Real options in business incubation process

Abstract

THE AIMS OF THE STUDY

Real option theory has been analyzed for more than forty years in more industries and research areas but some of these have received less attention. One potential but yet untapped area of real option theory application is the business incubation process, which can be a key success factor of start-up companies. The study focuses on the business incubation process and the real option theory and aims to present the steps of the business incubation process and the decision-making phases for both the business incubator and the participants, and to develop a framework that ensures the efficient operation of incubators.

METHODOLOGY

By exploiting and modelling uncertainty and managerial flexibility I examine the opportunities in business incubation process applying real option theory. In the course of the qualitative analysis I identify the different types of real options inherent in the business incubation process and determine the benefits of applying them as well as emphasizing their positive features.

MOST IMPORTANT RESULTS

Although many literature review sources treat incubation process models with a "black box" approach, considering the model process and its structure-oriented nature enables its in-depth analysis and conclusion about the potential in the incubation process. In the process we can also identify timing, staging, contract and growth real options and exercising or discarding these options ensures corporate value creation.

RECOMMENDATION

Identifying and exploiting real options gives scope for business incubators to achieve operational effectiveness and value-creation. They study and the subsequent research provide new approach to practitioners, including the real option logic and use real option valuation.