. We subtracted all the normalized score by 4, either negative or zero or positive results were shown finally (see Table 1). From the results on Table 1, we simplified the data by + indicates a stronger intention of the entrepreneurs characteristics attributes than to the neutral;

- indicates a weaker intention of the entrepreneurs characteristics attributes than to the neutral; and N indicates as the neutral. This evaluation matrix idea is borrowed from a technique which has to undertake product design specification activity (1984). It is used to make a preliminary comparison of the cases using the above scheme. The score is represented by +s, -s, and Ns relative to the neutral. These scores are used for evaluating the business founders and predicting their business success or failure at early start-up period by examines the added up scores. Table 1: Evaluation Matrix for the cases (elaborated from A guide to design for production, Institution of Production Engineers, London, 1984)
Firm A Incubation background: Firm history Field of industry Entrepreneurs characteristics Global innovativeness Need to achieve Risk taking propensity Locus of control Personal desirability Attitude towards entrepreneurship Self-efficacy of feasibility Mission trait Vision Summation of + Summation of - Business performance Sales growth (during 3-year of incubation period) Number of employment (between the time entered the HKSP and currently employed) High to dramatically low Increase from 2 to 5 Low to high Increase from 10 to 53 NA Decrease from 3 to 2 Low to high Increase from 3 to 7 + + + + + + 6+ 3+ + + + + + + + 8+ 1+ + + + N N N + + 6+ 0+ + + + + + + + + 9+ 0Sustaining business over 5 years after incubation program IC Design Software & System Video electronic technology Now being incubated Software Development Firm B Firm C Firm D

Discussion and Implications

From the results of cases, it seems more +s the founder got, the higher business performance resulted (see Table 1). While, the more -'s the found got, the lower business performance resulted. The evaluation matrix acts like a diagnostic tool for predicting the performance of entrepreneurial firms at start-up preparation stage. Four cases indicated preliminary evidence showing critical sustaining factors with respect to their personal traits. Those who got positive intentions of need for achievement, risk taking propensity, mission trait and vision as expressed a positive performance growth. In other words, they have confident to start a 8

business towards succeed. They like taking risk when coping with uncertainties. They have clearly defined strategy and mission to direct the work within the firm. They have long-term vision for future development. Second, it showed a negative intention of global innovativeness (like Firm A) may interrupt the business growth. It is because the founders are unable to accept new things even no one accept them. They do not feel new way of living and doing things is the best way. As an exploratory study, this study has limitations. One of the problems is limited number of cases investigated that provides only weak support for the drawing of scientific conclusions. Besides, all cases are sustainable incubated firms under the HKSP in this study, but with no either failure cases or incubated under other incubator. Researching these issues is complex mainly because of there was very little evidence of work that examines performance in the context of business incubation. For the conceptual metaphorical IHP model, we only have explored the first stage of start-up preparation. The next five stages will be studied in further research.

Conclusion
The message from the research is that performance measures of incubated firms have been neglected in the past, but essential for organizations improvement. The conceptual IHP model has given insights into how an incubatee could be nurtured. The cases survey suggested that we can explore critical factors for improving incubated firms sustainability and identifying barriers to survival and to business expansion by evaluation of founders characteristics at preparation stage of IHP.

References
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