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Increasing the economic viability of SMMEs through incubation
Iegshaan discusses key reasons for the establishment and funding of the business technology incubation model as well as the distinguishing characteristics of incubation that need to be defined by an incubator.
BY IEGSHAAN ARIEFDIEN
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Small, Medium and Micro Enterprises (SMME) have been recognised by governments across the world as a vehicle for grassroots economic development. It is a shared belief that small businesses contribute significantly to economic growth of countries by alleviating unemployment as well as contribute to technology and innovation. In South Africa, this potential was recognised in the early 1970s. In 1994, the government continued to emphasise the fundamental role of the SMME sector and the contribution it could make to the economy. By 2000 South Africa had its first incubators established and operating which led to the establishment of the Southern Africa Business Technology Incubation Association in 2004.
The primary goal of business incubation is to facilitate economic development by improving the entrepreneurial base (of a local area, town, province, country, or sector) through the provision of infrastructure, people and a variety of business support services. Business incubation therefore, can be regarded as an excellent vehicle that serves as a catalyst for accelerating, nurturing and growing new and existing small businesses by supporting them through the early stages of development and change.
Generally, business incubation provides an enabling environment, business and technical skills transfer, access to raw material, product development, quality control and statutory registration and education. An incubator provides an entrepreneur with conditions that promote fast and sustainable development of their small business.
Provision of management guidance, technical assistance and business and entrepreneurial support tailored to the specific needs of emerging and growing businesses are critical factors to an incubation model. Incubation is also an economic tool for meeting a variety of socio-economic policy needs, which include amongst others: • Business creation and retention • Jobs and wealth creation • Poverty alleviation • Fostering a community’s entrepreneurial climate • Diversifying local economies • Building or accelerating growth of local industry clusters • Encouraging women entrepreneurship • Revitalising local communities and neighbourhoods
1.1 Incubation assists with overcoming market failures through strategic and planned access to information, workspace, services, technology, and finance.
1.2 It extends the government’s role in providing public goods – knowledge, research, infrastructure, and innovation.
1.3 Incubation is a visible symbol of commitment to the empowerment of small business owners, previously disadvantaged individuals, youth, graduates, women and disabled people.
1.4 The incubator is a useful strategy/tool to facilitate Local Economic Development (LED) and sector development in specific geographical areas and market sectors, making strategic partnerships possible.
1.5 The physical and visible nature of incubators attract government and corporate funding.
1.6 Successful incubators and their entrepreneurs generate income and taxes in excess of the net public subsidy.
1.7 The incubation models have 80%+ success – other methods of small business development have a 35% success rate on entrepreneurs evaluated 3 years after incubation process.
There are certain distinguishing characteristics of incubation that an incubator needs to define on policy and procedure level, and communicate to staff and entrepreneurs. • An entry policy – there needs to be a clear set of criteria that will allow the entrepreneur to qualify to enter into the incubation process. This can and should include a comprehensive CV, portfolio, business plan framework or idea, and technical skills evaluation when applicable. • An exit policy – it needs to be clear to the entrepreneur when they will be ready for exiting the incubation process. The incubator and the entrepreneur need to be clear about the goals the entrepreneur needs to achieve before s/he can graduate from the incubator. This should be based on measurable deliverables and goals, rather than time only. The suggested period for incubation is between 12 and 36 months. • Specific business development support services such as mentoring and coaching, and infrastructure are provided to a specific client to assist her/him achieve agreed upon goals and objectives. It is critical that the entrepreneur understands that the incubator is not there to do the work for them, but is an enabling environment, and that the responsibility of building a successful small business lies with the entrepreneur. A clear plan of the incubation process should be developed with and for every entrepreneur.
It is very important that the management of the incubator set clear and measurable goals for the incubator from inception. These goals can include: • Improved SMME Performance – you have to have a base-line measurement system of where the SMME is starting and then measure quarterly how the SMME performance is improving. • Enhanced SMME Profitability & Growth – statistics and access to SMME financial and operational information is critical. Make sure that access to information is provided for in your incubation agreement. • Reduced SMME Failures – it is important that the incubator knows the industry sector it caters for, and the success and failure rates associated with small businesses in this industry. Forming a partnership with the industry regulatory body, association or professional development organisation would provide access to such information. Much Enhanced Access to Applied / Appropriate Technologies – it should be clear what barriers exist for entrepreneurs in your industry sector, and which of those are crossed by the incubator providing access. Much enhanced utilisation of applied / appropriate technologies – it should be defined whom experts are that ensure enhancement and maximum utilisation of the technologies in the relevant sector. Much Enhanced Management Support – should be measured in terms of the input made by the incubator (services delivered and accessed by the entrepreneur) and the output of the entrepreneur based on assistance from the incubator. Greater Access to Business Linkages and Inputs – the incubator should become a centre of knowledge and networking, and should invite industry sector leaders and other relevant stakeholders to meet the entrepreneurs. Entrepreneurs should also be exposed to a measurable amount of industry and business related events.
The team in the incubator is part of the critical success of the incubator. You need a team with expertise in specific subject matter fields, an entrepreneurial spirit and knowledge of the challenges faced by a small business owner. The leadership style should be inclusive and communicative, and lessons learned should be freely and openly shared. The team should include a strong business development officer, an excellent administrative leader that can establish and hand over administrative tasks. A strong financial and business leader, that can mentor and coach not only on SMME sustainability, but make input into the sustainability and financial management of the incubator should also make up the team.
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