Business Incubators Nurture New Ventures

When startups begin, substantial support and mentoring can lead the new business to success. Business incubation, which includes shared office space, assistance with financing and peer interaction may …

When startups begin, substantial support and mentoring can lead the new business to success. Business incubation, which includes shared office space, assistance with financing and peer interaction may be a favorable solution for new businesses that need internal cultivation. Read more about this in the full article by The Street.

Behind every successful small business there’s a crucial network of early supporters — the friends and family who believed from the beginning and offered help and encouragement when the future was uncertain.

Startups are fragile by nature, but the right mentoring and resources can dramatically increase their chances of success. That’s the idea behind business incubators, which may be the key to increasing U.S. employment and improving the overall economy.

Business incubators fill a variety of functions. As the most basic level, they function as a shared office, where entrepreneurs have access to photocopiers, meeting rooms, lab space and other amenities unavailable in a home office. Perhaps even more vital are the support services they offer, from counseling to assistance with financing to informal peer interaction.

"With the most recent recession, we have seen increased interest in business incubation as a way to create new jobs and promote economic growth," says Linda Knopp, director of policy analysis and research at the National Business Incubation Association, which holds its 25th annual meeting this weekend. "Business incubators serve as a type of ‘grow your own’ strategy for economic development, as opposed to efforts to attract existing businesses from other locations."

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There’s also a strong economic case for the incubator model. A study by the U.S. Department of Commerce’s Economic Development Administration found that business incubators are the most cost-effective form of job creation — better than building bridges or upgrading highways. On average, jobs created through incubators cost $144 to $216 per job, as opposed to $3,000 to $7,000 for public works projects. Employment created through incubators also tends to last longer than temporary construction work.

Just like the jobs they create, incubators take different forms, tailored to the local economy. One of the largest and most successful is the Environmental Business Center in San Jose, Calif. Since it was founded in 1994, this Silicon Valley powerhouse has helped more than 150 clean energy and environmental technology companies. The Business Center not only offers building space, but expert coaching, advisory services and access to investors and strategic partners.

Other incubators have sprung up in partnership with universities. Innovation Depot in Birmingham, Ala., houses many companies that started with research at the University of Alabama. Currently, 75 companies are housed there, including information and engineering technology firms and biotech startups. A staff of consultants is available to advise on budgeting, business plans, marketing strategies and other issues. Over the past four years, the incubator has brought $1 billion in economic activity to the city.

At Temple University in Philadelphia, the Fox School of Business runs the Temple Small Business Development Center, where tenants include a staffing company, law firm and janitorial service. Businesses accepted into the program are assigned a consultant to work with one-on-one; short- and long-term goals are evaluated quarterly to build accountability.

While tech-focused incubators may get the media hype, the overall model can be adapted to almost any industry. Consider, for example, the winery incubator in Walla Walla, Wash., which opened in 2007. Starting a winery involves an enormous capital investment; you need a large, climate-controlled space to store all those barrels, as well as specialty equipment to process the wine.

The incubator — a cluster of industrial buildings near the regional airport — gives newcomers to the wine business a place to set up shop. Tenants are given six-year leases, after which they must move out to make room for others. While this particular incubator doesn’t have a consulting staff, the wineries there have benefited by association, bouncing ideas off each other and organizing joint tasting events to raise public awareness of their products.

About 900 organizations belong to the National Business Incubation Association, with members coming from more than 50 countries. With job creation at the top of every politician’s to-do list, expect those numbers to rise. In the current economic climate, small businesses need all the help they can get.

This article was republished with permission from The Street.


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