EDA Study Highlights Benefits of Business Incubators

A study released in January by the Economic Development Administration (EDA) concluded that business incubators generate more jobs per dollar invested than any public works initiative. The study, “Construction Grants Program Impact Assessment Report,” was announced in January in an EDA newsletter

The study, prepared by Grant Thorton, found that business incubators are the most effective means of creating jobs – more effective than roads and bridges, industrial parks, commercial buildings, and sewer and water projects. In fact, incubators provide up to 20 times more jobs than community infrastructure projects (e.g., water and sewer projects) at a cost of $144 to $216 per job compared with $2,920 to $6,872 for the latter, the report notes.

The study showed that on average, EDA investments produce between 2.2 and 5.0 jobs per $10,000 in federal spending, for a federal cost per job of between $2,001 and $4,611. Business incubators create between 46.3 and 69.4 jobs per $10,000 in federal investment, for a federal cost per job of between $144 and $216. The report also notes that, by dollar invested and by number of projects funded, business incubation programs have historically been the least well-funded of EDA’s public infrastructure projects.

“We agree with investing in highways, bridges and other elements of our aging infrastructure,” says Dinah Adkins, president & CEO of the National Business Incubation Association. “However, business incubators are critical components of the nation’s entrepreneurial support infrastructure and the only public works projects that were designed entirely as job generators. It is vitally important that the nation leverage its existing investments in incubators to generate new jobs and innovations and to help individuals facing layoffs to start their own firms.”

Another EDA-funded study in the mid-1990s found that 87 percent of all firms that had graduated from NBIA member incubation programs were still in business – and about 84 percent of those graduates remained in the incubator’s community. “The jobs created by incubators aren’t one-time construction jobs,” Adkins explains, “but enduring, high-paying positions that contribute to community and U.S. global competitiveness.”

NBIA estimates that in 2005 alone, North American incubators assisted more than 27,000 start-up companies that provided full-time employment for more than 100,000 workers and generated annual revenue of more than $17 billion. Many thousands more jobs have been created by companies that have graduated from these programs and now operate self-sufficiently in their communities.

For a detailed definition and explanation of the history of incubators visit NBIA’s web site.

HUD Secretary: We must limit foreclosures

In an exclusive interview with CNN's Gerri Willis, Shaun Donovan talks about what's needed to get the housing market and economy back on track.

Sims Selected as Deputy Secretary of HUD

King County Executive Ron Sims has been selected to be the next Deputy Secretary of the Department of Housing and Urban Development (HUD). He will be responsible to oversee the day-to-day operations of the department. For a detailed review of his background click here.

Housing Solutions Week 2009 Begins February 17

The National Housing Conference (NHC) and its research affiliate, the Center for Housing Policy, will host Housing Solutions Week 2009 which is a series of events to release reports and hold discussions on the current housing crisis.

Activities to take place during the week include the release of three research briefs funded by the John D. and Catherine T. MacArthur Foundation. The first brief explores reviews the preposition that affordable housing is the cause for a decline in property values. The second brief looks at how data is helping state and local communities address their affordable housing problem. The third brief looks at how affordable housing affects its inhabitants.

The week will include the launch of two on-line resources for those interested in addressing the affordable housing problem in their community. The first site provides a wide range of up-to-date information on a number of state and local policy solutions to preventing foreclosures and stabilizing neighborhoods. The other site is a discussion forum to allow practitioners and policymakers to converse on-line to share ideas and best practices.

For more information contact NHC.

Questions with Dinah Adkins of the National Business Incubation Association

Dinah Adkins has been chief staff executive (now President and CEO) of the National Business Incubation Association since November 1988 when the association moved its headquarters from Pennsylvania to Athens, Ohio. Ms. Adkins oversees all activities of the 1,900-plus member organization of incubator managers and developers and she heads a staff of 15. The most international business incubation association, NBIA currently has members representing 59 nations. It is at least six times larger than any of its peer associations.

Under Adkins’ direction, the Association has greatly expanded its customer base, quintupled membership and increased revenues many-fold. NBIA has developed a comprehensive array of member services including publications, training, research, consulting and information clearinghouse activities, and it has significantly expanded its prestige in the United States and abroad. With Adkins in the lead, NBIA has managed consulting efforts for major Japanese, Bulgarian, Chinese, Kuwaiti and American contractors, both government and private. The Association maintains a Web site with more than 12,000 pages of information on business incubation and NBIA, and individuals who have questions about business incubation and entrepreneurship development contact NBIA more than any other organization.

Prior to assuming her position with NBIA, Ms. Adkins was founding staff of the Ohio University Innovation Center, a campus-based incubator, from its inception in 1982. She managed the incubator from January 1986 until July 1989. Ms. Adkins also worked in journalism, public relations and events management. She holds Bachelor’s and Master’s Degrees in English from Ohio University.

Why is it important for Congress to recognize incubators in the stimulus bill?

As the EDA study illustrated, business incubators are the most cost-effective way to help stimulate the local economy. However, the responsible solution is not choosing between roads and bridges or incubators but in ensuring that incubators, which have proven themselves to be the most significant generators of new jobs, are not left out.

What are the most misunderstood benefits of business incubators?

First, there has historically been some confusion about what constitutes an incubator. A business incubation program as a comprehensive program of services targeted to accelerate the growth and success of start-up and emerging firms. While the vast majority of incubators have buildings, the facility isn’t the incubation program; it’s the services that make the incubator. Incubators also graduate self-sufficient businesses into the community. Effective incubation programs should be dynamic generators of successful businesses and jobs, with a steady deal flow of new companies entering and more mature firms exiting the incubator. Incubators are not hospitals for sick businesses, and multi-tenant buildings that do not offer the services and “flow-through” described above aren’t incubators; they’re real estate.

This is a misunderstanding about incubators that some people have but perhaps not the “misunderstood benefit” you’ve asked for. Hmmm, perhaps it has to do with the quality of jobs provided by incubators. Our research has shown that these are high-paying, enduring jobs that provide benefits to employees. The job creation benefits provided by business incubators are not the same as average jobs created in a community; they are better jobs, and they are frequently associated with companies that are commercializing innovations that make our communities, and our country, more competitive.

Some states have established business centers to assist local entrepreneurs. What is the difference between a business incubator and these business centers?

The business centers you refer to are Small Business Development Centers (though some have slightly different names). The U.S. Small Business Administration www.sba.gov the SBDC program to provide general business assistance to current and prospective small business owners. SBDCs and similar programs differ from incubators in that they do not specifically target early-stage companies. They often serve small businesses at any stage of development. Some business incubators partner and share management with the SBDCs to avoid duplicating business assistance services in a region.

In addition to the above, I would add that client businesses of incubators are highly screened and enter the incubation program, are served and benchmarked along the way, and then exit the program; in other words they get continuous service as they grow their company to sustainability. Services are not episodic, as provided by SBDCs. You can participate in a workshop at an SBDC, or get help with a business plan, but you don’t need to engage in a two to five year program of activity designed to make your company successful. (The average graduation from an incubator occurs in from two to three years, but some companies such as those engaged in developing biotechnology products take much longer.)

How diverse are the incubators currently in operation? For example, are a majority focused on technology businesses or do they vary?

Fifty-four percent of incubators are mixed use – meaning that they take a variety of light manufacturing, service and technology companies. Thirty-nine percent are technology incubators, and some of these may be sector specific – devoted to clean technologies, medical devices or biotech, or homeland defense. The remaining incubators may be focused on only service or manufacturing firms or devoted to food production or to arts and crafts businesses. There are a lot more technology companies in mixed-use incubators than there were 20 years ago due to the evolution of our economy, and there are fewer old-time manufacturing firms. Generally, technology incubators are located in proximity to some significant technology generator(s) such as major research universities, federal laboratories and large technology industries. Communities that don’t have access to these resources tend to have mixed use incubators, and of course there are mixed use incubators in metropolitan areas that also have technology incubators.

What can be done to promote incubators in the future?

Of course we need to do more research to show the value of business incubation; NBIA is engaged in a large U.S. Department of Commerce funded research effort now. But incubators are growing inexorably, because best practices programs are so successful. There were only 10 to 15 incubators in the U.S. in 1980 and there are approximately 1,000 today, and perhaps 7,000 around the globe. Many universities, economic development agencies and others have “seen the light” so to speak. And success breeds success. The concept of business incubation is very adaptable, and each incubator can be tailored to capitalize on local resources and strengths. Also, incubator managers and incubation programs have become increasingly sophisticated over the last 20 or so years, and this will continue as we gain more tools and understanding of how to support entrepreneurial firms. Entrepreneurs themselves are more sophisticated, which is driving up program quality as well. And other institutions such as universities have become more involved in business incubation over the years, which bring additional resources to bear in support of entrepreneurs.

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