CREATING AND STARTING THE VENTURE

EVALUATING THE BUSINESS ENVIRONMENT; FACTORS INCLUDE;

1. Infrastructure: Consists of all the facilities that exist and include; transport,
communication, electricity, social amenities. Availability or lack of such infrastructures
would determine whether a business environment is conducive or not.
2. Market: An understanding of the market that includes customers, the pattern of
trading and business activity in an environment is critical in evaluating the attractiveness
of a business environment.
3. Price Structure: Price structure may differ from one environment to the other
especially where the business opportunity areas are not subject to the price control
regulations. Entrepreneurs would need to know who determine prices in any
environment for example is it the government or is it the forces of demand and supply.
4. Cultural Values:- a business environment consist of people and different people
who have different cultural values such values affect the exploitation of a business
opportunity in a business.
5. Competition – In a free market economy, entrepreneurs must consider
competition in a business environment. The less competitive there is in business
environment, there might be chances of succeeding in exploiting the business
opportunity.
6. Incentives- This refers to those incentives in a business environment which are
offered either by the government or other agencies for example giving credit facilities and
construction of sheds.

Generating a Business Idea.

A good business idea is essential, even a prerequisite, for a successful business venture.
Good business ideas, however, do not usually just appear. Rather they result from hard work
and effort on the part of the entrepreneur in generating, identifying and evaluating
opportunities.

What is a business idea?

A business idea is the response of a person or organization to solving an identified problem
or to meeting perceived needs in the environment (Markets, community). Finding a good
idea is the first step in transforming entrepreneurs’ desire and creativity into a business
opportunity.

Note two things, however:

i). Although a prerequisite a business idea is only a tool.

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 ii). An idea by itself, however good, is not sufficient for success.

In other words, notwithstanding its importance, an idea is only a tool that needs to be
developed and transformed into a viable business opportunity.

SOURCES OF BUSINESS IDEAS.

The millions of entrepreneurs throughout the world and their testimonies suggest that there
are many potential sources of business ideas. Some of the more useful ones are outlined
below.

a) Customers.
Potential entrepreneurs should pay close attention to the final focal point of a new
product (the customer). The view on the customer can be through a formal or an informal
survey in which the consumers express their opinions about existing products and
services. Care should be taken to ensure that the ideas from the consumers represent a
large sample of the market.
b) Existing companies
Entrepreneurs should establish a formal method for monitoring and evaluating the
products/services in the market. This may uncover ways to improve on present products
resulting in new products ideas.
c) Distribution channels
Channel members often have suggestions for new products because they are familiar with
the needs of the market. These channel members can also help in marketing the new
product or service.
d) Research and development

The largest source of new business ideas is the entrepreneur’s own research and
development. Research and development can be formal endeavor connected with one’s
current employment or an informal lab in the garage.

e) Government

New product and service ideas can also come from government regulations.

f) Hobbies/Interests.
A hobby is a favourite leisure-time activity or occupation. Many people in pursuit of
their hobbies or interests have founded businesses. If you enjoy, for example, playing on
computers, cooking music, travelling, sport or photography, to name but a few, you may
be able to develop it into a business. To illustrate, if you enjoy travelling, photography
and/or hospitality, you may consider going into the tourist trade which is one of the
biggest industries in the world.

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g) Personal Skills and Experience
Over half of the ideas for successful business come from work place experiences e.g. a
mechanic with experience of working in a large garage who eventually sets up his/her
own car repair or second hand business. Thus, the background of entrepreneurs play a
crucial role in the decision to go into business as well as the type of venture created.
Your skills and experience are probably your most important resource not only in
generating ideas but also in capitalizing on them.
h) Franchises
A franchise is an arrangement whereby the manufacturer or sole distributor of a
trademark, product or service gives exclusive rights of local distribution to independent
retailers in return for their payment of royalties and conformance to standardized
operating procedures. Franchising may take several forms, but the one of interest is the
type that offers a name, image method of doing business and operating procedures.
i) Mass Media
The mass media is a great source of information, ideas and often opportunity.
Newspapers, magazines, television and now the internet are all examples of mass media.
Take a careful look. For example, at the commercial advertisements in a newspaper or
magazine and you may well find a business for sale. Well, one way to become an
entrepreneur is to respond to such an offer. Articles in the printed press or internet or
documentaries on television may report on changing fashions or needs of consumers. For
example, you may read or hear that people are now increasingly interested in healthy
eating or physical fitness. You may find advertisements calling for the provision of
certain services based on skills, for example accounting, catering or security. Or, it could
be a new concept for which investors are required such as a franchise.
j) Exhibitions

Another way to find ideas for a business is to attend exhibitions and trade fairs. These
are usually advertised on the radio or in newspapers. By visiting such exhibitions one is
able to meet sales representatives, manufacturers, wholesalers, distributors and
franchisers. These are often excellent sources of business ideas, information and help in
getting stated.
k) Surveys
The focal point for a new business idea should be the customer. The needs and wants of
the customer which provide the rationale for a product or service can be ascertained
through a survey. Such a survey might be conducted informally or formally by talking to
people usually sing a questionnaire of through interviews – and /or by observation. one
needs to start by talking to family and friends to find out what they think is needed or
wanted that is not available. For example, whether they are dissatisfied with an existing
product or service and what improvements or changes they desire.
l) Complaints

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 Complaints and frustrations on the part of customers have led to many a new product or
service. Whenever consumers or customers complain bitterly about a product or service
or when you hear someone say: “I wish there was…..” or “If only there were a product
/service that would….” You have the potential for a business idea. The idea could be to
set up a rival firm offering a better product or service, or it might be a new product or
service which could be sold to the firm in question and /or to others.
m) Brainstorming
Is a technique for creative problem-solving as well as for generating idea. The objective
is to come up with as many ideas as possible. It usually starts with a question or problem
statement. For example, you may ask “What are the products and services needed in the
home today which are not available?” each idea leads to one or more additional ideas,
resulting in a good number.

Other sources include:-

 Training institutes and universities

 Journals/Magazines
 Friends and family members
 Failed projects
 Current trends for example accidents and prostitution.

Why generate Business Ideas?

There are many reasons why entrepreneurs or would-be entrepreneurs need to generate business
ideas. Here are just a few:-

 You need an idea - and a good one at that for business. A good idea is essential
for a successful business venture- both for start up and to stay competitive afterwards
 Response to market needs – Markets are made up essentially of customers who
have needs and want waiting to be satisfied. Those people or firms which are able to
satisfy these requirements are rewarded
 Changing fashions – and requirements provide opportunities for entrepreneurs to
respond to demand with new ideas, products and services.
 Stay ahead of the competition. Remember if you don to come up with new
ideas, products or services, a competitor will. The challenge is to be different or better
than others.
 Technology – do things better. Technology has become a major competitive
tool in today’s market, with the rate of change forcing many firms to innovate. There are
several companies in the world operating in the electronics and home appliances
industries which come up with dozens of new products every month. For these an many
others in today’s global markets, business ideas generation is crucial

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 Product life cycle. All products have finite life. As the product life cycle chart
shows, even new products eventually become obsolete or outmoded. Thus, there is need
to plan for new products and the growth of these. The firm’s prosperity and growth
depend on its ability to introduce new products and to mange their growth.
 Spread risk and allow for failure. Linked to the product life cycle concept is the
finding that over 80 per cent of new products fail. It is necessary therefore, for firms to
try and spread their risk and allow for failures that may occur from time to time by
constantly generating new ideas.

Business Opportunity
A business opportunity maybe defined as an attractive idea or proposition that provides
the possibility of a return for the investor or the person taking the risk. Such opportunity
is presented by customers’ requirements and lead to the provision of a product or service
which creates or adds value for its buyer or end user. A good idea, however, is not
necessarily a good opportunity. For example one may invent a brilliant product from a
technical point of view and yet the market may not be ready for it. On the other hand the
idea may be sound, but the level of competition and the resources required may be such
that it is not worth pursuing. To underscore the point further, consider the fact that over
80 percentages of all new products fail. Surely to the inventors or backers, the idea
seemed good, yet clearly they did not stand the test of the market.

Characteristics of a Good (Viable) Business Idea.

A good viable business idea should ensure the following:-

i) It does not require excessive investment

ii) It is easy to mange
iii) It offers good return on investment
iv) It has scope for growth, expansion and diversification
v) It requires operational skills which are available and/or can be
achieved with minimal training
vi) It involves minimum risks
vii) It is compatible with the owner’s goals and interests
viii) It has a short gestation(break-even point) period)
ix) It has a readily available market
x) It has an adequate supply of inputs
xi) It is easy to exit (dissolve) if necessary.
xii) It does not require frequent and extensive changes in technology

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The Evaluation process of Business Idea
A critical task of starting a new business enterprise is conducting solid analysis and evaluation of
the feasibility of the business idea getting off the ground. Entrepreneurs must put their ideas
through this analysis in order to discover if their proposals contain any fatal flaws…..

Methods.
1. Feasibility and Criteria Approach
It was developed as a criteria selection list from which entrepreneurs can gain insights
into the viability of their venture and it is based on the following questions;
i) Are the initial production costs realistic- most estimates are too low?
ii) Are the marketing costs realists- this question requires the venture to
identify target markets, marketing channels, and production strategy.
iii) Is the time required to get to the market and to reach breakeven point
realistic is the potential market large.
iv) Us this a growing industry
v) Can the product and the need for it be understood by the financial
community?
2. Comprehensive Feasibility Approach

It incorporates external factors in addition to those in the criteria questions. It was

developed as a criteria selection list from which entrepreneurs can gain insights into the
viability of their venture. It includes the following;
i) Technical feasibility analysis – this include crucial technical
specification for design, durability, reliability, product safety
standardization, desirable characteristic of plant site ( proximate to
suppliers, customers,) environment regulations
ii) Market feasibility analysis – include identification of potential
customers and their dominant characteristic (e.g. age, income level,
buying habits)potential market share as affected by competitive situation,
potential sales volume sales price projection, market testing, promotional
efforts required, price differential.
iii) Financial feasibility analysis- Finances required for; fixed assets,
current assets potential sources of funds, cost of borrowing, repayment
conditions projected cash flow.
iv) Analysis of organizational capability – required skill levels and
other personal characteristics of potential employees, managerial

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 requirement, competitive analysis, determinant of individual
responsibility.
v) Competitive analysis – Potential reaction of competitors to
newcomers by means of price cutting , aggressive advertisement,
introduction of new products and other actions and potential new
competitors.

Methods of Generating Ideas

Even with such a wide variety of sources of ideas, coming up with an idea to serve as the basis
for a new venture can still pose as a problem. The entrepreneur can use several methods to
generate new ideas such as; focus group, brainstorming, and problem inventory analysis

Focus Groups

Focus groups have been used for a variety of purposes since the 1950s. a moderator leads a
group of people though an open in-depth discussion rather than simply asking question to solicit
participant response. For a new product area, the moderator focuses the discussion of the group
in either a directive or a nondirective manner. The group of 8 to 14 participants is stimulated by
comments from other group members in creatively conceptualizing and developing a new
product idea to fill a market need. In addition to generating ideas, a focus group is an excellent
method for initially screening ideas and concepts. With the use of one of several procedures
available, the results can be analyzed more quantitatively, making the focus group a useful
method for generating new product idea.

Brainstorming

It’s widely used for both creative problems solving idea generation. All idea no matter how
illogical must be recorded with participants prohibited from criticizing or evaluating during the
brainstorming session. Brainstorming is based on the fact that people can be stimulated to
greater creativity by participating in organized groups exercises.

To use this method, the following rules apply

i) No criticism is allowed
ii) Freewheeling is encouraged
iii) Quantity of ideas is desired

Combinations and improvements of ideas are encouraged.

Problem Inventory Analysis

Problem Inventory Analysis uses individuals in a manner that is analogous to focus groups to
generate new ideas. However, instead of generating new ideas themselves, consumers are
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provided with a list of problems in a general product category. They are then asked to identify
and discuss products in this category that have the particular problem. This method is often
effective since it is easier to relate known products to suggested problems and arrive at a new
product idea than to generate an entirely new product idea by itself. Problem inventory analysis
can also be used to test a new product idea.

Product Development process

1. Idea stage.
Promising new products/services ideas should be identified and impractical ones
eliminated in this stage, allowing maximum us of the company resources. It’s important
to determine the need for the new idea as well as its value to the company. If there is no
need for the suggested product, its development should not be continued. Similarly, a new
idea, it is helpful to define the potential needs of the market in terms of timing,
satisfaction, alternatives benefits and risks, future expectation market structure and size
and economic conditions.
2. Concept Stage

After a new product/service idea has passed evaluation in the idea stage, it should be further
developed and refined through interaction with consumers. In the concept stage, the refined
idea is tested to determine consumer acceptance. Initial reactions to the concept are obtained
from potential customers or members of the distribution channel when appropriate. One
method of measuring consumer acceptance is the conversational interview in which selected
respondents are exposed to statement that reflect the physical characteristics and attributes
can also compare their primary features. Favourable as well as unfavourable products
features can be discovered by analyzing consumers’ responses with the favorable features
than being incorporated into the new products/service.

3. Product Development Stage.

In this stage, consumer reaction to the physical product/service is determined. One tool
frequently used in this stage is the consumer panel, in which a group of potential
consumers are given product samples. Participants keep a record of their use o the
product and comment on its virtues and deficiencies. This technique is more applicable
for product ideas and worked for only some service ideas. The panel of potential
consumers can also be given a sample of the product and one or more competitive
product simultaneously. Then one of the several method such as multiple brand
comparison risk analysis, level of repeat purchases or intensify of preferences analysis
ban be used to determine consumer preference.
4. Test Marketing Stage
A marker test can be done to increase the certainty of successful commercialization. The
last step in the evaluation process. The test marketing stage provides actual sales results,

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 which indicates the acceptance level of consumers. Positive tests results indicate the
degree of probability of successful product lunch and company formation.

Factors to consider when starting a Business.

1. Capital requirement-Entrepreneurs have to invest in certain amounts of money
before the start of their business
2. Market –An entrepreneur should not start a business before knowing whether the
market for its products or services exists.
3. Entrepreneur skills and knowledge - an entrepreneur should posses competency
skills in a specific trade area that will benefit his business.
4. The Competitors – An entrepreneur wishing to start a small business should
evaluate the competitors in a given area, to know how competitive it may be. He need to
know how many they are and what they are doing.
5. Legal requirement: An entrepreneur should know the legal requirement of
starting his enterprise. The legal requirements may prohibit or restrict the consumption f
a certain commodity.
6. Infrastructure – entrepreneurs need to consider;
i. Availability of power in a given area
ii. Transport- how is accessible is the place
iii. Communication facilities in the areas
iv. Social amenities – Availability of schools, churches and welfare
services
7. Security- it’s important for entrepreneurs so that they are assured to continuity of
their business
8. Cost of the premises/rental charges – it is important to know much the
entrepreneur will pay for the premises per month as this will affect his capital in business

New Venture Creation

According to William Gartner (1985) a new venture creation is a process that involves various
factors and activities as they affect entrepreneurship. Those include the individual the
environment organization and the venture process. The specific factors that relate to each of
these dimensions include;

1. The individual
i. Need for achievement
ii. Locus of control
iii. Risk taking
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 iv. Job satisfaction
v. Previous work experience
vi. Entrepreneurs parents
vii. Age, education

2. The Environment
i. Venture capital availability
ii. Presence of experience entrepreneurs
iii. Technical Skilled labour force
iv. Accessibility of customers
v. Support services
vi. Government influences
vii. Availability of labour of facilities
viii. Living condition
ix. Availability of suppliers
3. The Organization
i. The type of the firm
ii. Entrepreneurship environment
iii. Strategic variables for example cost, differentiation and cost
iv. Partners
4. The process
i. Locating a business opportunity
ii. Accumulating resources
iii. Marketing products and services
iv. Building an organization
v. Responding to government and society

Critical Factors for New-Venture Development

A number of critical factors are important for new-venture assessment. One way to identify and
evaluate them is by the use of a checklist.

A new –Venture Idea Checklist

Basic feasibility of the venture

i) Can the product or service work?

ii) Is it legal?

Competitive advantages of the venture

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 i) What competitive advantage will the product or service offer?
ii) What are the competitive advantages of the companies already in
business?
iii) How are the competitors likely to respond?
iv) How will the competitive advantage be maintained?

Buyer decisions in the venture

i) Who are the customers likely to be?

ii) How much will each customer buy?
iii) Where are these customers located and how will they be serviced?

Marketing of the Goods and services.

i) How much will be spent on advertisement and selling?

ii) What share of the market will the company capture?
iii) Who will perform the selling functions?
iv) How will prices be set?
v) What distribution channels will be used?

Production of Goods and Services.

i) Are the sources of supplier available at a reasonable price?

ii) How long will delivery take?
iii) Will the needed equipment be available on time?
iv) How will return and servicing be handled
v) How will quality be controlled?

Financing the venture

i) How much will be needed for the development of the product or service?
ii) How much will be needed for setting up operations
iii) Where will the money come from?
iv) When and how will the investors get money from? What if more is
needed?

What will be needed from the bank, and what is the banks response?

Common Reasons why Small Business Fail.

Management mistakes

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  What kills most small businesses is not lack of money but poor management
 In many cases the owner lacks leadership ability and knowledge necessary to
make business work.

Lack of experience

 Lack of practical experience compromises a great deal the potential for a good
venture to succeed. Prospective entrepreneur should have adequate working knowledge
of the physical operations of the business, the power to visualize, coordinate and integrate
the various operations of the business into a synergistic whole, and the skills to mange
people in the organization and motivate them to higher levels of performance.

Poor Financial control

 Many entrepreneurs end to be overly simplistic and often misjudge the financial
requirements of going into business; as a result they start undercapitalized and can never
seem to cat finally as their enterprises consume increasing amounts of cash to fuel their
growth.
 Maintaining adequate cash flows to pay bills on time is a constant headache. Poor
credit screening sloppy debt collection practices, undisciplined spending habits are
common account for most bankruptcies.

Weak Marketing efforts

 Building a growing base of customers requires a sustained, creative marketing

effort. Converting to loyal customers requires providing them with value, quality,
convenience timely service and sometimes fun.

Lack of strategic plan

 Too many small business mangers neglect the process and discipline of strategic
planning because they think that it is something that benefits only large companies or
businesses.
 Without a clearly defined strategy, a business has no sustainable basis for creating
and maintaining a competitive edge in the market place.

Uncontrolled growth.

 As the business increase in size and complexity, problems increase in magnitude

and the entrepreneur must learn to deal with them.
 Sometimes entrepreneurs encourage rapid growth only to have the business
outstrip their ability to manage it.

Poor location

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  Too many business locations are selected without proper study,
investigation and planning. A vacant building does not necessary mean a good location.

Improper inventory control

 Insufficient inventory levels result in shortages and stock outs, causing customers
to be disillusioned and lease. Many small firms have an excessive amount of cash tied up
in an accumulation f useless inventory. It is common to find a manager with not only too
much of a commodity but even of the wrong type.

Incorrect Pricing

 Too often, entrepreneurs simple charge what competitors charge or base their
prices on some vague idea of “selling the best product at the lowest price”
 Establishing prices that will generate the necessary profits means that business
owners must understand how much it costs to make, market, and deliver their products or
services.
 It should reflect also on the image you want to create keeping an eye on the
competition.

Inability to make “Entrepreneurial Transition’

 Growth requires entrepreneurs to delegate authority and to relinquish hands-on

control of daily operations something many entrepreneurs simply cannot do.

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Business incubation.
Definition:

The term incubator literally means a climate-controlled environment that support het early
development, sometimes even saving the life of a new born. In the economic development
context, incubators support the transformation of selected early stage business with high
potential, into self-sufficient, growing and profitable enterprises. By reducing the risks during
the early period of business formation, the incubator is intended to contribute to economic
growth through sustaining new enterprises (Lalkaka and Bishop, 1996) An incubator can also be
defined as a facility that provide affordable space, shared office services and business
development assistance in environment conductive to new venture creation, survival and early
stage ( Allen and Mc Cluskdy, 1990)

A business Incubator is also a facility designed to assist businesses to become established and
profitable during their incubation period. Incubates come from individuals interest in promoting
an innovative idea that they have so that it becomes a business, yet they may have no skills in
business. Consequently, they need to learn more to change the concept into business. The second
category of incubates may be people who have clear documented business concepts based on
an innovative idea they already have but which again may not be converted into business due to
resource constraints. They could also be businesses that are already set up and running but need
to be boosted to grow. Each one of them needs a different approach to convert them in to vibrant
business outfits.

Concept of Business Incubation

The concept of incubation was first initiated in the early 20th century itself at the Stanford
University, California, USA when the university President David Star Jordan urged his staff to
make personal investments in a company founded in the early nineties by Cyril Elewell, an
engineering school graduate who worked on the first round of ‘wireless’ technologies, ship –to-
shore radio communications, where later many Stanford graduates began their career. The
infrastructure around Stanford graduates began their career. The Stanford university staff knew
that if they did not work hard and support to build industry infrastructure around Stanford, they
would lose an advantage of making an early alliance with companies and thus not have a
mechanism in place where they could send their graduates to cut their teeth (Richards, 2002)

It was not too long after that time when Stanford’s then president Ray Lyman Wilber, in return
for half of the royalties on the tents developed, agreed to provide lab space and US$ 100 in parts
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to two brothers Sigurd and Russel Varian, thus giving them a chance to develop what turned out
to be the Klystron tube. Russel had a Ph.D in physical and Sigurd was a pilot for pan Am,
interested in building a landing system that would work in fog and bad weather. The technology
that the two brothers developed led to the possibility of building Radar systems that was critical
to the Battle of Britain and winning World War II.

About the same time, Professor Fred Terman brought together Bill Hewlett and David Packard
the names behing Hewlett Packard, together. Prof. Terman was concerned that electronics
engineering graduates of Stanford could to find employment on the west coast. As a solution he
encouraged his students and others to form companies in the san Fransisco bay area and Stanford
faculty to consult with them to help to create products. Prof Terman made a personal investment
of US$ 500 to the startup efforts of Hewlett Packard. (Popularly known as US HP) apart from
lending his expertise. Recently, William and Flora Hewlet Foundation gave US$400 million to
Stanford the largest amount ever left to an educational institution. Stanford had no rights to
anything crated by HP (Richards 2002). Thus technology grew in 60 square miles around
Stanford University rapidly through the establishment of a strong ‘entrepreneurial culture”

Historical Development of Business Incubators (BIs)

In a rapidly changing global economy, small enterprises (SEs) are increasingly a force for
national economic growth. Since 1990s SEs-and the entrepreneurs who drive then – has
received serious attention by planners, Legislators and development practitioners the world over.
New structures and strategies are being explored that will help small business to start, survive
and grow. In this quest the business incubation centre has merged as a recent innovation
harbouring great potential as a tool for economic development ( Lalkaka and Bishop 1996)Thus
there is a pressing need to build an entrepreneurial society which would facilitate smooth
establishment and operation of enterprises.

Early focus of many entrepreneurship development programmes was in creating awareness and
training in the essentials of business operation, often for individual entrepreneurs. With the
increasing need to understand technology, business strategies, forming the right management
teams and management practices, emphasis is more on technical and managerial mentoring.
Thus business incubators (BIs) emerged in the early eighties out of precursor of SE programmes
developed over decades earlier ( Shivganesh, 2008).

Establishment Business Incubator

Key aspects

Business incubator (BI) focuses on nurturing the process of Small Enterprises (SE) development.
This kind of business development requires the provision of workspace and value adding
technical and managerial sport. While establishing an incubator, the following aspect has to be
considered:

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 i) Mobilizing government support through funding fully or partly, to initiate
the concept, implements the operations plan cover initial operations.
ii) Promoting active community participation and private industry
membership of the governing and advisory boards, and their involvement as
mentors, suppliers and customers.
iii) Organization tenant support by a small but experienced management staff
iv) Implementing the selection and graduation criteria because the essential
feature of the incubator is the development of viable tenant business within a
relatively short period of time.
v) Ensuring the financial stability of the incubator itself.

The fiscal discipline by management is a must, to enable the incubator to survive changes in the
climate of government support and to set a proper example for entrepreneurs in reaching
sustainable themselves ( Lalkaka and bishop, 2006).

Types of Incubators.

Developing a theme for an incubator involves creating special programme directed towards
special kinds of business. During the past couple of decade, a variety of themes have emerged to
serve specific kinds of business needs.

1. A targeted population incubator enhances a conventional incubation

programme with specific features to support empowerment of specific populations, for
example, women fresh graduates, minorities.
2. An international incubator encourages foreign investment, both financial and
technological. Such an incubator often includes a range of services for international and
expatriate professionals.
3. An industrial subcontracting orientation is built on linkages to large enterprises,
supporting the development of new business as vendors. Kenya features include quaiity
control and scheduling.
4. Single and Business incubators will have programmes specifically tailored to
the needs of a particular class of industrial products/services, for examples IT services,
Biotechnology, handicrafts and so forth.
5. University incubators Specialize in supporting the development technology or
new processes initiated by the faculty and staff of the university or based on some
relationship to the university
6. Technology business incubators focusing on an overall local or national
economic development programme, providing the expectation of highly paid,
environmentally friendly, employment opportunities. Although direct job creation may
be modest, yet the triple effect of their actions can extend the positive range of their
impact
7. A hub incubator: with full management team, can support a number of satellite
incubators with a minimal staff and greater outreach possibilities.
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 8. Virtual Incubator or incubator without walls has recently emerged focusing on
the provision of counseling to client business.
9. Region or rural incubator is focused on stimulating business which utilize
local materials and other resources, including local skill sets, primarily serving specified
geography areas ( Shivganesh 2008)

Whom to incubate

An incubator should be an institution that has the advisory support services that can promote
others to grow; they must therefore be well versed with the governing corporate law, a talented
and experienced board of directors which should apply rigorous selection processes to incubates.
They must ensure that only those with a viable business propositions are accepted for incubation
expected to lat 2-3 years the incubates maybe:

 Trainees in a business development programme whose innovative ideas attract the

financing eye of the incubating institution
 Individuals with innovative ideas and a supporting business concept and an
accompanying business plan.
 Business that has gone through the start up phase but now need support but lack
the know-how or financial resources.

The level of entry and the effort required to make incubates rise to sustainable institutions
determines the equity premium that the incubator would levy forth incubation effort. Depending
on an organisation the incubator could take 5 – 15% stake in return for an incubation period
tenancy which could be 1 – 3 years and the support services received from the incubation.

The equity requirement acts as a filtering mechanism by determining that entrepreneurs wanting
to enter the incubator growth programme understand that ultimately, they probably will have to
give up equity in order to raise capital. The moral of this equity expectation is to enable the
incubator attain financial sustainability and hence reduce dependence on external funding from
either donors or government.

Why businesses incubate?

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 to such a
person.

Business incubators are designed specifically to help start-ups firms. They are usually:-

 Flexible space and leases, many times at very low rates

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  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 business that are able to
operate independently and financially viable.

Reasons for operating an incubator

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
 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.

Types of Firms Using Business Incubators.

The most common types of firms using business incubators are light manufacturing technology
and service firms and those developing on new products or engaged in research and
development. There are a limited number of construction-related, sales and marketing or
wholesale and distribution firms using incubators. A retail operation is considered a poor fit for
incubation.

Choosing the Right Incubator

In deciding to use a business incubator, the following factors need to be taken into account;

A. Space and service –related issues:

 What are the charges for space and services at the incubator?
 How do those rates compare to market rates locally?
 What services does the incubator provide?
 What are the lease requirements?
 Is there room for your business to grow?
B. Quality
 What information does the incubator provide about the extent and quality of the
services the incubator provides?
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  Does the incubator management seem to understand your business needs and can
they offer on-site assistance and access to valuable contact and community business
services needed by your firm?
C. Success Rates:
 If the incubator has been open long enough to have a track record, what is the
experience of firms who made use of the incubator for a few years and have now moved
to other spaces?
 How do the current tenants feel about the incubator?
 Ask for references and check them
D. Policies and Procedures
 What are the policies and procedures of the incubator?
 Are those services provided free of charge?
 How long can one remain a tenant?
 Is there a graduated rent structure as your firm matures or does the incubator want
to take royalties or an ownership right in its tenants businesses in return for reduced
charges?
 Can you leave easily if your business turns bust?
 Does the incubator provide seminar or training programs in addition to other
business assistance services?
E. Management
 Does the incubator appear to be managed well?
 Does the management appear to have good ties with and knowledge of the
business community?
 Does the incubator have the continuing support and commitment of
sponsoring organizations? Who are these sponsors and what are their goals and
reasons for supporting the incubator?

One other area to consider carefully is whether your business is really ready for this step. The
business must be entrepreneurially sound, able to function on its own, if needed. The incubator
cannot replace business initiative personal effort and resourcefulness. There is a term used called
“incubator syndrome” in which the entrepreneur allows their initiative and judgment to be
replaced by those of the consultants in the center. While the consultants may give superb advice,
it is the entrepreneur’s responsibility to make the business succeed.

Business Success Factors for Business Incubation.

In order to lay the groundwork for a successful incubation program, an incubator needs to first
invest time and money in a feasibility study. An effective feasibility study will help determine
whether the proposed project has a solid market, a sound financial base and strong community
support all critical factors in an incubator’s success.

Once established, the incubation program must commit to the convectional industry bet practices
such as structuring for financial sustainability, recruiting and appropriately compensating
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management building an effective board of directors, setting up a structure for building the
capacity of incubator personnel, and placing the greatest emphasis on client assistance then as
soon as the incubation programs starts the following issues need to be given due attention:

 Set clear criteria for selection of incubates and follow them

 Set milestones for each incubated company and monitor them
 Develop benchmarks and use them during evaluation
 Capture incubates experiences and uses them as case studies.
 Develop model incubate companies and use them for marketing the incubator
 Publicize incubation successes
 Develop good strategic partnerships.

Although incubated companies receive several benefits from the incubator, the focus of many is
access to operating capital. An incubator can often provide this support service in different ways,

 Managing in-house and revolving loan and micro-loan funds

 Connecting incubated companies with angel investors (High –net worth
individual connecting them to venture capitalists.)
 Assisting incubated companies in applying for loans
 Another critical success factor for an incubator is assessment of Technical
 Assistance needs of the incubated companies mobilizing the capacity to deliver
and locating funding to finance them.
 Mobilize available technical expertise by establishing databases of experts
 Use this base of expertise to provide technical assistance to incubated companies.

Important Stakeholders for Incubation

The Government:

 A conducive legal and regulatory environment

 A policy framework for supporting incubators
 Low interest money for very small start ups (micro enterprises)
 Affordable spaces (Real estate)
 Direct government purchases from incubators through specific procurement
guidelines

Donor Community

 Seed money incubation

 Facilitate incubation workshops and conferences
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  Support in knowledge dissemination

Academia

 Research and development

 Expertise for technical assistance

Private sector

 Finance and publicity

 Technology and infrastructure

Sample Questions.

1. After weeks of scanning the environment, M/s Nyongesa has come up with a
noble business idea. She is eager to start the business immediately. However, a friend of
hers advised her to carefully analyze the idea before starting the business. Examine the
benefits behind the advice offered to M/s Nyongesa in new business start-ups.
2. Mr. Madafu, the owner of Madafu enterprises, is concerned about the many
complaints emanating from his customers.

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Explain to him how the present state of affairs may assist in the development of new
business ideas.
3. Mr. Mapangala intends to start a business specializing in computer games to cater
for the youth.
However, a business consultant has advised him to be extra careful on this business
segment if he expects to succeed in his new venture. Examine the factors that he should
take into considerations in order to succeed in his venture
4. It is important to understand the prevailing political environment in a given area
before venturing into business. Explain the political factors that may affect business
performance.
5. Mr. Mamba, the owner of the Mamba Enterprises, which deals in plastic bags and
containers recently asked the local leaders in the area to identify a project which the
company can sponsorto ensure a clean environment for the community. Examine the
significance of this move to the business.

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