A Look at Business Incubation and Its Use in Appalachia
How Does a Business Incubator Contribute To a Local Economy?
Business incubators are facilities designed to help new businesses get started by providing affordable rental space, onsite support services, and technical assistance (including financial and legal advice) until the entrepreneur eventually "graduates" or leaves. As part of the package, the typical incubator offers entrepreneurial firms access to equipment, flexible leases, expandable space, hands-on management assistance, and access to financing. Graduating Successful Businesses is Key
An incubation program's main goal is to graduate successful, financially viable businesses capable of operating on their own, usually in two to three years. Thirty percent of incubator clients typically graduate each year. According to the Impact of Incubator Investments study by the U.S. Department of Commerce (1997), 87 percent of all incubator graduates are still in business. Many Kinds of Businesses Operate in Incubators
Some incubators accept a mix of industries, but others concentrate on industry
niches. According to National Business Incubation Association (NBIA)
research, incubators nationally fall into the following classifications:
- Mixed Use
- Technology
- Manufacturing
- Sectorally Targeted*
- Service
* Targeted incubators focus on assisting start-up companies from a specific
industry, such as biomedical, wood products, arts, food production, fashion,
etc. Innovation in Incubators
Many businesses operating in incubators are developing innovative technologies - those products and services that improve quality of life. One example is NUCSAFE, a company incubated in Tennessee's Fairview Technology Center. NUCSAFE has developed a nuclear detection device that incorporates neutron-sensitive glass fiber in a device the size of a suitcase. NUCSAFE is now a client of Technology 2020, another Tennessee incubator specializing in counseling, financing, and strategic planning for start-up companies.A Look at Business Incubation in Appalachia Most Incubators in Appalachia are Mixed-Use
While technology incubators produce many headline-grabbing businesses, mixed-use incubators continue to be the norm in Appalachia. A 2001 ARC survey of 72 business incubators in the Region found that two-thirds are mixed-use. Respondents report that since 1979, 894 business have "graduated" from these incubators and more than 14,000 jobs have been created. Services Provided by Incubators in Appalachia
Respondents to ARC's survey reported that—
- Over one-half provide access to loan funds, networking assistance, accounting
support, marketing help, and mentoring.
- Approximately one-third offer manufacturing assistance.
- Approximately one-fourth offer international trade, federal procurement,
or general legal services.
- Approximately one-fifth offer product commercialization or product design
services.
- Approximately two-thirds of incubators have been in business more than four
years.
Physical Size of Incubators
- Three-quarters of the incubators are 50,000 square feet or less.
- Eleven incubators are 10,000 square feet or less
- Nine have at least 100,000 square feet.
Incubator Budgets
A typical incubator in the Region has an average annual operating budget of
over $215,000 and employs almost two full-time staff. Millions of Dollars Have Been Invested in Incubators Since 1978
Separate ARC data show that since 1978 the agency has invested $15.3 million in business incubators, which has been matched by $19.4 million in other federal funding, including grants from the Economic Development Administration (EDA), the U.S. Department of Housing and Urban Development (HUD), the U.S. Department of Agriculture (USDA), the Tennessee Valley Authority (TVA), and over $33 million in state and local funds.ARC Supports Business Incubation Through Its Entrepreneurship Initiative
ARC's advisory committee of leading incubator managers in the Region has recommended
several activities to help strengthen existing incubators, and help underserved
communities to consider business incubation as a potential economic development
strategy. To date ARC has
- Held three annual conferences on rural business incubation, in partnership
with TVA and NBIA. Over 500 state and local officials, economic developers,
and incubator managers attended conferences in Bristol, Chattanooga, and Knoxville,
Tennessee;
- Initiated a mentorship program with the National Business Incubation Association
to provide support to new facilities and to assist communities with facilities
under development; and
- Compiled a list of business incubators in the Region.
Is Incubation Right For Your Community?
Business incubation does not promise an overnight solution to endemic, structural
problems in a region's economic base. Incubators can, however, play an important
role in an overall development strategy that seeks to integrate entrepreneurship
and other home-grown solutions with more traditional approaches based on industrial
recruiting and support for existing industry. When combined with entrepreneurship
education and improved flow of capital to new and expanding businesses, an incubator
can be a reliable and consistent source for creating new enterprises and local
wealth.
Successful Incubators Require Support from a Network of Local Leaders, Officials,
Businesses, and Colleges and UniversitiesIf incubators are so promising, why aren't more communities including them in their comprehensive approach to economic development? There are several answers. Perhaps the most significant obstacle is a reliable funding stream. Small, rural communities are likely to face problems developing and managing an incubator without solid upfront support as well as a long-term commitment from local business leaders and elected officials. Federal and state grant money is sometimes available for construction and/or renovation of an incubator, but typically will not cover ongoing operations after a startup period. Communities often find a solution to the funding problem by becoming part of a network. These networks can be based on a partnership with other incubators or with universities and other institutions where an available, capable pool of human resources exists. It is also important for communities to have realistic expectations for an incubator.
Incubators are not a cure for excessive unemployment or an uneducated workforce.
To run smoothly and produce a steady supply of ready-to-expand businesses for
the local community, the incubator manager must focus on preparing entrepreneurs
to operate on their own. Communities shouldn't underestimate the importance
of an incubator's board of directors. Board members should have the best interests
of the incubator as their main goal, letting the manager manage, but making
sure that the incubator's focus remains true to its mission. How do Businesses Become Incubator Clients?
Incubators impose selection criteria on prospective clients to help choose
the most potentially viable businesses. Entrepreneurs that intend to grow their
businesses locally often receive preference over those that do not, since the
local community often has a large stake in the incubator operation. Where to Go for More Information on Incubators Local Development Districts
Support for business incubation exists at every level—local to international.
At the local level, support is sometimes found at the local college, chamber
of commerce, or local development district (LDD). Development districts,
sometimes called regional councils, planning commissions, or councils of government,
are multi-county public organizations typically devoted to delivery of planning,
economic development, technical assistance, and advocacy. Development districts
often serve as the clearinghouse for ARC funding. Among ARC development
districts, the New River Valley Planning District Commission in Radford, Virginia, has a history of support for business incubation.
National Business Incubation Association
Perhaps the leading advocate for business incubation in the world is NBIA,
headquartered in Athens, Ohio. With conferences, training seminars, publications,
and research, NBIA provides opportunities for professional development and various
forums for advancing the industry. Membership consists of incubator developers
and managers, and includes overseas incubators and professionals.
Other Local and International Assistance Programs
Funding for design, construction, and operations of business incubators is
available from a variety of organizations, including some state and federal
agencies and, in the developing world, the United Nations Development Programme. Funding Assistance in Appalachia
In Appalachia, funding assistance is sometimes available through various economic
development programs:
Additional ARC Assistance
Appalachian states fund projects promoting business development through ARC programs
and initiatives unique to each state. The Grants
section of this site contains additional information on the Appalachian
states' ARC programs.
ARC's
business incubation mentor program provides funding for certified mentors
to travel to your community and explore options for incubator development. This
is a good way for a community to test the water with an experienced incubator
professional. NBIA manages the program for ARC, which requires a community to
share in the cost and meet other eligibility criteria, but provides an easy
opportunity for communities to hear firsthand how an incubator can help bring
new economic growth to their area.
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