A group of researchers from the US, Canada and France (IÉSEG) have published a paper which looks at the impact of business incubation to new business ventures across different regional environments. The paper, “Organizational sponsorship and the economics of place: How regional urbanization and localization shape incubator outcomes” by Alejandro Amezcua (Syracuse University), Tiago Ratinho (IÉSEG School of Management), Larry Plummer (Western University), and Parvathi Jayamohan (Salem State University) was recently published (online) in the Journal of Business Venturing. This study makes use of the National Census of Business Incubators – a comprehensive database of the population of US based business incubators, their correspondent incubated companies, and a group of comparable non-incubated startups. We spoke to one of the co-authors, Professor Tiago Ratinho from IÉSEG about the findings of the research and the practical implications.
Business incubators are a ubiquitous and well-documented resource for helping entrepreneurs’ to succeed. However, few studies make use of such extensive data sources to provide conclusive results about their effectiveness for new business ventures. Departing from Alejandro Amezcua’s National Census of Business Incubators which contains data on all US-based incubators in the period 1991-2007, we combined insights from urban geography to explore how business incubation outcomes are shaped by location. The richness of the database strengthens the findings and legitimizes the research’s conclusions.
First and foremost, we find overall that incubated firms survive longer than “non-incubated firms”. However, we found that geographical factors like the level of urbanization and industry concentration, can impact this ‘advantage’. Our results show that incubated firms increase their longevity in three different regional configurations: a) urban locations where the incubated firm’s industry is already prominent; b) in rural locations; or c) in locations where the incubated firm’s industry is novel and not well established.
There are several mechanisms that can explain these results. In urban locations where the incubated firm’s industry is already prominent, incubators can curate access to specialized resources by helping firms navigate through the abundance of opportunities in their city. Incubated firms in urban areas can face a ‘congestion’ challenge – a multitude of generic and industry-specific resources, suppliers, labor, and customers that reside in urban locations. In urban areas, therefore, business incubators can be valuable in helping start-ups to get the best and most appropriate resources quickly. In contrast, in rural areas, incubators supplement the relative lack of local resources by providing incubated firms with more general business knowledge and resources, which are not necessarily available locally. Similarly, in areas without an industry specialization, incubators compensate the rarity of industry-specific resources by connecting start-up to those resources either locally or remotely.
The findings reveal important implications for regional economic development policy. Business incubators are an important vehicle for economic prosperity if designed and operated in harmony with the local economic conditions that incubated firms inevitably experience. For incubator managers, our results expose which incubation mechanisms are more beneficial to start-ups in each regional environment. Finally, entrepreneurs who are looking to join incubators should make sure that the most beneficial mechanisms in their candidate incubators are available and deployed competently.