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What Are The Numbers Really Saying?

Recent studies in 2010 showed that it takes approximately €12,000 (EBN BIC Observatory 2011) to create a job through the European incubation system. A closer look, reveals that approximately 69% percent of that cost was contributed by the public sector, in the form of subsidies, EU/regional projects, structural funds and other similar initiatives and processes. Specifically, it can therefore be argued that the cost to the public sector for each job created through an incubator in Europe, in 2010, was around €8,300.

I must thank Swedish incubation expert, Mikael Hult, whose presentation at the NBIA conference in 2011 was inspirational to say the least. It made me realise that we should not really be looking at this issue through the lens of costing. Should the focus not be in terms of ‘investment’? The 2010 Eurostat labour figures, using basic statistical calculations and some generic assumptions, showed that the average yearly inflow into the public sector budget was just a little under €9,200 Euros per person. This means the payback period (PBP) for public sector investment into an incubator is a mere 11 months... and this is just from income tax. What if the figure were to also include company profit taxes, or increased VAT generation from increased spending?

Let’s add another layer to the picture. Incubators produce sustainable companies and therefore sustainable jobs. Let’s project these figures onto a ten-year timeline, without considering increased salaries that accompany increased competence. We have established that a single job created in the public sector gives a return of €9,200, a return on public sector investment (ROI) of 8.8 over the full ten years given the high sustainability of incubated companies. And while that is not an academically-approved statistical model the numbers raise some interesting questions, starting with the most important one.

Why is the world, and specifically the European public sector, not investing more consistently into the incubation industry?

It is clear that the socio-economic returns are significant, but the numbers suggest that incubation is also a viable solution to generate public income that can then fund public sector needs such as schooling, health, parks, leisure initiatives etc. One would be hard pressed to find other investment opportunities offering a similar ROI and PBP, with the same “safety” (read sustainability) that the incubation industry provides. I’d certainly leap in head first!

Should this not be incentive enough for governments – national, local, European – to divert more of their scarce resources into the incubation industry? All governments are keen to attract inward foreign investment – so why not make their borders attractive to young entrepreneurs from other countries by creating a well-supported incubation infrastructure. One that provides the necessary support to grow ideas into viable, tax/income/employment generating businesses. Surely a better route than caving to ‘big business’ which often asks for (and takes) more than it ever gives back.

Simply stated, an ROI of 8.8 is a strong argument that policy makers cannot ignore – and demonstrates in no uncertain way, that the impact of the incubation industry can be measured in the short term, and not, as usually assumed, in the longer term. The numbers speak for themselves.

Published on 22-05-2012 13:54 by David Tee. 1406 page views

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