National Business Incubation Association; Your source for knowledge and networks in business incubation

Taking stock of your business incubator: Part three

by Kathy Cammarata

August 2001

Complete your incubator self-evaluation with a careful look at exit criteria and graudation policies, boards of directors, and stakeholder networks.

This month marks the final segment of NBIA's incubator self-evaluation series. If you've stuck with us since April, you probably have developed a clear idea of where your program excels, and where it needs a little help. Taking the time to perform a comprehensive evaluation is a major accomplishment, but it's only the first step in making your incubation program a best practices incubator. The next step will be to use the information you've gained to set priorities for improvement and move your incubator toward achieving its mission.

In June, we promised you an in-depth look at graduation policies and exit criteria, and we'll deliver on that promise in the pages to come. We've also included sections on boards of directors and stakeholder networks.

Although we've covered a broad range of issues in this series, limited space prevented us from giving you all of the information and materials we put together. Be sure to watch for our self-evaluation workbook, to be published next year, which will expand on the topics covered in the newsletter and address several areas we weren't able to squeeze in.

Exit criteria/graduation policies

How do you decide when a company should graduate? It's an issue fundamental to business incubation, but surprisingly, there's no definitive answer. In fact, many incubator CEOs have found that no single exit policy is right, even for clients in the same incubator.

Still, many programs set arbitrary time frames for graduation, such as 24 or 36 months after a company moves into the incubator. This approach is strong in its simplicity, but it has some drawbacks. First, it assumes that companies will mature at the same rate, which is not necessarily the case. Second, it can cause cash-flow problems for the incubation program if several companies all are expected to graduate at the same time.

Another approach is to establish a more complex set of exit criteria for the client, such as staffing a complete management team, acquiring enough investments to accommodate the next stage of business or requiring space beyond the capacity of the incubator. Staff should provide these criteria to all serious incubator applicants and must ensure that all applicants understand how they will be evaluated once they are in the program. Establishing exit criteria gives companies goals to work toward and helps ensure they'll be ready for the real world when it's time to graduate.

Whatever the approach, the key is to have a strong rationale for deciding when a company should be ready to venture out on its own.

Who makes that decision is another issue that deserves consideration. It may be the same committee that decides which companies to admit to the incubator or a separate committee that focuses only on graduation. Some programs prefer to leave the decision up to the incubator CEO, who is most familiar with clients' progress. While this simplifies the process, using a committee allows members to share the heat if they must ask a client to leave the incubator and reduces the likelihood that a personality conflict will influence a decision. However, the counter argument for leaving the decision with the CEO is that he or she must "live" with this client and is most familiar with the client's progress (or lack thereof).

Another important part of the graduation equation is the relocation process. Incubator staff may need to play a role in helping graduating companies find new quarters, particularly in a tight real estate market. A CEO may link entrepreneurs with the chamber of commerce or meet with area realtors – whatever it takes to ensure companies continue to grow in the community where they got their start. Some incubators provide "graduation centers" for clients who no longer need incubator-like services but need space temporarily when the local real estate market is unable to accommodate them. Without such a center, an incubator's hard work may be diminished when a client has to relocate to another community to find suitable space.

Board/governing body

The difference between a thriving incubator and one struggling to keep its head above water sometimes comes down to the effectiveness of its board of directors.

Other than fiduciary obligations, a board of directors' primary purpose is to ensure that the incubator attains the goals and objectives outlined in its mission statement. In order to achieve that purpose, all board members must understand and be committed to the incubator's mission. They must also be committed to working collaboratively toward that goal – a board that merely makes mandates and expects results is not a helpful board. Appointing board members who show weak commitment to the incubator (or who have personal or professional agendas that conflict with the incubator's mission) can be devastating to the program.

Who makes up a strong board of directors? Ideally, it's a group with diverse backgrounds and skills, including business assistance professionals, technology experts or anyone else with resources, know-how and commitment to the incubator's mission. Of course, developers should think long and hard about choosing sponsors, who frequently expect and receive board appointments. An unruly board member who also is a sponsor can become a headache for the entire organization.

A major part of a board of directors' work is supporting the incubator CEO, because demands such as hosting visitors, networking with stakeholders and making presentations can divert his or her time away from assisting clients. Board members can be a boon to the program if they take on some of these obligations and allow the CEO to put his or her expertise to its best use.

In order to cultivate a strong working relationship, the board of directors and incubator CEO need to communicate openly and regularly. While the CEO should make sure the board knows about every significant matter in the incubator, the board should be respectful of staff and avoid micromanaging. Generally, the board's job is to hire the right incubator CEO, and the CEO's job is to hire staff and carry out programs.

Board members also can play a direct role in growing successful companies by offering legal or financial expertise, sitting on advisory boards or making investments. However, they must understand that in these roles they are serving as volunteers under the direction of the incubator CEO, not as a member of the incubator's governing body.

The effectiveness of a board of directors depends in large part on the effectiveness of its meetings. Carefully thought-out agendas will help the board maximize meeting time, especially if board members come well-prepared. Although meetings shouldn't be excessively long, they should allow ample time to cover agenda items and for members to interact. If the board meets once a month, this may take an hour or two; if it meets just three or four times a year, it may require an entire day.

It's not a bad idea for the board of directors to implement a yearly self-assessment, which can help reinforce members' responsibilities, clarify differences of opinion and demonstrate to sponsors and stakeholders the board's commitment and integrity.

Stakeholder networks

A strong network of stakeholders can play an important role in the success of your incubation program by providing client firms with resources and expertise, marketing the incubator in the community and encouraging promising entrepreneurs to apply for admission.

But just who are an incubator's stakeholders? NBIA defines them as any nonstaff persons who have a vested interest in the success of the program. They can include sponsors, board members, successful entrepreneurs, service providers and community leaders.

A healthy relationship between the community and the incubator depends on each having appropriate expectations of the relationship in terms of the time, energy and other resources invested. A community that commits to providing resources and nurturing a healthy relationship with the incubator ultimately will benefit from the incubator's positive impact on the local economy.

From the beginning, however, incubator developers should be honest with potential stakeholders about what they can expect the program to accomplish. This may require some serious bubble-bursting, but it's better to meet or surpass realistic projections than to make fantastic promises you can't keep and risk losing stakeholder support.

An incubator should establish effective strategies for managing its stakeholder network, making sure the amount of time the CEO spends on this activity is on par with the expected benefits gained from it. As we mentioned earlier, this may be a duty board members can take on, enabling the CEO to attend to matters inside the incubator.

Here's how it works

NBIA's three-part self-evaluation series is designed to help managers and stakeholders of established incubators (those past the feasibility and development stages) conduct comprehensive but quick evaluations of their programs. However, it also can be valuable to developers planning best practices incubators.

In the June issue of NBIA Review, we looked at recruiting, selecting and serving clients. This month, we complete our three-part series with a focus on graduation policies, boards of directors and stakeholder networks.

This evaluation won't give passing or failing grades, but it should get you thinking about your incubator in a systematic way so that key issues don't slip through the cracks. The "scoring" scale will help you pinpoint strengths and weaknesses based on several series of statements. We suggest you take out a notebook and jot down any comments or observations you have to help clarify your thoughts as you move through the evaluation. Notes also will provide a frame of reference for next year, when it's a good idea to start the process again.

For each statement below, rate your incubation program based on the following scale:

1=Strongly Disagree   2=Disagree   3=Agree   4= Strongly Agree
NA=Not Applicable

Exit Criteria/Graduation Policies

This incubator has taken steps to ensure that its graduation process and requirements are systematic. This incubator:
1.

Has developed exit criteria / graduation policies that reflect its mission and the types of companies it assists

____
2.

Has its exit criteria / graduation policies in writing.

____
3.

Has a clear and credible explanation for any time limits it has established for clients to receive services.

____
4.

Includes exit criteria / graduation policies in entrance materials for all serious applicants to the incubator.

____
5.

Ensures that applicants understand and accept its exit criteria / graduation policies and any time frames established to meet them.

____
6.

Has established programs and services designed to move clients toward graduation in an efficient manner.

____
This incubator's CEO recognizes that helping graduates relocate is part of the incubation process. The CEO or other staff member:
7.

Plays a role in helping soon-to-be graduates relocate in the community, if necessary.

____
8.

Has developed good relationships with the area board of realtors and commercial developers association.

____
9.

Believes that his / her job is not only to get companies started, but to keep them in the community, growing and prospering.

____
This incubator keeps in regular contact with graduates. The incubator:
10.

Encourages its graduates to continue to participate in incubator activities by attending workshops, mentoring incubator clients, advising the incubator CEO, referring potential clients or serving on the board of directors.

____
11.

Updates its files on graduates periodically, tracking their continued success, ups and downs, and milestones.

____
12.

Includes graduates in public awareness and marketing campaigns.

____

Board/Governing Body

This incubator pays close attention to the composition of its board of directors or other governing body. The incubator:
1. Selects board members primarily for their interest and capabilities in supporting the organization's mission. ____
2. Selects a diverse group of individuals for its board of directors, such as business assistance providers, mentors, angel investors, bankers, successful entrepreneurs and technology experts, whose expertise provides direct benefit to incubator staff and clients. ____
3. Ensures that board members understand business incubation and entrepreneurship so that they can make well-informed decisions. ____
4. Ensures the board / governing body has at least as many representatives of the private sector as the public sector, and includes recent or current entrepreneurs. ____
The board of directors or other governing body helps this incubator define and achieve its purpose. The board:
5. Invests in developing the incubator's mission and in annual strategic planning, and regularly reviews the mission statement and revises it, if necessary. ____
6. Acts on its important fiduciary responsibilities: reviewing budgets and regular financial statements, maintaining compliance with the incubator's tax status and funding requirements, and moving the incubator toward long-term sustainability. ____
7. Hires a qualified, effective CEO and evaluates his or her performance on an annual basis according to clear and agreed-upon criteria. ____
8. Sets policy that helps guide the staff but avoids program management, interfering with support staff and other types of micromanagement. ____
9. Keeps abreast of incubator activities and successes so as to serve as effective advocates and market the incubator to potential stakeholders and client businesses. ____
10. Recognizes that management's primary responsibility is to help the incubator's clients and ensure their success. ____
11. Includes some members who serve as part of the incubator's business assistance team, whether they act as mentors, provide legal or accounting advice, serve on company advisory boards or make investments. ____
12. Makes sure all meetings have clear agendas. ____
The board or other governing body ensures that the CEO stays focused on his or her responsibilities to the incubator and its clients. Board members:
13. Support the incubator CEO in establishing and managing the professional services, mentor and investor networks. ____
14. Support the incubator CEO in external relations, such as promoting the incubator, giving presentations and instructing entrepreneurship classes. ____
15. Serve as liaisons with government representatives for publicly funded incubators. ____
16. Help bring in financial resources. ____
17. Hold only as many meetings as necessary to achieve their purpose. ____
The structure of this incubator's board of directors, as defined in the bylaws, is well-suited to the program and its changing needs. The bylaws:
18. Provide for regular rotation of board members and officers, permitting opportunities for growth, avoiding insularity and maintaining board vitality. ____
19. Provide for continuity on the board by staggering members' terms. ____
20. Make it easy for the board composition to change as the incubation program evolves. ____
21. Provide for a governing body that is representative of the incubator's community. ____
22. Clearly define the CEO's and board's responsibilities and distinguish between the two. ____
23. Include a provision that permits the board to remove an unproductive board member. ____

Stakeholder Networks

This incubator implements strategies for effective management of the stakeholder network. The incubator:
1. Keeps community leaders informed of its needs, achievements and progress toward its goals. ____
2. Optimizes the interrelationships among stakeholders, the incubator CEO and incubator companies. ____
3. Encourages stakeholders to promote the program in the community, having provided them with the information and resources to do so effectively. ____
4. Has struck a balance between the benefits of its stakeholder network (access to resources and expertise) and the costs involved in maintaining the network (incubator CEO time). ____
5. Holds informal roundtable discussions with stakeholders at least every few years to let the board and staff know what impression the program is making on the community. ____
This incubator's stakeholders support the development of incubator companies by:
6. Providing expert business, legal, technology or financial advice. ____
7. Participating on client company advisory boards or serving as mentors. ____
8. Making financial investments in the incubator and / or clients. ____
9. Conducting training programs. ____
10. Helping make connections to other complementary companies in the area. ____
11. Being advocates in the community for incubator companies' needs. ____

NBIA wishes to thank the following individuals who committed time and expertise to this project:

Jim Greenwood, president of Greenwood Consulting Group, Sanibel, Fla.

Robert J. Calcaterra, CEO and president of the Nidus Center for Scientific Enterprise, St. Louis, Mo.

Joanne W. Randolph, president and CEO of the Business Technology Development Center Inc. (BizTech), Huntsville, Ala.

Adele Lyons, executive director of the Gulf Coast Business Technology Center, Biloxi, Miss.

Thalia Mendez, director of business incubation programs at the Wisconsin Women's Business Initiative, Milwaukee

Laura Kilcrease, general partner of Triton Venture Partners, Austin, Texas

Keywords: board of directors, evaluation -- incubator performance, graduation policy, stakeholder relationship management

Contact NBIA

Phone: (740) 593-4331
Fax: (740) 593-1996
PO Box 959
Athens, OH 45701-1565
info@nbia.org