Put Your Spin on It

The Software Business Cluster in San Jose, California, receives an annual operating subsidy from the city. In return, the incubator measures just how much money clients return to the community in the form of sales tax.

“I can show them that they basically get $2 back on every dollar they put in,” says Jim Robbins, principal with Business Cluster Development and founder of the incubator. Robbins says the method has worked so well that he no longer has to approach San Jose City Council biannually to request funding. “When we had our ten-year anniversary gala celebration, the mayor got up and said it was the only project in the city that had never had dissent during discussions about funding.”

In Tacoma, Washington, however, William M. Factory Small Business Incubator Executive Director Tim Strege has found that the city is less concerned with direct return on city investment than it is in knowing how many low-income individuals are able to improve their personal economic situation. “We’re in an economically distressed area, and the city wants to know about the direct economic benefit to the constituency – how many people are in jobs that pay wages high enough to help them afford a home?”

Both Robbins and Strege are using basic company data to demonstrate their incubators’ impact. To drive their points home, they’re putting their own twists on the data. Robbins uses client and graduate sales data to project sales taxes generated by the firms, and Strege reports wage rates along with total employment.

So, as you can see, it’s important to find out what success means to your stakeholders and provide them appropriate data. “People need to work their own agendas,” Robbins says.

Many incubator managers have found that using multipliers for employment, labor income and other metrics paints a truly impressive picture of their programs’ economic impact. Additionally, many other managers have found that presenting economic impact information in a way that demonstrates a return on public investment is equally meaningful.

Before conducting any extrapolations or data analyses on your own, keep the following cautions in mind:
  • Although employment and other multipliers are readily available from the federal government, they are intended to be used by individuals trained in applying them correctly, often with specific software (such as IMPLAN). Attempting these extrapolations yourself could result in error and eventual public doubt about your reporting standards and methods. Seek the advice of a government official, university researcher, or private consultant trained in performing economic impact analyses.
  • Calculations of return on public investment in business incubation are not simple math problems. They must take into consideration investments in the program over time, expenditures that may be covered by a parent organization (such as a public university) and therefore not reflected in actual incubator expenses, and a host of other factors. Again, don’t attempt these calculations on your own. Consult a professional who will help you tabulate data you can tout with confidence.
The bottom line is this: While it’s important to position your data so that it is meaningful to your stakeholders, you’re ultimately only as credible as your data is accurate. Don’t mess up good numbers by inaccurately applying formulas that should be handled by a professional.