Incubators and performance: A comparison of high- and low-growth high-tech firms

Abstract

This research compares the characteristics of the incubator organization(s) (that organization where the entrepreneur was employed before leaving to start the new venture) of two groups of firms operating in the same industry, but with markedly different rates of growth. That some new firms in an industry would grow more rapidly than other new firms in that industry is to be expected. But do the incubators of very-high-growth firms differ systematically from those of very-low-growth firms? Previous research in the field of entrepreneurship has identified the incubator organization as a potential influence on performance of new firms, but that research has been largely descriptive in nature. No previous attempt has been made to empirically relate the characteristics of these incubators to subsequent performance of the firms in terms of systematic differences or similarities in the incubative origins of the firms. Four hypotheses are tested to determine whether differences exist between high- and low-growth firms along three incubator dimensions. These dimensions include the size (both in sales revenues and number of employees) of the incubator, whether or not the new firm is closely related to the markets and core technology of the incubator, and whether or not the incubator was a publicly or privately held profit-seeking firm or a university or other not-for-profit organization. Questionnaires were sent to 39 very-high-growth firms identified in Inc.'s listing of fastest growing firms and to a “matched set” of 39 low-growth firms. All firms competed in SIC 3573, the electronic computing equipment industry. Data were analyzed using cross-tabs and chi-square statistics. The results disclose a profile of high-growth founders and their incubator organizations that differs systematically from their low-growth counterparts in the following ways: 1. A greater proportion of the founders of high-growth firms compete in markets and/or technologies that are closely related to those of their incubators than do low-growth firms. 2. A greater proportion of founders of high-growth firms are from large (measured both in sales revenues and number of employees) incubators than are founders of low-growth firms. 3. Founders of high-growth firms tended to come from publicly held incubators. Privately held firms “incubated” twice as many founders of low-growth firms as founders of high-growth firms. Nearly four times as many high-growth founders “incubated” in publicly held firms than in privately held firms. There appears to be no difference between the proportion of founders of high- and low-growth firms who moved from the proximity of their incubator organization to found their new venture. In both cases, founders tended not to relocate when starting the new firm. For the practitioner considering founding a high tech firm, chances of success appear to be enhanced by experience in a large publicly held firm whose products/technologies are closely related to those contemplated for the new venture. Of the 108 founders responding in this research, only one left a university or other not-for-profit organization to start a new venture. This suggests, at least for the computer industry, that further advances in technology and/or the development of new products have shifted away from the university research center sector into the private sector. While the basic research may occur in the university research setting, the transformation of the results of that research into commercially viable, competitive-edge products is apparently driven by the profit-seeking sector. The characteristics of the incubators that spawn new ventures are therefore likely to reflect the stage of development of the core technology of the industry under consideration.