This is the first of two articles business incubator sustainability. The work in this series has been authored by June Lavelle. During coming months we will have further discussions with Ms. Lavelle relating to various aspects of business incubation.
Ms. Lavelle was among the first to spearhead the small business incubator concept: she developed the business plan, raised $1.7 million in financing, oversaw the reconstruction of the 350,000 square foot century-old facility, and then provided management assistance to over 150 start-up enterprises which leased space in the incubator from 1979-1992. This incubator became the first financially self-sufficient incubator in the United States. Lavelle went on to develop three more successful for-profit business incubators in the U.S., totaling 624,000 square feet.
Lavelle was a founder of the National Business Incubation Association, the world’s largest organization of business incubation managers, developers and supporters with over 1,900 members worldwide. She served on the Board of Directors from 1984 to 1994 and was elected Chairman of the Board for two terms. Selected first among a nation-wide competition for her work in supporting entrepreneurship, Lavelle received the prestigious Ernst & Young, Merrill Lynch, and Inc. Magazine “Entrepreneur of the Year” award.
The matter of Incubator Sustainability
As aptly noted in the National Business Incubation Framework which strives to create a benchmarking framework for business incubation programs in the UK, business incubation programs undergo a life-cycle development process similar to that of their client firms:
a) Foundation Phase
Prior to launch, all quality incubation environments will go through a period of planning, feasibility study, raising finance, marketing, relationship building, and putting together the right management team and Board. During the Foundation Phase, a number of critical elements need to be put in place that will define the incubation environment and its offering to and impact on the clients and the wider economy. These key elements include the defining characteristics that make business incubation different to other forms of business support and provide the cornerstones for the development of a mature and sustainable incubation environment.
“Consideration needs to be given to the development of mechanisms which will ensure more rigorous assessment of Incubator viability…”
Consideration needs to be given to the development of mechanisms which will ensure more rigorous assessment of Incubator viability and potential performance prior to selection. If a project does not have a reasonable chance of being around 70% financially self-sufficient (from operations) within five to ten years, then, by definition it is not feasible unless it can be demonstrated that it will be able to rely on continued support from local government, academia, industrial park, etc. to cover the operational deficit.
Self-sufficiency typically requires that the Incubator has: access to facilities rent-free; has opened the facility in a debt-free position; has determined “market rate” for comparable space, and charges at or only slightly below market rate for Incubator space, i.e. sells the value proposition; maximizes the utilization of space, i.e.., =75-80% available for tenants, including anchor tenants, and is at or near full occupancy, i.e. = 90%.
“A feasibility study gives a “Go – No Go” decision.”
Although there are no guarantees with regard to Incubator success or sustainability, a feasibility study does mitigate risk, identifies obstacles, and offers solutions, based on experience. Furthermore, Incubator project sponsors who have participated in a thorough-going feasibility assessment will better understand what an Incubator is, the climate for business Incubation in their community, the market for services the Incubator proposes to provide, and the commitments necessary to develop a viable program. A feasibility study gives a “Go – No Go” decision. If “Go,” then much of the information gathered during the feasibility study can be used in the Incubator’s business plan and funding proposals. If “No Go,” then the feasibility study will have saved local stakeholders and SFD a great deal of time and money.
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Read more during our next post on the Development phase.
 Business Incubation Framework Summary Report, UK Business Incubation, Birmingham (2004)