Por Manuel Cereijo
The new business incubator is an innovative approach to economic development. It is one facet of a technology venturing process that should be an emerging Cuban response to changing economic conditions. Technology venturing is an entrepreneurial process by which institutions, univer-sities, government, and the private sector take and share risk in integrating and commercializing research, new technologies and business opportunities.
It will link public sector initiatives and private sector investments to spur economic growth and technological diversification. The Cuban economy will be undergoing considerable upheaval and change. These changes will significantly alter the way new government officials, economic developers, and firms think about the way business operates.
Although they will be important, large corporations and older manufacturing concerns, as we see it, will not dominate the economic landscape of Cuba. Rather, entrepreneurship and small business development will have a significance increase as a factor in the economic reconstruction of Cuba. The result will be that Cuba will have an economy that will be innovation-based and dynamic.
Incubators can contribute to and benefit from a set of building blocks that make the technology venturing process- possible. These blocks include a healthy venture capital industry, a solid financial base, adequate public and private infrastructures, a sound educational system, and an extensive business network.
The basic concept behind the new business incubator, whether technology or non technology oriented, urban or rural, non-profit or profit, public or private, locally owned or part of a chain, will be to leverage entrepreneurial talent in Cuba.
The primary driver of technology-based new business venture will be neither the availability of funds nor the rate of technological advance; it will be the entrepreneur. New business incubators will maximize the potential of entrepreneurship talent within Cuba by providing the entrepre-neur with services and support that complements his natural talents and will enable him to expand his potential.
The incubator will be a significant link between the entrepreneur, especially when he is technology oriented, and the comm-ercialization of his product or service. This gap will have to be very short in Cuba if we want to expand and grow the economy at the pace of the modern countries.
B. Objectives and Characteristics
A business incubator has one major purpose, to nurture and develop fledgling firms into healthy small businesses. The focus in Cuba should be not as much in start-ups as it should be in helping ensure a business succeeds once begun. The period spent in the incubator will give entrepre-neurs the time to develop the needed management and business skills to survive on their own.
Although incubators in the United States are quite diverse, we must define some core characteristics for the ones to be established in Cuba. Incubators will rent physical space and will provide a set of logistical and management services to the tenants. Tenants will also be provided with access to some type of financial consulting and professional business services.
Entry policies will be set by the sponsoring organizations. However, usually these criteria include net job potentials, net profit, space requirements, environmental considerations, and economic diversification. Incubators should have also exit policies, typically a time limit set on a tenant's occupancy in the facility. After a period of time a tenant will no longer need the support services and should leave in order to make room for new start-up businesses. An exit policy will also prevent no growth or failing compa-nies from squandering incubator resources. .
Organizations who will sponsor incubators in Cuba can be quite diverse and they can include local governments, non-profit economic development agencies, educational institutions, and private companies. In Cuba, specially during the first few years of the reconstruction, it is recommended that incubators be mainly sponsored by the private sector, with the assistance of universities, and a minimum participation of local governments, only when it becomes absolutely necessary.
C. The Role of Incubators in the Economic Reconstruction of Cuba
The first few years of the economic reconstruction of Cuba will generate many people with talent and ideas for new businesses or services. The wave of entrepreneurship will be the result of 43 years of suppressed economic initiatives. Despite their desires, and their talents, many Cuban entrepreneurs will fail in their quest to build a successful surviving small business.
Statistically, in the United States, 80% of such businesses fail within five years. We can expect perhaps a greater rate in Cuba due to the incipient economic conditions and the lack of technological assistance and capital funds. The business incubator will play a significant role in improving the survival rates of business start-ups, as they do in the United States. In the United States, 85% of the small businesses which have been through the process of incubation succeed and become established, healthy firms, which are the largest beneficial contributors to the economy of the United States.
The business incubator in Cuba will promote enterprise success in several ways. First, the incubator will provide access to a pool of centralized services. Cost of these services will be part of a fee. Second, entrepreneurs with similar needs and frustrations will work in a close proximity that will enable them to share their experiences.
The presence of other firms and service providers will create a strong opportunity for trade relations to develop. The incubator will also help aid business'start-ups search for capital. An incubator run by a local government will predicate on creating employment opportunities for that local region. University-related incubators, while sharing that goal, also will look to transfer academic research into new products and technologies as well as to create opportunities for students.
For privately run incubators, the purpose will be slightly different. They will expect an incubator to provide profit or investment opportunities, but they will also contribute to the betterment of the economy and the communi-ty.The private incubator will also be a vehicle for technology transfer to larger firms, to add property development, and a way to contribute to the community.
Private firms running incubators can vary from large manufacturing companies to venture investment groups. For example, in the United States, companies such as Control Data Corporation have 16 incubating centers across the country. Presently there are some 210 incubators operating in the United States. Possibly, and this is our recommendation, Cuba should have a maximum of 6 incubating centers operating in the long term planning.
An incubator is not only an organization or a corporation, but a physical entity. Incubators in Cuba, due to the scarcity of appropriate space, will have to start functioning in single buildings where the participating entrepreneurs will be housed and where, due to the physical proximity, they will spontaneously interact, which represents a definite advantage.
Another advantage will be if the incubator can be located near or on a University site. If so, they will have the following advantages: library facilities, exposure to certain state-of-the-art technology and thinking, undergraduate students in science and engineering that form a very useful source of technical labor/assistance, a creative environment,etc.
Industrial parks are related to the incubator units. They act as lightning roads for technology -based companies and will be an area's lure for attracting companies.
D. Private Owned Incubators
Due to the special conditions in Cuba during the first few years after Castro, we propose that incubators, where private ownership be the principal one, be the ones to promote.
Private incubators should have a median size of 50,000 square feet. The average number of tenants, based on experience from the United States, and taking into consideration the conditions in Cuba, should be 20 tenants per center. This, of course, will depend on the availabilty of space, and the space needed by each tenant. As mentioned earlier, with a maximum of 6 centers, there will be an average of 120 new-to-be-companies in constant stage of formation.
The primary motive in funding the incubator by a private sector is to make profit. In this sense, private sector incubator units can apply venture capital techniques. Therefore, capital gains should be emphasized over dividend income, and the incubator's parent corporation will distribute income to its investors on a variable basis.
The incubator will distribute income; it will provide access to further investment in successful incubator firms, and/or it will reinvest the proceeds of its investment in new companies. The incubator should be taxed as a corporation.
When the incubator's facilities are full, there is no room for future growth. The only investment available through the incubator unit then will be follow-on financings, financing of new firms that will replace the incubator's business failures, and successes that will move on to larger facilities.
The incubators will take a substantial position of the company's equity in return for the services offered. But, in this form, companies will have assured a portion of their needed post incubator financing.
E. Purposes/Benefits Summary
Incubators have become an innovative approach to help entrepreneurs in the United States in their start up phase with reduced overhead costs, expert assistance, and financial banking. We are sure that they will perform a very useful func-tion in the new Cuba's incipient economy.
People with raw energy and a productivity for risk taking built Cuba before Castro. We will have to rebuild it, in new ways, with new approaches. The entre-and-intrapreneurs will have to break tradition and provide dynamic sources of creative and innovative enterprises. Mechanisms for providing seed capital as well as an expanding venture capital industry will help to build new ventures in Cuba. It is essential then for the entrepreneurial process to succeed to continue to support and expand the formation of capital and its innovative utilization in business development. Within the context of these major trends in economic dev-elopment, new business incubators will play a unique role in Cuba.
Incubators will help to create jobs by increasing the chances of success for emerging companies, especially in the high-tech areas. In other words, the new business incubator -capitalism in action- is an innovative mechanism for linking talent, technology, capital, and know-how. We recommend the promotion of incubation centers in Cuba to speed its industrial development.