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

Measuring up: NBIA partners on industry research project

October 2008

Unlike many economic development projects, incubators usually do not provide instant return on investment. That’s why accurately measuring the value of business incubation programs is critical, says David Lewis, assistant professor in the Department of Geography and Planning at the University at Albany in Albany, N.Y., and a published incubation researcher.

“Many incubator programs receive public funding to support annual operating budgets,” Lewis says. “Without reliable data, policy-makers are hard-pressed to provide annual support over long periods of time. This reality has led to the failure of numerous programs. To strengthen the case for support of operating budgets, the incubator industry must provide reliable data on performance to justify the public outlays year after year.”

To help provide the industry with better performance data, NBIA is partnering with the University of Michigan, the University at Albany and Cybergroup to undertake a new research project that will examine how adherence to industry best practices affects incubator performance.

In June, the U.S. Economic Development Administration awarded the group $250,000 for a yearlong project to create tools to help incubator managers measure their program’s performance and evaluate their compliance with best practices. The EDA is a leading funder of business incubation programs and research.

“This is the first industry-wide effort since 1997 to establish consistent methods for measuring economic impact of individual programs and our first attempt to demonstrate concretely whether adherence to best practices leads to better results,” says Dinah Adkins, NBIA president & CEO. “Since we conducted the last study, the incubator industry has grown considerably and new incubator models have emerged. The ultimate goal of the project is to strengthen business incubation programs throughout the nation by providing incubation practitioners with information and tools to help them grow companies and create jobs.”

In the coming months, the research team will conduct a Web-based survey of a representative sample of U.S. incubation programs to collect data about incubator characteristics, basic performance metrics (e.g., employment and revenue levels of incubator clients), and compliance with a set of well-known industry best practices. The project also will seek to identify new incubation models and best practices across the industry and in specific industry sectors and to create tools incubator managers can use to measure program performance and manage their outcome and practice data on an ongoing basis.

Business Incubation Works – a book based on research also funded by EDA – found that business incubation programs are effective economic development tools, bringing excellent returns on public investments and creating jobs cost-effectively. But that data, collected in the 1990s, is outdated. One of the goals of the project will be to obtain current data useful for demonstrating incubator success.

NBIA urges all members – if asked – to complete the survey to help in this important effort.

If you haven’t been collecting economic impact data on your program, it’s not too late to start. In 2007, NBIA in cooperation with Southern California Edison created a toolkit to help incubator managers understand the importance of collecting economic impact data and to give them the tools they need to do this. Visit www.nbia.org/impact to access Measuring Your Business Incubator’s Economic Impact: A Toolkit today.

Important data to collect

Following are 10 basic metrics that NBIA suggests all incubators track annually for clients – and for graduates for at least five years after they leave the program. It’s important to set a baseline for all of these data points for each client when it begins a relationship with the incubator, either as an in-house or affiliate, so that you can track growth in employment, sales, etc., over time. You should request this data from clients for the first time when you accept them into the program.

  1. Number of current clients The number of companies your incubator currently serves.
  2. Total number of graduates since program inception Quantifying the number and performance of graduates is essential to demonstrating program success.
  3. Number of graduate firms still in business or that have been merged or acquired Graduate firms that remain in operation demonstrate your program’s ability to produce successful companies that survive. Additionally, mergers and acquisitions are successful business outcomes; therefore, graduate firms that have executed these exit strategies should be tracked and included in your tallies of successful graduates.
  4. Number of people currently employed full-time by client and graduate firms To make data collection easier, don’t ask entrepreneurs for complicated information like average full-time employment, full-time equivalents, etc. If you collect current employment figures from both clients and graduates on a regular basis, you will be able to show growth over time.
  5. Number of people currently employed part-time by client and graduate firms Depending on the type of company, there may be significant part-time employment.
  6. Current monthly salaries and wages paid by client and graduate firms If you ask for current monthly salaries and wages (as opposed to annual numbers), you will be able to calculate current average wages using the current employment information you’ve collected. This information also will be easier to collect from your clients and graduates than annual figures.
  7. Gross revenues for the most recent full year for client and graduate firms For the company’s last full year, what is the total (gross) revenue amount shown on its income statement?
  8. Dollar amount of debt capital raised in most recent full year by client and graduate firms (bank loans, loans from family and friends, revolving loan funds or other loan sources) How much money was borrowed in the last full year?
  9. Dollar amount of equity capital raised in most recent full year by client and graduate firms (include investments from angel investors, venture capitalists, seed funds or other equity capital sources) Certain stakeholders are keenly interested in the level of investment your clients and graduates attract. Additionally, touting these investments can help you recruit clients.
  10. Dollar amount of grant funds raised in most recent full year by client and graduate firms (SBIR, state grants, etc.) Again, many stakeholders are interested in the ability of your clients and graduates to attract grant funds. Touting their success in attracting grant funding also can help you recruit clients.

Excerpted from Measuring Your Business Incubator’s Economic Impact: A Toolkit, NBIA Publications, 2007.

Keywords: economic impact, of incubation, NBIA programs, research -- incubation, small business facts and data

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