Business incubators ‘mentor companies through their childhood’
Brian Baker hears about plans for new business incubators on a regular basis. Baker, who is director for entrepreneurship at the University of Mary Washington’s Center for Economic Development, serves as president of the board of directors for the Virginia Business Incubation Association. He estimates nearly 40 incubators operate in the commonwealth, supporting early-stage startups as well as established companies that need help sustaining their operations.
The incubator concept is gaining momentum as these companies “identify the need” for resources and support services that will help them grow, says Baker, who compares the incubation process to parenthood. “Incubators mentor companies through their childhood,” he says.
Far from a new concept — the first opened in New York in 1959 — business incubators didn’t see much growth until the 1980s. The National Business Incubation Association (NBIA) says about 1,250 incubation programs operate in the country today, up from about only a dozen in 1980. Baker believes this growth is being fueled in part by the fact that incubators offer “such an effective process” for companies.
Incubators provide businesses with a variety of services, ranging from helping them refine their business models to providing them with telephone answering service and office equipment. Many incubators also provide training through webinars and seminars as well as access to business experts.
Companies looking at an incubator as a way to support growth want to make sure the arrangement is a good match. For example, some incubators work with special interests, such as life sciences or cybersecurity, while others have a mixed client base. “You’ll have everything from someone who wants to launch an insurance agency, for instance, to someone who wants to do Web design,” Baker says of the mixed-client concept.
Incubator or accelerator
Some people use the terms “business incubators” and “business accelerators” interchangeably, but they represent different concepts.
An incubator normally serves a company that has been founded and is ready to start growing. Once the company has begun to gain traction, it typically moves out of the incubator into its own space. This process can take a few years.
Companies in an accelerator already have proven their sustainability and are looking for a fast-growth cycle and greater returns. “Generally an accelerator is a faster process and a shorter term of residency than an incubator program,” says Susan Henson, regional manager for the Mason Enterprise Center.
Some economic development offices see incubators as a grow-your-own strategy when it comes to improving the local economy. Most companies that graduate from incubation programs tend to locate their businesses in the same region and contribute to the region’s growth and vitality, the NBIA says.
The Mason Enterprise Center, a mixed-use incubator in Leesburg, started in 2011 as a way to enhance economic development by promoting and supporting entrepreneurship in the area. The center currently has 28 resident members and 24 virtual members that don’t have physical space in the facility but do get a business address and mailbox as well as the center’s services and eight hours of conference time.
One of the center’s most recent graduates was a government contractor specializing in information technology services. “They recently moved to larger office space within Leesburg after growing their company and hiring nine additional people,” says Henson.
Henson tries to populate the center with companies that have a scalable business model. “We are looking for companies that are established and generating some revenue or have a viable business concept that needs developing and have sufficient funds to take the company to the next level,” she says. “Growth is what we are looking for.”
Since its inception in 2004 VT KnowledgeWorks in Blacksburg has provided services and space to more than 150 emerging companies. It is known for helping its clients plan, launch and grow their companies. “The difference between us and classical incubators is that we do not evict stable companies from our building,” says executive director Jim Flowers. “Because we are part of a 1 million-square-foot corporate park [the Virginia Tech Corporate Research Center], we simply locate new clients in other buildings in the park.”
One of its most important services is helping aspiring entrepreneurs recognize which ideas can be successful and which are fatally flawed. “The best way to minimize business failures is to prevent the launch of businesses that have a low probability for success,” Flowers says.
Client companies at the Franklin Business Incubator in Franklin must have a clear set of goals and demonstrate they have a clear understanding of the commitment needed to build a successful enterprise. “They have to provide a timeline on how they plan to achieve their goals,” says Amanda Jarratt, president and CEO of Franklin Southampton Economic Development Inc.
Currently, Franklin’s mixed-use incubator has 28 companies in its four-story building. Eight of the companies moved in last year. The incubator serves businesses involved in engineering, financial services, construction and technology as well as professional artists.
In 2012 the incubator’s business revenues totaled more than $9 million. “We’ve had amazing growth since our inception in 2005,” says Jarratt. “We were one of nine incubators from across the country featured in the Best Practices in Rural Business Incubation by the NBIA.”
Focus on science, engineering
The Dominion Resources Innovation Center in Ashland also has seen growth. The center has nine offices and two wet labs as well as a medical-instrument assembly area. All of its resident companies are involved in science or engineering.
Several member companies are headed by executives with doctorates and “basically need guidance on how to raise capital,” says William Daughtrey, the center’s entrepreneur-in-residence.
Most of the center’s members are developing knowledge-based products such as medical instruments. “All of the Ph.D.s had developed their product as part of their dissertation and are now commercializing their projects,” says Daughtrey.
Before accepting a company into the program, Daughtrey meets with its leaders to determine whether their business plan is viable.
“I had one CPA come to me with a great idea for a medical device, but he didn’t have a clue where he was going with it,” he says. “It doesn’t make sense for me to do the work they need to do if they don’t understand the industry.”