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A better way to create jobs

Nurturing start-ups works even better than infrastructure projects.

(Page 2 of 2)

Unlike Faitelson, who needed to find production capacity, Mitchell needed full-scale business support, from setting up a business plan to finding an investor.

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Just as entrepreneurs have varied needs, incubators go about supporting them in different ways. They have flourished in unlikely places like Youngstown and Toledo, Ohio, by focusing very narrowly. (Youngstown, for example, only incubates business-to-business technology firms.) Other cities, like Boulder, Colo., have nurtured successful companies, only to see them leave town because of a lack of long-term strategy, says Dinah Adkins, president of the National Business Incubation Association (NBIA).

The Food Innovation Center, winner of the 2007 Incubator of the Year award from the NBIA, takes a novel approach. Concentrated exclusively on the food industry, it started life solely as a center for advice – reviewing business plans, connecting producers with suppliers, and contacting investors. Physical space, the usual hallmark of incubators, didn’t arrive until much later, well after networks had been established to support new companies.

“We are an economic development center, not a research center,” says Lou Cooperhouse, who runs the incubator. “We want to be so service-oriented that we forget about our four walls.”

Incubators have come a long way since 1980, when a dozen or so facilities dotted the landscape. “Thirty years ago, nobody paid attention to start-ups,” says Ms. Adkins. “It’s huge now.”

During his campaign, President Obama pledged $250 million a year to establish a nationwide network of incubators. That promise shrank to $50 million in his proposed budget. But Adkins says it’s still a big step up from the average $30 million a year that the EDA doled out.

Whether companies like Chef Hymie Grande and GeoMotion can actually thrive on their own remains an open question. The Small Business Administration estimates that 44 percent of all new businesses last at least four years, which means, of course, that 56 percent do not. Companies that graduated from incubation programs seemed to do better in 1997, when the NBIA found that about 87 percent of them made it past that four-year point. But no current study exists and even the decade-old data are unclear, mostly because individual incubators rarely track the long-term success of the companies they hatch.

This lack of clarity, along with the extreme difficulty of launching new businesses, as well as the high failure rates associated with entrepreneurship, even in good times, should give communities and universities pause before they latch onto an incubation program as a foolproof economic engine, incubator experts say.

“We’re seeing every community, no matter what their population, wanting their own incubator,” says Karl LaPan, president of the Northeast Indiana Innovation Center in Fort Wayne. The danger is that communities rush to set up incubators and end up losing money, he adds.

One solution is to focus on incubator networks to ensure that the biotech dreams of one community don’t destroy those of another, Mr. LaPan says. “In an environment like this, competing county by county is not a way to success.”

States are moving slowly toward incubator networks. Maryland, in particular, has worked to link its 20 main business incubators. But the landscape remains competitive, especially in a recession that has left many programs scrambling for funding. This new spirit of cooperation means that the Food Innovation Center regularly trades firms with other incubators that can better serve the needs of clients, including Faitelson, who hopes to begin his conquest of New Jersey’s food world.

Meanwhile, he can dream. “Now it’s trial and error – and fate,” he says.