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1 November, 2003
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Business incubator to support local and regional start-ups (Hungary)

eGovernment

Executive summary of the case:
Timing of case
The business incubator was founded in 1993.

Geographic setting
The business incubator is located in Kecskemét and supports local and regional start-ups in Bács-Kiskun County.

Type and use of ICT
The business incubator offers modern ICT infrastructure including ISDN telephones, ADSL internet connection, videoconferencing etc.

Main contributors
The main contributors of the business incubator are: Bács-Kiskun County Council; Local Authority of Kecskemét town and Prince Charles' Business Leaders Forum.

Main beneficiaries
The main beneficiaries are the start-ups which settle down in the incubator.

Background
For many years, business incubators have been operating all over the world, including Hungary. They have already proven that they can significantly contribute to the improvement of the commercial success rate of start-ups.

The business incubator in Kecskemét was established with the co-operation and support of the Bács-Kiskun County Council, the Local Authority of Kecskemét town and the Prince Charles Business Leaders Forum.

Objectives
The primary objective of the business incubator is to help start-ups and growing businesses through the critical period by offering a supportive and sharing environment.

Resources (apart from ICT)
The building was offered by the County Council and the Local Authority. The Business Leaders Forum provided financial support.

Activities
The business incubator in Kecskemét has two major activities: business incubation and training.

The incubator is sector-neutral, it is open to all local and regional small businesses. Businesses can settle down in the incubator for a period of 5 years. Optimally before but at the end of this period they should have become financially viable under market conditions.

Outputs and results
The business incubator in Kecskemét has managed to invite a critical mass of entrepreneurs; therefore the incubator has become profitable.

From the start-ups’ point of view, the greatest advantage of settle down in the incubator is the reduction of the costs and complexity associated with establishing and operating a business.

Another major advantage of incubators is that they increase the visibility and the credibility of their “settlers”.

Lessons and conclusions
One of the major success factors of the business incubator in Kecskemét is that it is open to all sectors.

Although the incubator offers space and office equipment, the greatest advantage is the nurturing service. Training is equally important.

Another important service of the incubator is the organisation of the “Businessmen Club”.


Case description:
Background
For many years, business incubators have been operating all over the world, including Hungary. They have already proven that they can significantly contribute to the improvement of the commercial success rate of start-ups.

In 1991, the Association of Business Incubators was established in order to help the creation of new incubators and the development of existing ones. The first Hungarian incubators were born in the early 1990 and the business incubator in Kecskemét was among the firsts.

The business incubator in Kecskemét was established with the co-operation and support of the Bács-Kiskun County Council, the Local Authority of Kecskemét town and the Prince Charles Business Leaders Forum. This latter had a great role in financing the early stage of the incubator’s existence while the county council and the local authority offered a large, refurbished building for the incubator free of charge.

Objectives
The early existence of small businesses is critical. Most of them go bankrupt within a year because they cannot afford the costs associated with establishing and operating a business.

The primary objective of the business incubator is to help start-ups and growing businesses through the critical period by offering a supportive and sharing environment. The idea is to graduate a healthy, viable and freestanding business from the incubator.

Resources
The public bodies (county council and the local authority) contributed to the incubator with the building.

The Prince Charles Business Leaders Forum provided significant financial support in the first couple of months.

Activities
The business incubator in Kecskemét has two major activities: business incubation and training.

The purpose of business incubation is to create a framework and a structure which help small businesses grow or expand, thereby increasing the success rate of companies originating in Kecskemét and the Bács-Kiskun County. To this end, the incubator offers affordable office space and office equipment as well as nurturing entrepreneurial services which assist new and small businesses during their critical early stage. The supportive framework and structure includes the following elements:

  • cost-effective office rentals (much lower than the market price);
  • access to a wide range of ICTs including internal network of computers, internet access, ISDN telephones, videoconferencing; digital camera; beamer etc.;
  • access to shared office facilities;
  • conference facilities;
  • fully equipped meeting space;
  • security and cleaning services.

All these services are offered at a very low price because businesses can share these costs.

The incubator also offers business services. These are:

  • hands-on management and marketing assistance;
  • financial advice;
  • local development consultancy;
  • proposal writing and project management assistance;
  • legal advice;
  • event generation;
  • businessmen club;
  • technical assistance;
  • EU information service etc.

These tailored business services are designed to nurture entrepreneurial activities. The services are provided on-site by internal or external experts and companies.

The incubator is sector-neutral, it is open to all local and regional small businesses. Businesses can settle down in the incubator for a period of 5 years. Optimally before but at the end of this period they should have become financially viable under market conditions.

Another major activity of the business incubator in Kecskemét is training. Training activities focus on the development of managerial and language skills. The goal of these seminars and workshops is to make the “settlers” of the incubator successful entrepreneurs. During these seminars and workshops participants are presented with good practices, methods and procedures that are necessary to stay in business and to become successful businessmen.

Most small businesses start with a great idea and a small number of dedicated people, but they do not have enough experience and money to survive the early difficulties. They cannot afford management assistance or consultancy. Their infrastructure is usually poor. Consequently their chances to successfully face the competition coming from their larger counterparts are bad. The role of the business incubator is crucial for them. The incubator is a place where they can prepare for market conditions and fierce competition. In other words, this is a preparatory school where they can acquire the skills, competences and financial means necessary to stand on their own.
Activities - Key Factor: improved accessibility and usability of ICT
The ICT infrastructure of the incubator is very modern. The majority of the start-ups cannot afford such sophisticated systems.

Activities - Key Factor: reduction in overall costs
The physical infrastructure as well as the nurturing services are offered for the start-ups at below market price.

Activities - Key Factor: improved regional economic structure and business activity
The appealing and affordable office space, shared equipment and business services encouraged many local and regional entrepreneurs to start their business.

Activities - Key Factor: improved regional innovation and R&D
The close links between the local university and the incubator is likely to enhance the innovation potential of the start-ups.

Activities - Key Factor: Government support for economic development
The County Council and the Local Authority had a great role in establishing the business incubator. They offered the building free of charge.

Output and Results
Although many Hungarian incubators went bankrupt because they failed to attract entrepreneurs, the business incubator in Kecskemét has been running on 100 per cent occupancy for many years. It has managed to invite a critical mass of entrepreneurs; therefore the incubator has become profitable. The critical mass is important to sustain the variety of shared services and support operations. Another reason why the critical mass is crucial is the networking effect among enterprises. Optimally, the settlers of an incubator are good neighbours of each other; in other words, they help each other, learn from each other etc. For instance, there is an accounting company in the incubator which offers its services for the settlers at very low price. Business networking inside the incubator opens up co-operation opportunities which are likely to lead to more efficient business processes. In addition, small entrepreneurs acquire early the skills necessary for fruitful co-operation. In Hungary, many small enterprises are forced to co-operate in order to become the supplier of multinationals which is crucial for their survival.

From the start-ups’ point of view, the greatest advantage of settle down in the incubator is the reduction of the costs and complexity associated with establishing and operating a business. Instead of spending on basic office equipment they can concentrate on developing their products or services.

Another major advantage of incubators is that they increase the visibility and the credibility of their “settlers”. These companies are better known not only for the potential buyers of their products or services but also for investors interested in supporting start-ups.
Lessons and conclusions
One of the major success factors of the business incubator in Kecskemét is that it is open to all sectors. As a result a mix of industries has settled down offering products and services for each other at below market price. This networking is a great added-value of the incubator.

Although the incubator offers space and office equipment, the greatest advantage is the nurturing service. The incubator management must focus on providing more and more support because the majority of start-ups lack the knowledge and competence about business planning, funding, marketing etc.

Training is equally important. In order to deliver quality training, the business incubator in Kecskemét made an agreement with the local chamber of commerce and industry as well as with the local university. Consequently, entrepreneurs can be sure that the seminars are delivered by field experts. Strong ties between universities and incubator houses play also an important role in strengthening the innovation potential of small businesses.

Another important service of the incubator is the organisation of the “Businessmen Club”. Non-resident businessmen are invited to these events so that insiders meet their potential clients or strategic partners. In this way, the incubator is linked to the outside world which is likely to enhance the growth potential of its settlers.