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Bouncing back: Fulton-Carroll Center rebounds to help neighborhood

by Linda Knopp

December 2006

The Fulton-Carroll Center, one of the oldest incubators in the United States, has experienced its share of ups and downs. In its heyday, the mixed-use incubation program served as the focal point of efforts to revive one of Chicago’s most economically depressed neighborhoods. But the once-thriving incubator that helped combat deteriorating economic and social conditions in Chicago’s nearwest side in the 1980s fell on its own hard times in the 1990s.

Owned and operated by the Industrial Council of Nearwest Chicago and its sister organization, the Kinzie Industrial Development Corp., FCC was managed by a series of property management companies during much of the 1990s. And the results weren’t good. Incubator services dwindled, and clients lost their connection to each other and their community. In fact, when ICNC Executive Director Joyce Shanahan came on board in 1999, FCC was more a real estate venture than an incubator. “There just wasn’t that sense of community among the clients anymore,” Shanahan says. “The perception was that we were just the rent takers, the bad guys. We had to change that culture.”

That effort took shape in 2001, when ICNC once again assumed direct control of the incubator. But change didn’t come easily. During the time FCC was under outside management, there was little focus on client services, minimal investment in long-term building maintenance and inadequate attention to managing the incubator’s finances, Shanahan says. As a result, FCC looked more like an office building in disrepair than the thriving incubation program it once was.

With a renewed focus on returning FCC to its incubator roots, ICNC expanded the center’s business assistance programs and started much-needed facility renovations. And their efforts have paid off: In the last two years, FCC has welcomed more than 40 new client companies, most of which are owned by residents of Chicago’s nearwest side, women and/or minorities.

In recognition of its turnaround, NBIA presented the Fulton-Carroll Center with the 2006 Incubator of the Year award at NBIA’s 20th International Conference on Business Incubation in St. Louis. Read on to learn how FCC has reemerged as a thriving incubation program, leading a revival of its nearwest Chicago neighborhood.

The early days

When a group of Chicago business owners founded ICNC in 1967, its focus was very specific: to address problems associated with the neighborhood’s high crime rate and its garbage collection. Over the next two decades, the organization took on an expanded role of advocating more generally for the needs of its business and industrial community and helping entrepreneurs start new businesses in the neighborhood.

As part of those efforts, ICNC, under the leadership of June Lavelle, secured a $1.7 million grant from the U.S. Department of Commerce’s Economic Development Administration to purchase a former plumbing fixtures factory that filled most of a city block. In 1980, ICNC received that grant, purchased the facility and opened one of the first five business incubators in the United States. Lavelle, a founding member of NBIA and board chairwoman from 1988 to 1990, headed the incubator as well as ICNC. By 1984, Lavelle had expanded the incubation program into a second facility across the street, thanks to another EDA grant.

By all accounts, the neighborhood wasn’t a thriving business community; both the crime rate and the poverty rate in the area surrounding the incubator were high. Yet, FCC was making a difference: Between 1980 and 1992, the incubator helped create hundreds of jobs, and industry founders considered it a flagship for incubation. In 1990, when the combined responsibilities of managing both FCC and the industrial council became too much, Lavelle gave up her ICNC duties to focus on running the incubator.

But trouble was just around the corner. In 1992, Lavelle left the Fulton-Carroll Center following an internal conflict within ICNC. According to an article in the Winter 1993 issue of NBIA Review, the dispute centered on how building profits should be directed. Lavelle believed that incubator income should be used to maintain the incubator facility and programs rather than to support other ICNC activities; ICNC officials disagreed. The dispute eventually was settled through arbitration.

During the upheaval, the industrial council turned over management of its 410,000 square feet of incubator space to a property management firm. “It was thought that an outside agent handling the building would alleviate any issues between ‘programs’ (ICNC’s role in the larger community) and ‘buildings’ (ICNC’s role as landlord),” Shanahan says.

But a for-profit property management firm has a different mission than a nonprofit incubator. Because its main role was increasing profit, the property management firm was concerned with signing new tenants – not with helping start-up businesses succeed. Over time, the building became more of a traditional real estate operation than an incubator. Business services dwindled and delinquency rates grew. Next came another property management firm … and another … and another.

Change doesn’t come easily

By 1999, when Shanahan took over as ICNC executive director, the organization had decided to refocus its efforts toward helping grow start-ups as an important part of its work to create a thriving business community in the neighborhood. But by the time FCC returned to self-management in 2001, the damage was done: The facility needed major renovations, almost one-third of the tenants were delinquent in rent payments, and client services were basically nonexistent. ICNC wanted to return the incubator to its former glory, but they knew it wouldn’t be easy.

“The first major task was hiring staff with the skills and knowledge in business development and property management and the determination to implement change,” Shanahan says. Since 2001, the ICNC staff has grown from three to 14, funded by federal, state, local and private grants.

“ICNC services are funded entirely through grants,” Shanahan says. “We receive over $500,000 a year in funds to provide services to companies in the Kinzie Corridor, including our FCC clients. ICNC staff has increased with the grant funding increase.”

Among the grant-funded programs available to FCC clients and other neighborhood businesses are two workforce development/employee skill training programs: the Employer Training Investment Program and TIFWorks. Funded by the Illinois Department of Commerce and Economic Opportunity, the Employer Training Investment Program allows ICNC to reimburse businesses for up to 50 percent of the cost of employee training. TIFWorks, funded through the Kinzie Tax Increment Financing District and administered by the (Chicago) Mayor’s Office of Workforce Development, helps businesses locate and pay to bring in qualified trainers.

With funds from the U.S. Small Business Administration and the Illinois Department of Commerce & Economic Opportunity, ICNC also opened an on-site Small Business Development Center to counsel incubator clients and other business owners. But perhaps even more important to FCC’s reemergence as a thriving incubation program has been the day-to-day interactions between ICNC staff and FCC clients.

Former ICNC property manager Violette DesChamps used her architectural background to help clients build out their space. As an experienced mediator, she also worked out individualized payment plans for the many clients who were delinquent in their rents. ICNC’s financial manager spent hours helping incubator clients with QuickBooks applications, and its office manager helped design client marketing materials. “Relationships built on trust over time go a long way in serving our clients,” Shanahan says.

But the ICNC staff knew that simply reviving its business assistance programs and building good relationships with clients wouldn’t be enough to turn FCC around. When you’re operating in 125-year-old facilities that haven’t been properly maintained, you have to invest dollars – big dollars.

In 2002, ICNC took out a $3.25 million line of credit to fund long-term building improvements. With these funds, FCC installed 700 energy efficient windows and 75 insulated exterior doors, repaired and replaced roofs, improved boiler/heating systems, updated elevator systems, and extensively reconfigured client and common space.

The results

The investment of both time and money is paying off for ICNC. FCC has operated at 99 percent occupancy for nearly a year, and its finances have grown stronger each year. Building revenue increased by nearly $400,000 between 2002 and 2004, and program income has grown in both aggregate amount and diversity of sources. And clients are once again paying their rents; delinquencies decreased from 32 percent in 2001 to less than 8 percent in 2004.

FCC now serves as the focal point of ICNC’s efforts to provide services to strengthen the more than 2,000 businesses in Chicago’s Kinzie Industrial Corridor. ICNC encourages incubator clients to join with other neighborhood companies to advocate for the needs of small businesses in the region, including enhanced public transportation, increased police protection, less burdensome business regulations and business-friendly zoning.

In 2005, incubator clients and other local business owners came together to produce a new event – the Kinzie Krawl – to introduce each other to their products and services and to attract other entrepreneurs, neighborhood residents and the media into the Fulton-Carroll Center. And it worked. Hundreds of local residents and business owners attended the tradeshow, which gave incubator clients/tenants and other neighborhood businesses a chance to show off their wares. ICNC hopes to continue the networking event biennially as a way to help the business district continue to grow.

“There’s no doubt that the key to the event’s success was a core group of clients taking ownership of it and knocking on doors to get their peers to participate, and then taking that energy out to the community,” Shanahan says.

ICNC isn’t stopping there, though. The organization hopes to one day renovate and equip a commercial kitchen at FCC, and the organization recently revamped a revolving loan fund for microenterprise clients. “The community is growing stronger and more dynamic every day,” Shanahan says.

2006 Incubator of the Year

Fulton-Carroll Center
Industrial Council of Nearwest Chicago
2010 West Fulton Street, Suite 280
Chicago, IL 60612-1601
www.industrialcouncil.com

Year established: 1980

Size: 410,000 square feet

Focus: Mixed-use

Current number of clients: 95

Number of companies assisted since opening: Nearly 300

Organizational structure: The Fulton-Carroll Center is owned and operated by the Industrial Council of Nearwest Chicago, a 501(c)(6) organization, and the Kinzie Industrial Development Corp., a 501(c)(3) organization.

Mission: To strengthen and expand small business by providing flexible and affordable space and quality services, which will create new jobs, increase wealth and enhance community development.

Goals:

To increase the likelihood of success of companies during their earliest years and reduce the “time to launch” for many companies.

To enable business owners to focus on their core competence and business growth.

To develop and nourish a collaborative community of small business owners.

Keywords: best practices, incubator failure, social entrepreneurship

Contact NBIA

Phone: (740) 593-4331
Fax: (740) 593-1996
PO Box 959
Athens, OH 45701-1565
info@nbia.org