Criterion 1

Leadership - "Killer" criterion
The sector has  / does not have entrepreneurs with leadership capacities?

Start with a sector, in which it is possible to identify one, two or more entrepreneurs with a strong personality,  charisma and leadership capacities. Skip sectors without such informal leaders.        
Attention: This is one of the most important criteria, which can be a “killer”! Without having such "informal" leaders one may stop the analysis at this point already because the probability is high that it will not be possible to create a Nucleus successfully.

• When starting the implementation of the Nucleus Approach the credibility of employees of business chambers, projects of technical cooperation and other institutions with regard to SMEs tends to be very low. The entrepreneurs do not trust the employees when they try to convince them of participating in a Nucleus.

• Therefore it is better to find an open-minded entrepreneur (better several) with leadership capacities, who is serious and has a certain standing and credibility in the sector. S/he should neither be the owner of the biggest nor the smallest company of the sector because this might make the other SMEs reluctant to follow him / her. The next step is to explain to this potential leader the idea of a Nucleus. If s/he is interested, s/he should select and together with the counsellor visit other potential participants. This increases the chances that they follow the invitation for a first meeting.

Criterion 2

Chamber membership - "Killer criterion"
The chamber will / will not accept the entrepreneurs as membership fee paying members?

Start Nuclei only with entrepreneurs who will be accepted as new members by the chamber and who are able to finance a considerable membership fee. Never found Nuclei with entrepreneurs who never will be integrated as members by the chamber.

• This refers especially to the so called informal sector. In some regions chambers never accept them as members because they are perceived as unfair competitors to the formal enterprises which pay taxes and social security, maintain technical and social standards, etc. In other regions, chambers accept informal enterprises as members (the entrepreneur becomes individual member).

• Although never written down in the constitution frequently chambers use also social and reputation criteria concerning the admission of new members. Check whether under such aspects the potential Nucleus entrepreneurs will be accepted by the chamber.

• If possible start the first Nuclei with small enterprises and not with micro enterprises. Otherwise the Nuclei get the reputation being an activity only for micros, uninteresting for medium and bigger enterprises. It proved to be very difficult to get this impression later on out of the minds.

• It is inefficient to start Nuclei with entrepreneurs who will never pay adequate membership fees. They would be maintained in the chamber subsidised by the other members. The coming conflict is obvious.

• We have seen a number of such Nuclei where the counsellor, the CEO and even chairpersons used social or political criteria concerning the creation of Nuclei: "There are some poor fishermen at the lake. Can we help them with a Nucleus?" "No, we cannot, that is clearly not the job of a chamber! And the chamber is not a welfare institution."

• See also: Why the Counsellor does have to run 10 Nuclei?

Criterion 3

Qualification
The entrepreneurs and companies of the sector have high / medium / low qualifications?

Start with a sector having entrepreneurs of medium qualification and not with mainly highly qualified or very low qualified entrepreneurs / companies.

• When the sector consists of technically and organisationally highly qualified companies with proud, self confident entrepreneurs they may think that they already know everything. They do not feel having problems and are not affected as a result. Consequently it is rather difficult to motivate them to participate in a Nucleus.
  Examples: sectors dominated by academics like construction engineers and architects proved often to be difficult.

• When the sector consists of companies that are technically and organisationally with low qualifications, especially when belonging to the “Informal Sector”, it is possible that in this sector the minimum entrepreneurial spirit and self confidence required to start Nucleus activities does not exist.
  Example: often the handicraft sector. It consists of many entrepreneurs with low entrepreneurial spirit who produce what they know to produce and not what the market demands for. They feel only one problem: the sales... dreaming in Sri Lanka and Algeria, that Government buys their products.

• Therefore, in the beginning these sector types should be avoided.

• Companies with medium technical and organisational qualifications (they have some machines, workers with different qualifications, a certain range of products and services), with medium self confident entrepreneurs, most likely feeling some problems in their company without being able to find solutions. They are affected by this. They are relatively easy to motivate for the participation in a Nucleus.
  Examples: A carpenter suffers, when a door twists and he does not know why and how to avoid this. The motor mechanic suffers when he does not find out how to adjust the electronic injection. These entrepreneurs want to change something, and their sector is interesting to start with. The technician, who repairs computers, changes one component of the computer after the other until it is successfully fixed. He neither suffers nor feels the necessity to change anything. Although a modern sector, it is frequently not a very good one for starting a Nucleus.

Criterion 4

Organisation
The sector is poorly / well organized?

Start with a poorly, unorganised sector and not with a well-organised one.

• A sector is well organised with functioning business associations, training and consulting services through efficient schools and other business service providers.

• A sector is poorly organised with no functioning business associations and few training and consulting services through schools and other service providers.

• When the sector is well organized the Nucleus may eventually run directly into rivalry with other organisations in the sector. In addition, entrepreneurs do not see the need of a Nucleus because they feel already well attended to. Both aspects hinder the successful foundation of a Nucleus.

• Examples: in most cases the sector is relatively well organized when a cluster of industries exist (textile, furniture, metal-mechanic, etc.); also sectors which depend strongly on public orders - like the construction sector - are usually well organized. Sectors like carpenters, car-mechanics, etc., are poorly organized in many countries.

Criterion 5

Structure
The sector is heterogeneous to a certain extent or very homogeneous or heterogeneous / homogeneous?

Start with a sector where there is a good balance between homogeneity and heterogeneity and not with a very homogeneous or very heterogeneous one.

• A sector is very homogeneous when there are no differences among the enterprises and the entrepreneurs. They have more or less the same products, technologies, know-how, markets, number of employees, entrepreneurial and life experience etc. Often they have a very small range of different products and the production process consists of one or two steps only. In this case it might be very difficult to stimulate an exchange process among the entrepreneurs because when there are no differences there is nothing to exchange among them.   
  Typical examples are small farmers of rice, tea, coffee etc., quarries, dairy milk producers, newsstands, small commercial shops, handicraft producers, etc.

• A sector is very heterogeneous when there are relatively big differences between the enterprises. They have different products, technologies, know-how, markets, number of employees, entrepreneurial and life experience etc. Often they have a wide range of products and services, and the production process consists of many different steps. In this case it might not be possible to stimulate an exchange process among them because their experiences and entrepreneurial realities differ too much. Therefore, they cannot learn from each other.   
  Example: An entrepreneur with two employees has almost nothing to exchange with the one employing 200 people because their day-to-day work is totally different. The former participates personally in the production process while the latter is managing the enterprise.
  Example: often the metal processing sector is very heterogeneous due to different raw materials, technologies, products and sizes of the companies.

• In a sector with a good balance between homogeneity and heterogeneity the entrepreneurs have much in common in their day-to-day working life, while at the same time there are a lot of differences with aspects to be exchanged and which stimulate learning processes. In addition the entrepreneurs can compare their companies.       
  Examples: carpenters, bakers, car-mechanics

Criterion 6

Quantity
The sector consists of many / few enterprises?

Start with a sector with relatively many enterprises in a defined catchment area and not with one which has only a small number of businesses.

• A Nucleus requires in the beginning 7 to 12 SMEs; in the long run it needs more than 10 members.

• When the sector consists of a small number of companies only – less than 20 – in a defined catchment area, it is difficult to gather the required number of Nucleus members. Some will never participate and others drop out. Therefore the number of Nucleus participants falls easily below the required minimum. In addition, the smaller the sector, the higher the chance that the entrepreneurs already know each other, are competing directly, and had quibbles in the past which might hinder the Nucleus’ development.

• The more enterprises a sector has, the easier it is to gather the required number of SMEs for a Nucleus, and the higher the chance to find more qualified entrepreneurs and those who have no old quibbles with each other.

• Criterion for defining the catchment area: the potential Nucleus participants should not need more than a maximum of 45 minutes travel time to the meeting place.

Criterion 7

Entrepreneur's participation in the production process
In the sector the entrepreneur participates / does not participate actively in the production process?

Start with companies in which the owners dominate the technical know-how and participate actively in the production process. Do not start with companies in which the owner acts only as manager or administrator with limited know-how about the technologies.

• Normally, changes start the Nucleus enterprises in the technical sector in small steps in order to improve the productivity. When the entrepreneur her- / himself does not dominate the technologies of her / his enterprise s/he has to transmit the ideas and experiences from the Nucleus to her / his employed technicians. We do not know one case where this really worked successfully.

• When the majority of the Nucleus member entrepreneurs are managers then presumably technical subjects are hardly discussed what makes the Nucleus for the minority less interesting and endangers the Nucleus' work.

Criterion 8

Investments
In the sector, companies can improve with / without larger financial investments?

Start with a sector in which improvements in the companies are possible through a lot of small technical, organisational and managerial changes. Do not start with a sector in which improvements in the companies require large financial investments right at the beginning.

• In some sectors, entrepreneurs can improve their companies only in big steps through costly investments in machinery. This often requires a total change for the company (more qualified staff, different organisation, etc.). But first, this is economically very risky for the entrepreneur. Second, it easily provokes frustrations, when nobody can tell how to finance the investment. And third, in the beginning there is no trust between entrepreneur and counsellor. Therefore, the Nucleus will not appear useful to the entrepreneur and s/he probably will stay away.
  Example: quarries: The stones are crushed either manually by hammer or they are crushed by a machine. There is nothing in between.

• In other sectors, companies can improve through a lot of small management, organisational, behaviour and technical measurements, which do not require any investments. Therefore, the entrepreneur can test the advice of the Nucleus members and the counsellor without running financial risks. In case of positive results s/he gradually develops trusts in the work of the Nucleus and in his / her own capacity to develop his / her company. Therefore s/he will be more likely to continue to participate in the Nucleus and promote the Nucleus’ work.
  Examples: carpenters, bakers, etc.

Criterion 9

Know-how Sources
External know-how sources and Business Development Service (BDS) providers exist / do not exist in the region for the sector?

Start with a sector for which know-how sources and Business Development Service (BDS) providers are available. Do not start with a sector when there no such resources.

• Know-how sources and BDS providers can be technical schools / institutes, universities, suppliers of hardware (tools, machinery, products) and raw materials, technicians of big companies, freelance specialists and consultants.

• A basic idea of the Nucleus Approach is the stimulation of the development of networks among the entrepreneurs and local / regional know-how sources. Important is the easy and low-cost access to these sources, which the entrepreneurs can organise and finance without external subsidies.

• The simple question is: where to find a qualified trainer / instructor for a technical training course for this sector and how much do they normally charge?

• When such sources for a sector do not exist locally / regionally, chances are high that the Nucleus will fail and eventually die.