The Symbiotic Relationship Between Entrepreneurship and Higher Education - Coursework Example

The Business Incubator and the Community College: The Symbiotic Relationship Between Entrepreneurship and Higher Education Small business incubation is something that is a relatively new concept with regards to economic development. However, the results of many small business incubators around the United States have proven it to be a highly effective technique which can lower the entry price for many would-be entrepreneurs while at the same time promoting a spirit of entrepreneurism in the community. Another tangential benefit is that even though the two previous factors mentioned are net positives for the individual and for the community, a business incubator can also be a financially sound decision for the hosting party as well. Since the space will need to be leased/rented from the appropriate entity during the period of time that the start-up requires their facilities, the community college can extract a profit from this enterprise while at the same time providing a positive benefit to the society at large. As such, this paper will discuss the benefits and drawbacks of utilizing empty space available at the local community college campus for the purpose of a business incubator. The traditional understanding of a business incubator is a particular form of business assistance in that it provides entrepreneurs with a range of “in house” services. These typically range from administrative, consulting, and/or networking/IT. In this way, big ideas can start out small. When an entrepreneur has an idea, it is rarely the case that he has the capital to find a suitable site to buy or lease as well as hire the requisite skills that he/she will need represented in order to produce/sell the product. As such, a great many fantastic ideas are not developed due to the high cost of entry that oftentimes exists as it relates to the cost of capitalizing on an idea and taking it from drawing board to the market. Additionally, as entrepreneurs are unable to afford to hire the aforementioned skills as well as produce/provide the given product or service, business incubators fill this void. By having a staff of service professionals that specialize in filling these gaps in expertise that small firms lack, the incubator allows small start-ups the necessary jump start they require to survive the tumultuous and trying first and sometimes second and/or third year of business. Therefore, much more than just an empty shell in which entrepreneurs can rent space to produce their product or refine their service, the incubator acts as a one stop shop for administrative support, IT needs, and consulting. It is therefore an added bonus if the incubator can be located on or very near or in collaboration with a local college, university, or technical school as the skills that will be required and sought after by the respective business owners will be in supply and at suitable rates to the entrepreneurs who require their services. In this way, providing a labor supply to fit the possible and required needs of the start-up works to create a symbiotic environment in which business and education can both survive and thrive. The benefits of the business incubator however extend far beyond providing an amenable site for entrepreneurs to turn their ideas into actuality. The fact of the matter is that corporate downsizing and the slow and methodical death of American industry and production has led to a great deal of out of work individuals with the time to put many of their dreams into reality. However, as previously mentioned, the road blocks that exist towards successful market entry are many. Likewise, navigating the legal issues as well as striking into the market at the same time can be dizzying to the would-be entrepreneur. Accordingly, in the 1960’s business incubators began to be practiced as a way to increase the mortality rate of firms that were interested in entering in to the marketplace. Doubtless everyone has heard the depressing statistic that only 1 in 5 small businesses survive the first 3 years in the marketplace. As such, incubators were originally designed to facilitate this process and provide a much higher mortality rate to firms. The results were astounding; the Los Angeles Business Journal reported that 87% of the start-ups that utilized the incubator remained in business 5 years later. This statistic alone is but one form of proof that incubators greatly improve the likelihood that an incubator will both benefit the entrepreneur and help to greatly enhance the likelihood that the firm started by said entrepreneur will have a high likelihood of success during the most tumultuous and trying first few years of operation. As previously mentioned, the impact of layoffs and the decline of American industrial production provided a great many individuals with unique skills that the economy no longer required. However, due to the fact that the business incubators of the 1980’s and 1990’s, a great many of these individuals were able to refine their expertise and engineer, design, and produce products for consumption by the economy. In this way, the business incubators provided a powerful tool to blunt the trauma that layoffs and the decline of the US economy with respect to industrial manufacturing had affected. As such, the next portion of this analysis will weigh a few of the many benefits that business incubators offer not only to the entrepreneur but to the community at large. Although it has been touched on previously, the fact remains that the single most important ingredient with respect to the success level that entrepreneurs that engage in a symbiotic relationship with a business incubator is the shared operating cost. This can further and more appropriately be understood in terms of economies of scale. Due to the fact that a combined resource pool is created, there is not useless duplication required on the part of the entrepreneur. This increase in efficiency allows the business to concentrate a greater percentage of its resources on further developing the product or service. As touched upon, basic administrative services are oftentimes provided as part of the agreement. As an example, it is unlikely that a small startup will require the services of a full time secretary, IT member, or consultant. In this way, the costs of these services are shared by the respective participants of the incubator. Although the purpose of the incubator is to allow the entrepreneur to develop and capitalize on his/her idea, it is not a offer that is available to the firm in perpetuity. What is meant by this is that although the incubator is uniquely interested in developing the profitability of the individual entrepreneur’s idea, there comes a point where the entrepreneur and his firm must take the steps to strike out on their own from underneath the comfortable and protective wing of the incubator. There is no set time for this to take place; however, a great many incubators around the country insist that an individual entrepreneur can only use the services of the incubator for a period of no longer than 3 years time. Oftentimes, the lease arrangements are set up with a 2 year lease with the possibility of adding a 1 year to the terms. An additional benefit to an incubator co-locating with a center of higher learning is the skill and expertise that the higher learning institution can provide the entrepreneur with relation to locating and utilizing federal grants and capital. Although it is not necessary for the center of higher learning to provide grants/loans or any other form of money to the entrepreneurs, special liaisons between the university/community colleges can counsel and provide financial consulting services as a way to further increase the profit margin of the university/community college with relation to the incubator. Due to the subject matter expertise that professors, accountants, and financial specialists already employed with the school already possess, it is oftentimes a pity to let that talent sit idle with respect to being able to contract it out at reasonable rates to entrepreneurs that cannot be troubled with pouring over the tens of thousands of legal paperwork and federal documentation that is part and parcel of the grant application process. Furthermore, subject matter experts (oftentimes professors) can reach out to offer seminars and specialized guidance to the start ups based on the individual skills they possess. Further, the incubators can have the additional advantage of raising the legitimacy of the entrepreneur within the community as the entrepreneur and his/her venture is viewed within the framework of the quality and high standards that the university/community college/higher learning institute brings to the community. Therefore, prospective vendors, clients, suppliers, and customers will necessarily view the firm with a higher estimation as they will attribute the entrepreneur and his/her venture with that of the university/community college. In this way, one contributor said that entrepreneurs associated with a university/community college as part of an incubator agreement have “already passed an important litmus test” with respect to how they are perceived, understood, and recognized in the community and by key shareholders. Another successful attribute of incubators is that they work in much the same way regardless of the particular community they are attempting to operate in and regardless of the type of business they are attempting to attract. Obviously, there are steps that can be taken in order to hone a particular incubator so that it speaks to a specific need; however, the fact that they can be universally applied to almost every type of venture is another strong advantage that incubators share in that they are able to speak to the needs of the community in multiple ways without the necessity to retool and refit their existing facilities in order to meet diverse and divergent needs. Another additional benefit that incubators provide to the community is the sense of comradely and friendship that oftentimes develops between entrepreneurs who work and share the same space at the incubator. This is a unique benefit in that business owners that otherwise would have little to no interaction are placed in a setting in which they interact and form friendships on a daily basis. In this way, a multitude of different types of differentiated businesses can work together in order to further develop, sometimes collaborate, their respective products to allow a form of product evolution that otherwise would not exist. In this way, the development of products and the lasting friendships that are formed in the communities help to instill an aura of innovation and development that is unseen in other types of firms and endeavors. Oftentimes as a result of the process of business incubation, firms can unite in order to form a more differentiated product or work together after the incubation project as a result of the friendships forged during the incubation period. In this way, a synergy is created in the business world between business owners who have developed close and operational ties with a host of other business owners. This synergy can be used to combine marketing campaigns, achieve a lower price from business suppliers by combining orders with their partners, and using the leverage and friendships they have created to lobby local firms and/or government to create a more business friendly atmosphere in their respective regions. Oftentimes, the power of firms to work together is minimized as it is assumed that self-interest will always trump cooperation. Though this may be true, it should be carefully noted that the business incubator provides such a unique environment in which entrepreneurs experience the hardships and growing pains as a shared experience. In this way, the camaraderie between them is infinitely stronger than for firms that grew outside of the incubator. Furthermore, this camaraderie has a direct and noticeable effect on the respective firms as they progress outside of the business incubator and branch into the marketplace. It is important to note that although incubators can be a financial benefit to the sponsoring entity, the effect that they can have to redevelop, retool, and differentiate the talent pools and workforce that exists within a given area is also vast. For instance, be developing and kindling a spirit of entrepreneurship as well as the development of new and fresh ideas, the secondary needs that this undoubtedly grows relates to pride of home-grown business, need for additional workforce to produce the product or offer the service developed, and generation of tangential business opportunities in and around the targeted area. In this way, the local business incubator can tie back into the sponsoring entity as it can further the research opportunities and technology driven sectors of the higher education entity that originally sponsored the incubating efforts on a large scale. As mentioned previously, the needs for labor and skilled expertise for the incubator is a synergistic need that can benefit both needs of the entrepreneurs as well as the needs of students at the universities/community colleges that are looking to enhance their resumes by participating in a diverse array of hands-on, real world internships at the hands of the many firms/entrepreneurs that exist within the incubator. In this way, the incubator can provide an extremely powerful tool that can tie back into the training and educational mechanisms that are provided by the institution in question. This is just one example of the multiple levels of synergistic cooperation that can exist between a community college/university’s incubator and the students that are working to train themselves for a more successful career and more successful life. Perhaps one of the final and hereto neglected benefits that business incubators provide is a level playing field and decreased cost of entry to many would-be business start ups. In this way the incubator allows for otherwise timid entrepreneurs with very limited financial reserves to test the water of business start up without the necessity for these individuals to mortgage their homes and invest their life savings just to reach the point that they could reach in the first few months of utilizing the services and opportunities offered by the business incubator. In this way, the entrepreneur’s ventures are not solely a function of their access to raw capital in order to kick start their venture. Although the business incubator does not provide this service for free, the very nature of the way in which it operates serves to decrease cost and increase efficiency for all partners involved. By successfully removing many of the impediments and fears of business start up, a tangential benefit is that the business man/woman is able to more freely engage in the day to day affairs of running the business and seeking the enhance the product or service offered/increase profit share/expand into further markets without perennially being concerned as to whether the high expenses of firm operation will drown the business prior to it being able to provide the owner(s) with a reasonable return on investment. Without question, one of the most stressful aspects of managing a small firm as an entrepreneur is the sheer weight of all the pressure that one must contend with. Invariably cash flow issues are still working themselves out as the owner is at attempting to balance expansion with product development, marketing with customer service and an array of other issues. Due to this fact, staff are often not hired and further pressure is placed on the entrepreneur as he/she is trying to perform a host of tasks at one time as a way to save money until the business is established and the cash flow issues have been resolved. Due to this fact, from the entrepreneur’s perspective, the business incubator provides a massively appreciated respite from many of these concerns as an array of benefits and low-cost business services are available to him/her. Now that the many benefits of business incubation have been discussed, the most salient question that remains is the level to which incubation works and the degree that this success can be measured. Therefore, before any entity fully commits to sponsoring such a joint endeavor, they would be particularly interested in some of the measurable metrics and statistics that go along with business incubation. As one might expect, the success of the firms associated with business incubation is much higher than those that are not; however, this is not to imply that incubation endeavors have anywhere near a 100% success rate. Although it would be nice to claim perfection, the reality of how the business world operates leaves the percentage much lower than perfection. However, combined with the previous information provided that only around 20% of all business start ups, outside of an incubator, will survive their first year, the statistic that cover those businesses developed within an incubator range everywhere from 67% to nearly 90% (Schaefer, 2011 p. 1). These statistics alone are surprising and powerful considering the many constraints to new business entry that exist within the current market situation. Up until this point, this analysis has focused nearly exclusively on the many benefits that a business incubator offers to the different parties involved. However, any full and complete analysis would be remiss if it did not analyze the shortcomings of the incubation process as well. Oftentimes, business incubation can be a very expensive endeavor to set up. Although the situation provided in the example is one in which an empty shell already exists for the incubation project to take place, there are a host of other expenses that must be considered and oftentimes will not be recouped within the first few years of operation. These include but are not limited to creation of a parking area, purchase of insurance, installation of any and all equipment necessary for business performance, ensuring that the premises of the shell building applies to all requisite fire codes, unfitting and furnishing the shell to resemble a professional workplace environment etc. Although these expenses are much defrayed by the “rent” that the entrepreneurs will be charged as well as the fact that the building already exists and does not need to be built, they are nonetheless present an obstacle to merely turning on the lights and inviting entrepreneurs in to engage in business on premises. Furthermore, one author described businesses as resembling children – cute when small but can get ugly very quickly once they mature. For instance, the community may be thrilled to have given rise to a successful small business but may not be thrilled when that small business has achieved a level of success as the result of the efforts of the incubator requests that the taxpayers of the community pay for abatements, tax breaks, and a host of other considerations in order for the business to remain located in the community. However, this specific drawback is not the result of incubation efforts but the current nature of the business cycle as it exists currently within the United States. A further potential weakness of a business incubation program is that certain incubation programs measure their graduation rates by time in program. Although this is one way to manage the space and determine what entrepreneurs are allowed to occupy what space and for how long, a superior model would be to have each of the startups gauged and measured with regards to staff levels, revenues generated, and product produced. Although the purpose of the incubation program is to allow entrepreneurs and their ideas the necessary period and amount of time to flourish, this can, and is oftentimes, abused by startups that remain within the incubator breaking even for a period of two or three years satisfied with the fact that a salary is being generated and bills are being paid without the motivation to take the business to the next level. This would not otherwise be a problem except for the fact that a long line of good ideas are figuratively waiting in the cold while these free riders continue to enjoy the benefits of decreased rent, low cost inters, and services that are provided by the business incubator. Figure 1.0 adequately details the steps that exist in a successful and synergistic business incubation process. Figure 1.0 In this example it is easy to note that each of the services that the incubator provides is geared towards providing a “step up” experience in which the entrepreneurial endeavor is geared up and developed as a direct result of the progressive layers of support and development that is offered. Further, it should be specifically noted that the “review board” as noted in the depiction above plays an integral part of surveying and analyzing the outputs of the respective entrepreneurial endeavors at each and every step of the process. This is done to guide and direct each entrepreneur towards the ultimate goal of creating a successful venture and graduating from the incubation program so that another entrepreneur can utilize the services and help of the incubation program to develop their own unique product or service to the community. It is important to note the role that the Review Board plays in the incubation process is of dire importance in order for the incubator to provide both a nurturing and realistic environment with which to encourage, help, and direct the entrepreneurial endeavors of the respective members of the incubation process. Without a gifted review board and the ability to steer, guide, and direct the efforts of the incubation process, the process itself will not be very much different from a simple landlord/tenant arrangement in which the landlord also provides basic business support functions to the client. In this way, the integral role that the Review Board plays with regards to molding and steering the process helps to define the very root of what a successful business incubation effort entails. The commitment to engage in a business incubation process is one that must be taken seriously. Many groups both public and private have ventured into creating business incubators for many of the wrong reasons and without a clear and complete picture of what the finished product might look like or the implications of the level of support that is needed to fund and maintain such an effort in the beginning stages. Conversely, the rewards to the business community, the students involved, entrepreneurs, and the community at large are manifold. As such, a business incubator is one of the few ways in which collaboration and cooperation among entrepreneurs and future business owners can be effected by means of an outside entity (in this case the community college/university that is providing the incubating mechanism. However, from the many examples covered in this brief analysis, one can see the overwhelming weight of the evidence supports creation of further business incubation centers. From the perspective of business generation, wealth creation, job creation, college/university differentiation and development, student internship opportunities, community growth and improvement, entrepreneur camaraderie, and perhaps most importantly of all, a vastly increased chance that the business will continue to grow and thrive in the future, the idea is a resounding success. Consequently, it is the view of this author that within reason and the financial ability of the given sponsoring institution/community college, that the opportunity to engage in a business incubation project is an important step towards further recognition within the community as well as a rare opportunity to provide a maximal amount of benefit, both to the college, community, and entrepreneurs, at a very minimal cost. Work Cited Schaefer, Patricia. "The Seven Pitfalls of Business Failureand How to Avoid Them." Why Small Businesses Fail: Top 7 Reasons Startups Fail and How to Avoid Failure. Business Know How, 5 Nov. 2011. Web. 04 Oct. 2012. . Work Consulted Kendrick, Tom. Results without authority: controlling a project when the team doesn't report to you. New York: AMACOM, 2006. Read More