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The
Role of Incubators in Cultivating Small Business
by Linda Knopp, Public Relations
Specialist, National Business Incubation Association
While many people associate the term incubator with
the dot-com era, business incubation programs actually trace their beginnings
back to 1959, when the first program opened in Batavia, New York. Since
then, the industry has grown dramatically, both in terms of the number
of programs in operation and the depth and breadth of services they offer.
Today, business incubation programs assist entrepreneurs in most industries.
Nearly half of the incubators in North America are mixed-use programs
that work with a variety of early-stage companies, while more than one-third
focus specifically on technology companies. In recent years, some incubators
have developed programs to work with specific industry clusters, such
as specialty food producers, biotechnology and biomedical, environmental,
and information technology.
Unlike many of the incubators that emerged during
the dot-com period in the late 1990s to generate quick wealth for investors,
the majority of incubation programs aim to create jobs, diversify economies,
revitalize neighborhoods, or commercialize new technologies. Business
incubation programs like the Business Enterprise Center in Corvallis,
Oregon catalyze the process of starting and growing companies by providing
entrepreneurs with the expertise, networks and tools they need to make
their ventures successful. Sponsors of these programs include academic
institutions, economic development groups, local governments, and community
organizations. More than 950 of these programs now operate in North America,
including approximately 200 in the Federal Reserve's 12th District. This
article showcases the diversity of these programs and the many economic
benefits they bring to their communities.
A facility with appropriate amenities is one component
of a successful incubator, but the backbone of these programs is the array
of business support services they provide entrepreneurs. "Business
incubators are service programs, not buildings," said Dinah Adkins,
president and CEO of the National Business Incubation Association (NBIA),
an international membership organization serving incubator professionals,
consultants, university, government and economic development officials
and others. "No building can grow companies, provide mentoring and
handholding, and assist an emerging company in meeting the benchmarks
necessary for growth."
Many incubation programs offer clients educational
seminars covering a variety of business topics, from developing a marketing
plan to locating potential angel investors. Others offer networking events
to bring together entrepreneurs and local business and community leaders.
Some programs even help clients develop advisory teams of seasoned business
professionals to help entrepreneurs work through the challenges of starting
and running a business.
In fact, one of the most notable changes in recent
years is the sheer variety of business assistance services the incubation
industry now provides to entrepreneurs. NBIA's 2001 survey of North American
incubator managers found that today's incubation programs provide a rich
mix of services to help start-up businesses succeed, including comprehensive
business training programs, assistance with manufacturing processes and
product design and development, and help with financial management and
human resources development.
Another change has been the adoption of the business
incubation model beyond the traditional mixed-use and technology incubators
to more specialized industries, including ceramics, woodworking, arts
and crafts, retail, and environmental technologies. Whatever the industry,
business incubators share a common goal of producing successful graduates
that are financially viable and freestanding when they leave the program.
And once they are ready to leave, many incubators
help clients obtain the financing they need to grow their companies. According
to a recent industry survey conducted by NBIA, about three-quarters of
the business incubators in North America help clients access commercial
bank loans and specialized noncommercial loan funds and loan guarantee
programs.
Nearly two-thirds of the programs provide links to angel or venture capital
investors, and one-third offer in-house investment funds.
On average, clients remain in an incubator for approximately
three years before graduating into the community, although start-up businesses
in biotechnology and other industries with long research and development
periods often stay longer. To help determine when it's time for a client
to leave the incubator, most programs have set graduation or exit policies.
Some of the most common reasons for a clients to leave the incubator are
that they have outgrown the available space, have spent the maximum allowable
time in the program, have achieved mutually agreed upon milestones or
have failed to meet certain benchmarks of the program.
While incubators are designed to help entrepreneurs
build successful business ventures, most programs require potential clients
to do their homework before applying. According to incubator managers,
the most successful clients come to the program with a well-developed
business idea, a viable market, a desire to learn and a strong entrepreneurial
drive. Only then can incubator staff help an entrepreneur develop his
or her business and the skills necessary to make it successful. And research
shows that incubator graduates do have a good chance of success. A 1997
study by the University of Michigan, et al., revealed that approximately
87 percent of graduates from the nation's mature incubation programs were
still in business.
At the time of the study, most of those firms had been in business at
least five years, and many considerably longer.
Incubator companies also tend to stay in their communities
after graduation, providing a stable source of well-paying jobs for local
workers. Since 1980, incubator clients and graduates have created more
than half a million jobs in North America. These jobs, in turn, spawn
further economic growth; every 50 jobs created by an incubator client
or graduate generate another 25 jobs in the community. In 2001 alone,
North American incubators assisted more than 35,000 start-up companies
that provided full-time employment for nearly 82,000 workers and generated
annual earnings of more than $7 billion, which is welcome news for the
many low- and moderate-income communities seeking to promote local economic
growth.
While participating in an incubation program increases
a start-up company's chances of success, creating a thriving new business
remains challenging, especially during tough economic times. Many new
businesses rely on a range of funding sources—including their local
banks—to help them secure the money they need to start and grow their
companies.
Whether it's a new incubator client that needs funds
to help bring a promising new product to market or a soon-to-be incubator
graduate that is looking to buy his own facility, these businesses provide
potential funders with attractive opportunities for investments. Because
of the screening procedures many incubators use to select clients and
the training these companies receive while they are in the incubator,
these businesses have a better-than-average chance of succeeding and bringing
additional growth to the community.
For more information about the business incubation
industry or to locate a business incubator in your area, visit www.nbia.org.
For academic-turned-entrepreneur John Gardner, the
Business Enterprise Center of Linn and Benton Counties was the logical
place to move his business, ViewPlus Technologies Inc., when it outgrew
his garage. The Corvallis, Oregon, business incubator provided the growing
company with the infrastructure to succeed, including on-site business
counselors, a shared receptionist, office furniture, and high-speed Internet
access-services that were invaluable to an entrepreneur with little previous
business experience.
When Gardner, an internationally respected physics
professor from Oregon State University, lost his eyesight in 1988, he
wasn't planning to start a business. Yet, he knew he needed to do something
to make it easier for him and others with visual disabilities to access
electronic information. Noting that many visual objects—like the
complex equations and flow charts common in math and science—cannot
be described adequately with words, Gardner set out to develop tools to
help himself and others with visual disabilities study and work in fields
that traditionally had been out of reach for the blind.
With this goal in mind, Gardner founded both Oregon
State Science Access Project (SAP), a National Science Foundation grant-funded
project, and ViewPlus, a company to commercialize technologies that came
out of the SAP. But while Gardner knew the technologies he was developing
would fill a market need, he was not an experienced entrepreneur. "We
knew technology, but we didn't really know business," Gardner said.
"We recognized that we didn't always know what we were doing though,
so we reached out for help."
When ViewPlus was ready to market its first product,
Gardner decided to move the company into the Business Enterprise Center
because he knew of the program's successes in helping other entrepreneurs
succeed. In fact, he visited with the incubator's staff several times
while starting his business from home. "Everyone in Corvallis knows
about the Business Enterprise Center," Gardner said. "I always
knew that when the time was right, we'd move into the incubator."
Gardner said ViewPlus has benefited from the advice
he has received from the incubator's business counselors and board members
and the opportunity to network and learn from other entrepreneurs. The
company also has enjoyed the luxury of a flexible lease, which has allowed
it to expand from a 328-square-foot office when it entered the program
in 1999 to nearly 3,000 square feet of both office and light industrial
space today.
Biography
Linda Knopp
 As
a public relations specialist with the Athens, Ohio-based National Business
Incubation Association (NBIA), Linda Knopp is responsible for increasing
awareness of the association and the business incubation industry. Founded
in 1985, NBIA conducts respected research, offers acclaimed publications
and training opportunities, participates in effective consulting projects,
and provides personalized service to its international membership of incubator
managers and developers.
Ms. Knopp received a B.A. in journalism from Marshall
University and has taken graduate courses in public policy studies at
Duke University. She previously worked as a newspaper reporter and in
educational, economic, and health care administration research.
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