Incubating Dragons

Incubating Dragons

Dragons in Ireland, lions in Finland, tigers in Japan, sharks in Israel and the USA. From humble beginnings in the UK, the ‘Dragons’ Den’ TV show, where entrepreneurs make the pitch from hell to wealthy potential investors, has spread around the world. Even Russia has fallen under its spell prompting a mental image of Lenin not so much turning in his grave, as spinning in it. But while this format might make for entertaining viewing, is it really a reliable route to business success? Or should the really serious entrepreneur be taking their ideas out of the TV studio and into one of the ‘incubators’ offered by business schools around the world?

Management schools have been teaching entrepreneurship in the classroom for several decades and it’s now almost impossible to find an institution that doesn’t have the subject as a prominent part of its curriculum. But now you have incubators taking business creation to a whole new level.

According to Alain Fayolle, Professor of Entrepreneurship at one of Europe’s oldest incubators at the EMLyon school in France, it is a concentration of resources for new and developing business ventures – resources which can include academic research and theory, day-to-day advice and support, an alumni network, access to finance and even something as obvious but essential as office space.  This is a view shared by David Charron, executive director for the Berkeley Entrepreneurship Lab. He argues that the physical incubator provides separation between company-building work, academics, and the entrepreneur’s bedroom, with yell-over the cube walls solutions to problems, and pressure to succeed.

All well and good in theory of course, but does it actually work in practice? The proof, as they say, is in the eating. In France the national success rate for start-up companies over the past five years has averaged around 50%, while the success rate for companies nursed by the EMLyon incubator has been in excess of 85%. In fact, of 25 projects begun in the last four years, only one has ended in failure. In the view of centre director, Professor Michel Coster, this is because the incubator is the ideal home for a new generation of entrepreneurs, individuals from science and technology backgrounds with clever ideas but little real experience of the commercial world.  The same assertion seems to hold true on the other side of the Atlantic. The MIT Entrepreneurship Center in Massachusetts, for example, likes to point out that alumni of its technology-oriented parent school are responsible for nearly 26,000 active companies employing over 3 million people and generating sales worth as much as the eleventh biggest economy in the world.

Of course dragons (or sharks, tigers, lions) might counter-argue that these are exactly the sort of people who need their particular brand of help.  As James Caan, one of the UK dragons puts it, “I feel there is no substitute for practical experience.”  We have after all seen plenty of hopefuls on the TV programme with game-changing pieces of kit, yet dazed by the realities of business like rabbits in car headlights. And these always seem to be the ones who turn up in the follow-up shows beaming at the idea of making more money than Croesus, thanks to their new mentors.

What the follow-up shows also highlight however is that the investors, with their money in the frame, often quickly move from simply advising to telling their charges exactly what to do, something conspicuously absent from the business school incubator model. The Enterprise Hub at Warwick Business School, for example, maintains that it is more ‘academic’ in its approach than any angel investor is likely to be. It purports to transfer knowledge from the school to the entrepreneur, rather than supplying capital (and issuing commands) with the goal of realising an investment.  The ‘business accelerator’ at Nyenrode in the Netherlands takes a similar approach asserting that it “won’t tell people how to run their businesses, but it will help them by answering questions, providing a network and supplying the infrastructure necessary to get going.”

Apparently, even dragons themselves seem to be coming round to the idea that management schools may have something to offer entrepreneurs that goes beyond proven experience of starting and building successful businesses. Although James Caan built a commercial empire covering 37 countries without any help from academics or incubators, one of his first moves after selling his business was to take himself off to Harvard Business School.  And when asked the obvious question why, he points to the value of hearing how other entrepreneurs went about building their own companies, particularly in the emerging markets of the BRIC and N-11. Perhaps, as Caan seems to suggest, one of the most valuable things an incubator can offer the next James Dyson or Mark Zuckerberg is not the personal road to success of an individual investor, but the knowledge, experience and skills of a whole range of fellow students, academic experts and proven entrepreneurs.

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