Business Incubators: The Missing Link to Small Business Survival

Abstract

Small businesses play a vital role towards world economic development as they contribute between 40% to 50% of national Gross Domestic Product (GDP) as well as 70% to 90% of employment. However, besides their critical role, small business failure rate is alarming, ranging between 50% and 95% in their early years of existence. To reverse this trend, business incubators have provided required build capacity to start-up entrepreneurs and innovators thereby assuring their survival and growth. Having their roots in the 1950s and 1960s, business incubators have offered mentorship, skills building, technical support, training, facilities and venture capital. Globally there are over 7,000 incubators concentrating in various fields from science, economics, technology, marketing to business management. The success rate of businesses incubated is evident with 84% of graduates settling permanently in the community where they start businesses.  The success rate of incubated businesses is evident in different countries such as New Zealand (87%), United States of America (85%) and Germany (90%) while South Africa and Brazil both have 80% success rate.

Besides the success rate of businesses incubated, the failure rate of incubator businesses is alarming being as high as 90%. The failure is associated with lack of professional management, no sustainable growth plans, inappropriate technology and funds misappropriation. However, having played the role of the missing linking between business failure and success, incubators cannot be neglected. The purpose of this paper is to explore the roles of incubators, benefits, challenges and keys for their success. Based on empirical research, this paper gives an overview of the current state of incubators worldwide and their difficulties. The paper concludes with a case study of the National Environment Trust Fund (NETFUND) Incubation Centre which is a government initiative that has successfully support the development and promotion of green enterprises.