Gain Ammunition for Fundraising

Recent research conducted by NBIA* found that 21 percent of responding incubators had city, county, or state government as their main sponsors. Another 20 percent were sponsored by academic institutions – many of which are public institutions. What does this have to do with tracking impact? The public wants to know whether it is getting value for its money.

“A real challenge with incubation is that programs have to continuously prove themselves because they are constantly asking for operating subsidies,” says David Lewis, assistant professor in the Department of Geography and Planning at the University at Albany in Albany, New York, and a published researcher on economic development and business incubation.

Other economic development strategies – such as tax abatements to bring a company to town or a one-time grant to a manufacturing company to expand its facility – normally require one large chunk of money up front or, in the case of tax abatements, an upfront decision that will affect future taxes. In Lewis’ experience, once the decision is made locally to grant the money or abatement, the public doesn’t pay a whole lot of attention to what ends up happening.

Incubators, on the other hand, often require operating subsidies across many years – and the public and elected officials take note, due to requirements to obtain annual approvals. “It feels like incubators are being held to a higher level of accountability, because they are going back to the well so often,” Lewis says.

And although those amounts may be relatively small, without proof of effectiveness, it’s tough for public officials to allocate public dollars for ongoing operations.

“While utilities would love to be philanthropic about investing in incubation, they can’t,” says Skip Farrar, manager of business development at Southern California Edison, a public utility in California. “Public utilities like SCE are regulated. In our case, the California Public Utilities Commission requires us to demonstrate that our investments in economic and business development activities ultimately result in a benefit to our rate payers.”

That means that SCE must invest its Economic and Business Development funds (approximately $2.5 million annually in Southern California) only in projects that result in either more customers or increased electricity usage. Those projects then spread the utility’s fixed cost of doing business across a wider base of sales or customers, thus placing downward pressure on rates.

“The only way I can demonstrate the benefit of incubation is to show that I’m ultimately creating spin-off companies and jobs,” Farrar says. “Until we can quantitatively demonstrate cost effectiveness, we just can’t spend the money on incubation because we’re prohibited by regulation from doing so.”

Farrar says that qualitatively, business incubation sounds like a great investment. “But without data demonstrating results, it’s hard to let loose of the purse strings when there are other economic initiatives competing for the same money that have compelling data.”

Teresa Taylor, senior project manager at the Tennessee Valley Authority (a public utility), works with a network of twenty-eight incubators that have received TVA assistance, all of which are required to provide economic impact data on a quarterly basis. “I use these numbers to demonstrate our effectiveness and to highlight the results of our business incubation investments.”

*Knopp, Linda, 2006 State of the Business Incubation Industry. Athens, Ohio: NBIA Publications, 2007.