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Incubators are established to do much more than simply
assist new businesses in the critical start-up phase.
They are established to facilitate economic development
in the regions or industries they serve. Now that we have
reviewed the areas of support that incubators provide,
let's take a look at their primary objectives.
Technology Transfer
The link between academic research and a commercially
feasible product or service is called technology transfer.
Incubators are mechanisms for technology transfer. Since
many ideas are developed and tested in academic laboratories
by engineers and scientists, incubators enable these institutions
to take the next step forward, by commercializing their
products and processes into viable business models. During
the technology transfer stage, tests are conducted, and
patents, as well as licenses, are often obtained.
An excellent example of successful technology transfer
can be found at the University of Central Florida in East
Orlando. The incubator there consists of 70,000 square
feet of space. Since its inception in 1999, it has grown
from 12 to over 30 emerging technology companies and has
generated more than 400 new jobs and $100 million in revenues
from sales and research and development grants. The UCF
Incubator has become an entrepreneurial hub in central
Florida. It offers a 6,500-square-foot wet lab, a clean
room, a nanofabrication facility, a machine shop, and
two rapid prototyping service providers. Successful technology
transfers have been made, notably in the biotechnology
field, where client companies such as Cognoscenti Health
Institute, a healthcare service and technology company,
is delivering newly-developed medicine to patients, physicians,
clinics, and hospitals. It is among the first to use nanochips
in clinical diagnostic services.
Self-Sufficiency
It is the eventual objective that client companies graduate
from the incubator, achieving their own self-sufficiency.
According to the NBIA, 87% of incubator graduates are
still in business, a statistic that illustrates the overall
success of the incubator concept. Self-sufficient companies
are able to support their costs without depending upon
grants, subsidies or other forms of aid. These costs include
office rent (or mortgage), salaries, utilities, equipment
costs, etc.
Columbia University's Audubon Business and Technology
Center opened nearly 11 years ago at the cost of nearly
$36 million. Currently, the facility houses 22 companies
in nearly 50,000 square feet of space, which together
employs about 140 people. Thus far, the incubator has
had 45 graduates, which have moved on to larger facilities.
Some of these companies are working to commercialize patents
and inventions created in Columbia's own laboratories
(Crain's New York Business, 9/6/2004, Vol. 20 Issue 36,
p13, 2p).
Economic Development
Incubators and their graduates play a key role in fostering
economic development on a local level, especially in these
four ways: 1) providing employment, 2) retooling workforces,
3) increasing local tax bases, and 4) creating economic
specializations.
During the past twenty years, there have been significant
changes in the U.S. economy. Many of these changes have
been felt on a local level. Employment growth has shifted
from manufacturing to service industries, with small businesses
accounting for much of the job growth. According to the
NBIA, 84% of incubator graduates (in a survey of NBIA
members) remain in their communities and continue to provide
a return to investors. Some graduates manage to evolve
into much larger, publicly held corporations. The NBIA
also says that since 1980, roughly 500,000 jobs have been
created by North American incubators. In 2001 alone, North
American incubators helped 35,000 start-up companies that
provided full-time jobs for nearly 82,000 workers and
generated annual earnings of more than $7 billion.
The Austin Technology Incubator, founded in 1989, has
graduated more than 65 companies, creating 2,850 jobs.
Of these, 5 become IPOs and 13 were acquisitions. In New
Jersey, collective statistics for business incubators
reveals that 478 people are currently employed by 111
incubator clients. Job growth rate for incubator clients
is 211%. Thus far, 104 firms have graduated from New
Jersey incubator programs.
It is said that, on average, every 50 jobs created by
an incubator client generates an additional 25 jobs in
the communities it serves (Indiana Business Magazine).
In addition, incubators that are publicly supported create
jobs at a cost of roughly $1,100 each, whereas other publicly
supported job programs cost more than $10,000 per job
created. This demonstrates the feasibility of incubators
as an economic development tool for governments.
Incubators help local economies retool their workforces.
As many manufacturing jobs based on unskilled labor migrate
to oversees markets, the strategy for many local governments
has been to develop higher-skilled jobs. In a recent feasibility
study for the state of New Hampshire, the benefits of
building a statewide program of incubators was assessed
in terms of the impact on economic development. One of
the major shortcomings of the state's economy was that
fewer than 20% of its workforce had bachelor's degrees
or higher. Incubators were proposed as an integral part
of the solution, helping the state's economy become more
competitive by retooling its own labor force. The study
favored biotechnology as an ideal industry to replace
the state's traditional mills and manufacturing companies.
Although in their initial stages of growth, states and
local governments provide tax relief for incubators, once
companies graduate, they become contributors to the tax
base. According to NBIA, every $1 of public investment
provided to the incubator, clients and graduates will
generate an estimated $30 in local tax revenue alone.
A recent study summarizing the impact analysis for incubators
in the State of Maryland indicated that incubator firms
generate between $31 and $96 million in taxes annually
(RESI: Maryland Incubator Impact Analysis).
Finally, incubators help create economic specializations.
These specializations arise for several reasons. First,
if an incubator is sponsored by an academic institution,
its strengths will rest largely on the existing knowledge
specializations of that institution. Thus, if a university
has a strong focus on aerospace programs (i.e., laboratories,
professors and specialized libraries), its incubator program
will more likely reflect it. According to Carol
Ann Dykes, president of the University Economic Development
Association, universities have emerged as central assets
in regional economic development efforts, especially in
regions that seek to build and expand technology-based
economies. She attributes this to the idea that universities
play key roles in education and training and that they
are primary centers of knowledge and innovation.
Second, for specialization, if an incubator is sponsored
by one or more large corporations, chances are its clients
will specialize in industries that are either similar
or related to its sponsor's market objectives. Intelligent
Systems, Inc., located outside Atlanta, provides an approach
to economic development based on private investment. It
is a privately held incubator that focuses primarily on
technology-based companies. Intelligent
Systems offers funding, guidance and other services
to its client companies in its 145,000-square-foot facility.
Third, specialization results in incubators that are sometimes
designed in accordance with whatever facilities or environments
they occupy. In many cases, incubators take over abandoned
industrial parks, old factories or empty warehouses. If
these facilities are located in a rural area, their specializations
may serve agricultural sciences. If these facilities are
located in an urban center, they may serve other specialties,
such as computers/software, arts, or retailing. An example
of this occurred in July 2004 when a joint venture incubator,
the SC12, was launched in an old carpet factory in Yonkers,
N.Y. The SC12's partners are Pace University, SpringLab
L.L.C, the Yonkers Industrial Development Agency, and
the U.S. Department of Housing and Urban Development.
The $2-million-dollar renovated building will house between
15 and 20 businesses in 13,000 square feet of property.
It is geared toward assisting small technology companies
with the hopes that they will benefit the local economy.
Fourth, incubators are sometimes created to facilitate
new economic specializations - ones that complement a
region's pre-existing features or the region's geography.
In the late 1990s, the State of California pursued environmental
technologies in their incubator programs. Their goal was
to create a series of incubator consortiums designed to
work together, each taking on a unique role in order to
avoid any redundancies. Ultimately, they wanted to capitalize
on the growing international market for environmental
technologies. One of the programs, the Border Environmental
Commerce Alliance, is strategically located only seven
miles from the U.S. and Mexican border.
Incubator Time/Function Matrix
The following table illustrates the functioning of an
incubator program over time. An incubator program's development
can be divided into three phases: start-up, business development,
and maturity. This table shows what occurs for each of
the major incubator participants along the way. The stakeholders
include the investors such as universities, venture capitalists,
banks, and government funding organizations. The facility
represents the incubator itself as a managing organization.
Tenant companies represent the individual businesses (or
clients) of the incubator which receive the services of
the incubator.
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Stakeholders
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Facility
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Tenant Companies
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Start-Up
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§
Create
core group of sponsors
§
Assemble
mission statement
§
Determine
needs and resources of sponsors
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§
Perform
cost/benefit analysis of building rehabilitation
§
Rehab
initial space to be rented
§
Admit
first tenant companies
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§
Provided
basic shared tenant services
§
Offered
flexible inexpensive space
§
Provided
access to professional assistance
|
|
Business
Development
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§
Enlist
aid of sponsors to market facility
§
Enlist
aid of sponsors to provide business support services
§
Expand
base to include more stakeholders
|
§
Attract
one or more anchor tenant companies
§
Renovate
space on as-needed basis
§
Provide
space for shared tenant service
|
§
Assisted
in capital acquisition
§
Programs
to encourage the mixing of companies are crested
§
Collected
products and services of tenants are marketed
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Maturity
|
§
Reassess
levels of commitment to original plan
§
Evolve
programs to reflect changing needs of stakeholders
§
Construct
alliances between and among sponsors
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§
Manage
cash flow
§
Construct
specialized lease- hold components
§
Leverage
physical plant for future interest opportunities
|
§
Take
equity in tenant companies
§
Private
service providers are sub-contracted
§
Seed
capital pool is coordinated
|
Source:
Allen, Small Business Incubators, Economic Development
Commentary, Vol. 1, No. 2/Summer, 1987. |
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