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A Company Town Gets Down to Business

by Meredith Erlewine

October 1998

When a community has many of its job-hatching eggs in one basket, the economic mood can be a little jittery, especially when that basket is a federal energy reservation with a shrinking workforce. With that in mind, in 1987, the city of Richland, Wash., decided to put some of its eggs into a business incubator.

Eleven years later, Richland's Technology and Enterprise Center (TEC) is proof that a company town can break the mold and that business incubation can be at the center of the strategy. The process wasn't easy, however. Gaining community support and trust takes time, elbow grease, and most importantly, results. People want tangible proof that an economic development program is helping their community. TEC and its parent economic development organization, Tri-Cities Enterprise Association (TEA), have provided that proof in the form of new businesses, jobs, products and services for residents of the cities of Richland, Pasco and Kennewick.

Since the incubator opened, its clients and 85 graduates have created nearly 250 businesses. Those who answered a TEC survey (100 percent of current clients and about 30 percent of graduates) reported a payroll of $11.6 million for 1997 and gross sales revenues of $29.7 million.

All of this translates into jobs. TEA has helped its clients produce 650 jobs for residents of the Tri-cities area. "For our relatively small community [about 170,000], that's pretty darn significant," says Dallas Breamer, manager of TEC and TEA president. TEC's achievements earned the incubator NBIA's highest award in 1998: The Randall M. Whaley Incubator of the Year Award.

In the beginning

The Tri-cities region has been very dependent on the U.S. Department of Energy's Hanford Site, an energy reservation that once produced plutonium for U.S. nuclear weapons. "Community leaders wanted to diversify the local economy away from total dependence on Hanford and the ups and downs of the federal budget," Breamer says.

An economic powerhouse in the Richland area, the 560-square-mile Hanford site has an operating budget of $1.4 billion even after substantial downsizing. The facility opened in the 1940s, and production of nuclear materials there halted in the late 1980s, leaving thousands out of work. At that time the focus at Hanford switched to waste remediation, and Hanford was designated the "flagship" of DOE environmental restoration. But the attrition didn't end with the Cold War. "We've lost 6,000 jobs at Hanford since 1995 alone," Breamer says. Hanford still employs more than 11,000 people, focusing efforts on energy research and environmental cleanup.

In 1986 the city of Richland hired a Seattle consulting firm to conduct an incubator feasibility study, which identified the need for a full-service incubator in the region. Construction began in 1987. In April of that year, after no other organization stepped up, a small business task force that originally formed to work with the feasibility consultants agreed to incorporate as a nonprofit organization to develop and run the incubator program. "TEA was born," says Breamer, who the group hired a month later and charged with those tasks. Everyone would learn that the easy part was over. According to Breamer, while the consultants did an excellent job overall, "they missed the mark on pricing local real estate." The consultants' financial forecast was far greater than TEA was able to realize, forcing the organization to reduce the incubator's rental fees by about 60 percent. The project went over budget, according to Breamer, presenting yet another problem: The city was committed to a fixed dollar amount (based on an approved grant), so had no choice but to reduce the size of the facility by a third. "It doesn't take a rocket scientist to figure out that a facility that's two-thirds its predicted size operating at 40 percent [capacity] will be in trouble," Breamer recalls. "I determined that the only way we'd be able to generate enough revenue to sustain our operation was to develop programs and services we'd be able to charge a fee for."

Selling the program

Acceptance in the community was another challenge for TEA. Community leaders may have been enamored with an incubator, but selling the concept to the general population was another matter.

"We're part of a bicounty, four-city area [including West Richland], with three port districts, four chambers of commerce, multiple school districts and a community-wide economic development organization. [Whether you] call it a sense of competitiveness or a mild case of parochialism, it was a very real and significant force at that time," Breamer says.

The incubator did not receive much of a welcome. "Because of our close relationship with the city of Richland, even though our programs were intended to serve the whole area, we were viewed essentially as a department of the city of Richland," Breamer recalls. There was little cooperation from surrounding communities, who didn't make it a priority to refer people to the program. "They thought we would create a vacuum and suck everything into our Richland facility without any benefit to their communities," he explains.

To counter those feelings, TEA created a board of directors that truly represented the region. Members came from the fields of education, labor, real estate, financial institutions, and small and large business. That approach, mixed with a patient "trust me" attitude, slowly paid off.

"What helped us the most to put the sense of disinterest and disbelief behind us is that we have shown through our track record that we truly have an interest in what goes on throughout the region," Breamer says.

Another issue TEA faced was reaction to the decision to build a new facility. "Local property owners viewed it as the city building something that would compete with them," Breamer says. He and his associates met with property owners from the Tri-cities area and countered their fears by explaining that the incubator would, in fact, develop the landlords' customer base for them. Clients would graduate knowing exactly the type and quality of space they needed and where it should be located. The businesses would be financially healthier, with seasoning and cash flow, and would create jobs throughout the Tri-cities area.

"The critical part is making sure you follow up and do what you said you'd do graduate companies rather than keep them to maintain the incubator's cash flow. That alienates private property owners. You have to walk the walk, which means that we adhere to our lease terms and conditions," Breamer says.

Of course to graduate companies, you must have companies, but initial clients were not exactly easy to find. During the feasibility study, a city task force had conducted town hall meetings and surveys with new businesses and potential entrepreneurs. City staff provided Breamer with a list of about 100 contacts.

"I followed up on all of them. Two companies actually became tenants," he says.

From there, Breamer used any public forum opportunity possible – chamber meetings, service clubs, the public library and city hall. A small number of newspaper ads, flyers and brochures filled in the gaps.

"Somehow out of all of that we began populating the building. Our doors officially opened January 15, 1988. Within six months we were at 36 percent occupancy; roughly at the 12-month level we were at 70 percent; and within 18 months we were at 90 percent occupancy. At the two-year mark we were at 100 percent occupancy. Since March of 1991, we have not fallen below 97 percent occupancy," Breamer says.

TEA's Board of Directors has always been an integral part of the program and one of its keys to success. Members have forged and maintained relationships with community organizations in the entire region – chambers, rotaries, government councils and community development departments, to name just a few. These partnerships are the foundation of the community trust that is of utmost importance to TEA and the incubator.

"It is not only our [staff] vision, but theirs [the board], that has made TEA what it is," Breamer says.

Today, incubator clients and graduates serve as the incubator's primary referral network. Members of the Board of Directors make sure that community organizations let people know when space becomes available, and the multitude of programs TEA offers serves as feeder to the incubator program as well.

Take the Office Resource Center (ORC), a staffed research center located at TEC and open to the public. Many TEA clients begin their relationship with the organization by using the Or’s reference materials online services, books, periodicals, handouts, newspapers, videos and technical assistance to explore starting a company. About half of those clients make the decision to launch their businesses. For those start-ups, the natural transition is to become an affiliate client, taking advantage of programs and services. The next step is to move into the incubator when space becomes available.

Selecting Clients

TEA staff runs all of TEA's programs, including the incubator. Before a company can participate in any TEA program, it must undergo initial screening, which takes place at TEC. Staff quickly assesses entrepreneurs' ideas and refers them to the program (or programs) best suited to their needs. Sometimes that's the incubator, sometimes it's the resource library, and sometimes it's back to the drawing board.

"A lot of that decision involves gut feeling. Our [staff] involvement with so many community organizations gives us a good idea of what the cities are looking for as far as growth. We also know what parts of the market are saturated. Living here, being part of the community and involved with city and chamber activities gives us a base of knowledge that helps us evaluate a business's chance for success," says Diahann Howard, technical assistance manager.

Each prospect fills out a questionnaire, rating the value and anticipated level of use of the various services available. Staff looks for red flags: Is the business plan only for the short term? Has the applicant put sweat equity into the business? Has he or she done market research? Does he or she understand cash flows?

In addition to helping staff get to know the applicant and his or her idea, Howard says the questionnaire sometimes helps the applicant realize he or she is not ready for the space. In that case, staff will help the applicant decide what the next step should be. For instance, Howard will send an applicant lacking a business plan to the Office Resource Center (ORC) to research and write one, and will meet with the client on a weekly basis to reassess the potential business. One of the ORC's missions is to teach clients to become efficient researchers. All clients are required to provide "sweat equity" in any business planning, research or development TEA staff assists with.

"We filter them to these programs so they address the questions on their own. Our job is to give them a chance to address issues they may not have considered before. You can't tell someone that a business is feasible or not. They need to come to that realization on their own. And if it's a good idea, we're here to help," Howard says.

If admitted into the 18,000-square-foot incubator, entrepreneurs can rent flexible office and light manufacturing space, and utilize a full array of business counseling services and financial and technical assistance. Clients also have the usual amenities of a multitenant facility, such as secretarial support and use of office equipment.

The incubator's goal is to build strong commercial tenants, providing the space, time, equipment and advice clients need to discover on their own what it will take to run their business successfully and self-sufficiently. "When clients leave our facility, they're leaving with all of those issues addressed and are ready to grow in our community," Howard says.

Enabling Technology, Inc. (ETI), a software engineering products and services company, achieved exactly what TEA staff strives for with all clients. ETI started at the incubator with three employees in two offices totaling 325 square feet. In less than three years, the company had grown to 36 employees and moved to a 1,750-square-foot bay in the incubator. While in the smaller offices, ETI utilized full incubator services. When the company made the step up to the bay, its president also took steps toward self-sufficiency, hiring his own secretary, building a conference room and buying copy and fax machines.

"He took on those costs because he learned what his company needed while he was in the small office. His next step was to take that copy machine, secretary and all – and walk into a new office in the community, ready to go and knowing exactly what he needed," Howard says.

A full-time staff of six operates all of TEA's programs, including the incubator. Breamer helps clients with long-range management plans and provides advice on the politics of being in business. His reputation has become well known in the Tri-cities. "Dallas is a great business advisor, period," says Jim Conca, president of incubator client UFA Ventures.

Howard operates the ORC and assists clients with marketing, advertising and business planning questions. Microloan Manager Cris Gamache handles all of TEA's financing programs and also helps clients assess the status of their companies' books, suggesting bookkeeping software or consultants as needed. Incubator clients are encouraged to spend as much one-on-one time as possible with Breamer, Howard and Gamache, as they provide the core business assistance services at the incubator.

An office/incubator manager handles tenant and affiliate concerns, such as day-to-day problems with hot water heaters or voice mail, and interviews potential tenants. A financial manager handles payables, receivables and accounting for all TEA programs, and a secretary/receptionist supports all incubator clients who choose to use those services (which about 70 percent of clients opt to do).

The help that staff provides does not end with each person's job description. Everyone is expected to jump in and help clients whenever possible. "Technical assistance is a background job that belongs to everyone, including me," Breamer explains.

A well-oiled machine

With more than a decade of success behind it, TEA is poised for a bang-up future: The 1998 budget forecasts – self-sufficiency. More than 90 percent of total revenues will be derived from program income sources this year, with the remainder coming from the city of Richland and private contributions. When TEA began operating the incubator 11 years ago, it received 100 percent of its financial support from city of Richland grants.

The incubator is now ready to expand toward the size originally envisioned in the feasibility study. It also will keep community involvement a top priority, and not necessarily just in the Tri-cities or the United States. TEA has been advising the Macedonian and Taiwanese governments on the start up and operation of successful incubation programs. Earlier this year, Macedonian officials spent two weeks "picking our brains," Howard says, and touring economic development programs in the Northwest. Efforts to educate others will continue to be a focus as TEC blazes into its second decade of operation.

"Business incubation works, and we're proof of that. We want to share that knowledge with others," Howard says. The incubator staff prefers not to let the program rest on its hard-earned laurels, however. "The next stage is growth," Howard says. "We didn't come back from receiving our award at Conference saying 'Wow, this is it.' We came back saying 'How can we make it better?' Conference made us address the issue of the future. We need to continue to expand and challenge ourselves. We need to constantly stay on the edge of risk and move forward."

The Technology & Enterprise Center, located in Richland, Wash., serves clients from the Tri-Cities area of Richland, Kennewick and Pasco.

TEA staff was joined by a host of supporters when their incubator received NBIA's Randall M. Whaley Incubator of the Year Award in Philadelphia. Above, from left to right, are Marv Clement, secretary, TEA's board of directors; John Heaton, chairman of the board; Arthur Schreiner, an official with the Republic of Macedonia; Dallas Breamer, TEA president; Vladimir Sarac of Macedonia; Diahann Howard, TEA technical assistance manager; and former TEA employee Kim Verhelst

Keywords: best practices, economic impact of incubation, client selection/admissions

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