1. Starting & Developing a Successful Incubator Jim Greenwood, President Greenwood Consulting Group, Inc. Sanibel, Florida gail-jim@g-jgreenwood.com www.g-jgreenwood.com Copyright © 2012 by Greenwood Consulting Group, Inc.

2. Factors for Start-up Success Consider 6 factors 1.Is the market adequate? 2.Is there stakeholder/community support & a champion? 3.Is there a suitable location? 4.Can the incubator provide key services needed by entrepreneurs? 5.Is the development cost reasonable, and can we identify funding sources? 6.Can the incubator be financially self sustainable?

3. 1. Is the market adequate? Without an adequate market, the incubator will fail Adequate= – Large enough – Compatible – Willing to pay – Interested in incubator environment

4. 1. Is the market adequate? Recommendation: do market survey – Collect relevant data IndustryStage of development Service needsLocation preferences Interest in becoming incubator tenant or service user – Disseminate widely – Post on internet and mail out paper copies – Make it easy to complete – Include contact information for the respondent

5. 1. Is there an adequate market? Consider incubator tenants & service users in 4 categories C reation of new businesses A ttraction of firms from elsewhere R etention of existing local firms* E xpansion of existing local firms *including those going through downsizing

6. 1. Is there an adequate market? Importance of CARE – If you only consider new businesses, you will Underestimate the market for your incubator Reduce its potential impact And therefore diminish the incubator’s chances of success

7. 2. Is there stakeholder/community support & a champion? Stakeholder contributes money, building, tenant services, credibility Community is the general population – Stakeholder support more important than community support Champion is entity that leads the incubator’s development & operations – Must be Willing Capable Accepted by stakeholders

8. 3. Is there a suitable location? Don’t overemphasize the building – Incubator is more than a multi-tenant facility – Entrepreneurs should focus on growing businesses, not on their office space – U.S.: Managers traditionally spend too much time on facility, and not enough on services to clients

9. 3. Is there a suitable location? Don’t underemphasize the building – It is your largest financial commitment – If you pick the wrong one, it will be your downfall Common mistakes: too small, too little leasable space, wrong location, wrong kind of space – If you do not pay attention to it, it will be your downfall – It is the visible sign of your incubation program: make a good impression with potential tenants, stakeholders & community

10. 4. Can the incubator provide services needed by entrepreneurs? Do not duplicate services that others are providing to entrepreneurs if they are – Competent – Affordable – Accessible Such competition is wasteful, reduces support for the incubator, reduces incubator’s impact

11. 4. Can the incubator provide services needed by entrepreneurs? Identify services not provided by others – Or not provided competently, affordably, accessibly Key source of information on needed services? – The market survey Other ways to identify needed services – Interview bankers, attorneys, business leaders – Identify gaps in existing service offerings Example: Lending small amounts for short terms to entrepreneurs without a credit history

12. 4. Can the incubator provide services needed by entrepreneurs? Focus on services that the incubator can provide – Competently – Affordably – Accessibly without bankrupting the incubator program

13. 4. Can the incubator provide services needed by entrepreneurs? Provide services needed by the market served by the incubator Examples – Shared kitchen for food producers – Loan fund for undercapitalized entrepreneurs – Patent attorney for high tech companies

14. 5. Is the development cost reasonable, and can we identify funding sources? Development costs – Purchase of land or building – Construction of new building – Renovation of existing building – Equipping & furnishing common areas Reception area Conference room Work room Lunch room – Anticipated operating deficits before incubator reaches break even

15. 5. Is the development cost reasonable, and can we identify funding sources? Why include anticipated operating deficits in development cost? – If you raise this money up front, then incubator focuses on tenants and services when it opens – If you don’t raise it up front, then incubator must focus on raising it after start up, when it should be concentrating on tenants and services

16. 5. Is the development cost reasonable, and can we identify funding sources? Identify potential funding sources – Grants Federal, state, local government Foundations Corporations Other: _____________________ – Loans Bank, consortium of banks Local government through “bonding” Building sellers Private parties Other: ______________________ – Donations Furniture & equipment from banks, corporations Use of vacant building at no charge by owners, universities, government Free/reduced cost services from architects, engineers, construction contractors Other: ______________________

17. 5. Is the development cost reasonable, and can we identify funding sources? Expect to use multiple funding sources Be creative: no 2 incubators are funded alike Don’t avoid loans if you can afford the payments Look for special opportunities – If a local firm is going out-of-business or moving out- of-town, ask them to donate their old building to the incubator as “atonement for sin” Consider naming incubator or an office or the conference room for a big donor

18. 6. Can the incubator become financially self sustainable in its operations? Self sustainable: incubator’s revenues ≥ operating costs Why is it desirable? – Stakeholders don’t want to cover perpetual subsidies – Incubator should focus on tenant services, not on raising subsidy money – Be a good role model: your tenants can’t survive if they can’t cover their operating costs

19. 6. Can the incubator become financially self sustainable in its operations? Is it possible to be self sustainable? – Yes, if you focus on: 1.Charge market rate rent (incubators are not cheap space) 2.Collect rent like a “real” landlord 3.Keep operating costs under control (esp. # of staffers) 4.Choose a financially viable building – Large enough – At least 75% leasable space – Not a high energy consumer – Not requiring constant repairs 5.Identify profitable services the incubator can provide 6.Include affiliates who pay monthly fees 7.Don’t take on too much debt

20. 6. Can the incubator become financially self sustainable in its operations? Is it possible to be self sustainable? – Even if you can’t achieve it, strive to be as self sustainable as possible – Ideal: be self sustainable, but still accept “soft” money to do special programs and projects If the “soft” money goes away, then it doesn’t jeopardize the viability of your incubator

21. EVOLUTION OF A SUCCESSFUL INCUBATOR

22. Major Steps in Developing a Successful Incubator 1.Decide small & start-up businesses are key to your economic development goals – If you have no goals, then formulate those first Why do you want to change your local economy? What are you trying to emphasize (diversification, job creation, wealth creation, tech transfer)? 2.Convene key stakeholders to decide how to help small & start up businesses – An incubator might be one thing that would help – Develop a comprehensive program of support, with the incubator being one component 3.Conduct a feasibility study – Answer the question “will an incubator be successful in our community?” – Focus on the 6 success factors discussed above 4.Prepare a business plan – Answer the question “now that we know the incubator is feasible, how do we develop and operate it?”

23. Major Steps in Developing a Successful Incubator 5.Secure financing – A sound feasibility study & business plan will be key 6.Find & secure the building – See discussion above on what to look for 7.Secure tenants, establish services – Market survey in feasibility study will be key Names, contact information of potential tenants Services that they want at the incubator Location that they prefer 8.Open the doors – Begin operations, admit tenants before the grand opening – Make it a significant media event

24. Major Steps in Developing a Successful Incubator 9.Make adjustments as necessary – Tweak pricing, services, thermostats, etc 10.Monitor progress of incubator & clients – See my session on Tuesday afternoon for ideas 11.Make adjustments as necessary – Continue to tweak if progress is significantly behind the goals 12.Make changes as conditions change (economy, econ devel goals, modern business practices, emerging opportunities, etc.) – The incubator must evolve as business practices do – Constantly seek better ways of doing things, new ways to serve your tenants and community

25. Questions??