The benefits of self-sustaining business incubation

Abstract

Small to medium enterprises (SMEs) are key contributors to economic growth, and business incubation is widely acknowledged as a mechanism for improving the survivorship and growth of newly formed SMEs. Persistently poor performance over recent years by the SME sector has, however, drawn into question whether prevailing models of business incubation continue to be effective in creating a fertile entrepreneurship-enablement environment. The predominantly non-profit orientated nature of business incubators may have become out of tune with the principles of commercial viability that they preach, and a change towards more self-sustaining business incubation may be required. A qualitative research study was carried out with decision makers in the incubation environment, using a questionnaire that elicited indicators of self-sustainability, internal and external challenges, funding sources and challenges relating to the distribution of institutional funding. This research found that profit and non-profit business incubators alike are evolving their business models to incorporate revenue-generating activities as a means to minimise the volatility of institutional sources of funding. The ineffective distribution of institutional funding and the ever-changing policies that govern funding allocations are also necessitating higher levels of self-sustainability among incubators. A model was derived to explain the interplay between different categories of business incubation and the changing role and benefits of self-sustainability across these categories.