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Hubs vs. Incubators: What Are the Pain Points for Impact and Efficiency?

Published on
28 Dec 2015
Written by
Nicolas Friederici

With tech entrepreneurship on the rise across Africa, efforts to support the agenda are evolving and diversifying. There has been quite a bit of debate—sometimes of the heated kind—about whether incubators, hubs, labs, and other support organizations work. In my view, what’s often missing from such discussions is a deeper understanding of what a hub or an incubator is even trying to do, and what it actually means when it “works.” I’ve come to find in my research that hubs and incubators, for instance, do very different things and they work according to very different principles.

The comparison between incubators and hubs is useful because they are on different ends of the spectrum for important dimensions of organizational practices, such as selectivity vs. openness or process standardization vs. fluidity. I discussed these in my last post, and this post follows up looking at some implications of these differences: what can we expect incubators and hubs to deliver, and what are the predictable issues?

Note: I studied 7 organizations that could be called “hubs,” while Accra-based MEST was the only active organization in my sample that could be called a pure incubator. So in the following I’ll talk about hubs in general, but I’ll take MEST as the example for incubators throughout this post.

Impact and Efficiency for Startup Development

Incubators: There’s Impact, But How Much and Is It Worth It?

A clear differentiator between incubators and hubs is the direct contribution they make to startup creation and success. Incubators make startup creation and development their immediate goal. It’s therefore unsurprising that the contribution that incubators make directly to startups is typically much higher than for hubs, at least if they avoid typical pitfalls. Even though this added value is notoriously difficult to measure precisely, it’s fair to say that, for instance, most of the MEST-supported startups would not exist in their current form, with their current level of success, without the substantial support that they received from the incubator.

The flipside of the coin, however, is cost-effectiveness. Continuing with MEST as an example: the intense program and startup investments have added up to a price tag of $15 million since 2008. MEST has had many success stories, and such stories are the most important proxy of incubator success for many. Still, from a policy or donor perspective, a positive ‘economic rate of return’ of such a project would be difficult to show: the additions that MEST has made to the revenues or tax payments of the dozen or so supported startups would need to exceed this large investment, and this is likely not the case at this point in time. The concept also remains unproven from an equity investor perspective: there have been two exits for MEST startups, with undisclosed terms. For now, MEST is arguing that it can in fact generate returns on the investment from exits, while admitting that this will take more time. The question remains whether such returns alone can sustain a large operation like MEST, or if it will instead continue to rely on a (philanthropically motivated) subsidy that can’t be recuperated.

Moreover, even the most comprehensive incubator support can’t make a startup successful in isolation of its environment: I heard from several participants that the MEST investment—a large amount by Sub-Saharan African standards—was valuable, but also that it could run into the empty given the lack of local angels and VCs that could come in as co-investors or in the later investment stages.

Hubs: Immediate Impact is Elusive

Hubs tend to be much cheaper to run, but it’s just very hard to pinpoint their effectiveness. I conducted about 60 interviews with digital entrepreneurs, and it was one of the most consistent findings that hubs make only a very small direct contribution to startup creation and success. Most entrepreneurs told me that they would pursue their startup anyway, even if the hub didn’t exist, and that they don’t attribute a substantial value to the hub. Overall, entrepreneurs would not attribute tangibles like revenue increases or better survival chances to hubs.

On the other hand, hubs tended to generate leads and contacts, which can have important indirect effects. For entrepreneurs, hubs also contributed substantially to intangibles (like motivation, exposure, and self-belief) that can be crucial further down the road of the entrepreneurial journey—much like an anecdote in Michael Oluwagbemi’s earlier VC4Africa post illustrated. It was another consistent finding that these benefits are more important for nascent entrepreneurs: most would rely less on hubs once they shifted focus to nurturing ongoing relationships (instead of creating new ones) or on building a product without distractions (instead of generating ideas through feedback and interaction).

This meant that the immediate, obvious, and concrete—measurable—impact of hubs was very small. On the other hand, the long-term, indirect, and systemic impact of hubs might still be substantial, just that this appeared next to impossible to measure or estimate.

Level of Engagement with Entrepreneurs

Hubs are trying to prove they are more than just a "nice idea"Hubs are trying to prove they are more than just a “nice idea”Closely related to the previous issue is the question to what extent support staff of a hub/incubator engages with entrepreneurs. In line with the different support principles, incubators would usually have several dedicated staff working with or for the startup, while hubs would usually rely on a core team that is not assigned to any particular company or entrepreneur, rather playing an open-ended facilitator role.

Incubators: Too Much of a Good Thing?

For incubators, I found this to boil down to two questions: first, “What kind of engagement with startups brings them value?”, and second, “How much engagement is too much?” Taking again the example of MEST, I heard from many participants that the help of fellows is appreciated, but given that they are only in-country for about a year and that they are usually not seasoned entrepreneurs themselves, fellows would mostly be best suited to take on generic tasks in marketing and the daily running of the startup. For some startups, MEST also brokered relationships to mentors that would sometimes become partners and investors. Such relationships were seen to be extremely valuable, but they would depend on ad hoc matching of startups with MEST contacts, and so it worked out for some but not all MEST startups.

The MEST leadership was widely respected and seen as well-connected and competent. However, I also heard opinions that they can be rather dominant towards the startups’ strategic decision making, and lack immersion in the Ghanaian context. Concerning incubatees, several interview participants (especially outside of MEST) suggested that the hands-on, well-structured support could lead to negative externalities such as limited critical and free thinking about locally adapted business models, a sense of entitlement, or an unsustainable dependence on incubator support. These research participants felt that MEST was a step in the right direction, but that the intensity level of the support was too high, to the point that it inculcated Ghanaian entrepreneurs with too much of a standardized mindset. The point here is not to point fingers at either party, and my interview data cannot show which claim is “true.” Instead, I believe that such subtle tensions simply show that it is immensely tough to calibrate the nature and intensity of support in incubator models.

Hubs: Who’s Supporting Whom, How, Exactly?

Hubs appeared to struggle with the opposite problem: their fluid character and breadth would often mean that entrepreneurs and third parties (like mentors, experts, or corporate partners) would merely “pass through,” not engaging deeply with the hub staff or gaining much from them. The roles and support intensity taken on by any given hub staff member varied greatly by entrepreneur, by implementation phase of the hub, by the staff’s intrinsic motivation and personality, etc. Hubs’ fluidity also made it tough for them to obtain core funding that could cover longer-term salaries for full-time and well-trained support staff or mentors with clearly defined responsibilities. Entrepreneurs sometimes pointed out that this could lead to a degree of disorganization and inconsistency, especially for hubs in the early implementation stages.

However, the promise of the hub model is that much of the support for entrepreneurs can be delivered by peers and “the community” instead of hub staff. Yet, participants consistently reported that this vision does not easily translate into reality. It was particularly tough to strike the right balances of co-working. For example, the level of expertise or seniority among community members needed to be diverse but often it wasn’t: participants sometimes reported that they had little to learn from a community of peers that are at, or below, their own level of skill. Hub spaces were often either too crowded or not crowded enough. Hub communities were sometimes described as too stable (so that new influences were missing) or too dynamic (so that social cohesion was lacking). Similarly, hub visitors (like experts giving a talk) would often not leave a contribution for the hub community given a lack of immersion and commitment.

Ultimately, these issues meant that hub community members would often demand deeper engagement and “process” from the hub leadership and staff, even if this was counter to hub ideals, or beyond the hub’s capacity.

Mission and Scope

Incubators: Risks of Isolation and Myopia?

MEST defines its mission very clearly, and it derives a very consistent portfolio of activities directly from it. However, together with the program’s high selectivity and rigor, this also implied at least some degree of isolation from the rest of the startup world in Accra. While there were definitely several exchanges between MEST startups and the city’s hub communities, by and large, MEST outsiders described the school and incubator as a closed-off world. Participants external to MEST argued that this has consequences for MEST startups: they were seen to focus on too ambitious and too Western-informed innovations. For example, one participant argued that MEST’s digitally-oriented business models don’t work in Africa, and that it should instead encourage offline/online combinations or low-tech, “simple, simple apps.”

Hubs: Anything and Anyone Goes?

Hubs were again on the opposite of the spectrum. It was a consistent finding that hubs struggled to clearly define their mission, and this often had negative effects. Fluidity and adaptation were usually seen as desirable organizational attributes, but participants also worried that hubs become too fuzzy of an idea, to the point where members and outsiders struggled to reach a clear decision how, and how much, to engage.

This would be exacerbated by temptations in the funding landscape: since it was often difficult for hubs to attract mission-oriented, long-term funding, hubs were sometimes tempted to market the hub in a direction worked to attract some money to keep the hub afloat, even if these funds would be project-based and short-term oriented. Accordingly, many participants (especially hub outsiders) criticized that hubs risked to be merely a fad in donor circles without there being a true commitment to a long-term startup innovation agenda.

Also the multi-stakeholder approach of hubs sometimes led to a loss of orientation and focus. This would concern participation in hub activities, where differences in cultures and “institutional logics” between varied actor groups could make collaboration and communication quite difficult. Similarly, multi-stakeholder hub boards would sometimes be divided over a hub’s priorities, or board members would be seen as detached from entrepreneurs’ realities, especially if they weren’t themselves entrepreneurs.

Avoiding Hype and Waste Requires Facing Uncomfortable Realities

To be sure: I’ve presented quite a litany of issues in this post, but it is far from me to criticize any of the practitioners in the three cities that I’ve researched for the decisions they’ve taken. Instead, summaries like this one are meant to add a birds-eye perspective, and illustrate how complex and difficult it is to calibrate entrepreneurship support programs for maximum effectiveness.

Understanding the tradeoffs I’ve outlined can help decision-making about how hubs, incubators, and similar organizations could be designed and improved, and how past errors can be avoided. For instance, I found it to be a clear implication that any given organization can hardly be both incubator and hub at the same time. Even iHub, which many might understand as both startup creator and community builder, in fact uses careful language like “giving rise to startups” in its communication. This is clearly different from an incubator that would want to argue that its startups make more revenue than others, and have better survival chances.

If a startup interacts with several support organizations in different ways along its path, it’s virtually impossible to tease apart which organization added how much value. And given the swath of startup support organizations, those interactions tend to be many and diverse. For example, the overwhelming brand of iHub might conceal that organizations like NaiLab or mLab and other incubators and accelerators in Nairobi all provide support that is complementary to iHub’s convener—or, “hub”—function. These actors are related and greatly benefit from iHub’s clout, but they are largely independent and have a separate kind of influence on startups.

At the end of the day, designers and funders face limited budgets and timeframes, and so they need to understand and acknowledge limitations and tradeoffs that are inherent to archetypical models such as “incubator” and “hub.” Any funder and donor ought to consider exactly which type of impact they want to achieve, when they want to achieve it, and how they believe it can be achieved. Next, it’s important to admit that whatever impact will be there, it will be impossible to precisely quantify or even approximate it in numbers, especially for hubs, where almost the entire impact is indirect, long-term, and related to “ecosystem building.” Once these tough realities and tradeoffs have been confronted, I’d recommend committing to key impact areas and track them consistently, openly admit scope limitations, and don’t stretch the project too thin (as is often happening for hubs).

Whichever model is your favorite in your given context, I believe that an open discussion about shortcomings and opportunities of tried and new models needs to continue. Sub-Saharan Africa has experimented with new organizations like hubs and accelerators for a few years now, and this has certainly been a breath of fresh air into an innovation support landscape that was dominated by, let’s say, “mildly successful” government and donor-run incubators and science parks. Yet, figuring out what model or combination of models works where, how, and for whom will be an ongoing rather than a finite process. At this point, it would be fantastic if bold and visionary action in entrepreneurship support could be divorced from inflated expectations, saving us some of the waste and disappointments that we’ve begun to see across the continent.