Critical Success and Moderating Factors Effect in Indonesian Public Universities’ Business Incubators

Critical success factors; Indonesian public universities; Moderating factors; University business incubators

While the term “entrepreneurship” has various meanings, it can be defined as “the process of uncovering or developing an opportunity to create value through innovation” (Macke & Kayne, 2001). According to Feldmann (2014), research on university faculty, staff and entrepreneurial capacities may be extended and investigated in various areas of study. In the long run, business enterprises are crucial elements in determining economic success (Romer, 1994). In addition, during economic recessions, new firms play a crucial role in providing employment, proliferating inventions and driving a country’s economy (Dana, 2004; Engle et al., 2010; Ahmed et al., 2010).

Researchers, policymakers, operators of business incubators and stakeholders do not have an adequate and proper method to monitor and appraise business incubators’ performances in various business sectors and diverse geographical areas. Previous studies lack the theories, methodologies and empirical data to appraise business incubators’ performance and their impact on the economy, even though they are of particular interest to academics and industry practitioners alike (Lewis, 2001; Cornelius & Bhabra-Remedios, 2003). Therefore, business incubators are expected to define their own performance measurements (Voisey, 2006).

According to the National Business Incubation Association (NBIA) (2003), an important factor in the appraisal of an incubator’s performance is the service provision method, but it has not been given enough attention. There is a lack of research about how the services have been extended to the incubators. The incubators goal is to discover whether the services are provided by their managers, boards or mentors, or through internal courses or other methods.

The failure rate in the early stage of start-ups is 90% (Griffith, 2014; Patel, 2015). Data on the rates of business failures are frequently quoted (NBIA, 2003). According to the U.S. Small Business Administration, only 44% of firms stay in business four years after the commencement of operation. This is contradictory to the data gathered by the NBIA, which reports that 87% of graduate firms remained in business ten years after the commencement of operation. On account of the data of failed start-ups, it becomes necessary to identify the critical success factors of building business incubators for public universities in Indonesia. This study’s objective is to identify the critical success factors in those incubators. The focus of this study is on the activities of Indonesian public universities’ business incubators, especially the capabilities and the activities of 31 business incubator managers.

Indonesia's fast growing middle-class market is a fertile ground for start-up enterprises, both local and foreign. This trend presents promising prospects across various industries, including technology, communication, creative and social enterprises. Nurturing a resilient business sector will result in the creation of new jobs and more business prospects across industries, which makes it critical for the economic growth of developing countries (Singtel, 2017).

There is no previous research that addresses the effect of critical success and moderating factors towards a business incubator’s success, especially among Indonesian public university business incubators. The main purpose of this research is to identify the direct and indirect relationships between critical success factors and moderating success factors for Indonesian public university business incubators.

A well-known cultural issue is that Indonesians are less initiates their own business ventures. According to a study by the Global Entrepreneurship Monitor, 14.5% of Americans and 7.2% of Singaporeans are keen to start up their own businesses. These statistics stand in contrast to the less than one percent of Indonesians who are willing to do the same (Frazier, 2012).

2.1.   University Business Incubators

The clients of the University of Central Florida’s Business Incubation Program receive extensive benefits regarding business, technology and entrepreneurial support (O'Neal, 2005). The incubator is emphasized the several critical success factors that will ensure a client’s success by: (1) incorporating clients into a larger technology development system; (2) encouraging interaction among clients, incubator management and its employees, external parties and the incubator’s advisory panel; and (3) giving access to external financing, university resources, economic development agencies in the local community/government and other business support organizations.

Currently, there is a higher degree of support from the university incubators for small firms in the latter’s quest for long-term viability and development that involves networking among the entrepreneurs. Several previous studies have investigated the importance of networking for entrepreneurs in detail, and they emphasize the steps towards developing and maintaining relationships within the business setting (Aldrich & Zimmer, 1986; Shaw & Conway, 2000; Hoang & Antoncic, 2003; Neergaard, 2005). Among the advantages offered by the incubator are networks and cooperation, and many businesses would be keen to collaborate with the best of them if they were given the opportunity (Agnete Alsos et al., 2011). Therefore, according to Miller et al. (2011), more attention ought to be given to keeping and preserving knowledge because it would assist in the universities’ technology transfer processes, especially on account of the fleeting nature of spin out companies evolving through the process.

2.2.    Regulation of Business Incubators in Indonesian Universities

To improve the well-being of Indonesia’s citizens, it is necessary for the government to resolve a major challenge, namely unemployment. The Central Bureau of Statistics (CBS) of Indonesia revealed that 5.33% of Indonesia’s workforce were unemployed and 11.5% of the population were below the poverty line in 2017. In support of the government’s program to alleviate poverty, entrepreneurship projects at public universities are expected to help provide employment, which will also reduce the number of poor people.

In September 2017, the Federal Open Market Committee (FOMC) reported that the normal unemployment rate should be between 4.4% and 5% with a median value of 4.6%. Regrettably, 5.33%, or 7.02 million of Indonesia’s population, were unemployed (CBS, 2017). To make matters worse, uneducated people are often used in demonstrations in Indonesia. These people are in dire need of jobs that can help improve their economic and financial conditions. Business incubators, therefore, play an important role because they will help Indonesia resolve some of its economic problems by creating jobs and graduated firms.

With assistance from the Cooperative Department and universities, the government of Indonesia has established the incubators in the country since 1992. This initiative was given a boost in 1997 by a program known as the Development of Entrepreneurship Culture in Universities, where activities included the New Entrepreneurs’ Incubators (Bank Indonesia, 2006).

In addition to Indonesian regulations about business incubators, the terms of business incubators, incubation activity, and incubation participation are governed by the Presidential Regulation number 27/2013, the Development of Entrepreneurial Incubators.  Further, in the Ministry of Cooperatives and Micro, Small and Medium Enterprises had introduced Regulation No. 24/Per/M.KUKM/IX/2015 on Norms, Standards, Procedures, and Criteria (NSPK) of the Management of Entrepreneurial Incubators. This regulates the administrative matters of an incubator, including registration, required standards, required services, expected output of an incubator and its tenant and a targeted number of incubators in the country. Some of the parameters regarding the regulation, however, are unspecific, such as the employees’ standards of professionalism, the provisions of sufficient facilities and infrastructure and measurements of the incubators’ success indicators.

2.3.    Business Incubator Successful Factor Development

Most problems that entrepreneurs encounter at the early stages of business development are a lack of legitimacy, experience, tangible resources and accumulated knowledge, which are success factors that allow them to recognize and seize business opportunities. Business incubators do not guarantee graduate tenant company. Evaluating all of the emerging critical success factors, however, can minimize failures once the company enters the business incubator (Lumpkin & Ireland, 1988).

The initial framework by Campbell et al. (1985) emerged with the simple business incubator services and facilities. The business incubator framework started with entry criteria, selection processes, funding and mentoring-networking for tenant business growth.

Smilor (1987) introduced a non-profit business incubator framework whose model implicates the tenant business mission, such as economic development, successful products, a tenant’s profit, technology diversification and job creation. Smilor’s framework involved support systems, namely administration, facilities and business expertise, from universities and the government. His extensive work strives to ascertain and elaborate upon the different elements of an incubation system. Berge et al. (1989) introduced a new incubation process model that consisted of a pre-incubation process, entry criteria and selection processes and monitoring and controlling processes. The previous models by Campbell et al. (1985) and Smilor (1987) did not introduce the processes and activities from the pre-incubation and incubation processes until successful outcomes were achieved. Mian (1997) provided more detailed processes, criteria, policies and programs and sought the involvement of universities, communities and other stakeholders for the development of a theoretical model to evaluate and manage the university-based technology business incubators’ (UTBI) performance. For the first time, Mian introduced the university involvement and developed performance criteria for technology business incubators in the public and private sectors.

The business incubator model is categorized as pre-incubation activities or input (entry criteria), incubation or process and graduation or output (exit criteria) (Costa-David et al., 2002). Costa-David et al. were the first to outline the detailed skill requirements, such as management, finance, business advice, networking and training for start-ups until their graduation. Verman (2004) framework introduced more detailed success factors, namely shared services, facilities and location, financing and support, control of incubators, mentoring-networking, entry criteria and exit criteria, as well as moderating factors, such as age and the quality of facilities for a successful business incubator framework. Voisey et al. (2006) introduced the concepts of hard (profitability, sales turnover, etc.) and soft (business skill improvement, cost saving, etc.) performance measurements of business incubator practice achievement.

The results of this study demonstrated that the effect of critical success factors, namely entry criteria (Berge et al., 1989), exit criteria (Berge et al., 1989), funding support (O’Neal, 2005), mentoring-networking (Agnete Alsos et al., 2011; Miller et al., 2011) and university regulations (Mian, 1997), directly affect the business incubators for Indonesian public universities. Furthermore, the results showed that the moderating factors, namely credit and rewards (O’Neal, 2005), good system and infrastructure (O’Neal, 2005) and the age and quality of the facilities (Verman, 2004), significantly affect university regulations, mentoring-networking and information technology, respectively.

A good system and infrastructure showed a strong relationship with the success factors, and information technology showed a strong relationship with the moderating factors, especially age and the quality of the facilities. Mentoring and networking had a strong connection to the moderating factors, namely good system and infrastructure, and university regulations had a strong relationship with the moderating factor of credit and rewards. It cannot be denied that entry criteria, exit criteria and funding support are associated with the success factors. This finding could improve the management of business incubators in Indonesian public universities

and make them more successful. These research findings may persuade Indonesian public university business incubators to give more attention to the development and management of the business incubators on their own. 

This study has ascertained the effect of critical success factors and moderating factors for the business incubators in Indonesian public universities. Voisey et al. (2006) utilized business incubator measurement to manage business incubators performance, economic policymakers and stakeholders of the importance of learning strategies.  Universities’ business incubator regulations and environments enable and encourage the start-ups to exchange ideas and achieve success in business creation. The entry criteria are important not only to select start-ups to implement their business ideas, but also to support business learning communities in entrepreneurship learning programs.

We are indebted to my mentor : Lesa Mitchell (Techstars and Kauffman Foundation), Abdul Yuli Andi Gani (Universitas Brawijaya), Jann Hidajat Tjakraatmadja (Institut Teknologi Bandung), Meika Syahbana Rusli (Institut Pertanian Bogor), Kristanto Santosa (Business Innovation Center), Sayu Ketut Sutrisna Dewi (Universitas Udayana), Munzir Busniah (Universitas Andalas), Aris Yunanto (Universitas Indonesia), Deva Primadia Almada (Institut Pertanian Bogor), Harjum Muharam ( Universitas Diponegoro), James D.D. Massie (Universitas Sam Ratulangi),  Lilik Setiabudi MS (Universitas Brawijaya), Elly Munadziroh (Universitas Airlangga), Elly Agustiani (Institut Teknologi Sepuluh November), Arif Firmansyah (Universitas Airlangga), Yudha Prasetyawan (Institut Teknologi Sepuluh November), Ahmad Rifai (Universitas Riau), Ayu Desi Indrawati (Universitas Udayana), Bambang Purwanggono (Universitas Diponegoro), Hais Dama (Universitas Gorontalo), Wahyudi Sutopo (Universitas Sebelas Maret), Agus Syarif (Universitas Jambi), Fung Fuk Lestario (Global Entrepreneurship Program Indonesia), Suhono (Institut Teknologi Bandung), Lies Endarwati (Universitas Negri Yogyakarta), Arwina Sufika (Universitas Sumatera Utara), Heni Rachmawati (Institut Teknologi Bandung), Rinovia Simanjuntak (Institut Teknologi Bandung), Fatma Sri Wahyuni (Universitas Andalas), Irsan Pawennei (Center of Innovation Policy and Government), Harini Yaniar (LIPI), Agus Heri Purnomo (Ministry of Marine Affairs and Fisheries), Fahmi Rizal (Universitas Padjajaran), Bambang Sunarko (LIPI) Raldi Artono Koestoer (Universitas Indonesia), Nur Alam La Nafie (Politeknik Negri Ujung Pandang), Lucy Chairoel (Universitas Dharma Andalas Padang), Reiny Iriana (International Macquarie University Australia), Agustinus Purna Irawan (Universitas Tarumanagara Jakarta), Lamto Widodo (Universitas Tarumanagara Jakarta), Adianto (Universitas Tarumanagara Jakarta), Harto Tanujaya (Universitas Tarumanagara Jakarta)

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