The communal word-processing center is just off the front hall to the left. To the right are a shared conference room and a newsstand doing a brisk trade in Rolaids. Behind the switchboard, an electronic message display pitches small-business consulting services in flashing red letters.
"One of the things we offer is courage," says general manager of operations John Black as he guides his visitor down a Spartan office corridor. "People may not have the guts to start, and we offer them an easy way to take that step." Easy? Well, less expensive, anyway: with space renting for 30% less than at downtown locations, 20 to 30 companies make inquiries each month. What most often distinguishes the 5 that move in is that they have enough cash to afford a damage deposit and the first month's rent.
Between 150 and 200 of these incubators and innovation centers now dot the national landscape, including 12 in the Twin Cities alone. All but a handful were created in just the past three years by universities, governments, nonprofit consortia, and venture capital firms. But no two were created equal. Some are merely bare-bone buildings with low rent and a communal coffeepot. At the other end of the spectrum are lavish facilities whose owners provide equity capital and sit on boards of directors. Most, like the Minneapolis Business and Technology Center, fall somewhere in between, mixing lower rent with shared facilities and a dose of business advice.
Actually, the full name is the Minneapolis Control Data Business and Technology Center, another outgrowth of Bill Norris's campaign on behalf of start-ups. Helping entrepreneurs and creating jobs for the local economy have always been part of the rationale for this center and for two others like it in the Twin Cities area. But from the beginning, these facilities were also expected to turn a profit. The original plan was to spawn new customers for Control Data products. But the strategy changed when the bulk of the tenants turned out to be service businesses. Now, Control Data is a landlord that collects rents; a consulting firm that charges competitive fees for consulting programs, financial-planning software, and small-business manuals; and a franchisor that has taken the concept nationwide. There are now 23 Control Data incubators up and running, and according to the company, all but one are making money.
Not surprisingly, nonprofit agencies tend to cast a mary eye on for-profit incubators. "The people at that level require a high degree of counseling, so the for-profit incubators have to spread themselves too thin to do much good," argues St. Thomas's Daryl Erdman, careful not to mention the Control Data centers by name. In response, John Black points to the 90% survival rate for companies that have taken space at Control Data's three Twin City incubators, along with the 3,800 jobs he claims they have created for the local economy.
Control Data's start-up tenants, it must be said, are nearly universal in praise of their incubator. "I wanted to create a professional image," explains Helen R. Lowe, who started her dental-staffing franchise in the Minneapolis incubator; she appreciates her short-term lease. Barbara Armajani still marvels that she was in business within a day after moving in, without having to buy phones, rent a copier, or hire anyone to run them. And movable walls made it possible for her business to grow from 4 employees to more than 33 without having to relocate.
"If it hadn't been for the Control Data Center, I would have been off my rocker," says former 3M research scientist Gene Sparrow, who has a space across the river at another Control Data incubator in St. Paul. "It's good to know that there are 50 other businesses here sweating it out just as I am."
Sparrow,in fact, has been sweating it out in the incubator for seven years, which really begs the fundamental question that needs to be asked about incubators: are they hothouses and schools for entrepreneurship, or are they merely friendly, convenient spaces for small service firms? Among those holding the more skeptical view are the founders of several other Minneapolis start-ups who have managed quite well outside of an incubator. One such entrepreneur hs heard stories of accountants, attorneys, and venture capitalists who stalk the halls of incubators looking for clients and taking up lots of time. "The obscurity of a garage may be better," he quips. Another recalls the incubator started by California's Nolan Bushnell that became famous for its camaraderie but notorious for the number of tenants that didn't survive: "Who is to say that the guy across the hall has a good idea?"
Control Data's incubator in St. Paul connects by heated walkway to just about any service a start-up might require -- office-supply stores, photocopying services, coffee shops, bars, restaurants. But to get to a bank that can lend you money, you have to brave the cold.
The metaphor is telling. No matter how many new services there are to ease the task of starting a business, raising seed capital is still difficult and unpleasant. And banks remain the foremost object of the entrepreneur's frustration.
According to sociologist Paul Reynolds, fewer than 5% of the new businesses started in Minnesota each year secure smallbusiness loans from a local banker. In part, that has to do with the types of businesses being started: with no inventory, no receivables, no building or equipment, start-up service companies have never offered any more collateral than an idea and a founder's reputation. But now, even if you have the collateral, it may not be enough. A rash of bank failures across the country has prompted bank regulators to require still more stringent lending requirements.
"We do very few start-ups," admits David Cleveland, president of Resource Bank and Trust. "Supervising authorities are much more critical of those kinds of loans, and they're asserting pressure on banks to move away from them. To make loans on the basis of collateral is usually not considered good enough. The company has to be able to demonstrate an ability to pay back the loan from profits."
