Entrepreneurs in Incubators: Something Found, Something Lost
- Developing their venture in an incubator gives entrepreneurs access to advice, funding, and resources but can also undercut their autonomy.
- Entrepreneurs can be pressured into following the advice of incubator staff or using an investor selected by the incubator even if it would run counter to how they wanted to operate their venture.
- Problem-focused mentoring and peer exchanges within the incubator helped entrepreneurs maintain their autonomy.
Their founder stories may differ, but almost all entrepreneurs would agree on one thing: that autonomy over their new venture is something they’re loath to trade away. Entrepreneurs tend to be self reliant and don’t wish to be beholden to anyone. Yet, whether they like it or not, no entrepreneur can succeed without getting help and resources from others.
It is a challenge that many entrepreneurs struggle to overcome, particularly if they’re developing their venture in an incubator, says Kelley Packalen, an associate professor at Smith School of Business. Incubators are great places for unproven entrepreneurs to receive guidance and resources. But that helping hand can also undercut the entrepreneur’s independence.
Packalen and colleagues Victor Seidel (Babson College) and Siobhan O’Mahony (Boston University) set out to learn more about how entrepreneurs and incubator staff navigated the different threats to the entrepreneur’s autonomy, and what workarounds were developed to defuse potential problems.
Over a six-month period, they studied five entrepreneurial firms in a business incubator based in California’s famed Silicon Valley. The facility was funded by a medium-sized venture capital firm that had the option of investing in the incubated firms.
The five start-ups were all in the technology space: digital appliances; optical components, mapping applications; outsourcing software; and global marketing applications. Entrepreneurs entered the incubator with typically three months to one year of experience on their own.
For these entrepreneurs, Packalen says, the incubator’s professional staff brought a lot to the table, offering advice and tapping their social networks for funding leads or resources. Being part of an incubator also conferred instant credibility. As one of the start-up founders told the researchers, “The professionalism part really kicked in. Angel investors looked at us and said, ‘Hey, you guys look like you [have] got momentum here.’ And the only difference was now we went from being in the living room to being in the office.”
But the researchers also observed tension points that constrained the entrepreneurs’ ability to act independently.
One major source of tension was over mentorship: incubator staff occasionally were more directive than supportive. “At times, entrepreneurs felt that the incubator staff were bundling their advice with the expectation that entrepreneurs act on that advice,” says Packalen, “even if it ran counter to how the entrepreneur wished to run their venture.”
Entrepreneurs learned to proactively solicit help on specific business problems rather than seek general advice
Over time, the entrepreneurs figured out ways to mitigate this problem. They began to proactively solicit help on specific business problems — such as how to frame a sensitive issue to a prospective investor — rather than seek general advice. This cut down on the amount of unsolicited advice they received from the incubator staff. “The advice they sought was rooted in demand-driven situations rather than based on the incubator’s expectation of the entrepreneur’s performance,” the authors write in a recent volume of Research in the Sociology of Organizations.
Incubator staff themselves became more sensitive to overstepping their mentorship role and took the opportunity to reassure entrepreneurs that they had final say in addressing what their ventures needed.
A second source of tension was gatekeeper control. Entrepreneurs valued the introductions to potential investors or industry experts but did not want to feel obligated to accept funding from the selected investor.
Sometimes staff confused the right to make introductions with the right to make decisions on the firm’s behalf. The researchers observed one meeting set up by the incubator staff between one of the start-up founders and a potential angel investor. As the researchers report, “The deputy director of the incubator stated to the investor that ‘I am basically acting as their CEO,’ implying to the investors that he could make decisions on how the start-up was funded.”
This may seem like overreaching, but incubator staff placed their professional credibility on the line when tapping their social networks. If they exhausted their contacts to help one or two ventures, it could compromise their ability to make future introductions. “Their interest in supporting a number of ventures equally led them to engage in gatekeeper control behaviors without realizing the effect on individual entrepreneurs,” says Packalen.
Here again, subtle adjustments were made to help entrepreneurs maintain their autonomy. To shift the axis of control, entrepreneurs asked incubator staff to establish peer forums to enable them to exchange experience and resources. The incubator followed through by hosting regular pizza lunches where entrepreneurs could help each other and learn how all the ventures were progressing. This also allowed the incubator to gauge each firm’s performance comparatively. Packalen says the incubator also hosted well-attended roof-top cocktail parties that allowed investors, entrepreneurs, and other Silicon Valley professionals to interact on their own initiative.
Re-casting the Affiliation
A third source of tension could be called “embarrassing parents syndrome.” At first, entrepreneurs welcomed the affiliation with an incubator. With success, however, came the need to assert independence by distancing the venture from the incubator.
The need for distance could go both ways. The incubator did not want to be dragged down by a sputtering start-up that was unable to gain financial independence; that wouldn’t reflect well on the incubator.
As the researchers noted, both entrepreneurs and incubator staff adjusted as any teenager would in similar circumstances; they became increasingly selective in how they regarded their affiliation. As their ventures became established, the entrepreneurs omitted references to the incubator in their marketing material. And the incubator highlighted successful ventures while distancing itself from those that failed.
Message for Intrapreneurs
The study by Seidel, Packalen, and O’Mahony focused on a specific type of incubator, one bankrolled by a venture capital firm. There are other types of start-up development units, such as accelerators and university-based commercialization centres. The implications of this study may not hold for these other types of units.
Still, the researchers offer an important message that holds for many situations. “Merely collocating a help-seeker and a help-giver in one physical place is, unlikely on its own, to lead to a fruitful collaboration between organizational sponsors and entrepreneurs without mutual adaptation,” they point out. “New social routines will need to formed.”
The researchers suggest that their findings also have implications for entrepreneurs who lead new ventures within existing firms. They may want to employ similar strategies such as engaging in problem-focused mentoring with senior executives to test out ideas and establishing peer exchanges with colleagues in the organization. But beware of asking for general advice; you may be expected to act on it.
— Alan Morantz