Why Government Can Initiate but Must Not Lead

Having gone on and on about the effectiveness of incubators as an economic development tool, some people might think I’m advocating that governments create and run more incubators. A perky little blog may not be the place to try and tighten the focus on an issue like this, but let me try: at the municipal level of government, incubators deserve more energy and investment, but city governments should not be directly involved in their operation.

Let me blunt that fine point with added emphasis. Government must initiate the development of incubators because it is in the public interest to do so. But economic development is not the mission of governments alone. Players in the other sectors have a vested interest in the creation of opportunities for new companies and new workers.

Corporations and investors like incubators because they are cost effective places to innovate, prototype, recruit talent, prospect for intellectual property, and sell services. Anyone interested in creating em-ployment in specific industries can benefit from an incubator, including colleges and universities, trade unions and industry associations.

After all, our economy’s well being depends on a sufficiency of competitive companies with a skilled work force in a regulatory and policy framework that optimizes the potential of both capital and labour. Government sets the stage on which the other actors play their parts. But I want to be clear; once the curtain goes up on a new incubator, the government should be watching from the wings, out of sight.

This sounds a bit harsh, but it’s consistent with what governments say of themselves. When we worked on the program review of Toronto’s Economic Development, Culture, and Tourism Division years ago, we kept hearing that the government should steer more and row less. That is to say, governments should influence the direction of economic development in the City, but shouldn’t duplicate or compete with what the private sector can do on its own.

Again I apologize if my tone isn’t blog-lite enough, but the details matter. Extending their own metaphor, we must be clear about where the pilot steers from. Steering from the front isn’t very helpful. The view is better, the air is fresher, and you’re more visible at the prow, but the rudder of a boat is at the back for a reason. You have to steer from the stern or you actually impede the vessel’s progress.

Here’s a quick example of municipal government steering, not rowing. During the onslaught of the 2008 global economic meltdown, Mayor Bloomberg of New York announced that the city had to diversify its economy. It was too dependent on financial services, which made it vulnerable to downturns in that industry. He named five new priority sectors for development, and the City’s Economic Development Corporation set about creating incubators and partnerships to run them. New York University’s Polytechnic incubator on Varick Street is one result. The City’s role has been limited to mod-est seed funding and brokering of the real estate deal. Putting the players together and greasing the wheels, that’s it. It’s been in operation for three years now and has already yielded an eco-nomic return to the city that is orders of magnitude greater than what the city put into it. Plus, the NYU-Poly Varick St. Incubator has a long waitlist of qualified companies waiting for entry.

Governments are unique in their power to serve the public interest. It’s why they have to lead economic development initiatives, and why they recognize the value of business incubators. The caveat is that they can inadvertently displace, discourage, or devalue the vital contributions other sectors can make to the success of business incubators.

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  1. Fira April 28, 2012 at 7:05 am #

    Vijay,I am pasting my post on my blog Killing the future as i think it make some sense to what you were trying to express.My definition of an entrepreneur is a person who believes in his dreams and the one who is ready to take big risks and the one who is motivated by his passion and vision to move ahead during failures. If you have noticed those startups and entrepreneurs who made it big, the one thing that accelerated their growth is the adversities and challenges they had faced. Failures and unfavorable conditions were a motivating force for them. There is a common notion that 95% of all the startups fail within the first 3 years and rest 5% will definitely make it big, becuase they now have survived the maximum challenges they can face in the last three years.For the same reason, very people got into entrepreneurship and all of them got into the same for the sheer passion involved in it. Success or failure these people really enjoyed what they did and they are the true entrepreneurs.Now circa 2006, the situation is changing ..thanks to the media hype..thanks to incubators..thanks to seed funds and VC’s and angels..a lot of people are getting into entrepreneurship. So for those who is never ready to take risks or never wanted to take up challenges in life a new ecosystem has evolved…rather than bootstrapping you have an incubator where you shell out 1500 Rs and you get a fully furnished workspace, then you have seed funds to fund, you have mentors who will guide you through the proper channel and some incubators even pay you a monthly incentive apart from the seed fund. But will these startups ever make it big….my answer is no, or these startups will ever continue to be mama’s boy or milk babies, they will never take risks becuase they never got a chance to know the challenges and they will always go by conventional wisdom…the reason these entrepreneurs will never get into entrepreneurship, if there were no incubators, if there were no seed funds, if there were no mentors. They decided to try their luck becuase of the minimum risks rather than believing in their dreams or taking up their passion.So for the same reason even though they may be successful , they may not make it that big..say a google or a yahoo or a microsoft. So by breast feeding our babies…are we killing the future !

  2. Suzy Wilcox May 3, 2012 at 2:11 pm #

    If adversity is what makes great entrepreneurs, and help, in the form of mentoring and incubation, simply spoils entrepreneurs, the challenge of economic development is solved. The harder we can make it to launch an enterprise, the more successful enterprises we will have. It stands to reason.

    Now, back to reality.

    I challenge your assertion that tough love or benign neglect is the only way to churn out successful new companies. Yes, you are correct that most entrepreneurs are passionate and highly driven. Unlike most of us, they pick up and move on after making a mistake. But just because they learn from their failures, doesn’t mean we should set them up for failure in order to succeed!

    You are worried that coddling all these new businesses in incubators will diminish entrepreneurs’ drive and resourcefulness and therefore their chance of success. Based on our research into a variety of incubators, most are not as coddling an environment as you describe and most do not readily dole out funding. First, you must compete to get into most incubators, many of which have waiting lists of qualified applicants. Also, the incubators we studied have a limited term for resident clients. They push companies out when they either fail to meet agreed upon milestones (a bad thing) or they expand beyond the capacity of the facility and its resources (a good thing!). And when entrepreneurs graduate from incubators, we’ve heard time and time again how they give back to the incubators that shaped them, helping younger companies persevere through the challenges of start-up. If giving back and helping people avoid mistakes you’ve made is akin to “mothers’ milk”, then let’s drink up!

    A more fundamental issue I think you are getting at is whether or not incubators matter. What would happen if incubators weren’t around? It’s really hard to say. You rightly point out the recent explosion of incubators around the world. Everyone wants to get in on the act, but not all are doing it well and not all will churn out the next PayPal and Facebook.

    Offering cheap, shared office space and a coach or two is not incubation to me. True incubators offer a whole suite of services to promising new companies across sectors. We need to track the performance of graduate companies more rigorously, comparing long term job and real income growth in comparable jurisdictions, one with incubators and one without.

    All things being equal, my guess is that those areas with full-fledged incubators achieve higher rates of success for start-ups of sustainable new businesses. Whether or not this occurs on a low baseline or a high one, it boosts the local economy.

    I don’t think that incubators dull entrepreneurial motivation nor do they give false courage through subsidy to wannabe entrepreneurs. Those who are lazy and are looking for handouts won’t even make it in the door of a rigorous incubator.

    Cutting funding and other forms of support isn’t the answer. We need these jobs and this creative spirit to drive our economies forward. We should not make life more difficult for new business start-ups.

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