Int Entrep Manag J (2006) 2:211225 DOI 10.

1007/s11365-006-8685-z

The effectiveness of entrepreneurial rms knowledge acquisition from a business incubator

Nareatha L. Studdard

Springer Science + Business Media, LLC 2006

Abstract This cross-cultural research project, involving the United States and Finland, explored how the entrepreneurial rms acquisition of business processes knowledge from interaction with incubator management positively impacts on new product development, increased technical competence, enhanced reputation and lower costs of sales to customers. In a sample of 52 rms, the studys methodology depended on single response, self-reported data. The ndings suggest that the sole knowledge benets gained by the rm, from the incubator relationship, is a perception of enhanced reputation. Also, incubator managers should focus more on assisting new technology based rms with growing the venture in the marketplace. Keywords Knowledge acquisition . Incubators . Social capital . Reputation . Technology ventures The primary mission of a university based business incubator is to increase economic development in the region by assisting entrepreneurial rms during their growth and development phase (Rice, 1992; Rice and Matthews, 1995; NBIA, 2003). Previous research has shown that the incubator manager has a substantial impact on the management and operations of the incubator facility (Rice, 1992). Social capital is the catalyst that facilitates the movement of resources through the social structure (Lin, 2001). Resources required for rm formation and development are generally difcult to acquire since they exist outside the boundaries of the rm (Kirchhoff, 1994). Entrepreneurial rms frequently seek resources during formation and development of the business (Kirchhoff, 1994). Various social structure actors possess the resources necessary during this process. The entrepreneurial rm that positions itself to interact with these various

Funding for this project was provided by The National Science Foundation, and The National Technology Agency of Finland. N. L. Studdard ( ) Arkansas State University, Department of Management & Marketing, P.O. Box 59, State University, AR 72467, USA e-mail: nstuddard@astate.edu Springer

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actors facilitates its capability to acquire outside resources. If the entrepreneurial rms access to actors in the social structure is limited, then acquisition of resources for rm formation and development becomes limited. Entrepreneurial ventures can fail to gain or lose their competitive advantage due to resource constraints (Gaskill et al., 1993). Therefore, the acquisition of critical outside resources becomes a necessary component in the formation and development of the entrepreneurial rm. Often, high technology entrepreneurial rms are not knowledgeable about the business competences required to operate a business, such as knowledge about marketing, accounting, nancial, and human resources (Rice, 2002). In developing new technology based rms, university business incubators are environments where rms may acquire such knowledge and business competences. For an entrepreneurial rm, innovative output is often distinguished by the technological competence of the rm. This technological competence is often inuenced by the management practices the rm incorporates into the organizational culture and structure of the rm. In this vein, this research examined the effectiveness of the business management knowledge acquired by newly developed high technology entrepreneurial rms, from interaction with incubator management. Specically, it examined the results on the rms new product development, technical competence, reputation and decreases in cost of customer sales from this association.

Types of knowledge The knowledge an entrepreneurial rm needs can be divided into categories based on the ten functional areas: (1) general management, (2) nancial management (3) marketing and selling, (4) market research, (5) product R&D, (6) engineering, (7) production, (8) distribution, (9) legal affairs, and (10) personnel (Kazanjian, 1988). These functional categories, needed for rm formation and development, contain knowledge resources that categorize them into technological and general business knowledge bases. Business process knowledge areas, meaning areas not dealing with the technological innovation, such as marketing and nancial management, provide entrepreneurs with the most difculty (Rice, 1992). High technology entrepreneurial rms may have a high degree of technological knowledge but may lack knowledge regarding small business management (Lee et al., 2000). As such, entrepreneurial rms encounter their greatest difculty with knowledge that deals with small business management (Rice, 1992) compared to technological innovation. Business incubators are institutions designed to assist with the fundamentals of business process knowledge (Rice and Matthews, 1995; NBIA, 2003).

Acquiring business process knowledge from the incubator management The incubator managers primary role is to assist the rm with the ability to acquire knowledge. Incubator managers are often hired to manage the incubator like a business and as such must perform like entrepreneurs themselves (Rice and Matthews, 1995). Since the incubator manager is in the unique role of acting as an entrepreneur, specic information is often possessed on small business management issues. However, the business of running an incubator is not the same as the business of running a high technology venture. Different sets of knowledge are required. As such, incubator managers may or may not possess technical knowledge since their primary responsibilities are administrative and managerial in scope (Rice and Matthews, 1995). Primarily these responsibilities include recruiting and selecting
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the right companies for entrance into the incubator and then assisting those rms with growth activities (Rice and Matthews, 1995). The incubator manager, if unable to contribute knowledge directly, does possess the ability to link the rm with other actors in and outside the social structure of the incubator (Hansen et al., 2000). Linking the rm to other actors, inside and outside the business incubator, facilitates the entrepreneurial rms acquisition of knowledge (Rice, 1992). Entrepreneurial rms require business process knowledge to ensure the success of the rm in the marketplace. Firms, due to the closed structure of an incubator, are more apt to engage in social relationships. The ability to foster closer social relationships places the rm in a better position for fostering trust and gaining signicant business processes knowledge. Outcomes of the relationship impact between the incubator manager and the rm. Ultimately, as the rm increases its knowledge, outcome variables from the relationship will make a contribution (Cohen and Levinthal, 1990). A relationship outcome, for this research, refers to the ability of the entrepreneurial rm to transfer acquired knowledge into viable services, products, or organizational practices (Parikh, 2001; Yli-Renko et al., 2001). Specically, relationship outcomes were measured as new product development, technical competence, reputation and a decrease in cost of sales to customers. A rm must also be able to exploit its marketing, nancial, manufacturing, and human resources knowledge to sustain the organizational environment through its growth. The impact of social capital and business process knowledge allows the rm to function efciently. The business of running the rm is frequently ignored over technological innovativeness (Chrisman and Leslie, 1989). Entrepreneurial rms do not ascertain the critical need to sustain the actual management of the rm. The rm often determines that its innovativeness is enough to propel it to growth and success. Yet, the actual management of the small high technology rm is often overlooked (Chrisman and Leslie, 1989). New products developed The strategic structuring of a high technology entrepreneurial rm, inside of a business incubator system, places it in the position to increase business process knowledge for favorable new product development. New product development is often the capstone of the rms capacity to sustain competitive advantage in a fast-paced ever-changing market (Brown and Eisenhardt, 1995; Kessler and Chakrabarti, 1996). Specically, new product development refers to transferring the research and development activities of the entrepreneurial rm, often discovered from universities and research centres, into commercially useful products. Brown and Eisenshardt (1995) suggested that product development is inuenced by process performance. Process performance involves the actual speed and productivity of product development. The social relationship of the university business incubator provides the entrepreneurial rm with access to business process knowledge. The acquisition of business knowledge has an inuence on the rms process performance of new product development. Traditionally, product development research has emphasised internal and external factors in processing the product and its effectiveness in obtaining market success. Internal resources, existing inside of the rm, include the management of the organization, management of product development, and group dynamics of the project team. However, these internal factors, often present in product development research, become difcult to apply to smaller, leaner, and more agile rms. For instance, the manager of the entrepreneurial rm may also be closely associated with the product development team. Overlapping competences as well as missing competences in the rm tend to exist within entrepreneurial organizations. In fact, it is the intent of the business incubator to enhance the entrepreneurial rms competences
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for better rm development and growth. The incubator environment is intent on assisting the rm with its internal organisational structure to develop more efcient business operations (Allen and McCluskey, 1990; Rice, 1992; Sherman, 1999), thereby improving the outcome of new product development. As such, the greater the amount of business processes knowledge the rm acquires from the incubator management relationship, the better the improvements in the rms organisational capabilities. The increased efciency of the rms organisational structure provides a substantive base for improving the process of new product development. New products are developed at a faster than normal pace when the organization has a sound organizational structure. Hypothesis 1: The more business process knowledge acquired by a high technology entrepreneurial rm from the relationship with the incubator manager, the higher will be the number of new products developed by the high technology entrepreneurial rm. Technological competence Core competence refers to what the business has determined internally to be its strength. It is internal to the business and based on its inherent knowledge (Barney, 2002). There are limitations that prevent the rm from having the ability to be competent in key areas of its operations. These are often based on the rms size and its access to resources (Barney, 2002). The high technology entrepreneurial rms success in the marketplace depends on its technological competence. Technological competence provides the rm with the enhanced ability to sustain a competitive advantage (Barney, 2002). Technological innovations, initiated by the high technology entrepreneurial rm, will substantially inuence subsequent innovative activities (Kelley and Rice, 2001) and impact long-term success (Hitt et al., 2001). Innovation, in this context, relates to a technological innovation deemed as a new technical product (Kelley and Rice, 2001). The innovation may be a new idea or combination of old ideas that result in an innovation (Lee et al., 2000). A rms social connections provide the rm with the opportunity to exploit the technological knowledge acquired by viable commercial products (Zucker et al., 2002). Hypothesis 2: The more business processes knowledge acquired by a high technology entrepreneurial rm from interaction with the incubator manager the greater will be the technological competence developed by the rm. Reputation Reputation is an inherent problem in the establishment and development of an entrepreneurial rm (Aldrich, 2000; Zimmerman and Zeitz, 2002). Accordingly, entrepreneurial rms are allowed access, by way of the business incubator, to a closed social structure. As such, this closed social structure provides an added advantage for the rm in accessing various avenues of information and a means of improving the rms reputation and its organisational structure. Entrepreneurial rms have difculties with reputation due to their high level of volatility and are not considered as reputable as larger, more established organisational structures (Aldrich, 2000; Aldrich and Martinez, 2001). Increased legitimacy for the organisation, ultimately, assists in improving the rms reputation and status in the social structure. Social capital is more valuable to those actors in the social structure who lack a high degree of legitimacy (Burt, 1997). The more individuals performing the same type of work the more legitimate the work. In contrast when few individuals perform the work, it is viewed as
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being less legitimate (Burt, 1997). However, a competitive atmosphere is created when a large number of people perform the same type of work because so many people are trying to identify an exact description of the work (Burt, 1997). Moreover, although there may be several entrepreneurial rms in the marketplace, they are not all participating in the same type of industry or performing the same type of work. Entrepreneurial rms, thought to be a homogenous group, actually differ in the literature based on industry, stage of development and performance (Kirchoff, 1994; Aldrich, 2000). This weakens the legitimacy of the work entrepreneurs perform because too few are doing the work. This also means that development of social capital and lling structural holes is extremely important to ensure rm growth and success for entrepreneurs. Networks foster the creation of social capital (Lin, 2001) which is a vital component for early stage organisations (Shane and Stuart, 2002). Being associated with the incubator manager provides an enhancement to the legitimacy of the rm while simultaneously enhancing the reputation of the rm. Therefore, the development of the following hypothesis is viewed as essential to this research: Hypothesis 3: The more business process knowledge acquired by a high technology entrepreneurial rm, from interaction with the incubator manager, the more the reputation of the high technology entrepreneurial rm will improve. Sales costs An increase in the rms ability to acquire higher levels of business process knowledge through the rms interaction with the incubator manager should enhance the organizational practices of the rm. Enhancing organizational practices makes the rm more efcient. Firms that acquire business process knowledge will be more efcient in constructing its marketing, human resources, accounting and nancial practices. The more efcient the organisational structure becomes, generally the better able the venture will be to compete in the marketplace. Further, rms operating with a competitive organisational structure are able to price their products competitively and as such decrease sales costs to the rms customers. Thus, the following hypothesis is developed: Hypothesis 4: The more business process knowledge acquired by a high technology entrepreneurial rm, from interaction with the incubator manager, the lower the sales costs of the rm will become.

Methods Data and sample In this researsch, high technology entrepreneurs, from the United States and Finland who gained sales from having a product in the marketplace, are surveyed. They are drawn from rms that are all located within an operating business incubator. Since the study is focused on high technology based rms, only incubators representing themselves as being technology oriented were targeted. Firms considered to be technology driven are in the following industries: wireless communication, biomaterial, biotechnology, process automation, advance materials (polymer, ceramics, composites), and biotechnology. Business incubators in the United States were identied by utilising the National Business Incubation Association Web site (NBIA, 2003). 12 business incubators were selected. These
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comprised Rensselaer Polytechnic Institute Incubator, New Jersey Institute of Technology Enterprise Development Center, Stonybrook Long Island High Technology Incubator Center, Rutgers University-Camden Technology Incubator, Alfred University Incubator, Delaware Technology Park, Atlanta Technological Development Center, Central Michigan University Incubator, University of Maryland Technology Advancement Program, Emerging Technology Center of Delaware, Science Port of Technology in Pennsylvania and the Colorado Science Technology Institute. The Finnish business incubators were identied utilising the Science Park and Innovation Center Associations Directory (spica-directory, 2003). The Finnish incubators consisted of Oulu-Technopolis, Hermia of Tampere, Jyvaskyla Science Technology Park, and Technology Centre Kareltek Inc. Three methods were used to distribute the survey. Initially, the manager of the incubator facility was contacted. Secondly, the survey was directly mailed in a Microsoft Word le to the actual tenant rm of the incubator. Thirdly, a direct e-mail was sent to the tenant rm with the URL address of an Internet based survey instrument. Utilising the initial distribution method, the researcher solicited the support of the incubator manager to distribute and collect the survey responses as needed. This method was performed at the Long Island High Technology Incubator (LIHT) located at Stonybrook in Long Island, Rensselaer Polytechnic Institute Incubator (RPI), Alfred University and Central Michigan University. The incubator manager of LIHT printed out the survey and distributed it to the tenant rms. Then, the manger e-mailed ve completed surveys back to the researcher. The incubator managers at RPI, Alfred University and Central Michigan University distributed the survey through e-mail and returned the Microsoft Word le to the researcher via e-mail. Using the second distribution method of direct solicitation to the rms, the researcher gathered the rms names and e-mails by two methods. The rst consisted of the incubator manager providing a list of tenant rms and their e-mail addresses. The second involved the researcher examining the incubators web site for its list of tenant companies and their e-mail addresses. The second method was employed when the researcher failed to obtain contact with the incubator manager to secure support for the research project. All of the Finnish rms were contacted by e-mail. A total of 300 rms were contacted and directed to the Internet base survey instrument. The rms were given a password to complete the survey and informed of the support given to the research by the Finnish government agency, TEKESThe National Technology Agency of Finlandthe primary organisation for applied nancing, industrial research and development in Finland. TEKES promotes the technological competitiveness of Finnish rms by providing funding to Finnish and foreign companies that have manufacturing operations or research and development in Finland (www.tekes.). The rms were told that TEKES would use the information for future benchmarking studies. A total of 52 rms responded though only 48 of them were included in the sample as 4 of the US rms provided insufcient information for inclusion. Of the resultant 48 rms, 33 (69%) were from the United States and 15 (31%) from Finland. Approximately 250 United States rms were contacted but only 37 responded (14.8 per cent). Of these, four had to be deleted as indicated, yielding an effective response rate of 13.2 per cent. Of the 300 Finnish rms contacted, only 15 completed the on-line survey (5%). There could be several reasons why the Finish response rate was so low. First, the invitation to participate in the survey was sent in English not Finnish or Swedish and second, although it emphasised that TEKES was supporting the study, it was clear that the overall afliation of the study was with Rutgers, The State University of New Jersey, located in the United States.
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Non respondent bias Apart from the particular factors relating to the low Finnish response rates bias resulting from non response could be based on three factors (1) age of rm (2) rms length of occupancy in the business incubator and (3) rms (lack of) interaction with the incubator manager. Technology rms less than a year old, with no sales or in new product development, may not have responded because they deem they could not adequately answer the survey questionnaire. For instance, such rms that did respond often had incomplete information and indicated in the comments section of the survey that the rm had non existent sales or the product had not yet reached the commercial stage. Four surveys were excluded from the data due to lack of sufcient information, as indicated Further, rms whose length of occupancy was less than a year may have perceived that they had not been tenants long enough to interact with the incubator manger. Therefore, rms may have determined they could not adequately respond to the survey questions and discarded the questionnaire. Lastly, rms may have decided they could not respond adequately to the survey since they perceived they had little to no interaction with the incubator manager. Finnish rms from the qualitative interviews were found to have little if any direct interaction with the incubator manager. Therefore, bias associated from this survey could be towards rms, with sales from a product, directly interacting with the incubator manager. Survey instrument The survey instrument utilized in this study was designed and implemented in research conducted by Yli-Renko (1999). The surveys basic design was adapted to enhance the results of the research study. Adaptations to the design of the survey included replacing the yes or no response section of Yli-Renkos survey with a response scale that included the items: agree strongly, agree moderately, agree mildly, disagree mildly, disagree moderately, and disagree strongly. This replacement was done to provide a more robust measurement of the research ndings. The other adaptation involved substituting the word customer in the survey for incubator manager and support staff. The survey was pre-tested at the New Jersey Institute of Technology Enterprise Development Center. The researcher personally supervised the distribution and completion of the survey by the respondents. The respondents, generally, had been occupants of the incubator for a year or less. If required during the pre-test distribution, the researcher was able to clarify any ambiguities in the survey instrument. Some survey participants preferred that the researcher administered the survey instrument verbally but neither the verbal nor the written administration of the survey instrument resulted in any abnormalities requiring alternations to the survey design. There were no signicant differences between rms that responded to the survey by verbal administration versus written administration. The survey instrument was a series of closed-ended, pre-coded questions that took approximately 1520 min to complete. It was directed at the CEO/founder of the rm or his/her delegated representative. This was not viewed as a problem as technology rms are often started by a management team actively involved in the social nuances and overall capability of the rms operating status. In addition to the survey instrument, this research utilised open-ended exploratory interviews. The exploratory interviews were conducted in both the US and Finland with the incubator manager and entrepreneurial rms associated with the business incubator. These exploratory interviews with incubator managers and rms were conducted in the United
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States and Finland. They helped to provide a guideline for specics of the business incubator and to ground the research in actual case practices. Procedures Business process knowledge acquisition is the variable term used to measure the business knowledge acquired by the rm from the incubator manager and any incubator support personnel the rm may encounter. It is measured on a six-point Likert scale, where the choices were comprised of the following options: disagree strongly (1), disagree moderately (2), disagree mildly (3), agree mildly (4), agree moderately (5) and agree strongly (6). Specically, the survey instrument asked respondents to report on the marketing, business support and nancial business processes the incubator management may have provided to the rm, and whether the rm found the information valuable during operations. In addition, the rms were asked to report on the technological knowledge they may have received in conjunction with its value. Factor analysis was performed to condense the measures for a more robust output. The items and their factor loadings, from conrmatory factor analysis, are presented in Table 1. The original factor analysis devised two factors on business processes knowledge acquisition. However, the second factor was dropped from the subsequent regression analysis since it yielded no results when regressed in the analysis with the other factor or alone. The Cronbach alpha for this construct is .8979. New product development is measured by the number of new products developed by the rm as a result of the interaction with the incubator manager and incubator support personnel. Product development and its positioning in the market are critical to rms maintaining a competitive advantage (Brown and Eisenhardt, 1995). Also, faster product development leads to enhanced development and success of the rm (Kessler and Chakrabarti, 1996).

Table 1 Business Processes Knowledge acquisition measurement items and factor loadings Items Because we are associated with this business incubator,we are able to obtain a tremendous amount of marketing knowledge (public relations, sales, service delivery, market conditions) Because we are associated with this business incubator, we are able to obtain a tremendous amount of business support (accounting, bookkeeping and tax, hiring practices, and employee benets) knowledge Because we are associated with this business incubator, we are able to obtain a tremendous amount of nancial investment (venture capitalist, angel investors, bank) knowledge We get most of our valuable information on marketing needs and trends from the incubator management and its support personnel We get most of our valuable information on business support needs and trends from the incubator management and its support personnel We get most of our valuable information on nancial investment from the incubator management and its support personnel Because we are associated with this business incubator, we are able to obtain a tremendous amount of technical know-how We get most of our valuable technical know-how related to supplying our product/service from the incubator managements relationships Extraction Method: Principle Component Analysis. Springer Factor loadings .782

.766

.725

.751 .854 .843 .754 .653

Int Entrep Manag J (2006) 2:211225 Table 2 Technical competence measurement items and factor loadings Items Our technology is highly sophisticated and complex Our technology is better than our competitors technology Our competitive advantage is based on our technology We invest heavily in research and development Extraction Method: Principle Component Analysis. Factor Loadings .556 .661 .615 .630

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Technical competence, measured through the survey instrument, reects how the rms technical advantage improved through association with the incubators manager and support personnel. Also, the rm was asked to access its perceived technical performance. Firms often view growth of their rm from various perspectives. The purpose of this variable is to access the rms perception of its technological competence with regard to how it measures its own growth potential. This study used a total of four survey questions to measure technical competence. A factor analysis was run for technical competence to condense the variable into one measure. The result of the factor analysis is shown in Table 2. The Cronbach alpha for this construct is .7845. The reputation variable sought information dealing with the rms opinion about whether its reputation changed due to interaction with the incubator manager and incubator support personnel. This variable was measured utilising two questions in the survey instrument. The reputation items, from the survey, are displayed in Table 4. The geometric average was calculated to condense the measure into one output variable for a more robust nding. The descriptive statistic of the nal reputation variable is shown in Table 3. The sales costs variable measured the cost of sales to the rms customers. Participants responded to survey questions that dealt with the cost of sales to their single and second largest customers for the year 2002. The rms were able to report this percentage as an open-ended question. Therefore, there were a few non responses to this question resulting in a sample of 43 rms for the cost of sales to key customer. Thus, the non response of rms question was reported in the comments section, specifying that they were too young to have obtained any sales data. The two primary control variables utilised for this study include the age and size of the rm measured by the total number of employees. These variables were determined to be relevant when examining entrepreneurial rm performance in the marketplace. Often, they are used as control variables in entrepreneurship research (Murphy et al., 1996). These variables were measured using the survey research instrument. Results Sincse the methodology for this study depended on single-response, self-reported data, there is the potential problem of bias. The use of a survey from a similar research study served to
Table 3 Reputation items and descriptive statistics Reputation Items Being associated with this business incubator improves our credibility as a rm Being associated with this incubator is an important marketing reference for us Springer

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increase the reliability of the instrument used in this research. There is no way to determine the response of those who chose not to respond to the survey questions posed. Further, the respondents based responses on their own individual perceptions which may be skewed by internal biases. A few questions were not responded to in the survey by the rm. The items with the greatest non responses were sales revenue and customer sales. The questions not responded to most often related to the age of the rm. Firms that were newer in existence, meaning less than one year old, tended not to provide a response and reported a lack of information in the comments section of the survey. Attitudinal survey data were measured utilising more than one question. As such, factor analysis was utilised to create more robust measures. The studys use of various questions to measure one variable provided condence that common method bias is not a problem. The hypotheses predicted that the higher the level of business process knowledge acquisition in a technology-based rms incubator manager relationship, the higher would be the relationship outcomes as a result of business knowledge acquired from the rms interaction with the incubator manager. The relationship outcomes utilised in this study were new product development, technical competence, reputation and the cost of sales to customers. In order to test the four hypotheses regression analyses were processed in four separate analyses. The dependent variables were the four relationship outcome variables. The independent variable was the acquired business process knowledge. In Table 4 the results of the tests for the studys hypotheses are displayed. The regression results indicate that hypotheses 1, 2 and 4 were not supported. Hypothesis 3 is the only relationship outcome variable that received positive signicant support (p .001). The results of this section demonstrate that improved reputation is the only signicant outcome the rm gains as a result of the knowledge acquired through its interaction with the business incubator manager. New product development, technical competence and the cost of sales to the rms customers were not signicantly affected by the incubator managers interaction. Initially, the two control variables of rm age and rm size were run and found to have no signicant effect. Again, the analysis was analyzed without the control variables. However,
Table 4 Regression tests of Hypotheses 14 New product development hypothesis 1 .180

Dependent variables Business processes knowledge acquisition Control variables: Firm Age Firm Size Adjusted R2 F Degrees of freedom (regression, residual)

Technical competence hypothesis 2 .115

Reputation hypothesis 3 .596

Sales cost hypothesis 4 .127

.158 .033 .011 .813 (3, 48)

.007 .146 .022 .636 (3, 48)

.103 .139 .350 10.162 (3,48)

.226 .021 .017 1.298 (3,39)

Coefcients are standardized beta weights. Missing values replaced with mean. p .001, p .01, p .05; p .10; two-tailed tests. Springer

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the signicance of the other unsupported hypotheses did not change. Nevertheless, the control variable results are reported.

Conclusion The hypotheses examined the acquisition of business processes knowledge based on the rms interaction with the incubator manager. It is suggested that the increased knowledge, acquired by the rm through its interaction with the incubator manager, would increase the rms new product development, realize an increase in the rms technical competence, improve its reputation, and decrease cost of sales to customers. The only signicant relationship found in this set of hypotheses was with regard to hypothesis 3 that focused on the rms reputation. There was no signicant relationship found for the remaining hypotheses. The rms new product development, cost of sales to customers, and its technical competence did not reect any signicance because of the knowledge acquired from its relationship with the incubator manager. This suggests that incubator managers, who choose to focus solely on assisting entrepreneurial rms with their technology, are not providing any measurable benets to the rm. Hypothesis 3 found signicant support for the rms improvement of its reputation as a result of the interaction effect. Firms found that their reputations were enhanced by their association with the business incubator. Reputation improvement appears to be a catalyst for rms to join incubators. Further, improved reputation benets may be one of the reasons mature entrepreneurial rms choose to enter and continue to reside in an incubator environment. In fact, in the open-ended interviews conducted with rms in Finland, rms stated that it was not the services that prompted the rm to enter the incubator, it was the reputation benet gained by the rm by being a member of a particular incubator. More than one rm touted that, if youre doing IT [information technology], Innopoli is the place to be (interview by Studdard and Scillitoe (2002)). Innopoli is one of the prime incubator facilities located in Helsinki, Finland. Having an enhanced reputation has been shown in previous research to increase the market potential of a rm (Aldrich and Martinez, 2001). Firms that elicit a positive reputation from social relationships can established their rm on a solid foundation (Aldrich, 2000). Reputation enhancement, brought on by incubator association, also makes rms more attractive to venture capitalists (Shane and Stuart, 2002). Firms that lack adequate funding at the start of the venture appear more credible when associated with a business incubator. Also, rms have additional resources provided to them by their incubator association. Theoretical contributions and managerial implications This research has shown that reputation benets, often overlooked, are a signicant incentive for entrepreneurial rms to join a business incubator. Improved reputation benets signify that being in an incubators social network is a positive experience. For instance, Shane and Stuart (2002) showed that high technology rms, linked with universities, have a positive improvement on the rms development and the ability to secure external nancing. The inuence of the universitys social capital inuences the high technology rms positive development (Shane and Stuart, 2002). Psychologists have often promoted this concept using individuals who desire to be members of a certain group because of the positive benets
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received from association with the group. But, this ideology has rarely been attributed to organisational units. The managerial implication of this study is that rms often join incubators not because they require additional knowledge, but because the incubator improves or enhances the reputation of the rm. Business incubators which attempt to improve their overall reputation will accomplish two things. Initially, by improving the reputation of the incubator, helps to improve the reputation of the rm residing in that organisational structure. Subsequently, improving the rms reputation progressively leads the rm to greater productivity in the marketplace (Aldrich, 2000). Secondly, by improving its reputation, the business incubator has a better chance of survival and ultimate success. Citing a prime example, one of the incubator managers in the US was subjected to severe stress due to the need to constantly nd new rms for tenancy in the incubator (interview by Chakrabarti (2002)). In contrast, an incubator in Finland, whose enhanced reputation as a premier IT centre in, had no trouble recruiting rms for space in its building at values above the real estate market rates (interview by Studdard and Scillitoe (2002)). The increase in social capital, for the university business incubator, increased the social capital of the tenant rm ultimately contributing to the success of the rm (Shane and Stuart, 2002). Limitations of the study and directions for future research The limitations of this study lead to directions for future research. Initially, although it is a cross-cultural study, there was a limited sample of Finnish rms which participated in the sample. A separate regression analysis was run based on country distinctions to determine if any signicant cultural differences appeared as a result of the cross-cultural sample. The initial analysis revealed no signicant statistical differences due to the country of origin. Yet, the Finnish sample population was too small for adequate occurrence of any real statistical signicance. Nevertheless, from the interviews performed in the United States and Finland, there appear to be structural differences in how the incubators are run and operated in the two countries. This research examined how rms interacted with the business incubator manager with limited emphasis placed on attention paid to how the organisational structure of the incubator effects the interaction and success of the rm. Secondly, the selection of only technology incubators for inclusion in this study is viewed as a limitation. Various other incubator organisations exist not only for the development of technology but for the development of small businesses in a wide-range of industries, including the arts. The results of this research may shift with respect to other types of incubator organisation not focused entirely on technological entrepreneurial operations. Thirdly, the study only examined the interaction relationship between the incubator manager and the rm, bringing another limitation to the fore. One of the objectives of the incubator is to place the rm in a socially supportive environment. The opportunity to meet other social players other than the incubator manager helps to support the formation and development of the rm. The incubator manager is only one member of the social network. Other tenant rms, the university environment, and ultimately the community in which the rm operates, are also active participants in the incubator network. The inuence of these other three network actors may have a profound impact upon the entrepreneurial rm regardless of rm age. Therefore, future studies in this area should examine the social relationship of the other incubator tenant rms, the university environment, the local community, and effective learning practices provided by other actors in the social environment for the entrepreneurial rms growth and development.
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This research concentrated only on the acquisition of business knowledge and not its exploitation. Therefore, future research should examine whether the knowledge obtained by the rm from the incubator manager is actually utilised and its level of usage. Lastly, longevity issues are associated with this research study. Firms in this study were studied for a set period of time. The concept that the business incubator is helping the rm for long-term survival was not studied. Although rms may increase their business knowledge capacity, it does not guarantee that they will survive or grow beyond their current capacity once the incubator is exited. Those rms with increased longevity in the incubator sample, longer than 5 years, may actually have a higher demise if forced to leave the safe environment of the business incubator. In fact, if the long term tenant rms of the incubator had experienced steady growth, they would have exited the incubator environment earlier. Incubators are only set up to house small rms not larger organisations requiring vast resources. Future research should attempt to study entrepreneurial rms from birth in the incubator to their exit and survivability outside of the incubator environment. This would provide increased knowledge of the effects and success of the business incubator organization.

Interviews Jon Wilder Executive Director of the Ceramics Corridor Innovation Center Interview by Alok Chakrabarti, Painted Post. N.Y., 9 September 2002. Robert L. Ecklin Executive Vice President Corning Interview by Alok Chakrabarti, Painted Post, N.Y., 9 September 2002. Joseph A. Miller PhD Executive Vice President Chief Technology Ofcer Corning Incorporated Interview by Alok Chakrabarti, Painted Post, N.Y., 9 September 2002. Gina Boesch Director Stevens Institute of Technology Business Incubator Interview by Alok Chakrabarti, Hoboken, N.J. 12 September 2002. Stash Lisowski Director New Jersey Institute of Technology Business Incubator Interview by Alok Chakrabarti, Newark, N.J. 17 October 2002. Jyrki Saarinen Heptagon President, interview by author and Joanne Scillitoe. Helsinki Finland, 17 October 2002. Tekkes representative, interview by author, Joanne Scillitoe, & Alok Chakrabarti, Helsinki Finaland, 11 October 2002. Timo Knuuttila, Spirea representative, interview by author & Joanne Scillitoe, Helsinki Finland, 16 October 2002. Marit Tuominen, Spinno director of business development, interview by author & Joanne Scillitoe, Helsinki Finland, 21 October 2002. Antti Silanen SiltaNet Ltd. managing director, interview by author & Joanne Scillitoe Helsinki Finland, 23 October 2002. Sakari Parre, Paravant Technical Director, interview by author & Joanne Scillitoe Helsinki Finland, 17 October 2002. Paivi Ryoppy PhD Development Manager of Helsinki Science Park, Ltd, interview by author & Joanne Scillitoe Helsinki Finland, 24 October 2002. Kaj Dalin, Managing Director Tekdal Oy Ltd, interview by author & Joanne Scillitoe Helsinki Finland, 14 October 2002. Ilpo Santala, President, Innopoli Oy Ltd, interview by author & Joanne Scillitoe . Helsinki Finland, 25 October 2002. Tumas Maisala, Director Innolinko Program, interview by author & Joanne Scillitoe. Helsinki Finland, 10 October 2002.
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Stonybrook Long Island High Technology incubator manager, interview by author, Long Island, NY 2003. LeHigh University incubator manager, interview by author & Joanne Scillitoe, April 2003. Simon Balint RPI incubator manager, phone interview by author & Joanne Scillitoe, 17 June 2003. Frank Keith, Rutgers Camden Incubator manager, interview by author & Joanne Scillitoe, Camden NJ, 21 May 2003. Entrepreneurial tenant rm NJIT incubator, interview by author, Newark, NJ, 15 August 2003. Pekka Jussila, Director Hermia Business Incubator, interview by author, Tampere Finland, 8 December 2003. References
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