National Business Incubation Association; Your source for knowledge and networks in business incubation

Keeping things in check: Tracking progress can help ensure clients become graduates

by Linda Knopp

June 2006

Regular conversations between clients of the Advanced Technology Development Center and its business development staff have long been a staple of the Atlanta-based incubation program. ATDC General Manager Tony Antoniades says keeping tabs on clients’ progress – whether through informal hallway discussions or regularly scheduled reviews – alerts the staff when a company might need assistance with developing a pitch to investors or lining up customers and lets the clients know how the incubator might be able to help.

Each of ATDC’s 43 clients sits down monthly with one staff member to talk informally about their progress and quarterly with two incubator staff members to review financials. (ATDC has a business development staff of 6.5 full-time workers.) “During these conversations, both the clients and the incubator can be held accountable,” Antoniades says. “We can look each other in the eyes and say, ‘This is what you said you’d do when we last met. Have you done it?’”

Antoniades is one of a number of incubator executives who use both specific processes and informal conversations to track client progress, whether to identify clients who might need a helping hand, to know when a company is approaching graduation, or to obtain data to demonstrate the incubator’s economic impact. Read on to learn how several have honed the process.

What to track – and why

Clients at the Bessemer Business Incubation System in Bessemer, Ala., have no choice but to regularly submit cash flow, balance sheet and income statements – it’s in their lease agreement. First-year clients must submit the information quarterly; second-year clients must submit their financials semiannually; and companies that have been in the incubator three years or more must submit the information annually.

Using this information, BBIS Director Devron Veasley conducts a financial ratio analysis for each of the incubator’s 21 clients and compares the results to industry standards (as determined by Risk Management and Associates, formerly Robert Morris and Associates). The process is designed to determine how the financial health of a client compares with that of other businesses in a particular industry.

“Banks and other financial institutions use RMA ratios to evaluate the strength of a business, so I try to prepare my tenants for that,” Veasley says. “Also, a financial ratio analysis can sometimes catch problems – inefficiencies, funding needs, etc. – before they become too big to handle.” If a company’s financial ratios are out of line with its industry, Veasley – the incubator’s only business development staff member – meets with the client to discuss why the ratios are out of sync and what it might need to do to bring them back in line.

Veasley believes that formally gauging the financial strength of a business is an important first step in helping the client become a successful graduate. “If something in their financials raises a red flag, you can see what types of changes might need to be made,” Veasley says. But if an incubator doesn’t track client progress formally or on a regular basis, neither the incubator nor the start-up might recognize the problem until it’s too late.

That’s why the staff of the Emerging Technology Centers meet with the executive teams of client companies as they enter the Baltimore incubation program and every six months afterward. During the initial meeting, they establish a set of goals the client hopes to achieve during its tenure as an incubator client. Incubator staff use these milestones, which are based in part on each company’s business plan, to gauge a client’s development and growth over time. Typically, the initial goals address four basic areas of business development: product/service development; marketing and sales; management and staff growth; and funding/financing.

After the initial meeting, a review panel comprising the incubator’s four professional staff members and a number of business mentors meets with each client every six months. “We look at the client’s overall progress and movement toward business-plan-stated goals,” says ETC Executive Director Ann Lansinger. “We step back and define and measure growth.” At those meetings, the incubator staff and clients also agree on milestones the company should be able to meet over the next six months.

Why does ETC make such a concerted effort to track clients’ progress when the staff also meet regularly with clients through its mentoring program and other informal interactions around the office? Lansinger says the formal review process is designed to help the staff and the clients focus on the “big picture” of helping companies succeed. “It’s helpful to keep tabs on how well the companies are developing overall and where they might be experiencing problems,” she says. “The objective is to make sure companies are making progress and to help them access the resources they need to fill in any holes.”

Tracking methods

Some incubators, like those discussed above, track client progress formally several times a year, while others choose to keep tabs on the companies more informally – and more frequently. The Business Development Incubator of Jersey City, N.J., does a bit of both.

BDI Director Gina Boesch asks clients to complete a “Q-Plan” quarterly to help her and the incubator’s advisory council assess each firm’s progress. She then provides copies of the document, which includes the client’s assessment of its progress and its goals for the upcoming quarter, to advisory council members before the council’s quarterly meeting. The incubator, which opened in June 2005, has 10 clients.

“[Advisory council] members take 20 minutes in the agenda to go forth and meet with each company – usually one or two per company – to discuss their Q-Plan,” Boesch says. “We then reconvene as a group, discuss each company and what we can do to accelerate the company’s growth, and include the recommendations in the meeting notes and share our thoughts back with the company.”

In between these quarterly review sessions, Boesch encourages BDI clients to meet with her – the incubator’s only staff member tasked with providing business assistance – whenever they encounter a business problem or need additional assistance. Combining a structured review process with an open-door policy for less formal interactions provides a good balance for BDI and its clients, she says. “The two concepts are not mutually exclusive, but rather they reinforce one another.”

Instituting an informal check-in policy in conjunction with a more formal – but less frequent – review process provides a compromise at incubation programs with a small staff and a large client base, like the Chattanooga-Hamilton County Business Development Center in Chattanooga, Tenn. With 58 clients and Executive Director Angela Glover as the incubator’s only business advisory staff, a formal quarterly review process proved unwieldy, Glover says.

Now, the incubator requires all clients to provide updated financial information (e.g., a profit and loss statement, tax return and/or balance sheet) and employment statistics each year on their anniversary date. Glover then reviews the information and meets with each client formally to discuss how the company is progressing and what stumbling blocks it might be encountering.

“This is the time to say to them, ‘This is where you said you’d be by now,’” she says. “And if they’re not where they thought they’d be by then, we can ask what we can do to help and stress to them the resources that are available to them.” Glover also sends out quarterly e-mail messages to remind clients of the business development resources available to them at the incubator and to encourage them to schedule a meeting time with her whenever they need to chat about any business challenges they are encountering.

At ETC, even informal review sessions follow a structured format. Lansinger and other incubator staff meet every other Monday to confer about each of ETC’s 55 clients (48 in-house clients and seven affiliates). The process takes about 90 minutes. During this time, staff discuss which clients might be in need of mentoring or counseling.

“These meetings provide a fairly in-depth look at where these companies are and what their next steps should be,” Lansinger says. “Staff make notes and suggestions, which are followed up at the next meeting.” The goal is to address day-to-day business problems that could impede a company’s development if left unchecked.

During ETC’s semiannual reviews, the incubator takes a more quantitative look at each client using a spider chart compiled by John Fini, executive director for technology initiatives at ETC. The chart is designed to provide an objective snapshot of where each company is in the development process on several key variables Fini has identified as critical to the success of technology start-ups. Variables include knowledge of the targeted industry, intellectual property protection and management staffing.

Ultimately, the incubator aims to use the spider chart to measure clients’ progress over time, to identify any particular gaps in a start-up’s development, and to help identify a logical time for a company to graduate from the program.

Securing client buy-in

As many incubator executives have found, getting clients to provide detailed financial and employment information and to be actively involved in the incubation program isn’t always easy. But the San Juan College Enterprise Center in Farmington, N.M., has found that rewards can be a great incentive for participation.

In 2005, the incubator launched a 100-point system for keeping its clients engaged in the incubation process without having to continually approach them for updated information. “In some ways, incubator clients are a bit like teenagers,” says Director Jasper Welch. “Some days, they act like adults and make great decisions. But other days, they act like 2-year-olds. It’s hot and cold as they learn to make the best decisions for their businesses, but ultimately, they’re responsible for those decisions.”

Welch says it’s the incubator’s responsibility to provide clients with the training and the resources they need to make good business decisions, and to encourage entrepreneurs to take advantage of resources both in the incubator and the community. Through the incubator’s 100-point system, companies use an Excel spreadsheet to score themselves on participation in a number of business development activities in four distinct areas: business plan development, incubator involvement, professional and skills development, and advisory services. Each client is required to earn 100 points annually. (See “New Mexico Incubator Rewards Participation” for more details about the Enterprise Center’s 100-point system.)

Clients can earn points for everything from updating their business or marketing plan, to hiring a CPA, to joining Rotary, Welch says – anything to make sure clients are taking steps that will maximize their chances for success. Clients even earn points for meeting quarterly with Welch – as they’re required to do.

Business development activities are weighted differently, based on how much assistance they provide. For example, clients who attend NxLevel workshops earn 15 points toward the 100 points they need to earn annually; those who complete a business plan using the skills they learned in the workshop series earn 55 points.

Welch, the incubator’s only full-time staff member, and Enterprise Center Coordinator Eileen Shelton, a part-time program support employee, developed the idea for the self-assessment tool, the list of potential business development activities included on the worksheet, and the number of points each activity earns. “The EC has a number of activities and programs that have the potential to help companies succeed,” Welch says. “But in the first five years, we tried – and failed – to get clients involved. Now we have a way to get companies engaged in the incubation process.”

Although the self-assessment is required of all in-house and affiliate clients, the Enterprise Center offers an added incentive for participating. Each of the incubator’s clients (12 in-house and seven affiliates) compete for prizes by earning the greatest number of points. First prize in 2005 was an overnight stay and dinner at a resort in nearby Durango, Colo., and a corporate planning retreat; second prize was a $100 gift certificate to a restaurant; and third prize was a gift card for a discount retailer. All of the prizes during the first year of the program were donated by Welch’s management consulting firm, Four Corners Management, but he’s working to secure more corporate sponsors to “up the ante” in 2006 and beyond, he says.

Clients who do not complete the self-assessment or fail to earn 100 points in a calendar year are put on probation for the next lease year. Those companies – one or two in 2005 – must then write a letter to the incubator’s staff and advisory board explaining why they should be allowed to stay in the program even though they have not met the requirements. Based on their explanation, incubator management will decide whether or not the company can remain in the incubator. “But at least we have a way to have the hard conversation,” Welch says. “And in the end, a company that is a nonparticipant may be asked to leave.”

Although the 100-point program is relatively new, Welch says he has seen an increase in the level of involvement in the incubator program by clients and their willingness to undertake other business development activities – both of which could have positive effects on a company’s performance. “The jury is still out on the long-term effects of this program, but the initial appraisal looks good,” he says.

Partners Assisted Living Services, a firm that provides home-care services to senior citizens in the Farmington, N.M., region, was the top point-getter in 2005, earning 425 points for its participation in business development activities. PALS Client Services Director Judy Castleberry says she and business partner Pam Hyder were already actively involved in the incubation program before it instituted the 100-point system, but they found the extra push to collect points a good reminder of the value of business development services.

“Having to keep track of the points made us realize how the time involved in business development was as important as working within the business,” Castleberry says. “The 100-point system helped us maintain the focus on working on the business rather than getting lost in the day to day of operating the business.”

The big picture

Keeping close tabs on an individual client’s growth – or regression – can help incubator executives recognize when they might be able to step in to help, but monitoring clients’ collective progress also has its benefits. ETC employs a full-time project coordinator who maintains a database of statistics about incubator clients and graduates, so the staff can always extract information about the status of a particular company to answer questions from incubator stakeholders or others.

The incubator collects updated information – including the number (and types) of jobs created, the number (and amount) of grants and/or loans the company has received, and more – from clients every three months. Graduates are asked to update their information every year.

“Using this database, the incubator is able to run yearly averages to demonstrate the incubator’s economic impact on a number of factors, including the number of clients served and the amount of money raised,” Lansinger says. “And by using a multiplier effect, we’re able to keep a running total of the incubator’s impact over time.” Veasley also uses the financial information he collects from clients to demonstrate his program’s effectiveness. BBIS is part of a network of incubators in the Tennessee Valley Authority region that have received financial support from the agency. As a condition of its support, TVA periodically requires the incubator to report information about its clients to demonstrate that the companies are profitable.

“Having that financial information on hand is very helpful when completing economic impact studies,” Veasley says. “I can calculate a wide variety of incubator impacts – revenues, taxes, salaries – based on the information I receive from clients. It’s all in there.”

Sink or swim

Incubator executives who keep close tabs on their clients’ progress often are able to recognize when a start-up is headed for rough waters even before the client knows it. But what should managers do if they spot a problem? Should they step in to help even if the client doesn’t request their assistance?

Many incubator managers say yes. In fact, Devron Veasley, director of the Bessemer Business Incubation System in Bessemer, Ala., considers it a job obligation to speak up when he sees a client making what he considers a bad business decision. “It’s the incubator’s job to help clients succeed,” he says. Veasley believes that interceding on a struggling client’s behalf also has benefits for the incubator itself. “Those start-up businesses supply revenue to the incubator,” he says. “If the business fails, there’s no more revenue.”

Veasley adds that growing a successful company is a learning process for new business owners. “Entrepreneurs face a number of problems, and our job as incubator managers is to help them locate those problems,” he says. “The hope is that we teach them how to work their way out of problems, so they can take that long-term knowledge with them when they leave the incubator.”

Angela Glover, executive director of the Chattanooga-Hamilton County Business Development Center in Chattanooga, Tenn., agrees that it’s in the best interest of both the incubator and its clients to step in when there’s a problem. “I’ve come right out and told clients that I think they’re making a bad decision and why,” she says. “But that’s all I can really do. Then, it’s up to the client.” The incubator’s lease specifically states that the client – and not the incubator – is ultimately responsible for a business’s success or failure.

Glover advises struggling clients about the resources available to them and notes both the problem and her recommendations in the company’s file. Then, she steps back and watches. “You can tell them, ‘If you continue in this mode, I think you’re going to lose your business,’” she says. “But you can’t save clients without their consent. There comes a time when you do have to say, ‘We’ve done all we can do.’”

Most clients Glover has worked with during her 12 years at the incubator have listened to her advice, she says. But she has experienced one instance where the incubator had to terminate the lease of a client who rejected some advice. “The bottom line is that sometimes their hard-headed decisions keep them from getting the rent paid,” Glover says. “That’s when you have to say, ‘The program seems to be no longer working for you, so it’s probably best that you move on.’” The start-up that rejected the incubator’s advice is no longer in business, she says.—LK

New Mexico incubator rewards participation

The San Juan College Enterprise Center in Farmington, N.M., has instituted a 100-point system for incubator participation to make sure clients are taking steps to maximize their chances for success. Incubator clients must earn 100 points annually by participating in incubator and community-based business development activities. The following chart outlines a few of the many business development activities clients can participate in to earn points.

Elements of 100 Point System Points
Complete Business Plan After Attending NxLevel Workshop Series 55
Update Business Plan 35
Update Marketing Plan 25
Retain Personal/Professional Coach 20
Create/Set-Up Formal Board of Directors 20
Update Cash Flow Projections 15
Attend NxLevel Workshop Series 15
Attend EC Incubation Celebration 15
Meet With Advisory Board Regularly 15
Develop New Web Site and/or Collateral Material 10
Attend MS Office Training 10
Select and Retain or Annual Review w/CPA 10
Attend EC Brown Bag Lunch 5
Meet With EC Director 5
Create/Select/Organize Advisory Board 5

Keywords: benchmarking clients, coaching clients

Contact NBIA

Phone: (740) 593-4331
Fax: (740) 593-1996
PO Box 959
Athens, OH 45701-1565
info@nbia.org