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Learning the business of business: action learning and business incubation
Cristina Schwenke, University of Technology, Sydney
Phillip Schwenke, Phillip Schwenke & Associates
Introduction
To be self-employed and own a business is a dream many people seek to make a reality. Yet, statistics indicate that 70% to 80% of small businesses fail within the first two years of commencement. This failure rate preoccupies governments and business councils who formulate policies which promote training courses as a solution to this situation, despite the fact that much of the literature indicates that small business operators do not respond well to this kind of training.
For many professions, the gateway to successful performance entails some form of on-the-job training. It seems that with the exception of learning the ropes in the environment of a family business, the opportunities for on-the-job training in small business are few and far between. Business Incubators (BIs) provide such an opportunity and are proving to be successful learning environments in many countries.
In keeping with the conference theme, this paper seeks to outline some of the developments and practices in the BI industry in Australia and overseas and to explore the application of action learning principles as a new framework for BI development activities. It is our contention that the industry has been participating in an action learning approach perhaps unwittingly. We therefore believe that an examination of BI practice viewed from an action learning perspective may open up another avenue (new framework) for the industry to view and enhance its role.
There is a wealth of literature on action learning in the fields of management and business. Our literature search, whilst not exhaustive, found nothing that made the connection between BIs and action learning. In writing this paper we have drawn on unpublished reports, conference proceedings and on personal experiences in managing and advising BIs in Australia and in observing BIs overseas.
Background, definition and general characteristics of BIs
Business incubators are both a facility and a method of new enterprise development. They appeared in the late 70s and early 1980s in the USA and UK, primarily to foster the growth and survival of local entrepreneurial activity, particularly new start businesses. There have also been other reasons for their establishment. In essence they provide people wishing to start a business with: affordable accommodation on a flexible basis (shared facilities, sponsorship of a venue and flexible arrangements on floor space use, generally mean that incubators offer reduced overheads); shared business support services such as secretarial, communications technology, reception, business address, photocopying and fax services, provided by core staff who are supervised by a business manager; on-site advice including counselling, mentoring and facilitation; skills development opportunities both structured and unstructured/informal; an entrepreneurial environment that adds value to tenant businesses. In practical terms, strategies to achieve this are the creation of networking opportunities, appropriate business referral, joint business opportunities and modelling possibilities.
What differentiates BIs from shared real estate facilities is the philosophy and practice they embody. In broad terms, they attempt to address the loneliness and isolation entrepreneurs can feel starting a business. In practice, this is achieved through the building of key relationships with incubator staff, other tenants and the incubator’s broader community network. The key objective is to ensure survival for new start businesses to a point at which they are ready to graduate to the general real estate market. Another point worth noting is that business incubators are not just a facility housing a collection of individual enterprises, it is possible to see them as a type of organisation[1].
Relationship between BI practice and principles underlying action learning
Action learning is described as ‘the development of self by the mutual support of equals’[2]. Although it has evolved as a process closely related to management development its usefulness as a learning methodology is not limited to this context. In this section we outline three sets of principles which underpin action learning - principles of adult learning, learning as a social process and the needs and motivations of managers - as set out by Ballantyne, Bruce and Packer[3]. We go on to explore the extent to which these principles align with BI practice.
Adult learning principles
Adult learners are: self-directed, come with experience, are ready to learn when they need to perform more effectively in some aspect of their lives and learn in order to perform a task, solve a problem or live in a more satisfying way[4].
It is somewhat self-evident that the principles of adult learning will apply to incubator tenants who are adults. Our observation and reading suggests that the structured ‘training’ programs of incubators follow much more conventional lock-step, sessional approaches delivered by expert ‘presenters’. Our experience is that these have neither proved sustainable nor popular with tenants. Further, we have anecdotal evidence that an unfortunate consequence of attaching BIs to tertiary institutions is that the institution frequently interprets the BI in more traditional educational terms. This approach can translate into poor facility design, a non-business like approach with tenants or the BIs activities being viewed as simply a funnel for the institution’s mainstream education offerings. We believe there is clear scope for improvement here.
Learning as a social process and the incubator environment
Participants learn with and from each other[5] and the learning process of action-reflection-understanding is more effective when it takes place in the company of others who are involved in a similar exercise [6]. The reinforcement of this learning in a social context we see as a major strength of BIs relative to other business development approaches. In this regard, inherent in the design of business incubators has been the notion of co-location and shared facilities.
The co-location of tenants in the same BI facility offers physical proximity and coincidental opportunities for tenant interaction. Our observations and those of Flynn [7] suggest that tenants learn from each other - competitively, combatively and co-operatively. Co-location also leads to coincidental interaction with BI staff and the action and review cycle occurs when BI tenants begin to observe and interact with each other. Flynn refers to this process as a two cycle process (we interpret Flynn’s two cycle process to be a cyclic process of action and review), the key point of Flynn’s two cycle process being learning outcomes (which we equate with understanding). Taken further, we see it as an iterative, reinforcing process. A problem here is that the reinforcing process can just as easily reinforce negative as well as positive experience and outcomes for the individual. A proprietor working from the relative professional isolation of a home-based business in theory has less scope for reflection based on interaction with others to ‘test’ his/her derived ‘understandings’ from experience, whereas an incubator has this interactive idea built into its raison d’être.
Another aspect of the social process is that small group processes provide encouragement, support, stimulation, access to information and resources[8]. Our observation is that this does not occur on a predictable, planned systematic basis in Australian BIs. It does however occur where tenants decide to work on joint venture activities and via needs-based counselling support provided by BI staff. We suspect some systematic action learning processes could appropriately fit here, although how this would operate in practice is more problematic and beyond the scope of this brief paper.
External factors such as social interaction and cultural practices have a major impact on the process of learning[9]. Incubators attempt to capitalise on social interaction to create coincidental synergistic effects and build new relationships for tenant businesses - in current business jargon ‘networking opportunities’. BIs are frequently seen as contributing to the reduction of loneliness and fear associated with establishing a new start business (self-employment). While there have been some unsuccessful attempts at establishing BIs in Australia with cultural objectives, our experience suggests that cultural diversity can flourish in BIs without intervention, the common culture being that of business practice and the economic system.
Needs and motivations of managers/incubator tenants
The literature on action learning often focuses on the perspective of managers in organisations. We use the term managers here to refer to employees in an organisation and the term tenants (also managers) to refer to BI participants.
Clearly, the difference in context for managers and tenants with regard to needs and motivation is the difference between being an employee or self-employed. A primary differential in this context, is the increased degree of personal risk that a self-employed person may face relative to a manager who is an employee.
In terms of needs and motivation, managers are curious to know how other managers work and they learn when they are motivated to achieve something[10]. Translating this to the BI setting, tenants are curious about how other tenants work and deal with the demands of business. The co-location of tenants in a BI again works to reinforce opportunities for tenants to observe at close hand, on a daily basis, how other new business starters cope. Further, a primary, at times all consuming, motivation of tenants is the desire to create a successful business.
Mumford [11] sees that managers are more likely to participate and benefit from learning processes when they are geared to current organisational needs/problems that the managers themselves see as significant. Our observation is that BI tenants participate in learning activities when they see direct benefits to their businesses. This is strengthened further by the fact that the tenant’s issues are drawn from concrete experience rather than theory. This fits well with Braddick and Casey’s[12] observation of the preference by managers to learn based on concrete experience.
Tenants are highly motivated to learn when faced with a business challenge or issue to resolve. Often, for them these could relate to critical issues of success or failure. As an extension to this point, we believe that BIs may be in a good position to benefit from Revans[13] observation that risk increases learning. It should also be noted that although incubators can reduce the risk of business failure, the actual risk of failure is as real as it is for any business.
Finally, the application of self-managed approaches to action learning[14] is highly relevant to the incubator environment. ‘Self-directedness’ is a necessary precursor to being self-employed. Incubators allow tenants (the learners) to ‘do their own thing’. Typically only the physical environment of tenants and business systems of an incubator are predictable in structure. The nature of counselling, mentoring and learning situations are much less so. In Australia, attempts made by BI staff to be more interventionist in a systematic and planned way have not worked effectively - it has also proved to be more resource intensive and expensive.
BI approaches to skills development and entrepreneurial training needs
In the broad brush comparison above, considerable confluence in the practice of BIs and the principles of action learning seem to emerge. In one sense, this is not surprising given the history of the development of action learning and BIs. Both developed as a response to real needs and real situations and BIs have been flagged as a very practical response to the needs of emerging small firms and structural shifts in employment demand.
Literature on BI approaches to entrepreneurial training needs may however cloud the links to action learning that we believe are inherent in their structure, for example, Topsom, Finney and Whelan[15] in a report on networked incubation comments on best practice concerning entrepreneurial training in eleven incubators across the USA, France and the UK. Topsom’s description of each of the eleven incubators to training, with a couple of approaches exceptions, suggests a reliance on linkages to main stream institutional courses. For example, his description of the Austin Technology Incubator’s approach suggests a heavy reliance on courses through the UT-Austin and associated colleges.
One notable exception is Rensselaer Polytechnic Institute Incubator Programme (USA) - there, selected tenants meet monthly with members of the incubator advisory board. This group meets regularly with the company and ‘Companies should be prepared to discuss the challenges they face. The product of these sessions is informal advice and suggestions. However the overarching goal is to educate entrepreneurs so that they will begin to think critically about their company’ [16].
The other main exception evident in Topsom’s work is the Lyons Business Incubator (France). Their Entrepreneurs Programme includes individually tailored advice and mentoring by an experienced company manager.
Topsom also describes the SPEDD Inc. experience (Pittsburgh, USA). Its approach to training has a much more home grown feel to it and seems less reliant on tertiary course linkages. However Topsom describes it as being highly interventionist and notes that continued tenancy in the BI is contingent on participation in the programme - so much for gearing learning to the learners immediate perceived needs.
Clearly, there is some variance between the more generally described practice of BIs above and the reports of Topsom. However, what is only touched on in Topsom’s work is the importance of the key relationships between tenants, incubator managers and staff and the part played by other tenants in the incubator as a learning environment. Certainly the largest and arguably the leading incubators in Australia are the Canberra Business Centres. Exit surveys of their tenants frequently reinforce the significance of the informal issues-driven support they received from other tenants and incubator staff in the corridors, toilets and tea rooms. The significance of this trend is also reported in much of the work of the National Business Incubator Association (USA).
Conclusions on action learning and business incubators
At this early stage of exploration of this topic it does seem as though there is some significant alignment between BI practice and the underlying principles of action learning. Further, as long term adult educators with current experience in the BI industry, we believe that much BI practice places emphasis on learning rather than training (despite the ‘bolt-on’ inclusion of conventional training approaches with some incubators). To this end, we suggest that the brief analysis above sets the foundation for an action learning framework to be applied to BIs.
At this stage we are also inclined to the view that BIs may in fact be a different embodiment of action learning processes. Questions remain about exactly what components and methods of more conventionally recognised action learning approaches might successfully transpose to the BI context. Certainly the Renssellaer experience referenced earlier suggests the formation of a more conventional set approach. Of course a key difficulty is the fact that many BIs deal initially with firms that start life as sole traders and therefore not a natural set. In this context the role of fellow tenants and BI staff in forming formal and informal sounding boards for reflective set-like activity is vital.
Finally, we see scope to build on Flynn’s work and explore in another direction BIs as learning organisations.
Further reference
Griffin, C (1995) Growing places: incubators help small businesses spring to life. In Entrepreneur, 23, 108+f.
[1] Flynn, D (1995) (unpublished), Business incubator evaluation. Australian New Zealand Association of Business