Assistance in the Establishment of Business Incubators

The importance of small businesses to economic development, be it at the national or local level, has attracted increasing attention during recent years.  An influential study in 1981 by David Birch of the Massachusetts Institute of Technology found that as many as two-thirds of the new jobs in U.S. cities during the 1969-76 period were created by firms with 20 or fewer employees.  Combine this information with the seemingly widespread closing of large manufacturing plants across the nation, and it is not surprising that many communities are looking for ways to encourage or facilitate small business formation.  The principal problem that this strategy faces, however, is the high failure rate among small businesses - often due to under-capitalization and poor management.

Business incubators are the evolutionary product of past attempts to help small businesses overcome their start-up problems.  They aim to both encourage new business formations and to reduce the failure rate of new businesses.  As the Small Business Administration states, "A business incubator is a facility with adaptable space which small businesses can lease at a reduced rate and on flexible terms."  A national survey of business incubators notes that they "are designed to meet the needs of entrepreneurs - coordinating services and financial resources and reducing the costs and risks which all new businesses face."

Although there is a great deal of variation among the incubators currently in existence, the following characteristics are common ones:

1. Below market rent rates on flexible terms.
2. Flexible space arrangements.
3. On-site business assistance at little or no cost.
4. Assistance in obtaining financing.
5. Employee training and placement services.
6. Shared support services at low or no cost; e.g. reception and meeting areas, secretarial services, accounting and bookkeeping, parking, office furniture rentals, shipping and receiving, research libraries, day-care facilities.
7. A "graduation policy" that may require firms to leave this subsidized, supportive environment after 3-5 years.

The advantages that such an operating environment offers during the start-up stage of a small business are readily evident, while the ultimate aim is to take these businesses to the developmental point where they can stand on their own and make way for the next start-up.

Mehailo Temali, et al., of the University of Minnesota's Humphrey Institute of Public Affairs, has identified five broad types of incubators in terms of their relationship:  publicly-sponsored incubators, industrial development agency incubators, nonprofit community-based incubators, university-related incubators, and private corporation incubators.  Three types of incubators in terms of the character of the facility and the nature of the tenants have been identified by the National Council for Urban Economic Development.  These include:  existing buildings that have undergone adaptive reuse or industrial rehabilitation; newly constructed facilities and facilities associated with industrial parks; and high-tech and university-affiliated incubators.

Superior wants to facilitate small business formations and has the following resources that would lend themselves to the establishment of incubators:  University of Wisconsin-Superior, Wisconsin Indianhead Technical Institute, vacant industrial and institutional buildings, skilled workers seeking employment, and entrepreneurs.  What is lacking is the technical and financial support to get such an effort off the ground - after which it would be self-maintaining and/or self-expanding.  Such support is outlined in a recommendation of the Strategic Development Commission.

Seek to establish a series of small business incubators to bring entrepreneurs together with local universities, VTAE institutes, and other small businesses for the purpose of providing management and technical assistance as well as the correct atmosphere for business development.  The university should work with the Department of Development and the VTAE system to set a specific goal for new incubators and prepare needed action plans.

Although the preceding recommendations was aimed specifically at the University of Wisconsin System, a small business policy alternative in the same report outlines a Wisconsin Small Business Incubator Program wherein "loans and grants would be made to nonprofit organizations" effectively involved in the establishment of such joint-effort incubators.