Student: Henk Bakker Student number: 2062232 Adress: Gelkingestraat 5-20 9711 NA GRONINGEN E-mail: henk.c.bakker88@gmail.com Date: October 2013 University of Groningen
Faculty of Economics and Business
Msc BA – Small Business & Entrepreneurship
1st Supervisor University: Prof. dr. A.J. (Aard) Groen 2nd Supervisor University: dr. ir. H. (Haibo) Zhou Supervisor Principal: dr. F.H. (Frits) Wijbenga
Word count: 45.781
How to organize a life science & health
incubation program
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Preface
This report is the result of my master thesis to complete the master Business Administration, Small Business & Entrepreneurship on the Faculty of Economics and Business at the University of Groningen. This research is conducted at Stichting Business Generator Groningen and Traide Groep.
This report provides a description for an incubation program for the life science & health sector in Groningen. Hopefully, this report will contribute to a higher quality of start-ups in this sector, resulting in economic development. During the writing of process I lost my talented and cheerful teammate Britte Duijn due the consequences of a cardiac arrest. It was a tough period; my thoughts are with her family. The process to write this report was sometimes challenging since a whole new industry opened up for me. I’m grateful to learn about the life science & health industry and to learn about business incubation. I received support, motivation, inspiration, and help from several people who I would like to thank. First, I’m very grateful that the opportunity was given to me to write this report to graduate. Therefore I want to thank several people.
My specific gratitude goes to my supervisor of SBGG, Frits Wijbenga, for the chance that he gave me and the faith in my capabilities. The conversations and brainstorm sessions with him where very useful. I also want to thank Edward van der Meer from Triade Groep for the opportunity to work at Triade and his support for this research.
I would like to thank all the colleagues of SBGG, Triade Groep, and Marnix Pool of the RUG-Houdstermaatschappij, for the great time I had during the writing of this report. Their insights, expertise, and knowledge made a considerable contribution to this report.
Furthermore, I would like to thank Prof. dr. A.J. Groen, my first supervisor at the University of Groningen. His knowledge regarding business incubation gave me very useful insights, his feedback was important to complete this report.
Last but not least, I would like to thank my close family and friends. With their support I managed to finish this report, I appreciated their support very much, it motivates me to continue. Especially I want to thank Marieke for their unconditional support and believe in me.
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Summary
This research project propose an incubation program for life science & health start-ups related to the academic institutes in Groningen. The (re)design focused academic problem solving is used in this project. This method starts with a problem statement, followed by an empirical analysis, and solution design. Problem statement
In 2004 the knowledge institutes and the municipality of Groningen closed the ‘Akkoord van Groningen’ to ‘invest in the northern knowledge hub’ due the valorization of innovations resulted from knowledge. One of the vanguards of this agreement is life science & health. There are several organizations that became responsible for the execution of life science & health start-up support. Those executing organizations recognize by now that they can be more successful if they bundle their support. The start-up support process is assumed to be inefficient in the current situation; there is no ‘umbrella’ under which the different organizations can operate, leading to a perceived lower quality of start-ups.
A preliminary analysis of the business problem has resulted in the following problem statement:
“The incubation process of academic life science & health entrepreneurship in Groningen lack a uniform incubation program. (Starting) entrepreneurs do not know where and how to gain start-up support leading to low perceived quality of start-ups”.
The executing organizations of start-up support want to bundle their services in an incubation program to increase the quality of start-ups.
Empirical analysis
In order to solve the problem statement, this research combined incubation theory and actual incubation needs. First, a literature study is conducted in order to discover the aspects of an incubation program. An incubation program consists of four aspects, infrastructure, business support, network, and finance. Beside the aspects of incubation, the literature study also looked at organizational life cycle phases to allocate incubation services to specific phases and at the literature about incubation needs. Life science & health start-ups were divided in three segments; therapy creation, services, and product development.
After the literature study, three entrepreneurs and four serial entrepreneurs (experts) from Groningen were interviewed in order to measure local incubation demand. This is done by semi structured interviews with open questions. The obtained data is analyzed with a cross case analysis and pattern matching. The results of this analysis sharpened and supplemented the results of the literature by measuring the actual needs for incubation services. The results also indicated small differences between the identified life science & health segments and differences within the organizational life cycle stages.
3 Solution design
The input from the analysis and interviews with people of the executing organizations lead to a proposed set up of an incubation program. This is structured around the 4 aspects of incubation, supplemented with process features. The proposed incubation program consists of a pre-incubation phase and the incubation phase.
The feasibility of the idea and the entrepreneur(s) are examined in the pre-incubation phase in order to make a selection decision. It is recommended that this selection decision includes the advice of a strategically composed advisory board. When a start-up enters the incubation model, it gets access to infrastructure, a network, financial resource (providers) and business support (consisting of strategic, network, financial, and organizational capital). This research includes an analysis of the currently available incubation aspects within the executing organizations and incubation aspects that should be developed.
Infrastructure is currently available at Triade and the R&D hotel. The most important aspects of infrastructure are office space for favorable conditions, meeting rooms in the later stages, and laboratories and research equipment, which might be in particularity important for therapy creation start-ups. It is preferable to work together with the academic institutes when it comes to laboratories and research equipment.
When it comes to strategic capital, it’s recommended that the incubation program offers support in marketing skills, a strategic orientation, and support with the strategy of the start-up. When it comes to financial capital, it’s recommended that the incubation program offers support with the financial planning, with setting up an administration, and with securing financial seed and venture capital. When it comes to network capital, it’s recommended that the incubation program offers support in determining and filtering useful contacts, determining which network activities are important, and educating how to become an efficient networker. When it comes to organizational capital, it’s recommended that the incubation program offers support in entrepreneurial knowledge and skills, a market focus, business planning, legal knowledge, and support in IP protection. Several aspects of business support are also available in the current situation.
There are, beside network capital, 3 ways in which the incubation program could add value when speaking of a network. The incubator has a referral and introduction function to introduce start-ups to relevant stakeholders, the incubation program should organize network activities, and fellow entrepreneurs should be bundled together so they can walk true the journey of entrepreneurship together. This is also done in the current situation, it is recommended to maintain or extent current network activities.
4 The ideas of the stage gate model are recommended in the incubation program. There should be given process steps or milestones where a decision to kill or proceed with the start-up has to be made. This is embedded in the incubation model in order to reduce the waste of resources on non-progressing start-ups. The design of the incubation model is presented in figure 14 on page 82 of this report.
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Table of content
Preface ... 1 Summary ... 2 Introduction ... 8 Business motive ... 8 Theoretical interest ... 8Research design and outline ... 9
1. Research problem ... 11
1.1 Problem context... 11
1.2 Profiles of involved organizations ... 12
1.3 Problem statement ... 15
1.3.1 Problem statement according to consortium partners ... 15
1.3.2 Preliminary analysis ... 15 1.3.3 Research questions ... 16 1.3.4 Project approach ... 17 2. Theory ... 18 2.1 Incubation ... 18 2.1.1 Incubators ... 18 2.1.2 Typology ... 19
2.1.3 University Business Incubators ... 20
2.1.4 Services provided by incubators ... 21
2.1.5 Outcomes ... 23
2.2 Life science & health ... 25
2.2.1 Definition ... 25
2.2.2 Segments ... 25
2.2.3 Characteristics ... 26
2.3 Business life cycle stages ... 28
2.3.1 Incubation development models ... 28
2.3.2 Selection & graduation ... 31
2.4 Incubation demand ... 32
2.5 Operationalization ... 34
2.5.1. Service that incubators provide ... 34
6
2.6 Conceptual model ... 37
3. Methodology ... 40
3.1 Plan of analysis... 40
3.2 Data collection methods ... 42
3.2.1 Case selection ... 42
3.2.2 Interviews ... 43
3.2.3 Documentation ... 44
3.2.4 Observation ... 45
3.3 Data analysis methods ... 45
3.4 Quality criteria... 46
3.4.1 Controllability ... 46
3.4.2 Reliability ... 46
3.4.3 Validity ... 47
4. Incubation demand ... 49
4.1 Analysis of the different cases ... 49
4.1.1 Company 1 ... 49
4.1.2 Company 2 ... 51
4.1.3 Company 3 ... 54
4.1.4 Experts... 57
4.2 Cross case analysis ... 67
4.2.1 Infrastructure ... 67
4.2.2 Business support ... 69
4.2.3 Network ... 73
4.2.4 Finance ... 74
4.2.5 General aspects ... 76
4.3 Conclusion of incubation demand ... 76
5. Re-design of the current situation ... 78
5.1 Target group ... 78
5.2 Process of the incubation program... 78
5.2.1 Pre-incubation or selection phase ... 78
5.2.2 Incubation ... 80
5.3 Organizational aspects ... 85
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7. Conclusion and limitations ... 88
7.1 Conclusion... 88
7.2 Limitations ... 91
7.3 Direction for further research ... 91
References ... 93
Appendices ... 97
Appendix 1. Incubator definitions of global institutes ... 97
Appendix 2. Legitimacy of public intervention in the start-ups process ... 98
Appendix 3. Questionnaire for problem definition ... 99
Appendix 4. Interviewed people for problem definition ... 101
Appendix 5. Cause and effect diagram based upon preliminary analysis. ... 101
Appendix 6. Interview guide case studies entrepreneurs ... 102
Appendix 7. Interview guide incubation program ... 109
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Introduction
True value of science can be measured as a benefit to society. This value can be expressed in day to day applications to solve all kinds of challenges in specific fields. In recent years there is a higher focus on the valorization of knowledge from science (Grimaldi & Grandi, 2005), this seems especially important in a knowledge-based economy like in The Netherlands. Incubation represents an attempt to help entrepreneurial, new, and young firms to overcome resource gaps that prevent them from failing in the early stages of their development (Hackett & Dilts, 2004). Business incubation (BI) has become an umbrella term that refers to various initiatives designed to support start-ups by closing financial, spatial, managerial, and network gaps (Aernoudt, 2004).
Business motive
The Center of Valorization and Entrepreneurship (CvO) clusters valorization initiatives that originated from the knowledge institutes (Hanze hogeschool, Rijks Universiteit, and University Medical Center) in Groningen. Within this consortium there is specific attention for life science & health start-ups. However, the organizations responsible for the execution of life science & health start-up support experience that their support can be optimized. They work on the same process but have an overlap as well as uniqueness in their services and activities; therefore they experience the start-up support as fragmented. These executing organizations want to coordinate their individual services and bundle their collective expertise in a join incubation program to stimulate life science & health entrepreneurship more efficiently and effectively. The managerial interest of this research is that the proposed incubation program should increase the quality of life science & health start-ups, this ‘quality increase’ is defined as organizational growth and increased investor readiness of these start-ups.
The problem statement is:
“The incubation process of academic life science & health entrepreneurship in Groningen lack a uniform incubation program. (Starting) entrepreneurs do not know where and how to gain start-up support leading to low perceived quality of start-ups”.
In the current situation, there is no optimal solution for the spatial, managerial, network, and financial gaps that some (starting) entrepreneurs face in the life science & health sector. By closing these gaps, it is expected that the quality of life science & health start-ups will increase. The goal of this study is to deliver recommendations for an incubation program that overcomes the gaps that start-ups face, and thereby increasing the quality of those start-ups.
Previous research indicates that new business generation and innovations contribute to economic development (Storey & Green, 2010). Given current economic circumstances, incubation can be an important tool for the local (as well as the national) government to stimulation the economy (Razak & Saad, 2007), and to improve the competitive position of Groningen as and the rest of The Netherlands.
Theoretical interest
9 (McAdam & McAdam, 2008; Bruneel et al., 2012). This research expands this literature by examining which, when, and how incubation services can be applied dependent upon the organizational life cycle phase of life science & health start-ups. This approach is only limited investigated in previous research (McAdam & McAdam, 2008).
Academics that want to valorize their research in the current situation can gain support from different organizations, operating under their own, different flag. Although there is some exchange of knowledge and services to provide the necessary service for those entrepreneurs, this process can be optimized. The goal of this study is to discover how an incubation program for the life science & health sector can best be organized during different organization life cycle stages in order to increase the quality of the start-ups. This design is in line with Grimaldi & Grandi (2005) who stated that incubators might develop specific skills at a given phase of the business life cycle.
The research question is:
“How can the supply of, and demand for incubations tools be integrated to stimulate and accelerate the local economy of Groningen by increasing the quality of the life science & health start-ups”.
Sub questions related to the research question are:
1. What are the available methods in a university business incubation program?
2. In which way differ life science & health companies from other companies in terms of an incubation program during different life cycle stages?
3. What methods and techniques are currently required in a life science & health incubation program for the knowledge instituted in Groningen?
4. What methods and techniques are currently used in the life science & health incubation process for the knowledge instituted in Groningen?
5. How can the life science & health incubation program for Groningen best be organized?
Research design and outline
This research combines both literature and (local) incubation demand to formulate recommendations for a life science & health incubation program. According to Van Aken et al. (2010) the best way to develop knowledge from those two sides is by combining a reflective and regulative cycle (figure 1).
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1. Research problem
This section discusses the first two steps on the regulative cycle. First, the context of the problem is described, followed by the problem statement which drives the basis of this research.
1.1 Problem context
To secure the position of Groningen as the knowledge and innovation city of the northern Netherlands in the long run, the Rijksuniversiteit Groningen (RUG), Hanzehogeschool Groningen, municipality of Groningen and the Universitair Medisch Centrum Groningen (UMCG) closed the ‘Akkoord van Groningen’ in 2004 to ‘invest in the northern knowledge hub’ due the valorization of innovations resulted from knowledge. There were improvements in the structure of the valorization activities in the years that followed and the partners saw this as a chance to renew their strategic alliance in 2009 to the ‘Akkoord van Groningen 2.0’. The mission of ‘Akkoord 2.0’ is ‘to expand and strengthen the special position of the city of Groningen as (international) knowledge hub and center of valorization’. The focus of Akkoord 2.0 is on the strong and distinctive spearheads; Energy, Healthy Aging, and Enabling technologies such as ICT and senor technology.
The executive role in this plan is taken by the Center for Valorization and Entrepreneurship (CvO). The CvO has three main drivers (all with a origin in knowledge):
Public-private interaction, Entrepreneurial education, Screening & Scouting.
These drivers are aimed to stimulate entrepreneurship, lead to new companies, innovations, and the acceleration of existing companies. The organizational structure of the CvO is presented in figure 2.
Con Consortium for valorisation and entrepreneurship Groningen
Public- Private interactions
Education Screening & Scouting
(Incl. start-up support)
R U G ( eg . Mi n o rs ) S B G G ( R U G & U M C G ) H an ze H o g es ch o o l (V A L U E 0 5 0 ) U MC G T ria d e (U MC G ) H A N N N , E n er g y v al le y an d o th er s R es ea rc h & V al o riz at io n Supportive initiatives:
(MONITOR050, TCNN, the ‘inner circle’, several funds, Healthy Aging Campus, Zernike Science Campus, communities of practice)
12 Figure 2. Organization of the Centre for Valorization and Entrepreneurship.
Some of the partners are explicitly established to stimulate and accelerate entrepreneurship. Namely SBGG (Stichting Business Generator Groningen), Triade, R&V (Research & Valorization), and the RUG-houdstermaatschappij. The primary aim of these partners is to support and accelerate entrepreneurship, they want to bundle their strengths in a joint program under the umbrella of the Healthy Aging Campus. The research at hand focuses on the executing organizations in the life science & health sector. They form the direct line that stimulate and accelerate entrepreneurship in Groningen for this sector. The indirect lines that stimulate entrepreneurship (e.g. the province, the municipal, the European Union) are not further treated in this research. The executing organizations acknowledge that the current start-up support situation isn’t organized well enough.
1.2 Profiles of involved organizations
The executing organizations are further introduced in this section based on their goals and core activities. RUG-holding Company (RHC)
The RHC is founded in 1996 to support knowledge intensive start-ups from the RUG and to valorize the results of scientific research. The goals of the RHM is ‘support scientists in the process of setting up a company’, the role of the RHM roughly ends when a company passed the notary for establishment. They work together with R&V (see below) and are not restricted to certain sectors. Through the years, 50 companies where started from two funds (Kennis Conversie Fonds B.V. and Noord Tech Venture C.V.). The RHC currently has no funding to invest, the RHM manage the portfolio’s that aroused due the previous investments of the funds. The RHM supports companies with knowledge, experience, and their regional organizational network (and with finance in the past). The RHC provide one-on-one business support and network connections for their portfolio organizations. Scientists from the RUG that consider to valorize their research can get support from the RHC in writing and working on their business plan, introductions to and preparations for presentations to possible investors and setting up the organizations. All business support and network connections are one-on-one; the RHC doesn’t provide training or network events for multiple start-ups they support. The RHC can’t provide infrastructure for start-ups, therefore they have a collaboration with CUBE050 (an incubator building).
Stichting (Foundation) Business Generator Groningen (SBGG)
SBGG is founded in 2007 to assist in the transfer of knowledge generated by the RUG and UMCG to companies and society, thereby focusing on the life science & health sector. Their goal is to promote the translation, or value creation, of knowledge into problem solving solutions, through support in idea evaluation, knowledge protection, licensing, generation of partnerships and entrepreneurship.
SBGG explore the following activities to achieve their goal:
Screening & Scouting (identifying and judging potential ideas).
Idea protection (evaluating and managing IP, together with Research & Valorization). Licensing (identification of licensees, discussing and negotiation of terms).
Coaching (assisting starting companies and entrepreneurs).
13 All services are one-on-one; SBGG doesn’t provide training or networking events for multiple start-ups. SBGG provide one-on-one business support, provide network introductions, and provide support with the funding of the start-up. SBGG possess the possibility to provide two types of loans to start-ups (Technovation loan and Proof-of-Concept fund).
Triade
Triade is founded in 1988 and affiliated to the UMCG. They support life science & health start-ups. Triade’s goal is to support researchers and (starting) entrepreneurs in the development of their concept, administration, housing, and funding. Triade uses (inter)national networks with knowledge and experience in health related innovations. They are organized in four departments each with different activities:
Real Estate. This department administers the supply of offices with diverse services (like meeting rooms, laboratories, cleanroom, parking places and reception facilities).
Business development. This department helps to evaluate and develop innovative ideas. This department judge if the start-up is innovative, if the start-up has market potential and if it has earn-back possibilities.
Services. This department support the creation and maintaining of administrations. They do so by providing several services (like support with the establishment of an organization, the financial administration, the annual accounts, draft budgets, writing financial reports, the fiscal declarations, and advise on those topics).
Finance. This department support and mediate by financing possibilities. The department possesses several possibilities to fund start-ups in different stages. Triade has its own funding possibilities.
All services are one-on-one, Triade doesn’t provide training or networking events for multiple start-ups although they are closely related to the Healthy Aging Campus (see below).
Healthy Aging Campus (HAC)
The Healthy Ageing Campus brings together researchers, entrepreneurs and the public sector in an environment that stimulates open innovation. The mission of the HAC is to ‘realize innovations and business by stimulating and facilitating the interaction of enterprise and research, in order to optimize the life path and enable people to continue participating in society for longer’. The Healthy Aging Campus is a physical meeting place for entrepreneurs and scientists from the healthcare industry. They focus on organizations related to Food & (e-)Health, Medical Technology, and Pharmacy.
HAC strives to create a community and a one-stop-shop where start-ups can gain all the support they need. To achieve this one-stop-shop they provide 5 different types of services:
Collaboration with the UMCG and RUG. To provide the research facilities that start-ups in life science & health may need. This might include access to the university library and laboratory space.
14 Start-up support. This support can contain domains like writing a business plan, doing market research, attracting funds, and the protecting of intellectual property. Triade has the executing role in these services (see also Triade, above for the service Triade provide).
Accommodation. The HAC has 550m2 R&D hotel available for start-ups to meet potential partners. They offer a flexible office space (sit & go) and related services like car parking, internet access, printing facilities, and meeting rooms. For those infrastructural services, the HAC makes use of the real estate services of Triade (see above).
Private funding. The HAC can support start-ups with funds in every stage of the organizational life cycle.
Beside above services, the HAC organize network events like the periodical Healthy Aging (Business) Drinks and other network events about related topics. The HAC also promotes (network) events of their network relations, like e.g. the Grants Week that is organized for scientists to better apply for grants. The HAC promotes several training programs (due their network partners) like the Masterclass BioBusiness, Mosadex, or Patents, and the NGI Venture Challenge. The HAC also promotes the m-variant master course for RUG science students to prepare for a variety of jobs in the business world and in policy organizations.Those programs are not organized or held by the HAC itself.
Research & Valorization (R&V)
R&V is the first port of call for researchers from the RUG for advice and support in finding research funding. R&V supports (possible) start-ups, regardless of their sector. The goal of R&V is ‘setting up or linking regional, national, or international research projects; supports applicants for personal research budgets; setting up strategic research partnerships with businesses and social organizations, and entering bilateral partnerships with industry supporting the whole process of patent applications for the university’. R&V is divided in 4 teams:
Strategy and Quality Assurance Team. This team advises the executive board and the faculties on one hand about research strategies and policies, and on the other hand about the execution and management of a system for quality assurance.
Cooperation Funding Team. This team helps researchers of the RUG to find funding possibilities. Talent Funding Team. This team support (potential) RUG researches with the application of personal subsidiaries. They mediate in the search for PhD students with an own promotion scholarship.
Valorization Team. This team is specialized in supporting entrepreneurship (in general sense), patent applications, and contract-research from academics with (external) companies. This team also manages the patent portfolio of the RUG.
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1.3 Problem statement
According to Van Aken et al. (2007) a problem statement can be defined as ‘a state of affairs in the real world with which important stakeholders are dissatisfied, while they believe that things can be improved’. In this section, this dissatisfaction is discussed with a preliminary analysis. After this first analysis, the research question is presented followed by the project approach.
1.3.1 Problem statement according to consortium partners
The academic institutes in Groningen (UMCG, RUG, and Hanze Hogeschool) started several organizations to promote entrepreneurship through the years. Those initiatives evolved organic, they work on the same goal, providing more or less the same services. On the whole line, the start-up support as provided by the knowledge institutes is fragmented. As the above introduction of the executing companies indicates, the services that they provide are unique as well as complementary; there is also an overlap in the services they provide. For (starting) entrepreneurs, it is not always clear where they can get gain which type of support during the process. Sometimes, the different organizations do the same work for the same organization without coordination and without knowing what the other does, assuming that they do it in the right way.
By now, the executing organizations recognize that they can be more successful if they bundle their support. The start-up process is assumed to be inefficient in the current situation, leading to a decreased quality. ‘Quality’ is defined as organizational growth and increased investment opportunities. It is also assumed that the organizations don’t reach their potential in terms of the number of start-ups they help. This problem is supposed to be the result of the lack of an unambiguous spread of the possibilities for (starting) entrepreneurs to gain support. In other words; the business they generate is under their potential. The services that these organizations provide can be seen as business incubation services. ‘Business incubator’ has become an umbrella term that refers to various initiatives designed to support start-ups (Aernoudt, 2004). Business incubation definitions as presented by some global institutes are listed in appendix 1. The organizations want to bundle their activities in a joint incubation program to stimulate and accelerate entrepreneurship in the life science & health sector.
1.3.2 Preliminary analysis
The initial problem statement does not provide sufficient ground for a reliable analysis (Van Aken et al., 2010) to prevent making mistakes, employees of the involved organizations were interviewed about the business problem and the causes of this problem. The questionnaire of these interviews is provided in appendix 4a. An overview of the interviewed people is presented in appendix 4b.
After this information gathering the following main problems were identified.
It is assumed that start-ups are not supported and accelerated optimal. The potential outcomes in terms of organizational growth are not reached.
For members of one organization, it’s unclear what kind of support the members of other organizations do, can do, and can’t do.
16 In the current situation, start-ups can subtract support from many different organization, there is
no one-stop-shop, leading to ‘shopping’ behavior.
There is a lack of a unified ‘umbrella’, ‘window’ or ‘incubation program’ were start-ups can get support.
There is a lack of collaboration and coordination between different organizations that provide start-up support.
There is no academic base that the offered services meet actual start-up support demand. Supporting organizations are ‘fishing’ in the same pool of start-ups.
The most noticeable overall problem is that the start-up support is not organized well enough and that there is no ‘umbrella’ under which the different organizations can operate, leading to a perceived lower quality of start-ups. The executing organizations of start-ups support want to bundle their services in an incubation program. A cause and effect diagram is has been developed (see appendix 5). The analysis has resulted in the following problem statement:
“The incubation process of academic life science & health entrepreneurship in Groningen lack a uniform incubation program. (Starting) entrepreneurs do not know where and how to gain start-up support leading to low perceived quality of start-ups”.
The executing organization of start-up support want to bundle their services in an incubation program in order to increase the quality of the start-ups.
In general, a theory of examined incubation must offer insights on the fit between incubator offering, tenant needs, the business environment, and the national and local culture (Maital et al., 2008).
1.3.3 Research questions
The problem statement resulted in the following research question:
“How can the supply of and demand for incubations tools be integrated to stimulate and accelerate the local economy of Groningen by increasing the quality of the life science & health start-ups”.
Sub questions related to the research question are:
1. What are the available methods in a university business incubation program?
2. In which way differ life science & health companies from other companies in terms of an incubation program during different life cycle stages?
3. What methods and techniques are currently required in a life science & health incubation program for the knowledge instituted in Groningen?
4. What methods and techniques are currently used in the life science & health incubation process for the knowledge instituted in Groningen?
5. How can the life science & health incubation program for Groningen best be modeled?
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1.3.4 Project approach
The conceptual design is presented in figure 3. According to Van Aken et al. (2010), this conceptual design represents the logic of the analysis. It explicates the research subject (right box) as well as the theoretical perspectives (left box) that will be applied in this project. The deliverable of this project consists of an incubation program (middle box).
Figure 3. Structure of conceptual project design for the diagnoses Incubation principles
Incubation demand Organizational life cycles
(Fragmented) start-up support in life science & health
Diagnoses
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2. Theory
Incubators are part of a wide range of initiatives aimed at stimulating and supporting entrepreneurship (Main, 1996). Incubators have received considerable attention in academic research (e.g. Hackett & Dilts, 2004; Bergek & Norrman, 2008; Peters et al., 2004). To clarify the concept of incubation and to come up with the right perspective for this thesis, a literature review is provided. It starts with incubation in general and then focusses on the specific case of life science & health, followed by an outline of organizational life cycle stages and demand for incubation services.
2.1 Incubation
It is generally accepted that the first business incubator (BI) was established in New York, at the Batavia Industrial Center in 1959 (Lewis, 2002). It took a long time, until the late 1970’s, before the concept of providing business assistance services to start-ups and shared facilities became more common. In 1980 there were approximately 12 incubators, all in the United States. The growth in number of business incubators increased rapidly due to the Bayh-Dole Act in 1980. This act gave federally funded grantees and contractors, including universities, a mandate to patent and license inventions resulted from federally funded research (Colaianni & Cook-Deegan, 2009). Due to this act it became easier to commercialize knowledge. Because of the success stories of the Sillicon Valley and Route 128 and due the fact that universities and other public research institutes became more dependent on external funding to finance their activities (BioPartner, 2004) there are nowadays many incubation initiatives, both public and privately funded.
The Bedrijftechnologisch Centum Twente (BTC) is one of the first Dutch business incubators, they were founded in 1982. The local knowledge institutes in Enschede (Saxion University of Applied Science and the University of Twente) are one of the shareholders of the BTC. The RUG-Holding Company is the oldest academic start-up support initiative in Groningen, they are founded in 1996.
Nowadays many local economic development agencies, government and other institutions have adopted incubators as a tool to reduce the probabilities of failure and to fasten the business development process of start-ups (Grimaldi & Grandi, 2005).
2.1.1 Incubators
Incubators became a more popular topic of scholars in the 1980’s (Hackett & Dilts, 2004). As a common aspect, scholars assume that incubators are economic development tools for economic development and job creation due to the shared belief that the services of incubators will result in more start-ups with fewer business failures (Kuratk & LaFollette, 1987; Lumpkin & Ireland, 1988). More general, ‘business incubator’ has become an umbrella term that refers to various initiatives designed to support start-ups (Aernoudt, 2004). An incubation program is an economic and social program which provides intensive support to start-ups (Al-Mubaraki & Busler, 2013). A discussion about public intervention and the legitimacy of incubation, is presented in appendix 2.
19 definition for Business Incubation from some global institutes is listed in appendix 1. This research strives to give a rather broad definition, therefore the definition of the NBIA (2013) is used in this research: ‘Business incubation is a business support process that accelerates the successful development of start-up and fledgling companies by providing entrepreneurs with an array of targeted resources and services. These services are usually developed or orchestrated by incubator management and offered both in the business incubator and through its network of contacts.‘
2.1.2 Typology
The most common typology in business incubation is the distinction between profit and non-for-profit incubators (Bollingtoft & Ulhoi, 2005) where the non-for-profit incubators strive to promote regional development (Grimaldi & Grandi, 2005), for profit incubators strive to quickly create new ventures and in return to take a portion of equity as a fee to maximize incubation shareholder value (Hansen et al., 2000). Recent scholars consider university based incubators as a separate type of incubation since they differ so much in their origin and characteristics and therefore are a separate unit of analysis in academic research (Peters et al., 2004). Grimaldi & Grandi (2005) distinguish between 4 types of incubators: Business Innovation Centers (BICs), University Business Incubators (UBIs), Independent Private Incubators (IPIs), and Corporate Private Incubators (CPIs). They describe several ‘characterizing variables’ in which incubators differ from each other like the institutional mission, industrial sector, location, market, origin of ideas, phase of intervention, incubation period, sources of revenue, services offered, and management teams.
20 Figure 4. Value adding continuum. Adapted Allen & McCluskey, 1990.
Bruneel et al. (2012) describe incubators in terms of their generation and the services they provide. First generation incubators focused on the provision of office space and shared resources. Second generation incubators focused on coaching and training support. The third and most value adding generation incubators distinguish themselves by providing access to technological, professional, and financial networks. The three generations of incubators are summarized in the table below.
First generation Second generation Third generation Offering Office space and
shared resources
Coaching and training support
Access to technological, professional, and financial networks
Theoretical rationale
Economies of scale Accelerating the learning curve
Access to external resources, knowledge, and legitimacy
2.1.3 University Business Incubators
21 into two groups: (a) typical incubator services including shared office services, business assistance, access to capital, business networks and rent breaks; and (b) university related services including faculty consultants, student employees, university image conveyance, library services, labs/workshops and equipment, mainframe computers, related R&D activity, technology transfer programs, employee education and training, and other social activities.
UBI’s have an institutional mission, their rational lies in the ability to reduce start-up costs for (promising) knowledge-based and high-tech entrepreneurial initiatives. They are generally small initiatives, targeting national or local niche markets with a mid-term orientation. They still requiring time, technological transfer and resources (access to technological knowledge, university laboratories and infrastructure) to develop their potential (Grimaldi & Grandi, 2005).
2.1.4 Services provided by incubators
Business incubators strive to generate economic development by overcoming start-up constraints as mentioned by the OECD (2008a) in appendix 2. The services that incubators provide are generally divided into three groups: infrastructure, coaching, and networking (Peters et al., 2004; Hackett & Dilts, 2004; Bergek & Norrman, 2008). Peters et al. (2004) stated from research of the NBIA and other independent researchers that: ‘while entrepreneurs wanted high levels of expertise and capital, a majority of the incubators focused on infrastructure’. Hackett & Dilts (2004) address the provision of financing as an area where BI could create value. This suggests that (access to) finance is a fourth service that incubators can provide.
Infrastructure
Infrastructure is most common function of all business incubators, and the core of their value proposition. The provided infrastructure consists of office space in favorable conditions, small production facilities, shared resources like a reception, clerical services, meeting rooms or car parking. There should also be more specialized resources like laboratories and other research equipment (Bruneel et al. 2012). The logic of these infrastructures comes from economies of scale; reducing overhead costs and considerable time savings due the elimination of management activities (Peters et al., 2004). This view is supported by Hamel (2000) who stated that companies must develop new business models which can include suppliers, partners, distribution channels, and coalitions that extend the companies resources in order to obtain economies of scale.
Business support
Start-ups often lack the necessary management skills and experience to deal with sudden contingencies (Bruneel et al., 2012). Business assistance includes an array of support such as business planning, tax assistance, personnel recruiting, marketing, management, accounting, and general legal expertise (Scillitoe & Chackrabarti, 2010). The logic behind these services is to overcome managerial and experience gaps and, by doing so, increasing the survival rate and accelerating the learning curve of start-ups.
22 According to Meyer (2005) it is a myth that starting entrepreneurs know their knowledge gaps. In case of unknown incompetence, knowledge can be pushed from the incubator to the entrepreneur. In case of specific questions, the entrepreneur should be able to relay on the possibility to pull the needed knowledge from the incubator. According to Rice (2002) there are three ways how knowledge can be transferred from the incubator to the start-up.
1. Reactive and episodic, this is entrepreneur-initiated. The entrepreneur requests for help dealing with a crisis or problem and the assistance is focused on this problem and is generally of limited duration.
2. Proactive and episodic, this is incubator-initiated. The manager engages entrepreneurs in informal, ad hoc sessions.
3. Proactive and continual, this is incubator-initiated. The start-up is subjected to an on-going review and ‘aggressive’ intervention by the incubator.
Knowledge gaps are assumed to be the biggest in the first phases of entrepreneurship, so proactive knowledge transfer is assumed to be more important in the very first stages of the incubation process. While reactive knowledge transfer could be more important in the latter phases of the incubation process when the entrepreneurs can also rely on obtained knowledge.
Network
Networking has been identified as an important factor in the incubation process (Aernoudt, 2004; Peters et al., 2004). Networking activities provides start-ups with access to potential customers, suppliers, technology partners, investors, and employees or managers (Hansen et al., 2000; Scillitoe & Chakrabarti, 2010; Bruneel et al., 2012). Incubators should facilitate an extensive network of business connections that forge both business administration as technology-based relationships (Hansen et al., 2000). The incubator should facilitate such a network because it provides a valuable source of knowledge and new networking opportunities that are valuable for its start-ups. According to Bruneel et al. (2012), networking is a service that is most common provided by, and most important in, the third and most modern generation of incubators. Totterman & Sten (2005) argued that it is important to link entrepreneurs to the most appropriate networks available through the incubator. Organizations with greater opportunities to access external sources of knowledge will have a greater chance that they can learn and exploit this knowledge (Almeida et al., 2003). It is not suggested that ‘appropriate’ means a network as big as possible because this might lead to a situation in which incubators must wade true a wood of contacts.
23 development since access to potential customers, suppliers, technology, partners and investors are more relevant in the later stages of the incubation process.
Finance
One of the main reasons why start-ups don’t survive is a lack of financial resources (Storey & Green, 2010). This is even more important for technology-based organizations since they usually lack a track record and an extensive network (Heuven & Groen, 2012). It is remarkable, however, that finance is not mentioned as one of the services that incubators provide (e.g. Bergek & Norrman, 2008; Peters et al., 2004). This might be a gap in the needs of start-ups and the services that incubators provide. (Access to) finance can also be seen as a network activity. Heuven & Groen (2012) investigated the difference between strong and weak ties in ways to gain (access to) finance. They found that networks rich of structural holes are preferred for identifying financial opportunities for starting entrepreneurs, independent of their experience. This type of network could be used by an incubator to help its start-ups. Heuven & Groen (2012) indicates that having weak network ties is more favorable for start-ups that directly access financial resource providers. They conclude that less experienced entrepreneurs do not have the legitimacy, skills, and knowledge to access the financial resource provider directly, and therefore have to rely on strong tied referrals to facilitate trust building. So, incubators could play a role in fulfilling the need of start-ups to gain (access to) finance, even if the incubator don’t have own funds to provide early stage support.
To summarize, incubators provide infrastructure, business support, network, and (access to) finance. They do this to decrease the high failure rate of start-ups and speed up the organizational life cycle stages. ‘While most accelerators provide tangibles such as funding, mentorship and access to potential investors, they're not a golden ticket to success. A positive experience depends on setting realistic expectations and understanding what these programs can and can’t do’ (Andruss, 2013. p.79).
2.1.5 Outcomes
According to a study of the European Union (2001), the benefits of a well-managed incubator can be many-fold for different stakeholders, as presented in the table below.
Actor Benefit
Start-ups BI’s enhanced the chances of success, raises credibility, helps improve skills, creates synergy among client-firms, and facilitates access to mentors, information and seed capital.
Government BI’s helps overcome market failures, promotes regional development, generates jobs, incomes and taxes, and becomes a demonstration of the political commitment to small businesses.
Research institutes and universities
BI’s helps strengthen interactions between university research-industry, promotes research commercialization, and gives opportunities for faculty/graduate students to better utilize their capabilities.
Business BI’s can develop opportunities for acquiring innovations, supply chain management and spin-offs, and helps them meet their social responsibilities.
24 community a majority of graduating businesses stay within the area.
international community
BI’s generate opportunities of trade and technology transfer between client companies and their host incubators, a better understanding of business culture, and facilitated exchanges of experience through associations and alliances.
This is supported by the National Business Incubation Association (2007) who observes that ‘the most common goals of incubation programs are creating jobs in a community, enhancing a community’s entrepreneurial climate, retaining businesses in a community, building or accelerating growth in a local industry, and diversifying local economies’.
Most of the incubator outcome studies are centered around the question if survival rates among incubated start-ups are higher compared to non-incubated start-ups (Hackett & Dilts, 2004; Bergek & Norrman, 2008). There are different levels of analysis that can be used when assessing incubator outcomes e.g. the community in which the incubator operates, the incubator as enterprise, incubatee firms, or the innovations being incubated (Hackett & Dilts, 2004).
There are studies which have found higher survival rates and success rates among organizations that graduate from a business incubator (European Union, 1994; Peters et al., 2004). But it is not clear whether the higher survival rates are the result of a better selection process or whether it is the result of the provided services (Peters et al., 2004). This discussion is based on the question if a business incubator excels at picking or making the winners (Bearse, 1998).
The objectives of incubators are dependent on the type of business incubators. One of the goals of (public funded) university incubators is to create economic and social benefits that are associated with innovations. Economic and social benefits do not always occur until the innovation is introduced to the market and widely diffused (Mian, 1997). This can happen after the organization leaved the incubator. In that case, the economic and social benefits can still be accomplished, but this is accomplished outside the scope of the incubator. According to Davidsson (2005) there are so called catalyst ventures that have a negative organizational outcome (the start-ups doesn’t survive) but a positive society-level outcome. This may be the case when a business eventually lack the required resources or skills to harvest from an innovation, but their innovation is used by other companies in a way that serves the society. These indirect incubation outcomes are difficult to measure.
Ratinho et al. (2009) investigated the difference between technology incubators (which are by their definition, the topic of this research) and non-technology incubators. They found that the contribution of technology incubators to economic growth is bigger when compared to the rest of the business incubators population due to higher level of offered services and because technology incubators are closely linked to sources of knowledge creation (like academic institutes).
25
2.2 Life science & health
This study focusses on start-ups from the academic institutes in the life science & health sector. The aim of this part of the research is to elaborate on the aspects that make this type of start-ups different from others, in other words, the legitimacy of the focus on life science & health start-ups. One of the reasons why start-ups choose to work with a particular incubator is the expected synergy generated from cooperating and learning with complementary start-ups or from more mature companies that have graduated at the incubator (Ruping & Von Zedtwitz, 2001). The more clearly an incubator defines the incoming new venture profile, the better this incubator will be able to leverage his given competencies as well as create potential synergy effects among already resident start-ups (Von Zedtwitz, 2003). It is important for an incubator to specialize since this might result in expertise in a specific area, resulting in an incubator that is more able to deliver value, and therefore will be able to attract more start-ups. Specialization has the aim of creating a pull function leading to an upward spiral. The remainder of this section starts with a definition of the industry, followed by an explanation of the different segments and the characteristics that make those segments unique.
2.2.1 Definition
The first common aspect is the industry in which the start-ups that are topic of this research operate. Stremersch & Duyck (2009, p. 4) state that the life science & health industry spans companies in: ‘pharmaceuticals, biotechnology, and therapeutic medical devices, and it forms the innovative producer side of the health care industry’. Ideally this research made use of a definition that is also used by the executing organization of the proposed program, increasing the practical relevance of this research. After inquiries at partners from the CvO, it seems that the decision if a start-up fits in the life science & health industry is based upon more or less subjective judgment. A start-up should have a link with the areas as presented by the Healthy Aging Network Noord-Nederland (Care & Cure, Food & Nutrition, Healthy Lifestyle, Life Sciences, and Medical Technology). Start-ups that fit in these areas might obtain for the services of the incubation program that is the topic of this study.
2.2.2 Segments
Within the defined sector, there are several segments; start-ups that can be groups together based on similarities in their business development cycle. The first aspect is the difference between the development of services and products. Second, there is a difference between drug discovery or therapy creation start-ups, which can only be launched into society after scientific review of its consequences on people’s quality of life (Stemersch & Van Dyck, 2009), and ‘regular’ product development or service. Therapy creation in this research is limited to therapies that are developed for humans, since they represent most of the start-ups from the academic institutes in Groningen. Development of a single drug may take up to 13 years and has an estimated cost of USD 1bn to USD 1,3bn (Rabobank, 2012). The focus in products/ services is more on the development of the innovation while therapy creation has a higher focus on testing and validating the innovation.
26 entrepreneurs need less support, the program for experienced entrepreneur can be different from the program for inexperienced entrepreneurs (e.g. an undressed version of the program where non-value-adding support can be omitted).
Second, the start-up may be founded by one entrepreneur or a team of entrepreneurs (e.g. a research group from a certain faculty). Early research (Robert, 1991) indicates that high-tech start-ups are more often created by a team than by one entrepreneur. Next to that, team-started business account for a disproportionately greater number of high-growth firms (Clarysse & Moray, 2004; Groen et al., 2005). Third, the might be differences based on the degree of technology intensity. Groen et al., (2005) identified front end technology based firms (or new technology based firms) and application oriented technology based firms. Groen et al. (2005) conclude that the difference in technology-intensity has several implications for the needs of starting entrepreneurs.
To sum up, the following segments are identified. There will be a distinguishing between the segments in this research. This research won’t specify the different characteristics.
Business origin Experienced Entrepreneurs Technology intensity
Services Yes/ No Singe / Team Front end / application Therapy creation Yes/ No Singe / Team Front end / application product/ technology development Yes/ No Singe / Team Front end / application
2.2.3 Characteristics
Start-ups in the life science & health sector have some common characteristics that legitimize the focus on this group as well as some characteristics in which they differ from each other. The first common characteristic is that the start-ups are founded from knowledge generated from research that is done in academic institutes (university or academic hospital), they can therefore be seen as high-tech. According to Clarysse & Moray (2004) ‘high-tech start-ups’ or ‘new technology-based firms’ play a prominent role in the current economy.
The second common characteristic is that, since they are founded from knowledge created by research, they have to deal with the protection of the intellectual property (IP) of the research (Grimaldi & Grandi, 2005). After the protection of IP, the question raises who owns it, the academic institute or the researcher(s)? Licenses play a role in the allocation of the right of the intellectual property. In the current situation, the technology transfer is done by Research & Valorization.
27 The fourth common characteristic is that these companies often have a link with a university or academic hospital that provide the start-ups with access to university research activity and technologies, laboratories, and facilities (Mian, 1996), industry contacts (Hansen et al., 2000), technology transfer processes, research and technology supply pipelines, intellectual property protection (Hannon, 2005), and technological known-how skills (Scillitoe & Chakrabarti, 2005). Usually, most of the founding team members know each other from university or hospital work and there is often a lead entrepreneur who was the technical project manager before start-up. The founding members have in general little network contacts with nontechnical people when they start their organization (Clarysse & Moray, 2004).
Besides these common characteristics there are also some aspects in which the identified segments differ from each other.
Time to market
New therapies can only be launched into society after scientific proof of the consequences on people’s quality of life through testing of the therapy’s safety, efficacy, and incremental cost effectiveness (Stemersch & Van Dyck, 2009). After every test phase, a therapy can be judged as not applicable and rejected, this is why only 1 in 5.000-10.000 of newly created therapeutic inventions makes it to the market (Stemersch & Van Dyck, 2009). The whole process from discovery till the market takes on average more than 10 years (Zivin, 2000). The therapy creation life cycle stages will be further explained in the next section. New products/ services need to be proven as well but they don’t need to go through such extensive test phases before they can enter the market. Due to the setup of a production line, the time to market of product is longer than that of services that can start right after the organization is launched.
Type of organization Time to market Therapy creation Long
Product development Medium
Service Short
Seed investment
The pharmacy industry is characterized by the large seed investment that is needed before a new therapy can enter the market. The clinical studies needed to proof the consequences of people’s quality of life after the therapy has proofed itself on animal costs around € 75 million (Zivin, 2000). There is a seed investment in product development due the purchase of (production) assets, but this investment will be much less than in the case of clinical studies for new therapies. Services need only a minimal seed investment or could be executed without.
Type of organization Seed investment Therapy creation High
Product development Medium
Service Minimal
Sales
28 There are, however, worldwide only a few gigantic pharmaceutics who actually produce and sell drugs and/or therapies. Therapies in the (earlier) development phases are usually sold to pharmaceutics or other investors, given the high upfront investment. Therefore, it is the organization or the concept rather than the product that is sold. The sale of the therapy creation enterprise will only happen once or a few times (different percentages of the shares).
Type of organization Sales focus
Therapy creation Organization, once or a few times
Product development Product (as many as possible within ambition) Service Service (as many as possible within ambition) Laboratory space
To create a therapy, researchers need laboratory space to (further) develop the therapy. This laboratory space might be provided by the academic institute. Product development and services does not need any laboratory space in general. Although product start-ups sometimes need laboratory space as well.
Type of organization Laboratory space Therapy creation Mostly yes
Product development Mostly not
Service Mostly not
To conclude, the segments differ from each other in term of the time to market, the seed investment, the sales focus, and the need for laboratory space.
2.3 Business life cycle stages
Incubators strive to stimulate and supporting entrepreneurship, in other words, they strive to help start-ups along there life cycle journey by providing services to increase the likelihood of survival and growth to a successful organization. This section describes the business process for incubated start-ups. The aim of this section is to map the business life cycle stages of the identified segments.
2.3.1 Incubation development models
The research of the incubator business process is generally limited to examining the process of selection (Hackett & Dilts, 2004; Peters et al., 2004) and graduation, whereby it is intended that ventures are independent, self-sustaining businesses (Grimaldi & Grandi, 2005). Bergek & Norrman (2008) divided the process of an incubator in three general tasks (a) selection companies, (b) business support, and (c) mediation (networking).
29 study, such a model would gain insight of the different process steps of the program that could be filled in by the different executing organizations.
Products and services
McAdem & McAdam (2008) developed a model to map incubator support based on different life cycle stages adopted from Greiner’s growth model. BioPartner (2004) mapped the life cycle stages for an academic spin-off. They stated that the academic spin-off journey has 5 phases: research, evaluation, pre-start, pre-start, and growth. These stages, as expressed in figure 6, will be used in this research. These steps are considered to be comprehensive for products and services.
Figure 6. Organizational life cycle phases for product or services companies
Research. In this phase, the researchers are very important. They conduct research that may result in a product or in knowledge that has market potential. At the end of this process, the researcher(s) may identify a business opportunity. So, there are two things important for an incubator in this phase, the first thing is to create awareness of potential opportunities. It is important for the researcher(s) to know that they have the opportunity to valorize the obtained knowledge. The second issue is that people with an idea must know where to find support. They must be aware of the possibility to gain (start-up) support. This awareness can be obtained due the provision of proactive information and integration of entrepreneurial aspects in the organization of research and education. In that way, incubators are potentially more able to fill their pipeline with start-ups.
Evaluation. In this phase, the opportunity will be evaluated and protected, there might already be an external investor involved in this phase of the process. The role of the incubator in this phase is to be a sparring mate in the evaluation of the idea, to chew on the business model, to give support in the protection and licensing of the intellectual property, and provide access to a network of possible investors. Pre-seed. In this phase, the actual business is set up. Therefore, the start-up needs to have the necessary infrastructure, resources, and capabilities, and the intellectual property need to be transferred to the organization in case of a spin-off. The business plan is also written in this phase. The role of the incubator consists of the provision of infrastructure, training, coaching, and consulting. The incubator can also provide support in setting up the business plan; crystallize the concept and helping to find possible investors.
Seed. Once the organization has passed the pre-seed phase it can actually start the business by registering at the Chamber of Commerce. The start-up needs to have a physical location in this phase. The role of the incubator is to guard and guide the process by providing the necessary resources and capabilities, training, coaching, and consulting.
Growth. The aim of the growth phase is to increase the value of the business by (further) developing the products or services. Investors play a bigger role in this phase to fund the extension of the business or to
