Business Incubators

As the phrase itself implies, business incubators are programs intended to help small businesses get off the ground. They almost always provide both services and rental space to fledglings. The services typically include administrative help, consulting, and referral. Incubator programs are managed by public and private agencies. According to the National Business Incubation Association (NBIA), around 5,000 incubators were operating around the world in 2006; 1,000 of these were located in North America (http://www.nbia.org/).

In its Web-site article titled "The History of Business Incubation," NBIA names the Batavia Industrial Center (Batavia, NY) as the first incubator, founded in 1959. "But the concept of providing business assistance services to early-stage companies in shared facilities did not catch on with many communities until at least the late 1970s," NBIA reports. "In 1980, approximately 12 business incubators were operating in the United States—all of them in the industrial Northeast, which had been hard-hit by plant closures in the previous decade." Other important influences were promotional efforts by the U.S. Small Business Administration (mid-1980s), a program enacted by the Pennsylvania legislature in 1982, and the efforts of Control Data Corporation (Minneapolis) under the leadership of its founder, William Norris.

NBIA provides a profile of the incubator movement in 2006 on its Web site. Ninety percent of incubators are not-for-profit, the rest are for-profit entities hoping to benefit from start-up growth. Nearly half (47 percent) have a mix of clients; 37 percent focus on technology businesses, 7 percent serve manufacturers, 6 percent serve service organizations, and 3 percent serve niche markets and concentrate on community revitalization projects. Forty-four percent of incubators draw clients from urban, 31 percent from rural, and 16 percent from suburban locations.

The sponsorship of incubators in 2006 was 25 percent academic institutions, 16 percent government agencies, 15 percent economic development agencies, 10 percent for-profit entities, 10 percent other, and 5 percent hybrids. The remainder had no formal host or sponsor.

ADVANTAGES OF INCUBATORS

Given the myriad advantages associated with membership in an incubator program, small business consultants often counsel their clients to at least investigate the possibility of securing a spot in one. Strengths of incubators include the following:

Shared Basic Operating Costs

Tenants in a business incubator share a wide range of overhead costs, including utilities, office equipment, computer services, conference rooms, laboratories, and receptionist services. In addition, basic rent costs are usually below normal for the region in which the fledgling business is operating, which allows entrepreneurs to realize additional savings. It is worth noting, however, that incubators do not allow tenants to remain in the program forever; most lease agreements at incubator facilities run for three years, with some programs offering one or two one-year renewal options.

Consulting and Administrative Assistance

Incubator managers and staff members can often provide insightful advice and/or information on a broad spectrum of business issues, from marketing to business expansion financing. Small business owners should remember that the people that are responsible for overseeing the incubator program are usually quite knowledgeable about various aspects of the business world. They are a resource that should be fully utilized.

Access to Capital

Many business incubators help entrepreneurs acquire capital by means of revolving loan and micro-loan funds, according to NBIA. They link businesses to investors by referral. They assist entrepreneurs in preparing presentations to venture capitalists, and assist companies in applying for loans. Start-ups are helped in raising capital merely by having been accepted by an incubator program. These programs act as a qualifying filter. Those who are accepted gain legitimacy in the business community.

Universality of Incubator Concept

One of the key advantages of incubators is that the concept works in all communities of all shapes, sizes, demographic segments, and industries. In many cases, the incubator naturally takes on some of the characteristics of the community in which it is located. For example, rural-based incubators may launch companies based on the agriculture present in the area. But whether based in a small town in the Midwest or a large urban area on the West Coast, proponents of incubator programs contend that the small business people in the community would know more about how to start and operate such businesses than major corporations that focus on mass production.

Comradeship of Fellow Entrepreneurs

Many small business owners that have launched successful ventures from incubators cite the presence of fellow entrepreneurs as a key element in their success. They note that by gathering entrepreneurs together under one roof, incubators create a dynamic wherein business owners can 1) provide encouragement to one another in their endeavors; 2) share information on business-related subjects; and 3) establish networks of communication that can serve them well for years to come.

FACTORS TO WEIGH IN CHOOSING AN INCUBATOR

Many incubators have been pivotal in nourishing small businesses to the point where they can make it on their own. But observers note that the programs are not foolproof. Some small businesses fail despite their membership in such programs; incubators themselves sometimes fold, crippled by any number of factors. Entrepreneurs, then, need to recognize that some incubators are better suited to meet their needs than others. Considerations to weigh when choosing an incubator include the following:

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