Incubating Technology: Best Practices

---

Table of Contents

1. Acknowledgements

2. Executive Summary

3. Introduction
a) Strategic Focus
b) Definition
c) Objective
d) Research Methodology
e) Structure of the Report

4. Technology Incubation and the National System of innovation

5. Incubators with Shared Facilities
a) Overview
b) Six Dimensions of Incubator Success

1. Facilities and Location
2. Shared Services
3. Tenant Entry and Exit Criteria
4. Mentorship and Networking
5. Funding and Support
6. Governance

c) Managing Incubation for Success

1. Measuring Success
2. Some Concerns
3. Best Practices

6. Technology Incubation within Research Organizations
a) Federal Laboratories
b) Universities
c) Technology Corporations
d) Managing Incubation for Success

1. Incubating Practices: Similarities and Differences
2. Best Practices

7. Other Entrepreneurship Development Programs
a) Various Forms of Services
b) Best Practices

8. References

Appendix A
Case Studies of Some Role Models

A1. Incubators with Shared Facilities

1. Technology Innovation Centre (TIC), Dartmouth
2. Advanced Technology Centre (ATC), Edmonton
3. Greater Hamilton Technology Enterprise Center (GHTEC)
4. Iowa State Innovation System (ISIS), Iowa
5. Technology Enterprise Centre (TEC), Calgary
6. Arizona Technology Incubator (ATI), Arizona
7. Evanston Business and Technology Incubator, Illinois

A2 Federal Laboratories

1. Communications Research Centre (CRC) Innovation Centre
2. National Research Council Canada (NRC)
   • Entrepreneurship Program at NRC
   • Industrial Materials Institute, NRC, Montreal
3. Environmental Technology Centre, Environment Canada

A3 Universities

1. University of Manitoba Proposal for a Research Park and Incubator

A4 Technology Corporations

1. Northern Telecom (Nortel)
2. Newbridge Networks Corporation

A5 Entrepreneurial Networks and Associations

1. Inno-centre, Montreal
2. Capital East Technology Enterprise Centre (CETEC)
3. Capital East Technology Enterprise Network (CETEN)
4. Hi-Tech Entrepreneurship Association (HITE)
5. National Business Incubator Association (NBIA) BatorLink Program
6. Entrepreneurship Centre, Ottawa
7. British Columbia Institute of Technology (BCIT) Venture Program
8. Youth EnviroEntrepreneurship Canada Program

Appendix B
Participants

---

1.0 Acknowledgements

We wish to thank Jocelyne Caloz, Managing Director of the Federal Partners in Technology Transfer's Executive Office, for her generous support and useful comments.

Thanks are also due to Ajax N. Persaud for his valuable contribution to this project. He conducted interviews with representatives of the entrepreneurship development programs and assisted in synthesizing some aspects of the study. Also, we thank Goshu Adane and Aditya Tandon for transcribing some of the interviews.

Special thanks go to all the participants who provided useful information on various aspects of the study. Without their assistance, this document would not have been possible.

The views expressed in this report do not necessarily reflect those of the Federal Partners in Technology Transfer or the federal government.

Comments should be addressed to:

Dr. Uma Kumar
Director, Research Centre for Technology Management

Dr. Vinod Kumar
Director, School of Business

Both authors are at:
School of Business
Carleton University
Ottawa, Ontario
K1S 5B6

---

2. Executive Summary

This study examines the various approaches for incubating technology-based new firms. Research on small business demonstrates that many potentially good ideas remain as such and of those which are developed only a few succeed. In addition, the rate at which these ideas can be successfully commercialized could be improved markedly by providing entrepreneurs with an appropriate package of financial and other services through various policies and programs. A technology-incubating program is an innovative system designed to assist entrepreneurs in the development of new technology-based firms, both startups and fledglings. It seeks to effectively link talent, technology, capital and know-how to leverage entrepreneurial talent in order to accelerate the development of new companies, and thus speed the commercialization of technology.

Among the various mechanisms used to incubate new firms the best known is through the concept of multi-tenant facility- and shared services- based technology incubator centres. What is not well known are the technology incubating efforts instituted by government R&D laboratories, universities and large technology corporations. These organizations in the recent years have taken some interesting and, in some cases aggressive initiatives for incubating new firms. This study attempts to identify these new approaches.

The objective of this research project is to develop a better understanding of the best practices of incubating new technology-based firms. Specifically, the following questions will be explored:

• What is the role played by technology incubators with shared facilities, government laboratories, universities, technology corporations, and entrepreneurial networks and associations in incubating new technology-based firms? What are the key dimensions of the process of incubation instituted at these organizations?
• What factor(s) distinguish successful incubating efforts from the not so successful ones at each of these organizations? What lessons can be learned, i.e., what are their best practices for technology incubation?

Implicit in the above issues are whether the incubator with shared facilities is still the most effective way of incubation; and how the alternatives advanced by federal laboratories, universities, technology corporations, and entrepreneurial networks and associations support incubation activities. In addition, the study discusses the question of how incubating technology contributes to the strengthening of our national system of innovation.

This research methodology comprises over thirty interviews with the entrepreneurs, managers, and executives of technology incubators with shared facilities, government laboratories, universities, small and large technology intensive companies, and entrepreneurial networks and associations. The interviews were conducted using a semi-structured interview schedule. Separate interview schedules were prepared for different types of respondents. The data analysis is qualitative in nature. The field notes and the literature on the organization were synthesized into a number of case studies (22) which are appended to this report. Finally, distillation of the field data enabled the identification and development of some concepts, and identification of the best practices.

A technology incubator is a facility that aids the early-stage growth of technology-based companies by providing shared facilities such as space and office services, and business consulting assistance. The incubators with shared facilities are categorized in four groups, namely, university and college-sponsored incubators, provincial/local government-sponsored (or publicly-sponsored incubators), private corporate for-profit incubators, and hybrid incubators.

The study describes 6 different dimensions of an incubator that have a direct impact on its success. These dimensions are: facilities and location, shared services, tenant entry and exit criteria, mentoring and networking, funding and support, and incubator governance. The best practices identified in the study relate to these six dimensions and are listed below:

• The incubator has a minimum of 30,000 square feet of rental space with room to expand in order to be able to generate enough income to become self-sustainable. The space is flexible with movable walls to manage tenants' variable needs.
• There are at least 10 in-residence members for generating enough networking activity and sustaining the variety of shared services and support operations.
• The incubator is located either near a university or near a research laboratory so that tenants have easy access to technical facilities. Incubators located near a university get added advantage of access to students, faculty members, research labs and libraries. Similarly, proximity to a federal lab provides access to scientists, engineers and state-of-the-art equipment/testing facilities. In both cases "image" is an added bonus.
• The incubator is situated in a high-tech, top quality building, preferably with a telecommunications infrastructure to electronically connect companies with each other and the outside world.
• The incubator has a practice of enrolling non-resident clients who would get all services provided to resident clients except a lab or office space.
• A selection committee is set up to prescreen the clients. The selection criteria include: i) the homology between the incubator services offered and the clients' needs; ii) a business plan that covers the key focus, market information on competitors and customers, costs, pricing and cash flow forecasts; iii) technology sophistication; iv) potential for growth and job creation; v) R&D intensity; vi) occupational mix of the management team; vii) practical experience; and viii) personal commitment.
• An advisory committee, consisting of 5 or 6 experts from different business areas has been established for each tenant company to assist in developing a business plan, in obtaining funding, and for marketing and legal issues.
• The incubator has created an opportunity for its tenants to network among themselves, with the industry, and with contacts of the advisory/mentor group members.
• The funding and support from private, public or government organizations, specifically to pay off the heavy costs associated with the real estate component is already in place.
• The manager is a highly motivated visionary individual whose goal is to see his/her tenant firms succeed.
• Boards of directors are generally responsible for policy development and not day-to-day operations which are left to the incubator manager. Bureaucracy, in case of government-sponsored incubators, is kept at a minimum.
• The incubator focuses more on support programs than on space or physical infrastructure.

Literature, especially that coming out of the National Business Incubator Association (NBIA), is full of success stories about incubators. However, there is evidence that a significant number of incubators cease to operate within the first three to five years of existence. The evidence also indicates that the haphazard creation of an incubator facility simply based on the belief that somehow incubators is a panacea for small business problems, and it will automatically cause local enterprises to spring-up is asking for trouble. Such an incubator, in the absence of a feasibility study, usually results in an ill-suited facility plagued with low-occupancy problems. A study of 40 incubators that ceased to operate in the US, reveals that factors responsible for the failure were related to the costs of the building, low occupancy in the building, tight cash flow, lack of focus on the programs, etc. Evidently, a careful situation analysis is a must before a new incubator facility is built.

Canada is recognized internationally for the strengths of its government and paragovernment research laboratories. A number of significant scientific breakthroughs have come up out of these state-of-the-art institutes which make important contributions to industrial development and public welfare. They have facilitated the creation and adoption of new emerging technologies in many areas, for example defence, biotechnologies, communications, natural resources and environmental technologies. The technology transfer and commercialization efforts of Canadian federal laboratories through collaborating especially with large established firms have been laudable.

Incubating new technology-based firms in federal labs can take place in at least two ways. The first is the act of an entrepreneurship activated by an external entity, referred to as the surrogate-entrepreneur. The second is the spin-off from the lab by one or more employees who typically are the inventor of the technology. These employers are called inventor-entrepreneur or entrepreneur (alternatively called "intrapreneurs"). The five aspects that are impediments to entrepreneurship at government labs relate to culture that discourages mobility from public to university or corporate labs; the lack of management training of scientists and engineers; the discouraging process of exiting the lab; the contentious problem of public interest as opposed to public access; and difficulty in securing sufficient capital. The best practices identified in the study relate to the two models of incubation and the five major impediments to entrepreneurship.

• An Entrepreneurship Leave Policy has been developed to provide an entrepreneur a period of leave to cover the time required to determine whether the proposed business venture will succeed.
• Support services to employees considering using the leave program are provided. Assistance on items such as preparing business cases and plans, financing, networking, conflict of interest and intellectual property (IP) are of particular interest.
• The organization rewards and recognizes employees who contribute to developing or commercializing intellectual property. At NRC, the monetary award to individuals has increased from 15% to 35% of IP income.
• Conflict-of-interest procedures are clear and systematic and are made available to an entrepreneur especially at the early stages of planning a venture. Conflict-of-interest charges emerging at a later stage cause a considerable personal distress to the entrepreneur.
• An agreement with a venture capital fund is in place specifically for funding the development of new technologies for initiating new businesses.
• Employees are provided some exposure to business environments that stress short term product development, marketing, and cost consciousness.
• Employees get an opportunity, on a broad scale, to be with industry for a year or less through the secondment program to strengthen their knowledge of industrial research interests and of commercial markets.
• A technology transfer officer of the lab is associated with an inventor as early as possible even at the identification stage of a potential technology development.
• The proposals for incubating technology from an outside entity submitted to a federal lab meet the condition that the lab has expertise in that field and it can add value on technical or scientific footing.
• The lab has a policy to encourage surrogate entrepreneurs to move into the lab premises, provide them space, facilities, an opportunity to work jointly with lab scientists.
• For providing space to a surrogate entrepreneur, the lab first reviews the available space in its existing buildings. The rightsizing exercises which most government labs have undertaken in the recent years may have freed up some space in lab.
• All scientists and engineers receive training to develop management skills that are needed for technology commercialization efforts. Various government labs could collaborate in developing a series of targeted courses for scientists and engineers on various aspects of technology transfer including entrepreneurship, and in doing so they could use university expertise.
• The lab has developed an inventory of lab technologies and has disseminated that information to encourage new firms to approach the lab for commercialization.
• Experiments in efforts to induce a higher incidence of technological entrepreneurship are planned and undertaken. Favouring licensing of intellectual property to large, established firms is likely to have minimal impact on local development.
• The continuous evaluation and improvements to the existing programs that have been instigated to accelerate the technology commercialization by establishing new ventures takes place.
• The lab is making sincere efforts to build strong partnerships with universities and the private sector, thus strengthening the links in the Canadian innovation system.
• In order to get proper appreciation, a program is in place for increasing public awareness of the full value of lab's policies, regulatory and R&D functions that are related to public welfare and safety.
• There is a champion, a member of the upper management team, in the lab for accelerating the pace of change the lab's existing culture to entrepreneurship. The champion makes it clear that entrepreneurship is indeed the direction for the lab.

University research laboratories are known to conduct non-directed research which adds to the repository of fundamental knowledge which, in turn, provides the basis of understanding that is required for all R&D, basic and applied. They are becoming more responsive to the long-term needs of industry. The phenomenon of incubating new-firm is quite common in high-profile universities in the United States where extensive industrial and defence research is carried out . In Canada, however, the situation is far from satisfactory. In order to cope with decreasing public funding, universities are creating new sources through licensing of intellectual property, business venturing with industry, and taking the new-firm spin out route.

One of the two situations may occur leading to the formation of a new-firm from a university. In the first case, a professor or a technical staff person finds an opportunity to develop and exploit a market niche. In the second case, a new-firm is initiated by the university itself on the basis of an opportunity based on a technology developed within the university. The best practices¹ listed below cover both types of cases:

• University administration and academic peers appreciate entrepreneurial efforts by a faculty member and do not consider these efforts to relinquish the values that a university should adhere. A number of good ideas can be distilled and adapted from the entrepreneurship program of NRC.
• Universities provide incentives to faculty seeking to develop long-term relationships with industry. One example is to provide professors with a leave of absence of up to one semester at full pay for spending time at a firm. Universities could learn from the secondment programs instituted in federal labs.
• In an effort to change its culture, the university recognizes those who collaborate with industry through its promotion and tenure policies for professors. While there have been many improvements in recent years, Canadian universities and industry still have a long way to go in establishing a dynamic and mutually profitable relationship.

Large technology corporations are taking some innovative approaches for incubating new firms. Our exploration has revealed three somewhat distinct approaches which are: spin off of an existing division, making an external entity as an affiliate, and internal new-firm incubation.

• The affiliate programs are built on the premise that the affiliate is in the business of technology that complements the core business of the large, mother firm.
• The mother firm provides the new venture with association of its name, access to its multinational customer base, and possibly venture capital.
• The startup firms have access to the mother firm's technical resources such as laboratories and talented scientists and engineers. They also have access to services from human resources, finance, marketing and legal departments of the mother firm.
• The mother firm provides a well-seasoned board of directors who installs discipline in the startup company which is normally driven more by technocrats than businessmen.
• The affiliate programs provide management flexibility to balance independence and coordination between the mother firm and the startup firm.
• The senior management within the mother firm and the startup firm is committed to association's success. Conflict situations between the two parties are sorted out gently and marketing strategies are developed jointly.

A number of entrepreneurship support organizations are striving to develop a wide range of integrated support services which include basic information, advice and counseling on how to start a business, training and education programs, mentorship services, and extensive networking opportunities. The programs offered are normally any or a combination of the four forms, i.e., the entrepreneur development, mentoring, network development, and the package programs. The following are the best practices/desirable features of successful entrepreneurship development programs that have been identified in the study:

• A complete range of seminars and workshops on every aspect of starting and managing a business is delivered by respective field experts.
• Collaboration agreements are made with other entrepreneurial organizations in the local community to deliver the training programs in a cost effective manner.
• An efficient and vast network of experts from the business, science, finance and academic communities is in place.
• An open forum is set up for networking, exchanging information, and discussing issues faced by entrepreneurs.
• A database is developed where clients can get information on emerging technologies, market intelligence and partnering opportunities.
• A sounding board is provided to clients where ideas and concepts can be explored, products demonstrated, and advice obtained on particular issues.
• An advisory committee is assigned to each company consisting of experts from different disciplines. The committee works with the company to draw up a business plan and oversee the market study required before financing is sought.
• A database of volunteer mentors (e.g., entrepreneurs or senior managers), who work with clients on a one-to-one basis for a few hours every month is developed. Also, a mentoring program for established clients looking to take their businesses to a new level after 2 to 3 years in operation is available.
• A special library (physical or on internet) that offers resources on business start-ups, business management, and industry specific information is available to clients.

Incubating new technology-based firms is an important element in the creation of a national system of innovation which according to many scholars is necessary for innovation performance or the creation of competitive advantage among nations. Programs for new-firm incubation contribute directly to the formation and character of the national system of innovation by providing entrepreneurs with the necessary support to develop new products, processes and technologies. Technology incubation could potentially provide another link between universities, industries and other players. Similarly, the incubated new firms could become prime candidates for research parks and contribute to the national system of innovation by promoting technology diversification.

---

3. Introduction

a) Strategic Focus

This study examines the various approaches for incubating technology-based new firms. Research on small business demonstrates that many potentially good ideas remain as such and of those which are developed only a few succeed (Smilor, 1987; Allen, 1985). The same research suggests that the rate at which these ideas can be successfully commercialized could be improved markedly by providing entrepreneurs with an appropriate package of financial and other services through various policies and programs. Among the various mechanisms used to incubate new firms, the most well known is through the concept of multi-tenant facility- and shared services- based technology incubator centres. What is not well known are the technology incubating efforts instituted by government R&D laboratories, universities and large technology corporations. These organizations in recent years have taken some interesting and, in some cases aggressive initiatives for incubating new firms. Identifying innovative approaches implemented by these institutions that have been proven to be successful in incubating technology-based startups is equally important. This study attempts to identify these new approaches. An effective incubation process would enhance the success rate of new technology businesses which in turn could strengthen the national system of innovation.

b) Definition

As Jennings (1994) stated "It has been long recognized that the entrepreneurial function is a vital component in the process of economic growth". Entrepreneurial activity is key to Canada's economic growth and competitiveness. From 1978 through 1992, 85% of the new jobs in Canada were created by small entrepreneurial firms (Cooper, 1985). By comparison, large firms recorded no growth at all. During this period there was a significant growth in the formation of new businesses.

A technology incubating program is an innovative system designed to assist entrepreneurs in the development of new technology-based firms, both startups and fledglings. It seeks to effectively link talent, technology, capital and know-how to leverage entrepreneurial talent in order to accelerate the development of new companies, and thus speed the commercialization of technology. (Smilor and Gill, 1986)

The concept has generated great enthusiasm. An economic development publication called it, "the most potent economic development tool to be introduced in this decade." It is also attracting widespread attention in the United States and in many other countries including France, Germany, Sweden, England, Japan, China, and Canada.

The most popular (or well known) form of the concept of incubating technology during the last decade comprises three dimensions:

• an organization or network of organizations providing entrepreneurs with business skills and knowledge, and motivating them to start companies;
• a multi-tenant real estate facility's experience and availability of low-cost rental space to the entrepreneur;
• provision of business consulting services and shared office support services.

Evidently, one significant focus has been on the real estate experience, i.e., on incubating new technology-based firms in a multi-tenant facility based incubator. Interestingly, the literature is almost silent on the role played by federal laboratories, universities, technology corporations, and entrepreneurial programs and associations in supporting the development of new technology-based firms. On the other hand, these institutions have been taking an aggressive, and to a large extent successful, role but essentially without the real estate experience, in supporting incubation. The question is whether the program with real estate experience, sometimes referred to as the "bricks and mortar" or "incubators with walls" approach, is still the most economical and efficient mechanism to deliver the services and support needed by small technology-based businesses.

c) Objective

The objective of this research project is to develop a better understanding of the best practices of incubating new technology-based firms. Specifically, the following questions will be explored:

• What is the role played by technology incubators with shared facilities, government laboratories, universities, technology corporations, and entrepreneurial networks and associations in incubating new technology-based firms? What are the key dimensions of the process of incubation instituted at these organizations?
• What factor(s) distinguish successful incubating efforts from the not so successful ones at each of these organizations? What lessons can be learned, i.e., what are their best practices for technology incubation?

Implicit in the above issues are whether the incubator with shared facilities is still the most effective way of incubation; and how the alternatives advanced by federal laboratories, universities, technology corporations, and entrepreneurial networks and associations support incubation activities. In addition, the study discusses the question of how incubating technology contributes to the strengthening of our national system of innovation.

d) Research Methodology

This study is based on over thirty interviews with the following types of respondents:

• entrepreneurs from small technology-based companies;
• managers/entrepreneurs of large technology intensive corporations;
• executives/managers of federal laboratories;
• technology transfer officers of universities;
• executives of technology incubators with shared facilities;
• managers of entrepreneurial networks and associations.

The first task consisted of scanning the existing literature on incubating new technology-based firms and allied areas. Then through literature and a number of inquiries using a snow balling approach, a list of potential respondents for the study was prepared. The list consisted of some role models of "shared-facilities" type incubators, federal laboratories, universities, large technology intensive corporations, and technepreneurial networks and associations. The interviews were conducted using a semi-structured interview schedule. Separate interview schedules were prepared for different types of respondents. We also interviewed managers of government agencies responsible for promoting small high-tech businesses, and other non-governmental and private sector agencies which directly or indirectly have a stake in incubation activities. In all cases, the interviews focused on the qualitative aspects of the process of incubating technology. The queries were geared toward investigating what worked and did not work for the organization, and the challenges currently being faced.

The data analysis is qualitative in nature. All field notes were transcribed. The field notes and the literature on the organization were synthesized into a number of case studies (22) which are appended to this report. Frequent discussions among the research team members helped to distill our respective field experiences and enable the identification and development of some concepts, and identification of the best practices.

e) Structure of the Report

• Sections 1 and 2 provide acknowledgements and an executive summary.
• Section 3 provides strategic focus, background, an overview of the objectives and the methodology of this study.
• Section 4 provides a brief discussion on how incubating technology² fits into the Canadian system of innovation.
• Section 5 deals with the 6 different dimensions of a technology incubator with multi-tenant shared facilities that have a direct impact on its success.
• Section 6 explores the incubation practices in organizations such as federal laboratories, technology corporations, and universities.
• Section 7 presents the role of other entrepreneurial development programs including entrepreneurial networks and associations in technology incubation.
• Section 8 contains the reference material compiled for this study.
• Appendix A contains 22 case studies of role model organizations. The case studies are organized in the following sequence: incubators with shared facilities, federal laboratories, universities, large corporations, and entrepreneurial networks and associations. At the end of each case, the key features that contribute to its success are identified.
• Appendix B lists all persons who participated in the study.

There are two points worth mentioning at this stage.

First, the discussion of various models of new-firm incubation has been organized in Sections 5 and 6. Section 5 deals primarily with the incubator program with multi-tenant real estate experience, while Section 6 discusses the alternatives advanced by federal laboratories, technology corporations, universities, and entrepreneurial networks and associations. We note that this classification was not an easy one since there are a number of "with walls" incubators which also have programs to serve non-resident clients, and there are federal laboratories and universities which operate special purpose multi-tenant facilities for entrepreneurs.

Second, we have described only 22 organizations in the Appendix whose features have guided us in identifying best practices. The selection of these entities, as role models, was not easy and has potential for debate.

---

4. Technology Incubation and the National System of Innovation

During the 1970s and early 1980s, it became quite clear that previous theoretical approaches concerning technological change, its determinants and outcomes, were inadequate in helping us to understand the complex relationship between technological and economic performance. Therefore, one alternative approach, that of a national system of innovation has increasingly gained interest. A system of innovation is "constituted by elements and relationships which interact in the production, diffusion and use of new and economically useful knowledge and that a national system encompasses elements and relationships, either located within or rooted inside the borders of a nation state.³ " Another definition views a national system of innovation as "the national institutions, their incentive structures and their competencies, that determine the rate and direction of technological learning (or the volume of change-generating activities) in a country.⁴ "

In other words, a national innovation system is characterized by user-producer relationships, sub-contractor networks, science-technology networks, R&D - production linkages, reverse engineering, skills and tacit knowledge, consultancy system and markets, technology import capability, skilled people, incentive programs and the physical science and technology infrastructure. It is the combination of these elements which ultimately determines the rate of technological learning and new innovations in a country and hence its competitiveness. Economists such as Porter (1990), Lundvall (1992), Nelson (1994) and Krugman (1991) have argued that the creation of national systems of innovation represents a paradigm shift in "growth theories". That is, firms and countries are able to grow and compete in the international arena based on a country's national system of innovation.

A national system of innovation has both regional and local components which in themselves have the characteristics of systems of innovation (David and Foray, 1994). The existence of industrial or technology clusters in particular regions or communities enhances the opportunities for the creation of strong business networks and scientific and technological collaborations. Formal and informal networks of association, linking scientists and engineers in industry with those in universities and public research institutions constitute important channels for the distribution of knowledge. The accumulated learning and expertise derived from the existence of strong local clusters represents a potential reservoir from which the entrepreneurial community could draw upon. For example, Canada's competency in research is built on⁵ :

• 4,485 industrial firms doing R&D;
• 35 universities and some 115 technical community colleges;
• over 120 federal- and over 50 provincial- research laboratories;
• 14 Network Centres of Excellence;
• 8 provincial research organizations;
• knowledge facilitators, such as NRC's Industrial Research Assistance Program (IRAP), and the Canadian Technology Network (CTN);
• national granting councils funding university research, namely NSERC, MRC, and SSHRC;
• industry-led consortia such as PRECARN and CANARIE;
• the Canadian Institute of Scientific and Technological Information (CISTI);
• many consulting organizations.

At present, Canada does not have a fully integrated system of innovation to bind together the key factors which impact a knowledge-based economy⁶ . The means of integrating all the factors - financial, industrial, scientific, technical and educational - that help industries turn research into commercial successes must be developed. A recent federal study in innovation - "Towards an Innovation Strategy" - recommended that "... future federal science and technology strategies... shift to the principle that community- and regionally-based innovation systems are emerging as the focal points of international competitiveness... (and that)... federal scientific and technological institutions should become more integrated into the regional and community-based innovation process... "

To create such strong regional and community-based innovation systems which feed into the national system of innovation, it is essential to attract and link partners from industry, government laboratories, local business, and educational communities. This may be achieved through the establishment of entities such as technology centres, research parks, technology incubators, and virtual networks for entrepreneurship development. Through these media, new firms will find available to them a concentration of useful intellectual, managerial and financial resources.

Incubating new technology-based firms is an important element in the creation of a national system of innovation which according to many scholars is necessary for innovation performance or the creation of competitive advantage among nations. Programs for new-firm incubation contribute directly to the formation and character of the national system of innovation by providing entrepreneurs with the necessary support to develop new products, processes and technologies. Technology incubation could potentially provide another link between universities, industries and other players (Voyer and Ryan, 1994). Similarly, the incubated new firms could become prime candidates for research parks and contribute to the national system of innovation by promoting technology diversification. The extent of contribution of these programs, however, depends on the structure of support services available to link people, talent, and resources to promote entrepreneurial activity.

Creating and developing innovative products, processes and technologies is often a long and expensive process. Sophisticated facilities, substantial financial investment, risks of failure, and the long duration needed to translate ideas into marketable products are formidable challenges facing new small startup businesses. Therefore, new-firm incubating programs with systematic approaches and strategies that efficiently mobilize and link powerful combinations of people, capital, resources and ideas are important outlets for such entrepreneurial activity. Various support services offered to new firms to develop and commercialize technology help them to overcome the many hurdles associated with starting a new business thereby improving their chances for success. Investment into innovation comes full circle as a very successful new company resulting from the technology incubation process represents an addition to local innovation systems.

In the Ottawa-Carleton region, for example, their are several players involved in fostering a regional system of innovations. Some of these players include Ottawa-Carleton Economic Development Corporation (OCEDCO), Ottawa-Carleton Research Institute (OCRI), government and paragovernment research centres, the two regional universities, and a vibrant high-tech industry. OCEDCO is one of several major players in the Ottawa region's innovation chain. As a private, non-profit organization, it connects the public and private sectors to promote investment and business growth in the region. It does this by helping existing businesses grow and by assisting startups in getting established through the Entrepreneurship Centre. It also attracts new companies and investment to the region. In this study, we will see how various activities of technology incubation contribute to strengthening of the national innovation system.

---

5. Incubators with Shared Facilities

A technology business incubator is a facility that aids the early-stage growth of technology-based companies by providing shared facilities such as space and office services, and business consulting assistance (Allen and Rahman, 1985). It creates an effective link between talent, technology, funding and know-how, that is essential for developing entrepreneurship. This section deals with incubators with shared facilities.

a) Overview

Background

The evolution of small business incubator facilities in the early 1980s in North America, Europe and several countries around the world was motivated by the entrepreneur's wish list which includes: the need for small space, a desire to be among similarly inclined clients (a support system), relief from building maintenance responsibilities, and a need to increase visibility and credibility. Another catalyst driving the development of incubator facilities is the fact that small business failures are the results of management problems and under-capitalization. Small businesses usually exploit niche markets and although the entrepreneurs may have specialized knowledge and expertise regarding their products and markets, they often lack a full array of business skills and adequate finance. It is in these two general areas where the incubator facilities play a critical role. The incubator concept is primarily a local solution initiated by various local organizations from the private, public, and non-governmental sectors.

In 1985, the incubator concept was given greater recognition with the establishment of the National Business Incubators' Association (NBIA) in the United States. The NBIA is a non-profit organization established to promote business incubators, inform and educate others about the benefits of incubators, provide information on incubator development, monitor legislation, and bring together key individuals involved in the business incubator industry. In Canada, the Canadian Association of Business Incubators (CABI) was established in the early 1990's.

In the early stages of the incubator concept, enthusiasm and expectations were high regarding the benefits of business incubators. The popular press described it as being one of the most potent economic development tools introduced in the 1980s. Initially, the concept focused more on providing entrepreneurs with access to space than on building companies i.e., on expanding operations, personnel, and markets. With time, there was a more deliberate focus on issues other than space i.e., on pulling together various resources to assist in the growth of small new and startup companies. In their expanded role, incubators have served as a crucial link between new businesses and potential investors by introducing entrepreneurs to key people or by assisting them in the development of proposals and loan packages.

Typology, Sponsorship and Mandate

Many of the first technology incubators were created by universities or were closely affiliated with a university. However, over time the incubator sponsorship has become quite diverse. Their objectives often differ, as do their organizational arrangements. A survey of incubators in the United States and Canada (Coopers and Lybrand, 1994) classified incubators based on their primary sponsors. Smilor (1987) categorized incubators into five groups, namely, university-related, community-sponsored, corporate-affiliated, privately-sponsored, public/private incubators. Plosila and Allen (1988) identified three types of incubator facilities: product development, manufacturing and mixed. In this study, incubator facilities are viewed as belonging to one of four organizational types based on their primary sponsors. These organizational types are university and college-sponsored incubators, provincial/local government-sponsored (or publicly-sponsored incubators), private corporate for-profit incubators, and hybrid incubators.

Generally, incubators differ by the priorities set forth by their primary funding agency. Incubators can be associated with several funding agencies to varying degrees and, therefore, have similar goals but different priorities. The general goals of most technology incubators are to develop firms and to stimulate entrepreneurship. Other goals pursued by incubators are job creation, technology development, product development, profit, economic diversification, university research commercialization, business investment opportunities, tax base expansion for local government, development of a core of local high-technology companies, venture capital development and neighborhood revitalization.

University and college-sponsored technology incubators are primarily interested in training opportunities for students and in the commercialization of university research. Incubators sponsored by public agencies such as non-profit economic development corporations and local governments are primarily interested in job creation, economic diversification, neighborhood revitalization, and business investment opportunities. Publicly-sponsored incubators such as federal labs also play an important role in forging public/private partnerships. On the other hand, private corporate sponsors and investor groups are primarily interested in property development, transferring innovative technology, and investment opportunities in tenant firms.

Incubator Characteristics

Some of the key characteristics of Canadian incubators are summarized in Table 1.

Characteristics	Percentage of Incubators
Location:
- Rural - Urban - Large Urban	10.5 26.3 63.2
Age:
- Less than 4 years - 4 to 6 years - 6 to 8 years - 8 to 10 years - Greater than 10 years	11.8 35.3 23.5 23.5 5.9
Services Offered:
- Flexible affordable space - Shared office services - Networking opportunities - Management/technical assistance - Assistance in obtaining financing - Services to non-resident clients	100 100 100 100 83 94
Graduates' Years of Tenancy:
- Less than 1 year - 1-2 years - 3-4 years - Greater than 4 years	11.4 67.0 18.4 3.2
Current Status of Graduates:
- Still in existence - Discontinued since leaving - Merged/sold since leaving - Still located in community	54.5 26.5 19.0 81.6
	Numbers
Sponsors:
- University-related - For-profit corporations - Economic development: Regional, provincial, local govt. - Others Median number of startup firms Median number of anchor firms	4 4 21 7 12 2
Entrance criterion importance - 1=high 5=low
Being a new startup & projected employment impact Compatibility with other tenants Completion of application package Ability to pay rent Projected growth potential Potential for royalty or equity income to incubator	1 2 2.3 2.3 2.5 4.8

Source: Canadian Association of Business Incubators, 1994.

Key Observations:

• The major sponsors of incubators are economic development organizations and governments - local, regional and municipal.
• The average number of startup firms in incubators is 12 and the number of anchor firms is 2.
• Being a new startup business and completion of application package are the most important entrance criterion.
• About two-thirds of the graduates spend between one to two years in the incubator facility and just over one-half (54%) are still in operation after leaving the incubator. The remainder is either sold, merged or operations discontinued.
• The four most common services offered to clients are flexible affordable space; shared office services; networking opportunities; and management/technical assistance.
• The majority of incubators are located in urban areas especially large urban areas.
• The majority of Canadian incubator facilities are less than 10 years old with the median falling at approximately six years.

b) Six Dimensions of Incubator Success

Facilities and Location

Incubator facilities vary widely in size as measured by the square footage or total startup costs and the number of tenants resident in the facilities. A 1995 survey of 19 of the 25 incubators then operating in Canada indicate that their total startup costs ranged from $175,000 to over four million dollars with the median being $412,500. The largest incubator had 69 startup tenants. The median number of startup tenants was 12. Twenty-nine percent of the tenants were in technology product industry.

Technology incubator facilities are designed to help technopreneurs⁷ develop their business skills in an environment that promotes company development. Although technology incubators vary in size and the scope of assistance provided, there are some generic components to the incubator concept. These components include flexible and cost efficient office space available on short-term lease in a variety of configurations from single offices to modules, and shared board and meeting rooms. For example, the Technology Innovation Centre (TIC) in Dartmouth has a top quality building and gardens which some clients use on their promotional material, the Advanced Technology Centre (ATC) in Edmonton provides flexible space with movable walls.

Independent studies of the financial performance of traditional technology incubator facilities are badly lacking. Even the figures from NBIA and CABI regarding incubator facilities financial performance are anything but conclusive - "the jury is still out"⁸ . Two factors which mitigate against the ability of physical incubator facilities from financially breaking even are high vacancy rates and their small sizes in terms of square footage. Previous studies indicate that the average size of incubator facilities makes it extremely difficult for these facilities to achieve financial break-even. Interestingly, however, a recent study⁹ of incubator facilities discovered a trend towards even smaller incubators which raises questions about the ability of these incubators to break even on revenues generated from rents and services. Another study of 40 incubators that ceased operations discovered that sixteen of the 40 incubators had less than 10,000 square feet. Most incubators in this study occupy from 23,000 square feet to 50,000 square feet.

University-sponsored technology incubator facilities are generally located on or near university campuses and/or in urban areas with research parks that are very close to the city's downtown core. Most of these facilities are an integral part of high-tech research where most of the incubator clients move on graduation. Alberta's Advanced Technology Centre (ATC) incubator is a good example since the majority of the firms located in the Edmonton Research Park are graduates of the ATC. Another example of a good location is of Greater Hamilton Technology Enterprise Centre (GHTEC); it is located on the main trade routes into the US and has an excellent transportation system.

The location of technology incubators near research parks, universities or research labs are designed to offer technopreneurs access to a wider range of facilities, individuals and opportunities within their field of business. Tenant firms can have access to the research facilities and personnel of established firms, universities and research institutes. Additionally, they are able to network more easily with experienced and successful technopreneurs and may even engage in strategic alliances to exploit business opportunities either as a sub-contractor or a supplier. For example, the clients at the Innovation Centre, which is located on the Communications Research Centre (CRC) campus in Ottawa, have access to protected technologies, specialized laboratory equipment, use of testbeds and unique laboratories and in-house expertise of researchers and scientists.

Shared Services

Shared services provided by a typical incubator include telephone reception, copying services and secretarial/word processing services; professional business consulting services including advice on business plans, marketing, and finance; legal matters and general management; and information and referral services including access to sources of seed and venture capital. A detailed list of over thirty-eight possible incubator services¹⁰ has been developed through an empirical research. These services are classified and named differently by various individuals and organizations. For example, Smilor (1987) classified these services under three headings: logistical or physical, shared office support and management consulting. University-sponsored high-technology incubators apart from providing typical incubator services, also provide university-related services such as faculty consultants, student employees, university image, library services, related R&D activity, technology transfer programs, and sports and social activity.

As per Mian (1996), the top ten services required by tenants of university-sponsored technology incubators are:

• shared office services - photocopier, telephone, fax; access to computers and technical support;
• business assistance and networking - rent breaks, outside connection, government loans and grants;
• university-related services - university image, laboratories and equipment, and student employees.

Historically, most incubator facilities limit their services to in-house client companies. However, this practice is gradually changing. Most incubators now allow new startup or small firms access to certain incubator services without being physically located within the incubator. For example, some incubators make this option available to a firm that cannot afford to pay for space until it has developed to a certain point, and is ready to move into the incubator facility. In other cases, incubators have provided non-local firms access to their services. We see evidence for this in the "incubator without walls" program at Arizona's Technology Incubator (ATI) and in the "Corporate Identity Program" at the Calgary's Technology Enterprise Centre (TEC). These programs include all of the services provided to resident tenants, except for office or laboratory space. Similarly, TIC, Dartmouth and the Iowa State Innovation System (ISIS) have programs for non-resident clients. At present, CRC's Innovation Centre is looking into the idea of what it calls off-site members.

By having shared services, fledgling firms would hire fewer support staff and avoid the purchase or lease of office equipment. With support services located in the facility, tenants' service requests such as document processing can be handled quickly. Tenants can seek business advice from incubator staff consultants or independent consultants arranged by the incubator management. In this environment, new and aspiring technopreneurs have more freedom to be creative, since they can focus their efforts on product development rather than on obtaining financing or managing fringe services. During this phase of development, technopreneurs are more interested in networking in order to foster business contacts, learn problem-solving techniques and stimulate their drive for success.

Tenant Entry and Exit Criteria

In order to achieve their objectives, incubators pursue a variety of management policies in terms of entry and exit criteria for tenant firms. The list of criteria used for selecting tenants includes job creation and local ownership. As well, the tenant company must be able to pay its own operating costs, provide a unique opportunity, be a new startup enterprise with fast growth potential, have clients who are in some cases required to have a business plan, and have business liability insurance. In terms of exit rules, most incubators impose a time limit on tenant residency.

The empirical evidence suggests that the criteria used to select tenants vary according to the types of incubators and the amount of vacancies present in the incubator facilities. For example, in admitting tenants, publicly-sponsored incubators are more likely to consider job creation potential and local ownership. Privately-sponsored corporate incubators are generally more concerned with obtaining full occupancy. University-sponsored incubators are more open to tenants attempting to commercialize a technology developed at the university. Some university-sponsored incubators may even stipulate that tenant firms hire students as employees and faculty as consultants. Technology incubators focus on enterprises that are engaged in value-added activity such as manufacturing, assembling, developing or researching a technology-intensive product or service.

Entry criteria vary from one incubator to another. Some are very subjective and others require either a severe prescreening process for the applicants or simply an acceptable business plan. For example, ATI looks at the fit between the incubator services offered and the applicant's needs. The focus is more on trying to ascertain the nature of the business or technology the applicant is trying to develop and how appropriate the facility is for the project. At CRC's incubator, entry requirements are stringent and focused; applications with specific objectives which would lead to new or improved products or services that have a specific period of development are considered and must be approved by a selection committee for up to one year. At the end of this period, projects are reviewed for extension. In case of GHTEC, a candidate is required to present a solid business plan. Within a span of three years, the maximum length of time a tenant can stay in the Centre, an enterprise is expected to relocate to its own premises. Also, at TEC, clients must have an acceptable business plan or should be prepared to enroll in the business plan preparation course offered twice annually by the Centre. ATI has a severe prescreening of applicants based on a number of criteria; only one out of ten applicants was accepted in 1995.

Apart from the entrance and exit requirements imposed by incubator sponsors, some incubator facilities impose other conditions on tenant firms. For example, in some university-sponsored incubators, tenant companies are required to give a certain mutually agreed upon portion of their equity to the university. Also, a penalty in terms of increased rents may be charged to tenant companies that remain in the incubator beyond a certain time limit, usually after the second year.

Mentorship and Networking

Another service provided by technology incubators that is extremely popular with most technopreneurs is "mentorship". The basic idea underlying a mentoring program is to link new entrepreneurs with highly successful and experienced entrepreneurs (mentors) so that the mentors can provide advice and assistance to new technepreneurs on a regular basis. Various versions of mentorship programs exist. In some cases, there may be one mentor to one technepreneur, a "shadow board" of three to five mentors to one technepreneur, or a combination of the two. For example, each entrepreneur at ATI is assigned an advisory committee that consists of 5 or 6 members from disciplines such as accounting, law, marketing, etc. These members are volunteers who provide services free of charge. Also, mentoring programs for new startup businesses may be structured differently from mentoring programs for businesses, which have passed the initial startup phase and are moving into the growth stage.

Generally, mentoring programs require that technepreneurs pay an affordable hourly fee. This helps in weeding out non-serious companies. In many cases the fees paid by technepreneurs in the mentoring programs are subsidized by the incubators. At TEC, Calgary, a number of organizations provide professional services to tenants at preferred rates; the Centre's staff calls on an extensive network of local, provincial and international contacts. The requirements for participating in mentorship programs vary but most programs insist on a business plan. It is believed that mentoring programs provide a myriad of benefits such as quality advice and networking opportunities with industry contacts.

Funding and Support

Incubators receive funding from a variety of sources including the community, provincial government, municipal government, federal government, private individuals or corporations, and Chambers of Commerce. However, most of their funding comes from their sponsors as well as from fees generated from renting office space, from business services, and from fees charged for management services provided to tenant companies. Incubator sponsors are generally expected to make a financial investment during the incubator's feasibility, startup and development stages. Sponsor investments do not always come in the form of cash. Non-cash investments such as personnel and access to services, equipment and facilities help to create an environment within which the incubator, can structure itself to operate like a business. Almost, all the incubators in this study are provided with some kind of funding and support from different organizations. TIC received government funding to improve the inside of the building structure; ATC is managed and operated by the Economic Development Edmonton; GHTEC was funded by the Regional Municipality of Hamilton-Wentworth and gets cooperation and support from companies like Bell Canada, Nortel, Coopers and Lybrand and others, who have donated telephone, e-mail and voice mail systems, copying equipment, management consulting services, and signage; TEC has a number of private corporations as sponsors who contribute funds that are then matched by the City of Calgary; and ATI in addition to getting contributions from public and private sources also gets return on equity shares.

Governance

The management structure of traditional technology incubator facilities consists of incubator managers, boards of directors and special selection committees which play key roles in recommending, reviewing and approving companies for inclusion in the incubator facility. Owners or major sponsors of incubators are also involved in a variety of active and passive ways. Their involvement is in the form of financial support, serving on the board of directors, advising tenants, taking an equity position with tenant companies, working as consultants to tenant companies and even serving on boards of directors of their tenant companies. This type of owner involvement is most prevalent among privately-sponsored and university-sponsored incubators.

A full-time manager manages most incubators with a limited number of support staff depending on the number of businesses in the facility. The manager reports to the incubator's board of directors or to the board of directors of the incubator's sponsoring organization. University and college-sponsored incubators report to a variety of senior-level positions, including the university president, provost or dean. The manager of a publicly-sponsored incubator reports to the program managers or the head of an economic development group. A recent study on incubator management concluded that in successful and efficiently managed incubators, the boards of directors are generally responsible for policy development and not the day-to-day operations of the facility which are handled exclusively by the incubator manager.

The majority of incubators have an information system for tracking key operating and performance statistics. Such systems are much more prevalent in incubators with full-time managers. Generally, most incubator sponsors require from the manager a periodic evaluation of the incubator's performance effectiveness, usually on an annual basis.

c) Managing Incubation for Success

Measuring Success

There are very few conceptual or empirical studies, if any, which have attempted to evaluate the success of technology incubation programs. Assessing the success of a technology incubator is a very complex exercise and it is therefore not surprising that there is little consistency in the indicators chosen by different individuals and groups. The following paragraphs identify some of the considerations involved in evaluating incubators' success.

First, most technology incubators offer a wide range of programs from rent subsidies, shared office services to business networking and education services. The costs and benefits of many of these programs are intangible and not easily quantifiable.

Second, technology incubators pursue different goals and have varying priorities based on their primary source of funding. Not all incubators pursue the profit motive and therefore purely financial performance measures such as return on investments or return on assets may be inappropriate. Moreover, the measures of success for evaluating a not-for-profit incubator facility may conceivably be different from that of for-profit incubators. Thus, the question of whether the same success measures should be applied to every type of incubator needs to be addressed. Also, should incubator success be assessed in terms of the number of "graduates" produced, the number of "failed" tenants, the ability to attract and keep the incubator full to capacity at all times, the extent to which new businesses would not have been possible without the incubator facility, the effectiveness of delivery of incubator services or a combination of any or all of these?

Finally, the benefits of incubator facilities are generally not realized within the same fiscal year in which the investment is made. Even if this was possible, it is still difficult to attribute particular benefits to particular investments. Therefore, any evaluation of an incubator must be undertaken several years after the expenditure has been made.

The preceding arguments do not suggest that it is impossible to evaluate technology incubator programs. However, it does suggest the need for a proper conceptual framework for evaluating the costs and benefits of the various incubator programs.

Recognizing the above issues with measuring success, most incubator managers agree that incubators' performance evaluation criteria include impact on community (most commonly used criteria), financial assessment, tenants' assessment, performance versus written goals, and managers' performance.

Some Concerns

As noted in the preceding sections, for over 15 years, technology incubators have been and continue to be established to provide startup companies with laboratory facilities, support services, and access to technical and business development experts. Literature, especially that coming out of NBIA, is full of success stories about incubators. However, there is evidence that a significant number of incubators cease to operate within the first three to five years of existence.

The article by Agoston¹¹ , "Eight things incubator managers can do to avoid failure" which is based on a study of 40 incubators that ceased to operate in the US, reveals that factors responsible for the failure were related to the costs of the building, low occupancy in the building, tight cash flow, etc. For quite a few incubators, simply the carrying and maintenance cost of real estate facilities has been the most challenging burden.

Most incubator managers to some extent agree that the bricks and mortar part of an incubator is merely a containment shell to provide services that are critical to technology companies for nurturing the technology. Yet, the incubator managers' attention tends to be more on managing the facilities than the programs.

The evidence also indicates that the haphazard creation of an incubator facility simply based on the belief that somehow an incubator is a panacea for small business problems and that it will automatically cause local enterprises to spring-up, is asking for trouble. Such an incubator, in the absence of a feasibility study, usually results in an ill-suited facility plagued with low-occupancy problems.

A university-based technology incubator in Ottawa has yet to achieve its goals even after its four years in operation. Some tenants of this incubator are of the opinion that the rents are over the market rate, a number of much needed services are missing, the incubator lacks a champion, and there is no network of large technology companies supporting them. Another incubator "with walls" in Manitoba was closed down since it could not break-even for a number of years and did not attract a critical mass of entrepreneurs. This facility has since been converted to a government laboratory and the incubation program is being run primarily without walls.

Do we need an incubator with shared facilities? The respondent of a very successful entrepreneur development centre commented, "We have experimented (with renting the space and providing shared services) and had a few entrepreneurs. Soon we realized that this was not our goal, the value added wasn't there." A majority of the incubator tenants in a survey indicated that they would have started their business without the incubator facility (Allan and Rahman, 1985).

In spite of the mixed performance of technology incubators, there is little doubt that incubators provide a sheltered environment for small businesses to grow and an opportunity for the local economy to expand thereby providing even more opportunities for small businesses.

Best Practices

• The incubator has a minimum of 30,000 square feet of rental space or at least with room to expand in order to be able to generate enough income to become self-sustainable. The space is flexible with movable walls to manage tenants' variable needs.
• There are at least 10 in-residence members for generating enough networking activity and sustaining the variety of shared services and support operations.
• The incubator is located either near a university or near a research laboratory so that tenants have easy access to technical facilities. Incubators located near a university get added advantage of access to students, faculty members, research labs and libraries. Similarly, proximity to a federal lab provides access to scientists, engineers and state-of-the-art equipment/testing facilities. In both cases "image" is an added bonus.
• The incubator is situated in a high-tech, top quality building, preferably with a telecommunications infrastructure to electronically connect companies with each other and the outside world.
• The incubator has a practice of enrolling non-resident clients who would get all services provided to resident clients except a lab or office space.
• A selection committee is set up to prescreen the clients. The selection criteria include: i) the homology between the incubator services offered and the clients' needs; ii) a business plan that covers the key focus, market information on competitors and customers, costs, pricing and cash flow forecasts; iii) technology sophistication; iv) potential for growth and job creation; v) R&D intensity; vi) occupational mix of the management team; vii) practical experience; and viii) personal commitment.
• An advisory committee, consisting of 5 or 6 experts from different business areas has been established for each tenant company to assist in developing business plan, in obtaining funding, and for marketing and legal issues.
• The incubator has created an opportunity for its tenants to network among themselves, with the industry, and with contacts of the advisory/mentor group members.
• The funding and support from private, public or government organizations, specifically to pay off the heavy costs associated with the real estate component is already in place.
• The manager is a highly motivated visionary individual whose goal is to see their tenant firms succeed.
• Boards of directors are generally responsible for policy development and not day-to-day operations, which are left to the incubator manager. Bureaucracy, in case of government-sponsored incubators, is kept at a minimum.
• The incubator focuses more on support programs than on space or physical infrastructure.

---

6. Technology Incubation within Research Organizations

Most new technology-based firms owe their start to the presence of one or more "incubating" institutions - a government research facility, a university, or a research- oriented technology corporation - that concentrate talent, spawn a related supplier and business service sector, and lend the locality a specialization which propels it into export markets (Markusen and Oden, 1996). Numerous examples include the roles played by MIT and Stanford in the high-tech remaking of Route 128 and Silicon Valley in California, by Boeing in Seattle, and Department of Defence facilities and plants in Colorado Springs and Los Angeles. Bell Northern, federal government laboratories, and the two universities have played a major role in the development of the high technology community in the Ottawa-Carleton region, the Silicon Valley of the North. The intention in this section is to uncover the process of incubation in these three types of research intensive organizations.

The process of incubation here refers to a set of activities designed to facilitate new firm formation via entrepreneurship and technology transfer. The term new firm formation is key and since the purpose is to uncover various incubation support programs instituted in organizations, the willing support of the incubating organization in creation of the new firm is implied in our definition.

a) Federal Laboratories

Canada is recognized internationally for the strengths of its government and paragovernment research laboratories. A number of significant scientific breakthroughs have come up out of these state-of-the-art institutes which make important contributions to industrial development and public welfare. They have facilitated the creation and adoption of new emerging technologies in many areas, for example defence, biotechnologies, communications, natural resources and environmental technologies.

Federal labs also play a key role in long-term international collaborations. These linkages i) help in reducing costs of doing research in Canada; ii) provide strategic information on science and technology trends and emerging technologies and standards; and iii) allow for the sharing of knowledge through worldwide information networks (Canadian Academy of Engineering, 1997).

Role of Federal Laboratories

The Canadian federal laboratories thus have a prime mandate to support the public interest in two ways:

• to carry out R&D to meet statutory policy and/or regulatory responsibility; and
• to contribute to industrial development. At times, however, these present conflicting demands for the labs. It is the latter, which is in the spotlight recently, and as a result there is a push to be effective in assisting industry through the transfer of both technology and knowledge.

As stated in a recent economic analysis of government research¹² :

"... As a result government institutions are now expected to work closely with industry to establish cost and risk sharing partnerships. Their research agendas are being broadened to include more applied research projects that can easily be transferred to industry and lead to spin-off technologies. In addition, the labs are expected to act as information brokers to assist industry (and in particular small to medium enterprises) in developing and adopting technology. The establishment of integrated "innovation centres" where firms can participate in research parks, technology incubators or simply common-use experimental test facilities are other examples of initiatives aimed at facilitating technological diffusion."

Thus the landscape of activities in federal labs is changing. Both excellence and relevance are now critical in determining which projects get priority and thus resources. Collaborating with private-sector partners is the norm. As a result, in the last seven years a increasing number of technological breakthroughs are being translated into products and services by collaborators from the private sector.

Technology Transfer

The technology transfer and commercialization efforts of Canadian federal laboratories through collaborating with large established firms have been laudable. CANMET, for example, took a leadership role in forming a problem-directed government-industry consortium under its Mine Environment Neutral Drainage (MEND) Program which has a membership of federal and provincial laboratories and 20 mining companies. The program has a budget of $18.5 million over nine years period and is focused on specific environmental problems caused by mine tailings. It will end in 1997, and at that time will have achieved its original goal of reducing the overall liability of Canada's mining industry by 10% from the original estimated liability of $6 billion. The Aquatic Effects Technology Evaluation (AETE) project is another example of cooperation between industry and federal laboratories. A jointly funded, CANMET/Mining and Mineral Sciences Laboratories - $2.2 million and the Mining Association of Canada - $1.2 million, project is focusing on field and laboratory validation of the most promising mining tests for the aquatic environment.

The Environmental Technology Centre (ETC) of Environment Canada has taken an aggressive approach to prepare itself for commercializing its Microwave Assisted Process (MAP) technology. ETC has consolidated the developmental work on MAP being carried

out in three divisions into one. The intent was twofold; one, to accelerate work on technology by focusing it on a single division and two, if the commercial potential of technology actually did take off as anticipated then the division would be well positioned to spin-off as a commercial entity from the Centre. The fundamental concept was whether the division spins off as a private company or whether it stays within the federal government, the division should be able to generate enough royalty revenues to sustain itself. Such initiatives need resources, which are not easy to obtain at the time of downsizing. In another move, ETC is planning to link its Emergencies Engineering Division, a division involved in developing and evaluating technologies for preventing and responding to oil and chemical spills, with the private sector in a long term partnership. The idea on one hand is to seek commitment of R&D investments from the potential private partners and on the other hand to provide companies with an R&D capability which may not exist anywhere else in Canada and help them to be more competitive internationally. ETC realizes that the right partner is hard to find.

Needless to say, most federal labs are applying one measure or the other to expedite technology commercialization. For example, the respondent from the National Research Council's Industrial Materials Institute (IMI) said, "As soon as a new technology is identified, IMI tries to associate it with those who will be responsible for the commercialization of that technology. They would either approach outside entities or individuals that are interested in moving the technology to the market place. Interested outside individuals are briefed about the technology at IMI; in this process, however, administrative skills are much needed.

Technology Recipient: Large vs. Small Firm

Transfer and commercialization of technology from federal labs takes place through both large and established firms and small and nascent companies. Table 2 distinguishes the advantages of technology commercialization to both groups.

---

Advantages of large firms in technology commercialization

• Adequate internal technical capacity
• Market power (market share, brand/customer loyalty, advertising acumen, etc.)
• Established key linkages to customers, distributors, suppliers, regulators, potential strategic alliances, etc.
• Access to capital markets
• Potential synergy with current products and operations (fast accommodation of economy of scale and steep experience curves)
• Better prediction of proprietary technology positions
• Professional management for later-stage growth
• Ability to absorb large fixed transaction costs-time and money

Advantages of small firms in technology commercialization

• Strong commitment to the technology (i.e., little 'NIH') especially if the inventor becomes involved in the enterprise
• Ability to move rapidly- both in technology development and in commercialization activities
• Lower costs of development and operations
• Less bureaucratic, more innovative
• More efficient job and wealth creators
• Entrepreneurial management for early-stage growth

Source: Radosevich (1995)

Technology Incubation

A dilemma in technology transfer is whether the technology recipient firm is small or large. Regardless of the size, the federal labs, in theory, should choose the commercializing agent who is most likely to have the greatest impact on the national economy and international competitiveness. Studies¹³ have shown that small technology-based growth firms can contribute more in job and wealth creation than large firms in the same industries. Nevertheless, the commercialization activities of most federal labs are decidedly oriented in favour of large, established firms. Markusen et al (1995) claim that while managers of federal labs make commitments of hundreds of millions of dollars to partnerships with large corporations, developing technologies which then become the exclusive property of the private sector firm, only hundreds of thousands are allocated to entrepreneurship efforts.

Recognizing the valuable role which government research laboratories play in the innovation process, the focus here is to investigate activities/programs of these laboratories that directly contribute to the incubation of new technology-based firms. We will deal with this issue here on.

Incubating new technology-based firms in federal labs can take place in at least two ways. The first is the act of an entrepreneurship activated by an external entity, referred to as the surrogate-entrepreneur. The second is the spin-off from the lab by one or more employees who typically are the inventor of the technology. These employers are called inventor-entrepreneur or entrepreneur (alternatively called "intra-preneurs"). Both situations are discussed below.

Surrogate-entrepreneur Model

In the surrogate-entrepreneur model, a technology developed at a federal lab is transferred to an independent, experienced entrepreneur who intends to use it as the basis for launching a new venture. For example, an individual (or a new company) approached the Industrial Materials Institute (IMI) for licensing their technology. During negotiations, IMI made a package deal that encouraged the individual to work jointly with IMI scientists. In another scenario, an outside group approached IMI for incubating its own technology. The key criteria of IMI for accepting such a proposal was that IMI must have the know-how in that technology and must be able to add value to the proponent. IMI did not want to be seen as an incubator with a broad mandate.

At the National Research Council (NRC) licenses are often given to startup companies who can put together a competent team to exploit a technology. When markets are limited and investments are required, NRC may grant to firms appropriate rights that recognize their contributions to ensure that effective technology exploitation can take place. NRC sometimes provides office space and opens its library facilities, CISTI, to various researchers to undertake innovative basic and applied research. Examples of firms in their incubation or startup phases, which utilize these opportunities, include Kalyx Biosciences, MPB Technologies, and North American Vaccine Inc. These firms have worked alongside NRC's researchers to develop products to the point where they could be moved on to production or spun-off to more extensive R&D programs.

In fact, a little over a year ago NRC launched a number of initiatives to provide companies with greater access to NRC, develop commercial opportunities for firms, create new companies and transform NRC into a more business-like, flexible organization. These initiatives are part of NRC's new Entrepreneurship Program, which has put technology commercialization activities in the forefront. IMI does not believe in royalty arrangements. The respondent made a point that being a government agency, the main emphasis of the Entrepreneurship Program at IMI or NRC is on job creation rather than on getting returns on investment.

Surrogate-entrepreneurs normally have previous entrepreneurial experience and accumulate business knowledge including professional networks. This group is less dependent upon the existence of support infrastructure and comfortable in developing strategic alliances (Radosevich, 1995).

The Entrepreneurship Program of NRC recognizes the contribution of inventors as well as a new category of employee - innovator - which is a NRC employee who contributes to developing or commercializing intellectual property. The monetary award to individuals has increased from 15% to 35% of IP income.

Inventor-entrepreneur¹⁴ or Entrepreneur Model

A scientist, while working on a new technology, may come up with a burning desire to form a venture business to commercialize the technology. At pre-prototype development stage, after doing some market research, the employee is put in contact with outside firms for further development and commercialization. He/she may also be put in contact with a venture capitalist. In the latter case, sometimes the lab will assure the capitalists that it will backup the technology and supply expertise in case of a problem. This will give security to the investor and the scientist will ultimately start his/her own company. The scientist need not leave the lab, rather take leave for some period to work further on this new venture with an assurance to be accepted back if things don't work out.

In order to facilitate the technology transfer, entrepreneurs have added the benefit of being in close relationship to the technology source. This group is committed and possesses knowledge of the technology. However, a firm's ability to startup, grow and survive based on federal laboratory technology requires the right combination of several ingredients¹⁵ . The five aspects that are impediments to entrepreneurship are briefly presented below:

The first aspect relates to the culture. Public labs' research culture often discourages mobility from public to university or corporate labs. In public labs, scientists and engineers enjoy more autonomy in choosing their research/projects than they would in private industry. They resemble university researchers in this regard. Their research is, thus, apt to be specialized in nature and somewhat narrow in focus of their disciplines. Government labs offer their employees limited exposure to business environments that stress short term product development, marketing, and cost consciousness. There is evidence that exposure to private sector tends to foster more successful entrepreneurship.

The industrial secondment program at federal labs such as NRC or CANMET of NRCan aims to increase the amount of collaboration and technology transfer between the lab and industry. The employee has an opportunity to be with industry for a year or less to strengthen his/her knowledge of industrial research interests and of commercial markets.

An employee of CANMET who had a one-year secondment to industry commented, "The actual professional benefits went far beyond my expectations. Among these are the contacts I established and an increased awareness of the perceptions between government and industry, as well as greater awareness of the roles of operations groups compared with R&D departments." Another employee after coming back from a six-month secondment said, "To conceive projects, manage employees, make new contacts, get a first look at industrial competition, learn new methods... . are but a few aspects of a secondment." Unfortunately, there are a few lacuna associated with the program. First, some labs demand industry to pick up part of the costs of secondment, and second, the secondment program has a hidden limit of say one percent. Only a handful of employees have been able to make use of the program. NRC and other federal laboratories also allow industrial partners to second employees to their laboratories.

The second related aspect to the above is that most inventors are poor managers. Entrepreneurs from labs tend to make significant mistakes along the way - misunderstanding markets or customers, trusting the wrong business partners, not being able to present a coherent vision of their future to potential investors, or being unaware of the costs of further technology development. As a respondent from a lab said, "You can have good scientists and you can have good administrators but what you need to do is to mesh these two together". The project of preparing an inventory of training programs in technology transfer for scientists and engineers undertaken by the Federal Partners in Technology Transfer is one step toward filling this void.

Third, the process of exiting the labs is a mixed affair for new-firm founders from within the labs. Only a handful get encouragement. It is not easy to gain approval of their colleagues and superiors. NRC, under its new Entrepreneurship Leave policy, provides leave with pay for up to six months during the startup phase of the project. One can also take leave without pay for a period of at least one year, but not more than two years, to cover the time required to determine whether the proposed business venture will succeed. Support services to employees considering using this leave program are provided. Resources on items such as preparing business cases and plans, financing, networking, conflict of interest and intellectual property are made available. Two comments are worth noting which represent the entrepreneur's dilemma. First, any intellectual property rights developed during their leaves would be lab property; and second, they fear that investors would not take their efforts seriously.

Fourth is the contentious problem of public interest as opposed to public access. Lab-incubated entrepreneurs strongly believe that insiders are the best conveyors of technologies going into the market and should be given special access to property rights. They fear that the technology will be shelved if licensed to a large company and will not be exploited fully if given to a small outsider company. On the other hand, the outsider group advocates that the public at large not be excluded from bidding on the property rights since the lab technologies develop with taxpayers' contributions. The problem becomes further complex due to the conflict-of-interest issue. The argument contends that the individuals should not profit directly from work they do on taxpayer-funded salaries and facilities. A number of conflict-of-interest procedures are in place, however, their effectiveness is yet to be seen.

Fifth, the lab startups normally have a difficult time securing sufficient capital. In order to address this problem, NRC, NSERC and the CSA, for example, have entered into an agreement with the Canadian Science & Technology Growth Fund, a venture capital fund for funding new technologies and discoveries. Research groups within the federal agencies cannot apply directly to the Fund without an industry partner. Unfortunately, the Fund only targets medium-sized firms - from early stage to maturity. IRAP's efforts to help small- and medium-sized firms are indeed well received by industry.

b) Universities

Canadian universities play an important role in the nation's system of innovation through:

• advancement of knowledge by way of research and reflective inquiry;
• development of generic technologies for industry benefit;
• transfer of technology to industry for commercialization;
• training of highly qualified personnel;
• cooperative and entrepreneurship programs to support local high-tech firms; · collaboration by faculty/students in local/regional initiatives.¹⁶

University research laboratories are known to conduct non-directed research which adds to the repository of fundamental knowledge which, in turn, provides the basis of understanding that is required for all R&D, basic and applied. They are becoming more responsive to the long-term needs of industry. Through improved internal links among themselves as well as with industry, the transfer of technology to industry has improved significantly in recent years. According to a recent study (Cooper, 1996), Canadian universities have created more than 350 spin-off companies since 1950, which have generated sales close to $900 million in 1994 and some 7,800 on-going jobs. In spite of some landmark results, the effectiveness of technology transfer from university to industry has been very low (Gerwin, Kumar and Pal, 1992).

Recognizing the valuable role which Canadian universities play in the innovation process, the focus here is to investigate the activities/programs that directly contribute to the incubation of new technology-based firms. The focus is on learning situations where university acts as an incubator of entrepreneur-to-be that leads into the formation of a new company.

The phenomenon of incubating new firms is quite common in high-profile universities in the United States where extensive industrial and defence research is carried out (Jareski, 1988). In Canada, however, the situation is far from satisfactory. The total spin-out companies from Canadian universities numbers around 300 and is increasing at a meager rate of 50 per year. New realities have struck. We are in a different environment of budgetary constraints. In order to cope up with decreasing public funding, universities are creating new sources through licensing of intellectual property, business venturing with industry, and taking the new-firm spin out route.

One of the two situations may occur leading to the formation of a new firm. In the first case, a professor or a technical staff person finds an opportunity to develop and exploit a market niche. The situation may arise since the innovator was not able to find a company that is willing to license the technology. The individual would like to pursue the next stage to develop the technology into a marketable product and assess its commercial potential. The individual likes to continue his/her employment links with the university since he/she is not prepared to take all the risks involved. In this case, the university might be willing to offer the use of the faculty member's existing office space and equipment for either an hourly lease rate or an equity share in the company. This arrangement would last for a pre-determined period of time after which the faculty member would either move into a physical incubator and continue the business or abandon the effort. The virtual incubation period would provide time for the entrepreneur to determine whether or not the new business effort is going to be successful before making the leap out of the university system.

In one example, the university helped a professor in forming the company, permitted the use of the lab and space, helped in developing the business plan through MBA students, and provided a small amount to print marketing brochures. The university did not agree to provide teaching-off to the professor simply because of the fear of unrest in his department. The university settled for royalty on future sales instead of an equity position primarily to avoid liabilities in case of downfall of the venture. In another example two years ago, a group of entrepreneurial students at a university started a company to develop educational internet for schools. The Dean of Engineering encouraged students and provided space. The company due to its exponential growth has since moved out of the university. It employs over 60 people and operates from offices at two locations with a third location in the planning. The university did not take any equity position in the company.

In the second case, a new firm is initiated by the university itself on the basis of an opportunity based on a technology developed within the university. During interviews, we came across a case where a foreign company who had licensed a technology from the university a few years ago has approached the university with a new proposal. The proposal suggests that the university takes over the marketing of existing products in Canada and the US, and further develop the technology for which significant funding will be available from the proponent. To make it work, the university is seriously considering initiating a new firm jointly with the foreign company, the university, and the professors instrumental in developing the technology as partners. The main benefit to the university is that funds for development will flow into the labs for buying state-of-the-art equipment.

c) Technology Corporations

Large technology corporations are taking some innovative approaches for incubating new firms. Our exploration has revealed three somewhat distinct approaches, which are briefly presented below:

Spin-off Of An Existing Division

In this approach, a large corporation spins off divisions from the main body as a new enterprise. Corel Corporation's announcement in March 1997 to spin-off its relatively new video-conference hardware unit as a separate business entity is one example. Nortel's decision in January 1997 to spin-off its Ottawa-based Secure Networks encryption division, as a new company Entrust Technologies is another example. In both cases, the respective mother firms were nurturing technology for a while. Nortel, for example, had its Secure Networks group working on the technology since 1993, until it became clear that the group has grown enough to deserve full and individual attention. It was essential to continue to foster the entrepreneurial spirit and vigour to compete in the hi-technology market.

Making An External Entity An Affiliate

Here, a large firm takes equity position in a recently formed (or even just about to start-up) small firm and makes it its affiliate. Identification of a potential affiliate enterprise takes place in at least two ways. In one scenario, the large company tracks down a promising entrepreneur/specialist through its informal network of senior executives, who is willing to build a new enterprise that complements the business of the large company. In the other scenario, a relatively new existing company may approach or be approached by the large company because it has a technology or direction complimentary to that of the large company. In each case, the match is evaluated and negotiations take place. For example, since 1992, Newbridge Corporation, has created 18 affiliate companies using this approach, many of them were non-existing. The Kanata-based Cambrian Systems Corp., a fiber-optics specialist company, is one of these affiliates. Newbridge typically owns one-third of the shares of these affiliates.

The potential affiliate is thoroughly vetted before an agreement is struck. The mother company, in exchange for equity provides most of the core infrastructure requirements and services including access to its technology, introduction to its customers, legal aid, financial and budgetary accounting services etc. This arrangement is normally made for a specific time period, in the case of Newbridge usually for the first three years.

Newbridge's focus remains in building comprehensive, high-speed communication networking equipment. The affiliates add services at the end of networks that may make Newbridge's equipment more attractive to the end customers in their decision while making a choice between a Newbridge network and a non-Newbridge network. The affiliates are closely aligned with the core business of Newbridge and specialize in encryption hardware, multimedia software, data switches and network management. For example, Cross-Keys builds management software and related tools that helps Newbridge equipment work more smoothly with communications hardware built by other manufacturers. Similarly, Cambrian concentrates on technology that can squeeze more digital information through fiber-optic links.

Internal New Firm Incubation

In this approach, the mother company identifies a group of its entrepreneur employees who have the idea and drive to start a new business venture and assists them in forming a separate enterprise. Leading edge corporations such as IBM, Tektronix, and Sarnoff in the US and Nortel and Newbridge in Canada have initiated a formal program to help their employees start businesses that are not in the company's main product line.

Learning from the successful development of Entrust Technologies, Nortel has launched a new initiative called Business Venture Program with an overall focus on expanding Nortel's core business. Under this initiative, an executive body headed by the Director of the program has been formed to evaluate proposals from employees for a new business start-up. The program was begun recently in early 1997 and Nortel has already admitted two ventures into the program. Those admitted will have access to Nortel's state-of-the-art labs and a vast pool of talented scientists and engineers. They will get services from human resources, finance, marketing and legal departments among others in order that the venture team can focus on working on the technology development.

Challenges for Nortel to achieve success in their Business Venture Program include, for example, building an environment where entrepreneurship is encouraged while maintaining employees' attention on the main stream tasks; and developing compensation models for employees balancing risks and rewards. Nortel being a truly global company must find ways to implement this program at their various international locations. The challenge to develop a team at each location which can provide various incubation services is currently being experimented on in Ottawa and in the UK. Building entrepreneur support networks in subsidiaries operating in different time zones and under different cultures and laws must be well planned before Nortel takes this program out of its backyard. West End in Arnprior, Ontario, a recent affiliate of Newbridge, is another example of internal new-firm incubation approach.

One of the biggest benefits in the internal incubation approach is that it allows the large company to maintain employees, at least temporarily, who are attracted to the more risky but exciting entrepreneurial culture, rather than that of a large company. It is apparently a win-win situation for the company as well as for the entrepreneurial employees.

There are some common threads between the three approaches described:

• The focus of every new venture complements the core technology business of the large firm.
• Small startup ventures gain considerable advantage from having the name of the mother company attached. It also gives them contact with the mother company's giant multinational customer base.
• Startup firms get access to the mother firm's technical resources such as laboratories and talented scientists and engineers. Services from human resources, finance, marketing and legal departments of the mother firm become available for their use.
• The mother company normally supports the initial funding reducing the cumbersome ordeal of raising venture capital.
• The mother firm provides a well-seasoned board of directors who installs discipline in a company that is often driven more by technocrats than businessmen.
• The mother firm tends to view a new-firm incubation from a venture capital perspective and builds the assessment process based on criteria commonly used by venture capital industry.

The concept of new-firm incubation in large technology corporations is relatively new, but spreading at an increasing rate. Its implementation, nevertheless, faces a number of challenges for both partners. Some of the challenges respondents identified were:

• the need of management flexibility to balance independence and coordination between the mother firm and the startup firm;
• maintaining the senior management commitment within the mother firm and the startup firm;
• the need to gently manage overlap/conflict situations between the two parties;
• developing joint strategies between the two parties for success in the market; and
• having committed champions within the mother firm and the startup firm.

d) Managing Incubation for Success

Incubating Practices: Similarities and Differences

What triggers the process of incubation in the three forms of research organizations - federal labs, universities, and the corporate world? In most cases, entrepreneurs in corporate labs tend to pick up technology ideas that are perceived by the company either to have too small a market or a market too far from its core business. These ideas are "technology orphans", in that they get little allocation of resources from the company and they lack a champion. The entrepreneur finds this to be an opportunity worth exploiting. In a university or federal laboratory setting, a researcher, through his/her research, comes up with an idea worth commercializing. Not finding a company which is willing to license the technology, he/she becomes frustrated and decides to initiate his/her own firm. In all cases, the entrepreneur believes in the idea and in its market potential.

The main impetus for entrepreneurship includes the recognition of a market opportunity, willingness to try something new, determination to put theory into practice, desire for personal independence, challenge of starting a company, and the desire to have fun with an entrepreneurial venture¹⁷ . Most entrepreneurs continue to maintain their relationships with mother organizations and call on that source for personnel, and research experience and ideas. Maintaining this relationship in order to keep updated on R&D is important to success¹⁸ .

Although the literature emphasizes that entrepreneurship is necessary to cause conventional organizations and values to adapt more quickly to change and opportunities, the path for entrepreneurs is not an easy one. They must deal with internal challenges and conflicts. They have to struggle for management support, project funding, and rewards for their team. Entrepreneurship has been considered to be a risky strategy for those working in large organizations, given their vulnerability to changes in management, budgets and corporate values. Our study, on the contrary, indicates that it is no longer a taboo. Aggressive organizations have been setting up systems to deal with and support entrepreneurs, if not proactively look for them. Universities normally do not have formal procedures to deal with requests from employees interested in initiating a new venture. On the other hand, federal labs are becoming more aggressive in developing a support system for managing these opportunities.

New firms originating from all three types of organizations would have higher creditability and support in forming the management team. The major difficulties that have been documented for university-startups were raising enough capital and managing growth. Perhaps the same results will hold in case of federal labs, while a new-firm growing from a large corporation is likely to be far ahead on both of these issues.

Studies have found that new technology-based firms originating from a mother organization such as a university, a government lab or a technology corporation, tend to locate themselves in the same region primarily due to their network of contacts. From a regional public policy point of view, it would be appropriate to support the mother organizations to encourage entrepreneurship instead of trying to attract entrepreneurs from out of the region.

Best Practices

Federal Laboratories

• An Entrepreneurship Leave Policy has been developed to provide an entrepreneur a period of leave to cover the time required to determine whether the proposed business venture will succeed.
• Support services to employees considering using the leave program are provided. Assistance on items such as preparing business cases and plans, financing, networking, conflict of interest and intellectual property (IP) are of particular interest.
• The organization rewards and recognizes employees who contribute to developing or commercializing intellectual property. At NRC, the monetary award to individuals has increased from 15% to 35% of IP income.
• Conflict-of-interest procedures are clear and systematic and are made available to an entrepreneur especially at the early stages of planning a venture. Conflict-of-interest charges emerging at a later stage cause a considerable personal distress to the entrepreneur.
• An agreement with a venture capital fund is in place specifically for funding the development of new technologies for initiating new businesses.
• Employees are provided some exposure to business environments that stress short-term product development, marketing, and cost consciousness.
• Employees get an opportunity, on a broad scale, to be with industry for a year or less through the secondment program to strengthen their knowledge of industrial research interests and of commercial markets.
• A technology transfer officer of the lab is associated with an inventor as early as possible even at the identification stage of a potential technology development.
• The proposals for incubating technology from an outside entity submitted to a federal lab meet the condition that the lab has expertise in that field and it can add value on technical or scientific footing.
• The lab has a policy to encourage surrogate-entrepreneurs to move into the lab premises, provide them space, facilities, an opportunity to work jointly with lab scientists.
• For providing space to a surrogate-entrepreneur, the lab first reviews the available space in its existing buildings. The rightsizing exercises, which most government labs have undertaken in the recent years, may have freed up some space in lab.
• All scientists and engineers receive training to develop management skills that are needed for technology commercialization efforts. Various government labs could collaborate in developing a series of targeted courses for scientists and engineers on various aspects of technology transfer including entrepreneurship, and in doing so they could use university expertise.
• The lab has developed an inventory of lab technologies and has disseminated that information to encourage new firms to approach the lab for commercialization.
• Experiments in efforts to induce a higher incidence of technological entrepreneurship are planned and undertaken. Favouring licensing of intellectual property to large, established firms is likely to have minimal impact on local development.
• The continuous evaluation and improvements to the existing programs that have been instigated to accelerate the technology commercialization by establishing new ventures takes place.
• The lab is making sincere efforts to build strong partnerships with universities and the private sector, thus strengthening the links in the Canadian innovation system.
• In order to get proper appreciation, a program is in place for increasing public awareness of the full value of lab's policies, regulatory and R&D functions that are related to public welfare and safety.
• There is a champion, a member of the upper management team, in the lab for accelerating the pace of change the lab's existing culture to entrepreneurship. The champion makes it clear that entrepreneurship is indeed the direction for the lab.

Universities¹⁹

• University administration and academic peers appreciate entrepreneurial efforts by a faculty member and do not consider these efforts to relinquish the values that a university should adhere. A number of good ideas can be distilled and adapted from the Entrepreneurship Program of the NRC.
• University provides incentives to faculty seeking to develop long-term relationships with industry. One example is to provide professors with leaves of absence of up to one semester at full pay for spending time at a firm. Universities could learn from the secondment programs instituted in federal labs.
• In an effort to change its culture, the university recognizes those who collaborate with industry through its promotion and tenure policies for professors. While there have been many improvements in recent years, Canadian universities and industry still have a long way to go in establishing a dynamic and mutually profitable relationship.

Technology Corporations

• The affiliate programs are built on the premise that the affiliate is in the business of technology that complements the core business of the mother firm.
• The mother firm provides the new venture with association of its name, access to its multinational customer base, and possibly venture capital.
• The startup firms have access to the mother firm's technical resources such as laboratories and talented scientists and engineers. They also have access to services from human resources, finance, marketing and legal departments of the mother firm.
• The mother firm provides a well-seasoned board of directors who installs discipline in the startup company which is normally driven more by technocrats than businessmen.
• The affiliate programs provide management flexibility to balance independence and coordination between the mother firm and the startup firm.
• The senior management within the mother firm and the startup firm is committed to the association's success. Conflict situations between the two parties are sorted out gently and marketing strategies are developed jointly.

---

7. Other Entrepreneurship Development Programs

a) Various Forms of Services

A review of entrepreneurship development programs offered by organizations such as Inno-centre, Capital East Technology Enterprise Centre (CETEC), Capital East Technology Enterprise Network (CETEN) and British Columbia Institute of Technology (BCIT) Venture Programs reveal several emerging trends in the provision of critical support services for new entrepreneurs. A number of organizations are striving to develop a wide range of integrated support services which include basic information, advice and counseling on how to start a business, training and education programs, mentorship services, and extensive networking opportunities. Moreover, these support services and programs are generally not offered to entrepreneurs as a one-time affair. There is a conscious attempt by these organizations to form a close relationship with entrepreneurs over an extended period of time or at least until the business can stand on its own. The programs offered are normally any or a combination of the four forms, i.e., the entrepreneur development, mentoring, network development, and the package programs.

Entrepreneur Development

Entrepreneurs wanting to start a new business venture are provided with general information on the legal, accounting, and other requirements for starting a business through brochures, workshops, and seminars. These services are complemented with advice and counseling on a one-to-one basis, a part of which may be provided at no cost to entrepreneurs. In addition, the specific coaching is provided at a cost by the organization to all potential entrepreneurs.

The Entrepreneurship Centre in Ottawa, for example, is staffed with consultants to help new entrepreneurs and small businesses with issues relating to business start-ups such as financing, business plan review, marketing, government regulations, etc. CETEC has linked itself with a number of entrepreneurial support organizations for the purpose of delivering a complete menu of services to its clients.

Mentoring

After entrepreneurs have started their businesses, the initial business startup services are complemented with on-going support through a variety of mentorship programs. Mentorship programs are designed to link new entrepreneurs with highly successful and experienced entrepreneurs or senior managers of growing business organizations. Usually, mentors are linked to entrepreneurs either on a one-to-one basis or several mentors from various backgrounds are linked to a single entrepreneur. The relationship between mentors and new entrepreneurs could last for several years and include assistance on legal matters, marketing strategy, product development and even encouragement to entrepreneurs when their businesses are not performing to expectations.

Network Development

Most of the organizations offer entrepreneurs a variety of networking opportunities. However, an emerging trend in the provision of networking services is to: (i) develop a vast and high caliber network of individuals and organizations regarded as experts or leaders in their fields; (ii) recruit individuals and organizations from a variety of backgrounds including business, science, finance, academia, the high-tech community and government; and (iii) utilize the contacts of previous clients who have successfully established their businesses. Entrepreneurs are brought into contact with these individuals and organizations through regular meetings, seminars, workshops, mentorship programs, and various social events.

The networking sessions provide new entrepreneurs with an array of opportunities including (i) a sounding board for their ideas where they can get immediate feedback at relatively low cost; (ii) forming partnerships with other interested individuals or organizations for information sharing and for the development of emerging technologies; (iii) gathering information on important and topical issues such as intellectual property rights, emerging technologies, technological and market trends, ideas on new design, prototyping and product development; and (iv) establishing marketing opportunities. These sessions also provide a forum for program managers to explore ways of improving the range and delivery of services they provide to new entrepreneurs. The BatorLink bulletin board established on the internet by NBIA for managers of incubators to communicate on various issues and challenges they face is an effective medium which managers can use to explore concepts and ideas among themselves.

In addition, some entrepreneurship development programs attempt to link new entrepreneurs with venture capitalists and various other funding agencies to secure financing for their ideas. Others provide a range of important services such as access to the internet, access to the federal government's Open Bidding System, use of library, computing and recreational facilities. Some organizations even allow their successful graduates the use of services for another year or two after the new firm is set up.

Package Programs

An innovative approach to delivering technology incubation services which has recently emerged and is gradually gaining ground is one in which the services are packaged and delivered primarily in an intensive classroom format. This approach is very formal and structured and is relatively more costly to new entrepreneurs. The BCIT's Venture Program, Inno-centre's program, and the Newfoundland and Labrador program are cases in point. A unique element in these approaches is the very rigorous entry criteria and selection process which are employed to ensure that entrepreneurs with the best chances for success are in the program. The Newfoundland and Labrador program, for example, annually accepts only 25-30 applicants, who are for the most part less than 30 years of age. The selection is based on the applicant's previous academic achievements, entrepreneurial aptitude and motivation. The candidates are required to have a recognized environmental, technical, science or engineering diploma or degree and at least 1.5 years of work experience in the environmental sector. In its 2 years program, Inno-centre entrepreneurs get support from a accredited counselor, the multidisciplinary team of the Centre, and the advisory committee formed specifically for each company. Inno-centre measures the success of its program by the number of new business startups in operation upon completion of the program.

b) Best Practices

The following are the best practices/desirable features of a successful entrepreneurship development program that have been identified based on the review of at least ten well-respected programs:

• Respective field experts deliver a complete range of seminars and workshops on every aspect of starting and managing a business.
• Collaboration agreements are made with other entrepreneurial organizations in the local community to deliver the training programs in a cost effective manner.
• An efficient and vast network of experts from the business, science, finance and academic communities is in place.
• An open forum is set up for networking, exchanging information, and discussing issues faced by entrepreneurs.
• A database is developed where clients can get information on emerging technologies, market intelligence and partnering opportunities.
• A sounding board is provided to clients where ideas and concepts can be explored, products demonstrated, and advice obtained on particular issues.
• An advisory committee is assigned to each company consisting of experts from different disciplines. The committee works with the company to draw up a business plan and oversee the market study required before financing is sought.
• A database of volunteer mentors (e.g., entrepreneurs or senior managers), who work with clients on a one-to-one basis for a few hours every month is developed. Also, a mentoring program for established clients looking to take their businesses to a new level after 2 to 3 years in operation is available.
• A special library (physical or on internet) that offers resources on business start-ups, business management, and industry specific information is available to clients.

---

8. References

Agoston, J., "Eight Things Incubator Managers Can Do to Avoid Failures", NBIA Review 1996.

Allen, D., "Small Business Incubators and Enterprise Development", report prepared for the US Department of Commerce, Pennsylvania State University, PA. 1985.

Allen, D. and S. Rahman, "Small business incubators: a positive environment for entrepreneurship", Journal of Small Business Management, pp. 12-24, July 1985.

Birch, D.L., Job Creation in America: How our Small Companies Put the Most People to Work, New York: Free Press, 1987.

Canadian Academy of Engineering, Technological Entrepreneurship in Canada, Second Draft of the Report, 1997.

Cooper, D., IRAP Analysis, National Research Council of Canada, IRAP Program, Internal Report, 1996.

Cooper, A. C., "The Role of Incubator Organizations in the Founding of Growth-Oriented Firms", Journal of Business Venturing, Vol. 1, No. 1, pp. 75-86.

Coopers and Lybrand, Business Incubators: Becoming a Business, 1994.

David, P. and D. Foray, OECD Report, 1994.

Gerwin, D., V. Kumar, and S. Pal, "Transfer of Technology from Canadian Universities to Industry", Journal of Technology Transfer, Vol. 17, No. 2, 1992.

Jareski, L., "Patent Profits", Forbes, May 2nd. p. 104, 1988.

Jennings, D.F., Multiple Perspectives of Entrepreneurship, South Western Publishing, 1994.

Knight, R.M., "Entrepreneurship and Innovation in Smaller High-Technology Firms in Canada"' Working Paper No. 85-09, School of Business Administration, The University of Western Ontario, 1985.

Krugman, P., Geography and Trade, Leuven University Press, 1991.

Lundvall, B.A. (ed.), National System of Innovation: Towards a Theory of Innovation and Interactive Learning, Pinter, London, 1992.

Markusen, A. and M. Oden, "National Laboratories as Business Incubators and Region Builders", Technology Transfer, pp. 93-108, 1996.

Markusen, A., J. Raffel, M. Oden, and M. Uanes, "Coming in from the Cold: The Future of Los Alamos and Sandia National Laboratories", New Brunswick: Rutgers University, Centre for Urban Policy Research, Working Paper No. 91, 1995.

Mian, S.F., "Assessing Value-added Contributions of University Technology Business Incubators to Tenant Firms", Research Policy, Vol. 25, pp. 325-335, 1996.

NBIA Review, "Focus: Incubator Funding in the 1990s.", 1994.

Nelson, R., "What has been the Matter with Neo-Classical Growth Theory?", in The Economics of Growth and Change edited by G. Siverberger, L. Soete and E. Elgan, London., 1994.

Patel, P. and K. Pavitt, "Large Firms in the Production of the World's Technology: An Important Case of Non-Globalization", in O. Granstand, et al. (editors), Technology Management and International Business, John Wiley & Sons Ltd., West Sussex, England, pp. 53-74, 1992.

Plosila, W. and D. Allen, "Small Business Incubators and Public Policy: Implications for States and Local Development Strategies", Policy Studies Journal, Vol. 1, pp. 729-734, 1988.

Porter, M.E., The Competitive Advantage of Nations, Free Press, New York, 1990.

Radosevich, R., "A Model for Entrepreneurial Spin-offs from Public Technology Sources", International Journal of Technology Management, Vol. 10, Nos 7/8, pp. 879-893, 1995.

Ray, D.M. and D.V. Turpin, "Factors Influencing Japanese Entrepreneurs in High-Technology Ventures", Journal of Business Venturing, Vol. 5, No. 2, pp. 91-102, 1990.

Rothwell, R. and Zegveld, W., Innovation and the Small and Medium-Sized Firms, Frances Pinter: London, 1982.

Smilor, R.W., D.V. Gibson, and G.B. Dietrick, "University Spin-Out Companies: Technology Start-Ups from UT-Austin", Journal of Business Venturing, Vol. 5, No. 1, pp. 63-76, 1990.

Smilor, R., "Managing the Incubator System: Critical Success Factors to Accelerate New Company Development", IEEE Transactions on Engineering Management, Vol. 34, No. 3, pp. 146-155, 1987.

Smilor, R. and M. Gill, The New Business Incubator: Linking Talent, Technology and Know-How, Lexington Books, Lexington, MA, 1986.

Voyer, R. and P. Ryan., The New Innovators: How Canadians are Shaping the Knowledge-based Economy, Lorimer, Toronto, 1994.

---

Appendix A

Case Studies of some Roles Models

A1 Incubators with Shared Facilities

i) Technology Innovation Centre (TIC), Dartmouth

The Technology Innovation Centre (TIC) incubator, located in Dartmouth, at the Woodside Industrial Park, is part of the total commercialization services offered to Nova Scotia businesses through INNOVAcorp. It recruits and supports innovative entrepreneurs in successfully commercializing their products and services for the domestic and world markets. It is one of the very few incubators that is ISO9000 certified.

TIC is not focused on any particular industry; yet most clients are in the technology business. Clients come from a variety of backgrounds and fields of expertise, including chemical products, computer software and systems development, manufacturing, engineering, energy technology, heavy metals, environmental products and marine products.

The facility is built on a 30,000 sq. ft lot. At present there are 30 clients in-house and 15 non-residents. Clients are offered flexible leasing of office or industrial space. The facility has a beautiful, top quality building and gardens, which some clients use on their promotional material. Apart from conventional administrative support and amenities, TIC has five conference/board rooms, a show room that can be used to introduce state-of-the art and future technologies, and a resource library. TIC received government funding to improve the inside of the building structure.

Business consulting expertise is provided through the facility consultants in the form of seminars and one-on-one consultations. Technical services, e.g., product quality testing scientific services, product development and information services are made available through INNOVAcorp. Co-op students are assigned to tenants as needed.

One of the ways TIC measures its success is by the number of quality graduates. Over the last three years, TIC had 15 graduates, 13 of which were successful. "Cooperation, synergy and a top-of-the-line facility is the key to our success", commented a respondent.

Key Features Contributing to Success:

• effective board and management committed to achieving the incubator's mission.
• top quality building with flexible layout plan in order to meet variable requirements.
• location near industrial park and university for access to technical services.
• efficient business services and other operations.
• extensive networking opportunities among entrepreneurs in the same technology business.

ii) Advanced Technology Centre (ATC), Edmonton

The 320-acre Edmonton Research Park, is one of North America's fastest growing centres of advanced technology. The focus is on ensuring the evolution of a community of companies devoted to developing applications for innovative technologies. While companies at all stages of development are engaged in a broad variety of advanced technologies, the focus is on medical biotechnology, electronics and telecommunications, petroleum research, and cold-climate engineering. To facilitate collaboration in areas of mutual interest, the Edmonton Research Park has established formal working relationships with a number of organizations, including the University of Alberta, the Northern Alberta Institute of Technology (NAIT), and the Alberta Research Council.

The Advanced Technology Centre (ATC) is a part of Edmonton Research Park and is located at its entrance. It's a 43,000 square foot high-tech building, managed and operated by the Economic Development Edmonton (EDE) and funded from the city's budget. Flexible space with expandable walls is available on short-term lease in a variety of configurations from single offices to 3,000 square foot modules. The Centre has received both national and international architectural awards for the way in which it addresses the needs of technology entrepreneurs.

The ATC provides a comprehensive program of business support to its entrepreneurial tenants. Business consulting expertise and advice is available on business plans, marketing, finance, legal matters and general management. Information and referral services provide access to sources of seed and venture capital. Firms can also look to EDE for help in accessing business assistance and advice. Also, the Edmonton Council for Advanced Technology (ECAT) works with EDE in helping companies bridge the gap between laboratory and marketplace. ATC facilitates management consulting service seminars and financial consulting by making client contacts with bankers.

Being within the Research Park, and a neighbor to Alberta Research Council, a diversified range of scientific, engineering and technology research and testing capabilities are available. Also, ATC's working relationship with the University of Alberta and NAIT spurs company collaboration in areas of mutual interest.

ATC measures its success by the success of its clients, i.e., by the number of graduates and the creation of employment. ATC's graduate rate is, on average, 5 companies per year.

Key Features Contributing to Success:

• working closely with the clients and focusing on their needs.
• treating the clients as comrades and thinking of their success as ATC's success.
• facilitating financial assistance to clients.
• easy access to technical services.
• encouraging internal networking among clients.
• growth of hi-tech sector in town.

iii) Greater Hamilton Technology Enterprise Center (GHTEC)

In 1977, some public-spirited business leaders from such major firms as Stelco, Dofasco, Westinghouse, etc., got together with some community leaders in Hamilton-Wentworth to incorporate what came to be known as the Business Advisory Center (BAC). The purpose of this non-profit organization was to provide small- and medium-sized companies access to the wide array of expertise and knowledge residing in large firms in order to foster the job and wealth creation capabilities of these firms. The BAC has been providing mentoring services to existing businesses and actively encouraging and assisting new entrepreneurs through a variety of initiatives such as the "Mentoring Program", the "Self-help Center", the "Entrepreneurial Program", and the "Greater Hamilton Technology Enterprise Center" (GHTEC). A volunteer Board of Directors formed by senior managers in various industries, professions and academia manage BAC's activities.

BAC vigorously pursued the motto of "helping small businesses through big businesses" under its various programs. The motive of the big firms was not purely altruistic though; in addition to stimulating economic growth in the region, major companies needed reliable suppliers. The support and mentoring service BAC provided to existing and emerging businesses across the region was considered so valuable that it was acquiring a reputation as an "incubator without walls". This reputation helped BAC when it approached the Regional Municipality with a proposal to setup an incubator in the area

The Regional Municipality decided to fund the proposal and the GHTEC, a 40,000 square foot air-conditioned building, was completed in 1993. GHTEC tenants come from various industry sectors including automotive parts, telecommunications, medical devices, advanced materials, biomedical products and computer software.

Management consulting expertise is available on business plans, marketing, finance, legal matters and general management through a number of organizations located in GHTEC premises:

• MEDT's self-help centre - a Business Counselor provides "one on one" assistance to prepare business plans. Seminars on starting and managing businesses are run throughout the year.
• an entrepreneurial development program co-sponsored by Job Ontario and Canada Employment's Self Help Assistance programs.
• an industrial technology advisor from the National Research Council's Industrial Research Assistance Program (IRAP).
• the Great Lakes Pollution Prevention Centre, operated by Environment Canada.
• a branch office of the Ontario Centre for Environmental Technology Advancement, a consortium of public and private organizations based in Toronto.
• BAC - Mentoring Program - some of the large firms lend their skilled experts as "mentors" to help small businesses increase their efficiency, productivity, quality, and exploitation of technology.
• linkages with extensive resources of nearby McMaster University and Mohawk college for training, consulting or research needs.

Entrepreneurs with "just started-up" or currently running businesses that need facilities to develop and grow are typical candidates for tenancy at GHTEC; also, existing companies who wish to spin-off a new product and to do it off site, or want to set up a pilot plant for a new product or process that could potentially be admitted in the GHTEC tenancy portfolio. In order to be admitted a candidate needs to present a business plan that covers the key focus, market information on competitors and customers, costs and pricing and cash flow forecasts.

Within a span of three years, which is the maximum time limit a tenant can stay in the Center, an enterprise is expected to be sufficiently well-established to move out to its own premises. After graduation, however, the entrepreneur will continue to have access to GHTEC resources, such as library, consulting, educational or social events sponsored by the Center and its tenant network. As of December 1996, 114 technology jobs had been created by 15 GHTEC tenant firms and their annual sales totaled $20 million, half of which was generated by the export market. GHTEC is becoming an important technology-business spawning ground with far reaching reputation attracting scores of visitors from nations as far away as South Africa, Egypt, China, etc.

Key Features Contributing to Success:

• a well-skilled pool of business professionals, engineers, technologists, and skilled trades people along with a huge supplier and customer infrastructure.
• a healthy business and entrepreneurial climate in the region which is one of the largest economic units and industrial complexes in the nation.
• funding support for self help centre is a joint undertaking involving other agencies.
• geographic location being on the main trade routes into the United States and having an excellent transportation system.
• sustained cooperation and support from such noted companies as Bell Canada, Northern Telecom, Coopers & Lybrand, and others.
• had acquired a reputation as an "incubator without walls" through its service programs even prior to building an incubator facility.
• pooling resources with other organizations to provide extensive business consulting services.

iv) Iowa State Innovation System (ISIS), Iowa

The ISU Research Park Corporation operates the Iowa State Innovation System (ISIS). It is located at the Iowa State University (ISU) campus. ISIS is a business and technology growth center for small business entrepreneurs involved in technical products, research, and development. ISIS is a part of a sophisticated network of research and technology transfer necessary to turn a startup company's concepts into marketable products and services. At ISIS, technologies such as computer simulation and animation, software for computer-aided manufacturing, salable products from recycled mixed plastics, instrumentation for optical spectroscopy, miniaturized circuitry for portable broadcast equipment, innovative construction materials, and more have moved from an idea to the marketplace.

At the Research Park, ISIS offers a company the stability of modern and accessible office and R&D space with furniture. Moving into ISIS's facilities is optional.

Located within the incubator is an office of the Small Business Development Center. The ISU Small Business Development Center provides companies with a wide array of helpful services and ongoing business assistance. The Center for Industrial Research and Service (CIRAS) helps firms obtain the technical assistance, education, management guidance and research needed to make their endeavors competitive and successful. ISIS draws upon the talents and expertise of the scientists, engineers, faculty, students, and business and industry leaders from Iowa State University and Iowa itself. Also, existing ISIS and Research Park companies offer peer support. The ISIS helps in finding a bigger company as a strategic partner.

Entrepreneurs have access to services and laboratories provided by various ISU's departments including Center for Advanced Technology Development (CATD). They have access to university and government sponsored research and resources. The Office of Intellectual Property and Technology Transfer (OIPTT) provides assistance in accessing ISU technology and inventions.

In addition, ISIS draws on the resources of a host of city, county, state, and federal programs and agencies, such as, Iowa Department of Economic Development's Small Business Innovative Research (SBIR) Program and Ames Seed Capital.

Key Features Contributing to Success:

• location near university hence clients can draw upon the talents and expertise of university's faculty and students.
• client access to a whole range of university services including various ISU laboratories such as Center for Advanced Technology Development.
• peer support from existing ISIS and Research Park companies.

v) Technology Enterprise Centre (TEC), Calgary

The Calgary Research and Development Authority (CR&DA) is a not-for-profit, high-tech development organization. It's a high-tech development agency, an initiative of the University of Calgary, the Chamber of Commerce and the City of Calgary. One of the CR&DA's programs is the Technology Enterprise Centre. This Centre operates business incubators at two locations for technology-intensive emerging enterprises.

The incubator is open to both on-site and off-site groups. For the client entrepreneur not yet able to assume responsibility for the cost of an office, the Centre offers a non-resident Corporate Identity program. The program includes all of the services provided to resident tenants, except for office or laboratory space. The expectation is that Corporate Identity enterprises will grow to the level where they will need permanent space in the Centre. Clients that occupy offices are required to sign one-year leases. As the enterprise grows and requires additional space, the lease is amended. Meeting and seminar rooms are available for both on-site and off-site clients.

Experienced business people prepared to assist tenant enterprises as advisors, board members and with networking, mentor the entrepreneur. A number of organizations provide professional services to tenants at preferred rates. The Centre's staff can call on an extensive network of local, provincial and international contacts who support and encourage emerging enterprises by providing access to technology, funds and markets. This network includes: the Board and members of the Technical Advisory Committee of CR&DA; the Calgary Chamber of Commerce, the University of Calgary and the City of Calgary who are the three partners who established CR&DA; the more than 100 Friends of CR&DA; the organizations and individuals of the Small Business Support Infrastructure network, plus many individuals and corporations in Calgary and elsewhere who share CR&DA's goals.

To join the incubator program, clients must have an acceptable business plan or should be prepared to enroll in the Business Plan preparation course offered twice annually by the Centre in cooperation with the Business Development Bank of Canada.

Resident clients are required to have business liability insurance, minimum $1,000,000 and property insurance payable to CR&DA covering their premises. The Centre has obtained a group insurance policy from H. E. Hunt and Associates, which provides coverage to tenants at very favourable rates.

The Centre also provides temporary accommodation, maximum one year, for established technology companies from outside Calgary who seek to set up operations in Alberta. The company is able to minimize its long-term financial exposure while it determines whether there is a market for its products or services and where in Calgary it should locate.

At present, the Centre has 37 on-site and 34 off-site clients. About 65% of the clients are either engaged in software applications or are system integrators; others are engaged in fields as diverse as medical devices, biotechnology, mineral processing, technology transfer and wireless communications.

Technology Enterprise Centre has a number of private corporations as sponsors who contribute funds that are then matched by the City of Calgary. It does not operate a venture fund or a lending program and does not believe that such an in-house service helps the entrepreneur. "Incubators that do try may be asking for trouble since their role becomes very different after taking any financial position in the organization" commented the respondent.

Key Features Contributing to Success:

• severe screening process for on-site tenants.
• on-site tenants get much higher appearance of legitimacy than Corporate Identity program members.
• coaching program, e.g., for business plan development.
• an extensive network of local, provincial and international contacts who support and encourage emerging enterprises by providing access to technology - funds and markets.
• participation in trade shows twice a year.
• opportunity of interaction with other enterprises inside as well as outside the incubator.

vi) Arizona Technology Incubator (ATI), Arizona

Arizona State University President and the Arizona Innovation Network initiated Arizona Technology Incubator (ATI) in 1992. The incubator now occupies a 23,000 square foot building located in the Scottsdale Commerce Centre, Scottsdale. Clients can be resident in the building or be anywhere in the State as part of the "incubator without walls" program. At present ATI has 11 resident and 4 non-resident companies. Non-resident companies have access to all the services except lab or office space.

Recently the ATI Strategic Planning Committee approved the ATI Corporate Innovation Program (CIP) plan to pursue contracts with corporations for ATI to assist in the development and management of new or spin-off companies. These new companies could be located inside or outside the ATI building.

Services provided by ATI include a complete line of office support including flexible leased space and specialized common areas. In addition to this, management, financial and business consulting services, access to designated venture capital funds, and technical evaluation and support is available. A number of formal programs are also factors in ATI's success. These include monthly seminars, mentoring assistance, monthly advisory board meetings where companies make presentations, monthly CEO meetings to discuss and offer ideas for solving current issues, bi-monthly finance committee meetings, and hosting of network groups.

To enter into the incubator program, a severe prescreening of applicants is done. For example, in 1995, out of 224 applications, 21 were accepted. The selection criteria include technology sophistication, potential for growth and job creation, R&D intensity, occupational mix of management team, and business plan. Screening of business plans is done by two MBA intern students. Once selected, each entrepreneur is assigned an advisory committee that consists of 5 or 6 members with diverse business expertise. Members are volunteers who provide services free of charge. Furthermore, each committee is allocated only two companies. Because of the strict selection process, it is easier for companies to qualify for venture capital funds.

ATI is affiliated with Arizona State University (ASU) and works to transfer technology from the university to the private sector. The incubator is financed through rent revenues, contributions from public and private sources, initial investment from ASU and return on equity shares provided by client companies. The respondent commented that it is a challenge to continuously be looking for new sources of revenue while maintaining the existing ones. The other challenge is to find the perfect match between the venture capital donor and the entrepreneur.

Key Features Contributing to Success:

• an advisory committee consisting of 5-6 members from different disciplines for each entrepreneur.
• severe prescreening process of application for admission.
• satisfaction of supporting companies including the venture capital fund companies.
• having a well designed good looking building.
• excellent networking and a lot of camaraderie among clients, all being in the same field.

vii) Evanston Business and Technology Incubator, Illinois

The Evanston Business and Technology Incubator (EBTI) has grown up as a part of Northwestern University and the City of Evanston research park. Consequently, the incubator was able to take advantage of some of the development programs offered by the research park instead of having to create them. This allowed the incubator to focus on developing space or physical infrastructure that will connect clients to these existing programs. Initially, the incubator had about 2,000 square feet of space, which has grown to nearly 50,000 square feet.

The Evanston Business and Technology Incubator extensively benefited from being in the Research Park initially. Being part of the research park, the incubator was perceived to be a part of the community and therefore private companies were more receptive to the incubator and its clients. The affiliation with the university provided further credibility. This helped in establishing contacts and networking. For instance, the university decided to locate its Technology Office in the incubator. Also, a small loan fund, set-up by the City of Evanston, was made available to incubator clients. Being part of the park, the level of costs and performance expectations for the incubator were not set high; instead, incubators were viewed as long-term investment vehicles. Any return from them will be at some relatively distant point in the future - at a minimum three years, maybe 5 or 7.

Policy decisions made for the research park usually did not interfere with the day-to-day operation of the incubator.

The services offered by the incubator include flexible space at competitive rates, a range of business services, access to seed capital²⁰ , mentoring, and networking services. Of particular importance is the nature of the networking approach utilized. The incubator fosters networking between companies in the incubator and those in the research park as well as with the contacts these companies have so these contacts also become an extension of the network. Also, existing tenants can network with incubator graduates as well as with the graduates' contacts, thus providing leverage.

The entry and exit criteria are very subjective but essentially boil down to an element of fit between the incubator services offered and the clients' needs. The focus is more on trying to ascertain the nature of the business or technology the applicant is trying to develop and how appropriate the facility is.

Key Features Contributing to Success:

• being part of the research park and near the university.
• relationship of tenant companies with university community and with the companies in the research park.
• existence of an extended network consisting of various parties' contacts, e.g., existing tenants, incubator's graduates, university community, and the companies in the research park.
• selection process geared to assess the match between the incubator services offered and the clients' needs primarily based on face to face interviews.
• policy of research park not to be involved in day-to-day operation of the Centre.

A2 Federal Laboratories

i) Communications Research Centre (CRC) Innovation Centre

Since 1992, government has mandated federal laboratories to be close to industry and to act in a business-like manner. Also, intellectual property management was decentralized. At that time, the Communications Research Centre (CRC), decided to form Innovation Centre. CRC Innovation Centre is a technology incubator program, located in the west of Ottawa, in a cluster of high technology companies including Mitel, Newbridge, Canadian Marconi, Nortel Technologies, Digital Equipment of Canada, and Spar Aerospace.

The CRC Innovation Centre provides furnished or unfurnished office space or laboratory space. Space is not subsidized. Tenants have access to centralized research support services, assistance with government funding programs, and any of more than 200 researchers/experts. In-house expertise is available for developing business plans and marketing plans, and there is a direct linkage to CRC's R&D partners.

Technical services to clients include: access to protected technologies, as well as specialized laboratory equipment, use of testbeds and unique laboratories, the Prototype Printed Circuit Board (PCB) Design and Chemical Plating Lab; the Prototype Design and Development Section; instrument services consisting of a Standards Laboratory and a maintenance and repair lab. Most of the services are charged on an hourly rate.

Other amenities include CRC's technical library; graphic design and photographic services; access to the Internet and a WEB page; CRC's auditorium and boardrooms, promotion at trade shows and conferences, photocopying and local service fax, cafeteria, a fitness centre, a ballpark, parking, shipping and receiving service at cost and finally, a highly secure site.

A Selection Committee reviews applications by entrepreneurs or companies for admission to the CRC Innovation Centre. The applicant must show a specific need for CRC technology, facilities or know-how that are not accessible from alternative private sector sources. The applicant should have CRC research managers as mentors/sponsors willing to support the application and should be beneficial to CRC's research program or instrumental in promoting CRC activities. Applications with specific projects which would lead to new or improved products or services and that have specific periods of development are considered and approved by the Committee for up to one year. At the end of the first year, projects are reviewed for extension.

The Innovation Centre also faces a few challenges. First is the constant struggle to attract quality entrepreneurs. During the last 3-4 years of operations, the maximum number of tenants at one point was ten. Currently, the Innovation Centre has 6 tenants and four graduates. The credibility of the Centre is growing over time, but the pace is slow. On the other hand, government does not encourage the Centre to spend funds on marketing.

Second, getting financing for new small technology-venture companies is not easy. Another challenge is to get around government bureaucracies, even in small matters like setting up a selection committee, which tend to create inefficiencies in the process.

CRC is looking into the idea of off-site members - which are not located at the centre but use the services and get the same benefits.

Key Features Contributing to Success:

• stringent and focused requirements for accepting a tenant.
• availability of a vast range of technical services including access to sophisticated and specialized state-of-the art laboratories.
• access to a talented pool of scientists and technologists.
• location in a high technology cluster area.

ii) National Research Council Canada (NRC)

Entrepreneurship Program at NRC

Almost a year ago, the National Research Council Canada (NRC) launched a number of initiatives to provide companies with greater access to NRC, develop commercial opportunities for firms, create new companies and transform NRC into a more business-like, flexible organization. These initiatives are part of NRC's new Entrepreneurship Program, which has put technology commercialization activities at NRC in the forefront.

The Entrepreneurship Program's various initiatives that are directly contributing to incubating technology include new awards and incentive programs to encourage collaborative research and entrepreneurial behavior; access to the knowledge and training required to enable employees to take an entrepreneurial approach to their work; greater flexibility in human resource policies in case of technology transfer and commercialization; and availability of partnership programs with sources of investment for entrepreneurial employees.

NRC, under its new Entrepreneurship Leave policy, supports its employees who want to exploit NRC technology by setting up new businesses. Leave with pay for up to six months is provided during the startup phase of the project. Startup includes activities such as the development of the technology to the engineering prototype phase, the preparation of a business plan, etc. Employees can also take leave without pay for a period of at least one year, but not more than two years, to cover the time required to determine whether the proposed business venture will succeed. Support services to employees considering this leave program are provided including resources on items such as preparing business cases and plans, financing, networking, conflict of interest and intellectual property.

The Entrepreneurship Program recognizes the contribution of inventors as well as a new category of employee - innovator -which is an NRC employee who contributes to developing or commercializing intellectual property (IP). The monetary award to individuals has increased from 15% to 35% of IP income.

The new Industrial Secondment Program is designed to increase the amount of collaboration and technology transfer between NRC and industry. Employees have an opportunity to be with industry for a year to strengthen their knowledge of industrial research interests and of commercial markets. The costs of Industrial Secondments are normally shared equally between NRC and the industry partner. Similarly, the program also allows industrial partners to second employees to NRC. It provides the participant an excellent opportunity to attain an in-depth understanding of the role, skills, facilities and technologies available within NRC and of support available to industry from NRC in developing and commercializing new technology.

NRC has entered into an agreement with a venture capital fund for funding new technologies and discoveries at the council. NRC research groups cannot apply directly to the Fund without an industry partner. Although the Fund managers have stated that they will consider funding commercial ventures at an earlier stage of development than is normal for most venture capital firms, the Fund only targets medium-sized firms - from early stage to mature companies - and management experience is a key issue in evaluating proposals.

Industrial Materials Institute, NRC, Montreal

Industrial Materials Institute (IMI), has expertise in materials and their structural behavior. This includes, for example, how materials solidify, liquidify or deform in order to create new parts. IMI is aggressively implementing the Entrepreneurship Program set up by NRC headquarters and presented above. A number of scenarios were identified at IMI for incubating technologies.

• A company may approach IMI and show interest in licensing their technology. IMI, while licensing the technology, would make a package deal, which encourages the company's people to come in and work jointly with NRC scientists.
• An outside company or individual may approach NRC for incubating its technology. The key criteria of IMI for accepting such a proposal is that IMI must have know-how in that technology and must be able to add value to the proponent. IMI does not want to be seen as an incubator with a broad mandate.
• As soon as a new technology is identified, IMI tries to match it with those who will be responsible for its commercialization. They would either approach outside entities or individuals that are interested in moving the technology to the market place. Interested outside individuals are briefed about the technology at IMI. In this process, administrative skills for interaction with outside people are essential. As the respondent said "You can have good scientists and you could have good administrators but what you need to do is to mesh these two together".
• A scientist, while working on a new technology, develops a burning desire to form a venture business to commercialize technology. At the pre-prototype development stage, after doing some market research, the employee is put in contact with outside firms for further development and commercialization. He/she may also be put in contact with a venture capitalist. In that case, IMI will assure the capitalist that it will backup the technology and supply expertise in case of a problem. This will give security to the investor and the scientist will ultimately start his/her own company. The scientist need not leave IMI, but instead take leave for a couple of years to work further on this new venture with the assurance that a job is waiting for him/her if things don't work out .

At present, IMI does not support business ventures initiated by its employees with startup capital, but it has provided them with the organization's full backing. In most cases, such employees have maintained constant dialogue with their respective research groups for several years after leaving IMI.

IMI does not believe in royalty arrangements. The respondent made the point that being a government agency, the main emphasis of the Entrepreneurship Program at IMI or NRC is on job creation rather than on getting returns on investment.

Key Features Contributing to Success:

• a proposal for incubating technology from an outside entity must meet the conditions that NRC has expertise in that field and it can add value on technical or scientific footing.
• existence of a champion, in this case, the President of NRC who has made it clear that this is indeed the direction for NRC.
• an innovative Entrepreneurship Leave policy.
• introducing a new category of employee - innovators - and the system to provide them monetary rewards.
• agreement with a venture capital fund for funding new technologies and discoveries.

iii) Environmental Technology Centre, Environment Canada

Environmental Technology Centre (ETC) programs are related to generation, use and demonstration of technologies. These programs are in the areas of air pollution measurement, prevention and response to pollution emergencies, oil spills, chemical spills and management of hazardous waste sites. Rather than commercializing these technologies, ETC historically has published information on these technologies for the public at large. It is only in the past few years that ETC has started taking a different approach to pursue a formal commercialization process and get some revenue generation to help their operation. The following two examples illustrates their new initiatives:

One of the main technology or classes of technology that ETC has developed relates to a process called Microwave Assistant Process (MAP). Basically, it is the use of microwaves to enhance chemical extraction. It is a very fast and environmentally friendly technology and saves on both time and energy when compared to conventional extraction technologies. Earlier work on MAP was done in three of ETC's five divisions, but because of the commercial opportunities that are opening up, ETC, about two and a half years ago, consolidated the work done at separate places and created a new division, called the MAP division. The intent was two fold; one, to accelerate work on technology by focusing it all into a single division and, second, if the commercial potential actually did take off as anticipated then the division would be well positioned to spin-off as a commercial entity from the centre. The fundamental concept was that whether that division spins off as a private company or whether it stays within the federal government, the royalty revenue coming in should cover the division's expenses.

Emergencies Engineering Division, a long term division, is involved in developing and evaluating technologies for preventing and responding to oil and chemical spills. This group of about fifteen people has been very successful in developing joint project agreements with a number of Canadian companies. Last year ETC decided to look at the possibility of creating a long-term partnership arrangement for the group with one or more Canadian companies. The idea, on the one hand, is to seek commitment of R&D investments from potential private partners and, on the other hand, to provide companies with an R&D capability which may not exist anywhere else in Canada and help them to be more competitive internationally. At present, ETC is going through a formal process of exploring various alternatives that is based on the needs of the Department and the potential partners. It is expected that, in the near future, this will lead to some kind of a contractual arrangement between the federal government and one or more Canadian companies.

Challenges:

• Difficult to try new initiatives with downsizing taking place in federal departments. For example, in the first initiative, to create a new division, people had to be pulled from three already downsized divisions. The existing divisions still have their mandate to deliver in spite of the personnel loss. This creates all kinds of organizational and personnel problems.
• The orientation of the department has been to protect the environment basically on behalf of the public. Now, changing to a different culture with a commercial orientation is a challenge.
• It is hard to find the best partners and it is hard to make sure that the best partners perform in the way they are expected. For example, MAP is a generic technology with a large range of applications in various areas such as agrifood, processing waste, and the cosmetic industry. ETC, historically does not have a lot of knowledge or expertise in terms of who is doing what and is unfamiliar with the industrial process in many cases. The partner must be able to understand the full potential of technology.

A3 Universities

i) University of Manitoba Proposal for a Research Park and Incubator

The Industry Liaison Office (ILO) at the University of Manitoba, formed in 1995, is charged with the responsibility of assisting in linking the industrial and academic communities, by focusing activities and services in the areas of industry liaison and technology development. ILO provides a number of services of interest to industry and university faculty, including "EASIAP"- an affiliates program for technically oriented companies, the NRC-IRAP-sponsored Technical Information Service; the Community of Science and the Canadian Technology Network; and the "TECHNET" Student Design Program, including the Engineering Design Project Course.

The University has enjoyed the support in the amount of $50K per year from the National Research Council's Industrial Research Assistance Program to provide a Technical Information Service. Traditionally, this service has helped industry by responding to technical inquiries; helping to build linkages between members of the industrial and academic communities who wish to collaborate on technology-based activities; and to facilitate better access by industry to student resources. The ILO office normally responds to 200 inquiries per year from industry. These inquiries are normally technical in nature but also include management issues.

Working within the industry, ILO maintains /develops an inventory of projects where it places all students in the fourth year Design course. The university charges a fee of $300-500 per project from industry; part of these funds goes back to the ILO. The fee is to cover the placement and other costs to enhance importance of this arrangement. The benefit to the student is the experience and excitement of solving a real world problem and creating an entrepreneurial spirit.

ILO is currently studying several new service elements - including enhanced awareness activities, seminars and workshops, technology/market assessments, and opportunity development. ILO gets financial support from various sources such as, Manitoba Education's University Incentive Fund and NSERC's Intellectual Property Management initiative.

The university has recently been enthusiastically supporting incubator activities. Three recent cases illustrate this point. In the first case, the university allowed one professor to remain as a half time appointment while developing a business venture and agreed to have the professor back in case the venture fails. In the second, the university supported student-sponsored Internet Innovation centre by providing space and many other support services. Manitoba Hydro also provided initial funding of $50,000 to this enterprise which is set up primarily to develop applications on Internet. In the third case, the university is negotiating with a group of professors in the faculty of medicine, an equity-sharing arrangement of a yet to be established business venture. The university will provide access to labs, space and a few other support services.

Since the fall of 1996, the University of Manitoba has been preparing a proposal to develop a Research/Technology Park near its campus. This park will provide the capability for an incubator facility and help facilitate the development of spin-off companies. The focus will be in three areas - advanced materials and manufacturing, agriculture/ biotechnology, and information technology. Although quality commercial space is at a premium in Winnipeg, the technology park is not intended to be a "bricks and mortar" type of initiative, commented the respondent. Land would be made available to clients, on a leased basis. Buildings would be financed and built by either developers or the tenants. A multi-tenant facility would only be developed once there were sufficient pre-lease commitments from interested parties. The technology focus of the tenant organization must be in sync with the focus of the park. In addition, the organization should benefit from the value-added aspects of being located on, or near, the university's Fort Garry campus.

Key Features Contributing to Success:

• close links between academics with industry directly and through students in a fourth year project-based design course.
• firms' confidence that their problems will get addressed at university.
• university's emerging policy of supporting entrepreneurship.
• building a multi-tenant facility in the technology park once there were sufficient pre-lease commitments from interested parties.

A4 Technology Corporations

i) Northern Telecom (Nortel)

Nortel's Ottawa-based Secure Networks encryption division recently spun-off an entity known as Entrust Technologies Inc. Entrust is the first spin-off still owned by the parent. Nortel realized that i) encryption was a different business than what Nortel is used to; ii) when it comes to introducing a new product to an unestablished market, small startup companies are faster and more entrepreneurial; and iii) as was the case in the past with Nepean-based Linmor Technologies Inc., unless Nortel becomes flexible, its managers could move off and establish their own businesses.

Small companies can create an environment where they can grow at a much faster rate than larger companies. Entrust's 135 employees are motivated by an aggressive stock-option plan, an employee incentive tool which cannot be implemented easily inside Nortel.

Senior Vice-President and Chief Financial Officer of Nortel, Peter Currie, in a recent interview, commented about Nortel's attempt to test the affiliate structure. According to him, "our objectives for the spin-off are two-fold: first, to provide a good return on investment to Nortel and its shareholders; and second, to continue fostering the entrepreneurial spirit and vigor so characteristic of this market." Nortel is "using technology laboratories as incubator sites" for new products that may be more effectively sold through separate firms. Technologies in this case have been incubating at Nortel since 1993 when Nortel Secure Networks group was founded.

Learning from the successful development of Entrust Technologies, Nortel has launched a new initiative called Business Venture Program. Under this initiative, an executive body headed by the Director of the program has been formed to evaluate proposals from employees for new business startups, with an overall focus on expanding Nortel's core business. The program started in early 1997 and Nortel has already accepted two proposed ventures under the program. Those accepted will have access to Nortel's state-of-the art labs. They will get services from human resources, finance, marketing and legal departments among others so that the venture team can focus on the technology and its markets. Challenges for Nortel to achieve success in this program include, for example, building an environment where entrepreneurship is fostered while the focus is maintained on the main stream tasks; and developing compensation models balancing risks and rewards. Nortel, being a truly global company, must find ways to implement this program at their various locations around the world. The challenge is to develop a team at each location, which can provide various incubation services currently being experimented in Ottawa and in the U.K. This, in addition to building entrepreneur support networks in a number of countries working in different time zones, and having different cultures and laws that must be well thought out once Nortel takes this program out of its backyard.

ii) Newbridge Networks Corporation

Newbridge Networks Corporation, through its affiliate program, invests in small independent companies that possess an emerging technology that is outside, yet complements, its usual telecommunications products. One of the objectives of the affiliate program is to identify or create potential affiliates to improve time to market, and add new skill sets for new technologies/markets. Newbridge has 25% to 50% ownership in each of its 18 affiliates. The affiliates incubated out of Newbridge's affiliate program follows one of the following scenarios:

1. A handful of people within Newbridge get the concept of beginning a company. The president negotiates with these people to get the company affiliated with Newbridge. Newbridge is granted approximately one-third of the company in exchange for basically most of the core infrastructure requirements and services including access to technology, introduction to customers, legal assistance, financial and budgetary accounting, etc. For the first time, in 1992, this kind of arrangement was done with Cross-Keys. Under this agreement Newbridge was granted one-third of the company in exchange for these services as required over the first three years of the company or until one hundred people, the company employed. Even after three years, Newbridge was given the opportunity to continue to buy more shares of Cross-Keys at the current market price, or to continue to retain their one-third stake.

2. A small company, operating for a year or two, may approach or be approached by Newbridge because they have a complimentary technology or direction that complements Newbridge. The president of Newbridge keeps track of promising entrepreneurs, through an informal network of senior executives, outside investors, and colleagues, willing to build new enterprises that complement Newbridge's networking business. If a match is made, then an agreement similar to that in the first scenario is concluded and the company is an affiliate. An example is the Kanata-based Cambrian Systems Corp., a fiber-optics specialist, which was recently approached by Newbridge to become an affiliate.

3. An individual or a group of people employed at Newbridge have an idea to start a company. They present the idea to the president and, if accepted, can start an affiliate under similar agreements as in the above scenarios. An example of this is an affiliate West End in Arnprior.

The focus of Newbridge is to build comprehensive, high-speed communication networking equipment and then have the affiliates add services at the end of networks that may make them more attractive to end customers in their decisions to select a Newbridge network over a non-Newbridge network. The affiliates are closely aligned with the core business of Newbridge and specialize in encryption hardware, multimedia software, data switches and network management. For example, Cross-Keys builds management software and related tools that helps Newbridge equipment work more smoothly with communications hardware from other manufacturers.

This affiliate strategy has provided Newbridge and its affiliates immense benefits. It allows companies to leverage synergies of common distribution, marketing knowledge, operations, purchasing, etc. to attack emerging markets from multiple points of strength. For example, once the company attains to a particular age and size, there is an ability to share things back and forth. As a respondent of an affiliate company said: "We are at that stage where we may have come across excellent tools for testing and we may have encountered processes for improvement and we share them in return. It is also in the market place where, for the first couple of years, you are just tagging along and being introduced and always thanking others for the introductions. As we have gotten older, the benefits have been reciprocated, in that we have been able to introduce Newbridge to some of our customers."

A5 Entrepreneurial Networks and Associations

i) Inno-centre, Montreal

Inno-centre's mission is to contribute to the startup and growth of companies involved in technological innovation by providing training and expert business advice tailored to their needs. One of the key elements of the program is the Centre's impressive network of experts. This network consists of a full-time team (15 people), specialized counselors (over 14 people with in-depth understanding of how the business world works), sector-based committees (individuals recognized for their skills in bioscience and information technology sectors), collaborators (more than 100 people from corporations, academic and research communities and administrators of financial institutions involved as members of the board of directors, the board of governors, and the selection committee, etc.), advisory committees (more than 100 resource people sitting as members of company's advisory committees). Inno-centre has also a bank of outside professional and technical resources consisting of some twenty large corporations, institutions of higher education, research centres and professional firms. Overall, Inno-centre has built a network of highly qualified and respected individuals from the business and high-tech sectors to serve and mentor its client companies.

Each year, 15 to 18 companies/applicants are selected for the two-year program. The selection process is quite severe. The internal Preselection Committee weeds out approximately 50 to 60 projects from 100 submissions. A selection committee made up of 8-10 outside advisors assesses the remaining projects. All applicants must meet a rigorous set of admission criteria. For example, they must work in a cutting-edge field, possess international-caliber expertise and have an innovative product that they plan to market in the short term. A few of them must comply with certain conditions, imposed at admission, e.g., completing the prototype within six months.

Throughout the two-year program, entrepreneurs get support from an accredited counselor, the multidisciplinary team of the centre, and the advisory committee formed specifically for each company. Within six months of a company's enrolling in the program, the assigned counselor works with the company to draw up a business plan and oversees the market study required before financing can be sought. The multidisciplinary team also assists the company in planning key aspects of its operations, such as management, production, finance and marketing. The members of the advisory committee act as expert business development advisors, helping the company to develop its strategic orientations. A coordinating committee meets regularly to review the progress of all clients and share issues with each other.

In addition to the above support, entrepreneurs in the program are given practical training in the form of courses, seminars, lectures, conferences and other activities that cover various aspects of business management. Inno-centre claims to have coached up to 70 companies which in turn have created 1,200 new jobs and generated over $120 million in sales, over forty percent of which comes from exports. Yet, the respondent believes that the real measure of the success is satisfaction of the stakeholders; namely, the client and its support organizations such as venture capitalists.

Key Features Contributing to Success:

• an efficient and vast network of experts from the business, science, finance and academic communities to assist entrepreneurs.
• a two stage severe screening process for admission with a success rate of less than twenty percent and the belief that the centre must be able to add value to the client.
• advisory committee for each company.
• belief that providing real estate facility does not add value to the client.
• working towards satisfaction of the client and its supporting organizations.

Inno-centre feels itself unique due to its specifically focused mission, original approach, sophisticated expertise and broad network of partners in the business and scientific communities. It puts more stock in developing business relationships with clients than in handholding. Making a right match between a venture capitalist and the client is not easy, said the respondent.

ii) Capital East Technology Enterprise Centre (CETEC)

The Capital East Technology Enterprise Centre (CETEC) is a small business assistance centre located at the Cumberland Town Hall in Eastern Ontario. CETEC offers business referral services, consulting services, and a mentorship program. The Centre provides federal, provincial, and municipal information on starting a small business, on developing a business plan, and promotional material outlining the resources and programs available to small businesses. Statistical and demographic information is also available on request and the municipality often sponsors business seminars.

CETEC is also involved in partnerships with various institutions within the National Capital Region. For example, CETEC has expanded its small business startup services through an agreement with the Cumberland Chamber of Commerce where the Chamber provides a free hour of professional services (e.g., legal, banking, accounting) to persons wanting to establish a business within Cumberland. More coaching is arranged on a fee basis. Other partnerships include the following:

La Cité Collegiate provides various business services which include coaching, writing business plans, self-assessment for entrepreneurs, business training, mentoring services, consulting services, entrepreneurial solution groups, and administration of the self-employment assistance program offered by Human Resources Development Canada (HRDC).

Key Features Contributing to Success:

• full smart business startup services through a collaboration arrangement with a number of entrepreneurial support organizations.
• The Knowledge-Based Venture Assistance Committee (KVAC) which focuses its services to entrepreneurial in the high technology sector. Services include feedback upon successful completion of a business plan, on seeking seed capital, marketing and liaison with the high-technology community at large.
• The Ottawa-Carleton Research Institute (OCRI) has a representative one morning per week catering for advanced technology entrepreneurs.
• The National Research Council's Industrial Research Assistance Program (NRC-IRAP) has a representative available once a week to advise entrepreneurs in defining their technical needs, identifying technical opportunities, accessing or acquiring technology, solving product or production problems, and obtaining technical information and financial assistance.
• The Capital East Technology Enterprise Network (CETEN), a high-tech networking group established to encourage, develop and market advanced technology and knowledge-based entrepreneurship in east Ottawa-Carleton region in Ontario.
• The Ottawa-Carleton Economic Development Corporation's Entrepreneurship Centre: CETEC is in the process of setting itself up as an outreach for the entrepreneurship centre as well as trying to have the entrepreneurship centre's on-line business registration made available in Cumberland.

iii) Capital East Technology Enterprise Network (CETEN)

The Capital East Technology Enterprise Network formerly HI-TECH Cumberland was established as a result of an initiative sponsored by the Mayor and local hi-technology companies to develop a vibrant technology network within the Cumberland and Orleans area. The group has since expanded beyond its borders and now encompasses Eastern Ottawa-Carleton. CETEN provides an independent forum where entrepreneurs involved in advanced technology and knowledge-based ventures can exchange ideas and better exploit business opportunities. The group holds regular meetings, which are open to the public, to exchange information and discuss topical issues in hi-tech development. CETEN's mission is to encourage, develop and market technology and knowledge-based entrepreneurship in the Eastern Ottawa-Carleton Region. CETEN has both corporate and individual memberships.

Key Features Contributing to Success:

• provides an open forum for networking, exchanging information, and discussing issues faced by technepreneurs.

iv) Hi-Tech Entrepreneurship Association (HITE)

The Hi-Tech Entrepreneurship Association (HITE) is an Ottawa-based non-profit volunteer organization established to assist hi-tech entrepreneurs with the successful operation of technology ventures. HITE promotes hi-tech entrepreneurship through the exchange of information and sharing of resources among members; a self-help approach to problem solving using members' expertise and mentorship; and the development of business ideas and opportunities.

HITE offers its members access to a wide range of individuals with hi-tech experience; seminars on topics suggested by its members; access to HITE's resources - SIG, FAQ, WWW home page, Listserv and library; opportunities to learn about new and emerging technologies; and networking opportunities among local entrepreneurs, hi-tech companies and industry peers.

Key Features Contributing to Success:

• partnering opportunities, information on emerging technologies, market intelligence and individual member feedback.
• presentations by experts in their fields on topics such as intellectual property protection, design, prototype, production, financing, marketing and legal issues.
• a sounding board where ideas and concepts can be explored, products demonstrated, and advice obtained on particular issues.

v) National Business Incubator Association (NBIA) BatorLink Program

The National Business Incubator Association's (NBIA) BatorLink program is basically an on-line discussion bulletin board for NBIA's member managers and operators of business incubators to seek and to share best practices. BatorLink could be used to discuss tenant issues by managers who can contact one another. BatorLink used to be a private closed on-line system for all incubator managers and developers offered through Coopers and Lybrand's internal system. In the interest of keeping up with the Internet, BatorLink has moved all its communications to an open system on the Internet. A complementary service offered to NBIA's tenants is the new on-line clearinghouse for Strategic Alliances Database where they can search for other companies to strike strategic alliance deals.

Key Features Contributing to Success:

• an on-line forum for incubator managers to share views on tenant issues.
• a database where tenants can search out companies for possible strategic alliance deals.

vi) Entrepreneurship Centre, Ottawa

The Entrepreneurship Centre is an initiative of the Ottawa-Carleton Economic Development Corporation. The Regional Municipality of Ottawa-Carleton, the Ontario Ministry of Economic Development, Trade and Tourism and a select group of corporate sponsors fund the Centre. Volunteers from the region's top businesses and professional firms assist the Centre.

The Centre is staffed with consultants to help new entrepreneurs and small businesses with issues relating to business startups such as financing, business plan review, marketing, government regulations, etc. A number of the Centre's professional services (e.g., evaluation of business or marketing plans, legal and accounting advice) are provided free but often require an appointment and a refundable deposit to confirm the appointment.

Other services provided by the Entrepreneurship Centre include:

• A wide range of seminars and workshops on every aspect of starting and managing a new business. These short inexpensive seminars are generally delivered by lawyers, accountants, entrepreneurs, and the Centre's consultants.
• Specialized seminars such as "creating a successful technology business" are offered for clients who are looking to export their services or goods. These seminars are offered in conjunction with the Forum for International Trade and Training program.
• Consultations - the Centre has two consultants on staff for one-on-one consultations with potential entrepreneurs having at least a draft business plan.
• Free legal and accounting advice provided by about 12 legal and another 12 accounting firms.
• A special library that offers resources on business startups, business management, industry-specific information. It possesses a number of videos on relevant topics.
• Computing facilities - the Centre has seven computer workstations with about 20 different applications and 5 of these workstations allow free public access to the Internet. There is also free public access to the federal government's Open Bidding Service and faxback service - a database of information on federal and provincial programs available to clients.
• A mentoring program for clients who have been up and running and are looking to take their businesses to a new level after about 2 to 3 years in operation. The Centre maintains a database of volunteer mentors (e.g., entrepreneurs or senior managers) who work with clients on a one-to-one basis for a minimum of 4-6 hours per month.

In terms of accessibility to the Centre's services and programs, preliminary data indicate that the Centre processed approximately 25,000 phone queries, and there are about the same number of walk-ins to the Centre and another 45,000 hits on their home page. One of the biggest challenges facing the Centre is the sheer volume of clients using its services. Also, clients are at different stages in the development of their businesses and being able to effectively serve them at those different levels is quite challenging. Key Features Contributing to Success:

• a team of consultants and experts on issues relating to business startup.
• a mentoring program for clients who are looking to take their current business to a new level.

vii) British Columbia Institute of Technology (BCIT) Venture Program

The British Columbia Institute of Technology (BCIT) Venture Program is described as an incubator without walls program. The Venture Program is designed to help prepare entrepreneurs for the challenges of starting and running a business. The program targets the "launch" period - taking entrepreneurs through the steps required to prepare their business plan. The immersion phase of the program is a 12-week full time day program and the commercialization period is 18 months during which time alumni continue to access the centre for assistance as required. Program eligibility is determined by personal interviews with applicants.

The Venture Program is offered in the spring and fall of each year. Class size is limited to 18 Venturepreneurs, who each receive office space with access to computer, telephone, fax and support services and facilities. Participants are also engaged in various workshops delivered by specialists from fields such as marketing, sales, business law, finance and startup funding. Participants are encouraged to network as much as possible with peers, alumni, and external contacts such as bankers, venture capitalists and representatives from government funding programs. During the program, participants build a computer simulation of their proposed business and develop a fully operational business plan. These tools allow the entrepreneurs to determine the feasibility of their business ideas, therefore reducing their risk and increasing chances for success.

Apart from the Venture Program, the BCIT administers the Canadian Youth Business Foundation, the non-collateral lending program by Royal Bank, the CIBC and the Bank of Montreal as well as the CIBC Small Business Centre.

Key Features Contributing to Success:

• a 12 week focused program to assist entrepreneurs in preparing thorough business plans using computer simulation approach.
• continued support to alumni during the 18 month commercialization phase.

viii) Youth EnviroEntrepreneurship Canada Program

This Newfoundland and Labrador program is coordinated by Newfoundland Environmental Industry Association (NEIA) and the P.J. Gardiner Institute, Memorial University of Newfoundland. The program was developed by the Canadian Council for Human Resources in the Environment Industry (CCHREI) to assist entrepreneurs in the development and implementation of their business plan. Every year 25-30 applicants, under 30 years of age, are selected. The selection is based on their previous academic achievements, entrepreneurial aptitude and motivation, and personal interview. The candidates are required to have a recognized environmental, technical, science or engineering diploma or degree and at least 1.5 years of work experience in the environmental sector. Once selected, they work under the guidance of a full-time facilitator and industry experts who have experience in forming new enterprises. Participants get four months of rigorous class training in the areas of personal development, opportunity identification-idea generation techniques, sales and marketing research, finance, business communication, envirotopics, project management and networking. It is anticipated that they would successfully develop a business plan and form a new company over the course of this eight-month long program. The program is funded by Human Resources Development Canada (HRDC), including the participants' tuition fees.

Key Features Contributing to Success:

• an intense screening process for selecting clients.
• guidance of industry experts and a full-time facilitator.
• a well designed rigorous training program.

---

Appendix B

Participants

Incubators with Shared Facilities

David McNamara, Director
Technology Innovation Centre, Dartmouth

Shelley Thomas, Manager
Advanced Technology Centre, Edmonton

Ron Wallace, President and CEO
Greater Hamilton Technology Enterprise Center, Hamilton

Leonard C. Goldman, President
Iowa State Innovation Systems Centre, Iowa State University

Jim Hughes, Manager
Technology Enterprise Centre, Calgary

Sandra A. Hunter
Arizona Technology Incubator, Arizona

Jim Currie
Evanston Business and Technology Centre, Illinois

Federal Laboratories

Mike Desjardins, Manager
Innovation Centre, CRC, Ottawa

Keith Belinko, Director
Business Relations Office, NRC, Ottawa

Jacques Martel, Director-General
Industrial Materials Institute, NRC, Montreal

Jocelyne Caloz, Managing Director
Federal Partners in Technology Transfer & CANMET (Natural Resources Canada), Ottawa

Dave Thornton, Director
Environment Canada, Ottawa

Universities

Elizabeth White, Director
Technology Development Office, Carleton University, Ottawa

Luc Lalande, Technology Officer
Technology Development Office, Carleton University, Ottawa

Ray P. Hoemsen, Director
Technology Transfer Office, University of Manitoba, Winnipeg

Technology Corporations

Rene Rayner, Program Administrator
Business Ventures Programs, Nortel, Ottawa

Chris Albinson, Director
Business Development, Newbridge Inc., Ottawa

Bruce Linton
Cross-Keys Inc., Ottawa

Entrepreneurial Networks and Associations

Robert E. Armit, Executive Director
OCRI Technology Transfer Centre

Isabelle Deschamps, Vice President
Inno-centre, Montreal

Lynda McLachlan
Capital East Technology Enterprise Centre

Steve Hall
CETEN, Ottawa

Vivian James
Hi-Tech Entrepreneurs Association, Ottawa

Tracy Corrigan
BatorLink, Service at NBIA

Brenda Richardson
Entrepreneurship Centre Inc., Ottawa

Peter Thompson
BCIT - Entrepreneurial Centre, Burnaby

Shari Costello
P.J. Gardiner Institute, Memorial University of Newfoundland, St. John's

Three respondents from small firms specifically requested to remain anonymous.

---

Footnotes

1. A number of best practices listed under Federal Laboratories are equally applicable for Universities.

2. The term incubating technology has been used to abbreviate incubating technology-based new firms.

3. According to Lundvall (1992), one of the pioneers in this field of research (p.5).

4. Primarily by Patel and Pavitt (1992).

5. A Canadian Academy of Engineering Report (1997).

6. Vision to 2001, Science and Technology for Canada's Future, NRC (1996).

7. The terms entrepreneur and technepreneur are interchangeable in context of this study.

8. NBIA (1994) Focus: Incubator Funding in the 1990s.

9. ibid.

10. Financial Consulting Assistance: Business taxes, risk management and insurance, government grants and loans, government procurement process, government contract preparation, equity and debt finance arrangements, and export development assistance. Management Assistance: Preparation of business plans, employees relations, advertising and marketing, government regulation, health and benefit packages, relocation plans, and research and development. General Business Services: Audio-visual equipment, shipping and receiving, mail service, copier, clerical service, receptionist, off-hours answering service, inventory, word processing, and telex. Professional Business Services: Legal counseling, legal representation, patent assistance, accounting, computing and information services, bookkeeping, and venture capital fund. Physical Services: Conference room, cafeteria, building security, vehicle rental, furniture and equipment rental, library, and telephone equipment (Allen and Rahman, 1985).

11. Agoston (1996) provides a different perspective on what incubator managers can do to avoid failure. In her study of failed United States' incubators, Agoston identified eight things managers can do to increase their chances of success: (1) choose the building carefully, (2) make their services count, (3) recruit a committed and effective manager and board of directors, (4) have more than one primary benefactor or champion, (5) get on a path to becoming self-sustainable, (6) conduct and implement the findings of a feasibility study, (7) educate the community and its leaders about the incubator, and (8) join the NBIA.

12. "The Communications Research Center and Innovation in the Domestic Telecommunications Industry", Corporate and Industrial Analysis Branch, Industry Canada, 1994.

13. for example, Birch (1987), Rothwell and Zegveld (1982).

14. Incidentally, NRC's term for these entrepreneurs is "innovators".

15. Framework adapted from Markusen and Oden (1996).

16. Summarized from Canadian Academy of Engineering Report (1997, p.141).

17. These influencing factors were found by Smilor et al. (1990) and Knight (1985) in case of university spin-off situations. We believe that they are equally applicable in the case of spin-offs from federal laboratories and technology corporations.

18. Ray and Turpin's (1990) survey of successful high-tech spin-off entrepreneurs revealed that 83% had strong contact with either the market or with relevant R&D when they were working for their mother organization.

19. A number of best practices listed under Federal Laboratories are equally applicable for Universities

20. From government and private sources but as a rule private sources were more useful and available than government sources.