Written evidence from UK Business Incubation
It is essential that in undertaking the first
inquiry of the new Parliament into the New Local Enterprise Partnerships
and examining how the proposed new structure will work, Government
should be aware of the role played by Business Incubation in supporting
the development and growth of new and innovative start-ups and
small companies, with the objective of creating, sustaining and
securing jobs and wealth.
Business Incubation is a unique and highly flexible
combination of business development processes, infrastructure
and people designed to nurture new and small businesses by helping
them to survive and grow through the difficult and vulnerable
early stages of development. Business incubation is different
from (but, none the less, related to) other forms of business
support in that it provides a complete, tailored, "hands-on"
business support environment that adds real value.
The business incubation industry has experienced
rapid growth over the last 30 years, but the first business incubator
started more than 50 years ago in New York. By 1980, there were
12 to 15 incubators operating in the United States and since then
the global industry has since grown to include more than 9000
worldwide. In the UK, in 1998 (when UKBI was founded by the Treasury
and DTI) there were estimated to be around 20.
With the help of businesses incubation, innovators
and entrepreneurs are better prepared to turn their business ideas
into successful new ventures that have a well above average chance
of success and survival. Research undertaken initially in the
US and confirmed in the UK (and globally) has shown that business
incubators/business incubation environments reduce the risk of
business failures and business incubation practitioners generally
report that 87% of all firms that have "graduated" from
their incubators are still in business.
Further research in the US demonstrates that
the estimated public "subsidy" cost per job created
was £698.00 and a further study in 2008 (conducted by Grant
Thornton) told a similar story about the success of business incubation
as a means of creating and securing jobs. The report, Construction
Grants Program Impact Assessment Report, found that business
incubators/business incubation environments are a highly effective
public-private partnership approach that produces new jobs at
a relatively low cost to government. According to the study, for
every £6298.00 (US$10,000) in public funds invested in business
incubation, an estimated 47 to 69 local jobs are generated. Indeed,
a key role for Business Incubation across the UK will be in optimising
the opportunities that may emanate from any reduction in the size
of the public sector in the coming months.
Business Incubation is a powerful socio-economic
development tool that acts as "catalyst" and a "gateway"
for growth, entrepreneurship and innovation activities as well
as industry "clustering" and partnerships. The impact
of business incubation goes far beyond the support of incubated
companies. Below are two examples of success amongst many others
across the UK:
— SETSquared (www.setsquared.co.uk/) a
collaboration partnership between the universities of Bath, Bristol,
Southampton and Surrey has raised over £120 million of early
stage funding and secured 1,000 jobs.
— Wansbeck Life (www.nc4e.co.uk)—a
traditionally, socially and economically challenged part of the
UK, have delivered 85% survival and success of their new and small
business as well as cumulative gross revenue of their businesses
exceeding £100 million. The national average survival rate
for new and small businesses is between 20 and 40%.
UK Business Incubation ("UKBI") has
led the UK's business incubation "industry" for over
12 years and is not only concerned with the "innovation"
agenda (the development of knowledge-based companies in the high-tech
sector some of which have the potential to become world class
companies) but also with the "enterprise" agenda (creating
and securing better jobs in economically deprived areas) with
more "social" objectives.
UKBI has been highly successful in fostering
both "innovation" and "enterprise". In the
last few years UKBI has—through its wide national (and international)
membership and with support from regional and national government—developed
a unique structure and rigorous accreditation process to underpin
quality business incubation processes that add real value and
will help Government to achieve its objectives of "balance",
economic development and growth and in creating and securing new
jobs and wealth through the nurturing of new and small companies
with potential.
In July 2010, a report from the Kauffmann Foundation
confirmed that new firms add an average of 3 million jobs in their
first year, while older companies lose one million jobs annually
(see—www.kauffman.org/uploadedFiles/firm_formation_importance_of_startups.pdf).
As well as undertaking project work on behalf
of the UK Government, UKBI has also worked for the EU, the World
Bank and other national governments in encouraging the application
and added value of best practice business incubation.
There are approximately 300 business incubation
environments throughout the UK in urban, suburban and rural situations.
They work directly with around 12,000 clients at any one time
and are also working with a total of 275,000 companies at any
time, including alumni companies (see independent research by
NESTA—http://www.nesta.org.uk/library/documents/Business-incubators.pdf).
Although business incubation is still a relatively
new industry, business incubators/business incubation environments
around the world have reported impressive results that demonstrate
the important role business incubation plays in stimulating socioeconomic
growth and creating/securing jobs. By way of comparison in the
US, business incubation assists more than 27,000 start-up companies
annually and provides full-time employment for more than 100,000
people generating annual revenue of more than US$17 billion. Research
shows that every US$ of public funds devoted to business incubation
generates a 30x return on that investment in tax revenues each
and every subsequent year.
In the UK, business incubators/business incubation
environments are by nature organisations that work in partnership,
both with "external" stakeholders and with their operational
teams and clients. Generally, they operate as "not-for-profit"
businesses (77%) and provide added value, targeted and bespoke
growth services to start-ups and early stage businesses. Traditionally,
this includes space, shared administration and business support
services, offered on a diminishing basis and for a limited period
linked to the "growth path" of the enterprise.
Nearly 20% also include established SME businesses
as part of their client base ("anchor tenants") to add
value in terms of revenue, mentoring and "peer learning".
Pre-incubation activities are a growing trend and are delivered
by around 30% of the community of which 10% focus exclusively
on so called "pre-incubation" where clients are helped
to develop their business plan and clarify their funding needs.
These typically operate on a physical/virtual basis and generally
target under-represented groups and/or areas where self-employment
and raising awareness about entrepreneurship are important components
of the programme.
As 23% of the total business incubation clients
are "resident", the impact of business incubation in
supporting businesses and growing success within a community is
not limited to what is happening within the building and business
incubation is recognised globally as having a "ripple effect"
well beyond the physical centre.
More and more business incubation environments
have become sector specific in areas such as high-technology industries,
creative industries, knowledge-based businesses, bioscience/biotechnologies,
advanced manufacturing and clean technology/energy.
29 September 2010
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