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,[1] in contrast to 44% of all firms.[2]
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.[3]
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Most common incubator services:[4]
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.[5]
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.[6] 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.[6] Many incubation programs set graduation requirements by development benchmarks, such as company revenues or staffing levels, rather than time in the program.
| Industry sectors intentionally supported by incubation programs[6] |
|---|
| 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.[6]
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[7]
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.[6]
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%).[6]
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. [8]
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.[6]
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.[6]
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.[9] 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.[10]
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[11] 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 Incubators are bringing the resources of entrepreneurship hubs like Silicon Valley to remote locations all over the world.