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STRATEGY

Incubators Are Hot!

Incubators have gotten plenty of attention lately. A few of the 2000 Inc. 500 winners are exploring the concept themselves.
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Strategies: Spin-Offs

Wherever there's a hot opportunity, you can pretty much guarantee that someone on the Inc. 500 will be taking advantage of it. Take incubators, for instance, which have gotten plenty of attention lately. A few of this year's Inc. 500 winners are exploring the concept themselves.

Tim Foley is hoping to catch the incubator wave by nurturing other companies within his existing business. In 1995, Foley restructured what was formerly M-E Engineering, comprising three engineering divisions, into M-E Cos. (#258), which currently houses and holds equity in three companies and has spun off two other businesses, all of which relate to the engineering and construction industry. And that's not all. Foley has plans in the works for a venture-capital start-up and another service company. As a part of $5.8-million M-E Cos., each incubated business shares support functions like human resources, legal services, marketing, and accounting. Foley says that business model "provides employees the opportunity to be more entrepreneurial."

Each entity operates on its own, pursues both independent and joint contracts, and remains a small company within M-E's framework, a setup that cuts down on large-company bureaucracy, according to Foley. He also believes that the incubator structure promotes retention, because employees can change careers under the umbrella of M-E Cos. "We had a guy who literally used to hold a rod in the cold for a land surveyor," Foley says. "And now he wears a suit and tie to work and explains how companies can acquire property and has virtually doubled his salary."

Arun Gollapudi is also getting into the incubator game. As CEO of Systech Solutions (#79), an IT consulting firm, he's housing two new companies inside Systech's walls. One is a 19-employee Internet company called Netfins.com, which helps small companies manage their retirement plans. Systech owns 33% of the company, while the remaining 66% is owned jointly by the four founders of Netfins.com, two of whom are Systech employees. Another staffer created the second business, Apparel Web, to make use of Systech's software tools in the clothing industry. Systech hopes to unleash the companies on the marketplace "as soon as they can stand on their own feet." And when they're gone, Gollapudi hopes to have others operating in their place. "I think the incubator model opens up opportunity all around," he says.


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