In Europe and in the United States, business incubator trade associations, such as EBN and NBIA, calculate that the survival rate of companies created and supported within the incubation industry is a figure between 80 and 90 percent. This figure goes a long way in demonstrating the success of business incubators as organizations capable of providing sustainable jobs for given territories. I have few doubts that this figure is realistic. I work in this industry since 20 years and visited dozens of support structures, and yes, serious incubators and business support organizations, by putting in place rigorous selection procedures, cultivate the best of the best, highly reducing chances of failure of the supported entrepreneurs, once they start up. On this point, the business support industry is well delivering, right? Apparently so…However, I always had problems with this indicator and its true meaning.
Let’s take things into perspective.
Entrepreneurs should feel a decent degree of comfort as it means that they are in the right place. The business idea has proved its concept, its technology and its business. It has been assessed and accepted in the program, well done! It means that most likely the entrepreneur has got it right, that she/he has come up with something that will have both a good impact in the community where he is basing the company and a very high probability of generating good income. Hard work? Undoubtedly, but it will most likely pay off as the entrepreneurs is in the right place at the right moment!
Funders and stakeholders of business support programs, will probably feel comfortable that investments will most likely pay off. As incubated companies tend to stick around they should have the satisfaction of seeing the economic life in their community thriving; after all incubated companies tend not to be fly-by-night operators. There is a certain assurance that jobs created are there to stay and that a virtuous circle has spun from the investment made in the program. Whether to be happy or not of the total number of jobs created is a completely different question which I will tackle soon in “the true meaning of indicators #2“.
Incubators and business support programs instead face a trade-off. And that is exactly where I feel the logical interpretation of the indicator is ill-fitting. Sure program managers may look at the survival rate as a comfort zone, one of the main indicators of their success, and on the base of its high value, take the decision to continue operations as usual. Why change something that is actually working? Agreed, they are shaping the life of people and you don’t want to mess with that! But on the other hand, a 90 percent success rate could be read as an indication that the industry is too risk-adverse. The industry may not be taking enough risks, and by this it actually may be hampering, to some extent the real growth potential of a region.
What would happen if we could relax the indicator a bit, and accept a lower survival rate? Actually it might be possible that this could lead to higher value creation, higher jobs and higher growth. Maybe.