business incubators and the networks of technology-based firms

Business incubators and the networksof technology-based firms

Danny P. Soetanto • Sarah L. Jack

� Springer Science+Business Media, LLC 2011

Abstract This paper looks to broaden understanding about the networks of firms located in

Business Incubators (BIs). To achieve this objective, a framework for understanding the

networks of incubator firms was constructed. We argue that networks at incubators can be

seen in two dimensions. In the first dimension, we define incubator firm networking activities

in terms of resource type, i.e. tangible and intangible resources. In the second dimension, we

define networks of incubator firms as external and internal. Internal networks refer to the

relationship among tenants while external networks refer to the firm’s relationship with other

institutions such as a university and/or research centre. Networks of firms located at the

Daresbury Science and Innovation Campus in the United Kingdom were investigated using a

tenant survey. Findings show that incubator firms develop more networks to access intan-

gible resources than tangible resources. The analysis explored and compared types of net-

works for highly innovative firms and medium to low innovative firms and found differences

in their networking activity. With regards to policy recommendations, this study shows

network support for incubator firms can be improved. It also shows that those concerned with

developing BI policy need to recognize and appreciate that not all incubator firms have the

same needs. This should be taken into account when developing network support.

Keywords Network � Incubator � Highly innovative firms � Medium to low innovative

firms

JEL classification M13 � O31 � O32

1 Introduction

Given that innovation is seen to play an important role in current economic policy, the

presence of technology-based firms in a region is important and needs to be supported

D. P. Soetanto (&) � S. L. JackInstitute for Entrepreneurship and Enterprise Development, Lancaster University Management School,Bailrigg, Lancaster LA1 4YX, UKe-mail: [email protected]

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J Technol TransfDOI 10.1007/s10961-011-9237-4

(Acs and Audretsch 1992; OECD 2001; Wright et al. 2004). These firms are vulnerable and

likely to face problems because of the liabilities associated with being new and small. As a

consequence of the liabilities such firms face, some policy measurement is necessary to

ensure their survival and growth (Cooke and Leydesdorff 2006). Among the many ways to

support the growth of these firms, one that has drawn increasing interest is the Business

Incubator (BI) (Vedovello and Godinho 2003; Lofsten and Lindelof 2002; Chan and Lau

2005). Business Incubators (BIs) are believed to be an effective policy instrument for

supporting the growth and development of technology based firms. As a consequence, BIs

have become increasingly popular in recent years.

As BIs have become popular their infrastructure has changed (Barrow 2001; Hackett and

Dilts 2004). The first generation of BIs essentially offered affordable office facilities to

potential new firms (Barrow 2001). However, it was then realised that the creation of an

incubator per se was not sufficient for generating an environment for the growth of tech-

nology-based firms (Patton et al. 2009). Instead, it became evident that new firms needed a

certain type of support, especially in soft skill areas such as understanding market condi-

tions and how to manage a firm (Hindle and Yencken 2004; Colombo and Grilli 2005).

As this realisation became accepted, the type of support changed and nowadays greater

emphasis is placed on developing access to networks and networking capabilities (Patton

et al. 2009). One outcome of this has been the emergence of a new type of BI known as the

networked incubator (Hansen et al. 2000; Bøllingtoft and Ulhøi 2005). This type of

incubator helps firms develop networks for growth by focusing on networking activities

among tenants based at the incubator and other external related organizations (McAdam

and McAdam 2006). Today, BIs are perceived more as intermediary organizations that

support firms by helping them establish and develop networks with a broad range of

economic actors (Lofsten and Lindelof 2005; Peters et al. 2004; Bergek and Norrman

2008). In doing so, BIs continue to play a fundamental support role because they provide a

facility where the personnel of incubator firms can come together, interact and mobilise

resources (Grimaldi and Grandi 2005).

Nevertheless, despite the popularity of network support provided by BIs over the years,

their ability to fulfil their vital role in promoting firm growth is now being scrutinized (e.g.

Van Dierdonck et al. 1991; Bakouros et al. 2002; Schwartz 2009). Scholars such as Mian

(1996) and Patton et al. (2009) argue that there is little evidence to demonstrate how the

support provided effectively addresses the critical needs experienced by incubator firms.

More importantly, only a limited number of studies have examined networking activities

related to BIs (Totterman and Sten 2005; Scillitoe and Chakrabarti 2005; Moray and

Clarysse 2005). Given the belief that network support improves the abilities of incubator

firms to survive and grow, it is somewhat surprising that relatively little is known about the

network needs of firms located in BIs and how networking impacts on their activities (von

Zedtwitz and Grimaldi 2006; McAdam and Marlow 2008). In response to the above and

the emerging need to develop better support, the aim of this paper is to enhance under-

standing about the networks established by incubator firms. The underlying idea is that BIs

need to accommodate the networking needs of incubator firms by giving them the

opportunity to develop internal networks with other tenants and help them build rela-

tionships with external organisations (Bøllingtoft and Ulhøi 2005).

To provide better understanding, we consider the networks firms develop (i.e. internal

and external) and the network activities firms are immersed in for resources (i.e. tangible

and intangible). By considering these areas we contribute to discussions about how net-

work support in BIs might be improved. Indeed, we challenge the current incubation

practise of delivering standardised and generic network support. We also show that the fact

D. P. Soetanto, S. L. Jack

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that incubator firms acquire resources through networks needs to be recognised to a greater

extent (von Zedtwitz and Grimaldi 2006; Bergek and Norrman 2008; Warren et al. 2009).

To respond to our research interests, an empirical observation of networks developed by

firms within the Daresbury Science and Innovation Campus (the Daresbury SIC) was

carried out. The Daresbury SIC is an incubator organisation based in the United Kingdom

(UK) which aims to support the growth of technology-based firms. It hosts 70 technology-

based firms. A tenant survey was used to generate data for this study. The findings illustrate

how BIs can improve network support.

The paper is presented in the following way. In the first section, the development of BIs

is discussed and a framework for exploring network patterns is offered. The next section

presents the construction of two hypotheses. The paper continues by providing an account

of the methods and approach used in this study. The empirical evidence which demon-

strates the pattern of networks of incubator firms at the Daresbury SIC is then provided.

Finally, conclusions from the research are presented along with recommendations and

implications for further research and policy action.

2 BIs and the networks of incubator firms

2.1 Incubator studies: what do we still need to learn?

In the last two decades, BIs have become an important research area. While the majority of

prior research has focused on subjects such as incubator development and configuration

(Kuratko and LaFollette 1987; Allen and McClusky 1990; Campbell and Allen 1987;

Clarysse et al. 2005), others have looked to measure and assess the impact and influence of

the incubation process on economic development (Bakouros et al. 2002; Smilor and Gill

1986). More specifically, this work has looked at innovation (Acs and Audretsch 1992), the

creation of new high quality jobs and profit generation (Birch 1981; Reynold et al. 1994).

While many studies show the outcomes from the incubation process to be positive,

others question the support BIs provide and raise a number of issues (Colombo and

Delmastro 2002; Tamasy 2007). Concerns include differences in the quality of incubators

(Aernoudt 2004, Von Zedtwitz and Grimaldi 2006), a misalignment of incubator and

incubatee objectives (Hackett and Dilts 2004) and that BIs seem to feel there is a need to

provide standardized offerings, rather than designing something to meet the specific needs

of individual firms (Grimaldi and Grandi 2005). Such conflicting views can be attributed to

lack of understanding about the incubation process, limited appreciation that the needs of

firms residing in incubators are diverse and that firms experience different outcomes. What

this suggests is that support provided by incubators could be customized to meet the needs

of the individual firm (Grimaldi and Grandi 2005). However, given the constrained

resource environment in which BIs operate, this may not be easy (Hannon and Chaplin

2003). One way to deal with this might be to encourage and support firms to develop their

own networks to identify resources (Rice 2002). However, given the remit of most BIs this

is likely to involve a shift in their thinking, focus and development.

Reviewing the literature (e.g. Hansen et al. 2000; Lindelof and Lofsten 2003; McAdam

and McAdam 2006), we learn that firms naturally develop their networks through two

mechanisms, self-organised networks or through networks they are directed to by BI

management personnel. In the first instance, incubator firms naturally develop a link

with their selected partners (McAdam and McAdam 2006) and/or organisations located

within the proximity of the incubator (Lindelof and Lofsten 2003; Dettwiler et al. 2006).

Business incubators and the networks

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Working together in the same building with other incubator firms can create synergy,

embedded relations and social capital, all elements thought to enhance a firm’s innovative

capabilities and increase the potential for commercial collaboration (Hansen et al. 2000).

Such interactions may also aid the exchange of resources, knowledge and information and

so help address the liability of newness that all incubator firms experience. In the second

instance, firms can create networks through the directed support guided by BIs (Hansen

et al. 2000). Such support might take the form of networking events organized by the BI

where firms have the opportunity to meet people from business and financial institutions

such as investors, bankers and consultants. Some BIs also provide access to key scientists

at research institutes or academics at universities. By providing the connection, BIs can act

as the hub of the network with the hope of creating a flexible environment for growth

(McAdam and McAdam 2006). As network support and its need becomes increasingly

popular, BIs face pressure to improve this type of support for their tenants (Hackett and

Dilts 2008). Unfortunately because of their focus, agendas and lack of resources BIs are

not always aware of individual firm needs nor the different types of networking activities

incubator firms engage in. Instead, networking support is all too often driven by the

capability of BIs in gathering their contacts rather than the actual needs of tenant firms.

By and large, there is an increasing need to improve networking support provided by

BIs. However, it seems that there is still a lot of ambiguity surrounding what we actually

know and understand about the network needs and networking activities of firms at BIs

(Totterman and Sten 2005). Based on the above explanation, we surmise that to understand

networking activities it is important to consider the different characteristics of incubator

firms.

2.2 Understanding networks of incubator firms

Incubators tend to host firms from the point of establishment to the early years of growth

(Bergek and Norrman 2008; Hackett and Dilts 2008). We argue that firms at BIs have

certain needs during the incubation process and these needs are reflected in the networks on

which they draw (Totterman and Sten 2005). For that reason, we develop a framework for

understanding the networks of incubator firms. Figure 1 shows the framework where we

- Use of equipment, laboratories, and research facilities

- Grant or funding

- Technical support and consultation

- Information and knowledge on technology development

- Informal contacts - Business partnership

External (e.g. university and research institute)

Internal (e.g. other incubator firms)

Tangible

resource

Intangible

resource

Type of networks

Typ

e of

res

ourc

e

- Use of equipments, laboratories, and research facilities

- Combining physical asset leading to new firms establishment

- Project collaboration- Business partnership

Fig. 1 Framework in understanding networks at BIs


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explore networks under two dimensions, the type of resources required and the type of

networks used.

In the first dimension, we define networking activities as being related to the type of

resources the incubator firm seeks. For technology-based, small and newly established

firms, networks are seen as a critical mechanism for mobilizing resources that can help

overcome obstacles and threats (Lin et al. 2006). Using resource-based theory (Dierickx

and Cool 1989; Barney 1991; Barney and Clark 2007), we divide resources into two

fundamental categories: (1) tangible resources and (2) intangible resources. Tangible

resources include those factors containing physical and financial assets. Intangible

resources, are more complex and include factors that are non-physical (or non-financial) in

nature. Hall (1992, 1993) suggests that intangible resources essentially fall into two cat-

egories: assets and skills (or capabilities). Considering the wide-ranging conceptual defi-

nitions in the literature, we adopt Hall’s (1992) approach in defining resources as follow:

Tangible resources include financial assets and physical assets (Grant 1991).

Intangible resources are assets which include intellectual property assets (Hall 1992),

organizational assets (Barney 1991; Fernandez et al. 2000), reputational assets (Roberts

and Dowling 2002) and skills/capabilities (Hall 1992; Amit and Schoemaker 1993).

In BIs, incubator firms pool their tangible resources and complement each other in order

to overcome liabilities of newness and weak competitiveness (Totterman and Sten). This

tangible resource seeking activity shows how sharing and drawing on a collection of

resources enables a firm, on their own or in collaboration, to undertake a greater range of

activities than they could if they drew only on their own limited resource base (Hughes

et al. 2007). There are a wide range of activities at incubators where incubator firms share

the use of equipment, research facilities, and laboratories with their internal and external

partners to increase efficiency and reduce production costs. Incubator firms might also

combine tangible resources, such as physical and capital assets, with their partners to form

a new business opportunity.

Incubator firms may also use networks for accessing intangible resources, such as

knowledge. This activity requires close, repeated interactions to gather knowledge that can

improve the capabilities of the firm (Hughes et al. 2007). Knowledge differs from other

tangible resources because it is intangible and has asymmetric properties. The use of

knowledge is determined by interpretation and the firms’ absorptive capacity (Cohen and

Levinthal 1990). Knowledge obtained from a firms’ network is typically information,

experience or advice on tackling business problems or challenges. At BIs, knowledge

sharing is the basic reason for incubator firms to congregate together (Lofsten and Lindelof

2005; Dettwiler et al. 2006).

With regards to the type of networks, we define networks at BIs as external and internal

(Totterman and Sten 2005; Lyons 2000). The internal network refers to the relationship

that involves formal or informal collaborations, joint ventures, or basic information

exchanges among tenants (Lyons 2000). Duff (1994) suggests that by being located on the

same site, a symbiotic environment can be established where firms share experiences,

exchange business contacts or establish collaborative projects as well as sharing the use of

equipment or research facilities (Ahuja 2000). Collaborations enable firms to utilise the

existing expertise or technology of other firms. Incubator firms may also gain access to

resources from their external networks. These might consist of researchers from research

institutes or academics from universities, who are willing to provide advice and assistance.

Ideally, incubators need to add value by bringing together a comprehensive array of

networks with knowledge sources to match the needs of firms. Collaborations with


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universities, research centres or other knowledge-based institutions enable firms to enjoy

economies of specialization, without the prior investments often needed for internal

development (Lofsten and Lindelof 2005).

Using this framework above, we explore the networks of incubator firms. However, we

realise that within BIs, the external and internal networks developed may be different from

firm to firm: each firm can have unique resource needs (Colombo et al. 2010). The need for

tangible and intangible resources can be different from firm to firm and the fact that

incubator firms may develop networks to support their growth, leads us to argue that

networks develop according to firm needs (Brostrom 2010). We believe that understanding

this difference in networking activities is important, especially if the networking support

provided by incubators is to be improved. Thus, in this study we seek to consider more

closely the relations between incubator firms and their network partners.

3 Needs to understand networks established by technology-based firms

The hypotheses in this study are constructed based on the framework (Fig. 1). As incubator

firms actively and strategically develop their networks with external and internal partners,

incubator firms may experience different obstacles or pursue different goals. As a result,

firms might establish different types of networks and network support needs to be cus-

tomised according to this need.

The first hypothesis is concerned with potential differences in the networks developed

by highly innovative firms when compared to medium to low innovative firms in seeking

tangible resources. To have a deeper understanding of this subject, we need to look at why

firms locate at BIs. In the literature, the pioneering analysis of factors that attract firms to

BIs was carried out by Westhead and Batstone (1998). Based on a matched-pair sample

(i.e. on-park firms and off-park firms), these authors found that the major determinant of

the decision to locate at a BI is a desire to acquire resources in terms of access to research

facilities and laboratories. Accordingly, the opportunity to develop linkages between

universities and highly innovative firms is the key criterion by which the impact of BIs’

support to their tenants is judged (Westhead and Batstone 1998; Goldstein and Renault

2004; Hansson et al. 2005).

Compared to medium to low innovative firms, highly innovative firms at BIs may

develop more active linkages with a university due to the nature of their products or

services and the extent to which they are related to a technology or innovation developed

within a university. In most developed countries, the form of the relationship between

universities and BIs can be very explicit, and often a BIs is established within spatial

proximity of a university (Link and Scott 2007). Within this proximity, it is most likely that

highly innovative firms are attracted to reside in BIs as they have a need to access uni-

versity resources and use research facilities, laboratories and even the technology transfer

office. Highly innovative firms may lack financial investment for their growth. Through

their location at BIs, incubator firms can use the networks available to them to connect to

potential investors or business angels.

While the previous argument explains the tangible resource seeking activities of

incubator firms with external partners, incubator firms, either highly innovative or medium

to low innovative, have the opportunity to seek resources through internal collaborations

with other tenants. By their nature, BIs help build networks among their tenants (Cooper

et al. 2010). Tenants are given the opportunity to know each other and build networks in a

variety of ways. The fact that tenants all operate under one roof makes resource pooling


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activity much more likely to happen. However, highly innovative firms may develop

stronger networks with other incubator firms to access tangible resources (Colombo et al.

2006). In terms of obstacles experienced during early growth, these firms have been found

to face a higher number of obstacles compared to medium to low innovative firms (Reid

and Garnsey 1998; Groen et al. 2005; Van Geenhuizen and Soetanto 2009). This is because

the core of their activity is often technology development and since many entrepreneurs

have little business background to help them take such products or services to market, they

have to build networks and links to others to compensate (Van Geenhuizen and Soetanto

2009).

In contrast, medium to low innovative firms develop products or services that face

relatively lower obstacles (Van Geenhuizen and Soetanto 2009). These types of firms may

face a higher competition in the market but can enter the market relatively easily. As a

result, they may concentrate on market penetration as soon as they are established and are

less concerned with tangible resource seeking activities with external and internal partners.

These types of firms may require a rather low investment compared to highly innovative

firms. They may put effort and resources into developing good linkages with customers or

suppliers but be less concerned than highly innovative firms about building internal net-

works with other incubator firms. Based on this argument, we formulate the following

hypothesis.

Hypothesis 1 In tangible resource seeking activities, highly innovative firms maintain

relatively more active networks with external and internal partners compared to medium to

low innovative firms.

While the previous hypothesis is concerned with tangible resource seeking activities,

the next hypothesis focuses on firms efforts in acquiring intangible resources. We argue

that highly innovative firms are more active in developing networks with universities or

other research institutions to access intangible resources, such as knowledge and ideas.

Linkages to academic institutions are relevant for highly innovative firms and can be seen

as the main source for innovation, growth and competitive advantage (Bozeman 2000;

Rothaermel et al. 2007). When developing highly innovative products or services, incu-

bator firms are most likely to receive support from strong and close ties such as former

colleagues or professors at a university. Through these linkages the most recent scientific

knowledge and expertise in specific technological fields can be acquired or exchanged. In

the literature, being in close vicinity to the spill-over of sources of knowledge, such as a

university, becomes crucial for a firm’s entrepreneurial exploitation (Jaffe 1989; Acs et al.

1992; Audretsch and Fledman 1996). Close proximity may facilitate the development of

networks which can act as a catalyst for the exchange of experiences, and the transfer of

valuable information and knowledge, particularly non-codified tacit knowledge.

With regards to internal networks, incubator firms may acquire knowledge related to

entrepreneurial knowledge and skills, such as management of a small business and/or

knowledge about the market. Building a high-quality relationship with other firms

improves both the quality and quantity of interactions and the willingness and capability of

firms to seek knowledge. On the one hand, well-maintained relationships increase

opportunities for mutual interactions and adjustments (Adler and Kwon 2002). Therefore,

firms may benefit from information sharing and knowledge spill over. On the other hand,

high quality relationships (for example high levels of trust and familiarity) encourage firms

to share knowledge leading to project collaborations. In developing internal networks,

either highly innovative firms or medium to low innovative firms may be actively engaged

in this type of network. However, highly innovative firms may develop a more active


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network compared to medium to low innovative firms due to the higher obstacles they may

face. These highly innovative firms actively acquire useful information and knowledge

through the exchange of interactions with other incubator firms to solve their obstacles or

develop new opportunites. Accordingly, we formulate the following hypothesis.

Hypothesis 2 In intangible resource seeking activities, highly innovative firms maintain

relatively more active networks with external and internal partners compared to medium to

low innovative firms.

4 Research methods

The aim of this study is to enhance understanding about the networks established by

incubator firms. To achieve this purpose, it specifically considers the types of networks

firms located at the Daresbury SIC might build and the networking activities they are

immersed in.

4.1 The study site

The empirical material for this study was gathered from a tenant survey carried out at

Daresbury SIC. The Daresbury SIC is part of a government effort to encourage increased

commercial exploitation of scientific research and knowledge exchange in the Northwest

region of the UK. Daresbury SIC is home to 70 innovative technology companies that

typically come from the biomedical, digital/ICT, advanced engineering and energy and

environmental sectors. The facility is located in the heart of the technology-based complex

set in 30 hectares of countryside between two major cities, Liverpool and Manchester.

Daresbury SIC is supported by six key stakeholder organisations in the region: the Science

and Technology Facilities Council (STFC), the Northwest Regional Development Agency

(NWDA), Lancaster University, the University of Liverpool, the University of Manchester

and Halton Borough Council. Supported by these stakeholders, its objective is to bring

together small and medium innovative firms with the scientific research capabilities of the

Daresbury laboratory and stakeholder universities.

Through the STFC, the firms based at Daresbury SIC have access to world class

facilities and expertise. At the site, the first tera-scale research capability computing

facility in the UK was established. In fact, it is one of the largest academic high end

computing facilities in Europe where a substantial research team works closely with

industries on several application developments. The Daresbury laboratory also has world

class accelerator science expertise fully equipped with a high end laboratory. Moreover,

collaboration is part of the culture of the site. A leading example of the collaboration of the

Daresbury SIC is the IDEAS (Innovation, Design, Entrepreneurship and Science) project.

The project is a new partnership among three leading business and Management schools in

the region (Lancaster, Liverpool and Manchester). IDEAS tests and develops new

approaches to knowledge transfer and the management of innovation between industry,

Higher Education Institutions (HEIs) and other public and private sector agencies and

organisations (including Research Councils, Regional Development Agencies and inno-

vation intermediaries) and within and between firms. This involves providing advice and

support to firms to foster the more effective generation, development and implementation

of innovation and creative thinking in their broadest sense.


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4.2 Design, sample, and measurement

We initiated this research based on a tenant survey carried out with companies located at

the Daresbury SIC during 2008 and 2009. This work helps us recognize the important link

between firms at the incubator and their internal and external partners. The questionnaire

was sent to founders or managers of all firms located at the incubator. After several rounds

of phone and personal follow-ups, 62 questionnaires were returned. This resulted in a

response rate of 88.6%. In 2010, the Daresbury SIC replicated the study and found that the

results did not significantly change. Therefore, the initial dataset was used as it also

provided a bigger sample. In addition, post-survey interviews were conducted with a

sample of 7 firms. We asked them to detail networking activities with their internal

(amongst incubator firms) and external partners (the STFC and the universities). The

overall interviews were highly consistent with the tenant survey responses, confirming the

validity of the respondents’ responses in the survey.

To describe networks at incubators, we developed a framework consisting of two ele-

ments, type of resources and type of networks. In defining firms’ activities in finding

resources, we argue that incubator firms develop networks for two reasons, to access tangible

and intangible resources. In terms of accessing tangible resources, firms develop networks to

acquire resources such as shared use of equipment, laboratories or access to grant or funding.

In acquiring intangible resources, incubator firms develop relationships with their network

partners, including project collaboration, consultation and informal contacts. With regards to

types of networks, two categories were constructed including internal and external networks

(Totterman and Sten 2005; Lyons 2000). Internal networks refer to networks among firms at

the incubator. External networks consist of networks with the Science and Technology

Facilities Council (STFC) and universities (Lancaster University, the University of Liver-

pool and the University of Manchester). In order to cover all types of potential networking

activities between incubator firms and external partners, respondents were asked to mention

other types of relationships which were not covered in the predefined questions.

In this study, we compared the networks developed by firms with different levels of

innovativeness. To qualify as a high innovative firm two criteria had to be met, namely if

firms developed their products or services based on a patent and whether firms produced

more than one new product or service in the last 2 years. For this purpose, a dichotomous

variable was created with 1 defined as a highly innovative firm and 0 defined as a medium

to low innovative firm. Moreover, job growth, measured as the number of increased

employees in the last year, was used as a performance indicator.

The empirical part of this study starts with a general overview of firm characteristics.

The description of firms in terms of type, size, product, performance and their initial

motivation for being located at the incubator are presented. This is followed by descrip-

tions of the networks developed by incubator firms, reported as the mean and standard

deviation. In the analysis part, the significant differences between networks of highly

innovative firms and medium to low innovative firms were tested using the Student two-

tailed t-test. Lastly, the Pearson’s correlation was used to find a correlation between

networks and performance.

5 Empirical findings

In the following section, the empirical findings are presented. To start descriptive infor-

mation showing the sample’s characteristics are provided. In the subsequent section,


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different networks developed by the incubator firms studied are presented. Starting with

internal networks amongst tenants, the description includes networks with the STFC and

universities. In the last section, networks of two types of firms are compared. The section

demonstrates that differences in networks exist between highly innovative firms and

medium to low innovative firms.

5.1 Firms characteristics

Table 1 shows the characteristics of the firms at the Daresbury SIC. A total of 62 firms

responded to the survey. This comprised of 31 firms (50.0%) defined as highly innovative

and 31 firms (50.0%) as medium to low innovative. In terms of size, the majority of firms

are small with 3.96 fte average number of employees. 42 firms (67.7%) have less than 5

employees. Although, overall firms are relatively small, 24 firms (38.7%) have interna-

tional markets and have exported their products or services to countries outside the UK.

Firms delivered sales in total of almost £15 million/year, with average annual sales of

£240,000/year. However, the standard deviation is relatively high. This tells us that there

is a big variation in terms of firm performance at the incubator. The actual sales growth is

£5,974 million/year with an average of £96,350/year. Again, the standard deviation is

relatively high. This tells us that the actual sales growth experienced by firms is quite

diverse. Since an established firm may experience stronger growth compared to a recently

founded firm, a relative sales growth indicator was used. This indicator represents the

percentage of actual growth compared to the total sales growth. The overall relative sales

growth is 35.19% with a standard deviation of 42.48%. Despite the economic climate, the

performance shown by the firms does seem good.

Growth in the number of employees is relatively moderate with an average of 1.04 ftes.

43 firms (69.4%) experienced relatively weak growth of one or less fte per year and only 19

firms (30.6%) experienced a job growth of more than 1 fte per year. This relatively

moderate growth pattern can be explained as the Daresbury SIC has accommodated a high

percentage (30–40%) of companies in the pre-revenue stage. According to the manager of

Table 1 Characteristics of firms (number of firm = 62 firms)

Frequency Percentage

Type of firm

Highly innovative firms 31 50

Medium to low innovative firms 31 50

Size: number of employees (mean: 3.96; SD:3.97)

B5 fte (micro firm) 42 67.7

[5 fte (small and medium firm) 20 32.3

Exported product

Has no exported product 38 61.3

Has exported product 24 38.7

Annual sales: total: £ 14,935 m/year; mean: £ 240,000/year; SD: £ 423,071/year

Jobs growth (mean: 1.04; SD:1.69)

B1 fte (weak growth) 43 69.4

[1 fte (strong growth) 19 30.6


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the Daresbury SIC, this moderate jobs growth was caused by firms’deciding to focus more

on penetrating markets than investing in employees.

In the previous section, we discussed that the firms are motivated to locate at BIs for

resource access reasons. This is especially the case for access to tangible resources such as

research facilities, laboratories, grants or capital investment. In the survey, respondents

were asked about their motivations for locating at the BI. They were given some predefined

factors. Among others, these included potential to network with other tenants, access to

universities, use of facilities and location. The survey also contained some open questions

where respondents could record their opinions. Responses to the survey demonstrated that

the initial motivations which drive firms to locate at Daresbury SIC are access to business

support (shared facilities, access to research facilities), grants and potential financial

investors. This represented 79.0% of firms. In terms of accessing external resources,

another advantage of being located at Daresbury SIC is location. It lies at the centre of a

large research facility and is closely connected to universities in the region. This allows for

easy access to other big cities in the region and beyond. Related to this is the reputation and

image of the Daresbury SIC (62.9%). By being located at the incubator, firms may boost

their presence in front of business partners. This is because Daresbury SIC is well known

as a world class location for high-tech business and leading edge science. This motive is

followed by the potential of networking with universities (56.5%) and networking with

other tenants at the incubator (46.8%). Overall, these findings confirm what has been

discussed in other incubator studies (e.g. Hackett and Dilts 2004; Aernoudt 2004), that the

initial motive of firms is mainly the opportunity to acquire tangible resources. In the

following analysis, networking activities of incubator firms with partners, for example

other tenants, the STFC and universities, are discussed (Table 2).

5.2 Networking at the incubator

Table 3 shows the internal networks tenants draw on to seek tangible and intangible

resources. Interestingly, the incubator firms develop networks with other tenants mainly to

access intangible resources. In terms of accessing intangible resources, incubator firms

develop two types of networking activities, business partnerships and project collabora-

tions. As can be seen, 54.8% of firms are engaged in business partnerships and project

collaborations account for 43.5% of the reasons why firms develop networks with other

tenants. This finding also demonstrates that in terms of accessing tangible resources,

incubator firms share relatively few networking activities. Moreover, joint ventures and

Table 2 Reasons to be located at the incubator

Reasons to be located atthe Daresbury SIC

Frequency Percentage

Business support (shared facilities, access to research facilities), grants andpotential financial investors

49 79.0

Reputation and image of the Daresbury SIC 39 62.9

Potential networking with university (facility and personnel) 35 56.5

Potential networking with STFC 17 27.4

Potential business opportunity with other tenants 29 46.8


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new company formations comprise 14.5% of firms while 12.9% of firms use resources

from other tenants, for example equipment and research facilities.

Table 4 shows networks between firms and the STFC. For incubator firms, the link with

the STFC is important. This is especially so for improving technology, new innovations

and most importantly helping to bring ideas to market. The STFC operates cutting-edge

research facilities and laboratories supported by nationally and internationally recognised

scientists. Getting access to tangible resources, such as laboratories and research facilities,

is one of the advantages of being located at Daresbury SIC. Table 4 shows that 32.3% of

firms use facilities at the STFC. However, this number is relatively low compared to 79.0%

of firms who use networks to exchange information with researchers at the STFC. This is

followed by business partnerships, comprising of 17.7% of firms. The next common

relationship is formal technical consultation (experienced by 27.4% of firms) and technical

project collaborations (experienced by 12.9% of firms). The table shows a relatively low

interaction in terms of spin-out activity, accounting for only 3.2% of firms.

Table 5 shows the networks between firms and the universities (Lancaster University,

the University of Liverpool and the University of Manchester). It is interesting to note that

the number of firms that connect to universities and use their tangible resources such as

facilities is relatively low at 9.7%. This finding seems to contradict the initial motive of

being located at incubators as being to access tangible resources such as facilities.

In contrast, incubator firms take on a relatively high variety of networking activities to

access intangible resources. The highest proportion of networking activities with a uni-

versity is through acquiring knowledge, expertise and skills by recruiting staff and/or

students. 33.9% of firms experience this type of relationship. Moreover, 27.4% of incu-

bator firms have developed a business partnership with a university. In this case, firms

Table 3 Networks amongst tenants (internal networks)

Type of resources Frequency Percentage

Tangible resource

Combining physical and financial assets for new firms establishment 9 14.5

Use of equipments, laboratories, research and facilities 8 12.9

Intangible resource

Business partnership (combining market related information and knowledge) 34 54.8

Project collaboration (combining technical knowledge) 27 43.5

Table 4 Networks with the STFC (external networks)


Tangible resource

Use of equipments, laboratories, research and business facilities 20 32.3

Intangible resource

Informal network with researchers for exchange of information 49 79.0

Formal technical consultation 17 27.4


Technical project collaboration 8 12.9

Spin-out (bringing knowledge from the STFC into marketable product/service) 2 3.2


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work closely with academics or researchers at a university to develop new products or

services demanded by the market. Firms are also engaged closely with universities through

contract research (19.4% of firms). The next common knowledge acquisition activities are

spin-outs, licensing and knowledge exchange through attending or giving lectures with

14.5% of firms participating in such activities. Overall, the findings show that most firms

have developed a network to access intangible resources rather than tangible resources.

This finding is consistent with regards to networks with internal incubator firms and

external partners, e.g. the STFC and universities.

5.3 Tangible and intangible resource seeking activities

Table 6 shows the networks between firms and their internal and external partners in terms

of accessing tangible resources. As the first hypothesis predicts strong networking activities

for highly innovative firms, the findings show no indication that the networking activities

of highly innovative firms differ significantly to those of medium to low innovative firms.

Despite the insignificant difference, the findings reveal that highly innovative firms are

Table 5 Networks with universities (external networks)


Tangible resource

Use of equipments, laboratories, research and facilities 6 9.7

Intangible resource

Acquiring university knowledge, expertise and skills through staffrecruitment, student placements and projects

21 33.9


Contract research 12 19.4

Spin-out or licensing (access knowledge from universities) 9 14.5

Knowledge exchange through attending or giving lecture at university 9 14.5

Knowledge transfer partnership scheme 3 4.8

Table 6 Tangible resource seeking activities

Type of resources Medium tolowinnovativefirms

Highlyinnovativefirms

t test

Freq. % Freq. %

Networks amongst tenants

Combining physical and financial assets for newfirms establishment

3 9.68 6 19.35 1.170

Use of equipments, laboratories, research and facilities 2 6.45 6 19.35 2.296

Networks with the STFC

Use of equipments, laboratories, research and business facilities 12 38.71 8 25.81 1.181

Networks with universities

Use of equipments, laboratories, research and facilities 4 12.90 2 6.45 0.738

* Correlation is significant at the 0.05 level (2-tailed); ** correlation is significant at the 0.01 level (2-tailed)


123

more active in developing networks with other incubator firms: 19.35% of highly inno-

vative firms engage in establishing new firms and/or use of facilities compared to only 9.68

and 6.45% of medium to low innovative firms. In contrast, medium to low innovative firms

are more active than highly innovative firms in developing networks with the STFC and

universities. 38.71% of medium to low innovative firms use facilities from the STFC

compared to 25.8% of highly innovative firms which develop the same type of networks.

Although, we have to reject this hypothesis to some extent, the findings reveal that medium

to low innovative firms actually develop networks with the STFC and universities for

accessing tangible resource.

Table 7 shows networks developed by highly innovative firms and medium to low

innovative firms in accessing intangible resources. Overall, it seems that the finding sup-

ports the hypothesis that highly innovative firms are more active in developing networks

compared to medium to low innovative firms. The table shows that highly innovative firms

develop networks with other incubator firms in terms of business partnerships and project

collaborations. With regards to networks with universities, highly innovative firms identify

several routes. These include acquiring university knowledge, expertise and skills, business

partnerships, contract research, spin-out or licensing activities, staff recruitment and

Table 7 Intangible resource seeking activities

Type of resources Medium tolowinnovativefirms

Highlyinnovativefirms

t test

Freq. % Freq. %


Business partnership (combining market related informationand knowledge)

15 48.39 19 61.29 1.042

Project collaboration (combining technical knowledge) 11 35.48 16 51.61 1.640


Informal network for exchange information 24 77.42 25 80.65 0.097

Technical consultation and recruitment 12 38.71 5 16.13 3.971*

Business partnership (combining market relatedinformation and knowledge)

7 22.58 4 12.90 0.995

Technical project collaboration 8 25.81 2 6.45 2.296*

Spin-out (bringing knowledge from the STFC intomarketable product/service)

0 0.00 2 6.45 2.067


Acquiring university knowledge, expertise and skills throughstaff recruitment, student placements and projects

11 35.48 10 51.61 0.72


9 29.03 8 25.81 0.081

Contract research 5 0.00 7 6.45 0.413

Spin-out or licensing (access knowledge from universities) 1 3.23 8 25.81 6.368**

Knowledge exchange through attending or giving lectureat university

3 77.42 6 80.65 1.170

Knowledge transfer partnership scheme 1 3.23 2 6.45 0.350

* Correlation is significant at the 0.05 level (2-tailed); ** correlation is significant at the 0.01 level (2-tailed)


123

attending a university course. Overall, the link with a university is stronger for highly

innovative firms than for medium to low innovative firms. Interestingly, the findings

demonstrate that medium to low innovative firms are more active in engaging with the

STFC compared to highly innovative firms. It may be the case that the location of the

STFC, which is in close proximity to the incubator, makes it easier for medium to low

innovative firms to develop networks. In contrast, highly innovative firms, which histori-

cally do tend to develop their products or services in collaboration with a university, do not

seem to be dependent on acquiring knowledge from the STFC.

5.4 Networks and performance

Table 8 shows the correlation of each type of networking activity and performance.

In terms of significant levels, the table shows a relatively low number of correlations

emerging between the type of network and firm performance. For medium to low inno-

vative firms, there is a positive correlation between firms having access to tangible and

intangible resources at the STFC and their performance. With regards to highly innovative

firms, having a business partnership with another incubator firm and a university appears to

positively correlate with firm performance. While the table shows a relatively low number

of correlations emerging from the type of networks and performance of firms, the overall

correlation between networks of medium to low innovative firms and their performance is

negative. This does bring into question the types of networks medium to low innovative

firms have developed and if their networks have resulted in their receiving lower benefits

from their network activities. Another explanation is medium to low innovative spin-offs

develop networks with internal and external partners as a response to their lack of

resources (Soetanto and Van Geenhuizen 2010).

6 Discussion

The aim of this study was to enhance understanding about the networks established by

incubator firms. More precisely, it considered those networks that incubator firms develop

with partners who are external or internal to the BI and how tenant firms use their networks

for acquiring tangible and intangible resources. The analysis has explored and compared

the patterns of networks for highly innovative firms and medium to low innovative firms.

However, the empirical findings reveal a situation that is more complex than that previ-

ously assumed in our hypotheses. As a result, we could not clearly reject or confirm the

hypotheses based on statistical differences. Table 9 below provides a summary of the

findings, the plus (?) sign shows those firms in the categories who perform more net-

working activities compared to their counterparts.

Based on the table above, we tried to reflect on the hypotheses. The first hypothesis

assumed that in tangible resource seeking activities, highly innovative firms develop a

more active network with external and internal partners compared to medium to low

innovative firms. The empirical findings showed no significant difference between highly

innovative firms and medium to low innovative firms in terms of networks they develop

with internal (other incubator firms) and external partners (the STFC, universities).

Interestingly, the findings reveal that highly innovative firms develop more networks with

incubator firms compared to medium to low innovative firms. However, looking closely at

the external network with the STFC and the universities, it was found that compared to

highly innovative firms, medium to low innovative firms are more active in developing


123

networks with such bodies. One possible explanation for this finding is that with highly

innovative firms the product or service might be developed as early as possible and in

conjunction with the university which could also be the source of the innovation. When

starting to bring the product to market, highly innovative firms need to look beyond the

university and their own resources for funding or access to markets or suppliers. This

situation may lead highly innovative firms to develop a joint venture or business part-

nership with other firms at the incubator. On the other hand, medium to low innovative

firms develop more linkages with external partners such as the STFC. Medium to low

Table 8 Correlation table of networking activities and performance (job growth)

Medium to lowinnovative firms

Highlyinnovative firms

Tangible resource seeking activities


Combining physical and financial assets for new firmsestablishment

-0.047 0.029

Use of equipments, laboratories, research and facilities -0.127 0.115


Use of equipments, laboratories, research and business facilities 0.401* 0.092


Use of equipments, laboratories, research and facilities -0.123 0.015

Intangible resource seeking activities



0.090 0.504**

Project collaboration (combining technical knowledge) -0.008 0.120


Informal network for exchange information -0.278 0.164

Technical consultation and recruitment -0.015 0.266


0.317� 0.083

Technical project collaboration -0.032 -0.153

Spin-out (bringing knowledge from the STFC into marketableproduct/service)

-0.041 0.002


Acquiring university knowledge, expertise and skills throughstaff recruitment, student placements and projects

-0.102 0.082


0.101 0.321�

Contract research -0.087 0.297

Spin-out or licensing (access knowledge from universities) -0.016 -0.107

Knowledge exchange through attending or giving lectureat university

-0.327 0.027

Knowledge transfer partnership scheme 0.173 -0.107

Performance was measured as an annual sales growth

Pearson correlation test was performed with � correlation is significant at the 0.10 level (2-tailed); * cor-relation is significant at the 0.05 level (2-tailed); ** correlation is significant at the 0.01 level (2-tailed)


123

innovative firms may enter a market with a product or service that may already be proven

in the market. However, these firms face a relatively high level of obstacles in the long run

(Van Geenhuizen and Soetanto 2009). These firms usually face high competition and the

way to survive is by having the innovation endorsed through networking with external

partners.

The second hypothesis was constructed with the aim of identifying if when seeking

intangible resources, highly innovative firms maintain a relatively more active network

with external and internal partners than medium to low innovative firms. Again, the

empirical evidence reveals a rather complex finding. Although most of the linkages of

highly innovative firms with external and internal partners are higher than medium to low

innovative firms, medium to low innovative firms have been quite active in developing

networks with the STFC. From the survey, it was found that medium to low innovative

firms use the networks with the STFC for several reasons, spanning from just exchanging

information to technical consultation.

Using the framework that we constructed for understanding networks at incubators, our

observation reveals complexity surrounds the networks of incubator firms. While there is

no significant difference in terms of accessing tangible resources, highly innovative firms

are more likely to seek intangible resources than medium to low innovative firms. We also

found that highly innovative firms engage closely with universities and other incubator

firms, whereas medium to low innovative firms develop a diverse network in their search

for resources.

Following this, we offer three main recommendations.

Recommendation 1: Most networking activities aim to access intangible resources

rather than tangible resources. Therefore, BIs should construct an environment where firms

can meet and develop linkages among themselves. Having frequent interaction through

formal and informal meetings will develop more understanding and offers the possibility of

collaboration. Project collaborations and business partnerships are among the most com-

mon activities that incubator firms are involved in, BIs should embrace this knowledge by

recognizing this need and design activities that can bring incubator firms together to

develop a strong, close and mutual relationship.

Recommendation 2: highly innovative firms and medium to low innovative firms differ

in selecting network partners. Thus, BIs’ should recognise that medium to low innovative

firms develop active networks to access resources with external partners such as the STFC

and universities but these activities do not reflect on their performance. This finding may

challenge the current support which may neglect the difference in the networking strategy

of a firm. There is a tendency to assume that incubator firms are homogeneous in their

characteristics, hence BIs provide only generic support. Incubator firms which spin out

Table 9 Summary of networking activities developed incubator firms

Type of resources Network partners Medium to lowinnovative firms

Highlyinnovative firms

Tangible resource seeking activities Incubator tenants ?

The STFC ?

The universities ?

Intangible resource seeking activities Incubator tenants ?

The STFC ?

The universities ?


123

from a university may have a historical link with that university, and therefore, they are

able to actively engage and experience different types of networking activities. For them,

there is a relevant and urgent need to develop networks for accessing markets or opening

new opportunities for their products or services. In contrast, medium to low innovative

firms may still need a connection with knowledge sources such as a university when

developing a product or service. This introduces the idea of extending networking support

by not only considering the different characteristics of firms such as their innovative level,

but also taking into account their position in their development stage as they may face

obstacles at each stage and need to connect to different network partners. In other words,

BIs should offer flexible networking support which aims to improve the entrepreneurs’

capabilities and skills in developing effective networks that support growth and develop-

ment. It is important to comprehend the needs of incubator firms and make sure that

incubators link incubator firms to the most appropriate networks. Without the assistance of

incubator organizations, incubator firms might have a hard time in locating the right

individuals from the often-complex networks.

Recommendation 3: It would be useful if BIs could identify the composition of incu-

bator firms that lead to positive collaborations. Having a mix of highly innovative firms

and medium to low innovative firms may have advantages as well as disadvantages. One

advantage is that firms can share their tangible and intangible resources that may com-

plement each other. Incubator firms may develop a new business opportunity as a result of

this collaboration. However, some difficulty may be experienced by BIs as they need to

develop relatively loose and flexible support. A drawback that hinders resource pooling

activities with other incubator firms may arise because of the difficulty in developing a

common ground for collaboration. Being located and interacting with other firms may help

medium to low innovative firms overcome the loneliness often associated with entrepre-

neurial activity (Duff 1994). However the value of this interaction may be limited if highly

innovative firms are the majority at the BI. The different levels of innovativeness and mix

of tenants can make conversations more difficult. This limitation may in turn reduce the

conditions for resource combination and exchange among tenants (Cohen and Prusak

2001) and so needs to be monitored.

7 Conclusion

Networks are perceived to be a critical element in the incubation process. While there is

clearly widespread interest in BIs, few have examined the networking activities of tenant

firms (Hansen et al. 2000; Bøllingtoft and Ulhøi 2005; Totterman and Sten 2005; Scillitoe

and Chakrabarti 2005; Moray and Clarysse 2005). The aim of this study was to enhance

understanding about the networks established by incubator firms. To deal with our research

interest, we developed a framework and argued that the networks of incubator firms can be

understood through two dimensions, type of resources (tangible and intangible) and type of

network (internal and external). To achieve the study’s aim, a tenant survey was used to

examine the internal and external networks of firms located at Daresbury SIC and inves-

tigate how networks are used to search for tangible and intangible resources. The findings

are interesting and have offer clear contributions to theory, policy and future research.

The theoretical contributions of this study lie in the way it enhances understanding

about the networks of incubator firms. In terms of location, Westhead and Batstone (1998)

found that the major determinant of the decision to locate at a BI is access to research

facilities and laboratories. However, this study shows that the motivations to locate at


123

Daresbury SIC were access to business support, grants and potential financial investors.

Like others, this work shows that incubator firms do indeed use networks for resource

acquisition (von Zedtwitz and Grimaldi 2006; Bergek and Norrman 2008; Warren et al.

2009). However, what it also shows clearly is that highly innovative firms build networks

with other incubator firms and in doing so look to create a mutually supportive environ-

ment. This study also shows that highly innovative firms develop networks with univer-

sities to access intangible as well as tangible resources. In contrast, medium to low

innovative firms build external networks to access resources for growth, especially the

STFC in the study reported here. Combining our findings about location with the low

number of firms who connect to universities to use the tangible resources such institutions

offer, this study contradicts the work of Westhead and Batstone (1998). However, similar

to previous work this study shows that linkages to academic institutions are relevant for

highly innovative firms (Bozeman 2000; Rothaermel et al. 2007). Such collaboration may

simply be the nature of these types of firms.

The current support provided by BIs does not effectively meet the needs of incubator

firms (Mian 1996; Patton et al. 2009). There is clearly a need for BIs to identify and

recognize that incubator firms have different needs and these should be accommodated

when developing policy. Furthermore, it is clear that in reality incubator firms employ a

variety of networking activities, especially when seeking intangible resources. Policy-

makers not only need to work with BIs to improve the level of support provided but also

recognise that standardised offerings do not work. BI support needs to be directed towards

meeting the individual needs of tenants, while ensuring these firms are able to connect to a

wide variety of potential partners (Moray and Clarysse 2005). Given that the term BI is

becoming a catch all umbrella term used to explain various initiatives that support the

survival and growth of newly established firms (Mian 1997), it may indeed be time for

policymakers to revisit their objectives and (re)clarify the role and purpose of these units.

In terms of further research, this study shows there is still much work to be done if we

are to really improve understanding. The empirical evidence for this study was collected

from a small sample and at a selected incubator. While the issue of generalisation, single

location and BI practise exists, we believe that given the context, condition and policy

environment the findings from this study are likely to be experienced by firms based at

other incubators. However, further research is needed to extend this work. For those

considering further research, a point to note is that networks develop and change over time

and their dynamic nature makes their complexity difficult to capture using quantitative

methods. While more quantitative work with a bigger sample and comparison with other

incubator sites would be useful, longitudinal work and qualitative study would help

improve understanding of the complexities associated with networks and how these impact

on incubator firms.

Acknowledgments We would like to thank John Leake and Stephanie Forbisser from The Daresbury SICfor their support and helpful comments.

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