Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, February 19, 1995 TAG: 9502170008
SECTION: BUSINESS PAGE: F-1 EDITION: METRO
SOURCE: JEFF STURGEON STAFF WRITER
DATELINE: LENGTH: Long
"It would be great to walk down the hall and say, `Ahhhh, I need help,''' she said. "I'm sort of making it up as I go along."
A business incubator is a commercial building shared by new companies in which expert management advice and support services, such as a receptionist, are included in the rent.
The National Business Incubation Association said businesses that rent space in incubators have a four-in-five record of success. By contrast, four in five new businesses outside incubators close within five years of opening, economists said.
A bill currently before the Virginia General Assembly would include $200,000 in the state budget for the Roanoke Regional Chamber of Commerce to establish an incubator. The closest existing incubator is in Lynchburg.
John Jennings, director of the Blue Ridge Small Business Development Center in Roanoke, said the center is intended to help a number of interested entrepreneurs in thearea such as Bennett. Her firm is Short Order Temporaries, a 19-month-old company that provides temporary employees to the food industry.
The project would cost $400,000 to $1.5million, depending on whether an existing building is rented or a new one is built. Proponents still would need other grants or hefty private donations to get started. But they see the House of Delegates action as a possible turning point.
"This is the most promising sign we have had, looking at this thing, in years," Jennings said.
The number of incubators in the nation has ballooned to more than 500 in recent years, but the Roanoke project has been delayed by a lack of funding.
Officials now see signs that the project could become the latest economic-development undertaking of its kind by the state and something of a "pilot project," said Bud Oakey, a statehouse lobbyist for the Roanoke chamber of commerce and other area chambers. Virginia is home to five incubators, a fraction of North Carolina's 17 and fewer than Maryland's seven, the incubation association said.
"We prove it through this program, and the state says, 'OK, that's worth investing in,' Oakey said.
Detractors question the use of tax dollars to help relatively few businesses and doubt their claims of success.A businessman in Lynchburg questions the use of tax dollars to help the relative few businesses in incubators, even while doing business himself from the Lynchburg incubator. And a university professor asserts that incubator proponents make exaggerated claims of success But opposition hasn't dissuaded those backing Roanoke's plan, who have been meeting for several years and last year won Roanoke City Council's support.
A site has not been picked, but leaders are clear on what they want to do. Offices and manufacturing space would rent for close to market rates, but the rent would include assistance from paid experts, such as an on-site management consultant, and volunteer business executives. A nonprofit organization would direct the enterprise.
Those behind the project envision a facility of 30,000 to 40,000 square feet, enough for 15 companies.
In the incubator concept, resident businesses hold down their overhead expenses by splitting the costs of secretaries and business machines - services they often can't afford alone. Businesses generally must move out after three to five years to make room for newcomers.
An incubator is designed to help those such as William Leaman, who has no secretary or meeting area at the fiber-optic lighting firm he helped start in Roanoke less than two years ago. He can't yet afford such amenities.
When clients visit, he said, "the desk becomes a conference table."
He is another of the new business owners telling project proponents to push their idea for a local incubator.
"The basic advantage I can see is in the public perception of our company," Leaman said. "A big challenge in a young company is getting people to put trust in you."
The challenge for project proponents has been to raise seed money. They know renting a building is the least expensive alternative. However, they worry about sinking the precious few dollars the state might provide into modifications to a building somebody else owns.
If land were donated, a second scenario would become possible. A new building could be put up by an entity with the might to finance industrial development, such as the Greater Roanoke Valley Development Fund, said John Stroud, Roanoke chamber president.
This would free more of the government and donated funds for buying office machines and paying operating expenses.
The median cost to run an incubator last year was $100,000, the incubation association said. Incubator planners haven't nailed down where those funds would come from, but they envision the operation being self-sufficient by its fourth year.
"We can't be a resource to teach small-business owners how to make it if we can't do it ourselves," said Roanoke accountant and financial planner Hope Player. Player, perhaps more than any other private citizen, has spearheaded the drive for the local incubator. She said she simply wants to see small businesses get strong support.
In her accounting practice, Player specializes in helping owners of start-up companies as well as those looking to implement an idea for a business.
"The interest is definitely out there," she said. "We can't promise anybody right now when it's going to happen. We hope soon."
Player isn't the only one committed to that vision. The proposal has wide-ranging support.
"It has worked extremely well in other communities, and we don't see any reason it won't work well in Roanoke," said Jim Arend, president of the Roanoke Valley Business Council, made up of chief executives of the valley's 50 largest companies.
Roanoke's proposed incubator has been in the talking stages for at least eight years. On Feb. 9, the House voted 69-31 to fund the project - the only funds the House approved that were not in the present state budget. Lawmakers still have to reconcile differences between the House plan and that of the Senate, which did not include money for a Roanoke incubator.
Consequently, the amendment could fail, in which case Gov. George Allen's staff has said it would look for other money for the project this year.
Del. Victor Thomas, D-Roanoke, a convenience store owner, sponsored the budget amendment at the request of local incubator proponents.
"It sounded like a hell of an idea to give businesses a chance to get started," Thomas said. "Once you get a business started ... it's, 'Katie bar the door,' which means, 'get out of the way.'''
Many other communities already have traveled the road that Roanoke is taking.
More than 500 of the 530 incubators in the United States today have opened during the past 15 years, and they now house 9,000 businesses, according to the National Business Incubation Association in Athens, Ohio.
The phenomenon took off in 1984, when the U.S. Small Business Administration began to promote incubators by holding informational meetings across the country and printing how-to guides.
Today, incubators are run by cities; economic-development groups; nonprofit corporations; universities, such as Rensselaer Polytechnic University in Troy, N.Y.; and private companies, such as Corning Inc. and Digital Equipment Corp.
Companies that have graduated from incubators include Centocor Inc. of Malvern, Pa., a $76million biotechnology company; Damron Corp. of Chicago, which supplies tea to the McDonald's chain and others; and MapInfo, a $19million mapping software vendor in Troy, N.Y., the incubation association said.
Still, some people take issue with incubators, particularly the use of tax dollars to support them.
One unlikely critic is Gary Sill, who operates a business out of Lynchburg's business incubator, known as the Business Development Centre Inc.
"I don't particularly care for the government being involved in this type of thing," said Sill, owner of American Innovative Technologies. The public pays for services that benefit only a few companies, he said.
Proponents argue that incubators help more than the businesses inside them, because the companies create jobs and tax revenue that benefit their communities.
The Lynchburg center reported last year that companies that have received assistance have created 150 jobs and post annual sales of $15million.
"Companies that are going to succeed will, with or without this center," Sill countered.
A university professor who studied how small-business assistance programs report their results said Sill may have a point.
William C. Wood, an associate professor of economics at the University of Virginia's Darden Graduate School of Business Administration, said those running assistance programs have no way of knowing if those they help would have succeeded alone.
Moreover, Wood said, breathless reports of new jobs and revenue often fail to take into account whether companies receiving assistance took business from competitors who did not receive similar help.
Wood said he doesn't quarrel with businesses from privately funded incubators outdoing the competition. "Hey, that's the American way," he said.
If businesses operating out of a tax-supported incubator gain an edge over their competition, "you never know if it's because the businesses are good or because of the subsidy," Wood said.
Catherine McFaden, executive director of the Lynchburg center, said Wood is right, but the center she runs refuses to admit companies that will compete with existing businesses. Proponents of the Roanoke center said they are considering such a restriction as well.
Another skeptic, a Roanoke-area commercial real estate broker, asked, "What does an incubator provide that the community doesn't already provide?"
The broker spoke on the condition of anonymity, concerned that such a remark would be seen as disloyal to the cause. The broker said businesses can rent low-cost real estate in the current market, get free management advice from the Service Corps of Retired Executive, an SBA program, and purchase printing and related services at copy shops instead of owning or leasing expensive equipment.
But McFaden and others argue that incubators gather needed services into an economical package.
"We enable the small-business person to get up and get going with very little capital outlay," said McFaden, whose least-expensive suite rents for $150 per month, including utilities.
She added: "When you run a one-man or one-woman shop, it's very crucial you be able to be on site at all times," which leaves little time for a trip to the copy shop.
by CNB