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As an incubator client, it will be your job to focus on
the growth and success of your own business. However,
it is useful to understand the general formulas and progress
indicators commonly used to measure the performance of
an incubator as a whole. These measurements may impact
your own business. The following tables provide these
formulas and indicators in four assessment categories:
efficiency, utilization, effectiveness, and sustainability.
Efficiency
An incubator's efficiency is a measure of its profitability
in terms of its start-up time, total investment costs,
financial leverage, and its cost per each job it generates.
You would not want to join an incubator if it lacks efficiency,
because your company, no matter how strong its potential,
could easily become mired down in the financial inadequacies
of the incubator's business environment. Slow bureaucracy,
such as a protracted funding process or time-consuming
administrative procedures, may account for an incubator's
inefficiency. |
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Efficiency
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Start-Up Time = the length of time required
to establish an incubator.
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Start-up
time could be 12 – 24 months or more for an incubator. As a potential client, you should inquire
how long the incubator has been in existence as
well as how long it took to establish the incubator.
This can be an indicator of how healthy
the incubator is in terms of its financial soundness
and efficiency.
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Incubator Investment Cost = total investment/sq. ft.
of incubator space.
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The
total investment equals the operating + set-up
costs. This number is divided by the total square
footage of space in the facility.
For
example, if total investment = $7,000,000 and
total square footage = 3,000 sq. feet, then the
cost per incubator would be $2,333.33 per square
foot.
Thus,
you can assess, based on how much square footage
you plan to rent, how much of an investment was
made per square foot. As a result, you can measure
the value of rental space.
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Financial Leverage = ratio of public to private
sector funding
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This
measures the ratio of public to private sector
funding. For example, if an incubator receives $800,000
yearly from public funds plus $1,600,000, its
public to private ratio is 1:2.
This number indicates the emphasis on sources
of funding. It sheds light on which stakeholders
have greatest influence as well as how dependent
the incubator is on either public or private sources.
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Cost per Job = total investment / jobs
in client and recent graduate firms
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This
measures the incubator’s cost for each job produced
by client companies. Thus, it is the total investment cost divided
by number of jobs currently in client companies
and recent graduate companies. If the total investment
cost of the incubator is $4,500,000 and 112 jobs
have been produced thus far, the cost per job
is $40,178.57.
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Utilization
An incubator can also be assessed in terms of the degree
to which it is utilized. Is the incubator occupied to
capacity? Are clients using all of its services? How many
clients make it through the incubator? Are they satisfied
with the incubator? Your company might not want to join
an incubator that is underutilized or overspread in resources,
especially if the turnover rate for clients is too high.
If an incubator's services and resources are utilized
inadequately, they may be reduced or terminated, as investors
will deem them not cost-effective.
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Utilization
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Occupancy Rate = percentage of incubator
space leased to companies
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The
occupancy rate measures the capacity of the incubator:
how much of the incubator is being utilized.
Thus, if an incubator has the capacity
to utilize 90,000 square feet and it’s only utilizing
63,000 square feet it is only at 70% capacity. This can be an indication of either a healthy
or unhealthy incubator program.
If the incubator has been underutilized
for long periods of time, it may not have the
financial means to sustain itself.
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Incubator Service Utilization
Rate = percentage of companies using incubator support services
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This
measures the percentage of the incubator’s services
that are being utilized. If an incubator has 19
clients, and 13 are using incubator services (i.e.,
legal support, financial support, etc), the incubator
service utilization rate is 68%.
This can be an indication that the program
is being underutilized and overspread in its own
resources. On
the other hand, a 100% rate might indicate that
attention to each company will be limited.
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Incubator Turnover = number of firms entering
/ number of firms leaving incubator
Or
Average
Time in Incubator
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This
can be determined by finding the average length
of time a client company spends in the incubator.
If the average time is too short, i.e.,
24 months or less, it may be a sign that the incubator
is not capable of assisting its clients to fruition.
Longer time periods, 24 months or more,
are generally a healthier turnover time.
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Client Satisfaction = percentage of firms indicating
that incubator services meet their needs
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Client
satisfaction can only be measured through surveys. The surveys must be designed to measure whether or not, and to
what degree, clients are satisfied with services
and/or facilities provided in the incubator program.
If, for example, 33% of all companies are
strongly dissatisfied, this is a clear indication
that the incubator is lacking in the quality of
its services and/or facilities.
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Effectiveness
Effectiveness, as a category, presents variables to compare
to Efficiency. An incubator can be efficient in terms
of what it provides, but how effective is it? Effectiveness
measures the quality of performance with respect to the
incubator and its individual clients. How many companies
actually make it to the start-up phase? How long, on average,
does this take? How many jobs does each client create?
If an incubator is to be assessed in terms of its ability
to contribute to economic development objectives, this
category is especially important. |
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Effectiveness
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Start-Up Rate = percentage of client companies
leading to start-ups
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This
is the number or percentage of firms that lead
to start-ups. In other words, it measures how many client
companies in the incubator actually make it through
the initial phases of business launch and formation.
This measurement provides an indication
of how effective the incubator is in assisting
client companies in the earliest, most critical
stage of development. Thus if only 15 out of 21
companies made it to start-up the rate would be
71%.
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Start-Up Time = average length of time required
to start a new business in the incubator
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This
measures the average length of time it takes for
client companies in the incubator to make it to
start-up. It
can be an indicator of how quickly an incubator
program mobilizes its resources and services for
its clients.
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Survival Rate = percentage of start-ups
still in business after 5 years
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Survival
rate is the percentage of start-ups that are still
in business after five years (whether they are
graduates or still in the incubator program). Thus, if out of 39 companies, only 9 are
still in business after 5 years, the survival
rate of the incubator is only 23%.
Once again, this may indicate how effective
an incubator is in mobilizing its resources and
services for its clients.
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Job Creation = number of jobs per client
firm
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This
number measures how many jobs were created, either
by the incubator program or each of its client
companies. In
terms of economic development, this number should
be divided into two categories: local jobs and
non-local jobs.
If an incubator client creates 9 jobs,
3 employees from out of the area and 6 from the
area, it can be said that 33% of jobs are filled
by non-local staff and 66% are local.
This measures whether or not the incubator
is directly benefiting the local labor force.
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Sustainability
An incubator can also be assessed in terms of its clients'
sustainability, which measures variables of effectiveness
over a longer period, such as years. How long does it
take, on average, for each client to break even in terms
of revenue and expenses? What is the graduation rate each
year? What is the retention rate for businesses remaining
in the region? Even factors such as market rate (the costs
of services provided by the incubator in comparison to
their market value), help evaluate the long-term feasibility
of joining an incubator. |
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Sustainability
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Financial Breakeven = income – operating costs
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For
many newly launched companies, financial breakeven
is an objective that can take several years.
In order to determine whether or not a
company is breaking even, operating expenses are
subtracted from income.
If the business arrives at “0,” it is at
financial breakeven. If it is above “0,” it has made a profit. If information is publicly available about
incubator clients, inquiring about how many are
close to or above financial breakeven is an indicator
of how effective the incubator program is with
respect to sustaining its clients.
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Graduation Rate = percentage of clients leaving
incubator each year
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This
measures how many clients actually leave the incubator
and achieve self-sufficiency.
It can be determined yearly. For example,
if an incubator graduates 2 out of 19 clients
this year, it will have a graduation rate of 10%. Over the years this rate changes. It is a key indicator of whether an incubator program is successful
enough in bringing its clients through the critical
stages of development that most incubators are
designed to address.
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Market Rates = level of discount or premium
for incubator space compared with local market
rates
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Market
rate is critical in determining whether or not
an incubator program is advantageous and feasible
for potential clients. It measures how much lower (or higher) its services and facilities
are priced, compared to current market rates. Market rates can be determined for the rental
of space and equipment as well as for the costs
of services such as lawyers, accountants and marketing
professionals. For example, if the incubator offers 1,200 square feet of rental
space at $450 per month and the local market rate
is $600 for the same size space, the discount
rate would be 25%.
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Growth Sectors = proportion of graduates
in growth sectors (breakdown)
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What
is the industry breakdown of client companies
in an incubator? This will help you determine whether or not
your company has compatibility with the overall
mission of the incubator and its clients.
Some incubators have clients in a variety
of industries, while others serve primarily one
area, i.e., biotechnology.
If, for example, 85% of client companies
are in biotechnology, and your company is in the
aerospace industry, there may be a mismatch.
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Retention Rate = percentage of graduate
companies remaining in local area
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Retention
rate measures the percentage of companies that
remain local after graduating from the incubator.
This is an important measurement, especially
in terms of economic development. Companies that remain local also provide
local employment, taxes and add to the economic
diversity or specialization of the region.
If 7 out of 9 graduates of an incubator
have remained local, it can be said that the retention
rate is 77%.
If your company’s goal is to become a permanent
player in the local economy, this number can be
especially enticing.
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