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Best practices mean excellent results in rural Michigan

by Carol James

February 2001

Although best practices directly correspond to success in all incubator types, they materialize differently from program to program. Here's a look at how one successful rural incubator, the Hastings Industrial Incubator in Hastings, Mich., embodies many of those best practices.

"Hastings is surrounded by lakes and hills and state recreation land," says Joe Rahn, executive director of Hastings Economic Development Department (EDD), which operates the incubator. About half of the city's 6,700 residents historically have commuted out of the county for work, most heading for one of four major metropolitan areas within a 45-minute drive. Four industrial manufacturing companies that have been in the area for more than 100 years provide most of the local manufacturing jobs.

"That [has been] our employment base," Rahn explains. "Those companies don't grow very much. And while they provide stable jobs, they don't create many new ones."

Local officials knew they needed to diversify their economic base and wanted to create new jobs but also knew that the proximity of the bigger cities meant Hastings would not be able to compete for large, relocating companies. "Smaller firms were a better bet for Hastings," Rahn says.

A redevelopment study, part of an Economic Development Administration grant application process, had predicted the size and composition of the incubator's client base. The study indicated that the entrepreneurial climate was favorable for an incubator. With that in mind, in 1988 Rahn and other community leaders set about launching an incubator and aggressively targeting small firms. The strategy has worked, and much of the success is attributable to qualities and efforts that exemplify industry best practices.

A clear mission

Although the federal and state grant application process delayed the incubator's opening until 1993, Hastings Industrial Incubator's staff and supporters have since maintained a sharp focus on recruiting small companies to fulfill its mission of creating new local jobs. Rahn says a rural incubator simply has to keep its focus on the program mission. By knowing its place as a breeding ground for small- to mid-sized companies, the incubator has been able to keep occupancy at or above 85 percent since inception.

Keeping that mission in focus also has enabled the incubator to make strategic decisions that ensure the mission continues to be accomplishable. For instance, when three of the first four companies that graduated from the incubator set up shop outside the county due to a lack of appropriate space, the city helped secure funds to revitalize a vacant industrial park to house incubator graduates. Community members who wanted to keep jobs at home supported building and expanding the park, which is about a quarter-mile from the incubator. Hastings now offers a seamless industrial expansion program that allows start-ups to locate in the incubator and graduate into this 40-acre industrial park with public services, improved roads and a spec building.

The park opened three years ago and in 1999, PKJ Enterprises, which manufactures weight lifting systems for college sports teams, and V-Tec Systems, a producer of sonic bonding machinery, built facilities and became the incubator's first graduates to move in. By summer 2001, the park will have five incubator graduates among its six residents. Two other incubator companies – Hastings Plastics and Cody Press – plan to build their own facilities there this construction season, Rahn says. That's right on target with the city's aim of expanding at least two companies per year into the community.

Community buy-in

"A project like this has to be owned by the community," says Rahn, who emphasizes that the most critical factor in the success of Hastings Industrial Incubator is the fact that the city council has sponsored and supported the incubator since day one. Council members joined Rahn in his quest to sell the project in the community at large and keep it in the front of the public's mind.

In return for the strong support over the years, the incubator has made a major effort to give back above and beyond its job creation goal.

For example, the incubator hosts an Opportunity Center in which troubled youth are able to channel their energy into a class leading to a GED. Another benefit is that "Opportunity Center kids get hired by our companies," Rahn says, with three or four employed at any given time.

Clients and incubator staff also participate in a career preparation series that exposes high school juniors and seniors to entrepreneurial careers. The series, which covers two school districts, also provides incubator clients contact with students who could be future employees.

The incubator has used its location to benefit more than the business community. The land on which the incubator resides, a former brownfield site, includes 28 acres recently purchased by the city on the Thornapple River. Last year, the incubator applied for and received a waterfront grant from the Michigan Department of Environmental Quality to build a trail system and riverside park behind the incubator. Opportunity Center students will build boardwalks and trails, and the city will install a canoe launch and fishing piers when the work gets under way this spring.

As part of this project, a private developer will construct a 20,000-square-foot spec building on 7 acres of the site, next to the incubator. Two incubated companies already plan to move into the building, which meets a need for more industrial space.

The combination of recreational and industrial development is part of a state-sponsored pilot project to demonstrate that communities can effectively reclaim former polluted industrial sites and put productive public uses next to viable industrial facilities. Incubator staff and city officials expect the park to attract primarily city residents, particularly on weekends, as well as employees of incubator clients and industrial area companies who may enjoy lunch at picnic tables along the river.

A side benefit of the activity at the incubator and the industrial park is a positive relationship with the local real estate community. "They send us referrals all the time," says Rahn, who explains that realtors also see the park and incubator as sources of prospective home buyers who will need new or improved homes.

Strong management

A rural incubator's success hinges on the leadership of a manager who has the necessary skills to make that success happen. The manager must be able to assess client needs and ensure those needs are met quickly, politically savvy and have a bent for diplomacy in order to build positive relationships with community leaders, an effective networker who can develop relationships that will benefit the incubator program, and be able to make smart business decisions. With limited resources, a rural incubator simply cannot make the mistake of putting an under-qualified person in charge.

Fortunately, Hastings Economic Development Department made the decision to charge Rahn with the incubator's success rather than delegating that position to a less experienced person (Rahn is the executive director of the EDD – his duties include day-to-day management of the incubator). A seasoned entrepreneur and business assistance professional, Rahn brought extensive experience to the incubator. During the past 20 years, he founded and operated a national manufacturing firm, led an adult education business curriculum for a public school system and taught entrepreneurship courses at a community college.

His experience allows him to provide clients top-notch, one-on-one advice when necessary, and his management skills help him effectively leverage other business assistance services available in the community in order to provide clients the best guidance with a small staff (Rahn, a three-quarters time administrative assistant and a part-time maintenance employee).

Rahn also brought to the incubator strong grant-writing skills and has aggressively sought money at critical points in the program's life. Equally strong interpersonal skills have allowed him to consistently show city council that the grant and loan funds the incubator brings in benefit the community at large.

Since the beginning, Rahn has been adamant about running a cost-effective program and informing the community of its value. Maintaining an excellent relationship with local officials has resulted in the continued support of the city. For instance, the city subsidizes administrative salaries for all of the economic development activities Rahn is involved in. Additionally, the city pays for some client services, such as water, and recently installed new carpeting and tile in the incubator's common areas and front office.

Rahn's cooperative relationship with local officials even has resulted in revenue for the incubator. For example, the schools lease a portion of the incubator nine months of the year for the Opportunity Center, and the city subsidizes the other three months of the lease.

Effective partnering

Incubator clients benefit from the program's close ties with business and educational resources in the area.

Clients receive Small Business Development Center services through an agreement with Kalamazoo College, which also provides free marketing studies. Resources are available through Kellogg Community College's (KCC) Regional Manufacturing Technology Center, part of the college's Barry County campus. The center provides manufacturing help and business classes, and Rahn is a member of its advisory committee. He's also an adjunct faculty member at KCC, teaching marketing, business, statistics and human resource management courses.

Because Rahn is a staff member of the Downtown Redevelopment Authority and co-chairs the Barry County Area Chamber of Commerce's Economic Development Committee, the incubator is well-represented in key economic development forums. Start-up firms benefit from access to a chamber business education series, and Rahn's extensive network often benefits clients. For instance, Rahn's role as training administrator for the state's quality council led to formation of a local quality council and more emphasis by incubator companies on quality systems.

On a wider scale, Rahn stays on top of business incubation and economic development issues to further improve services to clients and to increase the value of the incubator to the community. He was a founding member and is currently treasurer of the Michigan Business Incubator Association, speaks throughout the region about business incubation and economic development and has spoken at several NBIA conferences.

Visible changes

Before the Hastings Industrial Incubator, it had been nearly 30 years since a company with more than five employees opened its doors in the area. That changed when the incubator opened its doors, and amplified when incubator graduates formed the nucleus population of the 40-acre industrial park. Today, some 35 incubator client and graduate companies have created about 325 jobs, keeping more workers in the county and accounting for 40 percent of new manufacturing employment in the city of Hastings. Hastings is building out its industrial property at a faster rate than surrounding communities, Rahn says, and his recently completed master's thesis found that the survival rate of incubator client companies is twice as high as that of firms that receive DBA (doing business as) certificates in the county.

Even so, Rahn is not content to expect that the incubator's past and current achievements will ensure its future success. He and other city officials are planning for what lies ahead for the city, even as far as 10 years down the road.

The city of Hastings still has available 10- and 18-acre sites for additional industrial development. At the current build-out rate, officials estimate the city will fill that property in the next 10 years. "We're talking about planning for that," Rahn says. "We may need to look at partnerships with surrounding townships to continue to develop past the next decade."

This article was adapted from a study funded by the Tennessee Valley Authority to identify obstacles to the success of rural incubation programs. Dinah Adkins, NBIA president and CEO; Hugh Sherman, director of entrepreneurial programs at Ohio University's Voinovich Center for Leadership and Public Affairs; and Christine Yost, a lecturer in Ohio University's College of Business, wrote the report.

Keywords: best practices, mission statement, rural incubator, stakeholder relationship management

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