Could a Nevada County Business Incubator Succeed?

Russ Steele

I was looking for an other document in my Library, when I can across a report purchased long ago and put on my library shelf: Business Incubation Works.  From the stiffness of the pages, it looks like I never even read the report after buying it. It was published in 1997, and may have been on the shelf for a while. 

From part of the Executive Summary:

Business incubators are helping build healthy, lasting businesses and they are doing it for low cost and with a good return on investment to supporters. A very high percentage of incubated companies remains in their communities, confirming the goal of business incubators to build the business base and potential for job creation in their regions. This study - the most comprehensive one on business incubation to date - was conducted under a grant from the Economic Development Administration by the University of Michigan, National Business Incubation Association, Ohio University, and Southern Technology Council. Using a combination of surveys, focus groups, stakeholder panels, and regional macroeconomic analysis, the study found that:

• Business incubation programs help companies create many new jobs. In 1996 incubators reported, on average, that their firms had created 468 direct and 702 total jobs.

• Business incubation programs create new jobs for a low subsidy cost and a substantial return on investment. The estimated public subsidy cost per job created was $1,109.

• Incubator companies experience very healthy growth. For example the average annual growth in sales per firm was $239,535.

• Business incubation programs produce graduate firms with high survival rates - a reported 87 percent of all graduates are still in business.

• Most firms that graduate from business incubators remain in their local communities - an average of 84 percent.

• Most incubator firms provide employee benefits.

• Incubation programs contribute to their client companies' success and expand community entrepreneurial resources.

• Business incubation programs improve local community image.

• EDA-funded incubators perform better than or equal to non-EDA funded counterparts.

Macroeconomic research revealed wider impacts - in terms of wages, direct and indirect jobs, and local tax revenues - that incubator clients and graduates can have on their communities. Although the number of companies used in this part of the analysis was relatively small, the data revealed that incubator firms studied returned considerably more dollars to a community than it costs to subsidize the business incubator program.  [The rest of the summary deals with the conduct of the study]

Several cautions. This study was done in the go-go 90s and covered larger communities than we have in Western Nevada County. It would be good to read and study the whole report to see what lessons we can apply our local community.   

Comments

[George Rebane]

Russ, your last statement puts it into perspective. Also back then the scaling of incubators allowed the purchase of T-1 lines which was the early broadband needed for co-operative software development over the web. All incubators of those days were really venture funded companies that attempted to cheaply troll the talent pool. To become part of an incubator you had to give away a part of your company besides pay for some ongoing costs. Bill Gross' Idealab in Pasadena was the premier incubator started in 1996. In 1997 my partner and I were invited by Gross to join it; after taking a close look, it wasn't worth it if you had even a minimal knowledge on how to run a business. Their message was 'bring your technical brains, we'll supply the business brains'. Looking back, Idealab's batting average hasn't been that impressive, and they operated in the world's largest hightech metropolitan area. Bottom line, think carefully before putting too many resources into a Nevada County based incubator.

[Corinne Colbert]

George, I have to correct you on several counts because the information you presented is either inaccurate or flat-out wrong.

You claim that "all incubators of those days were really venture-funded companies…." Yes, there were quite a few for-profit incubation programs launched in the late '90s that crashed along with the rest of the dot-com boom. (Essentially, the dot-com bubble spurred a boom of for-profit incubators based on a badly designed venture business model.) However, by no means were all of them of that nature. In 1991, the National Business Incubation Association identified 425 business incubation programs, of which only 8 percent were for-profit. The percentage of for-profit incubators historically remained at less than 12 percent through most of the past 30 years -- except for 1997 to 2002. In our most recent survey of business incubation programs, conducted in 2006, 6% of those surveyed were for-profit entities, reflecting the loss of many of these venture-model programs. The incubation industry overall, however, is growing: NBIA estimates that there are 5,000 incubation programs worldwide, including more than 1,100 in the United States alone.

Programs you describe are the industry exception rather than the rule, although Idealab and many other for-profits fit NBIA’s definition of an incubator: A program designed to accelerate the successful development of entrepreneurial companies through an array of business support resources and services, developed or orchestrated by incubator management and delivered both in the incubator and through its network of contacts. However, 75% of business incubation programs do not take equity in their client companies, nor do the majority of them seek to supplant company founders with their own executives. It is true that scientists and researchers often are not ideal CEOs and must be convinced to build a proper management team; this may mean they eventually oversee technology development or take on another role rather than serve as CEO.

Idealab is hardly "the premier incubator" in that it is neither the first nor the most outstanding example of its kind. The first identified business incubation program was the Batavia Industrial Center, which opened in Batavia, N.Y., in 1959. NBIA's 2006 State of the Business Incubation Industry report shows that more than 40% of operating programs were founded before 1995. Almost one-third of today's incubation programs have been launched since 2001. NBIA is pleased to count some of the world’s most successful and prestigious incubation programs among its members, including the Austin Technology Incubator at University of Texas; the Monsanto-sponsored Nidus Center for Scientific Enterprise in St. Louis; the Gwinnett Innovation Park, a for-profit in Norcross, Ga., sponsored by Intelligent Systems; the Georgia Institute of Technology’s Advanced Technology Development Center; the Industrial Technology Research Institute (ITRI) Incubator Center in Hsinchu, Taiwan; and the Cap Alpha and Cap Omega incubators in Montpellier, France.

Russ, I would encourage you to consider contributing resources into a Nevada County based incubator if a study shows one would be feasible there. NBIA estimates that in 2005 alone, North American incubators assisted more than 27,000 start-ups that provided full-time employment for more than 100,000 workers and generated average revenues of more than $17 billion.

If you are interested in developing a business incubation program, consider joining some of the 650 to 700 incubator managers and developers from around teh world at NBIA's 22nd International Conference on Business Incubation in San Antonio, Texas, May 4-7. Our association currently has more than 1,800 individual members from more than 56 nations.

Incidentally, NBIA also is spearheading new research into the impact of business incubation programs: We realize that Business Incubation Works is in dire need of updating -- if for no other reason than to disprove naysayers like George.

[George Rebane]

Thanks for the expansion Corinne. My experience is limited to only for-profit incubators of leading edge technologies. I'm not familiar with successful high-tech companies that were launched through non-profit incubators in that time frame. The Sand Hill crowd was pretty thorough in identifying those technologies and getting in ahead of even the for-profit incubators. Since I didn't really make that many assertions, I wonder what those other "several counts" were on which I erred.