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 Focal Point Management Briefings

Business Incubators: Think Small for Big Gains in Economic Development

In the new economy, employment growth is fueled by small, entrepreneurial organizations. Over 60-percent of new jobs are created by firms with less than 100 employees. These firms are operating across the spectrum of industries, including high-technology, health-care, and biotechnology. Yet 80-percent of new businesses fail within their first three to five years of operations. The "incubator" concept is a proven tool for addressing this economic irony.

Incubators nurture small businesses and thereby improve the chances of the firms maintaining operations, growing, and bolstering the local economy. Typically, the incubator provides an office infrastructure and support services to multiple entrepreneurial firms, allowing the entrepreneur to focus on the business' core products and services. The entrepreneur does not get distracted by negotiating leases, meeting tax attorneys, installing phone systems, and any of a myriad of administrative tasks that can become a resource sink. These, and many other support services are provided by the incubator. Additional incubator tenant benefits include:

Multiple Beneficiaries

One of the most attractive features of the incubator is that it is one of those rare instances of a win-win situation for all stakeholders. The community benefits through economic prosperity and job creation.  Business Incubators Universities receive leading-edge work opportunities for their student body. The professional service suppliers build their future client base. And finally, the corporate sponsors receive a larger customer base with increased economic vitality. Sponsors have occasionally taken lucrative equity positions in the incubator graduates.

Corporate Participation

The corporate sponsors of incubators are generally the industrial stalwarts of the community, such as the electric utility, gas company, water company, telephone provider, major bank, or real estate developer. These corporations are the major beneficiaries of the community's economic prosperity. They have a vital, as well as self-serving, interest in stimulating economic growth in their service territory. Other benefits accrued by the corporate sponsor are:

Wide Acceptance

The United States is the leader in incubator development, with over 400 across the country. The success of the incubator concept has sparked wide interest. The incubator concept is a tried, true, and proven model for promoting economic development, if executed properly.

There are risks, however. Poorly implemented, the incubator can be a waste of time, money, and corporate reputation.

Specialization

One major trend witnessed recently to ensure incubator success, is specialization. Specialized incubators focus on a particular industry, such as:

A specialized incubator focuses on the strengths of its geographic location. It is logical to have an entertainment incubator in Los Angeles, CA, a manufacturing incubator in Detroit, MI, and a telecommunications center in Research Triangle Park, NC. Economies of scale and cross-pollination of ideas are two significant benefits attained when grouping like tenants.

Execution

Establishing an incubator in your community is not an overwhelming endeavor. It takes creativity, discipline and the support of a few leaders from either the business, academic, or civic communities committed to economic vitality.

Hoskins Davis has worked successfully with clients in planning and developing business incubators. We are committed to the concept and understand the pitfalls and obstacles of building a successful Incubator. If you would like additional information, or are planning or considering an incubator, please contact Hoskins Davis for additional information.