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Rural incubators: Study examines what makes successful programs work

by Carol James

December 2000

Warning! Rural incubators face many obstacles.

That comes as no surprise. If it's not limited resources or a dearth of entrepreneurs, it's outdated technology or a lack of infrastructure.

Of course, successful rural incubation programs do exist. What are they doing to stand out? NBIA and the Ohio University (OU) College of Business have completed a groundbreaking study that identifies challenges that rural incubators must overcome, identifies characteristics of top-performing programs and outlines generally accepted business incubation best practices that are keys to success in any setting. The study, Identifying Obstacles to the Success of Rural Business Incubators, also makes recommendations to policy makers and incubator stakeholders to reduce problems and increase incubator contributions to the entrepreneurs and communities they serve (see "10 Steps to Success" below).

The study, funded by the Tennessee Valley Authority, was written by Dinah Adkins, NBIA president and CEO; Hugh Sherman, director of entrepreneurial programs for OU's Voinovich Center for Leadership and Public Affairs; and Christine Yost, a lecturer in management systems at OU, and will be published by NBIA. The authors describe it as "the most comprehensive study ever conducted of rural incubators and the obstacles to success that they face." The study's goals were to:

  • Identify rural incubation obstacles and ways to overcome them to improve performance and investment returns
  • Identify positive and negative external factors affecting rural incubation
  • Identify Southeastern U.S. rural incubators that have solved problems their peers are facing
  • Inform NBIA, incubator sponsors and state economic development programs about rural incubation issues

"The ultimate goal is to strengthen rural incubation programs," Adkins says, adding that the basic problems and trends the study identifies are similar all over the country.

The roadblocks to rural incubation have always made it hard for programs to make a real impact. Even when they are sponsored by a university or community college, government entity or economic development agency, the manager is likely to be underpaid or work for free and have little or no staff. The culture of entrepreneurship, the digital divide, and infrastructure are among items that need special attention in planning for a rural incubator.

However, some problems can't be blamed entirely on the setting. For instance, muddy or impossible-to-follow mission statements and poor or nonexistent feasibility studies can create an unprepared incubator – one that won't be able to make an impact for its entrepreneurs or its community, Adkins says.

Before any incubator opens, planners need to know what the client pool is, who potential stakeholders are, what income and expenses to expect and what size incubator the community can support – all things that are key to an incubator's success.

These issues are of particular importance in rural areas where "many incubators don't have the scale to do everything they're supposed to do," Adkins says.

But the new report shows that community size is not the predictor of success. Top rural incubators:

  • Are organized for success through network or support structures, and they achieve better performance and client outcomes
  • Represent incubator networks or are organizing networks
  • Reflect high compliance with generally accepted best practices
  • Pay their managers higher salaries than their lower performing peer programs
  • Have larger budgets and more employees than lower performers
  • Have managers who spend more time working on incubator activities and developing client businesses
  • Have a clearly identified mission and program goals
  • Are based on incubator feasibility studies that accurately predicted size and composition of client base and incubator revenues and expenses, and identified prospective incubator clients

The report also shows that in the study's lowest performing incubators:

  • Funding is a continuing challenge, and they lack community acceptance and understanding of their importance to community economic development.
  • Sponsors pay more in subsidy costs for programs that don't perform as well as their top-performing peers.

To reach these conclusions, the authors looked at 15 rural incubation programs that completed surveys sent to a sampling of 47 rural incubators in 11 states. With such a small sample size – too small to be considered representative of all rural incubators – the authors split the respondents into three groups – those that indicated high compliance with 35 generally accepted incubator best practices, those that fell into a middle range of compliance and those that used a low number of best practices. Then the authors compared the top performers with the bottom group to articulate differences and "illumine the problems of rural incubation programs and potential solutions."

"You have got to be able to separate performers from nonperformers and differentiate the two," Adkins says.

The two groups presented starkly different profiles (see charts) and revealed how top performing incubators were meeting the challenges all rural programs face.

What happens next?

Now that rural incubation obstacles are clearly identified, NBIA can begin to disseminate information and suggest training and other options to help overcome them, Adkins says. Half of all U.S. rural incubators are not NBIA members, yet they need access to information more than others because they work in "less tolerant environments," Adkins says.

Incubator managers also can take action. If you're at the helm of a rural incubator facing an uncertain future, fall back and take a look at the feasibility of change. "Ask 'how can we do things here so it's really going to work?'" Adkins says. "Then position yourself for change … and implement changes." For example, she says, an incubator in a sparsely populated county could call on adjacent counties to support and take part in its program by developing a network that achieves economies of scale and permits better salaries, has greater impacts and ensures programs are less reliant on ongoing public subsidies and local politics.

"We want incubator programs to understand that they can expand to fulfill their potential," Adkins says.

The researchers chose four high performers to interview further for case studies that examine the challenges and keys to success of each program, the incubators' facilities and the regions they serve. The report also includes detailed descriptions of the incubator characteristics as well as analysis of those findings by the authors. The study offers real-life examples of problems and possible solutions programs can apply to help meet the challenges of rural incubation and achieve self-sufficiency.

10 Steps to Success

  1. Make certain that a thorough, objective feasibility study precedes the establishment of any rural incubation program. Such a study should examine obstacles and give direction for overcoming them. The study should pay attention to determining proper incubator size, client type, financial sustainability and strategies for providing a mix of business assistance services.
  2. Those involved in supporting and developing an incubator should bridge political and organizational boundaries to ensure that everyone in the community who can bring value to start-up companies is coordinating their efforts for maximum impact.
  3. Where entrepreneurism has not traditionally been a strong part of the culture or the economic development strategy, incubation program proponents should work to educate and demonstrate the impacts that start-up businesses can have on the community, thus building buy-in and enthusiasm before the project starts. Incubation program executives should keep all key persons in the communication loop.
  4. Incubator developers should make it a top priority to hire and adequately compensate a talented, experienced top executive.
  5. Incubator developers should ensure that the facility is technologically up to date so that client companies can meet the challenges of the digital divide.
  6. Incubation programs should be designed to draw the necessary expertise to their companies. If that expertise is not locally available, the manager must identify ways to bring resources from outside the region to clients, by maintaining a network of statewide contacts, using the Internet, exploring distance learning, etc.
  7. When the population an incubation program will serve is exceptionally small, incubator developers should explore ways to network more than one incubator together to create economies of scale.
  8. Incubation program development should occur in tandem with workforce development and financing resources development.
  9. Incubation program developers and managers should take advantage of business incubation training and professional affiliations that will allow them to network with others in the field.
  10. Rural communities developing incubation programs should continue to place emphasis on improving infrastructure – from roads to communications technology – through all means available.

Source: Identifying Obstacles to the Success of Rural Business Incubators, by Dinah Adkins, Hugh D. Sherman and Christine A. Yost for the Tennessee Valley Authority.)

Compliance with Generally Accepted Best Practices (avgs.)
Response (agreement) on a 1-5 scale, with 5 indicating strong agreement Top Performers Low Performers
Incubator collects client outcome information regularly 4.7 3.0
Staff salaries at level necessary to attract, retain people capable of running a model program 3.7 1.5
Incubator's board /sponsoring agency recognizes primary responsibility of management to help clients 4.3 3.0
If major funder is lost, replacement funder can be found to maintain or improve operations 4.0 1.33
Incubator makes changes based on thorough, systematic evaluation 5.0 3.0
Incubator stats (avgs.) Top Performers Low Performers
Service area population 108,666 (n=3) 99,778 (n=6)
Previous fiscal year expenditures $169,670 (n=2) $91,423 (n=6)
Previous fiscal year public subsidy $16,000 (n=2) 52,500 (n=6)
Gross square footage 65,789 (n=3) 15,230 (n=5)
Occupancy rate 93% (n=3) 80% (n=6)
Clients/graduates data (avgs.) Top Performers Low Performers
Number clients since program inception 43 (n=3) 18 (n=5)
Number of graduates since program inception 9.5 (n=3) 7.75 (n=4)
Graduates in business 9 (n=2) 7 (n=4)
Current clients serving local/regional markets 9.33 (n=3) 3.3 (n=6)
Current clients serving national/international markets 15 (n=3) 2.67 (n=6)
Firm growth rates (avg.) Top Performers (n=2) Low Performers (n=4)
Negative or zero .5 1.25
10% or less 1 1.5
10% - 25% 6 1.5
25% - 50% 4.5 .25
Greater than 50% 2 .5
Staff info Top Performers Low Performers
Hours manager worked in incubator (avg. per week) 43.33 (n=3) 27 (n=5)
Salaries as percent of total expenses 48.4% (n=2) 36% (n=6)
Full-time equivalent incubator employees (avg.) 3 (n=3) 1 (n=6)
Time management staff spends delivering business development services (avg. wk.) 40 (n=2) 13 (n=6)
Time management staff spends on other activities (fundraising, recruiting, building mgt., etc.) 40 (n=2) 27.33 (n=6)

Keywords: best practices, research -- incubation, rural incubator

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