Business incubation needs a re-think

By Allon Raiz, Chief Executive Officer, Raizcorp

Explore this topic further with the launch of the
2017 African Economic Outlook: Entrepreneurship and Industrialisation in Africa.

A little more than 12 years ago I read an article about 981 “entrepreneurs” who had been through a brief new venture creation programme. According to the journalist’s investigation, not one of these would-be entrepreneurs who had been in that programme was in existence a year later. The journalist lamented that despite the obvious evidence that these high volume, low quality programmes were ineffectual, they were nevertheless prolific, wasting hundreds of millions of dollars every year.

Twelve years ago, incubation as a way to promote entrepreneurship was only beginning to appear in any significant manner in the developing world. Unfortunately, in my opinion, the incubation industry inherited a few philosophical approaches from the training industry that have plagued the industry ever since.

Myth 1 Anyone can be an entrepreneur.

The first philosophical approach the incubation industry inherited from the training industry was the notion that anyone could become an entrepreneur. The concept of skills development without any consideration of human character (psychological makeup) was an extension of the training mindset. In the training industry, hundreds of thousands of people (if not millions) are put through training “programmes” each year with the basic change theory of “they didn’t know how, then we train them, then they do know how.” Unfortunately, that change model does not translate well in the incubation space, even if the model includes practical learning-by-doing training. The model presupposes an “entrepreneurs are made” view of the world, where all individuals are seen as raw input into a process, knowledge is added and an entrepreneur is produced.

My experience is that this is a false assumption. Entrepreneurs are neither born nor made, they precipitate (See Blog). For entrepreneurs to precipitate, the right set of entrepreneurial characteristics and environmental conditions needs to be present. Incubation might provide some of those conditions, but basic entrepreneurial characteristics need to be present as well. Simply putting anyone and everyone through a new venture creation programme, without considering their appropriateness for becoming an entrepreneur (and not just a survivalist) is, in my opinion, a waste of time and resources.

The more successful incubation programmes tend to take time to select the entrepreneurs that come onto their programmes. They base their decisions to allow entrepreneurs into a programme not on a fancy business plan with the all-too-predictable j curve, but rather on the right level of entrepreneurial characteristics present in the entrepreneur applying to the programme.

Myth 2  – Any context can create an entrepreneur.

As I travel particularly around Africa, I have visited over 100 “incubators”, or rather office contexts purporting to be incubators. Some badly designed space with brightly coloured walls, perhaps a motivational poster or two, a few bean bags and a fancy name with an even fancier website hide the fact that these environments are not really conducive to creating the context for entrepreneurs to thrive. The industry has an identity crisis, as incubators, accelerators, people with unrented office space and co-working space operators all vie for the patronage of entrepreneurs.

My research finds that the main reason entrepreneurs operate in these spaces is for the bandwidth, electricity, air-conditioning and cheap rent, in that order. The odd get together and speaker pepper the agenda, but few of these incubators have a formal engagement process that deliberately develops entrepreneurs and their businesses. In Morocco, a magnificent (incubator) space next to the university is populated by 3 Masters students doing research on their dissertations. In Kigali, a co-working space is filled to the brim with students on a mixture of social media and computer games. In Lagos, there is not a soul on the premises other than the receptionist who is checking her Instagram. Exceptions exist, of course, but these scenes describe the majority of the spaces labelled as incubators in Africa.

For incubation to be effective, the space (hardware) needs to be well designed. Design is a critical success factor to the success of the programmes that run in that space. The incubation programmes (software) that are run in incubators need to be well designed and well managed. We need to do away with the low quality, outdated and ineffective programmes that educate our entrepreneurs.

Myth 3  – Anyone can “train” an entrepreneur.

I saw a magnificent incubation programme in Angola. Ten magnificent spaces were built; the incubation programme that was being delivered was average, but after two years no one was available to run the programmes and so nine out of the 10 shut down. Without the right people to run and manage the incubators, they become redundant.

I witnessed skilled people inserted into management positions in start-up incubation programmes in Africa. After a short while, they are snapped up by a local multinational, bank or mobile operator. The replacement tends to be less passionate and less aware of how the system operates. They too are snapped up, and so on, until the person left running the place has neither the passion nor the understanding on how to run an incubator.

In 2013, we had 31 people who were previously mentors for government or quasi-government incubation programmes apply for a guiding (or mentoring) position1  . As part of our selection process for guides, the applicant must complete a case study. The first is called the Busi case study, and it is effectively a story imbedded with an income statement. The applicants are required (amongst other things) to work out the net profit of Busi’s business. Two out of the 31 could do this. That’s 6.5% of the people applying, who were currently in a position of training entrepreneurs, could work out net profit. This is a disaster.

One in 104 people who apply to become a guide is successful. The incubation industry in the developing world needs to work much harder in training and selecting the people who will be working with entrepreneurs. We all know that a good teacher is such a critical determinant of our futures.

Ultimately, incubation has an important role to play in the development of entrepreneurs in the developing world. To date my view is that, with few exceptions, it is being done very badly. We need to change our mindset as business development service providers that quality is not negotiable.

To do this, we need first to ensure that the people selected for the programmes are indeed the right ones who will benefit most and be able to leverage the privilege. Second, we need to create well-designed incubation spaces that make learning, working and connecting easy. Third, we need to ensure that the programmatic approach to incubation is flexible, taking into account the level, type and point in the journey of the entrepreneur in question. And last, massive energy needs to be placed in ensuring that the people who are working with the entrepreneurs are competent, passionate and learners themselves.

Once we get this high quality model right, then it’s a matter of scaling it.

1. Firsthand perspectives taken from the work of Raizcorp, which, according to The Economist, is the only genuine incubator in Africa. It provides full service enterprise and supplier development programmes that guide entrepreneurs to profitability. Raizcorp has created “Prosperation™” – its own unique, world-renowned model of business incubation. Founded in 2000, Raizcorp has become Africa’s premier business incubator model.