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Got walls? Even if you don’t, you can still offer a top-notch incubation experience

by Kathy Cammarata

October 2001

"We have everybody from soap makers to construction companies to a woman who sells fish out of a fish truck," says Debbie Metzler, running down a list of her incubator clients. Although this may sound like a hopelessly incompatible mix of businesses for one incubator, it's perfectly viable – for an incubator without walls.

Metzler oversees the Eastern Maine Incubator Without Walls as part of her job as a microenterprise specialist with the Eastern Maine Development Corp. Her client mix illustrates one of the key benefits of incubators without walls – flexibility. These programs aren't limited to a single focus or industry segment and some, like Metzler's, bring new meaning to the term "mixed use."

Although her program serves a wide variety of entrepreneurs, Metzler says they all deal with the same issues. "It doesn't matter whether you're a plumber or making pottery," she says. "You still have to find your customers."

What exactly is an incubator without walls? It's a program that brings entrepreneurs together within their communities or regions without putting them into a building. More importantly, it provides them with all of the services and resources that a traditional bricks-and-mortar program does to help them grow successful businesses. Like their with-walls counterparts, incubators without walls vary in the way they deliver these services and in organizational structure.

Established in 1999, the Eastern Maine project is a network of incubators serving six counties covering more than 12,500 square miles. The program focuses on rural microenterprises and has about 150 clients. Each incubator is defined by a single "coordinator" or manager who facilitates the program in one of eight communities. Mandatory twice-a-month meetings take place in a local bank, conference space or any other facility that's available. A without-walls approach was necessary in this case, Metzler says, because of the program's massive geographic service area.

Previously, if entrepreneurs wanted help with a business plan, for instance, they might have had to drive to the Small Business Development Center (SBDC) in Bangor – for some a three-hour trip. Now, they can get the help they need in their own communities. "One of the reasons the project has been successful is that business owners are able to participate, because it's closer to where they are," Metzler says.

A without-walls setup was necessary in Fort Collins, Colo., for different reasons, says Kathy Kregel, executive director of the Fort Collins Virtual Business Incubator (VBI). For about 10 years, the City of Fort Collins, the Fort Collins Economic Group [now the Northern Colorado Economic Development Corp. (EDC)] and Colorado State University (CSU) would meet periodically to talk about setting up an incubator, "and then they'd get stuck because they couldn't get the money to put a building together," she says.

Finally, the assistant city manager asked, "Do we really need to have walls?" This revelation led to the 1998 creation of VBI, which serves a community of 110,000 including CSU. The city, the EDC and the university became the original partners in the project, and hired Kregel as the sole employee for the program.

Kregel likes the flexibility incubating without walls offers in terms of client composition. VBI serves both technology and manufacturing companies, but because it doesn't need highly specialized space or equipment, the incubator's operating costs are minimal. About $87,000 a year covers everything, including Kregel's salary.

She points out the additional benefits of having no landlord duties and no rental income conflicts of interest.

Kregel says incubators without walls also can serve as an extensive feasibility study for a bricks-and-mortar program, although VBI has no intention of adding walls. Because they're inexpensive to set up and operate, without-walls programs can help developers get a feel for whether an incubator works in their community, and can help answer questions like, "'Are we going to be high-tech, are we going to be low-tech, are we going to be manufacturing?' It's kind of a testing ground," Kregel says.

Although without-walls incubators are quite different from their bricks-and-mortar cousins, they share some of the same secrets to success: brokering business assistance that's tailored to individual needs and providing meaningful networking opportunities. To help businesses thrive in this setup, clients must receive the specific services and support they need. Here are four steps to providing effective, personalized assistance – without walls.

1. Grab your market

Without a physical presence in a community or region, a without-walls incubation program must be creative when it comes to attracting clients.

"An actual facility is a tremendous recruiting tool that we don't have," Kregel says. "[We have] numbers and reports … but you can't go lean on the building and kick the tires, and I think that means we have less of a visible presence in the community, and that hurts in terms of recruiting."

She says she hasn't found as many top-notch high-tech companies as she expected when she started the program, so over the years, she's honed her marketing and recruiting approach.

"After doing a series of dog and pony shows at service clubs, I learned that this was a good way to recruit professional service providers but a lousy way to reach potential incubator clients," Kregel says. "The high-tech folks I'm targeting don't have time to attend service meetings!"

She decided to follow the example of organizations in Denver that were attracting technology companies. She worked with the Rockies Venture Club to develop the Northern Colorado Rockies Venture Club, an organization that meets three times a year and provides an evening of networking, a keynote presentation and entrepreneur presenters seeking funding – all over dinner. "I get a terrific chance to get to know potential clients in some depth because I select, then work with, each of the entrepreneur presenters. Of course, the incubator gets a great deal of exposure at the actual event and through promotion of the event."

Kregel also works with the Colorado Software and Internet Association to provide monthly software roundtables in Fort Collins. These two-hour meetings focus on the presentation of a high-tech issue of interest to the group, and there is plenty of time for networking. Kregel says the meetings are easy to organize and free of charge, and they help her meet potential incubator clients. They have "lured high-tech folks out of their hiding places – garages, basements, cramped offices," she says.

In Massachusetts, the Boston-based Commonwealth Corp.'s without-walls incubation program has focused more on the media to attract potential clients. Program Director Peg Ryan has built strong contacts at local newspapers and business journals across the state and usually manages to get her news releases printed. "One of the ways we've made contacts with the local papers is by inviting the editors to come to a [business planning] class and talk about advertising," Ryan says. "All of a sudden, we get on their radar screen, and they usually have such a great experience talking to the entrepreneurs that they're very interested in helping us."

Ryan publicizes all incubator events not only through news releases, but also by inviting well-known local entrepreneurs and politicians, either as guests or keynote speakers. "If anybody shows up, that brings the press," she says.

Eastern Maine's Metzler says news releases were necessary in the beginning simply to explain what "business incubation" meant. But as people have joined and graduated from the program, satisfied customers have become its most valuable recruiting tool. "Maine is a big word-of-mouth state," she says.

It also can help to set out a "carrot" to get people to participate, Metzler says. For some time, the Eastern Maine incubator project offered carrots worth $500 – scholarships for people who joined the incubator. "So a lot of people would come and find out how great this [program] is, and all of a sudden, they didn't really care so much about the scholarship."

About 60 scholarships were awarded, she says – some with extraordinary results: "We had one woman who couldn't afford to go to a trade show – she does custom embroidery on jackets and hats. She went to the trade show with the scholarship we gave her, and she left there with $20,000 in orders. She wanted to kill us." But not for long – incubator coordinators and other entrepreneurs provided the counseling and information the woman needed to hire people and fill the orders.

2. Require dedication

Clients of incubators without walls have to be supremely self-motivated. Incubator management may be hundreds of miles away, so there is very little hand-holding or nudging to be done. Managers of without-walls programs say it's crucial to evaluate clients' levels of commitment before they start a program.

"Because our selection process is so rigorous, [our clients] are fanatical about their businesses," Kregel says. VBI applicants submit a business plan and a one-page application, and a committee of professionals reviews the plan based on an extensive set of criteria. All businesses must show potential for strong growth and for generating high-paying jobs, and they must have at least six months of operating capital; principals must have relevant professional experience and education, and at least one full-time person must be committed to the company. Finally, the technology must be an innovative high-tech or manufacturing concept that is patented or shows strong potential to be patented.

Kregel says because she chooses clients carefully, she rarely has problems keeping them focused and committed. "These guys are loaded and ready to go when they get in here," she says. "I don't urge mine on; I can barely hang on."

Much like applicants to VBI, those interested in becoming a client of the Eastern Maine incubation program must complete an application and a brief business plan. A five-person local council made up of bankers, SBDC representatives, business people and others then works with the incubator coordinator to review the application and make a decision. "[Those] who haven't made it in haven't really been serious about their businesses," Metzler says. "The council just felt that they weren't ready and that [our] resources shouldn't be directed there."

For another entrepreneur support program's method of keeping clients on the ball, see “Keeping Clients Committed.”

3. Make it personal

How can incubators without walls provide services relevant to a business's needs when the staff doesn't see clients on a daily basis? The question becomes even more complicated when the staff is just one or the number of clients is in the hundreds.

VBI's Kregel sees clients' less immediate access to staff as a downside of incubators without walls. "[Clients] can't walk down the hall and say, 'Let me kick something around,'" she says. "They can pick up the phone, and they can e-mail, but my guess is that if you really worked next door to them, you'd have more interaction."

To provide personalized assistance, VBI puts together a custom advisory board for every company it incubates. The boards consist of people highly experienced in running businesses, such as current and former CEOs and CFOs. "These are the mentors – people who round out the gaps," Kregel says. If a client has a strength in accounting but a weakness in marketing, she'll find a marketing professional to help. The board also can be useful when it comes to giving and taking advice. "It's one thing for me to hound [clients] and say, 'You know, guys, you're heading in the wrong direction. But then when they get clobbered by the whole committee they say, 'Maybe she's right.'"

When former VBI client Matt Garton first joined the program, he thought all he really needed was access to VBI's reduced-rate technical assistance services. He says he and his colleagues were hesitant about utilizing an advisory board because they thought they knew where their business needed to go. "That's certainly a naive perspective, but that's where we were," Garton says. "We wised up after a while and realized that they were experienced people who could give us perspective on what direction to take the company."

Garton's former business, Online Marketing Network, benefited from a custom advisory board that included a high-tech industry consultant, a bank vice president, a management consultant, a CSU professor and an entrepreneur who had previously been the CTO for a high-tech firm. "The makeup was incredible," Garton says. At the urging of the advisory board, Garton and his colleagues made the decision to sell Online Marketing Network.

"A lot of people would have said, 'Hey, you're selling out too early.' But we had gotten the company to profitability, and the timing looked right." Thanks to the sale, Garton and his colleagues got out with their shirts on and with enough money in their pockets to propel them into their next ventures. For Garton, that was becoming acting president of Bid4Vacations.com, a vacation auction Web site. "If [Online Marketing Network] hadn't been a success, I wouldn't be here. This happens to be a much bigger opportunity."

At the Commonwealth Corp., training requirements ensure that clients receive the specific help they need to grow successful businesses. Although the program doesn't house clients, it does have space for classroom instruction, computers and other resources for entrepreneurs via centers in six Massachusetts communities. The program offers different courses of training depending on a client's circumstances, including an intensive program for unemployed, dislocated workers with promising business ideas. In general, clients receive 12 weeks of practical classroom instruction, during which they refine and implement a business plan. This mandatory curriculum includes seminars on market research, marketing tools, strategic planning, networking, presentation skills and financial management. Clients also meet individually with staff if they are having trouble understanding a point made in class, or if they have specific problems with their businesses.

As clients complete assignments within their training, they present them to the class and get feedback from other clients. "Many times they'll get potential customers among the class people who will tell them what works and what doesn't work," Ryan says. "I think that makes it very personal for everybody."

For an additional eight weeks, clients are required to schedule weekly meetings with a staff member. After that, they can meet with staff as needed. "We keep it structured for a while so that they can get into the habit [of keeping in touch]," she says.

4. Get 'em together

Facilitating client networking is an obvious challenge to running an incubator without walls. Client company interaction is more limited than in a bricks-and-mortar program, Kregel says, "because it's not on a day-to-day basis that [clients] run into each other."

To address this, VBI holds a monthly "brain trust meeting," a mandatory gathering of incubator clients. The first hour is dedicated to client networking, and the second hour features a well-known entrepreneur from the area who reveals his or her path to success. As a result of getting to know and trust one another during the meetings, clients have used fellow clients on their advisory boards and shared strategies for raising funds from angel investors or venture capitalists. "They also help bolster one another emotionally," she says. "Some-times it is a misery-loves-company theme, but it helps diminish a sense of isolation."

Despite the effectiveness of her brain trust meetings, Kregel says limited networking remains a downside of running an incubator without walls. "[Clients] get to be pretty close after they've been coming to the meetings for a while, but [the meetings] don't take the place of spontaneous water-cooler discussions," she says.

Because the Commonwealth Corp.'s centers have classroom space, opportunities for client networking are more abundant than in other without-walls programs. Clients see each other at least once a week, and by the time the 12 weeks of training are complete, the students tend to bond. "A lot of times they want to continue to meet, so we provide the space for that," she says.

Leonard Moniz, an accountant and business consultant in Haverhill, Mass., and eight other program graduates formed a post-graduate support group to do just that. The group meets monthly, with several members driving as long as an hour in each direction. "Everybody brings something to the table. That's what makes it work. There's a certain synergy … you get an energy from this group that helps you," he says.

Eastern Maine's Metzler says her program's mandatory training and networking meetings "become sort of a … support system. [Clients] can go in there and say, 'This is really hard, and I'm really struggling with this issue,' and other members will say, 'Here's what I did.'" The program requires its entrepreneurs to complete a NxLevel training course, a 15-session curriculum developed by the University of Colorado at Denver that takes entrepreneurs through every level of running their businesses. Once entrepreneurs become more aware of their gaps, they can ask for help in those areas. The meetings are member-driven: if a group has a particular interest, such as marketing or pricing, the coordinator will bring in a speaker to address that interest.

For graduate John Chase, the meetings became a healthy addiction. As he and his wife prepared to launch their cross-country ski trail business, they kept on their refrigerator a running list of questions for the next meeting. "I almost felt bad monopolizing the meeting, but I found that everyone else had the same questions. What seemed to be personal turned out to be a concern for others in the class, too."

The bottom line

So, do incubators without walls work? Unlike their with-walls counterparts, which strive to achieve self-sustainable operations, managers of incubators without walls say it's next to impossible to achieve self-sustain-ability. Fees for services would simply have to be too high. On the other hand, without the costs involved with acquiring, renovating, constructing and/or maintaining a building, a community may consider the subsidy required to run a without-walls program to be modest compared to the benefits.

"The city sees a really good return on its investment in terms of creating good-paying jobs," Kregel says. In just over two years, VBI's eight companies have created about 50 jobs with an average salary of $79,600 – well above the comparable average wage in the state, Kregel says.

Since 1989, the Commonwealth Corp.'s entrepreneurial training programs have graduated more than 2,000 clients statewide. Altogether, the estimated impact of these businesses on the Massachusetts economy is more than $15 million. Prior to last year, all funding for the program had come from either federal or private sources – the state had yet to invest in the program. "Based on the return on investment, we were able to make a case that it requires small dollars for a large impact," Ryan says. The program indeed received funding in this year's state budget; next year's is still in the works.

The Eastern Maine incubator project has served about 300 clients since the program began in 1999, and is undertaking an economic impact study this fall. Although still in its early stages, the program already has been recognized as an effective vehicle for entrepreneurial development. The National Association of Development Organizations Research Foundation selected the Eastern Maine Development Corp. as the first place winner of its Pioneer Award for Leadership in Entrepreneurial Promotion in Rural America.

Perhaps the best way to find out if incubators without walls work is to ask a graduate. After seeking business assistance from many other sources, Eastern Maine's Chase is convinced that they do. "We [had] tried all kinds of resources to help us figure out books, advertising, marketing, taxes, forms, etc. There was a host of little tiny organizations and groups – everything from cooperative extension to SCORE – little pieces of the puzzle that could help you a little bit. Too often we heard, 'Here's a brochure,'" Chase recalls. "We needed a live, warm person that we could sit with on a regular basis and ask questions. The curriculum that we had gave us complete, across-the-board general knowledge of business, but the biggest thing that helped us was having that person, that one single person, whom we saw regularly."

Keeping clients committed

When you don't see clients on a daily basis, keeping them on track can be challenging. The Alberta Women's Enterprise Initiative Association (AWEIA), which provides business assistance to women in a province the size of California, has come up with a high-tech way to keep clients on their toes. With offices in Calgary and Edmonton, AWEIA operates more like a U.S. Small Business Development Center than an incubator, in that it has no formal screening or graduation processes. Nevertheless, AWEIA's strategies for reaching clients offer some great ideas for incubators without walls serving a diverse group of entrepreneurs in an expansive area.

A building didn't make sense for AWEIA, because a single facility couldn't possibly accommodate such a broad geographic area, says Corinne Tessier, AWEIA founding director who is now a consultant to the organization. To efficiently and effectively serve its market, AWEIA developed a Lotus Notes database, which serves as the foundation for its activities. When a client calls asking for assistance, any staff member can access up-to-date information on her business in a matter of seconds.

The database helps AWEIA hold clients accountable for moving their businesses forward. During a telephone conversation with a client, a staff member enters into the database specific goals the client has set, along with any other relevant information discussed. The next time the client calls, any staff member can access that information and ask what type of progress she's made. For instance, Tessier says, if the client is interested in starting a landscaping business, the staff person might say, "Last time we talked you were going to check out three competitors in your area. How did that go?" That not only helps clients stay focused, it lets them know the staff person cares and ultimately makes the interaction more personal, Tessier says. She cautions, however, that holding a client accountable does not mean babysitting. AWEIA set up its database so it knows when it hasn't heard from a client in three months. Staff often make follow-up calls, but not repeatedly. "[Clients] have to own the process," she says. "And we have to dedicate resources to the people who are serious and drop off the ones who aren't. If they stop, we stop."—KC

Lessons from a virtual incubator

As we researched this story on incubators without walls, NBIA staff scoured our database for virtual programs – incubators that offer entrepreneurial training, connection to investors, networking and other business assistance services, primarily online. Our search revealed a few nascent programs, others for which the Internet was just one of several channels used to deliver services and several self-described virtual incubators that are more like information clearing-houses. True virtual incubators with established track records seem to be few and far between.

Given this, we thought those developing virtual programs might benefit from the experience of Atlanta's Advanced Technology Development Center (ATDC), which launched a virtual business incubator, Netcelerate, in 1997. Despite a knowledgeable staff and generous support from Bell South and others, the program ran into problems and closed more than a year ago.

ATDC had envisioned Netcelerate as a way to leverage its resources - both its staff and the support network it developed, says John Toon, manager of ATDC news and information. "The expectation was that through Netcelerate, entrepreneurs could interact with more experienced entrepreneurs, the venture capital community, service providers and our own staff," he says. ATDC client companies and other select Georgia entrepreneurs could cruise Netcelerate for information, capital, alliances, employees, mentors and more. Staff hoped the virtual program would allow ATDC to serve areas of the state outside Atlanta and Warner Robins, where it already had physical facilities and programs.

So why did it fail? Toon cites several factors that anyone developing a virtual program should consider carefully:

  1. Maintaining the Web site, keeping online conversations going, admitting members, overseeing the community and promoting the service took more staff time than ATDC expected – or could afford to provide. In 1999-2000, ATDC's on-site client roster increased tremendously. Staff didn't have time to develop potential entrepreneurs online when they were overwhelmed by entrepreneurs at the front door.
  2. ATDC did not have in-house technical support for the software on which Netcelerate was based. As a result, the system had reliability problems.
  3. The community of experienced entrepreneurs and venture capitalists lost interest over time. ATDC needed these experts to help lead discussions and attract entrepreneurs to the site. When they reduced their involvement, Netcelerate became less attractive to entrepreneurs. When entrepreneur visits decreased, it further discouraged the mentors.
  4. Entrepreneurs were reluctant to discuss sensitive issues in this forum. Although general advice was helpful, the entrepreneurs also needed specific advice but were wary of holding those discussions in a virtual format.
  5. Interest in virtual communities diminished. It was a hot trend for a while, but people lost interest in visiting these sites.—KC

Keywords: client selection/admissions, incubator without walls, microenterprise, networking activities -- client, seminars and training programs, virtual incubation

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