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Incubators That Support Local Entrepreneurs Improve Local Communities

by Francis P. Koster, Ed.D.

Two significant facts that will have profound impacts on our nation's future unless solutions are put in place. The first is the number of unemployed, which by the most accurate definition sits at one in seven members of the workforce.[1] The second is that many newly created jobs do not have the same high pay as the jobs that have vanished. As a consequence, real income has declined in working -aged households from $63,500 in 2000 to $55,600 in 2011[2]. Ouch!

Clearly, creating well paying jobs needs to be a priority.

One successful technique is to create "Business Incubators". They work. Nationally, only 49% of unsheltered new business survive their first 5 years,[3] but 87 percent of incubator graduates are still in business after five years.[4]

Incubators are very cost effective. A careful study was done comparing the impact of several models of widely used job creation techniques. Non-incubator investments produce one job for each $3,306 spent. Business incubators create one job for an average investment of $180.[5]

As I researched the history of the nation's 1,100 surviving incubators, I began to see a formula for incubator failure, and another for incubator success. 

The formula for failure was to take some underused space, often in a part of town that needs a boost, far from office supply stores, computer technical support, and nice places to eat, staff it with competent people who can teach business subjects like accounting and taxes, but who themselves were never entrepreneurs,  open it to all interested parties without screening, place them under some kind of Board of Directors which has to answer to political authorities resulting in the power structure of the incubator becomes risk adverse, and try to make the facility self supporting quickly.  Places like this fail both their sponsors and their clients, and usually close.[6]

The flip side of this is a recipe for success. You start by assembling a carefully screened set of emerging entrepreneurs, and ask them what kinds of support they would need to start or grow their desired company. Then you deliver that. Sometimes the entrepreneur doesn't need space, because the new company works out of a garage, but does need access to the president of a larger company for mentoring. The most successful incubators are staffed by successful entrepreneurs whose primary deliverable is access to talented leaders as mentors and coaches, and facilitating active supportive participation by Small Business Assistance Centers, Chamber of Commerce, or local government.      

High performing incubators start with an inventory of their service area's assets, aspirations, and weaknesses. They identify sectors of community needs that can be satisfied by successful local business. One Incubator team leader told me they were puzzling over the perceived liability of a rapidly aging population. Then they realized there would be a real market for old age homes, home nursing companies, specialty pharmacy, taxis, and a host of other support services. This is now a highly successful business development arena.

The world of entrepreneurial facilitation requires constant adjustment as circumstance changes. In a few areas the word "Incubator" has a bad odor, because it has come to mean low cost real estate without much else in the way of support going on. Some leaders in the job creation movement now feel that their point of highest leverage is working with established companies to help them reach their full potential, and they want to escape the negative local "Incubator"  brand.

In Louisville KY, the Chamber of Commerce  operates EnterpriseCorp, which supports the region’s entrepreneurial ecosystem and has partnered with other local organizations to create what they call the "High Impact Portfolio" devoted to identifying existing small and midsized business with significant potential to grow. After surviving a demanding screening process, the business is offered planning expertise, mentoring , expert consulting, and other assistance from other companies in the region selected for their potential to make a specific contribution. There are 170 companies in this group, with annual revenues totaling 2.7 billion dollars. Since beginning the Portfolio, and with the assistance of the Portfolio network of local mentors, these companies invested in their own growth in the amount of $500 million, have grown 30% a year, and created 3,600 jobs since 2005.[7] EnterpriseCorps' annual budget is less than $100,000.

More information is on the website of the National Business Incubator Association. 

We can fix the problems we face as a nation if we just begin to imitate other communities which have already shown the way.  

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