12/08/2016

Search

FormationofaBusinessIncubator

Home>Topics>ThePublicSectorandEntrepreneurship>FormationofaBusinessIncubator

GettheipHandbook
advancedsearch
searchhelp

ipHandbookBlog
Yoursourceforexpert
commentaryonIP
managementissues.
Gototheblog

EditorialBoard
ConceptFoundation
PIPRA
Fiocruz,Brazil
bioDevelopments
Institute

RelatedChapters

FormationofaBusinessIncubator

TheRoleofClustersin
DrivingInnovation

EdwardM.Zablocki,OfficeoftheVicePresidentforResearch,UniversityatBuffalo,State
UniversityofNewYork,U.S.A.
Editor'sSummary,ImplicationsandBestPractices

About
EditorinChief,
AnatoleKrattiger

CHAPTERNO.13.6

PrinterFriendly

DownloadPDF

UserCommentsandUploads

Abstract
Businessincubators,aseconomictools,havebecomeincreasinglycommoninthelastdecadeanda
halfforstimulatinglocaldevelopment.Incubatorsprovidefacilitiesandservices(forexample,
businessplanningandlegal,accounting,andmarketingsupport)tocatalyzesmallbusinessgrowth.
Infact,incubatedcompanieshaveadramaticallyhigherrateofsurvivalthananaveragespinout
does.Thischapterexplainswhatstepstotaketosetupanincubator,includingthebasicstructure
andthekindsofservicesgenerallyoffered.Successfulincubatorprogramsarediscussed,anda
helpfulbibliographyfocusedoncasestudiesisprovided.

WhatDoesItTaketo
BuildaLocal
BiotechnologyClusterin
aSmallCountry?The
CaseofTurku,Finland
TheActivitiesandRoles
ofM.I.T.inForming
Clustersand
Strengthening
Entrepreneurship
BuildingResearch
Clusters:Exploring
PublicPolicyOptionsfor
SupportingRegional
Innovation
TheRoleofTechnology
TransferIntermediaries
inCommercializing
IntellectualProperty
throughSpinoutsand
Startups

RelatedDefinitions:
commercialization

1.Introduction

intellectualproperty
(IP)

Aninventionsometimesrequirestheeffortsofaspinoutenterprisetobecommercialized.Withouta
corporateinfrastructuretoexecuteanestablishedcommercializationprocess,aninstitution,suchas
auniversity,maybereluctanttoinvestinthestepsneededtomovetechnologyoutofthe
laboratory.Incontrast,aspinoutmaybemorefavorablypositionedtoembracenewtechnologies
becauseofaccesstocapitalandgrantmonies.Philosophically,moreover,aspinoutisgenerallymore
willingtoacceptriskthananestablishedconcernconstrained,perhaps,byshareholderinterest.
Formingaspinoutisacriticaloptionformovinganinventionintothemarketplace.Tosucceed,
threecomponentsmustbeassembled:capital,organization,andfacilities.

invention

Thischapterfocusesonthelastofthese.Itisintendedtoprovidefundamentalbackground
informationforusebythetechnologytransferpractitionerandincludesinformationonterminology,
incubatorformation,andsuccessfulincubatorprograms,aswellasahelpfulbibliography.

2.Incubators
SmilorandGilldefineanincubatorasanorganizationthatseekstogiveformandsubstancethat
is,structureandcredibilitytostartuporemergingventures.Consequently,anewbusiness
incubatorisafacilityforthemaintenanceofcontrolledconditionstoassistinthecultivationofnew
companies. 1
Commonlyclassifiedbyownershipandcapitalsourcing,therearethreetypesofincubators:public,
private,anduniversity.Numeroussetsofsubclassificationsofthelattertwotypesexist,depending
ontheirstatusasforprofitornonprofitentities.Otherattributesofthebusinessincubatorthat
distinguishitfromothercommercialenterprisesincludetherangeofservices,theeasebywhich
tenantscancanceltheirlease,andthereduced(oftensubsidized)rentduringtheincubationterm.

3.IncubationandEconomicDevelopment

knowhow
patent(U.S.)

Google
Web
Hosting
BuildYour
Online
Presence
With
Google
Sites.Start
FreeTrial
Now

Inthe1980s,smallbecamebigineconomicdevelopmentcircles.Duringthisperiod,stateand
regionaleconomicdevelopmentstrategiesshiftedfromseekingtoattractcompaniesfromelsewhere
(industrialrecruitment)tofocusingonassistanceforthehomegrownentrepreneur.Thisshiftin
economicdevelopmentstrategyoccurredforgoodreason.SeminalstudiesbyDavidBirchatM.I.T.2
showedthatalmostalljobgrowthintheU.S.economywasattributabletosmallcompanies.While
thevalidityofBirchsfindingshasrecentlycomeintoquestion,theirimpactonpolicycirclesatthe
timeisundeniable.Economicdevelopmentofficialsandpolicyplannerssoughttocreatejobsintheir
statesandregionsbyfosteringthegrowthofsmallcompanies.
Smallbusinessincubatorsbecameapreferredvehicleforprovidingassistancetonewcompanies.In
the1980s,incubatorswerereferredtoasthemostpotenteconomicdevelopmenttooltobe
introducedinthisdecade.Onlyahandfulofincubatorswerepresentatthebeginningofthedecade,
buttheNationalBusinessIncubatorAssociationsreportin1992onthestateoftheincubation
industryillustratestheirdramaticgrowth.3Of147respondentstotheNBIAssurvey,onlyfourhad
openedby1980,withnearlytwothirdsopeningbetween1988and1991.Today,therearemore
than500incubators.

http://www.iphandbook.org/handbook/ch13/p06/

1/8

12/08/2016

FormationofaBusinessIncubator
Theincubatorconceptissimpleandappealing.Anincubatorisamultitenantfacilityproviding
affordablespaceandanenvironmentthatpromotesthegrowthofsmallcompanies.Initially,some
incubatorsprovidedaninexpensivephysicalenvironmenttospinoutsinwhathadbeenoldorvacant
buildings.Laterincubatorsconcentratedonthecompaniesthemselves,helpingthemtogrowby
creatinganentrepreneurialenvironment.Arangeofserviceswasdevelopedtoassistthesmall
company:sharedsupportservices,suchastheavailabilityofsecretarialhelp,areceptionist,and
accesstocopiersandprofessionalservices,includingbusinessplanningandlegal,accounting,and
marketingsupport.Accesstoworkingcapitalwasalsoarrangedthroughprovisionofdebtfinancing
andequityfinancing,governmentgrant/loanassistance,andconnectiontoafinancialnetworkof
angels,bankers,andventurecapitalists.Today,however,mostincubatorspreferthecompany
centeredapproach,chargingmarketratesforrentandofferingservicesasthevalueaddedbenefit
oflocatingintheincubator.Thus,incubatorsareprobablybestdefinedasprogramsratherthan
facilities.
Nonprofitentitiesoperatealmost90%ofincubators.Theirpurposeistostimulatejobgrowthin
varioussectorsofthelocaleconomy.Someincubators,particularlythosewithtiestohigher
education,emphasizetechnologybaseddevelopment.Communitiesthatlackthecritical
infrastructureoftechnologyrelatedbusinessandresearchintensiveuniversitiesmaydirect
incubatorstoservedevelopingcompaniesinthemanufacturingandservicesectors.Incubators
havealsobeenusedtoencourageentrepreneurialactivityamongdisadvantagedpopulations,
includingwomenandminorities.Forexample,theNewEnterprisesforWomenBuildingin
Greenville,Mississippi,targetsassistancetolowincome,minoritywomen.
Thesevariedeconomicdevelopmentpurposesarereflectedinthe1991NBIAsurvey,whichfound
thatthemostimportantobjectivesofincubatorswereeconomicdevelopment(91.3%)and
economicdiversification(60.9%),followedbyresearchcommercialization,technologytransfer,
women/minorityopportunities,andneighborhoodrevitalization,amongothers.Thegreatvarietyof
thetypesofcompaniesincubatedfurtherconfirmsthediversityofpurposeinbusinessincubation.
Themostcommoncompanytypesareservice(36%),lightmanufacturing(20%),technology
products(15.9%),R&D(10.7%),andwholesaler/distributor(7.8%).
Smallbusinessincubatorshaveproventobeeffectiveeconomicdevelopmenttools,eventhough
theymaynothavefulfilledearlyoptimisticexpectationsforjobcreation.Theirgreatestbenefitmay
beenhancingcompanysurvivalrates.Incubatedcompanieshaveadramaticallyhigherrateof
survivalthantheaveragespinout.Incubatormanagersreportthatsomewherebetween80and
90%ofcompaniesthathaveincubatedwiththemarestillinexistenceafterfiveyears.Thisfigure
vividlycontrastswiththeSmallBusinessAdministration(SBA)statisticthatfindsthatonly50%of
startupssurvivetheirfirstfiveyears.Thesefiguresarelesssurprisingwhenoneconsidersthatnine
oftencompaniesfailbecauseofmanagementdeficiencies,andthat90%ofthesedeficienciescould
havebeenforeseen.Jobcreationstatisticsaremoremodest.Theaverageincubatorinthe1991
studywasfouryearsoldandoccupiedaspaceofabout20,000squarefeetinsize.Eachincubation
facilityaveraged12tenantswith54employees.Graduatecompanies(thosethatrelocatedfromthe
incubator)providedanaverageof85.3fulltimejobsperincubator.
Theestablishmentofnewincubatorspeakedin1987,andthenewwaveofeconomicdevelopment
initiativesinthe1990sfocusedonhelpingexistingbusinessessurviveandprosperinthefaceof
globalcompetition.Smallbusinessincubationisnowanentrenchedandacceptedeconomic
developmenttoolusedinbothurbanandruralareasthroughouttheUnitedStates.Incubatorsare
nowusedtopromotethegrowthofentrepreneurialventuresofeveryimaginabletype.

4.PreliminaryWork
4.1Thefeasibilitystudy
Conductingafeasibilitystudyforaproposedincubatorcanachieveanumberofimportantobjectives
and,ifproperlydone,canprovideasolidbasisforjudgingtheeconomicandpoliticalviabilityofthe
proposedproject.Thefeasibilitystudyrepresentsthefirstinaseriesofearlydevelopmentphases
that,forplanningpurposes,canbedescribedasfollows:
feasibility:3months
development:9months
renovation:312months
earlystageoperations(uptoanticipatedbreakevenpoint):18months
Meeder4suggestsanumberofreasonswhyconductingafeasibilitystudyiswise.Theseinclude:
helpstoforgeaconsensusamongkeyorganizationsandcivicleaders
catalyzestheinvolvementoforganizationsthatcanprovidetheincubatorwitharangeof
resourcesincludingfacilities,funding,equipment,andhumanresources
allowsforthecompletionofplansforboththefacilitiesandtheservicestobeprovided
helpssecurefundingfromgovernmentsourcesatalllevels
educatespublicandprivatesectorconstituenciesaboutbusinessincubationinordertoavoid
confusionandunwarrantedexpectations
providesanoccasiontocontactsuccessfulincubatorprogramsinsimilarcommunitiestolearn
theirbestpracticelessons
Afeasibilitystudyshouldalsorevealexamplesofcriticalerrorsmadewithrespecttootherincubator
programs.Sucherrorsmightinvolvefacilityandsiteselection,structureofthegoverningboard,
fundingarrangements,incomeassumptions,orthenatureofthebusinessassistanceprogram.
Meedersuggeststhatathoroughfeasibilitystudywillhelpavoidthetwoclassicerrorsofincubator
formation:acceptingtheworstbuildingintownandthinkingthatthemanagementassistance

http://www.iphandbook.org/handbook/ch13/p06/

2/8

12/08/2016

FormationofaBusinessIncubator
programwillsomehowtakecareofitself.Whilerecommendingtheuseofaconsultant,Meeder
notesthatselectingaconsultantwithoutdirectincubatorexperiencecanresultinastudythat
providesgeneralanalysis,butlacksconcreterecommendations.Specificrecommendationscanmake
thedifferenceinanincubatorslongtermsuccess.Anadequatefeasibilitystudywillanswer
essentialquestionsabouthowtoproceedinasystematicfashionandhowtosecurefundingduring
allthephasesofincubatordevelopment.Indeed,athoroughstudybyaqualifiedconsultantcanand
shouldprovidetheinformationnecessarytodeterminewhethertheprojectshouldbepursued.

4.2Buildingsupport
Acoregroupcommittedtostartingabusinessincubatormustrecognizethatitseffortscannotbe
pursuedinavacuum.Thedreamofafewmustbecomethedreamofmany.Anincubator
representsanimportantcommunityinvestment,bothpracticallyandsymbolically,andrequires
broadbasedcommunitysupporttobefeasible.InForgingtheIncubator,Meedersuggeststhat
meetingswithcommunityleaderscanachieveseveralobjectives.Communitymeetingsallow
proponentsoftheincubatorto:
provideinformationonthebusinessincubationindustry
invitereactiontotheprospectsforalocalbusinessincubator
solicitreferralstopeople,companies,organizations,andfacilitiesthatcanassisttheprocessof
feasibilityand/ordevelopment
offertheopportunityofdirectparticipation,toseekspecificleadstoentrepreneurprospects,
and/orgatherinformationthathadbeenoverlooked
Engaginginthisprocessshouldclarifytheprospectsforstartinganincubator.Theprocessshould
helptoidentifypotentialsites,fundingsources,projectchampionsfromkeyorganizations,and
sourcesofassistanceandsupport,bothindividualandorganizational.Theprocessmay,however,
alsouncoverseriousimpedimentstorealizingtheproject.Meedersuggeststhatprojectsupporters
makeseriouseffortstoplacateopponentsindeed,projectsupportersshouldnotassumethatthe
projectwillbesuccessfulinthefaceofpersistentopposition.Realestatedevelopers,forexample,
mayresisttheprojectbecausetheybelieveanincubatorwillcutintotheirmarket.Apersuasive
argument,inthiscase,isthattheincubatorwillonlyincubatecompaniesforalimitedperiodoftime
andthattheincubatorshouldservetoincreaseboththequantityandqualityofcompaniesseeking
torentspace.Communityconsensusbuildingshouldhelplocateorganizationsthatwillidentifywith
thesuccessesandfailuresoftheproposedincubator.Theseorganizationsareknownas
stakeholders.

4.3Identifyingandsecuringstakeholders
Astakeholderisanygrouporindividualwhocanaffectorisaffectedbyachievementofan
organizationsobjectives.Whileeachincubatorscircumstancesareunique,anticipatedstakeholders
wouldlikelyincludelocalandstategovernmentsandavarietyofpublicandprivatesector
organizations(universities,majorcorporations)interestedinfosteringnewbusinessdevelopmentin
theregion.Stakeholdersmightalsoincludeeconomicdevelopmentorganizationsthatcouldfund
therehabilitationofafacilityand/ortheoperationoftheincubatorprogram.Thesupportofthese
stakeholdersiscriticaltoinitiatinganincubatorprogram.Atthesametime,potentialsupportersof
theincubatoreffortunderstandablyhavevariedmotivationsandexpectations.Theirlevelof
understandingofthepurposesandmethodsofbusinessincubationwillvarygreatly.
Stakeholdersneedtobeidentifiedandthencultivated.Thefirststepistosecurecommitmentfrom
potentialstakeholderswhohavethestrongestinterestandwhoaremostlikelytoprovidefinancial
supportfortheendeavor.Oncestakeholdershavecommittedtotheproject,theorganizational
structureneedstobeformalized.Agoverningbody,typicallyaboardofdirectors,providesthe
organizationalvehicleformaintaining,building,andstrengtheningcommitmenttotheincubator
program.
Oneoftheboardstasksisgettinginterestedpartiestoagreetoacleararticulationofthemission
andgoalsoftheincubator.Thisarticulationoftheincubatorsgoalsbringsthestakeholderstogether
withacommonpurpose.Experiencehasshownthatincubatorsthatfailtoachieveconsensuson
missionandgoalsinvitetroublefromtheirboard,sincememberswillcreatetheirowntacitmission
statementandbegintoactaccordingly.
Incubatormanagersshouldseektoexpandthenumberofvalidstakeholders.Newstakeholders
shouldbewelcomedaslongastheyhavesomethingtangibletocontribute.Ontheotherhand,
allowingtenantstoserveontheboardcancreateconflictsofinterest,sotenantparticipationonthe
boardshouldbeevaluatedonacostbenefitbasis.Additionally,incubatormanagersmustremain
sensitivetoexternalconditions,whichmaystrengthenorweakenthecommitmentofstakeholders
totheincubationenterprise.Finally,bylawsarecrucial.Theyprovideanobjectivemeansof
removingnonparticipatoryboardmembersand,attheotherextreme,boardmemberswhoare
exertingundueinfluence.

4.4Identifyingamarketniche
Abusinessincubatorwilloperateinaparticularlocalewithitsownrichhistory,soitmustactwith
aneyetotheregionaleconomyandinstitutions.Tobecomeanacceptedpartofthiscomplexsocial
fabric,anincubatormustestablishitsdistinctivenessanduniquepurpose.Fromabusiness
perspective,theincubatorneedstoidentifyitsmarketniche.Successfulbusinessescarefullyattend
totheworkofdefiningthemarketpositionoftheirproductsandservicesrelativetotheir
competitors,aswellastomodifyingtheirmarketpositioninresponsetochangingcustomer
preferences.
Developingamarketnicheforabusinessincubatorrequiressimilarattentiontothesetasks.An
incubatorscompetitorscomefromthespheresofrealestateandeconomicdevelopment.Within
therealestatemarket,theincubatormustdistinguishitselffromothermultipletenantproperties.

http://www.iphandbook.org/handbook/ch13/p06/

3/8

12/08/2016

FormationofaBusinessIncubator
Foratechnologyrelatedincubator,thedistinctionmaybereadilyapparent,forexample,inthat
incubatorfacilitiesmayofferwetanddrylabspace.Incubatorsalsodifferfromconventionalreal
estateagentsinthattheyoftenoffershorttermleasesandflexspaceforacompanysexpansion.
Certainly,rentsubsidizationcanbeattractivetocashpoorstartups.Theavailabilityofshared
supportservicesisanotherappealingfeatureofincubatorfacilities,althoughprovisionofsuch
servicesbyforprofitorganizationshasbecomeagrowthindustry.
Economicdevelopmentprogramsforsmallbusinessesproliferatedinthe1980s.Theseprograms
havebeenreferredtoasincubatorswithoutwalls.Wellmanagedincubatorsoftendistinguish
themselvesbyservingasafocalpointforaccesstothebroadspectrumofavailablebusiness
services.Incubatormanagersthusprovidethepointofcontactforentryintovariousprograms.
Manyeffortstoassistsmallbusinessare,bycontrast,programmaticinnatureandlimitedbythe
scopeoftheirintent.Awellpositionedincubator,ontheotherhand,willhelpitstenantsaccessthe
rangeofexistingprogramsand,inaddition,provideaccesstoinformalnetworksforbusinessand
financialadviceandassistance.Forexample,aretiredexecutivemayagreetohelpoutastruggling
firmorabusinessangelmayappear,discretelylookingfornewinvestmentopportunities.
Theincubatorprogrammayalsodelimititselfanddefineitsmarketbythetypeofcompanyorclient
served.Whilehightechincubatorsmaylimittheirscopeofservicetotechnologyfocused
companies,someincubatorsmaybeevenmoretargeted(forexample,restrictingtheirservicesto
biotechcompanies).Thecustomerfortheincubatorshouldbedeterminedduringthefeasibility
phase,duringwhichnewbusinessregistrations,byindustrytype,areclassifiedandcertainindustry
sectorsidentifiedfortheirspinoutpotential.
Whateverthemixofservicesofferedandtheassessmentofthemarkettobeserved,theincubator
mustsomehowpackageitsproducttoeffectivelypositionitself.

5.TheFormationProcess
Thebasicstructureofanincubatorfacilityisdeterminedbyownerattributesandregional
demographics.Thefollowingowner/sponsorclassificationscangenerallybeapplied:
private
localgovernment
university
stategovernment
privatenonprofit
federalgovernment
Atypicalorganizationalformatincludesexecutiveandadvisoryboards,aCEOoroperations
manager,andsupportstaff.Selectionsforboardpositionsandotherrepresentativeforumsmay
comefromthefollowing:privateenterprise,educationalinstitutions,government,organizedlabor,
developmentandinvestmentcommunity,andprivatecitizens.
Theroleofthemanagerorchiefexecutiveofficeroftheincubatorisbothinternalandexternal.This
personischieflyresponsiblefor:
incubatorpolicyandplanning
marketingandrecruitment
tenantselectionandleasenegotiation
facilityoperationsmanagement
tenantserviceandadministration
Themanagerhasmultipleconstituentgroupsrepresentingboththesponsoring(funding)segments
andtheuser(spinout)population.Appropriatelyselectingadvisoryboardmembersallowsthe
managertoestablishandmaintainnetworksforthedisseminationofinformationandpolicyto
thesedisparategroups.Table1providestypicalstaffinglevelsforincubators.
TABLE1:TYPICALI NCUBATORS TAFFING
I NCUBATOR
TYPE

PUBLIC

UNIVERSITY

PRIVATE

Mediannumberofadministrativestaff

1.60

1.90

3.50

Mediannumberofbusinessconsultingstaff

1.40

2.10

2.10

Ratioofbusinessconsultantstofirms

0.13

0.12

0.12

Managerswithpreviousbusinessexperience

70%

67%

92%

Managerswithbusinessconsultingduties

73%

67%

93%

Source:NationalCouncilforUrbanEconomicDevelopment5
Animportantfunctionismarketingtheincubator,whichwillbedriven,inpart,bytheresultsofthe
marketanalysisconductedduringthefeasibilitystudy.Themarketanalysisshouldconsiderthe
followingmajoraspectsofthelocaleconomy:
characteristicsoflargecorporationsinthearea
levelofentrepreneurialactivityinthecommunity
demandforincubatortypespace
smallbusinesssupportservicesbyindustrytype,iffeasible.

http://www.iphandbook.org/handbook/ch13/p06/

4/8

12/08/2016

FormationofaBusinessIncubator
Largecorporationscansupplyanimportantmarketfornewbusinessesandarealsothechief
sourcesofspinoutcompaniesinaregion.Thenumber,type,andrateoffilingofnewbusiness
permitscanprovideimportantindicatorsofpotentialdemandforincubatorspace.Aninventoryof
availablespacebrokendownbytype(office,manufacturing,andsoon)isessentialfordetermining
potentialdemand.
Marketinformationcanalsobesecuredbyofferingaworkshoporseminarthathighlightssomeof
theproposedbusinessservicecomponentsoftheincubator(forexample,aworkshopondeveloping
aneffectivebusinessplanoroneontheaccountingneedsofsmallbusinesses).
Thisinformationcanprovidethebasisforamarketstrategythatisintegratedintotheoverall
incubatorbudget.
Proactivelygatheringmarketinformationisrecommendedoverareactivemode,whichdoesnot
typicallyservetoeffectivelymarkettheincubator.Areactiveapproachistemptingwhenan
incubatormanagerisstretchedthinwithotherresponsibilities.However,awrittenmarketing
strategyallowsotherparties(boardofdirectors,advisoryboard,relatedorganizations)toassist.As
Meeder6pointsout,themostsuccessfulsalesorganizationshaveastandardsalesscriptorroutine
withwhicheveryoneinvolvedisfamiliar.
Themarketingeffortshouldincludetypicalmeansofcommunication,includingbrochures,
newsletters,andpressreleasesaboutnewtenants,tenantsuccesses,andgraduations.Oneofthe
incubatorssponsoringorganizationsmaybeabletohelpdevelopthesepromotionalmaterials.In
addition,theincubatorstorymaybeincludedinthecommunicationsofsponsoringorganizations.
Otherorganizationsmayalsobeinterestedincosponsoringseminarsofinteresttoentrepreneurs.
Suchmarketingeffortsarenecessarybutnotsufficient.Studieshaveshownthatmost
entrepreneurslearnabouttheincubatorthroughwordofmouth.Tomarkettheincubator
effectively,itisincumbentontheincubatormanagertocontinuetodevelopandmaintainanetwork
ofcontactsinrealestate,banking,patentlaw,businessandeconomicdevelopment,bothformally,
throughboardsofdirectorsandadvisors,andinformally,throughprofessionalorganizationsand
businesscontacts.Individualsinanincubatorslocalcommunityareoftenthefirsttoalertanascent
entrepreneurofthebenefitsoflocatinginasmallbusinessincubator.

6.Services
Astheincubatorconcepthasevolved,therangeofservicesofferedbyincubatorshasgreatly
expanded.Earlyincubatorsprovidedaccesstoaphotocopierandaconferenceroom,clericalsupport,
andperhapsswitchboardservices.Today,incubatorsthemselvesprovide,orprovideaccessto,a
broadspectrumofoffice,businessconsulting,andprofessionalservices.Themostcommoninhouse
andoutsideservicesofferedaregiveninTable2.
TABLE2:TYPICALI NCUBATORS TAFFING
I NHOUSE( PERCENTOF

OUTSIDE( PERCENTOF

S ERVICES

TOTAL)

TOTAL)

Officeservices

81

Business/strategicplanning

65

32

Externaldebtfinancing

59

Governmentgrant/loanassistance

58

28

Training/educationalprograms

52

29

Financialmanagement

51

36

Sales/marketing

51

37

Externalequityfinancing

47

27

Employmentassistance

31

41

Labequipmentaccess

29

24

Bookkeeping

23

30

Governmentprocurement

19

52

R&D/productdevelopment

19

43

Internationaltrade

14

52

Accountingortaxassistance

59

Legal/patentservices

67
Source:NBIA7

Inrecentyears,incubatorshavegreatlyexpandedthevarietyofofficeservicestheyprovide.For
example,themenuofofficeservicesofferedbyanincubatorbasedinPennsylvaniainoperationfor
threeyearsincludes:8
clericalservices
switchboardservices
voicemailbox
electronicmailbox
telephoneequipment
FAXservice
postalservice

http://www.iphandbook.org/handbook/ch13/p06/

5/8

12/08/2016

FormationofaBusinessIncubator
overnightcourierservice
notaryservices
photocopier
VCR/TVequipment
audiovisualequipment
conferenceroom
printingservices
furniturerental
laserprinting/graphics
autoservicediscounts
sportsticketpurchasing
Businessconsultingservicesmayincludebusinessplanpreparation,financialplanning,advertising
andmarketing,strategicplanning,technicalandcommercialcommunications,relocationplanning,
capitaldevelopment(equityanddebtservices),businesstaxes,employeerelations,R&D,and
governmentprocurement.
Professionalservicesincludelegal/patentservices,accounting,businessdevelopment(including
sales/marketing),andtechnical/scientificsupport,amongothers.Professionalservicesmaybe
providedatspecialdiscountstoincubatortenants.Someincubatorsarrangefornewtenantsto
initiallyreceivesomeprofessionalservicesatnocostoratadeepdiscount.Giventhat
entrepreneurshavenotimetospare,professionalserviceprovidersareoftenregularlyavailableat
anincubatorandmakethemselvesavailableforsupportandconsultation.
Indevelopingthespectrumofservicesforanewincubator,severaloptionsneedtobeexplored.
First,thereistheessentialquestionofwhichserviceswillbeoffered.Next,incubatormanagers
mustconsiderwhichoftheseserviceswillbeofferedinhouse.Thiswilldependoninternalresources
andtheexternalavailabilityofbusinessservices.Theavailabilityofqualifiedoutsidesourceswill
dependonthesuccessofforginginformalallianceswitharangeofserviceprovidersinthepublic
andprivatesectors.Forthoseservicesofferedinhouse,thequestionofcostrecoverywillneedtobe
addressed.Severalservicesaretypicallyincludedasastandardfeatureinatenantsrental
agreement.Thesemostcommonlyincludejanitorialservice,managementassistance,utilities,
sharedofficeservices,andfinancingassistance.Otherservices,suchasclericalassistance,are
chargedbacktothecompanyonanatcostorcostplusbasis.Thequality,range,dependability,and
accessibilityoftheseservicesarethevalueaddedfeaturesthatwillprovidethestrongestlurefor
attractingentrepreneurstoanincubator.Theincubatorshouldsolicitfeedbackfromtenantsto
ascertainwhetherornottheservicesareeffectivelymeetingtheirneedsandtodeterminewhether
additionalservicesshouldbeadded.

7.StrategicPlanning
Whiletheprevioussectionshaveaddresseddiscreteissuesrelatedtoincubatorformation,theneed
forstrategicplanningandtheintegrationofthesevariouselementsintoacoherent,multiphased
planshouldbeapparent.Determinationsaboutoneaspectoftheplanwillaffectotheraspects.A
ratherobviousexampleistheeffectthatthefacilitysnetavailablesquarefootagewillhaveon
rentalincome.Moresubtleconsiderationsmightincludeexpectationsforthefacilityslongtermself
sufficiency.Managersshouldconsiderwhetherselfsufficiencycanbeachievedsolelyfromrental
income,throughsubsidiesfromsponsoringorganizations,orthroughgrants.
Strategicplanningcompelsincubatormanagementtoconfronttoughissues.Howwilltheincubator
continuetooperateifrevenueprojectionsfromrentalincomearenotachieved?Howwillmajor
facilityrepairs(forexample,arupturedboiler)bepaidfor?Addressingtheseworstcasescenarios
throughstrategicplanningcanprovidebothaclearcourseofactionifthingsgoasplannedand,if
theydonot,thenecessarycontingencyplanstonavigatewhatmaybeadifficultbeginning.
Strategicplanningusefullydeterminesnotonlywhatwillbedonebutwhenitshouldbedone.The
initiationofanewphaseoftheincubatormayormaynotbemadecontingentuponthesuccessful
completionofanearlierphase.Cantheoperationbeginasanincubatorwithoutwalls,providing
businessservicesbeforethefacilityisreadyforoccupancy?Atwhatpointinthedevelopment
processisthemanagerhired?Thenotionthattimingiseverythingiscertainlytrueinstrategic
planningforanincubatorspinout.

8.CaseStudies
Detailedcasestudiesintheliteraturearecitedbutnotrestatedinthischaptersincethesestudies
aregenerallyquitelengthy.Someoftheincubatorsnotedbelowarenotinoperationtoday,butthe
historiesmaystillprovideusefulinformation.Asaguidetothereader,thesestudiesareclassifiedin
outlineformtopermitselectionbasedoninterest.
Thefirstsetofexamplesisfacilitybased:9
universityrelatedincubator:RenssalaerPolytechnicInstituteTheAdvancedTechnology
DevelopmentCenter
communitysponsoredincubator:TheFultonCarrollCenterforIndustry
corporate/franchiseincubators:ControlDataCorporationBusinessandTechnologyCenters
privateincubator:TheRubiconGroup
Thesecondgroupisobjectivebased:10
promoteeconomicdiversification:St.PaulSmallBusinessIncubator

http://www.iphandbook.org/handbook/ch13/p06/

6/8

12/08/2016

FormationofaBusinessIncubator
provideabaseforadvancedtechnologydevelopment:OhioUniversityInnovationCenter
opportunitiesfortargetedpopulations:NewEnterprisesforWomenBuilding(NEWBuilding)
Insum,principalfactorsforsuccessfulincubatorstrategiesinclude:
Knowthecommunityanditsstrategicstrengthsandweaknesses.
Locateentrepreneurialopportunities.
Design(tenant)selectioncriteriatomatchgoalsandobjectives.
Determinethespaceandserviceneedsoftenants.
Locatethefacilityinasitethatcanbedevelopedwithinthecostparametersoftarget
companies.
Findopportunitiestolinkupwithexistingsourcesofbusinessandmanagementservices.
Recruitanentrepreneurialpersonalitytomanagetheincubator.
Buildanoverallenvironmentforentrepreneurship.

Top

9.Conclusion
Incubatorshavebeenformedtoserveentrepreneursofeveryilktheyhavebeenestablishedbya
widevarietyofsponsors.Itisthereforenotsurprisingthattheirmissions,programs,andobjectives
havedifferedsubstantially.Nevertheless,overthepast15years,examplesofbestpracticeshave
emerged.Somegeneralfactorscriticaltoanincubatorssuccessinclude:11
onsitebusinessexpertise
accesstofinancingandcapitalization
inkindfinancialsupport
communitysupport
entrepreneurialnetworks
entrepreneurialeducation
perceptionofsuccess
selectionprocessfortenants
tiestoauniversity
conciseprogrammilestoneswithclearpoliciesandprocedures
Alongamorepracticalvein,someofthespecificpracticesknowntoaffecttherelativesuccessof
incubatoroperationsinclude:12
Incubatorswithlessthan30,000squarefeethavegenerallybeenunabletoreachfinancialself
sufficiency.
Incubatorswithoutanarticulatedpolicyforcollectingpastduerenthaveexperiencedhighlevels
ofbaddebt.
Anincubatormanagersmosteffectiveuseoftimeistoevenlybalanceattentiontotenant
servicesandfacilityupkeep.Initially,thedemandsofthefacilitywillpredominate.Subsequently,
themanagershouldconcentrateonachievingbalancebyexpandingtimespentintheprovision
ofservices.
Termsandconditionsoftenantleasesarecriticalforprotectingtheincubatorprogram.
Thephonesystemisanessentiallinkforcompaniesandmustbestructuredappropriately.
Theboardofdirectorsmustbeclearaboutitsauthorityregardingmanagementdecisionsversus
policydecisions.
Thestructureofserviceprovisionshouldincludewaystoincreaseeffectivenesswithinthe
budget.Methodsincludetheuseofthirdpartyserviceprovidersandcollectingfeesforservices.
Exitpoliciesshouldencourage,butnotmandate,tenantgraduation.

Endnotes
AllreferencedWebsiteswerelastaccessedbetween1and10October2007.
1SmilorRWandMDGill.1986.TheNewBusinessIncubator:LinkingTalent,Technology,Capital

andKnowHow.LexingtonBooks,D.C.HeathandCompany:Lexington,Mass.
2BirchD.1979.TheJobGenerationProcess.M.I.T.MimeooftheProgramonNeighborhoodand

RegionalChangeBoston.BirchD.1981.ChoosingaPlacetoGrow:BusinessLocationDecisionsin
the1970sMimeooftheProgramonNeighborhoodandRegionalChange.BirchD.1981.Who
CreatesJobs?PublicInterestFall.pp.314.
3NBIA.1992.TheStateoftheBusinessIncubatorIndustry1991.NationalBusinessIncubation

Association:Athens,Ohio.
4MeederRA.1993.ForgingtheIncubator:HowtoDesignandImplementaFeasibilityStudyfor

BusinessIncubationPrograms.NationalBusinessIncubationAssociation:Athens,Ohio.
5NationalCouncilforUrbanEconomicDevelopment.1985.CreatingJobsbyCreatingNewBusiness

TheRoleofBusinessIncubators.NationalCouncilforUrbanEconomicDevelopment:Washington,
DC.
6Seesupranote4.
7Seesupranote2.
8

http://www.iphandbook.org/handbook/ch13/p06/

7/8

12/08/2016

FormationofaBusinessIncubator
8Seesupranote5.
9Basedonselectionslistedinsupranote1.
10Basedonselectionslistedinsupranote2.
11Seesupranote1.
12Seesupranote5.

ZablockiEM.2007.FormationofaBusinessIncubator.InIntellectualPropertyManagementin
HealthandAgriculturalInnovation:AHandbookofBestPractices(eds.AKrattiger,RTMahoney,L
Nelsen,etal.).MIHR:Oxford,U.K.,andPIPRA:Davis,U.S.A.Availableonlineat
www.ipHandbook.org.
EditorsNote:WearemostgratefultotheAssociationofUniversityTechnologyManagers(AUTM)for
havingallowedustoupdateandeditthispaperandincludeitasachapterinthisHandbook.The
originalpaperwaspublishedintheAUTMTechnologyTransferPracticeManual(PartIV:Chapter3)
coauthoredwithDEMassing.
2007.EMZablocki.SharingtheArtofIPManagement:Photocopyinganddistributionthroughthe
Internetfornoncommercialpurposesispermittedandencouraged.

AbouttheipHandbook|PoliciesandDisclaimers|ContactUs|SiteMap
DevelopedwithsupportfromtheRockefellerFoundation.DistributedthroughSponsorship.
20072012.ConceptFoundation,PIPRA,FIOCRUZandbioDevelopmentsInt.Institute.Copyrightanduse.

http://www.iphandbook.org/handbook/ch13/p06/

8/8