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WEDF 2014 session report: Spurring innovation through SME incubators

  •  Incubators

    Speakers

    • Mr. Josiah Mugambi, Executive Director, IHUB, Kenya
    • Mr. Mounir Chaouki, CEO, Connectit, Morocco (Technopark Casablanca)
    • Ms. June Lavelle, President and Chief Consultant, Lavelle & Associates, Poland
    • Mr. Ihsa Solmaz, Vice President, Small and Medium Enterprises Development Organization (KOSGEB), Turkey
    • Moderator: Mr. Peter Ndoro, Presenter, South African Broadcasting Network

    Overview

    Start-ups in different sectors, no longer only in ICT, are facilitated by dedicated entrepreneurs who inspire, gather and sometimes fund businesses in incubators.

    Panellists from African business incubators discussed strategies and benchmarks for new business incubators, as well as possibilities for cooperation among incubators in different countries.

    Conclusions

    • Build to local needs and don't expect a panacea. Incubators are part of the local network of business support services. They do not replace all aspects of SME support. They must be built right in relation to the local environment. Cookie cutter models do not work. Incubators must also provide the right set of services, which may vary widely based on level of development, settings and whether the targets are true start-ups or more mature companies.
    • Get the soft factors right. Incubators must be run in a business-like entrepreneurial way, whether the business model is fully private or public-private. They must have a customer service mentality, be revenue generating and carefully screen clients. Designers must get right the soft factors such as credibility in the local business community, facilitating meaningful networking among companies and creating a "buzz" among clients. The right leader is critical: He or she must be an entrepreneur. This is by far the most difficult and time consuming factor, especially for governments or technical assistance providers looking for quick fixes.
    • Measure results and make your management accountable. Successful incubators regularly measure and report on their performance. This includes core ROI indicators like graduation rates, investment, jobs, company survival rates; specific objectives related to their individual mandate, such as contributions to new technology brought to market; and softer outcomes such as development of networks.
    • The fundamentals will not change, but incubators must evolve. Managers must constantly evolve to meet the changes in the market and in their environment.

    Takeaways

    • The objectives of incubators differ from region to region. They may be set up purely for commercial considerations, or to achieve socio-economic objectives like women empowerment or youth entrepreneurship.
    • Success stories abound of incubators set up as communities of public institutions like tax collecting authorities, universities, SMEs and financial institutions. Cross-pollination between technical companies and financial institutions can lead to access to finance and other business service providers.
    • Graduation of beneficiaries of incubators is an important issue. Graduation from incubators set up purely for commercial considerations is quick and certain. Graduation from incubators set up with socio-economic considerations may be more difficult.
    • KOSGEB Turkey, which has extensive experience of a range of incubator models, is prepared to offer training on incubator development to African governments at no charge, in order to share its experience.

    Speakers' key messages

    • Mr. Mugambi
      It is not clear what comes first: the incubator, or the community that uses it. Community collaboration and involvement are critical. The most important metric is not events, people trained or start-ups. It is the connections that are made through the community.
    • Ms. Lavelle
      Across the three continents of her experience, entrepreneurs have one thing in common: they are independent thinkers and often do not perceive a need for services, and therefore do not pay for accounting, finance and human resources, which companies need, but do not acknowledge. These services have to be embedded in things that they will pay for, such as office space. Financing – whether public, private or mixed – drives the objectives and target companies of the incubator. He who has the gold, she said, makes the rules.
    • Mr. Chaouki
      The Moroccan eco-system for SMEs was presented through two examples. Casablanca Technopark, a full service incubator bringing together low-interest financing, technical support, and support to public services, such as tax payments and infrastructure. The value is having the services in close proximity to the SMEs.  
      The second example presented was a women’s incubator used as a model to illustrate how public SME support can help companies learn to design projects and foster entrepreneurship, key to improving performance of the public SME support infrastructure.
    • Mr. Solmaz
      Incubators in Turkey range from large technology parks with more mature companies, to programmes for recent graduates to give them business support. Incubators are not a panacea, but are a good place to start. They can bring other actors to help innovate, such as universities. KOSGEB is prepared to share its experience with African companies free of charge.
      Incubators should be inspired by what is going on around them in the economy. For instance, a technology hub can bring together surrounding agri-businesses to create innovative solutions in rural areas.

    Discussion

    The audience asked about how to structure the graduation process for companies. The panel said it was critical to avoid creating dependent companies. Failure is part of entrepreneurship. Not all companies succeed. The panel spoke of ways to promote graduation, such as raising prices for services to the market rate.

    The selection process for incubated companies depends on the sector, the objectives and the maturity of the incubator. For instance, a new incubator may be less selective. One model is to make selection competitive. 

    Local incubators might not be ideal to create international companies. That said, an incubator can be designed to focus on issues directly related to export markets.

    Many ideas being incubated do not make any business sense, noted a participant from Uganda.

    The audience explored the danger of public models that breed dependency, while private models focus on return on capital. No one model is a perfect fit.

    The audience also pointed out some good models in East Africa. 

    Unreasonable East Africa has incubated 12 businesses in 2014 and they have all succeeded. Jon Sever of The Office in Kigali introduced the model they have used to reach tremendous growth. Their success has been due to promoting real cross-pollination and being very careful to accept financing only when it serves the community.

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