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

Solid growth: 2006 SOI study reveals that incubation industry continues to thrive

by Linda Knopp

August 2008

When NBIA crunched the numbers for the 2006 State of the Business Incubation Industry report, we were pleased to have statistical evidence to back what we have believed all along: that the business incubation industry continues to thrive. In communities across North America, incubator sponsors are supporting entrepreneurs in their endeavors to create successful new businesses. And their efforts are paying off. NBIA estimates that in 2005 alone, North American incubators assisted more than 27,000 start-up companies that provided full-time employment for more than 100,000 workers and generated annual revenue of more than $17 billion.*

“With six similar industry studies under our belt since 1989, we have seen the steady growth of business incubation as a proven means of supporting emerging companies and creating homegrown community wealth,” says Dinah Adkins, NBIA president & CEO.

Even after the dust settled on the dot-com bust of the early 2000s, the number of business incubation programs in North America has continued to increase. In late 2005, NBIA estimated that approximately 1,100 business incubators were operating in North America, up from 950 in 2002. Even more impressive is the growth in the number of operating incubation programs since the late 1990s; since 1998, the number of incubators in North America has nearly doubled.

Survey highlights

Many news stories during the dot-com era portrayed incubators as programs designed to hatch successful businesses quickly and bring in big payoffs to investors and other for-profit entities. But as most NBIA members know, traditional incubation programs designed to help entrepreneurs launch growing businesses and bring jobs and wealth to communities have been the norm since the industry’s earliest days. This fact is reflected more than ever through the 2006 SOI survey results.

Only 6 percent of the incubation programs responding to the 2006 survey were for-profit, compared with 16 percent in 2002. Over half of the 2006 SOI respondents reported having nonprofit economic development organizations or government agencies as their primary sponsor, and many incubator sponsors ranked creating jobs and fostering the community’s entrepreneurial spirit as top priorities.

Other highlights from the 2006 State of the Business Incubation Industry report include:

  • Mixed-use incubators made up more than half (54 percent) of North American incubators; technology incubators accounted for 39 percent of all incubators. Meanwhile, the number of incubators that focus exclusively on manufacturing and service businesses appears to be on a downswing.
  • Many incubator managers view their programs as important economic development tools, ranking job creation, entrepreneurship support, accelerating the growth of local industry and other business development goals as high priorities.
  • All types of communities host business incubation programs to assist entrepreneurs and help strengthen economies. More than one-half of SOI respondents (53 percent) operated in urban areas, 28 percent were located in rural areas and 20 percent were in suburban areas.
  • Between 2002 and 2006, the percentage of North American incubators sponsored by economic development organizations more than doubled (from 15 percent to 31 percent) and the percentage of incubation programs sponsored by government agencies increased from 16 percent to 21 percent. Over the same period, incubator sponsorship by academic institutions decreased from 25 percent to 20 percent.

Membership pays

Previous SOI surveys have revealed that NBIA member programs have stronger profiles than nonmember programs. The results from the 2006 SOI survey were no different. On average, NBIA member programs offered more business assistance services, had higher staffing levels and served more clients.

Of the 33 business assistance services included on the 2006 SOI survey instrument, NBIA members offered an average of 21; nonmembers offered an average of 17. A higher percentage of members than nonmembers offered all but five of the 33 categories. In particular, members outpaced nonmembers in several important business assistance categories, including linkages to higher education institutions (78 percent vs. 42 percent); linkages to strategic partners (75 percent vs. 55 percent); technology commercialization assistance (65 percent vs. 47 percent); and management team identification (68 percent vs. 41 percent). NBIA members also were more likely than their nonmember counterparts to offer clients access to angel investors (75 percent vs. 38 percent) and venture capital investors (72 percent vs. 38 percent), but were slightly less likely to provide in-house investment funds (27 percent vs. 31 percent).

Many incubation programs have expanded their service offerings to assist entrepreneurs at all stages of business development. This trend was more prevalent among NBIA members than nonmembers. More than three-quarters (76 percent) of members offered pre-incubation services, post-incubation services or both, compared with about half (54 percent) of nonmembers.

NBIA members had more staff hours available for serving clients and other incubator-related tasks than their nonmember counterparts (an average of 77 hours per week for members and 50 hours per week for nonmembers). That’s good news for clients, as NBIA members served more resident clients, on average, than nonmembers (16 vs. 12).

When you examine the profile of clients served by member and nonmember programs, NBIA members stand out. Aggregate employment at member incubation programs clearly outpaced that at nonmember incubators. In 2006, full-time employment among resident and affiliate clients per NBIA member incubation program was 106; among nonmembers, the figure was 60.

Incubator financial situations varied widely across the board, but NBIA members again came out on top. Average revenue at NBIA member programs ($645,824) was more than double that at nonmember programs ($313,518). Average incubator expenses also were higher at member incubators ($590,516 vs. $299,531).

Nearly three-quarters of NBIA members (72 percent) reported receiving cash operating subsidies, but nearly half (49 percent) said they could continue operations, at least at a minimal level, if those subsidies ceased. In contrast, more than half of nonmembers (53 percent) said their programs did not receive cash operating subsidies. These findings likely are tied to program tax status. More than one in five nonmembers (21 percent) were for-profit incubators; 96 percent of NBIA members were at nonprofit incubation programs.

Thanks to all

NBIA would like to thank the 218 North American business incubation programs that responded to the survey. Without their help, we would not have had any updated industry data to analyze and report. We also would like to thank the Ohio University Innovation Center in Athens, Ohio, and the Nidus Center for Scientific Enterprise in St. Louis for their generous financial contributions that helped make this project possible.

Thanks to everyone who contributed to our efforts to increase the body of knowledge surrounding the business incubation industry.

2006 SOI report now available

The 2006 State of the Business Incubation Industry, highlighting NBIA’s most recent survey data, is now available through the NBIA Bookstore. Packed with data, analysis and commentary based on previous SOI reports to put the information in perspective, this is your go-to source of information on nearly every aspect of business incubation, including:

  • Program tax status and sponsors
  • Service area and demographics
  • Facility size and occupancy levels
  • Program goals and services
  • Graduation policies
  • Program staff and service providers
  • Program finances and client equity

Use this information to benchmark your incubator against industry standards (and similar programs), bolster your case for a capital campaign or demonstrate incubation’s effectiveness to potential stakeholders.

To purchase 2006 State of the Business Incubation Industry, visit www.nbia.org/store or call (740) 593-4331. The cost is $35 for NBIA members and $45 for nonmembers.

Keywords: advocacy, budget -- incubator, economic development, economic impact, financial management -- incubator, funding sources/fundraising -- incubator, impact of incubation, stakeholder development, stakeholder relationship management

Contact NBIA

Phone: (740) 593-4331
Fax: (740) 593-1996
340 West State Street, Unit 25
Athens, OH 45701-1565
info@nbia.org