Incubation in Entrepreneurial Ecosystems

8. Entrepreneurship skills training

Abstract

This chapter examines how incubators develop the entrepreneurship skills of their clients. It reviews the key skills needed by the founders and leaders of startups and scaleups at different stages of development and presents the different training models that incubators pursue to meet these skills needs. The topics commonly covered and less commonly covered in incubators’ training programmes are discussed, with recommendations presented on how governments can support incubation systems in delivering more holistic training packages for startups and scaleups.

What skills are needed for startup and scaleup development?

The entrepreneurship skills, competencies and capabilities needed to successfully create and grow a business are well studied in the literature (Prüfer and Prüfer, 2020[1]; Mayanja et al., 2021[2]). A widely applied framework is the EU Entrepreneurship Competence Framework, which defines 15 competencies across three areas (Bacigalupo et al., 2016[3]):

• Generating ideas and identifying opportunities (e.g. creativity, vision).

• Managing and leveraging resources (e.g. fundraising, financial literacy).

• Converting opportunities into action (e.g. taking initiative, planning).

Several studies have identified particular soft skills and traits that affect entrepreneurship competence, including communication skills, self-motivation, independence, planning, organisation, collaboration, conflict management, problem-solving, inquisitiveness, critical thinking, risk taking, and self-actualisation (Prüfer and Prüfer, 2020[1]; Kerr, Kerr and Xu, 2018[4]; Tem, Kuroda and Tang, 2020[5]; Shabbir and Kassim, 2019[6]). Leadership is another essential competence for entrepreneurs (Ahmed and Harrison, 2022[7]; Prommer, Tiberius and Kraus, 2020[8]), with soft skills such as empathy, teamwork abilities, compassion, and confidence all key to successful leadership. Certain styles of leadership, such as “transactional” leadership (based on positive reinforcement linkages between the leader and their team) and “transformational” leadership (based on actions to inspire the team and express the value and purpose behind the goals) are often considered essential in the business creation process (Klein, 2023[9]; Malik et al., 2020[10]; Frese and Gielnik, 2014[11]). In order to succeed in entrepreneurship, entrepreneurs must balance these “softer” skills with “harder” skills related to more technical aspects of management and business (Stuetzer, Obschonka and Schmitt-Rodermund, 2013[12]; Lazear, 2004[13]).

The skills needed to develop an entrepreneurial venture depend on the nature of the activity being pursued – those required for necessity-based entrepreneurship are quite different from those needed for entrepreneurship oriented towards innovation opportunities (Schoar, 2009[14]). Innovative startups operate in fast-changing and unpredictable business and technological environments (Ghezzi and Cavallo, 2020[15]). For example, startups based on highly disruptive or radical technological innovations face uncertainty surrounding consumers’ demand for certain types of products or services that have not previously existed on the market (Mehta, 2019[16]; Felin et al., 2020[17]). In this context, an important trait for entrepreneurs is an ability to adopt an “effectuation” approach based on designing and implementing rapid product or business model experiments at affordable losses (Sarasvathy, 2022[18]). Other important skills for innovative startups relate to the recruitment of talented staff and effective management of time pressures.

The required skills also change depending on the development stage of the company. At the early stages, startups have fewer structures and routines meaning that, while knowledge of business and management is helpful, it needs to be supplemented and leveraged by entrepreneurial soft skills (Tem, Kuroda and Tang, 2020[5]; Prüfer and Prüfer, 2020[1]) In particular, relational soft skills to establish effective linkages with the surrounding community and entrepreneurial ecosystem are crucial (de Bruin et al., 2023[19]). Scaling highly innovative companies requires a different set of entrepreneurial abilities to those needed at the early stage of company formation (Cooney, 2012[20]; Busch and Barkema, 2021[21]). In order to scale up, companies need to develop a strategy to exploit network effects and obtain access to capital resources (Kamm et al., 1990[22]). They must also be able to acquire new customers at low marginal cost, while fine tuning the business model and developing economies of scale and scope (Rayport, Sola and Kupp, 2023[23]; Crnogaj and Rus, 2023[24]). Leadership and management skills also become even more essential at the scaleup phase, as entrepreneur-leaders are required to, for example, impose structure to the organisation by explicitly assigning responsibilities and delegating decision making, plan operations in more detail, and engage in specialised marketing, sales, and capital raising. In addition, accessing international markets often requires learning how to navigate diverse legal and regulatory environments (Tippmann et al., 2023[25]).

Entrepreneurship skills training in business incubators

The importance of formal educational institutions in the development of entrepreneurship skills across different education levels has been widely recognised (Fayolle, 2013[26]; OECD/EU, 2018[27]). However, entrepreneurship skills training can also come from outside the formal education system, for example where it is delivered by industrial associations, non-governmental organisations, and business incubators. Incubators serve not just as venues for different kinds of events and activities that contribute to entrepreneurial learning; they can also provide training offers that directly seek to develop entrepreneurship skills among their clients (NESTA, 2011[28]; Alpenidze, Pauceanu and Sanyal, 2019[29]; Bergman and McMullen, 2022[30]). While there is limited evaluation evidence on the impacts of training delivered by incubators specifically, studies on entrepreneurship training programmes in other contexts show that they have a positive effect on motivations for starting a business and on business survival rates (McKenzie and Woodruff, 2017[31]; van Vuuren and Botha, 2010[32]; Mano et al., 2014[33]). Incubators’ position outside of formal education and training institutions enables them to deliver training that accommodates a wide range of participants, for example by tailoring support to women, youth or seniors (European Commission / OECD, 2019[34]). Incubators also offer training in highly specialised fields and can structure their training according to the different stages of startup development.

Incubators’ training can be delivered in many different formats, including talks, workshops, networking events, and specialised training activities on specific management topics. Bootcamps are also a widely practiced training model. These are short, intensive programmes, which, over a period of a few days, seek to increase participants’ entrepreneurial motivation, skills and knowledge. Coaching and mentoring activities can also take place throughout the incubation period. It is useful here to distinguish between the format of “classroom training”, where theoretical and practical issues are addressed through lectures, talks or workshops, and the one-to-one training format, which includes the coaching and mentoring supports examined in detail in Chapter 5 of this publication. Classroom training may include the so called “flipped classroom method”, where the theoretical part is learned outside the classroom, and the practical part is learned in class, through workshops. Despite being delivered in a one-to-many format, classroom training actions may still be organised as experiential learning journeys, with limited expositive lectures and a large component of learning by doing and experimenting, supported by the use of work assignments. A good example of this type of learning within the context of business incubation is the well-known “Mass Challenge” accelerator. Relative to other formats, classroom training approaches can be more cost-effective because of the low marginal cost for training providers delivering training to a large number of participants (OECD, 2022[35]). The duration of training courses can also vary considerably. While longer courses enable more content to be taught, they are more costly and require entrepreneurs to be away from their startup project for longer periods of time. An important development affecting the delivery of training activities within incubators is the possibility of online training programmes and virtual learning environments (Chen, Ifenthaler and Yau, 2021[36]). Asynchronous online training has the advantage of enabling “self-pace” or “self-determined” learning, where the learner decides when and how to learn. However, it also comes with the risk of diminishing peer learning opportunities.

Incubators’ training programmes are often based upon business model design and validation, deploying frameworks such as the Business Model Canvas (Johnson, 2012[37]). This is the case for many well-known accelerators such as TechStars, Y Combinator and the Sting Stockholm incubator. Incubators’ training programmes could also integrate the wider range of soft skills – including managerial and leadership skills – that are needed to create, operate and grow a new business. However, training programmes specifically targeting the development of soft skills and leadership skills for entrepreneurship appear to be more common in formal educational institutions than in business incubators (Tem, Kuroda and Tang, 2020[5]; Campos et al., 2017[38]). The case of the ETH Zürich Pioneer Fellowship Deep-Tech Incubation programme in Switzerland (see Box 8.1) provides an excellent example of how incubators can tap into the programmes of surrounding educational institutions in order to provide a richer training offer for the incubator clients. Other examples include the SciencePo incubator’s provision of training on communication, product marketing and negotiation, as well as the Massachusetts Institute of Technology’s Dual Use Ventures incubator, which provides training on understanding stakeholder needs and how to approach potential sponsors.

Box 8.1. The ETH Zürich Pioneer Fellowship Deep-Tech Incubation programme

Objectives and rationale

The ETH Zürich Pioneer Fellowship Deep-Tech Incubation programme aims to empower entrepreneurs from the ETH domain (comprising two Federal Institutes of Technology and the four research institutes) to create scalable world-class spin-offs. It has the objective of bridging the public-private funding gap, enabling deep-tech entrepreneurs to further develop their technologies and businesses to reach market and investment readiness. The underlying rationale is to commercialise technology which has been invested into with public money and to do this through business startups.

Description

The programme supports 10 to 12 ventures annually. Each venture is attached to a “Chair”, which is a unit overseen by an ETH Zürich professor. The key supports provided are:

• A CHF 150 000 (approximately EUR 159 000) stiped, which is disbursed into an account administered by the Chair. This approach means that the Chair can leverage the grant to pursue funding from other government programmes in order to support the venture.

• Business trajectory coaching, which typically takes place at least once a month. External mentors, who do not receive financial compensation, are also available upon request. The incubator team has established, over a period of almost ten years, a network of approximately 70 mentors who are alumni or industry experts willing to offer specialised advice.

• Access to laboratory infrastructure, equipment, and material. The ventures are permitted to remain within the laboratory facilities for up to three years following the legal establishment of their companies. The ventures also benefit from the engagement and support of students.

• Participation in a mandatory entrepreneurship training programme, which culminates in the award of a Certificate of Advanced Studies. This provides opportunities to network with others in the training cohort, both from the incubation programme and the wider ecosystem.

• Participation in an annual Deep-tech Investor Summit, which invites the programme participants to showcase their ventures to early-stage investors.

The programme budget comes from a range of sources. The stipend is supported by the ETH Foundation – a separate legal entity governed by ETH Zürich responsible for fundraising in the form of gifts, primarily from private donors. The management of the incubator and coaching services are financed through the basic funding of the ETH domain, which is expected to support spin-offs and commercialisation. Meanwhile, the physical incubation of ventures is financed through the core funding allocated to each Chair. Spin-off creation is one of professors’ expected deliverables and the professors are also permitted to acquire equity in startups originating from their labs, which serves as a significant incentive. Finally, the CAS education programme receives co-financing from external participants who pay full tuition fees, thereby sponsoring the deep-tech incubator fee, while InnoSuisse (Switzerland’s innovation grant institution) grants follow-up “bridge financing” on an ad hoc basis.

Success factors

The Pioneer Fellowship Deep-Tech Incubation programme is closely embedded within the extensive scientific infrastructure established by the Swiss Government through the ETH-domain. The utilisation of physical incubation facilities within the distinct 'Chairs' of professors ensures access to both physical resources and human expertise derived from this infrastructure, thus conferring invaluable benefits. The international renown of the professors leading the Chairs also means they are able to attract foreign students, providing a pool of highly skilled and ambitious individuals capable of supporting the deep-tech entrepreneurs and their teams.

Another success factor is the availability of non-dilutive funding. Many of the ventures in the programme can sustain their operations for three or more years without turning to dilutive funding, supporting teams of up to ten individuals working on their projects. This capability stems from the unique structure of the programme through which the entrepreneurs can retain their status as employees of ETH for an extended period within the professor's Chair. This arrangement enables access to non-dilutive funding sources that are typically unavailable under state aid programmes for startups. It is also important to note that, upon establishment, programme participants are given an official spin-off label by ETH Zürich. This label signifies a benchmark of quality highly valued within the investor community, serving as a gateway for investor engagement.

Challenges

The process of selecting candidates for the programme has posed a challenge. Traditional criteria employed by accelerators, such as assessments of entrepreneurial experience, customer traction or team characteristics are not applicable, since the candidates are mostly PhD students and researchers with primarily technical expertise and limited exposure to the entrepreneurial ecosystem. Furthermore, the formation of startup teams has typically not yet taken place at the time of applications. To address this challenge, the incubator programme has developed a threefold selection process to evaluate project proposals from multiple perspectives, ensuring a thorough assessment of each applicant's potential. This involves i). technical experts assessing factors such as the technology readiness level and proof of concept, ii). a tech transfer team evaluating the IP situation, and iii). a selection committee reviewing recorded videos, evaluating a problem-solution statement, and conducting a panel interview.

The programme previously faced difficulties providing support beyond coaching and financing, with workshops poorly attended as entrepreneurs prioritised their research. The approach of mandating enrolment in a formal training programme has emerged as an effective solution and a valuable platform for networking and community building. An ongoing challenge is also ensuring that mentors and coaches focus on supporting the entrepreneurs rather than scoping out investment opportunities. The programme is developing a code of conduct setting out rules on acceptable behaviour, with the principle that investments should only be permitted where support is provided for free.

Conclusions and takeaways

An overarching lesson from the programme is that the effectiveness of incubation and acceleration policies hinges on having a well-funded and meticulously developed science and technology infrastructure. This serves as the bedrock for technology-driven discoveries and solutions. Incubators that operate somewhat independently of the existing science and technology infrastructure and ecosystem may struggle to finance and assemble the processes, facilities, supports, expertise, and personnel needed to develop a successful programme for early-stage deep-tech startups.

The programme also illustrates the benefits that can be realised by affording scientists and engineers working in the parent organisations sufficient autonomy and funding. A certain degree of flexibility is necessary to nurture creativity and foster the development of spin-off ventures, which requires some degree of surplus funds and the ability to allocate personnel to ambitious projects and ventures. A final takeaway is that there is not always an immediate need for founders to be commercially or business-oriented, with deep-tech entrepreneurs often developing business skills themselves over time. This is due partly to the iterative nature of deep-tech ventures, where progress and setbacks are common.

Although dedicated training courses focused on the development of entrepreneurs’ soft skills and leadership skills are relatively rare within incubators, that is not to say that the development of these capabilities does not take place in the context of incubation. Indeed, an important component of the learning environment during incubation is the peer learning that results from entrepreneurs’ interactions with one another, not just in the context of classroom training but also through the sharing of incubation premises and facilities (Kiradoo, 2018[39]). Mentoring and coaching provided through incubators also address the soft skills needed by entrepreneurs, including through the sharing of personal entrepreneurial experiences and lessons learned (St-Jean, 2012[40]). Thus, while entrepreneurship skills are very much developed within the context of incubation, this predominantly comes via peer learning and coaching and to a lesser extent from dedicated training courses.

Conclusions and policy lessons

Although there are many different types of business incubator, their training approaches often share similarities in terms of format and content. The most common approach is to focus training programmes on business model design and validation with an emphasis on providing the skills and knowledge entrepreneurs need to discover and act upon business opportunities (O’Connor et al., 2011[41]). This type of training based on “opportunities exploration” is critical. However, executing a business idea also requires knowledge related to management. It is therefore important to distinguish and consider the balance between training focused on the identification of business opportunities and training focused on the exploitation of business opportunities. The former should build entrepreneurs’ abilities to develop quality business ideas with a reasonable chance of success. The latter should develop an ability to deal with the management of a business, including how to implement the many changes and refinements to the initial business idea that are often necessary for the successful development of the venture.

Leadership training is another fundamental component of developing successful startup ventures, helping to avoid disconnect between entrepreneur leaders and their teams (Wiedeler and Kammerlander, 2021[42]; Kempster and Cope, 2010[43]). While management training is oriented towards models and techniques, leadership training is principally about behaviours. The most effective models for training leadership might include experiential learning methods, such as action learning, developmental job assignments, as well as one-to-one coaching (see also Chapter 5) (Prommer, Tiberius and Kraus, 2020[8]).

Where incubators lack capacity or capabilities to deliver training programmes on certain topics, for example the development of leadership skills, there are still opportunities to provide incubators’ clients with these types of support through partnerships with universities and other trainings providers. This is another illustration of how incubators’ embeddedness within the entrepreneurial ecosystem and their linkages with other partners are critical determinants of their effectiveness in delivering a holistic package of support to their clients. Policy should encourage incubators to form these ties and channel funding to those that are highly integrated within innovation systems and entrepreneurial ecosystems. Better connected incubators are also more able to recruit high quality coaches to support their startups and can more easily attract speakers and other entrepreneurial ecosystem actors to training and networking events.

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