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Rooms to Grow

INCUBATORS PROVIDE A PLACE WHERE START-UPS CAN MATURE AND DEVELOP INTO ESTABLISHED BUSINESSES.
by GEOFF WILLIAMS - July 2009

Published in Business :: Business

ILLUSTRATION BY DAVID PLUNKERT

PUT AN EGG IN AN INCUBATOR, AND IN THREE WEEKS, a chick will make its way out, ready to face the world. It takes a bit longer than that for businesses, which use incubators as a place to go in hopes of being hatched. It's a nurturing place that provides companies with free or cheap access to an office loaded with phones, computers, printers and office supplies-things that any entrepreneur, veteran or new, needs. And it's a place where businesses can work out the kinks and even fail a few times before emerging, ready to succeed.

According to the National Business Incubation Association, companies that begin in incubators are four times more likely to achieve success than those who go it alone. That's good news for companies like MelRoK Corporation, a tenant at the Digital Media Center, an incubator in Santa Ana, CA. The company is developing systems designed to help consumers know exactly how the energy in their homes is being used; if you're someday able to monitor every gadget in your home, and turn them on or off by accessing the web from your cell phone 3,000 miles away, it may be due to MelRoK.

But how do companies like MelRoK get accepted into an incubator? According to Bill Craig, whose company WebPageFX.com is currently a tenant at the Murata Business Center, a nonprofit incubator in Carlisle, PA, "Having a great business plan is a good start. Some proven success also helps. If you're able to say, 'We've had success on these projects,' especially if you're a high-tech or bio-tech operation, that would help convince an incubator to bring you in."

Once you're accepted, you can often expect more than just basic office supplies. "Some incubators are becoming more specialized," says Linda Knopp, spokeswoman for the NBIA. "They'll help with financing, for instance, either through an in-house investment seed fund, or they'll connect clients with venture capitalists, angel investors, federal funding or bank loans."

One such example is the Boulder, CO-based 8th Continent Project Business Incubator. This virtual incubator (read: no office space) helps space-related business ventures by connecting them to talent, resources and capital. Flaik, a current "tenant," is a startup creating a GPS social-networking device for snow sports, which may help save skiers if they're ever lost in the backcountry.

So what do incubators get out of these burgeoning companies? A nonprofit one will likely charge a small fee for office space, while a for-profit incubator will often ask for equity in the company, usually for as long as the company remains in business, ranging from about 5% to 30% (high-tech incubators that provide a lot of technical help may even ask for 50%).

The for-profit incubator at Touro College in New York City helped Alan Shafer and Jack Atzmon launch Smartfish Technologies, which makes "injury avoidance" ergonomic keyboards. While the amount of equity the incubator requires is confidential, the investment was worth it: "We were provided mentoring by the dean and advice from several graduate school of business professors on writing business plans, seeking funds and setting up the business infrastructure," Shafer says. Some universities also offer the services of their students, who are eager to learn.

And the benefits didn't stop after Smartfish graduated (most companies leave incubators after two or three years): "We were seeking angel funding, and being part of the incubator showed we were frugal, not afraid to seek advice, and eager to do whatever it takes to make our company successful," Shafer says. "You can't ask for better character definers than those when you are seeking other people's money."

While incubators can help lead a company to great success, they are not for everyone. In fact, many facilities prefer to work with companies that will create jobs, so solo entrepreneurs are typically not accepted. According to a study released earlier this year by the US Department of Commerce Economic Development Administration, business incubators are the most effective way to create jobs, even more cost-effective than federally-funded road and construction projects. As far as the number of jobs created per year, the NBIA's most recent numbers (from 2005) show that around 1,400 incubators in North America helped more than 27,000 start-ups provide full-time employment for more than 100,000 workers and generated annual revenue of more than $17 billion.

In two years, Craig has seen Web PageFX.com grow from a team of two to 15, and revenue has jumped from $200,000 to $1 million. He still has three years left at the Murata Business Center, and when that time is up, his business will no doubt be ready to hatch.

INCUBATOR OF ALL TRADES

Chances are, there's an business incubator to suit your field. Here's just a sampling:

RESTAURANTS
The Brooklyn-based food services company Yum Yum Chefs (www.yumyumchefs.com) has an incubator for restaurants. For $150 to $250 for eight hours, depending on how much room is needed, chefs can rent space for themselves and a rotating team of assistants, staffed by Yum Yum. Chefs also get free consulting services and job referrals.

ECO-FRIENDLY COMPANIES
There are 11 companies working on saving the planet at the Clean and Alternative Energy Incubator (www.utoledo.edu) at Ohio's University of Toledo (60 miles from Detroit), including SUREnergy, which makes wind turbines, and Shadeplex, which manufactures solar-electric building fabric that provides clean, renewable energy for buildings, shelters and even tents.

RETAIL
Many cities have been embracing retail incubators to help revitalize their urban areas. Some, like Springboard Retail Shoppes (www.springboardretailshops.com) in Newton, NJ (48 miles from Newark), offer severely discounted rent, low-interest loans and business management advice.

HIGH-TECH
Burlington's Vermont Center for Emerging Technologies (www.vermonttechnologies.com), affiliated with the University of Vermont, is a nonprofit technology business incubator. Residents include Parallel Geometry, a leader in the design and integration of complex simulation and embedded systems for industrial customers and government and research organizations.

YOU'RE GETTING WARMER

To find an incubator near you, contact:

• The National Business Incubation Association (www.nbia.org)
• Your chamber of commerce
• Local universities
• The nearest Small Business Development Center (www.sba.gov). The website isn't very direct, so Google "SBDC" and your location

 

Published in Business :: Business

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