Earlier this year, the University of Michigan’s Institute for Research on Labor, Employment and the Economy; the State University of New York at Albany; the National Business Incubation Association (NBIA); and Cybergroup Inc released a study of business incubators (funded by the Department of Commerce Economic Development Administration (EDA)). Although the study’s goals are to assess incubators, to improve their effectiveness, and to provide a framework for incubator funding agents/sources to evaluate their investments, the study also provides guidance to entrepreneurs on how to evaluate potential incubator-partners.
The 100+ page study defines a business incubator “as a multitenant facility with on-site management that directs a business incubation program.” Business incubation program’s are
designed to accelerate the successful development of entrepreneurial companies through an array of business support resources and services. Business incubation programs usually provide clients access to appropriate rental space and flexible leases, shared basic business services and equipment, technology support services, and assistance in obtaining the financing necessary for company growth. Business incubation programs may also provide business assistance services for nontenant clients, also referred to as virtual or affiliate clients.
Per the study, successful incubators:
(I) have low client-to-staff ratios and large budgets (note: neither the incubator’s size or age predicted client success);
(II) collect and record client-outcome data;
(III) have diversity & depth on their Advisory Board. The evidence in this study suggests that an incubator’s advisory boards should have between 8 and 20 individuals and include the following types of professionals:
(Don’t want to work with an incubator – use this list to build your mentor network!)
- (1) graduate firm;
- (2) experienced entrepreneur;
- (3) local economic development official;
- (4) corporate executive;
- (5) representative of the finance community;
- (6)business lawyer (and, in some cases, intellectual capital protection legal assistance);
- (7) university official; and
- (8) chamber of commerce representative.
Other expertise that can play an important role in an incubation program – but that vary by incubator type and other local conditions – are marketing professional, production engineering specialist, local elected official, state economic development official,tech transfer specialist, incubator manager, and real estate manager/developer.; and
(IV) In addition to the basic services needed by start-up business (high-speed internet, shared administrative services, access to office equipment, and professional skills coaching) the study found that “successful incubators” (based on client-firm performance) also offered the following services (the study reports these services as statistically significantly related to client firm performance):
- (1) entrepreneurial training (from business basics to comprehensive training in managing a new enterprise);
- (2) increased access to investment capital;
- (3) strong supportive relationships with local area higher education institution(s);
- (4) production assistance (from R&D and prototyping through to engineering production systems); and
- (5) strong mentor programs (e.g., shadow boards, loaned executives, periodic engagement with incubator managers, participation in program activities).