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

Fishing for Future Clients

by Sally Hayhow

October 1998

Don't just count on dropping a line and getting bites. Here's how to calculate how many companies are likely to take the bait if you build an incubator in your community.

What if you held an incubator opening and nobody came?

Cliché, yes, but that is the question that keeps incubator study teams up at night. Where do you probe for reliable information on the number and type of clients an incubator can expect to attract? Other parts of a feasibility study can seem cut and dried in comparison. To say with assurance who will qualify, or even want to qualify, for admission to a proposed incubator – that's a fishing expedition of another sort.

"Market analysis is more of an art than a science. There is no single or fixed way you can definitively measure the market for an incubator," says seasoned incubator feasibility consultant Jim Greenwood, who finds incubators not particularly unique in this respect. "Markets simply do not lend themselves to simple or quick-and-easy measurements."

Bob Calcaterra, president and CEO of the Arizona Technology Incubator in Scottsdale, has to agree. "This is probably the hardest thing to do in the feasibility stage," he says, adding that it's particularly challenging to project beyond the first year.

Expert opinions run the gamut on what information will reveal the truth about your entrepreneurial pool. And for every opinion there's a success to prove it and a failure to disprove it. So NBIA asked incubator developers, managers and consultants to divulge what truly worked for them or what advice they would give in hindsight. Their answers bear out Greenwood's conclusion based on feasibility studies: "My preference is to try to assess the size and nature of the market using a variety of measures and techniques. The goal is to determine if [the various approaches] lead to the same conclusions about what the market looks like, where it is located and what its needs and characteristics are."

Secondary sources

There are two main categories of information you'll want to tap, secondary and primary. In simple terms, secondary information yields general data, and primary information gives you particulars, even down to names and addresses. You will place lesser emphasis on secondary, but it can still be quite valuable for developing a well-rounded picture. It will show business trends, industry clusters, glaring holes in the economy, unusual patterns and characteristics of your area's early-stage companies.

For instance, the New Century Venture Center in Roanoke, Va., used secondary economic data to get some early direction on incubator type. "The committee looked at business licenses issued in [the proposed incubator service area] and the types of companies the surrounding economy supported. It [discovered] that a mixed-use incubator would be the most appropriate," says Lisa Ison, the Center's president. "The Roanoke area showed that about 65 percent of the businesses were service related and about 35 percent were manufacturing." Indeed incubator clients have turned out to be predominantly service companies.

But overemphasis on secondary information, especially if it's too broad, can be very misleading. The Center's feasibility committee had also looked at another secondary source, the Virginia Employment Commission (VEC) numbers. Had that been all they looked at they wouldn't have realized how many small companies were out there. "In comparing the business licenses issued and renewed to the Virginia Employment Commission numbers, [the committee determined] that many small businesses of one to three people were not included in the VEC rolls," Ison says.

Pat Snider found secondary data to be very accurate in predicting feasibility of the Bio/Start biomedical incubator in Cincinnati, Ohio. She gathered from published data the dollar value of life sciences research at local universities and institutions, then matched that against a formula developed by the Association of University Technology Managers (AUTM) that calculates the average number of companies that will be formed per research dollars spent. "We projected eight per year being formed by the year 2000," says Snider, the incubator's executive director. That was in 1995. "Our estimate was low – we hit seven in 1997.

Almost every community has already done some analysis of the area's business startup trends. Your feasibility team has only to figure out who and what. A rich source is local economic development agencies or offices. In Palm Beach County (Fla.) the major institution for those efforts is the Business Development Board. "This agency contracted a study by the Stanford Research Institute (SRI) to analyze the local economy," says Steve Windhaus, vice president and professor of entrepreneurial studies at the Palm Beach County Business Incubator.

"The SRI study outlined where job decline was taking place (manufacturing sector, for example), and proposed that company recruitment be directed to high tech and medical tech to provide alternative employment to those being laid off. Furthermore, these sectors were defined as high growth, high wage and light industry types," Windhaus says. SRI also presented similar information on the area's agriculture industry.

Existing businesses, from large corporations to recent upstarts, also provide secondary data. "We looked at the Twin Cities area and made a study of the number of startups that are now very successful companies as well as the number of spin-off companies that have been derived from them," says Harlan Jacobs, president of the for-profit Genesis Business Centers in Minneapolis and St. Paul, Minn. "We counted Control Data, Medtronics, Rosemount, Honeywell and others that were primary companies. We then noted the dozens of companies that have spun off from them. We determined that there was a good mother lode in the mine," Jacobs says. Right he was; projections were squarely on target.

Other good sources of secondary information on business trends and company formation rates are U.S. Census Bureau economic data and government agencies that keep labor figures, such as the state department of labor and the U.S. Small Business Administration.

Cull from existing primaries

More of the predictors you're looking for will come from primary information rather than secondary. Most communities have a surprisingly fertile digging ground of resources, often ripe with very specific information. When you contact them, know what type of businesses and statistics you're after, and make sure to get names and contact information whenever possible and appropriate.

Small Business Development Centers (SBDCs) are a font of information. Federal requirements mandate these 900-plus centers in the United States and its territories keep records on the businesses they serve, most of which are early stage. The SBDC of Southeast Ohio in Athens, for instance, maintains quarterly statistics on number of clients served broken down by business type, gender, race, location, stage of business and whether or not the principal is a veteran. It also asks those companies to report how many employees they've added, what sales increases are, what loans they've obtained, how many businesses they've started and how many government contracts they've landed. The stats an SBDC maintains depend in part on the sponsoring organizations. Though individual company information is confidential, SBDCs can often give you names and addresses with the companies' permission. Also of value, SBDCs maintain records on counseling they've dispensed. This forms a good picture of the area entrepreneurs' needs.

Never pass up the chambers of commerce in your region. They maintain any number of lists and contacts. They may even be willing to conduct a fresh survey just for the purpose of your feasibility study, as the Flamborough, Ontario, Canada, chamber did for the Greater Hamilton Technology Enterprise Centre. The chamber also shared its membership list.

A good place to look for potential incubator clients is community entities other than SBDCs where entrepreneurship support is already underway. Business assistance programs, business training classes, microloan programs, minority business centers, U.S. Small Business Administration offices, seed loan funds, attorneys, accountants and the like all serve clients who have the potential to become incubator firms. The list also includes other incubators. Many maintain records of applicants who, though viable companies, may not fit the focus or resources of their program but could be just right for yours.

The city of San Diego had many such separate programs but saw the value of an incubator for providing systemized support for technology company formation. It selected San Diego Centers for Applied Competitive Technologies (CACT) to host it, which did its own informal feasibility study to flush out potential clients. "CACT looked at existing organizations in the community that were encouraging startups, such as the University of California at San Diego Connect (a membership organization of tech firms), other universities, several extended entrepreneurial studies programs, FastTrak programs, one community college program, several smaller seminar providers, two SBDCs and one existing incubator," says Tyler Orion, former manager of the San Diego Technology Incubator. "It let us know that the best place to be was in the stream where entrepreneurs already were. We wanted [all these organizations] to know about us."

Tapping these types of sources may lead to change, sooner rather than later. "Our prediction of [the number of potential clients] was true, however entrepreneurs coming from various sources still needed a lot of business development assistance before they were considered viable and could be accepted for incubation. The incubator had not expected to provide this level of assistance but did have to revise plans," Orion says.

If these local sources don't yield as many contacts as you'd like, and you have funds to buy some information, try American Business Lists. The company can provide you with area company names, location, phone number, principal/owner's name, industrial classification code, number of employees, broad sales category into which the company fits and the year it was first listed in a phone book. By requesting info from recent years, you can get a good list by region of startups that have entered your community's radar screen.

Primary info at the source

All the above sources, plus many others you may not have thought of (see "Sources of entrepreneur info" below) should provide you with a good contact list of people to canvass.

After collecting as many names as possible, Delaware Technology Innovation and Commercialization Center (DTICC) study team went one-on-one with entrepreneurs in Newark, Del.

"We developed a survey instrument and contacted everyone on the list. We inquired about virtually everything vital concerning their business - its status, help received to date, etc. – and then described our planned incubator," says Woody Maggard, president and CEO of DelawareTechnology Park, owner and operator of DTICC. This approach allows you to hone the incubator concept as you go. "We asked which items were of greatest importance to them in terms of lower-than-market rents, services, location in our technology park, networking, access to community resources, capital requirements, etc.," Maggard says. The response was exceptionally high, and so was the subsequent push from companies who wanted in the soon-to-be incubator. "We could have serviced 30,000 square feet based on our survey results and follow-up," instead of the 7,000 the incubator initially had available. It will soon build a 73,000-square-foot facility.

Dallas Breamer, general manager of the Technology & Enterprise Center, Richland, Wash., held town hall meetings to explain the incubator concept. He then conducted in-depth interviews with interested parties, with great success.

When surveying, facts are invaluable but opinions also count. And don't stop with entrepreneurs. Talk to companies on the street, public leaders, directors of programs, university vice presidents of research, and all the professionals from whom you're gathering hard data. Ask for their ideas, concerns and speculations. "Recognize that you may end up with a mix of qualitative and quantitative measures of the market, most of which hopefully point to the same conclusion," Greenwood says.

Some feasibility teams will have to modify their approach, as incubator consultant Rustam Lalkaka has found. "My incubator development is primarily in post- communist countries, where entrepreneurship was repressed for decades, and in industrializing countries where the business infrastructure and entrepreneurship culture are usually weak," he says. But he learned that an area's culture can skew the results. "The responses reflected bravado and self-esteem rather than felt needs."

Lalkaka has better luck combining surveys with feasibility workshops. In Egypt and Indonesia, he called together large groups for a three-day "preincubation" workshop to explain the concept and give some background on business planning. In a subsequent Jamaican study, he combined meetings and surveys. "We used a shorter questionnaire (two page) on a focus group of some 15 potential tenants. The exchange of views was frank, focused and gave fair indications of the entrepreneur profile and needs," Lalkaka says.

Lack of an entrepreneurial culture isn't just a problem in developing countries. William Sheppard was charged with setting up, with NASA's backing, the only technology-based incubator at the time in the state of Mississippi. The state wanted to be in on the growth of technology companies, but there weren't many technology businesses and fewer startups. "We knew the market was bleak and it didn't take a feasibility study to show that. Mississippi is a poor rural state with several dozen millionaire farmers and timbermen," says Sheppard, now technology counselor at the incubator, the Southern Technology Applications Center in Stennis Space Center, Miss.

Although the SBDCs and the Inventors Society offered some leads, it became clear the incubator developers weren't going to find entrepreneurs so much as create them. So they studied the market to find out what was in demand. "Once we knew the products that we needed and the customers that would buy them, finding the start-up companies to make the products was fairly easy." Today, most of their successful clients are part-time academicians, retired federal civil servants and a few spin-offs from companies that do business with NASA and the U.S. Navy. The incubator also has a strong affiliates program, a smart way to groom clients that aren't quite ready for full incubation.

A continuum

Will all this information give you and your stakeholders predictions that come true? More than likely, considering even a few years back many incubators had much less than this to go on, yet still filled up. Comparing results from different sources, asking questions, repeating successful tactics of like incubators all will help cement the numbers. Also, err to the conservative. More than one manager found that many clients came forth in the beginning but the second generation of clients came in more slowly. Timing will also be crucial. If you start this process too long before the incubator opens its doors, your assumptions – and contacts – may be history.

Feasibility activities afford your future incubator a good start on the client recruitment process, so make the process of finding numbers the beginning of a continuum. Remain in touch with all the service providers and organizations you find during the feasibility phase and let them know you will welcome referrals. Exploit the public relations opportunity this process affords. "I went on a speaking campaign to address every organization and service club group in the community that would listen to me," says Breamer. "We also participated in every community small business event."

Most of all, keep information going to entrepreneurs who show interest in the early stage. "The most valuable resource [we gained during the feasibility stage] was continuous outreach to companies wherever they could be found," says Orion.

If your search for future incubator clients leaves no stone unturned yet still ends up shy, Orion says, you must also be willing to accept those two little feasibility words: no go. "You really have to identify the streams in which to fish to catch early-stage companies. If there aren't enough, you may be out of luck!"

Tips for getting tell-tale numbers

Here are a few more ideas from the been-there-done-that professionals on making reliable estimates of the market for your incubator.

Allow enough resources. "Be sure you allocate a sufficient amount of time and resources to this aspect of the feasibility study," says Jim Greenwood, who has seen this phase be quick and cost as little as $2,500 in a community that had already done preliminary research to $17,000 in one where the incubator was to be very focused and the market was virtually untested.

Find out what worked for others in like circumstances. "We networked like crazy with various experienced incubator managers and NBIA staff for ideas, approaches, best practices and more. We read the few books that were available in 1993," says Tyler Orion.

Pay attention to the present. "Be more attentive to the trends in the community rather than the history," says Bill Henderson.

Know your incubator. If you want the right answers you have to ask the right questions of the right people. As soon as possible –¬ often after collecting some good secondary data – determine what type of incubator you hope to develop and what type of client you hope to attract. Your remaining inquiries will be much better focused, thus more likely to yield meaningful data and answers.

See for yourself. Newton Ellis at the Software Commercialization and Innovation Center in College Park, Texas, suggests visiting successful incubators with your same focus. "They will assist you in not reinventing the wheel or making mistakes they made," he says.

Participate. "If you are using consultants to do the study, have an active working group meet with them. Direct the consultants, not the other way around," says Dallas Breamer.

Sources of Entrepreneur Info

Here is list of primary and secondary resources that, mixed and matched, will help you estimate the size and nature of your region's entrepreneurial pool.

  • Attorneys and accountants who serve startups
  • Building permit offices
  • Business licenses issued
  • Chambers of commerce
  • Economic development agencies
  • Entrepreneur training programs
  • Economic development departments of utility companies
  • Existing companies undergoing or likely to undergo downsizing
  • Incubators in your region
  • Industry councils
  • Inventors clubs
  • Local chapters of professional development organizations and associations
  • Manufacturing Extension Programs (MEPs)
  • Minority business programs/centers
  • New business listings in phone directory
  • Occupancy permit offices
  • Regional Small Business Administration (SBA) office
  • SBA-backed and other microloan programs
  • SBA Business Information Centers
  • Seed capital funds
  • Senior Corps of Retired Executives (SCORE)
  • Small Business Development Centers (SBDCs)
  • State records of incorporations
  • State employment commission
  • Targeted business assistance programs (women, minorities, veterans, etc.)
  • U.S. Census Bureau economic data
  • University departments with strong research
  • University offices of research
  • University technology commercialization offices
  • University, college and technical college business training programs (including noncredit courses)
  • Venture capital clubs/Venture capital firms

Keywords: client selection/admissions, entrepreneurial pool, feasibility study, market research – incubator

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Fax: (740) 593-1996
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