Do Business Incubators Work?

Business incubators provide startups and small businesses with cheap office space, professional advice and other services designed to help the businesses get off the ground and succeed. 

Most are run by independent non-profits and they often are funded by government grants. 

According to the National Business Incubation Association (NBIA), incubators are quite successful at what they do.    NBIA says the 5 year survival rate for companies participating in incubator programs is 87% - almost twice the rate of non-incubated companies. 

But a recent academic study out of Syracuse Univeristy - Boon or Boondoggle? Business Incubation as Entrepreneurship Policy - has very different results.  Their research shows that far from substantially out performing non-incubated companies, incubated business tend to slightly under perform. 

Key quotes from the study conclusion:

"The findings reveal that the effects of incubation are potentially deleterious to the long-term survival and performance of new ventures."  They also go on to say  "... claims that business incubators are highly successful and serve a significant number of businesses are overstated."

So who is right?  Like a lot of issues around small business and entrepreneurship, there's not a clear answer. 

We've just started a deeper research dive on incubators as part of our broader work looking at the future of small business.  Hopefully, we'll have a better sense around incubator performance in the coming months. 

Comments

[mashilo]

The fact remains that business incubators are what entrepreneurship needs,there will always be failure rates in every venture and people have the rights to say incubated businesses tends to under-perform but that does not mean business incubation is a bad thing.

[steve]

Since we've just started looking at this I'm not sure what to make of the widely divergent results.

The Syracuse study contains a very detailed methodology section and, not surprisingly, it looks solid.

I know less about the NBIA study.

As I said in the post, we hope to learn more in the coming months.

[Geri Stengel]

Such a difference in results makes me wonder about methodology and the content of the incubator programs that were measured in each study. Cheap rent does not an incubator make nor does generic business advice. The programs that work incorporate serious, ongoing networking among the entrepreneurs in the incubator, networking that includes brainstorming about challenges being faced by individual members as well as connections to specialists in fields such as marketing.