Network Formation and Network Structure of Networked

¶ … NETWORK FORMATION AND NETWORK STRUCTURE OF NETWORKED INCUBATORS BASED ON THE CASE STUDY (attached additional material). You address 2 issues basing discussion answers type questions points identified issue.

Incubator firms.

Networks are organizations governed by relationships. On a human scale, networks are "a form of organised economic activity that involve a set of individuals & organisations ('nodes') linked together by formal and informal relationships including contractual obligations, membership of trade associations, transfer of funds kinship and family ties" (Mitra 2013:4, citing Gulati, 2007, Nohria and Eccles, 1992). The position of the different 'nodes' affects the nature of the organization just as much as its component parts.

The 2000 case study "Networked incubators: Hothouses of the new economy" specifically analyzes a new form of organization called a business accelerator, typified by Hotbank, CMGI, Internet Capital Group, and Idealab!, which were designed to act as catalysts to bring new businesses to fruition by "offering them office space, funding, and basic services such as recruiting, accounting, and legal - usually in exchange for equity stakes" (Hansen et al. 2000: 75). The most successful of these firms offered what the authors called 'networked incubators' to realize the aspirations of clients. Of the accelerator firms in the case study, only one in four offered "a significant level of organized networking" (Hansen et al. 2000: 76).

When functioning well, incubation firms allow start-ups to enjoy the advantages of a small firm, such as flexibility and innovation, but fuse them to the resources of a large corporation, including reserves of venture capital. Incubators cut down on the time devoted to untangling the red tape of a start-up business, effectively offering a pre-existing networked structure. "The distinguishing feature of a networked incubator is that it has mechanisms to foster partnerships among start-up teams and other successful Internet-oriented firms, thus facilitating the flow of knowledge and talent across companies and the forging of marketing and technology relationships between them" (Hansen et al. 2000: 76). Traditionally, small firms have tended to confine their networking to other small firms within the industry, as a protective mechanism against being overwhelmed by larger competitors (Mitra 2013:6). Incubator firms enable new organizations to adopt some of the successful strategies of large-to-mid-sized firms.

It should be noted that the incubator firms themselves are not necessarily large-scale firms. Their founders usually retain a large proportion of ownership. They work to understand the needs of the client, such as the Hotbank-managed Softbank Venture Capital (SBVC). Instead of just offering space and equipment, the firm can set up meetings with SBVC venture capitalists and other members of the company who could be helpful to the emerging firm (Hansen et al. 2000: 77). According to Model E, one of the firms assisted by SBVC: "we would never have been able to assemble such a high caliber group of advisers and board members had it not been for Hotbank's assistance" (Hansen et al. 2000: 77).

Softbank's network, once established, continues to grow. Although it does not engage in active management of the member companies in its portfolio, it has influence upon them and encourages them to network with new firms it has brought into its fold (Hansen et al. 2000: 77). This allows for compression of the typical stages of networking, which are preparation, consolidation, problem-identification, and implementation (Mitra 2013:9-12). With the incubating firm, the preparation and consolidation stages are taken care of by the overseeing firm, and the wealth of experience in its previous nurturing of incubated firms is brought to bear on its management of current enterprises. The emergent firm has assistance to identify the 'problems' its functions as an organization must cope with, and implementation is also facilitated by contacts with venture capitalists and other firms in the incubating firm's portfolio.

For example, through another incubating firm called Trilogy, an Internet startup called CarOrder.com, used the resources of the incubator firm to hire "approximately two-thirds of its technical employees through Trilogy's on-campus recruiting process, widely acknowledged as one of the most effective systems for finding elite technical graduates" (Hansen et al. 2000: 78). Without Trilogy's resources, CarOrder.com would have had to create its own recruiting materials, establish relationships with college campuses, and formulate an interview and screening process. Getting the best candidates and ensuring that their credentials are suitable and valid can be a challenge even for large organizations; by drawing upon the experience of Trilogy, CarOrder.com was able to focus upon growing its business rather than engaging in the massive task of setting up its own HR department from scratch.

It should be noted that the Softbank model is not a universal one. Some firms such as "Internet Capital Group (ICG) are formed as corporations that actively manage the portfolio companies" and have relatively more control over their operations (Hansen et al. 2000: 78). All incubating firms have slightly different business models and offer different areas of expertise to the new start-up. Given the newness of the enterprises, most rules are not set hard and fast in stone, and are based upon the needs of both organizations -- parent and incubatee. In an ideal scenario, the new firm saves money on its initial costs of doing business, while the incubator firm still makes a profit. Incubator firms have an incentive to select organizations they feel have been successful in the past, thus governing the 'rules' of the expansion of their networks to some extent.

The best firms tend to be the most selective firms, creating a portfolio of firms in which to invest which have complementary business types. "A high-performing networked incubator creates a portfolio of companies and advisers that incubatees can leverage. Incubator executives can assemble participants by investing in portfolio firms and by enlisting a set of strategic partners" (Hansen et al. 2000: 80). Incubatees can learn from one another and create associations within the portfolio 'umbrella' which enable them to grow their businesses at a rapid rate.