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Summary

Incubation programs encourage clients to diversify their customer base, markets and investments to improve long-term sustainability. In much the same spirit, incubators themselves seek ingenious ways to increase program revenues and maximize available resources and skills.

Incubators innovate to diversify income streams and increase program sustainability

by Dennis E. Powell

February 2012

The Arts Incubator of Kansas City had some extra room, and like many incubation programs, the omnipresent need for additional income. So AIKC decided to rent out the third floor of its facility for events.

Soon organizations were conducting church services and dance classes in the space. As the incubator’s neighborhood in downtown Kansas City, Mo., became increasingly gentrified, requests to rent the space for wedding receptions and other functions increased.

The event space became so popular that the incubator renovated it, adding a commercial kitchen to further broaden its appeal and possible uses as a venue. Ultimately, more than a third of AIKC’s revenue resulted from rental income generated from the event space.

It became so successful that a competing reception hall lodged a complaint with the city’s building department, which conducted an inspection and ended up shutting down the whole AIKC facility for code violations — not just the reception hall but the incubator, too.

In June 2011, AIKC closed permanently. The building problems were more than it could overcome, especially with the loss of the rental hall revenue.

Its savior — the rental of extra space to bring in additional revenue — proved also to be its downfall.

A cautionary tale to be sure, but also one that exemplifies the importance of imagination and innovation in diversifying incubator revenue streams.

Putting common spaces to use

Ohio University’s Innovation Center in Athens, Ohio, has a large meeting room, a reception lobby and areas to prepare refreshments. Director Jennifer Simon says clients use the space a lot, but the incubator also rents it to commercial and nonprofit organizations.

While many incubation programs rent meeting spaces to outside organizations, Simon says she also plans to draw revenue from other specialized facility resources, including several well-equipped wet labs and trained staff members.

“Our lab manager is getting certified in use of all of our equipment,” she says. “We then will be able to provide for-pay lab services to researchers who are not clients — professors from the university and other researchers in the area. It’s not a moneymaker for us yet,” she says. “But we’re confident it will be.”

Capitalizing on a variety of programs

In addition to its core business incubation program, Louisiana Business & Technology Center in Baton Rouge, La., has branched out into several other lucrative fields, some closely related to business incubation and some less so, says Charlie D’Agostino, LBTC executive director.

“I was told in 1988 when I established the LBTC at Louisiana State University that I had two years to become self-funding or we would not continue at LSU,” he says. “I was forced to be as entrepreneurial as our incubator clients.”

Building on relationships forged when he worked at the NASA Stennis Space Center, D’Agostino knew NASA needed outreach and SBIR assistance for their programs in technology transfer and technology commercialization. So he proposed that LBTC become the outreach arm in Louisiana for SBIR and tech transfer. NASA funded his proposal, and the relationship has continued since 1990. The contract earns LBTC $310,000 annually to provide SBIR/STTR counseling for businesses statewide.

LBTC follows the same model to support other client services. “We do not get any government grants or subsidies; all of our funding is on contracts with deliverables,” D’Agostino says. “If we deliver, they are renewed; if not, they’re canceled. Therefore, we are motivated, like our incubator clients, to perform on contracts and give good customer service.”

Recognizing needs and finding innovative ways to respond to them has become a way of life at LBTC. “Because of the hurricanes and British Petroleum oil spill, the LBTC has established a disaster business counseling center, which brings in about $250,000 annually to provide recovery and contingency planning services to businesses impacted by the disasters,” D’Agostino says. “This program has gotten the LBTC national attention as the leader in disaster recovery, and we were funded to assist L’Aquila, Italy, through a Fulbright Specialist Program to help Italian businesses recover after the 2009 earthquake there.”

LBTC also developed an international trade program to assist incubator clients and other Louisiana companies develop international markets and customers in China, Brazil, Colombia, Panama and Mexico. D’Agostino says the program is funded by the U.S. Department of Commerce and the Louisiana Committee of 100 for $240,000 for two years.

As with the international program, LBTC drew on its core competencies to address a resource gap in the region, conducting incubator-like programs beyond the 35,000-square-foot business incubator. “The LBTC established the Incubator on Wheels mobile classroom to provide outreach statewide in rural areas and areas impacted by the hurricane disasters,” D’Agostino says. The Incubator on Wheels, funded by the U.S. Department of Agriculture, the U.S. Economic Development Administration and local entities such as the Louisiana Municipal Association and the Louisiana Public Facilities Authority, brings in about $250,000 annually. The Incubator on Wheels received NBIA’s 2009 Incubator Innovation Award.

A key component to LBTC’s sustainability is that D’Agostino operates the incubator like any entrepreneurial business — by seeking opportunities to increase services and value by attracting a full array of diversified funding sources. “It has worked for us, but it is also very demanding to keep the customer — the funding agency — happy by delivering quality services to our constituents,” D’Agostino says.

Selling products and services

Over more than a quarter century of operation, Houston’s Entrepreneurial Development Center has developed a variety of revenue streams beyond its incubation program.

Since 1983, its parent group, Services Cooperative Association, has sponsored monthly entrepreneurial breakfasts open to guests as well as clients, at prices ranging from $18 to $27.
Additionally the center sells guidebooks on incubation-related topics such as advising and mentoring clients, and the benefits of mentoring relationships.

Also available for sale are model legal documents useful to incubation programs, as well as a variety of services. “Candidly, we sell everything ‘but the cluck,’” says C. Dean Kring, director of research at EDC, a for-profit incubation program.

Assessing opportunity and risk

Business incubators, just like the entrepreneurs they serve, must continually evaluate potential gain against risks when considering new ways to bring in revenue. Few incubator managers complain of having too much money, and just about all look for ways to leverage existing spaces, facilities and programs to increase revenues. This can involve small things with big potential, such as renting wall space to art galleries, in hope not just of additional income but of a new source of publicity and advocacy for the program. Or it can involve diversification on a scale that would put a lot of corporations to shame.

But careful planning and implementation are critical to success. “Diversification of risk applies to a nonprofit business as well as it does to a for-profit,” says Joseph A. Rosa, former board member of the AIKC. “If the interruption of one aspect of your business can have a huge effect, it can undermine the stability of your entire business.” Adds fellow former board member Tom Corbin, “If you do have a profit center like that, you have to be prepared to cross all your t’s and dot all your i’s.”

Featured Sources

Charlie D'Agostino, executive director, Louisiana Business & Technology Center, Baton Rouge, La.

C. Dean Kring, director of research, Entrepreneurial Development Center, Houston

Joseph A. Rosa and Tom Corbin, former board members, Arts Incubator of Kansas City, Kansas City, Mo.

Jennifer Simon, director, Ohio University Innovation Center, Athens, Ohio

Keywords: financial management – incubator, funding sources/fundraising – incubator, self-sufficiency, self-sustainability

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