Incubators that actually work? You won't find them only in Internet space

When you hear the word incubator, you may think "Internet." and for good reason. What you see trumpeted in the news are names like Idealab and CMGI, incubators that have been moving aggressively to capitalize on the Internet economy. Those for-profit hothouses for start-ups are part of a growing trend. In just the past year, about 200 new fast-paced, Internet-oriented incubators have opened for business in the United States.

The first incubator, a for-profit entity, is said to have emerged 41 years ago in Batavia, N.Y. Because one of its first tenants was a poultry producer, it hatched not only chickens but the buzzword incubator. Since then, the industry has expanded to a nationwide total of 950 incubators. And though the for-profit luminaries may attract the most attention, they make up only about a third of the country's incubators, according to the National Business Incubation Association, based in Athens, Ohio. The rest -- the nonprofit workhorses -- have been quietly nurturing fledgling companies for decades. For a long time the quietly plodding nonprofit incubators escaped widespread notice, according to Dinah Adkins, executive director of the National Business Incubation Association. "That has changed abruptly," she says, because interest in the for-profits has raised the profile of the entire industry.

The nonprofit incubators may have stayed in the background until recently, but they have their admirers. Typically affiliated with a university or a government agency, the incubators are particularly popular with entrepreneurs who aren't creating Internet companies or who recoil at the idea of parting with a large chunk of their equity. (The for-profit incubators usually take as much as 70%.) In contrast, the nonprofit incubators demand little or no equity for their services, which include providing financing, rental space, office equipment, mentoring, and access to accountants and other professionals.

In an Inc. survey conducted this past summer of more than 30 incubator-savvy CEOs and experts in the field, eight nonprofit incubators stood out. (See chart, below.) Those incubators are scattered across the country and range from the Advanced Technology Development Center (ATDC), which is affiliated with the Georgia Institute of Technology (Georgia Tech) and is dedicated to fostering high-tech business in Georgia, to the Entergy Arts Business Center, a catalyst for arts-related endeavors in New Orleans.

The CEOs extolled the nonprofit incubators for, among other things, offering nuts-and-bolts assistance, networking opportunities with other company founders, and access to outside mentors. "In normal business building, you have to form your own network," says Danny Day, who incubated two companies at ATDC, in Atlanta. "Here, you're all at the same stage, and advisers are there to help the start-ups."

For Victoria Eckes, CEO of Yakalo Solutions, a provider of real estate software, the greatest plus of being at the Boulder Technology Incubator's office in Longmont, Colo., has been receiving marketing advice. Eckes started her company at the incubator in April 1999. Before she sought help at Boulder Technology, she invested countless hours knocking on real estate agents' doors to promote Yakalo's product. "But then our marketing adviser said, 'Why don't you see who else is selling to real estate agents and leverage their sales force?" recounts Eckes. The tip prompted her to affiliate with local newspapers, which now market Yakalo's software on their Web sites.

In exchange for the incubator's services, Eckes pays rent of $600 a month for each of two offices that the incubator provides. That's "pretty cheap" by local standards, she says. The screening process of the Boulder incubator, which accepts only 10% of applicants, has the advantage of enhancing her company's credibility with investors. Acceptance represents a kind of Good Housekeeping seal of approval, Eckes explains. She is scheduled to leave the incubator early next year. A two-year stint is typical for a start-up residing at a nonprofit incubator; the maximum duration at a for-profit incubator is usually only about half as long.

As for why she chose the Boulder incubator over a for-profit model, she says, "I wouldn't give away 70% of the company's equity."

Rifka Rosenwein is a senior writer at Inc.


Cradles with a Twist

Most of the country's roughly 650 nonprofit incubators exist to promote local business development. But a few fulfill a mission that's even more highly specialized, even exotic.

Consider the Entergy Arts Business Center, an incubator to promote the development of the arts in New Orleans. Created in 1992, it has incubated such peculiarly homegrown endeavors as the Louisiana Philharmonic Orchestra, the Louisiana Jazz Federation, and the Dog and Pony Theatre.

Then there's the Denver Enterprise Center, which has developed a different niche: assisting catering and food-products businesses and minority-owned businesses in the Denver area. One of its tenants is the Chocolate Farm, which makes animal-shaped chocolate pieces. The CEO is Elise MacMillan, 12. Her 14-year-old brother, Evan, looks after the finances and runs the company's Web site.

The incubator has enabled the children to transfer their business from their mother's kitchen and turn it into a real company. Their mother, Kathleen, says that the incubator's resident chef "has showed us everything from how to keep your hair out of your face while cooking to how to make 100 chocolates a day. When we were getting streaks in the chocolate, he showed us that the chocolate was too hot."

Incubator/
location
Founded/
affiliation
Claim to fame Number of participants
Advanced Technology Development Center
Atlanta
1980/Georgia Tech Strong relationship with a state government. The Georgia legislature, under the auspices of the state-funded Georgia Tech, strongly supports it, both politically and financially. 40
Austin Technology Incubator
Austin
1989/University of Texas at Austin Close ties to an angel network, notably Teledyne cofounder George Kozmetsky, and to the prestigious University of Texas Moot Corp. Business Plan Competition. 19
Boulder Technology Incubator
Boulder, CO
1989/University of Colorado Influence in galvanizing local businesses to help promote start-ups. It has backing from major Boulder-area businesses, including Public Service of Colorado. 15
Denver Enterprise Center
Denver
1987/none Location in an inner-city neighborhood. It features a kitchen that houses catering and food-products businesses, and it has a program that assists minority- and female-owned companies. 52
Entergy Arts Business Center
New Orleans
1992/Arts Council of New Orleans Leadership among niche incubators. Director Mary Kahn is known for her expertise in applying business principles to the arts. 9
The Entrepreneurial Center
Birmingham, AL
1987/none Connections to the local business community. Both its director, Susan Matlock, a former banker and economic-development official, and its large board of directors are known for strong leadership. 30
Rensselaer Polytechnic Institute Incubator Center
Troy, NY
1980/Rensselaer Polytechnic Institute Full, integrated relationship with a university. It's considered a model for the way it commercializes technology, involves students and faculty, and pays its own way. 28
Software Business Cluster
San Jose, CA
1994/none Founder and manager Jim Robbins, who has tremendous clout in Silicon Valley, is credited with almost single-handedly making San Jose a center for software start-ups. 15
Incubator/
location
Executive quote Budget Number of graduates
Advanced Technology Development Center
Atlanta
"The brown-bag lunches were invaluable. Every week you got training in something. I needed help negotiating loans, so I called a staff member, and within 30 minutes I was on the phone with a former senior vice-president at Nationsbank." --Daniel Day, chairman of Worldwide Testing, Scientific Carbons $2.5 million 70
Austin Technology Incubator
Austin
"The #1 benefit is that getting in is a validation, in a very small but very meaningful way. It's a win. It gives you an additional boost; it gives you self-confidence." --Manoj Saxena, president and cofounder, Exterprise $900,000 60
Boulder Technology Incubator
Boulder, CO
"The best thing they did is they assisted us in assembling a world-class-level advisory board. They taught us how to fish rather than handing us the fish." --Victoria Eckes, CEO, Yakalo Solutions $1 million 50
Denver Enterprise Center
Denver
"They've given me a strong sense of how to do business. They taught me how to cut costs, like by getting lists of suppliers and comparing their prices." --Michael McCrea, CEO, Big Mike's Original BarBQ Sauce $390,000 78
Entergy Arts Business Center
New Orleans
"Their strongest area was in the development of a business plan. They provided us with two women: someone who works with nonprofit organizations and an arts administrator, who worked with us very closely." --Ann Cohen, cellist and President, The Louisiana Philharmonic Orchestra $200,000 5-10
The Entrepreneurial Center
Birmingham, AL
"The director had people in the program speak at board meetings every six to eight weeks. I made a presentation and got a major contract because of one of those meetings." --Tim Lewis, CEO, T.A. Lewis & Associates $650,000 24
Rensselaer Polytechnic Institute Incubator Center
Troy, NY
"They have a global network. They serve a brokering role for venture groups. They have business plan competitions to hone your skills." --Michael Marvin, cofounder of MapInfo, graduate, and current mentor $500,000 150
Software Business Cluster
San Jose, CA
"A lot of times you know your business well, but articulating it [to potential investors] can be difficult. It helped to get Jim Robbins's perspective. He coached me through that process. I had access to a coach who was always there." --Krishna Subramanian, CEO, Kovair $2 million 52

Please e-mail your comments to editors@inc.com.