Exploratory research of Dutch technology incubators : examination of the factors defining successful incubation of technology start-ups and how they relate to entrepreneur’s expectations?

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Vrije University Amsterdam and University of Amsterdam

MSc Entrepreneurship Master Thesis

Exploratory research of Dutch technology incubators: examination of the

factors defining successful incubation of technology start-ups and how they

relate to entrepreneur’s expectations?

Name: Martin Dostal

Student number: 11085223

Date of submission: 27.7.2016

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Executive Summary

Many researches are dealing with the impacts of incubation programs on incubated start-ups; however, limited attempt has been made to define and analyse factors that lead to successful incubation of technology start-ups within high-tech incubators. The aim of this thesis is to clearly outline elements and aspects that majorly contribute to a successful incubation of given firm and, at the same time, provide practical implications for researched incubators. The empirical data is collected through nine semi-structured interviews with entrepreneurs who experienced incubation program of three technology incubators: Yes!Delft, BTC Twente and Ace Venture Lab. The theoretical framework is based on existing academic literature out of which three core assumptions that guide the research are deduced: access to financing, customer acquisition and access to skilled workforce, out of which, according to the findings only the last two can be fully supported.

Firstly, researched tech incubators are generally perceived as ineffective in the acquisition of funding. Although their tenants acknowledge the importance of funding, majority of them did not use the opportunity to exploit incubators’ network of investors. Secondly, despite having insufficient networks that would directly help their tenants to acquire new customers, incubators offer business education, which is perceived by their tenants as crucial because it helps them to attract new clients independently. Lastly, the connection of the incubator with the university is highly valued by interviewed entrepreneurs. They are able to exploit technical facilities of affiliated institutions and at the same time they are able to attract skilled and technically experienced workforce.

Therefore, the success factors outlined from the discussion section are: 1. Connection with the university; 2. Business support; 3. Access to funding.

Even though all incubators offer these services to some extent, their practical execution is imperfect and could be improved; thus, set of practical recommendations was created.

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List of Figures and Tables

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Preface

I would like to express my eternal gratitude to my friends and family, who despite my objections, supported me throughout the process of thesis. I would also like thank to all the strange and fascinating people who embraced me in the beautiful city of Amsterdam and adopted me as their own. Lastly, I must share my thanks with our saviour, the lord Jesus Christ, who, with his everlasting grace, showed me the courage to get to the end of this challenging and beautiful academic journey.

Another person I would like to express my gratitude to is my supervisor, Mirjam Leloux. She skilfully guided me through the process and when I was not sure about the direction of my thesis she got me back on track and made me focus on the important stuff.

Lastly, I would like to thank to all the interviewed entrepreneurs. Their willingness to help and to provide me with their unique experiences was amazing and I am very grateful for it. The interviews often turned into casual and very interesting conversations and for that I also share my thanks!

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1. Introduction

1.1. Background and motivation

“Luck is what happens when preparation meets opportunity.”

Seneca

Entrepreneurship is a driving force of local economic development (Murray, 2001). As such, it is an emerging area of focus among politicians, academics and general public (Gartner, 1990). Considering the declining, weak, and pessimistically viewed condition of post 2008 European economy, Entrepreneurship is considered a tool that could boost and revive stagnating local economies, which eventually lead to the development and exploration of programs that would nurture aspiring entrepreneurs (Wiggins and Gibson, 2003).

Emerging enterprises face many challenges, such as undercapitalisation, poor management or competition, which may cause venture failure (Verma, 2004). In the Netherlands, over 6000 new enterprises went bankrupt in 2015 according to the Chamber of Commerce (2015). In order to increase the chances of succeeding and reduce potential challenges, Dutch government has developed institutions such as incubators, accelerators and science parks through which they support and nourish entrepreneurship. Incubator is defined as a ‘catalyst tool for economic development which provides entrepreneurs with a range of business resources and services’ (NBIA, 2007). First incubators emerged in the United States in the late 50s-early 60s and since then they have spread out to the rest of the world. In the Netherlands there were 57 business incubators in 2015, which in comparison to 850 incubators in the United States is more, considering the ration of incubator per capita (Dutch Incubation Association, 2015; Wiggins and Gibson, 2003). Furthermore, Dutch incubation scene has, according to Salido et al. (2013), the highest entrepreneurial activity in the European Union. With its 10% of the adult population being active in some sort of entrepreneurial endeavour it surpasses other European pro-entrepreneurship countries such as the United Kingdom (9%), Germany (5%) or Sweden (6%). On more recent note, in 2016 Amsterdam has been ranked as the third most popular start-up location in Europe with Berlin being the first and London the second (Thannhuber et al. 2016). On top of that, Dutch start-up population has grown by 31% since 2015, which is significantly higher than comparable countries such as the UK (17%) or Germany (11%). Altogether it means that the idea of incubation in Europe and in the Netherlands in particular is not entirely new; however, its renaissance started in early 90s and as a field it experiences immense growth since then (Allen and McCluskey, 1990; Barrow, 2001; Bergek and Norrman, 2008; Lalkaka and Bishop, 1996).

Incubators did not become just a useful tool for government bodies to support entrepreneurship, they also became a tool to interconnect universities and private investors (Hoffman and Radojvich-Kelley, 2012). Technology based universities in particular benefit from the growth of entrepreneurship and incubators. As they are actively involved in various types of technology research that requires public

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but also commercial funding, they are a suitable place for an incubator that connects commercial and public sphere (Fini, Grimaldi, and Sobrero, 2009; Lalkala, 1996; Siegel, Veugelers, and Wright, 2007). It is apparent that universities, incubators and entrepreneurship are interconnecting themes that, with the growth of entrepreneurship in the Netherlands, became hot issues in the eyes of researchers and practitioners, which along with following gap in the literature, was the motivation for this research.

1.2. Problem statement and research outline

Due to the growing phenomena of entrepreneurship and business incubation, academic researchers have explored this field in depth over the past decade (Dempwolf et al. 2014). The general impact of incubators on their clients, local economies and/or stakeholders has been researched thoroughly; however, the incubation process of technology incubators in relation to its impact on the survival, growth, market readiness and technology development of its clients is covered insufficiently. Moreover, the success of an incubation program is vaguely defined and is measured based on criteria that is developed individually by each incubator. Limited attempt has been made yet to explore the factors that would be leading to successful incubation of technological ventures. This thesis captures this gap in academic research.

According to Studdard (2006) and Arlotto et al. (2011), one of the suitable approaches to determine the effectiveness of an incubator would be to evaluate and assess the success of its incubates. Considering the limited amount of research in this field the research should be of exploratory character. That would enable the researcher to understand existing connections and dig deeply into the area of high tech incubation. Therefore, to determine the success factors of tech incubators, existing literature is widely explored and based on that there are investigated which core areas have to be selected and explored through further qualitative research. In other words, based on the literature the researcher creates assumptions that are consequently investigated through incubated start-ups. Building on that the researcher attempts to create conclusions that would determine the success factors of researched incubators.

1.3. Research Question

‘Exploratory research of Dutch technology incubators: exploration of the factors that define successful incubation of technology start-ups and how they relate to entrepreneur’s expectation?’

To capture the gap in the academic research outlined above, the aim of this research is to bring clarity in the field of technology incubation by exploring factors that are leading to successful incubation of technology start-ups in Dutch technology incubators. According to the existing literature, entrepreneur’s expectations of the services offered by incubators are, to a certain degree, mismatched from the actually received and consumed services; therefore, it is theoretically and practically relevant to evaluate if incubates’ expectations are in line with the offerings of respective incubators. Furthermore, it is aimed to explore the relation of ‘theory and practice’ by following theoretically

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developed assumptions in the research design. On top of that, it is intended to determine impacts of incubation programs on their tenants and then to conduct a cross-analysis of comparable institutions and the literature. This way it is possible to add new theoretical concepts on to the current literature and to create practical recommendations that would offer the incubator’s managers benchmark implications to sustain or improve their services.

1.3.1. Objectives

- Understand the relation of an incubator and its clients and outline factors defining the successful incubation

- Investigate the offerings of Dutch high-tech incubators and compare them to the expectations of their clients

- Explore strong and weak aspects of individual incubators and develop practical recommendations that would improve their functionality

1.4. Structure

In order to introduce the topic, provide relevant background and overview existing academic literature, this paper starts with the classification of existing incubators. Further on, the literature explores basic offerings of technology incubators. Selected incubators for this research are publicly operating institutions that collaborate with Dutch technology universities. These organisations also share similarities in terms of their focus, organisational structure, offerings, goals and objectives. Next section elaborates on the methodological tools used in this research. As it is an exploratory study, qualitative approach including semi-structured interviews was chosen as an appropriate way to reach the results (Zikmund et al., 2013). Coding strategy as well as existing methodological limitations are presented. Following section presents the results of 9 interviews that were conducted with entrepreneurs from three incubators: Yes!Delft, Ace Venture Lab and BTC Twente. The structure of the results section reflects the previously outlined assumptions, but at the same time, new findings are also compared and contrasted. The discussion section explores the meanings of the results and it compares them to the literature. Lastly, the researcher outlined existing limitations as well as possible future research directions along with practical implications that could be adopted by researched incubators.

1.5. Limitations

First limitation is concerned with the sample size. Despite conducting 9 interviews with entrepreneurs from 3 different Dutch technology incubators, this sample size is considered as insufficient to create conclusions that would represent the whole spectrum of technology incubators. Moreover, in order to allow for comparison of external incubators, a robust framework was applied in the selection of researched incubators, yet the extent of applicability reaches just the Dutch environment, averting the

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overall European context. Thus, the main limitations of this research lies within its ability to be generalised.

Nonetheless, this study aims for deeper understanding of selected incubators, their processes and potential factors affecting their success. It does not necessarily have aspirations to create implications widely generalizable to different contexts and environments. It is a qualitative, in-depth research that explains given topic, offers propositions and creates a ground for future researchers.

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2. Literature review

2.1. Introduction

Incubator was defined by Hackett and Dilts (2004) as ‘an enterprise that facilitates the early stage development of firms by providing office space, shared services and business assistance’. Verma (2004, p.3) defines incubators ‘…as an organization, which offers a range of business services, and access to small space on flexible terms, to meet the needs of new firms. The package of services offered by a business incubator is designed to enhance the success and growth of new enterprises, thus maximising their impact on economic development.’ Altogether, incubation and business incubators are considered as a basic tool to support entrepreneurship, innovation, business development, as well as to boost regional employment (Hacket and Dilts, 2004; Isabelle, 2013; Vema, 2004). By ‘nurturing’ early staged company, incubator helps to overcome issues such as managerial incompetence, financial constraints, lack of networks and expensive commercial renting space (McAdam and McAdam, 2008). In general, incubators try to minimise the risks of market that constrain young entrepreneurs (Van Gelderen et al. 2005). It was found by the Organization for Economic Cooperation and Development (OECD 2002) that 50-60% of new European enterprises do not survive their first seven years and even though some authors like Tavoletti (2013) doubt the usefulness of incubators in supporting starting ventures, other authors, such as Prosser (2014); Watson et al. (1998) claim that incubators are relevant in the development of new businesses in their infancy period. On top of that, Schwarz and Hornych (2008); Ferguson and Olofsson, (2004) and Lofsten and Lindelof (2002) claim ‘that on-park firms have higher survival rates, higher growth rates in terms of employment and sales and a wider market distribution than comparable off-park firm’. In other words, incubators have generally positive impact on the development of young enterprises. Nevertheless, as there are various types of incubators it is important to overview and distinguish among them in order to clearly outline the type of incubator researched in this thesis.

2.2. General taxonomy of incubators

Despite the fact that ‘incubators’ is not a new topic in the academic literature, a clear consensus on the classification of different business support institutions has not been created (Dempwolf et al., 2014; European Commission, 2002; Hackett and Dilts, 2008; Isabelle, 2013). Because of that different institutions and scholars use various tools to create a taxonomy of incubators; thus, this section provides brief overview of the most relevant approaches.

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At first, a distinction between incubators and accelerators is created by Dempwolf et al. (2014) who defined the main similarities and differences between them in Figure 1. Despite the fact that both entities strive for the business development and job creation they have different approaches. Accelerators, unlike incubators, directly invest their funds in exchange for equity stakes in their clients’ future profits; thus, accelerators generally aim to be for-profit, whereas incubators generally work on the non-for-profit basis. Moreover, the acceleration program is shorter (3-6months) than incubation programs (0-5 years) (Adkins, 2011; Dempwolf et al., 2014). Nevertheless, as pointed out in the next paragraph, these differences also depend on further factors, such as geographical location.

Another definition was created by the European Commission whose taxonomy is based on the management support and the technological level of given incubator (Figure 2). This distinction allows for differentiation among incubator in terms of their technological and business offering to their clients. The upper left corner represents low technological and low management support, whereas incubators in the bottom right corner offer both high management and technological support. The grey rectangle symbolises incubators that are generally referred to as business incubators (Aerts et al. 2007; European Commission 2002).

Figure 1

(European Commission, 2002) Figure 2

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In contrast to the taxonomy developed by the European Commission, Aernoudt (2004) has created a classification according to incubator’s philosophy, objectives and industry sector (see Figure 3). This allows us to see more clearly the goals of individual incubators as well as their involvement with public-private sector.

Important classification is offered by Grimaldi and Grandi (2005, p.112-113) who considered the main offerings and the main shareholders (creators) of the incubator. There are four main categories:

1) Business Innovation Centres (BICs) (offering elementary services to their tenants)

2) University Business Incubators (UBIs) (transfer of academic research knowledge to commercial projects)

3) Independent Private Incubators (IPIs) (created by individuals to assist starting enterprises) 4) Corporate Private Incubators (CPIs) (created by large corporations to support new, innovative

business ideas).

Another aspect differentiating incubators is their approach towards selecting their clients. In simple terms all incubators have two basic types: ‘survival of the fittest’ or development of individual entrepreneur (Bergek and Norrman, 2008). Survival of the fittest assumes that those, who already created a start-up and survived the very initial phases are more likely to succeed in further stages of the business development. The second approach considers the entrepreneur as a main resource and it aims to support and develop his/her capability to its fullest.

Lastly, sources of funding define whether the incubator is privately or publicly funded, which ergo characterise their goals (Zedwitz, 2003). Private incubators (created for example by a corporation) aim to enhance their return on profit, whereas public ones (created by local or regional government) aim to support employment, entrepreneurship, innovation in given region and transfer of academic knowledge (Aerts et al. 2007; Dempwolf et al., 2014). It is in the interest of government organisations to implement university knowledge into marketable products and effectively commercialise their research projects (Zedwitz, 2003).

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Each typology offers a different approach towards evaluating the functions, performances and outcomes of individual incubators. Different types of incubators are intertwined in terms of the funding, selection criteria and involvement with educational institutions. The understanding of the taxonomy and different ways incubators are structured, it sheds light on the developments and functions of technology incubators, but at the same time the bigger picture of this thesis is offered.

2.3. High-tech incubators

The previous section outlines different types of incubators in order to create general background; however, as this research is concerned with the incubation within technology incubators, the following section is concerned with technology oriented ventures and incubators. As classical and technology ventures have different development and life-cycle, functions of incubators are and must also be different; thus, it is important to outline the differences and characteristics of tech ventures and, consequently to define technology incubators and their offerings. In this way it is possible to determine how technology incubators appropriately adapt to the needs of high tech start-ups and to address how and in what specific ways technology incubators match new venture support requirements.

2.3.1. Technology ventures

High-tech industry is a highly growing sector that increasingly attracts attention of government and private sector as well as academia; however, defining a ‘typical’ high-tech enterprise itself is not easy as majority of them cross borders with traditionally established industries. Despite that, as can be seen in Figure 4 Zakrzewska-Bielawska (2010) created an overview of characteristics of a high-tech company. The common characteristic of high-tech businesses is in their effort to constantly innovate, accumulate knowledge, cooperate with research institutions and acquire high capital investments in the development of their product or services (OECD, 2009; Zakrzewska-Bielawska, 2010). Furthermore, considering the amount of R&D required to get the product or service on the market, the development process is generally extensive in comparison to other industries. On the other hand, the economic returns of specific high tech sectors, such as software development, IT or human-health biotech, can be significan’tly larger than traditional sectors (such as agriculture) (Chung-seng, 2000; Maier, 2002; Natterlund, 2014).

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2.3.2. High-tech incubators

In the taxonomy it can be seen that technology incubators have high level of technological support (European Commission, 2002), focus on technology and innovation (Aernoudt, 2004) and focus on transfer of academic knowledge to commercial sector (Grimaldi and Grandi, 2005). Definition used by OECD (2010) states that ‘technology incubators, a variant to classical business incubator, assists technology-oriented entrepreneurs in the start-up and early-development stage of their firms by providing workspace, shared facilities, and a range of business support services’.

It is increasingly popular for incubators to choose a specialisation; therefore, there is growing number of biotech/ life science, healthcare, software, mobile applications or ICT incubators (Cordis, 2002; Isabelle, 2013). Due to the fact that ‘no two incubators are alike’ (Allen and McCluskey, 1990, p. 64), the high-tech facilities, like science parks, technology and innovation centres are grouped together through their common characteristics. They are highly specialised institutions that generally facilitate innovation through technological knowledge transfer between commercial and public sector. In many

Figure 4

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respects they are the same as classical business incubators according to Aernoudt (2004); Bergek and Norrman (2008); Sa and Lee (2012) and van Zedwitz (2003) as they provide:

1) Business support (coaching by experts in business development)

2) Physical spaces (office space and other resources to support new enterprises) 3) Networking (offering of internal/external network list)

4) Access to financial resources (direct or indirect funding opportunities)

The difference among standard incubators, according to Bergek and Norrman (2008) is selection, business support and networking. However, the essential differences of regular and high-tech incubators lie in the basic differences of regular and high-tech businesses because the latter requires large amount of initial investments to cover expensive equipment, labs meeting legal standards and long term product development emerging from ongoing academic research (Tavoletti, 2013; Bee, 2004; Zakrzewska-Bielawska, 2010). In other words, high-tech incubators would be characterised as highly specialised, generally non-for-profit, predominantly government funded institutions with close ties to universities and with a strict, highly focused selection process (McAdam and McAdam, 2008). In accordance with the definition, Isabelle (2013) argues that only certain types of enterprises should consider entering the high-tech incubation program. It is suitable for:

- Early staged start-ups with long term development - Sectors with longer time to market

- Sustainably oriented firms

- More focused on economic development - Generally non-for-profit, older establishments.

In relation to the Netherlands, there are only few places that play a central role in high-tech incubation, in particular, University of Amsterdam, University of Twente, Delft University of Technology and Eindhoven University of Technology. Due to the top-notch academic research that is being facilitated at these universities, larger numbers of university spin-offs requiring business and technology support are produced. In order to facilitate required services, regional governments in collaboration with universities has developed high-tech incubators that reside within the university campuses, or in nearby Science parks. Direct affiliation of universities and high-tech incubators offers solid access to the latest research, technologies, computing facilities and further educational services to clients of given incubator (Mian, 1996). Furthermore, Young-Ho Nam (2000) found that publicly funded or co-funded spaces are more favourable to incubation than private spaces, which is another factor contributing to the excellent high-tech incubation scene in the Netherlands.

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2.4. Incubation process

Even though the incubation process for most of the incubators is highly similar containing the same elements, each author uses a different approach. Accordingly, Bergek and Norrman’s (2008) three step model (Figure 5) is chosen as a basic framework to describe the incubation process; however, in order to provide more profound picture other authors and approaches are implemented in the description of incubation.

Firstly, during the selection process, the applying start-up goes through a screening process, which, along with the exit strategy, is considered by Aerts et al. (2007) and Lee and Osteryoung (2004) as one of the most important decisions in the incubation process. High-tech incubators target specific, early stage technology projects; therefore, they have the advantage of providing services to a homogenous group, which effectively allows them to achieve higher economies of scale (Hansen et al., 2000; Ratinho et al., 2011). The universal rule that all incubators follow, regardless of their internal policies, is to select projects that are in line with their goals and long term strategy (Bergek and Norrman, 2008; Hackett and Dilts, 2004). As such, they are able to deliver on their goals, which is crucial for acquiring public support (Lalkala, 1996).

Secondly, the business support comprises of several interconnected areas. Bergek and Norrman (2008, p. 24-25) argue for business support (entrepreneurial training and business development advice, accounting, legal matters, advertising and financial assistance), legal advice (helping incubates to interpret, understand and even influence the institutional demands such as regulations, laws, traditions, values, and cognitive rules) but also infrastructure (office spaces, support service, network provision), which is not portrayed in the Figure 5. This is in accordance with Al-Mubaraki and Buslet (2013, p.365) who outline four types of services that help new businesses to grow: start-up consulting and business planning, consulting regarding business development and growth, consulting how to access financing, and training and networking.

Thirdly, through mediation, the incubator interconnects its incubates with relevant stakeholders, innovation systems and other beneficial networks. The incubator serves as a bridge between the incubate and its environment (Bergek and Norrman, 2008). In case of technology incubators, it would be the provision of technological and financial networks, linkage of its clients and finally, access to affiliated university, which is described by Lowegren (2003) as crucial for early staged high-tech start-ups.

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Last part of the incubation process, that is not mentioned in the Figure 5, is a robust exit policy and graduation of clients. The goal of the exit policy is to secure sufficient turnover of tenants but also to evaluate whether the objectives and targets were met (Ratinho, 2011; Rothaermel and Thursby, 2005). Graduation policies of individual incubators are different varying from predetermined time limit to policies based on client’s growth and development (Isabelle, 2013). In general terms, incubation programs are designed to provide sufficient time and support for the client to realise its potential and to become self-sustaining business that does not require additional help. As the development cycle of high-tech enterprises is longer, they often receive cheaper, subsidies services of the incubator even after the graduation and after leaving incubator’s physical space (OECD, 2010). Furthermore, graduation is often closely linked to the acquisition of further financing that sustains ongoing R&D.

Additional model clearly outlining the incubation process and factors affecting it was created by Lalkala (1996) and can be seen in Figure 6. Although this model contains factors outlined by Bergek and Norrman’s (2008) framework, it is more expressive in terms of portraying the influences of the external and internal environments; if these factors combine favourably, conditions leading to successful incubation can be co-created.

2.4.1. Incubator’s offerings

As briefly outlined in the business support and mediation, it becomes apparent that the intersection of existing literature in terms of incubation offerings lies within business support, physical facility, network provision, access to financing and reputation (Aernoudt, 2004; Bergek and Norrman, 2008;

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Lalkala, 1996; Mbaraki and Buslet, 2013; Verma, 2004). These areas are summarised in the Figure 7 and explored in more detail below; however, it is important to say that, in spite of describing generally valid offerings, in practice each of them must be adjusted to individual needs of specific client because each entrepreneur and project itself is unique (Vohora et al., 2004).

Incubator’s offerings Business

education Physical facilities Networking

Access to

financing Reputation Figure 7

Business education is the provision of business development knowledge in form of coaching and training (Hansen et al., 2000; Scillitoe and Chakrabarti, 2010). Coaching attributes to the fact that an expert in a given field is assigned to the tenant to provide one-on-one support aimed to accelerate client’s learning process in terms of business planning, leadership and sales (Aerts et al., 2007). Part of business support is also the acquisition of specific skills such as accounting and legal matters, which is particularly important for pro-tech oriented entrepreneurs. It can be argued that high-tech entrepreneurs have the knowledge and capability to develop an innovative product; however, as these people are usually technologically educated, they lack the business development knowledge (Studdard, 2006). Scillitoe and Chakrabarti (2010) pointed out that incubated ventures have tendencies to focus on mastering their products, services or inventions without fully understanding and exploring their target market (Lee et al., 2000). In other words, the aim of high-tech incubator is to facilitate the transfer of business knowledge to the entrepreneur so that the client is capable of developing a viable, functioning business with a product or a service that is attractive to the market as it satisfies the needs of its target audience (Natterlund, 2014). That means that quality business coaching should lead to business growth and development.

Physical facility is one of the basic services offered by most of the incubators. It includes the provision of working spaces, such as offices, under favourable conditions (either for free or discounted rent price) (Ratinho, 2011). In terms of high-tech and biotech industry they for instance need equipped laboratories or research equipment, which can be either facilitated through a partnership with a university, or it can be part of the incubator itself (Grimaldi and Grandi, 2005; Lowegren, 2003). Furthermore, due to high concentration of sector like enterprises, a clustering effect is created that is positively related to business and technology knowledge transfer, cross-fertilising technologies or networking, which ultimately leads to increased productivity (European Commission, 2002; OECD, 2010). Another positive aspect related to the concentration of ‘like-minded’ people is linked to their shared experience of starting high-tech enterprise. Watson et al. (2008) notes that one of the critical factors entrepreneurs face while starting their business is the feeling of loneliness. In many respects this may be reduced by their close social circles, such as family; however, shared working spaces have positive impacts on the emotional equilibrium of its tenants (McAdam and McAdam, 2008; Watson et

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al., 2008). Furthermore, Isabelle (2013) suggests that ‘technology entrepreneurs rarely succeed in isolation’; thus, the support offered by high-tech incubator is necessary for their development.

Networking is crucial for starting a business. It is recognised by McAdam and McAdam (2008) that being part of, or in close proximity to a high-tech incubator has positive impacts on interpersonal interactions, which effectively lead to internal as well as external networking in and outside the incubator. Sa and Lee (2012) argue that the importance of network for high-tech companies is dependent of the type of the network. They outlined three types:

1) Advisory: formal channels providing professional services such as legal counsel, business consultancy and/or financial advice

2) Spin-off: include parent university or corporation from which the firm emerged, the relationship with previous academic or industrial partner is critical as it serves as ongoing source of information and resources

3) Strategic: ‘based on intentional alliances among organisation to share information, financial assets and other resources to reduce risk and enhance firm’s competitive position’ (Gulati et al., 2000; Wincent, 2008).

Furthermore, it was assessed by (George et al., 2002) as well as Scillitoe and Chakrabarti (2010) that part of networking is also technical assistance, which includes ‘access to university research activity and technologies, laboratories and workshop spaces and facilities, industry contacts, technology transfer processes, research and technology supply pipelines, intellectual property protection and technological know-how skills’ (p.157). Technology ventures often do not have sufficient technology know-how to bring the innovation to the market; thus, there is in a need of external assistance (Deeds et al., 1999). Empirical evidence suggests that networks are critical for the development of tenant companies; therefore, incubators actively promote networking and further mutual interconnection of their clients and their external networks (Hansen et al., 2000; McAdam and McAdam, 2008).

Access to financing is of key importance for a starting venture as it offers financial stability as well as further development and growth of the company (Aernoudt, 2004). It is even more critical for high-tech start-ups because, as noted before, the research and development of a product or a service is extremely costly and time consuming. Tollman et al. (2001) mentioned that the R&D process of high-tech or biohigh-tech firm can take up to 15 years with estimated costs reaching up to £600 million; therefore, it is essential for an emerging project to secure funding to reach next phase of its development (Tavoletti 2013; Bee, 2004). The acquisition of funding is often done through the external partners of given incubator, or through the corporation from which given start-up emerged. Incubator itself can have its own financing scheme, however, it is more important to have quality network of investors that are, on a regular basis, introduced to its incubates.

Reputation goes hand in hand with financing because well-known incubators are more likely to attract more appealing venture capitalists and angel investors. As entrepreneurial firms have

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difficulties with reputation due to their high level of volatility, incubator’s reputation has a strong impact on it (Aldrich, 2000). They are not considered as trustworthy clients in comparison to larger and more established organisational structures; therefore, the acceptance into the incubation program provides the enterprise with an existing reputation of an incubator (Aldrich and Martinez, 2001). It is obviously dependent on the good name of the incubation institution; however, in general, an incubator offers credibility and reduces the risk involved with the investment into early staged company (Studdart, 2006). Furthermore, good reputation of an incubator bestows its incubate with higher credibility, which may be eventually beneficial in the acquisition of customers (Aldrich, 2000).

All of the coaching elements are crucial for firm’s survival; therefore, it would seem fundamental that early stage firms obtaining incubation support would have higher survival rate than those that do not. However, according to Ratinho et al. (2013) and Aernoudt (2004) the difference may not be as explicit. In their studies they discovered that when tenanting start-ups faced a problem it was generally not solved due to the advice of the incubator. This may be partly accounted to the unwillingness of the tenants to share their problem with their coaches; nonetheless, even when they did, the problem was mainly solved through their own human capital. As a consequence, Ratinho et al. (2011) assumed that there might be a mismatch not just in tenant’s perspectives of their problems and actual needs, but also between the actual support of the incubator and client’s actual needs. So that the next section focuses on the areas of the incubation process that positively affect the success outcomes of the incubation process.

2.5. Factors of successful incubators

Success is broadly defined as ‘a result or outcome, or a favourable or satisfactory result or outcome’

(Saarien, 1996). Lalkaka (1996) claims that the performance of an incubator should be measured by the

survival rate of the incubated business. In contrast to that, Campbell and Allen (1987) argue that the incubator’s success should be measured against the goals and objectives that the incubator is trying to achieve. It is apparent that the literature, once again, does not provide any unanimity regarding the criteria necessary for the success of incubators, leading to several measurement systems and indefinite conclusions (Verma, 2004). Even though no conclusive standardised evaluation method have been agreed upon, the literature indicates strong connection between the success of a client and an incubator; thus, that the success of an incubator depends on the success of its incubates (Franco-Santos et al., 2007).

Successful outcome depends on the mix of different, yet intertwined services offered by the incubator. Nonetheless, it is yet unknown which in particular are the most relevant to incubated companies. Natterlund (2014) acknowledges wider implications of incubators on incubates. She argues that high-tech ventures are usually founded by researchers, scientists or other high-technology focused people who have little or no business knowledge. For that the business coaching is a key element of incubation process but at the same time Yagüe-Perales et al., (2012) place the same importance on funding acquisition and networks creation. Furthermore, in spite of the recent open innovation movement, she

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brings up an element of patenting an intellectual property, which according to Zidorn & Wagner (2012) is also a key success factor for technology start-ups. Other authors emphasise, apart from already described factors, the element of selection. Aerts et al. (2007), Verma (2004) and Isabelle (2013) argue that robust selection criteria that aligns accepted projects in line with the goals and objectives of given incubators, are crucial for further success of the venture and the incubator. In contrast to that, Studdard (2006, p.211) conducted a research where he tried to understand ‘how the entrepreneurial firm’s acquisition of business processes knowledge from interaction with incubator management positively impacts on new product development, increased technical competence, enhanced reputation and lower costs of sales to customers’. Despite potential biases coming from the single-response, self-reporting data, he concluded that the only significan’t gain technology ventures get through the interaction with the incubation manager is improved reputation (Studdard, 2006). Incubator’s good reputation increases the chances to appeal to more attractive VCs and angel investors, which eventually leads to higher chances of receiving necessary funding.

2.6. Theoretical framework

Theoretical framework aims to offer clarification of how the practical research of this thesis is constructed and what is the operationalisation process of the research question. Considering previously outlined literature, in this further section, the three core assumptions identified are explicitly discussed. Each incubator has its own ways of defining success, which means that there could be used various approaches. Deducing from the literature, the most suitable approach for this research is to define the success of an incubator through the success of its clients, which also means that these assumptions aim to capture the growth and development of incubated ventures. Thus, apart from capturing the growth of the venture and consequent success of the incubator, these assumptions also serve as a framework that creates boundaries of theoretical concepts, which are further explored in the methodology section along with the rationale for conducted interviews.

Thus, in other words, as summarised in the Figure 8, the framework of this research is based on the five offerings, which are operationalised into three assumptions that guide the researcher through the practical aspects of this research. In terms of coding and further data analysis, the researcher used the offerings to code the data (see Figure 11, 12 and 13) and the assumptions to structure the results; however, the methodology section offers more clarity about the actual data analysis.

Incubator’s offerings Business

education Physical facilities Networking

Access to

financing Reputation Core assumptions

Financial resources Customer acquisition Access to skilled workforce Figure 8

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2.6.1. Key performance indicators

In order to be able to determine whether the incubator delivers on its tenant’s expectations, it is necessary to examine the progress and development of incubates within an incubation program. Due to the chosen approach that the success of incubators is dependent on the success of its clients (Ratinho, 2011; Weiblen and Chesbrough, 2015); there are used specific performance factors that indicate and qualitatively analyse the growth of given start-up. Rashty (2013) described the key performance indicators as methodological tools useful to evaluate the performance of given company. Despite its corporate origins, key performance indicators are being increasingly adopted by entrepreneurs as it allows them to create tangible evaluations of their progress. There are three conditions: they should be relevant to the business, responsive (if things go wrong the factor should be negatively affected) and lastly, they should be easy to understand (Crichton, 2014).

Previous section explores incubator’s offerings, which are used as the basis for the development of a framework that operationalises the research question. Due to the diversity in services offered by technology start-ups, the operationalisation of outlined areas must be approached carefully as research outcomes should be universal to the technology incubation sector. Having that in mind, there appear only few key indicators relatable to incubator’s core deliverables (Aldrich and Martinez, 2001; Lalkala, 1996). These key indicators are outlined in form of assumptions that eventually create the framework guiding the researcher through the practical research.

Firstly, it was pointed out that technology firms are relying on the R&D to cultivate their products and services; thus, access to funding is critical for their success.

Secondly, successful businesses are characterised by existing customer base and (potential) revenues, which is directly related to the capability of the incubator to coach its clients to sell their product, services and consequently develop and expand their business.

The third success factor is defined by the growth of the company. As the company expands, there is a need for more employees, which means that successful company is more likely to grow in terms of their employee number. Filling up the vacancy spaces is a challenge that can be overcome through incubator’s networks and favourable location (cluster effect); therefore, elements of location and networks are included in the third success factor.

Moreover, location and networks are factors intertwining all three success factors meaning that they are also affecting the first and the second factor. All three factors are summarised below.

1) Financial resources: Tavoletti (2013) argues that for early stage high-tech venture the key factor is the access to capital and/or the access to networks that would provide the financial resources. Regardless of the specific objectives of individual incubators, one of the mutual aims is to help its incubates to secure financing for next stage of their development; thus, there is developed the first assumption:

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Assumption 1: Inclusion of the incubate in the incubation program positively affects their acquisition of financing and/or access to financing.

2) Customer acquisition: Exiting ventures should, at minimum, have a minimum viable product and/or service that would firstly: serve as a credibility tool for their investors and, at second: create initial revenues that would indicate whether the market positioning is correct (Hackett and Dilts, 2008). Some early staged ventures operate on customer acquisition basis before they reach revenues from their products; thus, this assumption was extended to the acquisition of customer. That, as well as the revenues, signal the market readiness and appropriate positioning of the product or service. As outlined in the previous section of business coaching, incubation programs offer comprehensive business education that should lead to positive business growth and development; therefore, that leads to the second assumption:

Assumption 2: Business coaching has positive impacts on the customer acquisition and consequent sales performance of the incubate.

3) Access to skilled workforce: The growth of a company naturally produces larger amount of work; thus, it can be assumed that successful firms increase their number of employees. Furthermore, as technology incubators are usually located in clusters, or in close proximity to technology ventures and research universities, incubates should be provided networks relevant to them in terms of technical and business offerings (Singh and Jain, 2003) and as such, they can be used for business as well as organisational development. That leads to third assumption: Assumption 3: The growth of the venture causes increased workload; thus, the entrepreneur is in need for skilled workforce, which is likely to be acquired from the incubator’s networks and/or as a result

of incubator’s favourable location and affiliation to the university.

2.7. Conclusion

In this section, there is reviewed existing literature as well as outlined the theoretical framework used for this research. Firstly, there is explored the taxonomy of incubators along with their different characteristics. After outlining factors considered in the selection of incubator for this researched, the focus is narrowed down to the technology incubators and high-tech early staged ventures. Once clarifying the differences of technology and classical businesses, the incubation process is depicted, which consists of five main areas: business support, access to financing, reputation, networking and physical facilities. These factors are operationalised in further part, which deals with factors that define the success of an incubate and consequently the incubator itself. It was taken from the literature that the success of an incubator can be assessed through the success of its clients; thus, there have been pointed out three critical assumptions: financial resources, customer acquisition and access to skilled workforce, which characterise the growth and development of a venture. These assumptions are used as a ground base for developing the methodological guide steering the researcher through conducted interviews.

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3. Methodology and research design

This section aims to clarify the methodological tools used in this exploratory research. It builds on previous sections by implementing the core assumptions into the design of the semi-structured interviews that are used for exploring the aims of this research. Furthermore, aspects of validity and reliability are explored in order to create realistic expectations of the results. The literature review outlines the theoretical background of incubators and this section presents the researched incubators along with the limitations this type of sampling contains. Lastly, the strategy to process and analyse the data is presented. It uses the theoretical framework as a guide to structure the data and create relevant codes, which are discussed in next sections of this thesis.

3.1. Research design and strategy

The elementary question that must be asked by any researcher is whether to choose qualitative or quantitative research method. Both approaches have their strengths and weaknesses but the decision to go for one or the other depends on the question asked. Closer comparison of both methods can be seen in the Figure 9 extracted from Hoeber (2012).

Quantitative Qualitative General - Confirm hypothesis about a

specific phenomenon and develop generalisation that contribute to theory

- Seeks precise measurement - Data analysed by statistics

(objective)

- Explore a specific phenomenon (complete, holistic and detailed description)

- Understand human or social behaviour and reason that govern such behaviour

- Data is analysed in an interpretative and subjective way

Data gathering instruments

Experiments, questionnaires, surveys Observations,

structured/semi-structured/unstructured interviews, focus groups, case studies

Question format

Close ended Open ended

Data format Numerical Textual

Strengths - Research results have statistical significance - Can generalize research

findings when the data are based on random samples of sufficient size

- Data collection and data analysis are relative less time consuming

- Useful for describing complex phenomena

- Provides understanding and description of people’s personal experiences of phenomena - Can describe in rich detail as they

are situated and embedded in local contexts

Weaknesses - The researcher might miss out on phenomena occurring (confirmation bias: focus on hypothesis testing rather than hypothesis generation)

- Data might not be generalised to other people and contexts

- Data is more easily influenced by the researcher’s personal biases - Data collection and data analysis

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(Bryman, 2008; Carr, 1994; Hoeber, 2012; Miles and Huberman, 1995) Figure 9

The purpose of this study is to research the factors affecting the successful incubation of technology incubators. Due to the fact that the field of high-tech incubators and their internal processes is widely under-researched, an exploratory, qualitative approach is chosen. As stated by Easterby-Smith et al., (2008) and Rudestam & Newton (2001) ‘qualitative research is examining the meanings and relations through the attention to words as opposed to numbers’. In other words, qualitative research deals with the ‘why’ of given problem by focusing on the description, discovery and explanation rather than quantitative measurements of a certain phenomenon (Collins and Hussey, 2009; Holliday, 2007). Because of the ability to appropriately describe the research area and to develop understandings of unknown variables that potentially affect the results, the most suitable research method for this thesis is an inductive qualitative approach (Saunders et al., 2009). It allows for exploration of the client-incubator relationships, entrepreneur’s expectations vs. delivered reality as well as the successful outcomes of given incubation program. As a practical outcome, a set of implications for incubator’s managers is created to improve their offered services.

In this research, semi-structured interviews are selected in order to create focus on topics that have been explored in the literature review. Furthermore, open-ended questions that enable the researcher to explore areas outside of created framework are used (Easterby-Smith et al., 2008). This type of interview is considered by Saunders et al. (2009, p.601) as a ‘wide-ranging category of interview in which the interviewer commences with a set of interview themes but is prepared to vary the order in which questions are asked and to ask new questions in the context of the research situation’. In this manner it is possible to explore the ‘how’s’ and ‘why’s’ of a given issue and to understand the interconnection of factors that affect the outcome of technology incubation process.

3.1.1. Reliability

Reliability of the research refers to the capability to repeat the study with the same results (Bryman, 2008). In terms of an unstandardized research methods this may be an issue because the environment and circumstances could have changed while re-doing the same research in different time. It was stated by Saunders et, al. (2009) that it would be unrealistic to try to ensure replicability of this type of research. In accordance to that, Marshall and Rossman (1999) claim that the hardships to replicate this type of research should be distinctively outlined. By clearly explaining and rationalising the used strategies, research design, methods, data collection and analysis; it makes it possible to re-analyse the data by other researchers and; thus, increase the reliability of the research.

3.1.2. Validity

Validity is defined by Saunders et al. (2009; p.603) as ‘the extent to which data collection method or methods accurately measure what they were intended to measure, and the extent to which research

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findings are really about what they profess to be about’. There are three major aspects to validity: internal, external and construct. Firstly, construct validity tests whether the selected method actually measures what we think it measures (Greener, 2008). High construct validity is ensured by personal contact with the interviewees and, by having open ended questions that allow for further explanation of areas that emerged throughout the conversation. Secondly, internal validity relates to the causality, so that, does factor A cause factor B to happen? (Bryman, 2008; Ritchie and Lewis, 2006). In relation to this study it would be elaborated as: how sure can we be that the incubation of technology start-ups actually affects their successful growth and development, and, do analysed success factors actually reflect the success of the start-up and eventually of the incubator? Throughout the literature review assumptions that correspond with the views of academic literature on the success factors have been pointed out. However, the researcher also bears in mind that there can be other, unknown factors that can impact the incubator-incubate relationship and its possible outcomes. Thirdly, external validity, also referred to as generalisability, relates to the extend the result of the research could be applied to other contexts (Greener, 2008; Saunders et al., 2009). In order to provide external validity, three independent incubators and their incubates have been researched. Furthermore, cross-comparison of collected data and the literature ensures the objectivity of the results. On the other hand, the sample of researched companies is not wide enough to draw conclusions generalizable to wider contexts. Those results are bounded to the Dutch technology incubation scene and, to certain extend, to similar European technology incubators.

3.2. Sampling

The sample for this research was obtained from nine start-ups that are being incubated in three comparable incubators: ACE Venture Lab (associated with the University of Amsterdam), YES!Delft (associated with the Delft University of Technology), BTW Twente (associated with the University of Twente). The areas of resemblance include their affiliation to universities, comparable internal structure, and focus on high-tech projects. University-incubator ties are depicted through close cooperation, usage of university facilities and lastly by locating the incubator in the surroundings of the university. Furthermore, all incubators have the status of public entity. They are supported by public organisations like the affiliated university and local municipality. Minor economic contribution comes from the rent of their physical facilitates. Moreover, all three institutions provide comparable services: business support, networking, physical facilitates and access to external financing. Slight existing disparity among them is that BTC Twente and Ace Venture Lab, unlike Yes!Delft, aim to create short term profit, which would allow further development of the incubator.

As can be seen in the cross-comparison section these incubators were selected non-randomly based on the taxonomy developed in the literature review and based on their similarities. Selection of start-ups within these incubators was subjected to researcher’s aspiration to obtain relevant data that would also comprehensively represent different stages of the incubation process. West and Noel (2009) argue that

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selected samples should have sufficient knowledge about the researched area, which can be fulfilled by interviewing ventures that cover all stages of the incubation. In that way all levels of the incubation process are captured, which should offer relevant information (Pena, 2002). The outcome of the incubation process in general is three folded: business failure (discontinuation of the entrepreneurial effort); decline (business is still running but the reality is not meeting the expectations and the firm has poor results); stability and growth, which is self-explanatory (Pena, 2002). So that to seize experiences that somehow reflect successful outcomes, only companies that are still running are selected. Altogether, the sampling was approached in a holistic way as the researcher aimed to avoid one sided reflections of companies that would only be graduated or newly found. In the Figure 10 a list of companies interviewed is presented along with their incubation stage and the commence of their incubation process. As can be seen, each incubator, apart from BTC Twente, has a mix of graduated-senior-new companies. As Ace Venture Lab is only three years old, no company has graduated yet; however, companies experiencing all other stages, apart from graduation, are captured and researched. That way sufficient validity of maintained. Appendix 2 offers more elaborate description of individual start-ups.

Figure 10

3.2.1. Limitations

The main limitation of the researched sample is, as noted before, its size. Firstly, there were researched only the clients of given incubators, not the incubator’s managers itself. Secondly, Yes!Delft as well as Ace Venture Lab have both 4 respondents that represent the full incubation cycle; however, the researcher was able to secure only 1 interview from BTC Twente. Due to unclear separation of tenants and incubated companies on BTC’s websites, as well as the inability of the BTC’s management to provide the researcher with a list of incubated companies, the researcher was unable to reach sufficient number of relevant incubated companies and secure interviews. As the amount of interviews within this incubator negatively impacts the internal and external validity the reader must bear in mind that the

Incubator Company Incubation process Incubation stage

YES!Delft (started in 2005)

Conference compass 2010-2015 Graduated

Elemental 2009-2015 Graduated

Adjuvo Motion Since 2015 New

Delft Inversion Since 2013 Senior

ACE Venture Lab (started in 2013)

MyReputationLab Since 2015 New

3D Universum Since 2014 Senior

Metrica sports Since 2013 Senior

Scyfer Since 2014 Senior

BTC Twente (started in 1981)

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generalisability of results on the BTC incubator is limited. On the other hand, the validity is ensured through the selection process of researched incubators. As it was based on their similarities it would mean that even in spite of the low number of interviews the results can be applied to the context of BTC. Furthermore, iterative cross-comparison with existing literature provides a check that validates the results in terms of their application to other contexts.

3.3. Cross-comparison

Description of individual incubators can be found in the Appendix 3. The idea of this paper is based on the assumption that the success factors affecting successful outcomes of an incubation process can be singled out and, consequently, benchmark practices can be outlined and transferred into other comparable institutions. However, as Allen and McCluskey (1990) pointed out, incubators are unique as each incubator has different stakeholders, resources and location. Altogether it is hard to apply to generally developed theories and practices on them. On the other hand, other authors (Tavoletti, 2013; Hackett and Dilts, 2008; McAdam and McAdam, 2008) argue that generally developed theories and benchmark practices can be applied to comparable institutions under the condition that individual management acknowledges outlined differences as well as geographic and cultural differences. In order to create basis for comparison and increase the applicability to other incubators, areas of business development, physical facilities, access to funding, networking and selection criteria are diluted into three researched assumptions in this thesis.

3.4. Data collection

As mentioned previously, data is collected through qualitative, semi-structured interviews chosen due to its ability to provide data traditionally rich in detail and descriptive in terms of given phenomena (DiCicco-Bloom & Crabtree, 2006). To better understand the factors that influenced the success of given start-up and, whether these factors comply with the literature, there were interviewed founders and/or managers of given venture. Researcher gained access to these ventures through the websites of researched incubators, websites of given ventures and through his initiative.

The interview protocol consists of briefing, four research areas and debriefing; altogether 13 questions and 8 sub-questions (see Appendix 1). It follows the previously created framework of 3 core assumptions.

In the briefing the researcher and the research itself were introduced to the interviewee. Second section consist of four main areas that follow the outlined 3 assumptions from the literature review.

- General questions: It covers the background and original intentions of the interviewee to enter the incubator

- Financial resources: The influence of the incubator on the financial well-being of the venture is examined in this section.

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- Customer acquisition: In here are examined the impacts of the incubation program on the acquisition of new customers, and potentially on generated revenues

- Access to skilled workforce

- This section explores the development of interviewee’s company through the growth of newly employed workers. There are also researched the implications of incubators’ location and/or networks on the acquisition of new employees’

- Conclusion: It sums up the interview by asking question related to the general satisfaction with the program.

In the Debriefing section there is expressed gratitude to the interviewee and it is also used as a closing tool for the interview.

3.5. Methods of analysis

To analyse and code the data, a qualitative data analysis program Atlasti 7 was used. First, the researcher went through the data and coded the most relevant themes and areas that seemed to be important for the business development of a venture. Emerged codes were then put into second level codes, which, as pointed out in the theoretical framework, follow the offerings of incubator; thus, business education, physical facilities, networking, access to financing and reputation. Considering that the interview guide was constructed in accordance to the previously outlined assumptions that follow the structure of incubator offerings, emergence of these themes confirms the consistency in the researcher’s approach. Once the secondary codes were assembled there emerged a duality of the data.

As can be seen in Figure 11, codes were divided into ‘what was brought by the entrepreneur’ and ‘what was facilitated through the incubator’. According to chosen approach the success of an incubator is dependent on its clients, which eventually means that existing influences are two sided: incubator’s Figure 11