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Where’s that statistic?! Comparing business survival statistics is easier said than done

by Meredith Erlewine

October 2006

Here at the NBIA office, we field many member inquiries each month that go something like this:

“Hi, I’m getting ready to do a presentation on business incubation, and I want to find that quote that says something like 90 percent of companies from incubators are successful and something like 80 percent of nonincubated firms fail. Can you tell me where those stats come from so I can cite the correct source?”

The question also comes up on the member listserv and in media interviews with reporters from all over the country. Just this spring at our conference in St. Louis, I heard statistics much like the ones above reported to a crowd of about 70 eager listeners during one of the sessions. I cringed as I saw the pens come out and the note-taking begin.

The fact is, the facts aren’t quite so easy to report, even though people “quote” these statistics quite regularly. Unfortunately, statistics comparing business success for incubated versus nonincubated firms do not exist. What happens most of the time is a cobbling together of two separate data sets:

  • From NBIA’s 1997 report, Business Incubation Works: “Business incubator managers reported that, on average, 87 percent of firms that graduated from their programs since inception were still in operation in 1996.”*
  • From the U.S. Small Business Administration Office of Advocacy’s fact sheet: “Two-thirds of new employer establishments survive at least two years, and 44 percent survive at least four years.”**

While both of these facts stand alone just fine, combining them into one statistic isn’t exactly kosher. The NBIA study is based on data collected at one point in time, representing a snapshot of the industry in 1997. The SBA data is based on a longitudinal study that tracked companies from the time they were created over a period of years to show trends that occurred during that period. “Making comparisons between the NBIA data and the SBA data is fraught with methodological issues,” says David Lewis, assistant professor in the Department of Geography and Planning at the University at Albany in Albany, N.Y., and a published researcher on incubation topics.

Lewis lists concerns including the difference in start-up dates of the firms in the two studies (national economic conditions vary over time, influencing the survival of start-up firms); the fact that there is no control for regional differences in the location of these firms (NBIA’s study looked at sub-groups of the U.S., SBA’s data looked at the entire country); and differences in the definitions of survival and units of analysis.

Complicating matters is the wording of the NBIA statistic, not to mention its age. Reporters who ask about this statistic often are thrown off by the phrase “since inception” and the reference to businesses still being “in operation in 1996.” Here is an explanation of the 87 percent figure from NBIA President & CEO Dinah Adkins: “The researchers queried 50 member incubators chosen by random sampling techniques, and 35 incubator managers responded to questions posed to them regarding the percentage of firms they had graduated that were still in existence. They reported, on average, that 20.6 of their 23.6 total graduates (or 87 percent) were still in business,” Adkins says. “While the age of the incubators varied significantly, their average date of start-up was 1987. That meant that nearly 10 years later, when NBIA surveyed these managers, 87 percent of the firms that had graduated since the incubators opened their doors were still in business.”

Adkins’ clarification explains the wording, but it doesn’t help with the age of the data. When I’m answering member or media questions about the 87 percent statistic, here is the language I use: “Business incubators reduce the risk of small business failures. Historically, NBIA member incubators have reported that 87 percent of all firms that have graduated from their incubators are still in business.” I then provide an explanation about the makeup and age of the data, similar to what Adkins provides above, as background information.

NBIA is eager to update the data from Business Incubation Works. To that end, Adkins and I have hosted hour upon hour of teleconferences with academic researchers in an attempt to come up with a methodology that will allow direct comparisons of incubated and nonincubated firms. The short answer is that it will be very time-consuming and very expensive. We hope to someday get the funding to do it.

In the meantime, the best any of us can do is to use the above statistics correctly – that is, noting they are not directly comparable – then bolster them with additional success statistics from individual incubators’ economic impact reports as well as qualitative success stories. Armed with all of this data and anecdotal information, we can put things in perspective for reporters, community members and others who are interested in the success of business incubation programs.

*Business Incubation Works is available through the NBIA Bookstore or by calling (740) 593-4331.

**The SBA gathered this data from “Survival and Longevity in the Business Employment Dynamics Database” by Amy E. Knaup, Monthly Labor Review, Vol. 128, No. 5 (May 2005), pp. 50-6. Read the report online at www.bls.gov/opub/mlr/2005/05/ressum.pdf.

Keywords: research -- incubation, small business facts and data

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