Academic journal article Academy of Entrepreneurship Journal

Tenant Firm Progression within an Incubator: Progression toward an Optimal Point of Resource Utilization

Academic journal article Academy of Entrepreneurship Journal

Tenant Firm Progression within an Incubator: Progression toward an Optimal Point of Resource Utilization

Article excerpt

INTRODUCTION

According to the National Business Incubation Association (NBIA) (2007), as of October 2006, there are over 1,400 business incubators in North America (up from 12 in 1980) , with the primary goal of encouraging entrepreneurship and innovation. Of these incubators, 1,115 are located in the United States.

Incubators have been defined as institutions that are designed to link talent, technology, capital, and know-how. Business incubators offer experienced and knowledgeable staff members, comprehensive facilities, and decreased rent in the hope of increasing the number of local jobs and community businesses. Frequently, incubators are set up with the goal of leveraging entrepreneurial talent to accelerate new company growth (Smilor & Gill, 1986). The provision of these resources, in turn, suggests that an incubator is part of a support mechanism helping entrepreneurs achieve their goals of growth and success (McAdam & Marlow, 2007).

Some studies have examined the effectiveness of incubators in terms of office and business support services (Allen & Weinberg, 1988), and there is a need to identify which of these activities are effective and dominant, to evaluate the efficiency of the investment of public resources. For example, one could consider whether cost prominence (subsidized rent, office services, etc.) becomes a more emphasized incubator benefit than business mentoring and planning. Further, one may question whether the public is prepared to entertain medium and long-term tenant firm cost subsidy as the most effective use of public funds. Consequently, a need exists to identify the most significant resource provided by the incubator to their tenant firms--the dominant emphasis of incubator tenancy. This study examines the following question: What is the dominant emphasis of incubator tenancy and how does it affect incubator effectiveness?

This study is based on the theoretical precepts of the resource-based view. Building on Penrose's (1959) discourse, firms (or organizations) differ on the heterogeneity of their resources. A firm's capability to achieve continuous profit (i.e., rent) stems from its internal resources, land, labor, and capital. In addition, human and organizational (intangible) assets are hard to copy, which is a potential for competitive advantage (Prahalad & Hamel, 1990). Using an inductive (qualitative) approach, results of thirty in-depth interviews of incubator tenant firm CEOs are utilized to gain a broader understanding of incubator-tenant firm relationship. Following a discussion of prior research, focusing on the resource-based view, entrepreneurship, and incubators, the choice of research design is presented and then the discussion of findings. Findings are incorporated into a conceptual model that is posited as a potential guideline to incubators towards maximization of effectiveness.

REVIEW OF RBV PARADIGM

This paper is based on the theoretical precepts of the resource-based view. The resourcebased view (RBV), first advocated by Penrose (1959) in her book The Theory of the Growth of the Firm, suggests that a firm's capability to achieve continuous rent (or profit) stems from its internal resources, land, labor, and capital. RBV makes a substantial contribution to strategic management by encouraging managers to focus on the resources in addition to the products of the firm (Wernerfelt, 1984).

There are two approaches in RBV: the process approach and the structural approach. The structural approach focuses on the unique resources possessed by the firm, with the emphasis on market processes. Consequently, this is a focus on rare, inimitable, immobile resources (Barney, 1991; Wernerfelt, 1984), building on the assumption that sustainable advantage is reached through those rare resources. Richardian (physical) resources and land are the focus of consideration, while management skills and competencies are assumed comparable among competitors. …

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