Open for Business: Incubators gain popularity

The idea of the business incubator isn’t new – according to the National Business Incubation Association, the first U.S. business incubator opened in 1959.

Business incubators – centers that provide inexpensive services and space to fledgling businesses – are gaining popularity nationwide – and in the Ozarks. There are more than 1,100 of the facilities for small-business growth in the United States, according to NBIA, up from only 12 in 1980.

“The Ozarks is a very entrepreneurial area – a lot of people have ideas and are doing things on their own, as a hobby or a pastime,” said Allen Kunkel, head of the Ozarks Regional Economic Partnership, which offered a seminar on business incubators as part of its Oct. 27 Fall Partnership Meeting in Branson. “Our challenge is to try to identify those folks and get them educated to the point where they’re willing to turn that hobby into a full-time business.”

Ozarks efforts

Drury University’s Students in Free Enterprise team opened its incubator, named DSIFE, in 2004 in a renovated mortuary building. It was the first incubator in Springfield.

The school’s program serves two purposes: It’s a place for budding entrepreneurs to get services and space for their ideas, and it’s a place for Drury students to learn how small business works.

“It’s unique that our students work one-on-one with these aspiring entrepreneurs and help them in any way that they can,” SIFE Director Chris Mitchell said. “They help them with marketing ideas, with accounting, etc., and they’re taking the things they learn in the classroom and applying them with these entrepreneurs who maybe just have an idea.”

DSIFE offers office space, equipment and business counseling, and seven companies have taken advantage of at least some of those services.

Joplin’s incubator, the Joseph Newman Business and Technology Innovation Center, was born out of the Joplin Area Chamber of Commerce’s need for more parking. The Joplin chamber bought the lot neighboring its offices – along with the century-old building it contained.

At the time of the purchase, chamber officials were studying incubators and their role in serving entrepreneurs.

Steve Russell, the director of the Newman center, said the Joplin chamber chose to assist startup ventures in addition to serving established business members.

“If someone has an idea, they feel like they’re alone and there’s nobody out there to help them,” Russell said.

Three years and $1.6 million in federal and state funding and local donations later, the old building is now functioning as the Newman Center. More than half of the space in the center is leased to fledgling businesses, including SBJ’s sister publication, Joplin Tri-State Business. Other Joplin tenants are Gestalt LLC, Activehead, Attorney James Hanson and Vogel Properties LLC.

Branson has also gotten in on the incubator scene; the Downtown Branson Main Street Association opened its retail incubator, Waterfront Trading Co., in October.

The center offers space and product showcasing for retailers. Tenants are required to attend small-business classes and also have a role in the allocation of marketing dollars.

There are currently four tenants, though there is capacity for 10 to 12.

Getting started

No matter what the individual situation or community, OREP’s Kunkel said, all potential incubators face two problems: finding a facility and making the enterprise self-sufficient.

“The whole process is to get a company in and out quickly – get them to a point where they can go out and get the market-priced space so they can support their own business,” he said. “The challenge is finding the facility to do that and getting some assistance. Once it’s renovated and going, the majority is going to be paid for through the lease payments.”

Innovation center tenants pay below-market lease rates, and the use of shared resources such as staff to answer telephones and office equipment is sometimes included.

Most incubators, including those in Springfield and Joplin, take advantage of some kind of federal, state and/or local grant programs to help with startup costs.

Joplin took advantage of a matching grant from the U.S. Department of Commerce’s Economic Development Administration for $600,000. DSIFE got a $50,000 grant from the city of Springfield to renovate its space.

After incubators are up and running, however, operating costs are manageable for the entities behind them.

“Continuing operating costs are next to none,” Mitchell said. “We pay phone and Internet, which comes from our SIFE budget. There is no rent and no utilities. Everything in the physical space was donated – copy machines, computers – and the students are free help as well.”

In West Plains, the city’s downtown redevelopment group, Downtown West Plains Inc., purchased a 35,000-square-foot building and is currently wrapping up the financing – including grants and tax credits – for a $1.2 million renovation project to turn the facility into an incubator. Plans call for the first tenants to move into the incubator by the end of 2007.

Toney Aid, Downtown West Plains Inc. board member and owner of Downtown Antiques, said the West Plains incubator will focus on local companies.

“The idea is to incubate businesses from within the community,” he said. “They have less turnover and tend to stay loyal to the local community. Plus, we realize that four out of five new jobs come from small businesses now.”

The West Plains Incubator will have a mix of retail, office and light industrial tenants, Aid said, and officials are planning to mix incubator space and market-price offices for lease to boost profitability.

Return on investment

No matter the type of business, or the size of the facility, all agree on the benefits incubators provide to their communities.

NBIA says that North American incubator clients and “graduate” companies have created more than half a million jobs since 1980, and every 50 jobs created by an incubator client generate about 25 additional jobs in the same community.

Newman Center Director Russell needs look no further than the center’s first client – Gestalt, the Pennsylvania-based computer software designer for evidence of economic benefit.

“They’ve brought about $16.5 million to Joplin based on them moving to the innovation center,” Russell said.

What is an incubator?

Business incubators accelerate the successful development of startup and fledgling companies by providing entrepreneurs with an array of targeted resources and services. Those services include management guidance, technical assistance and consulting, as well as access to rental space and flexible leases, shared basic business services and equipment, and assistance in obtaining financing.

A business incubator’s main goal is to produce successful firms that will leave the program financially viable and freestanding.

Source: National Business Incubation Association

All About Incubators

1,115

Incubators in the U.S. as of October

35,000

Startup companies assisted by North American incubators in 2001

82,000

Number of workers those companies employed

$7 billion

Revenue those companies generated

85

Percentage of new companies that fail within the first three years

87

Percentage of firms that graduated from incubators and are still in business after three years

Source: National Business Incubation Association