Business incubators are literally what they sound like, a warm nurturing environment for new, small, entrepreneurial businesses to start and grow. Incubators are usually located in older, sometimes abandoned offices or industrial buildings. Incubators give starting businesses inexpensive space to rent, shared office support such as telephone receptionists/secretaries, office services and equipment such as photocopiers, technology support services, financing assistance, and most important, other people who are in the same situation of starting their own businesses. A budding entrepreneur can frequently walk a few steps to someone in the same situation to ask questions and advice. Overall, an incubator program aims to produce businesses that are financially viable and freestanding by the time they leave the incubator, after a typical stay of two to three years.
The stakes are high as studies show that up to 90 percent of new small businesses fail within five years of their founding. According to a 1997 study conducted by the Athens, Ohio-based National Business Incubation Association (NBIA), about 87 percent of companies that graduated from an incubator since the 1970s are still in business. Furthermore, during their stay in the incubators, these companies recorded an average sales increase of more than 400 percent.
Incubators are relatively new concepts, born in the late 1950s in Batavia, New York, when the city leaders decided to help businesses without much capital grow into job producers. During the 1980s and 1990s, the concept took off. In 1980 the NBIA reported there were 12 incubators in operation in North America. By 1998 that number had grown to 587.
The concept appears to be most popular in both rural areas, where farmers and other small town residents fill them when not working full time on the farm, and in the inner city. According to the association, 36 percent of North American incubators are in rural areas. Urban-based incubators make up 45 percent of the total while suburbs (to where many of the former urban jobs moved) have just 19 percent.
The "big" business community has not yet embraced incubators as a way to build a network of vendors or as a system for developing future new products. Only 8 percent of all incubators haye a forprofit company as a sponsor. About 51 percent of all incubators are sponsored by government agencies and nonprofit organizations, sometimes as an effort to boost economic development in an area, or as a means of encouraging those laid off from "big business" to go into commerce for themselves. Four-year colleges and universities sponsor 27 percent of the incubators, sometimes aiming to provide faculty with research opportunities or to offer start-up business opportunities to alumni, faculty, and associated groups. Another 16 percent of North American incubators are hybrid facilities, run through joint efforts of government, nonprofit, and/or for-profit organizations. The remaining 5 percent are sponsored by a variety of other entities, such as American Indian tribal governments, church groups, and chambers of commerce.
Business incubators shelter as many types of businesses as exist in the cold world outside them. Each incubator, however, is unique in regard to the type of business accepted into its program. A 1998 study conducted by the NBIA found that 43 percent of all incubators accept businesses from a mix of industries; 25 percent specialize in technology companies; 10 percent focus on manufacturing; 9 percent are targeted on helping start-ups from a specific industry, such as biomedicine, the arts, or fashion; 6 percent center on service industry firms; and 5 percent are categorized as "empowerment" incubators, helping to launch women- and/or minority-owned companies.
During 1997, again according to the NBIA, the average incubator served 20 entrepreneurial firms. The association has also estimated that in their relatively short span of existence North American incubators have created nearly 19,000 companies that are still in business and more than 245,000 jobs.
One of the advantages of incubators is that the concept works in all size communities and in urban or rural areas. The incubator takes on the character of the community in which it is located. Rural-based incubators may launch companies based on the agriculture present in the area. For example, an incubator based in the heartland might build its expertise around turning grain and corn into products other than foodstuffs. An urban-based incubator in Miami might draw on the Cuban culture to produce ethnic foods. In both cases, the small business people in the community would know more about how to start and operate such businesses than major corporations that focus on mass production.
SEE ALSO : Entrepreneurship
[ Clint Johnson ,
updated by David E. Salamie ]
Buss, Dale. "Bringing New Firms Out of Their Shell." Nation's Business, March 1997, 48-50.
Evanson, David R. "Fertile Ground: Providing Access to Investors Is Just One Way an Incubator Can Help Your Business Take Flight." Entrepreneur, August 1997, 55-56.
Hayhow, Sally, ed. A Comprehensive Guide to Business Incubation. Athens, OH: National Business Incubation Association, 1996.
National Business Incubation Association. "NBIA: National Business Incubation Association." Athens, OH: National Business Incubation Association, 1999. Available from www.nbia.org .
Rice, Mark P., and Jana B. Matthews. Growing New Ventures, Creating New Jobs: Principles and Practices of Successful Business Incubation. Westport, CT: Quorum, 1995.