The business factory

Black Enterprise, Oct, 1998 by Carolyn M. Brown

SMALL BUSINESS INCUBATORS ARE VITAL TO CREATING THRIVING NEW ENTERPRISES. HERE'S HOW URBAN COMMUNITIES CAN BAND TOGETHER TO BUILD THEIR OWN.

DELLA L. CLARK COMPARES THE WEST Philadelphia Enterprise Center (WPEC) to major league baseball's farm system, where promising players play and train at various levels of the minor leagues. In this analogy, the center's executive director and staff play the role of manager and assistant coaches. Their mission is to produce America's next power-hitting business leaders.

"In terms of development, businesses grow at different rates--infancy, adolescence and maturity," explains Clark, WPEC's president. "Therefore, they require different levels of assistance to move up to the next level."

WPEC is among more than 600 business incubators in North America, and one of 30 targeting women- and minority-owned enterprises. Business incubators provide clients access to rental space and flexible leases, shared basic services and equipment, technology support, professional services and management guidance. The main goal of incubators is to produce successful firms that leave the program financially viable and freestanding.

But business incubators are more than training camps for entrepreneurs. They're a sign of inner-city renewal. Many local community and economic development groups are building business incubators in distressed areas as a means to create jobs and strengthen local economies. Moreover, several colleges and universities see business incubators as a way to develop entrepreneurs who can commercialize critical new technologies.

Although two-thirds of all business incubators are located in urban communities, there's a great deal of room for new facilities. "There's a huge disparity in the number of minority-owned businesses compared to the number of African Americans living in major cities like Philadelphia, Detroit, Los Angeles, Washington, D.C., Atlanta and New York," says Clark. "Those areas have to look closely at what they're doing in terms of business formation."

"Typically, inner-city entrepreneurs have three obstacles: cash reserves are limited, collateralization is minimal or nonexistent and [they have] a lack of real business experience," says Clark, who chairs the board of directors of the National Business Incubation Association (NBIA), an Athens, Ohio-based membership trade group.

Clark is attempting to resuscitate Philadelphia's Market Street corridor--a 10-block stretch of abandoned buildings and factories. A year ago, she purchased the vacant building across the street from WPEC, a former television station that was once the home of Dick Clark's American Bandstand. WPEC was awarded $1 million from the Department of Commerce's Economic Development Administration just one week prior to the death of Commerce Secretary Ron Brown. WPEC's new headquarters, which was renamed the Ronald H. Brown Entrepreneurial Center, services 18 in-house clients and another 10 affiliates and member clients (businesses that are not housed in the incubator but access its services).

When business incubation is done properly in low-income urban and rural areas, it's extremely valuable, says Dinah Adkins, NBIA's executive director. "Housing and access to healthcare alone are not a panacea for the problems that ail inner-city neighborhoods."

A recent study conducted jointly by NBIA, the University of Michigan, Ohio University and the Southern Technology Council proved that business incubation is a vital economic development tool that helps grow new businesses and creates new jobs in a community. For example, the study found that the average firm's sales increased by more than 400% from the time it entered until it left the incubator. (Firms leave with an average of $239,535 in annual sales.) Also, there's a greater survival rate among companies that started out in incubators. Roughly 87% of graduate companies stay in business, compared to 20% for start-up firms in the traditional business environment.

NBIA recently formed an alliance with the Washington, D.C.-based National Congress for Community Economic Development to do some marketing and outreach to inner cities and rural communities. "Business incubation programs treat entrepreneurial companies as important community resources," says Adkins. "Our study should convince communities that if they don't already have a business incubation program, they ought to start thinking about one."

DEVELOPING AN A-RATED INCUBATION SYSTEM

Business incubation became a full-fledged industry in the early 1980s when government entities, namely the Small Business Administration and the Department of Housing and Urban Development, began promoting and funding incubators. By the 1990s, large numbers of technology incubators were appearing. They fostered the growth of emerging technologies (e.g., biotechnology, biomedical, robotics and instrumentation). An increasing number of other industry-specific incubators (e.g. creative arts and multimedia) have also been created. However, most are mixed-use incubators. They cater to manufacturing, service or high-tech companies. According to NBIA, roughly 51% of all incubators in North America are sponsored by government and nonprofit organizations, 27% are affiliated with colleges and universities, 16% are the result of hybrid or joint government, nonprofit and private efforts, 8% are financed by investment groups or real estate developers and 5% are sponsored by a variety of nonconventional sources, including church groups and chambers of commerce. (Due to overlapping, numbers don't total 100%.)