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Campus Ecosystems: Introduction

1.1  Aims and Objectives

This project is with High Tech Campus Eindhoven (HTC), an R&D ecosystem of more than 90 companies and institutes and more than 8,000 researchers, developers and entrepreneurs, who together are working on developing the technologies and products of tomorrow. The focus of HTC is to provide a free exchange of information for the campus companies

The HTC management responsible for management of the campus wants to enhance the campus ecosystem.
Against this background, HTC management is interested in an analysis conducted on Plug and Play Tech Center (PPTC) located in Silicon Valley.   Thus, the objective of this project is to do an in-depth analysis of PPTC, determine whether that model translates to the European ecosystem, and make appropriate recommendations to HTC management.

1.2  Project Background: Incubator Basics

Business incubators are designed to provide a sheltered space for start-up or small businesses to develop and grow their businesses.  Incubators can be primarily funded by government, by universities, or as a for-profit business. Strong ties with an academic institution can benefit both the university and the incubator and its ventures by providing the university with much-needed cash flow while providing new ventures with technological expertise (Adams, 2005).

New businesses undergo several phases of development.  The start-up phase is characterized by the need to generate a seed innovation by working with experts, while at the same time protecting the intellectual property of the innovation from competitors.  This is also the time to achieve critical buy-in  by significant customers, suppliers, and whatever other channels are essential to the venture’s success.  During an expansion phase, the market for the product is expanded to a larger arena, and relationships with suppliers and partners to maximize the market penetration (Moore, 1993).  Incubators typically address these first two phases of business development with later phases of developing market leadership typically coming after the venture has left the incubator’s shelter.

Key elements of successful incubators include that they support and maintain the fundamental entrepreneurship of small businesses. This is typically done by ensuring that the start-up founders retain a controlling interest in the company; generally as much as 60% to 70%  of equity stays with the founders (Hansen et al., 2000).  Also, a quality incubator will shelter the start-up companies from the impediments that can hold back start-ups from taking risks because of bureaucratic, organizational, and strategic restrictions (Hansen et al., 2000).

Another aspect of a good incubator that makes them successful is that they can negotiate preferred rates for the start-up companies for basic business services, enabling these small ventures to get large-scale discounts by participating in the incubator’s group scale-up (Hansen, et al., 2000).  This is not only a savings in dollars, but a savings in the time and effort it would have taken the ventures to individually locate and negotiate their deals (Hansen, et al., 2000).

Perhaps the most important characteristic of a successful incubator, however, is that it provides networking opportunities among other start-up ventures.

Hansen, et al. (2000) insists that this networking characteristic is, in fact, the distinguishing factor between an marginal incubator and an excellent one.  These networking opportunities have a wide variety of influences on the start-up companies. Since most incubators focus on companies within a specific industry or set of industries, one source of networking is the ability of one venture’s management to exchange business knowledge from others in similar fields.  But another very important type of networking arises when a start-up needs to establish a Board of Directors; by having access to the management of the other companies in the incubator’s portfolio, managers of companies which are farther ahead in the development stage, a start-up can populate their Board with knowledgeable, experienced people who can provide excellent advice and direction (Hansen et al., 2000).

1.2.1  Incubator Advantages for Sponsoring Corporations

Because incubators can provide a protected, enriched environment for a high-tech start-up, these critical functions go beyond the simple functions of providing office space and administrative support. The benefits for the sponsoring corporations who establish functional incubators can also stretch beyond the financial profits of the start-ups.  For example, Trilogy Software uses its software incubator to discover entrepreneurs who might develop businesses which contribute to Trilogy’s market development, and also provides a framework to retain access to employees who have entrepreneurial aspirations (Hansen, et al., 2000).

1.2.2  Incubator Pitfalls for Sponsoring Corporations

While such corporate-sponsored incubators have  benefits for all concerned, they also have potential negative aspects.   One of those is the danger that the incubator can overly restrict the sponsored start-up ventures by imposing rules or red tape, by taking too large an equity share, or by providing networking that is more superficial than real.  One strategy to address these, is for incubators to ensure that they invest in linked ventures creating a synergy across the ventures.  At the same time, it is important that the focus of the incubator be carefully defined and not too broadly based (Hansen, et al., 2000). 

More than this, however, it is also important that the incubator be established in such a manner as to provide genuine networking opportunities rather than token ones.  Specific strategies to achieve successful networking include to create a set of external specialist advisors with strong links to the  incubator, perhaps by giving them seats on an advisory board, for example. These might include specialists in marketing, legal issues, technology experts, or other appropriate specialists relevant to the incubator’s area of specialty. Alternatively, or in addition, experts from outside the incubator can be brought onto the incubator’s campus to make them highly accessible to the start-up ventures (Hansen, et al., 2000). 

A second strategy for improving networking is to have specific processes in place to ensure that information flows among the start-ups. Encouraging new ventures to place management from other start-ups on their boards can work, for example.  A third strategy is to develop some kind of financial incentive for companies to participate in information exchange.  Finally, incubators can assign an experienced development manager to each startup whose job it is to provide management coaching and to identify and manage networking opportunities for the start-up (Hansen, et al., 2000).

Clearly there is a fine line on any of these strategies that must be attended to.  While the start-up ventures need to have a rich palette of networking opportunities, those incubator-generated networking must not become enforced to the extent they are restrictive, or burdensome to the ventures.  As with everything too much can be as painful as too little.