On 23 October 2009, I visited a Business incubation programme located at the Universidade Eduardo Mondlane, Mozambique. This was during my visit to Maputo for the Inwent sponsored ToT on African FOSS Business Model. The visit, curtsey of the University, was to show the ToT team what the university was doing to support FOSS related innovative business.

The technology incubator, as it is known, was established in 2004. It is housed within the University in a separate building next to the faculty of technology. The programme, managed by University Staff, has office space to accommodate four businesses at once.

How its works
The main target for the incubation programme is final year university students. However, the programme accepts applications from the general public. Acceptance into the programme is through a competitive process. The University begins by making a public invitation for business proposals with perhaps special preference for graduating students. Through an internal evaluation, four proposals are then selected and entered into a two year incubation process in which the small start-ups are offered discounted services ranging from office space, telecommunication to administrative support. Additionally the small entrepreneurs are offered some start up capital, mentorship, training and marketing. After two years, the start-ups ‘graduate’ and enter the market. The first four incubated businesses graduated in 2006. Currently seven businesses are under the programme.

Reactions from visitors
The visit included a brief presentation on the history, activities and achievements of the programme. Our host, apparently a university business lecturer, courteously tolerated the barrage of endless questions from the clearly enthused ToT team. The briefing along with guided tour lasted just over one and half hours but as the team wearily trooped out it was clear everyone wished the
discussion had continued. And quite understandably, more generally, business incubation is to many yet another development buzz word. Much worse, to learn that such a good and well intended programme faces a bleak prospect of closure due to funding was utterly bewildering for some ToT members.

In fact, in my opinion, it is that revelation, more than anything else that attracted so many curious questions. The questions I could safely summarize - is there something inherently wrong with business incubation? No. At least our host didn’t even suggest that. Then where does the problem lie? Is it something peculiar to Mozambique?

I don’t know much about Mozambique….but I know a little bit about business incubation. Here is why in my questions to our host, I insisted on knowing ‘the extent to which the incubators get involved in running incubated businesses’. Because my humble view is that for business incubation to be successful, incubators themselves should have a sound business model. Below I try and show why and end by concluding that many incubators pre-occupation or obsession to enjoy the thrill of being associated with successful business enterprises, often unwittingly neglect own business survival.

What is business incubation?
Business incubators are programs designed to accelerate the successful development of entrepreneurial companies through an array of business support resources and services, developed and orchestrated by incubator management and offered both in the incubator and through its network of contacts. Incubators vary in the way they deliver their services, in their organizational structure, and in the types of clients they serve.

Marriage of convenience

Many entrepreneurs don't have the space or desire to start a business out of their home, yet find renting space and setting up essential support functions is overwhelming financially and energy draining just at a time when their financial resources and energy are most needed for development of the business itself. A business incubator can be the perfect solution for such a person.
Business incubators are designed specifically to help start-up firms. They usually provide:

• flexible space and leases, many times at very low rates
• fee-based business support services, such as telephone answering, bookkeeping, secretarial, fax and copy machine access, libraries and meeting rooms
• group rates for health, life and other insurance plans
• business and technical assistance either on site or through a community referral system
• assistance in obtaining funding
• networking with other entrepreneurs

The primary goal of a business incubator is to produce successful businesses that are able to operate independently and financially viable.

Incubation Period
The amount of time a company spends in an incubation program can vary widely depending on a number of factors, including the type of business and the entrepreneur's level of business expertise. Life science and other firms with long research and development cycles require more time in an incubation program than manufacturing or service companies that can immediately produce and bring a product or service to market. On average, incubator clients
spend 33 months in a program. Many incubation programs set graduation requirements by development benchmarks, such as company revenues or staffing levels, rather than time in the program.
Successful completion of a business incubation program increases the likelihood that a start-up company will stay in business for the long term: Historically, worldwide 80% of incubator graduates stay in business.

However, critics of incubators say the basic flaw of most is that they need regular injections of public cash.

Rationale
There are a wide variety of reasons for operating an incubator. There may be a need for job creation in the community, promotion of economic self-sufficiency for a selected population group, diversification of the local economy, transfer of technology from universities and corporations, or sharing venture experiences with new companies by successful entrepreneurs and investors. There is no question that whatever the motivation behind the incubator, it is an economic boon for the community, providing jobs and an expanded business base.

Sustainability
In many countries, incubation programs are funded by regional or national governments as part of an overall economic development strategy. In the United States for instance, most incubation programs are independent, community-based and resourced projects. The U.S. Economic Development Administration is a frequent source of funds for developing incubation programs, but once a program is open and operational it
typically receives no federal funding.
According to recent studies many successful for-profit or "private" incubation programs particularly those launched in the late 1990s were for-profit ventures, funded by investors and other for-profit seeking to hatch businesses quickly and bring in big payoffs.
In some parts of the world incubation programs (regardless of nonprofit or for-profit status) take equity in client companies. The usual amount such incubators ask is about a 20 percent equity stake. Many of the incubators that operate this way, style themselves as "startup junkies." They know a lot about what gets a company off the ground right and are enormously helpful in getting a business off on the right foot.
Increasingly, partial and virtual incubator models are being experimented. In the partial model, incubated business receive only part of the services such as mentorship, funding, networking and training while they meet their own rental and telecommunication costs.

Conclusion

As Business Strategists Bearse advises in the Business Week article ‘Can
Business Incubators Justify Their Existence’, the current incubator model needs some updating. Indeed incubators can ultimately become self-sustaining enterprises if they are planned as real-estate development projects that get an initial public subsidy for building renovation. After that, they'd be on their own. Under this scheme, incubated startups would pay something; say discounted fees, for services that are now free, for example. But until incubators can prove that they do give back to taxpayers more than they take, questions surrounding their ultimate effectiveness will persist.