Incubators bring out the best in a business
By Jennie L. Phipps • Bankrate.com

At 79, Joe Mancuso is proud to tell you that he started it all.

The business incubator idea -- and the name -- were born after heavy-equipment manufacturer Massey Ferguson pulled out of Batavia, N.Y., in 1959. The company left behind an 850,000-square-foot shell. Mancusco's father and uncles bought the building, hoping to find a tenant who would do something to alleviate the 20 percent unemployment rate in the area. It was killing the rest of their businesses.

Mancusco was assigned to fill the place with people who would hire other people. A Connecticut chicken hatchery was one of the first businesses he recruited and the Batavia Industrial Center was born.

"We went from incubating chickens to incubating businesses," says Mancuso. In 40 years, more than 1,100 businesses had their start there. "Almost every old building in Batavia is filled with our graduates -- and most of the newer ones."

Success is apparent
There are now more than 1,000 incubators in the United States and other countries, according to the National Business Incubator Association. They operate on a concept that is not very different from the one the Mancuso family had. The goal of many is to shore up the economies of troubled areas by supporting the kinds of startup businesses that will provide new jobs. In the process, they give new businesses an invaluable leg up by offering what really boils down to knowledge and flexibility.

Support for incubators often comes from chambers of commerce and community development authorities, and they are frequently affiliated with colleges and universities. About 10 percent of them like the Mancusos' are privately owned and profit-making.

Good company
Craig Skevington, who has launched two successful businesses in an upstate New York business incubator, says the best thing about the incubator atmosphere is the opportunity it offers to sit back and commiserate with people in the same boat.

Skevington's experience with the Severino Center for Technological Entrepreneurship, an incubator affiliated with Rensselaer Polytechnic Institute in economically devastated Troy, N.Y., is pretty typical. Severino Center was co-founded in 1980 by Mark Rice, who did his doctoral dissertation at RPI on business incubators. Troy -- with its bombed-out downtown and limping economy devastated by the southward flight of its manufacturing firms -- was a community prime for any kind of job creation.

Skevington, who did his undergraduate work at RPI, moved into the incubator in 1986 to form a company that sold workflow software, the kind of business that an incubator affiliated with a high-tech institution such as RPI can best help. He arrived with a business plan and not much else.

"I was consulting by day and writing code by night. I was funding the business by not eating, and I had no idea what I was doing," Skevington recalls.

At that point, he needed only 200 square feet to develop his idea. By the time he sold Factory Automation and Computer Technologies three years later for about $3 million, he was supported by venture capital obtained through the incubator's connections, and he was occupying 5,000 square feet of the incubator's space. His company had turned into a business that manufactured real-time production systems.

Home sweet home
Flexibility and connections are what incubators are all about, says Rice, former chairman of the National Business Incubation Association and a frequent speaker on the subject. While the rent is likely to be about the same as similar space in the area, incubator space usually comes complete with an existing phone system, shared conference space, photocopiers and, often, a receptionist. While most commercial landlords want at least a three-year lease and often five years or more, incubators will allow tenants to stay no more than five or six years. But during that time they usually can switch their space allocation as often as their needs change. This can be a big plus, Rice says, particularly for an entrepreneur such as Skevington who switches business models in midstream.

A less tangible but potentially more important advantage is access to a director and board members who are veterans of the entrepreneurial wars and willing to give advice. Their expertise and contacts usually include sources of venture capital and angel financing -- very important when access to money is the problem that most often stymies new businesses. When an incubator is attached to a college or university, laboratory and computing resources also may be available, as well as faculty expertise and the opportunity to hire competent student help.

As Rice points out, "Most people understand the product and service. If they're developing advanced solar energy devices, they know how to design and build those things and make them work. What they usually lack is the knowledge to build a business. The incubator is a gateway to resources, including investors, partners, experts in legal and accounting issues. It can make the difference between a winner and a loser."

Jennie L. Phipps is a freelance writer based in Michigan
To comment on this story, please e-mail the Bankrate.com editors

-- Updated: May 1, 2002