Incubating an economy

It’s tough to overstate the contribution of small businesses to the U.S. economy. They comprise 99.7 percent of American employer firms and 64 percent of net new private sector jobs, according to a 2012 U.S. Small Business Administration report.

“There are millions of businesses throughout the country,” says Jeffrey Robinson, a professor of management and entrepreneurship at the Rutgers Business School. “And then of course, they get concentrated in cities and urban areas because there’s more people there, there’s more commerce and activity taking place there.”

This can present economic challenges for smaller and rural municipalities. However, one expert argues that the traditional economic development model in cities is shifting.

“Now more than ever, local leaders are moving away from the traditional economic development approach of attracting one large employer to a city, and instead are focusing efforts on cultivating home-grown business talent,” says Emily Robbins, principal associate for economic development at the National League of Cities. “City governments are offering more services than ever before to proactively support and sustain their ecosystems of local businesses, maker businesses and home-based microenterprises.”

Small cities are finding particular success in small business development and retention through a model used by the private sector as well — business incubators.

The incubator business plan

Sometimes called entrepreneur centers, business incubators operate out of a physical space with the goal of supporting and growing businesses over time, says Kirstie Chadwick, president and CEO of the International Business Innovation Association (InBIA), which cultivates a global network of entrepreneurial support organizations like incubators.

That growth is fostered through a typically one to three-year program that offers participants amenities such as shared office space (often leased at below-market rates), business trainings, mentorship, networking opportunities and other advisement like legal services from the community.

Admission is often a selective process, geared towards businesses that can demonstrate potential growth. Participation is also commonly contingent on the business achieving growth goals, with the ultimate goal being for that business to graduate from the program.

“Because they’re an economic development type of organization, [incubators] should be focusing on companies that are growing and creating jobs in their community,” Chadwick says. “Good incubators have graduation policies and graduation criteria so that companies that meet that criteria need to move out so they can clear out the space for a new company coming in.”

Governments are a common funding source for entrepreneur centers. InBIA data shows that of 275 U.S. entrepreneurial support organizations, 83 percent get between 11 and 100 percent of their total operating income from local government. About 32 percent of those organizations receive the majority of that income from local government.

The business incubator model has existed at least since the 1980s, Chadwick says, but many small cities have incubators that are under 10 years old. These incubators are all demonstrating their demand through businesses’ participation in their programs, despite different approaches being used to develop them.

Maricopa, Ariz.: Bigger than it looks

“Every incubator is designed completely differently and designed to the strengths and the assets of each community,” explains Denyse Airheart, director of economic development for Maricopa, Ariz. (pop. 48,374), which lies on the Metro Phoenix area’s southern edge.

Part of Maricopa’s assets include a vibrant, home-based entrepreneurial community that the city discovered through a survey prior to launching its incubator, the Maricopa Center for Entrepreneurship (MCE), in 2014.

“We wanted to make sure we were supporting these businesses, helping them grow correctly and making sure they were getting their needs met,” Airheart explains. “Because the reality is, if they grow and if they stay in the community, that’s a win-win for everybody.”

The MCE offers four core programs to its participants, MCE Executive Director Quintin Baker explains. The Milestone Program, which every client participates in, creates weekly, actionable goals for businesses as part of a two or three-year plan that helps them track their growth. The Smart Start Program helps employees transition into entrepreneurs, while the Boot Camp Intensive helps drive in the core concepts for a business’s value proposition and the On Track Program helps non-new businesses expand.

Throughout all of the programs, the MCE offers social programming, an art gallery and rentable co-working space. While the city serves as the primary funder of the MCE, it selected the nonprofit Northern Arizona Center for Entrepreneurship and Technology (NACET) to operate the MCE.

Unlike many incubators, all of the MCE’s core programs as well as drop-in workspace are free for Maricopa-based businesses to use. The MCE offers outsourceable executive services and dedicated co-working space for a fee, and it charges money for businesses outside the city to participate in its programs remotely. “We want [businesses] to know that if they’re here, they’ll be taken care of,” Baker says.

Currently, the MCE has 66 total participating businesses, with the goal of having 100 startups by the end of next year, Baker says. The programs these businesses participate in are housed in a 2,000 square foot space within a strip mall off the city’s main road. The location is far from a detriment, though — Baker says it helps foster the entrepreneurial ecosystem.

“It just creates that community and reinforces that we’re not some ivory tower out in the middle of nowhere,” he explains. “We’re actually a part of the businesses that we support.”

“For where our city is at, and where our community is at, the more home-grown and the more communal, the better,” he adds.

Ellsworth, Maine: Methodically incubating an industry

Hosting Ellsworth, Maine’s (pop. 7,911) Union River Center for Innovation incubator in a small, 5,000 square foot space was a deliberate move, director Micki Sumpter says. Sumpter created the Ellsworth Business Development Corporation (EBDC), which operates Union River.

“We did not want to start an incubator that was too big, too large and too ‘we can do anything,’” says Sumpter, who also works as Ellsworth’s director of economic development. “And we can’t. We wanted something small, sustainable.”

The incubator’s diminutive size contrasts with the city’s large ambitions — turning the city into a bioscience hub. The nucleus of that goal stems from a large biomedical research institution’s plans to open part of a new Ellsworth location by the end of 2017.

In anticipation, Union River opened in August 2016 after two-and-a-half years of planning. Currently, it houses three bioscience companies, two affiliate, out-of-state start-ups that don’t have to work there and rentable co-working space. Union River also hosts educational forums for the startups that are nevertheless open to the public. Despite the bioscience focus, it won’t turn away non-bioscience companies.

The incubator’s methodical growth has been deliberate as well: “We thought, ‘let’s go slow, let’s make sure we do all of this correctly’,” Sumpter explains. In addition to growth requirements while in the program, participants must sign a contract that requires them to remain in Ellsworth after the program is completed. While federal, state and local money funds the incubator, Sumpter emphasizes that the city has been a key partner in helping with the decision-making process and owning its building.

“It’s only a year and a half, two years old,” Sumpter says. “But we’re almost full, which is a great thing. And hopefully next year, one of them will move out to build their own building.”

The proven growth from humble procedures gives Sumpter confidence about the incubator’s future.

“This little incubator… will succeed because we did it small, we did it sustainable and we took every phase that we had to do and really worked it through, before we would jump to the end,” she explains.

Peachtree Corners, Ga.: Growing tech with tech

Like Ellsworth, Peachtree Corners, Ga. (pop. 42,773) seeks to designate itself as a hub (specifically for technology). Its incubator, Prototype Prime, is but one part of a larger plan to create an innovation hub within the five-year-old city, which lies just outside of Atlanta.

With about 2,400 businesses in the city, an existing yet old technology business office park and a need to redevelop its aging architecture, Peachtree Corners Mayor Mike Mason determined that a business incubator could help the city attract and retain businesses in its area.

“You want high-tech jobs in your community,” says Mason, who worked in the private sector before becoming mayor. “You want to bring in Millennials. You want to help give them an advantage to make them successful. What better way, as part of your innovation hub master plan, than to create an incubator?”

Peachtree Corners partnered with the Georgia Institute of Technology’s Advanced Technology Development Center (ATDC) to develop Prototype Prime and to provide resources for it. Mason says the city pays ATDC each quarter to provide resources like mentors, training classes and oversight to ensure the incubator operates according to best practices. ATDC also provides staff members who will help network participants with other companies and provide marketing and public relations strategy.

In keeping with its technology-based focus and technology maven operator, Prototype Prime also uses more technology than other incubators to help its participating entrepreneurs. Inside the incubator lies a podcasting facility to help businesses spread the word about their products.

Prototype Prime also offers a design lab replete with 3D printers and a volunteer Georgia Tech industrial design professor who helps participants design their products and learn how to use the 3D printers. What’s more, participants don’t have to be Peachtree Corners residents to use Prototype Prime’s tools.

Funded entirely from city funds, Prototype Prime opened in October 2016 in a 12,500 square foot space on the current city hall’s first floor. In its first year, the incubator attracted 13 startups, which have created over 40 jobs. “We’re very pleased with our first-year outcome, that’s for sure,” Mason says.

For him, a key part of that success comes from Prototype Prime’s leadership — its executive director is a serial entrepreneur who isn’t a city employee. He says it’s essential for a city to allow a private entrepreneur to lead its incubator, because they know how to assemble a team while relentlessly pursuing success.

“Always let the guy in charge be an entrepreneur… they never quit and they never give up,” he explains. “We just keep trying things until we find stuff that works.”

Yucaipa, Calif.: The challenges of a self-run incubator

In running its own incubator, Yucaipa, Calif. (pop. 53,309) employs the opposite approach to Peachtree Corners’.

Cost is the chief reason. The Inland Empire city is a fiscally conservative one, explains Paul Toomey, Yucaipa director of community development. The Yucaipa Business Incubation Center opened in February 2016 and operates out of a vacant police building that the city helped rehab and renovate.

Besides a part-time receptionist, no city staff stays on the premises. “My staff — myself and my administrative assistant serve as the kind of management team for the operation itself,” Toomey says.

The city’s decision to manage the incubator was a conscious one in the planning stages. “Ideally, having individuals on the property who have the business acumen, who have the ability to counsel those individual business owners any time on a given day is the best answer,” Toomey says. “There just isn’t sufficient dollars available for the city to take on that kind of expense.”

Yucaipa instead fostered partnerships that bring experts to the incubation center several times per week to offer shared services without actually occupying space there. Toomey’s administrative assistant manages the center like a landlord in addition to managing its the leases and contracts.

The assumption of those duties proved to be a major adjustment, though.

“Getting the group to do what they’re supposed to do from an incubator programming [perspective] is one thing,” Toomey reflects. “But dealing with tenant related issues… it took a little bit of understanding that’s the role we also have to play.”

Given that the incubation center participants pay no rent for the first six months and then pay rates that increase over time, some tenants were gracious with the transition, understanding the realities of securing a free office space. “Others, they were a little less forgiving about some of those creature comforts,” Toomey recalls. “It was interesting for a while.”

The staff was able to apply resources to the tenant issues, and Toomey says the last six months have been smoother.

As of late October, seven businesses that span a variety of fields were participating in the center’s program, while it has capacity for about 10. No businesses have been asked to leave yet, and Toomey says that each business has experienced some form of growth.

“I know in speaking with them, they do attribute their ability to have a physical location to be a big part of their success,” he says.

Roanoke, Va.: An accelerated, regional approach

To understand how Roanoke, Va.’s (pop. 99,897) entrepreneur center stands out from other city entrepreneurial centers, just read its name: the Roanoke-Blacksburg Regional Accelerator and Mentoring Program (RAMP).

Firstly, RAMP focuses on the Roanoke Valley and New River Valley regions of southwest Virginia as opposed to just Roanoke the city— both in its partnerships and its target audience.

“We’re of the opinion, I think most of our technology community is, that we need to be working together,” says Marc Nelson, senior projects coordinator for the Roanoke Department of Economic Development. “We think that the jobs that get produced here, even if they don’t necessarily stay within the city of Roanoke, if they stay in the region, we consider that a win.”

Such a focus came about from a multi-entity regional partnership. The Roanoke-Blacksburg Technology Council (RBTC), first spurred the city to assist in the RAMP program’s creation a few years ago. Roanoke procured a building to house RAMP, using a $600,000 grant from the state department of housing and community development, Nelson explains. The city then partnered with RBTC and Virginia Western Community College to respectively run the RAMP program and manage the building, Nelson recalls.

“Cities, we do a lot of things well. Accelerators, incubators, we don’t necessarily do well,” he says.

Secondly, RAMP identifies as an accelerator, not an incubator. As InBIA’s Chadwick explains, the chief difference between accelerators and incubators is that accelerators offer financial investment via equity and a more accelerated program that usually lasts three months. Accelerators, she says, are often early-stage venture capital firms.

The RAMP program lasts longer than three months, but the website states that those first three to four months consist of a business boot camp. Also, RAMP doesn’t directly provide funding, Nelson explains. But in addition to offering business education and mentorship, the program provides access to capital through investors that lease space within the RAMP building. “That’s a good access point. [Businesses] can talk to those folks and work with them.” Such investments aren’t guaranteed, but in the future, Nelson says RAMP program administrators hope to offer businesses seed funding.

With its first cohort of six businesses having started in June, RAMP is still in its infancy. But similar models in Maricopa, Ellsworth, Peachtree Corners and Yucaipa have shown that entrepreneurial centers can indeed help smaller cities grow their business communities. Nelson believes the future is bright, both for RAMP and for other cities across the country looking to start similar programs.

“I think smaller cities are starting to clue in on how to [grow business communities] and see that this is something they can do,” he says. “For us, places like Richmond [Va.] and Chattanooga [Tenn.}, even though they’re bigger than we are, we’ve still been able to take a lot of what they did and replicate it here.”

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