Back to the Roots: Business Incubation
What can we learn from the origins of entrepreneurship hubs?
Most entrepreneurship hubs we come across on the African continent are structured as a combination of what can almost be termed ‘standard’ offerings across the board: a mix of physical office space, small grants, mentorship, business management courses, a sector focus (primarily tech and more recently climate), and a fixed incubation term (typically less than a year). Why is this the standard? Are these approaches, as are a lot of things in Africa, borrowed from Western models of business incubation? And if so, is their use in Africa reasonable?
An attempt at answering these questions would be incomplete if it did not begin with unpacking the history of the practice of incubating businesses to understand why it came into existence in the first place and additionally, why specific elements were incorporated. Many researchers trace the history to 1950’s USA, in a small town called Batavia. But there is another ‘origin’ story that is more heavily emulated the world over. Comparing and unravelling the two origin stories allows us to mentally place an African backdrop and see whether or not there are parallels.
An Origin Story of Entrepreneurship Hubs: Batavia Industrial Centre
The story is told of how Massey-Ferguson, a large agricultural machinery manufacturing company, and the then biggest business in Batavia, closed down its operations in Batavia in 1956. The company’s departure not only left behind a vacant 850,000 square foot complex of multi-storey buildings but also an unemployment rate of more than 20%. It devastated the local economy. The multi-storey building complex was purchased by the Mancuso family, one of the wealthiest in Batavia. The motivation for the purchase was, in a sense, self preservation as the fortunes of the Mancuso family were tied to the fortunes of the city of Batavia. The Mancusos owned multiple businesses in the city, including a dealership, restaurant and theatre, which were dependent on patronization by the city dwellers. An unemployed population inadvertently meant a drop in business.
Joe Mancuso is said to have compared the business support in BIC to incubators in a chicken hatchery
The initial intent of purchasing the complex was to find a large corporation to lease the space but this proved difficult. Some innovative thinking around how to fill the space with smaller businesses led to a set of characteristics that birthed the first business incubator. The Mancusos enticed start-ups and small businesses to fill the space by offering what were then unusual perks; short-term leases, shared office supplies and equipment, business advice, help arranging lines of credit with local banks, and secretarial services. Thus the Batavia Industrial Centre (BIC) was born. Joe Mancuso is said to have compared the business support in BIC to incubators in a chicken hatchery, becoming the first person to use the word ‘incubator’ to describe an entrepreneurship hub.
Businesses stayed in BIC for very varied terms depending on how their needs changed. Some grew and moved on to other premises, others continued to be successful businesses situated in the BTC for many years, and others folded. Some individuals even started multiple businesses in the incubator over several years and continued to benefit from the perks that came with it.
The Batavia Industrial Centre still exists today, 6 decades on, with the same mandate for the small 15,000 population of the city of Batavia. A Wired article on the BIC states, “replacing lost manufacturing jobs… hasn’t produced any massive companies like Massey-Ferguson, the kind of company that employs thousands of residents. But in the 1990s the Mancusos estimated that BIC had, by then, generated about 5,000 local jobs.”
The other history of business incubation goes back 60 years before the establishment of BIC, to the founding of Stanford University and the birth of ‘Silicon Valley’.
An Alternate Origin Story: Silicon Valley
In 1891, Senator Leland Stanford gifted 8,000 acres of his Palo Alto, California stock farm to a new 559 student university bearing his name, that sought to produce ‘useful’ in addition to ‘cultured’ graduates. Its mission was, at that time, far removed from those of other Ivy League universities. Senator Leland determined that Stanford students would not simply learn the Great Books, but also study ‘avowedly practical’ subjects that would prepare them for ‘useful careers’. The university’s founding president, David Starr Jordan, echoed these words, stating Stanford would be ‘hallowed by no traditions, hampered by none’, and would instead point forward in untraditional ways unseen at leading academic institutions of the time (4). These ideals were promoted in the model of the school from inception. Stanford encouraged an extremely close relationship between academia and industry, going so far as to staff engineering departments with private sector practitioners.
Government engagement was and still remains a key part of the Silicon Valley entrepreneurship ecosystem.
The rise of Silicon Valley as a hub for innovative businesses was later magnified by Frederick Terman, aka the Father of Silicon Valley’. In his capacities as dean of the engineering school and later as university provost, Terman sought to create a “community of technical scholars composed of (engineers inside) industries using highly sophisticated technologies, together with (academics within) a strong university that is sensitive to the creative activities of the surrounding industry.”
Terman actively ensured that Stanford went beyond supplying engineering human capital to local technical firms. He brought together students with ideas, and facilitated the provision of financial support (through university grants and external capital, including government) to encourage them to become entrepreneurs, he offered physical space to engineering firms on campus and created short programs for their engineering staff. By 1961, more than 25 corporations employing 11,000 people had offices at the Stanford office park, and they had 400 of their staff taking classes at the university on a regular basis.
Another piece of the puzzle that cannot be understated, but is often ignored, is US government funding and policies supporting projects and businesses that fed into the Cold War and the space race. Government engagement was and still remains a key part of the Silicon Valley entrepreneurship ecosystem.
The fruits of the Stanford focus can be seen in the notable engineers turned entrepreneurs that have created very recognizable successful engineering and technology businesses. Although the best known are more recent names such as Yahoo, Google, Apple, Xerox and Oracle, Silicon Valley has been producing notable corporations from the early 1900s. Stanford University and US government collaborations have also produced notable technological innovations for the government and the world.
Apples and Oranges?
Although Silicon Valley and BIC are similar in that they both provide an opportunity for new ideas and businesses to take hold and thrive, the two have very clearly distinguishing characteristics.
First, BIC was born out of a community need. It was primarily about developing a thriving local economy so as to raise and sustain local employment and spending levels. Silicon Valley, on the other hand was created to drive engineering innovation as a feeder to corporations and, whether as a matter of design or not, to the U.S. government. Secondly, to the extent that it involved the use of leased office space that presumably all the tenants (entrepreneurs) were paying for, BIC was not structured as a grant-giving initiative. It facilitated loan applications for its entrepreneurs, whereas Silicon Valley provided or facilitated grants or equity funding for its own. Of the two models one would intuit that BIC would be the one in greater need of grant funding but that was not the case.
If we looked instead at the number of businesses that survive 5 years post-inception, the picture would change.
Another difference is in the nature of the businesses incubated even today. Silicon Valley seeks disruptive innovative engineering and technology ideas, whereas BIC has no such disruption focus to speak of, instead endeavouring to nurture all kinds of businesses. And lastly, Silicon Valley entrepreneurs, by virtue of being Ivy League university students and graduates, are a community of extremely smart and/or privileged individuals with superior technical training. BIC entrepreneurs do not necessarily fit that profile.
In terms of ‘success’ rates, both have some notable outcomes. BIC set out to support the local economy by lowering the unemployment rate in Batavia. As previously noted, over 5,000 jobs have been created through BIC since inception. That translates to an average of approximately 80 new jobs a year, and assuming 60% of the population was in the active labour force, would lower the city’s unemployment rate by less than 4% a year. Not quite the kind of numbers that would win awards, but a stable part of the city’s entrepreneurship ecosystem, especially considering it has low reliance on grants.
Stanford sought to incubate businesses that bring innovation and novelty to engineering and technology. A look at the history of all the innovations and industry-shifting businesses that have come out of it is proof that, at least by that gauge, the institution and the ecosystem that has arisen from it is a hotbed of innovative start-ups. If we looked instead at the number of businesses that survive 5 years post-inception, the picture would change. On the other hand, the few businesses that succeed beyond 5 years go on to hire hundreds of thousands of people in the US and beyond.
Takeaways for African Incubators?
It’s clear from the breakdown of the key elements of each model that the African incubator standards, listed at the start of this article, strongly emulate American, and more specifically, Silicon Valley standards. One is hard-pressed to find African incubators that stray from them. On the face of it, this makes sense, as Silicon Valley is ubiquitous in popular culture and the vast majority of founders, board members and staff of Africa’s major incubators are either American or American educated individuals. This start-up culture has been a convenient reference point.
It is, however, an odd set-up as most of our communities have more parallels with the situation that precipitated the establishment of BIC than with Silicon Valley. Factors such as high levels of unemployment; a lack of external grants; a lack of government stimulation through funding, policies or offtake of innovations, and more generally; economies at risk or already in a state of collapse.
The business need is less industry disruption and more basic products and services…
For most of the African cities where these hubs are based, the business need is less industry disruption and more basic products and services to create a thriving local economy. There are fewer geeky engineer entrepreneurs and more everyday Africans whose motivation is simply an improved, sustainable standard of living.
It is even more peculiar as these standards have led to a deep focus on tech businesses at the expense of the rest, with foreign VC funding and scale inculcated as the aspiration du jour. Media coverage has only narrowed the lens further. A simple Google search for ‘emerging African start-ups’ illustrates this.
How can the status quo be improved?
Calling for hubs to completely do away with American models of incubation would be imprudent in the current structural environment. This is because even though their true impact remains a conundrum, they have become an important convener of investment from the international investor community, the donor community, and increasingly, local governments. Some have taken lessons from the challenges faced by their entrepreneurs and are increasingly working with local institutions and international organisations to lobby governments for more enabling policies and infrastructure for entrepreneurs.
…the reality of the continent compels us to incorporate the wider economic needs of our communities in the design of all hubs…
The more practicable option is for increased attention be paid to the purpose for which each incubator is created as decisions regarding the mix of its interventions are made. This is so that there is better alignment between specific interventions and desired outcomes.
Furthermore, the reality of the continent compels us to incorporate the wider economic needs of our communities in the design of all hubs, even where this is not part of the explicit purpose of the hub. We need to see business incubators as integral parts of ecosystems that drive local economic development.
