Business incubator
Encyclopedia
Business incubators are programs designed to accelerate the successful development of entrepreneurial companies through an array of business support resources and services, developed and orchestrated by incubator management and offered both in the incubator and through its network of contacts. Incubators vary in the way they deliver their services, in their organizational structure, and in the types of clients they serve. Successful completion of a business incubation program increases the likelihood that a start-up company will stay in business for the long term: older studies found 87% of incubator graduates stayed in business, in contrast to 44% of all firms.
Incubators differ from research and technology parks
in their dedication to start-up and early-stage companies. Research and technology parks, on the other hand, tend to be large-scale projects that house everything from corporate, government or university labs to very small companies. Most research and technology parks do not offer business assistance services, which are the hallmark of a business incubation program. However, many research and technology parks house incubation programs.
Incubators also differ from the U.S. Small Business Administration's
Small Business Development Centers (and similar business support programs) in that they serve only selected clients. SBDCs are required by law to offer general business assistance to any company that contacts them for help. In addition, SBDCs work with any small business at any stage of development, not only start-up companies. Many business incubation programs partner with their local SBDC to create a "one-stop shop" for entrepreneurial support.
In 2005 alone, North American incubation programs assisted more than 27,000 companies that provided employment for more than 100,000 workers and generated annual revenues of $17 billion.
Unlike many business assistance programs, business incubators do not serve any and all companies. Entrepreneurs who wish to enter a business incubation program must apply for admission. Acceptance criteria vary from program to program, but in general only those with feasible business ideas and a workable business plan are admitted. It is this factor that makes it difficult to compare the success rates of incubated companies against general business survival statistics.
Although most incubators offer their clients office space and shared administrative services, the heart of a true business incubation program is the services it provides to start-up companies.
More than half of incubation programs surveyed by the National Business Incubation Association in 2006 reported that they also served affiliate or virtual clients. These companies do not reside in the incubator facility. Affiliate clients may be home-based businesses or early-stage companies that have their own premises but can benefit from incubator services. Virtual clients may be too remote from an incubation facility to participate on site, and so receive counseling and other assistance electronically.
The amount of time a company spends in an incubation program can vary widely depending on a number of factors, including the type of business and the entrepreneur's level of business expertise. Life science and other firms with long research and development cycles require more time in an incubation program than manufacturing or service companies that can immediately produce and bring a product or service to market. On average, incubator clients spend 33 months in a program. Many incubation programs set graduation requirements by development benchmarks
, such as company revenues or staffing levels, rather than time in the program.
More than half of all business incubation programs are "mixed-use" projects; that is, they work with clients from a variety of industries. Technology incubators account for 39% of incubation programs.
Business incubation has been identified as a means of meeting a variety of economic and socioeconomic policy needs, which may include
• Creating jobs and wealth
• Fostering a community's entrepreneurial climate
• Technology commercialization
• Diversifying local economies
• Building or accelerating growth of local industry clusters
• Business creation and retention
• Encouraging women or minority entrepreneurship
• Identifying potential spin-in or spin-out business opportunities
• Community revitalization
About one-third of business incubation programs are sponsored by economic development organizations. Government entities (such as cities or counties) account for 21% of program sponsors. Another 20% are sponsored by academic institutions, including two- and four-year colleges, universities, and technical colleges.
In many countries, incubation programs are funded by regional or national governments as part of an overall economic development strategy. In the United States, however, most incubation programs are independent, community-based and resourced projects. The U.S. Economic Development Administration is a frequent source of funds for developing incubation programs, but once a program is open and operational it typically receives no federal funding; few states offer centralized incubator funding. Rents and/or client fees account for 59% of incubator revenues, followed by service contracts or grants (18%) and cash operating subsidies (15%).
As part of a major effort to address the ongoing economic crisis of the US, legislation was introduced to "reconstitute Project Socrates
". The updated version of Socrates supports incubators by enabling users with technology-based facts about the marketplace, competitor maneuvers, potential partners, and technology paths to achieve comeptitive advantage. Michael Sekora, the original creator and director of Socrates says that a key purpose of Socrates is to assist government economic planners in addressing the economic and scioeconomic issues (see above) with unprecedented speed, efficiency and agility.
Many for-profit or "private" incubation programs were launched in the late 1990s by investors and other for-profit seeking to hatch businesses quickly and bring in big payoffs. At the time, NBIA estimated that nearly 30% of all incubation programs were for-profit ventures. In the wake of the dot-com bust, however, many of those programs closed. In NBIA's 2002 State of the Business Incubation survey, only 16% of responding incubators were for-profit programs. By the 2006 SOI, just 6% of respondents were for-profit.
Although some incubation programs (regardless of nonprofit or for-profit status) take equity in client companies, most do not. Only 25% of incubation programs report that they take equity in some or all of their clients.
The U.S.-based National Business Incubation Association estimates that there are about 7,000 incubators worldwide. As of October 2006, there were more than 1,400 incubators in North America, up from only 12 in 1980. Her Majesty's Treasury identified around 25 incubation environments in the UK in 1997; by 2005, UKBI identified around 270 incubation environments across the country. A study funded by the European Commission in 2002 identified around 900 incubation environments in Western Europe.
Incubation activity has not been limited to developed countries; incubation environments are now being implemented in developing countries and raising interest for financial support from organisations such as UNIDO
and the World Bank
.
On November 3, 2010, New York City
broke ground on its sixth business incubator and the first in the Bronx called the Sunshine Bronx Business Incubator which is a joint venture between the New York City Economic Development Corporation
and Sunshine Suites
.
Incubators are going through a renaissance as of 2011. New experiments like Virtual Business Incubator
s are bringing the resources of entrepreneurship hubs like Silicon Valley to remote locations all over the world.
Incubators differ from research and technology parks
Industrial park
An industrial park is an area zoned and planned for the purpose of industrial development...
in their dedication to start-up and early-stage companies. Research and technology parks, on the other hand, tend to be large-scale projects that house everything from corporate, government or university labs to very small companies. Most research and technology parks do not offer business assistance services, which are the hallmark of a business incubation program. However, many research and technology parks house incubation programs.
Incubators also differ from the U.S. Small Business Administration's
Small Business Administration
The Small Business Administration is a United States government agency that provides support to entrepreneurs and small businesses. The mission of the Small Business Administration is "to maintain and strengthen the nation's economy by enabling the establishment and viability of small businesses...
Small Business Development Centers (and similar business support programs) in that they serve only selected clients. SBDCs are required by law to offer general business assistance to any company that contacts them for help. In addition, SBDCs work with any small business at any stage of development, not only start-up companies. Many business incubation programs partner with their local SBDC to create a "one-stop shop" for entrepreneurial support.
In 2005 alone, North American incubation programs assisted more than 27,000 companies that provided employment for more than 100,000 workers and generated annual revenues of $17 billion.
The incubation process
Most common incubator services:- Help with business basics
- Networking activities
- Marketing assistance
- High-speed Internet access
- Help with accounting/financial management
- Access to bank loans, loan funds and guarantee programs
- Help with presentation skills
- Links to higher education resources
- Links to strategic partners
- Access to angel investors or venture capital
- Comprehensive business training programs
- Advisory boards and mentors
- Management team identification
- Help with business etiquette
- Technology commercialization assistance
- Help with regulatory compliance
- Intellectual property management
Unlike many business assistance programs, business incubators do not serve any and all companies. Entrepreneurs who wish to enter a business incubation program must apply for admission. Acceptance criteria vary from program to program, but in general only those with feasible business ideas and a workable business plan are admitted. It is this factor that makes it difficult to compare the success rates of incubated companies against general business survival statistics.
Although most incubators offer their clients office space and shared administrative services, the heart of a true business incubation program is the services it provides to start-up companies.
More than half of incubation programs surveyed by the National Business Incubation Association in 2006 reported that they also served affiliate or virtual clients. These companies do not reside in the incubator facility. Affiliate clients may be home-based businesses or early-stage companies that have their own premises but can benefit from incubator services. Virtual clients may be too remote from an incubation facility to participate on site, and so receive counseling and other assistance electronically.
The amount of time a company spends in an incubation program can vary widely depending on a number of factors, including the type of business and the entrepreneur's level of business expertise. Life science and other firms with long research and development cycles require more time in an incubation program than manufacturing or service companies that can immediately produce and bring a product or service to market. On average, incubator clients spend 33 months in a program. Many incubation programs set graduation requirements by development benchmarks
Benchmarking
Benchmarking is the process of comparing one's business processes and performance metrics to industry bests and/or best practices from other industries. Dimensions typically measured are quality, time and cost...
, such as company revenues or staffing levels, rather than time in the program.
Incubator types, goals, and sponsors
| Industry sectors intentionally supported by incubation programs |
|---|
| Technology |
| Computer software |
| Services/professional |
| Manufacturing |
| Internet |
| Biosciences/life sciences |
| Electronics/microelectronics |
| Telecommunications |
| Computer hardware |
| Medical devices |
| Creative industries |
| eBusiness and eCommerce |
| Wireless technology |
| Healthcare technology |
| Advanced materials |
| Defense/homeland security |
| Energy |
| Environment/clean technologies |
| Media |
| Nanotechnology |
| Construction |
| Arts |
| Aerospace |
| Kitchen/food |
| Retail |
| Fashion |
| Wood/forestry |
| Tourism |
More than half of all business incubation programs are "mixed-use" projects; that is, they work with clients from a variety of industries. Technology incubators account for 39% of incubation programs.
Business incubation has been identified as a means of meeting a variety of economic and socioeconomic policy needs, which may include
• Creating jobs and wealth
• Fostering a community's entrepreneurial climate
• Technology commercialization
• Diversifying local economies
• Building or accelerating growth of local industry clusters
• Business creation and retention
• Encouraging women or minority entrepreneurship
• Identifying potential spin-in or spin-out business opportunities
• Community revitalization
About one-third of business incubation programs are sponsored by economic development organizations. Government entities (such as cities or counties) account for 21% of program sponsors. Another 20% are sponsored by academic institutions, including two- and four-year colleges, universities, and technical colleges.
In many countries, incubation programs are funded by regional or national governments as part of an overall economic development strategy. In the United States, however, most incubation programs are independent, community-based and resourced projects. The U.S. Economic Development Administration is a frequent source of funds for developing incubation programs, but once a program is open and operational it typically receives no federal funding; few states offer centralized incubator funding. Rents and/or client fees account for 59% of incubator revenues, followed by service contracts or grants (18%) and cash operating subsidies (15%).
As part of a major effort to address the ongoing economic crisis of the US, legislation was introduced to "reconstitute Project Socrates
Project Socrates
Project Socrates was a US Defense Intelligence Agency program established in 1983 within the Reagan administration. This classified program, founded and directed by physicist Michael Sekora, was designed for the purpose of identifying the root cause of the United States' declining ability to...
". The updated version of Socrates supports incubators by enabling users with technology-based facts about the marketplace, competitor maneuvers, potential partners, and technology paths to achieve comeptitive advantage. Michael Sekora, the original creator and director of Socrates says that a key purpose of Socrates is to assist government economic planners in addressing the economic and scioeconomic issues (see above) with unprecedented speed, efficiency and agility.
Many for-profit or "private" incubation programs were launched in the late 1990s by investors and other for-profit seeking to hatch businesses quickly and bring in big payoffs. At the time, NBIA estimated that nearly 30% of all incubation programs were for-profit ventures. In the wake of the dot-com bust, however, many of those programs closed. In NBIA's 2002 State of the Business Incubation survey, only 16% of responding incubators were for-profit programs. By the 2006 SOI, just 6% of respondents were for-profit.
Although some incubation programs (regardless of nonprofit or for-profit status) take equity in client companies, most do not. Only 25% of incubation programs report that they take equity in some or all of their clients.
History
The formal concept of business incubation began in the USA in 1959 when Joseph Mancuso opened the Batavia Industrial Center in a Batavia, New York, warehouse. Incubation expanded in the U.S. in the 1980s and spread to the UK and Europe through various related forms (e.g. innovation centres, pépinières d’entreprises, technopoles/science parks).The U.S.-based National Business Incubation Association estimates that there are about 7,000 incubators worldwide. As of October 2006, there were more than 1,400 incubators in North America, up from only 12 in 1980. Her Majesty's Treasury identified around 25 incubation environments in the UK in 1997; by 2005, UKBI identified around 270 incubation environments across the country. A study funded by the European Commission in 2002 identified around 900 incubation environments in Western Europe.
Incubation activity has not been limited to developed countries; incubation environments are now being implemented in developing countries and raising interest for financial support from organisations such as UNIDO
United Nations Industrial Development Organization
The United Nations Industrial Development Organization , French/Spanish acronym ONUDI, is a specialized agency in the United Nations system, headquartered in Vienna, Austria...
and the World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
.
On November 3, 2010, New York City
New York City
New York is the most populous city in the United States and the center of the New York Metropolitan Area, one of the most populous metropolitan areas in the world. New York exerts a significant impact upon global commerce, finance, media, art, fashion, research, technology, education, and...
broke ground on its sixth business incubator and the first in the Bronx called the Sunshine Bronx Business Incubator which is a joint venture between the New York City Economic Development Corporation
New York City Economic Development Corporation
New York City Economic Development Corporation is a non-profit local development corporation that promotes economic growth across New York City's five boroughs. It is the City's official Economic development corporation, charged with using the City's assets to drive growth, create jobs, and...
and Sunshine Suites
Sunshine Suites
is a business incubator in New York City . It was founded in 2001 and is currently managed by Sunshine Realty Management. In September 2010, Wall Street Journal stated that Sunshine Suites was one of the seven best places to start a tech company...
.
Incubators are going through a renaissance as of 2011. New experiments like Virtual Business Incubator
Virtual business incubator
Business incubators began in the 1960s and really took off in the late 1990s as support for startup companies who need advice and venture capital to get their ideas off the ground. As the dot-com bubble burst, many high-tech business incubators did so too. Now the model of a business incubator is...
s are bringing the resources of entrepreneurship hubs like Silicon Valley to remote locations all over the world.
External links
See also
- Science parkScience parkA research park, science park, or science and technology park is an area with a collection of buildings dedicated to scientific research on a business footing. There are many approximate synonyms for "science park", including research park, technology park, technopolis and biomedical park...
- BioincubatorBioincubatorA Bioincubator is a building designed for housing R&D driven companies active in Life sciences. It is mostly closely related to a neighbouring university. A Bioincubator is a Business incubator targeted towards Life Sciences helping startup companies...
- Kitchen incubatorKitchen IncubatorA kitchen incubator is a business incubator dedicated to early-stage catering, retail and wholesale food businesses. Kitchen incubators are mostly found in those countries with significant levels of food safety regulation where capital investment in commercial kitchen equipment can be prohibitive...
- Virtual business incubatorVirtual business incubatorBusiness incubators began in the 1960s and really took off in the late 1990s as support for startup companies who need advice and venture capital to get their ideas off the ground. As the dot-com bubble burst, many high-tech business incubators did so too. Now the model of a business incubator is...
- Public incubatorPublic incubatorA Public Incubator is similar to a Business Incubator, though it's intent is to accelerate the development of ideas for the benefit of the public good. Many Universities and non-profit organization succeed in a goal of public good, though few if any provide a democratic process of refinement...
- Business Support office