Interfering with innovative entrepreneurship: How business incubation impacts the performance of start-ups

Abstract

Start-ups are unique in that they are young, innovative, and growth-oriented entrepreneurial ventures. They have high potential benefits, but come with great uncertainty. Uncertainty arises from the complexity of strategic choices, the limited abilities of the entrepreneurs, and a lack of legitimacy. However, if these challenges are overcome through an iterative learning process, start-ups provide value to shareholders and society by introducing meaningful innovations, such as solutions to climate change. To defy the slim odds of success, business incubation has been heralded to increase the performance of start-ups. Incubation offers a package of services to start-ups, with the general aim to improve their development. It does so in an assertive manner, actively interfering with the start-up’s development. However, whether and why incubation structurally contributes to the performance of start-ups has been a topic of debate among both academics as well as practitioners. Therefore, to discern the noble goals and high hopes from what really is going on, this thesis addresses the following main research question: How does business incubation influence the performance of start-ups? The answer to this question emerged from four studies. The first systematically reviewed the network-based incubation literature. It showed that incubation clearly provides a range of intermediary benefits, such as valuable business knowledge and a sense of belonging. However, whether and under which conditions these intermediary benefits lead to increased start-up performance remains ambiguous. Thereby, study 1 laid out the background of literature to this thesis and reiterated the need for more empirical research. Study 2 tested the influence of incubation on an original dataset of 269 start-ups of which some were, and some were not accepted to two Dutch incubators. Controlling for pre-incubation quality to deal with the non-random selection, the study shows that incubation increases the performance of start-ups. While this finding provided an important element to the answer of the main research question, a convincing explanatory mechanism was still lacking. The third study therefore took a longitudinal approach. Comparing the experimentation processes of start-ups that were influenced by incubation with start-ups that were not, this study showed that depending on the phase of the start-up’s experimentation process and associated cognitive biases of the start-up founders, the incubator provides particular types of services. Without having to know the end solution, incubation programmes can improve the start-up’s experimentation process, and thus its performance. Study 4 took a quantitative approach to study the digital networks of incubated start-ups. It showed that incubated start-up benefit from a large share of relations to people with very different knowledge and skills than the founders of start-up. Similarly, they benefit from a large share of relations to people from a similar institutional background. Incubators thus can to take care of the start-up’s networks. Coming back to the research question, this thesis shows that incubation is about relieving the start-up from some cognitive biases through a tailored and dynamic mix of services. Thereby, incubation leads to significant and positive impact on start-up performance.