SUSTAINING DESIGN ENTREPRENEURSHIP, IS IT THAT DIFFERENT? A VISUAL ANALYSIS.

ABSTRACT In recent years, the phenomenon of design-driven entrepreneurship began to take off, especially following the 2008 economic recession. In response to this phenomenon, many design schools launched design entrepreneurship support organizations, such as incubators and accelerators, to encourage and sustain entrepreneurial activities. However, it is not clear if these organizations are any different from existing entrepreneurship support formats and if they address specific needs of design entrepreneurs that other support organizations cannot satisfy. Although there is an abundant literature on support organizations and services for entrepreneurs, design-specific versions have not received much attention because their existence is quite recent and they are still very few in number. To establish if there were any differences in the offerings and characteristics of both sets of actors, twenty-one case studies of different support organizations were analyzed and the features of their offering were mapped graphically. Approximately half of the cases analyzed targeted design entrepreneurs specifically and half of them did not. The results show design specific actors have many common factors with standard entrepreneurship support organizations and very little differences. This issue may be a concern for those intending to open design specific support organizations, design entrepreneurs, design schools and creative-industries policy makers.

KEYWORDS Design Entrepreneurship, Support services, Incubator, Accelerator.

Laura Mata García Alumna Politecnico di Milano Italy laura.garcia@polimi.it

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1. Introduction In recent years, the phenomenon of design-driven entrepreneurship has gained massive attention and a nascent system of support institutions and mechanisms has emerged to cater to the needs of design-driven startups, as designers began to embrace entrepreneurship as an employment option; both in terms of personal and creative fulfillment and as a source of stable formal employment. Support systems for startups such as incubators and co-working spaces have existed for at least three decades (in the case of the incubators, it’s even longer). In recent years other support systems have emerged such as accelerators, angel funds, teaching services, etc. among many others. The economic crisis that started in 2008 has further emphasized the need to foster self-employment and the creation of new jobs through new companies, because, at least in the United States, existing firms tend to destroy more jobs than they create (Kauffman Foundation, 2010). However, a very large part of these support organizations focus mostly in the creation of ICT based companies or local small businesses. Nevertheless, partly because of the saturation and fierce competition in the ICT startup space and partly because of the acknowledgement that different types of firms have different needs, the entrepreneurial support system is starting to diversify, catering to different niches. In this panorama, design entrepreneurship has started to gain momentum. Besides, design programs around the world now abound, with thousands or even hundreds of thousands of new design graduates every year and it is becoming increasingly clear that there are more people graduating than there are formal design jobs they can fill. In order to foster entrepreneurship among design graduates, many of these new support organizations have emerged in leading design schools around the world. These first design-oriented support organizations first emerged in the United States and quickly spread to places as far as Portugal, The Netherlands, Hong Kong, Serbia and India. Nonetheless, the fact that design-oriented incubators or accelerators are being created implies that design entrepreneurs are different and have different needs from other types of entrepreneurs with different professional backgrounds. Thus, the support systems that target them should be different from general entrepreneurship support systems. Yet, the answer to neither of these two questions is clear. Many authors, like Tötterman (2008), Piergiovanni et al. (2012), Abecassis-Moedas et al. (2009), Boschma and Fritz (2007), Hartley (2005), Bontje, and Sako (2009), Montgomery (2005), Pratt & Jeffcut (2009) among countless others have analyzed the phenomenon of design entrepreneurship through the lens of the creative industries, as proposed by Florida (2002). In this perspective, design is at the core of the business offering: it is embedded either; (i) in the objects they sell (furniture, jewelry, clothing, fashion accessories) or in (ii) the services they provide (professional design services).

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The hypothesis of this work is that design entrepreneurs are different and have different needs from entrepreneurs with other backgrounds, thus, support systems that target them will consequently offer special services and features or even different formats to address their specific needs. In order to find out if this is true, 21 case studies of actors that support entrepreneurship (eleven that cater specifically to design entrepreneurs and ten that do not) were analyzed and mapped graphically in order to understand the current formats and compare differences among the services and features offered by the two sets of actors. The objectives of this article are first, to present a brief overview of existing support formats for entrepreneurs; second, to present the insights from the analysis and visual mapping of the above mentioned case studies; and third, to analyze the insights from the case studies and their possible implications. Finally, a set of recommendations is proposed as well as future research questions. The general case studies were selected because of their relevance and reputation. Design-oriented support organizations were selected because they intentionally target designers and actively encourage their entrepreneurial activity.

2. EXISTING FORMATS OF SUPPORT SYSTEMS:

INCUBATORS

The most popular support format for entrepreneurship is the business incubator. The concept of business incubator as such started to be widespread in the late 1970s. Back then, a significant economic crisis was putting a toll on employment perspective for graduates, so universities were among the first to experiment with the incubator model as a tool to foster employment and economic development. The main purpose of a business incubator, is to create a favorable business environment for start-up firms to compensate for the lack of financial, knowledge and networking resources they generally have. Originally this was understood only as providing affordable office space and affordable shared office resources. Slowly, as the incubator format started to prove to be successful, different services were added such as mentoring and teaching of basic business skills like marketing and management, etc. During the 1990s, there was a growing need to increase substantially the added-value provided by the original incubator model, in the form of counseling, skills enhancement and networking services. The latter was provided by facilitating the start-up firms’ access to capital, providing training and education in basic business skills and professional external relationships. Today, incubators also emphasize the development of the network of the incubator and thus, the network of the tenant firms enabling them to gain privileged access to potential suppliers, customers, investors and technological partners. (Bruneel et al., 2012 in Huitgjevoort, 2012). This “new” generation of incubators tends to focus almost exclusively on firms in the ICT industry. Incubators tend to be subsidized by the State or other funding agencies and allow tenants to stay for periods that range from 12 to 24 months (or until they “outgrow” the incubator naturally). These are crucial differences that separate them from the

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accelerator model, which will be discussed in the following section.

2.1 BUSINESS ACCELERATORS

The Business Accelerator model is a short-term program, with some similarities to the incubator model. The main characteristics of this format are the short duration of the program, the fact that the accelerator invests in participating firms in the form of a convertible note or an equity investment (mostly between 6%-10%) and that teams are extensively mentored by entrepreneurs with experience and contacts in the relevant industry. Even though this model has become very popular in recent years, there is very little academic research regarding the accelerator model. The first accelerator was the California based Y-Combinator, which was founded in 2005 and it still is one of the most famous. Another pioneer of the accelerator movement was the Colorado-based business accelerator Techstars, established in 2007. Most accelerator initiatives are inspired by these two pioneer models. Despite its success and popularity, there still is not a clear definition of what an accelerator exactly is. Some of the main differences with the traditional incubator model are the rigorous selection of the applicants; the preference for small teams of founders with technology backgrounds; the granting of a small amount of funding in exchange for a percentage of firm equity; a short incubation period with intensive coaching and mentoring; access to a select network of potential investors and partners; a Demo day or graduation day when teams pitch their products to investors and the fact that accelerators are mostly private and do not depend on state subsidies and grants unlike most incubators. Overall, the value the accelerators produce in the entrepreneurship system is to reduce the risk of business failure for founders and compress the startup time into a short period of time. At the same time, they thoroughly screen startups with good potential to reduce the risk of losing money for investors.

2.2 COWORKING SPACES

Another format of support system for entrepreneurs is the coworking space model. This service follows the general trend towards “distributed, interoganizational, collaborative knowledge work” (Spinuzzi, 2012), in which workers could work at home given that they perform knowledge work and not physical work in a production line. In synthesis, on one hand, more people can work anywhere, free from the constraints of production lines and manual labor because they are knowledge workers. On the other hand, their freedom to work anywhere often means isolation, inability to build trust and relationships with others, and sharply restricted opportunities for collaboration and networking. One emerging solution to these drawbacks is coworking. Although the coworking model seems distinctively clear, the abovementioned author claims that once it is studied closely there are important differences in the different types of coworking spaces. He identified coworking spaces as three different subcategories: the space that serves as community center, the

Name Type of Program Techstars Accelerator Y Combinator Accelerator La Cocina Themed Incubator

(Food) HAXLR8R Hardware accelerator High tech 1L (Netherlands)

Hardware accelerator

Lemnos Labs Hardware incubator Bolt Hardware accelerator General Assembly Teaching services Aalto Entrepreneurship Society

Ecosystem

Dreamit Ventures Accelerator Impact Hub Coworking

Name Type of Program National Design Business Incubator (India)

Incubator

Denver Fashion Design Incubator

Coworking

Pratt Design Incubator

Incubator

Nova Iskra Design Incubator (Serbia)

Incubator

Quadra Design Incubator (Portugal)

Incubator

The Design Accelerator

Accelerator

Incubation RCA (UK)

Incubator

Stitch Factory Coworking CFDA Incubator Incubator The Designer Fund Investor fund Hong Kong Design Incubator

Incubator

Dream:in (India) Hybrid model

Table 1 (above): general case studies.

Table 2 (below): design-oriented case studies

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unoffice (providing affordable office spaces for those who do not work in an office but miss the interactions and amenities of the office environment) and the federated workspace (a space that fosters active connections between coworkers that could result in formal work collaborations). In the case of design-oriented entrepreneurship oriented coworking spaces, it would seem that they fall in the federated workspace category, because one of their main value propositions is precisely the access to a network of trusted peers. Some of them also provide some teaching and seminars for extra fees.

3. INSIGHTS FROM THE CASE STUDIES

The case studies described in tables 1 and 2 were analyzed and mapped graphically to visualize the features and services they offer and have an immediate glance of their format and offering. It must be kept in mind that although many of these organizations adopt a name such as Incubator or Accelerator, it does mean that it actually fits strictly into that format. Therefore, it was necessary to analyze their offers to understand them better regardless of how they chose to label themselves. Because the design-oriented entrepreneurship support system is a very recent phenomenon, there are too few examples to obtain any type of representative quantitative data (there are only 11 case studies). Nevertheless, some qualitative insights can be deducted from this exercise The case studies were mapped using a diagram in order to visualize the features of their offering (fig.1). Support organizations were visually mapped based on having (or not having) different services (such as access to shared facilities, mentoring, access to investment and so on). The visualization graphs of the case studies were made in order to spot immediately the differences between the different formats. The visualization is made of 6 macro-sections of the common elements or “building blocks” of entrepreneurship support systems: Learn, Network, Invest, Time, People and Share.

• Learn: Almost all of the organizations, both design-oriented or not, provide some kind of formal training in business-related subjects, technology and legal aspects. The design-oriented actors also provide design-specific training.

• Network: Nearly all of the organizations, from both samples, encourage networking as one of their highest priorities for entrepreneurs. Networking can be among peers, potential investors and employees, potential partners and suppliers and experienced entrepreneurs. Mentoring is included in this category since it is also one of the key value offers of almost all the support systems.

• Share: This is the basic aspect of almost all the offerings in both categories. Sharing facilities like office space, studio space, professional equipment (like sewing machines, 3D printers and laser cutters in the case of design-oriented support organizations) helps startups cut costs in their initial stage when saving as much as possible is critical

figure 1. Example of the graphic mapping. Case Study: Design Incubator (Serbia). Elaboration by the

author.

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• Invest: This aspect shows the largest differences between the two sets of case studies. Design-oriented support organizations are less developed in this area compared to their non-design oriented counterparts, although they do facilitate connecting with a network of trusted investors even though they may be unable to invest themselves or provide any seed funding.

• People: The target of the activities. Some are catered directly to designers. Others are aimed exclusively at engineers or technology-oriented founders. A few make no distinction on the professional background of the founders as a requisite for accessing the program.

• Time: Last but not least, this aspect also was a key difference with some programs having long timeframes (like incubators and coworking spaces) and no prospective graduation or exit of tenants whereas accelerators compress the process in order to speed up the firms and propose a deadline for graduation.

From the comparison between the two sets of case studies, there are some valuable insights for the design-oriented support organizations. The first insight is that almost none of the case studies fit exactly into a rigid model. Some of them claim to be incubators, but rather, they act more like an accelerator like in the case of Incubation RCA. On the other hand, some accelerators (e.g. The Design Accelerator, Lemmos Labs) take elements from incubators such as the rent of shared office space. Thus, we could say that existing models or formats that support design-driven entrepreneurship are not neatly defined. However, they all try to fit loosely into one definition. Incubators, accelerators and coworking spaces are the most common ones. Design-oriented incubators are the most popular format, and a big part of their offering still is the rent of space, the sharing of expensive or specialized equipment (such as 3D printers, CNC millers, knitting and sewing machines), the mentoring by industry professionals, the training of the founders in business and operations related areas and the networking possibilities among the tenants. Design accelerators are an even newer phenomenon, strictly speaking there are only a couple of them and they tend to be a mix of hardware accelerators and business incubators. The services provided at hardware accelerators are designed to help companies scale up the production of physical products, a major challenge given the complexities of prototyping a product, testing it and setting up a supply chain. However, the fact that there are so few of them makes obtaining any generalizable insight very difficult. In the case of design-oriented co-working spaces, three aspects seem to prevail: the affordable sharing of facilities and expensive equipment and networking possibilities between the tenants. The second insight comes from how these organizations approach and use design. Most of the design-oriented actors use design in three distinct ways:

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• Design is the content of the business: this includes setting up design services (encouraging designers to be self-employed) and creation of products with a distinct design and novelty component and high symbolic value (such as furniture, clothes, jewelry).

• Design is an instrument that shapes the final product: For instance in the case of hardware accelerators, the main objective of using design is to shape hardware products. In the case of The Designer Fund, designers shape digital services.

• Designers are encouraged to embrace tech entrepreneurship, using their design skills and training to shape the offering of the company in a wider perspective. Incubators using this approach are harder to map because potentially any tech-oriented incubator could serve the purpose of helping designers start their own Internet firm.

None of the design-oriented actors active today foresees the use of design by new firms at a strategic level, and as such almost none of them have developed programs or mechanisms to leverage that capacity, this includes thus, using design in earlier phases of the entrepreneurial process in order to create innovative business concepts and systems. In the authors’ opinion, considering design as a mere instrument reduces the overall value design can bring to developing a business offering limiting it to offering good looking products or interfaces. The third insight is the fact that most organizations (both design-oriented or not) tackle different phases of the entrepreneurial process (figure 2). However, none of them1 tackles the earliest phase of the entrepreneurial process – the opportunity identification phase. Most of the actors require founders to already have at least a business concept or even a working product prototype, thus they assume founders already identified successfully an entrepreneurial opportunity. This points to an area of opportunity in the system, as well as a gap both in practice and in literature. There are very few actors tackling the opportunity identification phase, so there is a space for new actors to fill this gaps and offer services aimed at this early phase of the entrepreneurial process. The fourth insight is that a critical aspect of design entrepreneurship is giving designers access to experienced business mentors and providing business related education. Designers typically do not have any business training. The lack of business skills is one of the most critical factors that contribute to the difficulties of design entrepreneurs. Thus, it would make sense that design-driven actors would strongly encourage developing designers’ business skills and development of a business vision compatible with the one other stakeholders have while keeping their creative side. All design-related actors strongly emphasize mentoring and acquiring business skills, presumably to fill this gap.

1 This does not mean they do not exist however as of November 2014, there were not any actors that explicitly focused on the earliest phases

figure 2. Different standard formats of entrepreneurial support actors and their positioning

along the entrepreneurial process. Adapted from Bhave (1994)

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The fifth insight -and this in the authors’ opinion one of the most critical weaknesses of the design-oriented entrepreneurship system- is that the largest gap in the system is definitely the INVEST area. Most design-oriented incubators, coworking spaces and the like do not grant any seed capital or financial support. Figure 42 shows the gap in the INVEST quadrant of the case studies (lower right part of the diagrams). In fact, there is only one actor that specifically provides funds to design entrepreneurs (The Designer Fund) although they operate in the ICT space. Last but not least, when the graphs of all the case studies are visualized together (figures 3 and 4) it becomes evident that there are almost no differences between non-design specific organizations and those that do target designers specifically. The differences they present are actually negative; they offer fewer services, such as less access to networks of investors and seed funding. The main added value they offer to design entrepreneurs is mostly the access to expensive shared equipment (3D printers, laser cutters, sewing machines), etc. and business mentoring from industry experts to bridge the cognitive gap design entrepreneurs have in business and management topics. It is not clear if any of these things could actually help design entrepreneurs overcome the challenges they face regarding the scalability of their business and the excessive focus on the founder(s) personal abilities as designers or how they could to any of the abovementioned things.. 4.5 Conclusions In synthesis, design entrepreneurship support systems are in its early days. Most of them are modeled in the shape of its ICT oriented counterparts and show very little differences or unique value propositions with some honorable exceptions. However, in general all design-oriented actors share most of these objectives: • To reduce the risk of business failure for designers by mentoring, screening and giving constructive feedback.

• To enable collaboration and networking among the different actors involved in the creation of the new venture.

• To reduce start-up costs by giving access to shared facilities like office space, shop equipment, etc.

• To bridge the cognitive gaps of founders in the various areas of knowledge necessary to start up and run a business (e.g. providing business training to designers)

Based on the analysis and mapping of the case studies, the areas of opportunity for enriching the design entrepreneurship support system are: encouraging the use of design at a more strategic level, tackling the opportunity identification phase (a fundamental phase of the entrepreneurial process that is often overlooked), reinforcing business and management skills of

2 The image is too large to fit in the side of the page. You will find it at the end of the paper after the references.

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designers, facilitating (or providing) access to funding for design-driven startups, and helping designers scale their business models. Further research is needed on how the above-mentioned objectives may be achieved. It is also critical to research a critical point of design entrepreneurship, the heavy dependence of the venture on the designer founders’ personal and professional skills and the problems this poses for the scalability and long-term life of the venture. Another area that needs further research is if and how design may be used at a more strategic level when creating new ventures shifting away the emphasis on the tangible products that has characterized the discourse on design entrepreneurship until now.

REFERENCES Abecassis-Moedas, C., Mahmoud-Jouini, S. Ben, & Manceau, D. (2009). Entrepreneurship in Creative Industries  : the Case of Design Consultancies. Proceedings of the 2nd ISPIM Innovation Symposium (pp. 567–575). Retrieved from http://www.ispim.org Bhave M.P. (1994) A process model of entrepreneurial venture creation. Journal of Business Venturing, 9 (3), pp. 223-242 Bontje,M., Musterd, S. (2009) Creative industries, creative class and competitiveness: Expert opinions critically appraised, Geoforum, 40(5), 843-852 Retrieved from http://dx.doi.org/10.1016/j.geoforum.2009.07.001. Boschma, R. A. & Fritsch, M. (2007) Creative Class and Regional Growth − Empirical Evidence from Eight European Countries. Jena Economic Research Paper No. 2007-066. Retrieved from: http://ssrn.com/abstract=1023869 or http://dx.doi.org/10.2139/ssrn.1023869 Florida, R. (2002) The Rise of the Creative Class. Basic Books. New York, NY Hartley, J. (2005) Creative Industries. Blackwell Publishing. Malden, MA. Pp. 281 - 327 Huijgevoort, T. van. (2012). The “Business Accelerator”: Just a Different Name for a Business Incubator? Utrecht School of Economics. Retrieved from http://www.dutchincubator.nl/uploads/Documents/49.pdf Montgomery, J. (2005). Beware “The Creative Class” Creativity And Wealth Creation Revisited. Local Economy, 20(4), 337–343. doi:10.1080/02690940500298706

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Piergiovanni, R., Carree, M. a., & Santarelli, E. (2011). Creative industries, new business formation, and regional economic growth. Small Business Economics, 39(3), 539–560. Pratt, A. C., & Jeffcutt, P. (2009). Creativity, Innovation and the Cultural Economy. London, UK: Taylor & Francis. Spinuzzi, C. (2012). Working Alone Together: Coworking as Emergent Collaborative Activity . Journal of Business and Technical Communication , 26 (4 ), 399–441. doi:10.1177/1050651912444070 The Kauffman Foundation (2010) Kauffman Foundation Research Series: The Importance of startups in Job Creation and Job Destruction. Retrieved from http://www.kauffman.org/uploadedFiles/firm_formation_importance_of_startups.pdf Tötterman, H. (2008). From Creative Ideas To New Emerging Ventures. Entrepreneurial Processes Among Finnish Design Entrepreneurs. Hanken School of Economics. doi:10.1007/s11187-011-9329-4

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figure 3. Generic support organizations and the presence of funding options for start-ups.

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figure 4. Design-specific support organizations and the gap in the funding sections.

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