`Incubators' help nurture good ideas into profitable businesses. Entrepreneurs pay normal rent, but management advice is free
In August, Amy Bohl moved her business out of the office she had in her parents' home and into a building with seven other fledgling firms. There at Matternville Center in Port Matilda, Pa., near Pennsylvania State University, her soft-sculpture hat company, called Rowdy Sailors Hats, has ``expanded much more than it could have in my parents' basement,'' she says. Now, Ms. Bohl is talking about adding children's clothing and children's books.
Matternville Center, sponsored by the city's Industrial Development Corporation, is one of about 235 small-business ``incubators'' that have popped up in American cities over the past 15 years. These incubators are havens to a huge variety of entrepreneurs.
In California, the Santa Ana Business Enterprise Center, one of the first of its kind in that state, recently opened its doors to seven Orange County firms, ranging from a drain equipment company to a uniform manufacturer to a state-of-the-art communications firm, says manager Daniel Mejia.
While many business incubators are simply real estate developments, and others are extensions of a company's or university's research-and-development department, many others are nonprofit centers, set up to encourage the growth of small businesses and the creation of local jobs.
``There are a lot of people with really good ideas, but without a clue as to how to run a business,'' says Jack LeClaire, vice-president at the Center for Business Innovation in Kansas City, Mo.
Centers like his provide ambitious beginners with market-priced rent, but throw in a lot of things for no extra charge, like management and consulting help and access to phones, secretaries, computers, and copying machines. These resources are costly and often out of the reach of many new companies, says Edward Jepson, managing director of Matternville Center.
``[Matternville] certainly has made breaking into the market much easier,'' Bohl says. She has spent many hours with the center's consultants, using its resources, and talking with her ``hallmates'' about their similar struggles in launching a new business.
Often, incubators draw on the resources of the Service Corps of Retired Executives, a group of retired business executives and owners who give their time and expertise to new as well as experienced business owners. SCORE, sponsored by the United States Small Business Administration, has offices in most states.
Since a study by the Small Business Administration in 1985 showed that firms with one to 19 employees create most of the new jobs, small businesses have been seen as key players in competitiveness.
Many states are now working to stimulate this resource. In 1983, for example, the Missouri legislature created the Missouri Corporation for Science and Technology ``to bring in start-ups and promote technology,'' says Mr. LeClaire at the Center for Business Innovation, which is one of the four incubators created by this bill the following year. Also this year, the Texas Legislature established the Texas Small Business Incubator Fund.
Most centers are concentrated in Pennsylvania, Illinois, Michigan, and New York, says David Allen, assistant professor of business administration at the College of Business Administration at Pennsylvania State University, and a longtime researcher of national incubators. Pennsylvania alone has almost 40.
But other parts of the country are still lacking. Very few business incubators have opened on the West Coast, says Mr. Mejia in Santa Ana. Because of a recent ``pouring in'' of requests, however, San Francisco is sponsoring a meeting this month ``to see if there is indeed enough interest to organize a network of business incubators in California,'' Mejia says.
These business incubators really do increase the prospects for survival, says Professor Allen. Numerous surveys show 50 to 80 percent of small firms fail within the first five to seven years, primarily from having too little capital and poor management. But a similar study reports that about 80 percent of the businesses that are launched by incubators succeed, LeClaire says.
A 1987 study by Allen of 117 incubators found that an average of 142 new jobs were created at each facility. While some created hundreds of new jobs, however, most created an average a little over four.
Even without high numbers, entrepreneurs recognize the value of business incubators. The Center for Business Innovation gets about 50 inquiries a month and accepts only one or two of those, LeClaire says. Even newly opened centers, like the one in Santa Ana, get more requests than they can honor.
The requirements are somewhat strict and, depending on the nature of the incubator, can be exclusive to certain industries, especially technology. Tenants must be new companies, generally under a year old. They must also show the capacity to add at least four jobs within the first year, and should also be able to project revenue and profits within a year of operation.
Because the goal is to get these firms off the ground, most incubators try not to lease space for more than two or three years to the same company.
Not everyone is gung-ho about small business incubators, however.
Some outside businesses have claimed they foster unfair competition. But Mejia chuckles at the thought. ``They're usually so small, I don't think they can pose any threat to any industry.''
Because it takes several years for a company to become stable enough to venture out on its own, and several more to create a significant number of new jobs, some wonder how effective incubators really are. And as federal budget cutting gets under way, their existence - which depends heavily on grants and industry bonds - grows somewhat uncertain.
But LeClaire says they are likely to continue to increase in numbers and popularity. Working with new businesses is ``a lot of fun,'' he says, ``especially being exposed to all these different companies, different technologies ... every problem has a different twist.''
For (some) investor complaints
If you're an investor with complaints or questions about how your stock was handled after the Oct. 19 plunge, take heart. By calling a toll-free number, 800-942-9022, you can get answers to questions and an expedited handling of complaints about how your account was handled. The hot line is being run by the North American Securities Administrators Association, which regulates the securities industry in each state, and will be manned from 8 a.m. to 8 p.m., Eastern time.
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