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Incubating in small communities: The challenges – and opportunities – of operating rural programs

by Mary Jo Milillo

November/December 2009

Business incubation programs in small towns and rural areas often face the same challenges as those in metropolitan areas. Funding issues and replacing lost manufacturing jobs are common denominators for many incubators — no matter the location.

Yet small-town incubators also face situations unique to their regions. One challenge is creating entrepreneurial opportunities in remote, sparsely populated areas that lack resources found in more urban regions. Another challenge is creating high-paying jobs to entice educated young people to remain in their communities after college.

Despite the challenges, many rural communities have found ways to operate thriving, successful incubation programs that grow businesses and create jobs. In this article, several managers share what they’ve learned about creating and guiding incubators in small communities. Read on for their advice.

Draw on available resources

David Terry, co-founder and executive director of the West Texas A&M University Enterprise Network based in Amarillo, Texas, says that it’s especially important for rural incubator developers — who often have limited resources at their disposal — to build on what’s available in their communities. “You can’t take a cookie cutter approach to starting an incubator. Every community has a different set of resources, a different set of strengths and a different set of challenges to work within,” he says.

For some small communities, a local college or university might provide the business advisors, potential clients and sometimes even funding that an incubation program needs to become a thriving economic development tool. That’s the case in Laramie, Wyo., where the Wyoming Technology Business Center operates as part of the University of Wyoming.

The university provides ongoing financial support for WTBC. An additional and continuing source of income comes from client leases for storage space in a 2,000-square-foot data center — which was paid for by the state and operated by the incubator. With these resources, WTBC has been able to fund programs that benefit both the incubator clients and the university. For example, the university places student workers with incubator clients, promoting entrepreneurship and strengthening the ties between the business school and the incubator. Two years ago, a foundation also awarded WTBC a $150,000 grant to fund a graduate fellowship for UW business students to work at the incubator — helping clients develop business and marketing plans, conduct market research and provide other business support activities.

“There’s enough money here so that I don’t have to do everything myself,” says WTBC CEO Jonathon Benson.

As an added benefit, the university’s support helps WTBC achieve one of its primary goals: keeping educated young people from leaving the state. Since technology incubator clients have the potential to provide high-paying jobs, Benson says young college graduates may be enticed to stay in Wyoming instead of moving to larger places that offer more opportunities.

Find stable sources of financial support

Acquiring adequate funding is a primary issue for incubators, wherever they’re located. From federal, state and local governments to foundations and private donations, incubators rely on numerous revenue sources to build and maintain their programs.

The Business Incubator Center in Grand Junction, Colo., is one program that has successfully pieced together money from a number of sources to fund operations. A $75,000 Colorado Department of Local Affairs grant initially funded the incubator. Now, the incubation program finances 75 percent of its annual budget with profit-making activities, such as rent and service fees, income from workshops, and property management services at a Department of Energy complex where the incubator now operates, says Executive Director Chris Reddin.

In 1999, BIC moved from its first home — a 40,000-square-foot warehouse owned by a local businessman who leased space to the incubator for $1 a square foot — to a Department of Energy campus in Grand Junction. In 2001, the DOE transferred about 46 acres of its 54-acre Grand Junction complex to the Riverview Tech Corp., a nonprofit economic development organization created by the city of Grand Junction and Mesa County. Ten percent of BIC’s annual budget comes from managing the former Department of Energy property for Riverview.

But DOE is considering a move to more energy-efficient facilities when its lease expires in 2012. In response to DOE’s possible move, BIC has created a detailed business plan that examines new ways to generate income. The plan includes transferring the property to the incubator and expanding it, providing services to stage-two businesses, and better utilizing all the facilities on the RTC campus.

Have a back-up funding plan

As DOE’s possible move illustrates, even a well-planned program can run into financial difficulties — a decrease in funding and fewer clients are two possible scenarios.

The San Juan College Enterprise Center in Farmington, N.M., has seen its finances pinched as the world’s recent economic crisis has affected its bottom line. Funded primarily by the state’s economic development department and San Juan Community College, the Enterprise Center experienced staff, travel, training and supply cuts; elimination of its $6,000 annual marketing budget; reliance on grant money from the state of New Mexico; and the need to identify additional revenue sources when the college’s budget was slashed.

“We’re operating in a minimalist way, with our only membership being NBIA,” says Jasper Welch, director of the San Juan College Enterprise Center. “Our [the incubator’s] issues are not front and center [at the college] — the incubator is a small department within a much larger organization and its needs can get lost in the shuffle.”

To deal with revenue losses, Welch says they are considering ways to better use space and increase rental income, derive new revenue from additional training programs, and implement a technology fee based on increased phone, Internet, and computer access and services.

Actively participate with local organizations

Securing buy-in from the region’s movers and shakers is important for any incubation program, but especially for those in small communities. Joining local service organizations, chambers of commerce and business development agencies, and meeting with local and state officials, provide credibility and opportunities for collaboration and cooperation.

In the Texas panhandle, 11 organizations — including WTAMU’s Enterprise Network — comprise the Entrepreneur Alliance, which offers economic development services for a 26-county area. The organization coordinates the business development services of its members and directs entrepreneurs to the specific organization they need.

“When qualified entrepreneurs contact the EA or partner organizations, we [the WTAMU Enterprise Network] get a qualified referral that’s an exact fit for the incubator,” Terry says. The incubator also benefits from the Alliance’s networking events and advertising campaigns and participates in its annual Business Boot Camp for start-ups and early-stage entrepreneurial companies.

Terry says that his program has learned — the hard way — about the importance of securing community buy-in for incubators. When WTAMU tried to add satellite incubator sites outside of Amarillo to the Enterprise Network in its early days, incubator staff from the main site were far more invested in incubators they helped than were the communities themselves, in some instances. Without those strong local ties, some of sites were forced to close when WTAMU no longer had the resources to continue its high level of support for all of its satellite locations. Terry said interest in creating incubators in Amarillo’s outlying areas has to come first from the community for the effort to be successful.

Work with universities

Whether or not your incubator is directly associated with or sponsored by a university or college, creating a partnership with local higher learning institutions can be beneficial for both the school and incubator. Affiliation with a college or university, especially one that is well-known and highly regarded, creates visibility and encourages community support for your program. A nearby university or college also can provide educated workers for jobs created by incubator clients.

The WTAMU Enterprise Network is a university department, but receives no university funding and is located 18 miles from campus. The network covers a 26-county area in the Texas panhandle and three counties in the Oklahoma panhandle. People in outlying areas may not be familiar with the network, but probably know about the university — and interpret the connection between the two as a reflection of the network’s value to the region, Terry says.

In Bessemer, Ala., the Bessemer Business Incubation System operates two incubators and is closely allied with the city’s Lawson State Community College, where incubator Director Devron Veasley teaches classes. He says that several incubator clients have hired people from the school. Additionally, Veasley is working with professors to start a degree program in entrepreneurship at Sanford University in nearby Birmingham, Ala., which should help extend the reach of and interest in the incubation program even further.

Provide value to sponsors

An original WTBC goal was to fill the incubator a few years after it was built. But Benson, a veteran incubator manager, worked for a year during construction to line up enough clients to fill it on opening day. This accomplishment was important to the university, especially considering that the state expects the school to contribute to economic development efforts.

Additionally, Benson teaches two classes in entrepreneurship each year in the incubator’s conference room for university students from the business school. “Clients like having students in the building, and it’s a way to show value to the university so we can be a part of their core business program,” he says.

Capitalize on your location

Sometimes, a location far-removed from big-city stresses can actually provide incubation programs with a marketing advantage. Your geographical area may not offer big-city services, but it may offer a view of the Rocky Mountains or other amazing scenery, less traffic and affordable housing. In general, smaller and more rural communities tend to be more family-friendly, less expensive, slower paced and, in many cases, safer, than large cities — making these location attractive to many potential entrepreneurs.

Benson says some people do return to Laramie now that the incubator is open, including incubator client Kent Henry, a scientist and former Wyoming resident who moved to Littleton, Colo., a Denver suburb, for work. A year later, he moved back to Laramie because he wanted to raise his five sons in a small-town environment.

To facilitate the move, Henry’s company opened a Laramie office so he could continue working as the principal investigator on two technologies. A year ago, he spun off one of the technologies and started his own business, Pronghorn Technologies, at WTBC.

Build on your region’s strengths

Although many small communities lack the financial and technological resources found in more urban areas, these regions often have their own strengths on which to draw when trying to create a strong economic base. For example, many rural incubators — including Grand Junction’s Business Incubator Center and the Shoals Entrepreneurial Center in Florence, Ala. — take advantage of their area’s agricultural products with commercial kitchen facilities.

In Alabama, the state’s emerging film industry also has found a place at SEC. The state recently passed a film incentives bill to help fund more out-of-state projects and shoots, and the Northwest Alabama Film Commission has joined the state in promoting more filmmaking in Alabama. The Digital Arts Shoals incubator — one of four incubators that operate as part of SEC’s network — provides support for start-ups in the music and film industries, including opportunities to learn the most up-to-date media arts software.

Keep old friends close

There are numerous ways to let people know about your program’s services, many of which cost little or no money.

Although name recognition is important for any incubation program, rural incubators, in particular, don’t have the luxury of anonymity. Luckily, when you’re a big fish in a little pond, it’s easier to get your name known. When Benson operated an incubator in Charlotte, N.C., he says he often met people who had never heard of the program. Now, however, he says most people in Wyoming — a state with fewer people than the city of Denver — know about WTBC.

Like many rural incubators, the Shoals Entrepreneurial Center spends no money on advertising. Instead, SEC Executive Director Giles McDaniel says community partners and incubator graduates help spread the word about the program. “We work with the chamber hosting seminars, and we partner with other organizations to build awareness in the community,” he says. “The movers and shakers in the community are all familiar with Shoals.”

Any new business owner in the region who asks the chamber, an existing business or an entrepreneur where to begin is referred to SEC. “Most of our graduates stay in the community or in this area, so we get a lot of referrals from past clients,” McDaniel says.

But reach out to new friends, too

WTBC has established networking chapters in Laramie and in Sheridan, a town four hours north of Laramie. Chapters meet six times a year and attract between 75 and 100 people in Laramie and 40 to 50 attendees in Sheridan.

Meetings include counseling, networking and a program — either a panel discussion or a guest speaker focusing on business development or entrepreneurship. Members pay $50 per year to participate in the outreach program.

A long-term goal is to attract more clients to WTBC, but in the short run, Benson says, “networking is an important part of building an entrepreneurial climate throughout Wyoming.”

Eventually WTBC may add chapters in Cheyenne, Casper and Jackson Hole — which has the highest per capita income in the state and many retirees from Silicon Valley. Benson sees Jackson Hole as a good place to stimulate new high-tech start-ups.

Conclusion

Most people understand that challenges and opportunities of operating a successful incubation program in rural areas differs from those in more urban regions. But the question of what constitutes “rural” continues to be debated. For example, to many, the Santa Fe Business Incubator in New Mexico might not seem like a rural incubator. But SFBI President and CEO Marie Longserre says the incubator draws from a small population base of about 100,000 to 110,000, whereas a more sustainable market for incubation consists of 300,000 or more people.

“A lot of communities want to adopt the incubator model, but some are too small for incubators,” she says. Before opening an incubation program in a small community, Longserre advises developers to answer the following questions: “Are there enough entrepreneurs to launch the program? How do you reach out to them? Will there be enough clients to make it sustainable in the long run?”

Clients in rural areas face their own challenges: attracting capital, financing, partners and sponsors, as well as overcoming a greater distance to market, Longserre says. While some of the challenges for urban and rural incubators are similar, she notes that the primary difference is in the scale or scope.

In less populated areas, “you have to work a lot harder to help create the market,” Longserre says. “You can make a big splash in a smaller community with a higher profile and higher recognition. The good news is you’re a big fish in a small pond. The bad news is the pond is too small.”

FEATURED SOURCES

Jonathon Benson, CEO, Wyoming Technology Business Center, Laramie, Wyo.

Kent Henry, CEO & president, Pronghorn Technologies, Laramie, Wyo.

Marie Longserre, president & CEO, Santa Fe Business Incubator, Santa Fe, N.M.

Giles McDaniel, executive director, Shoals Entrepreneurial Center, Florence, Ala.

Christina Reddin, executive director, Business Incubator Center, Grand Junction, Colo.

David Terry, executive director, West Texas A&M University Enterprise Network, Amarillo, Texas

Devron Veasley, director, Bessemer Business Incubation System, Bessemer, Ala.

Jasper Welch, director, San Juan College Enterprise Center, Farmington, N.M.

Keywords: best practices, budget – incubator, funding sources/fundraising – incubator, incubator management – general, rural incubator, university partnerships

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