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

Building a community in every sense of the word

by Dennis E. Powell

December 2011

In the last five years, Innovation Depot has generated more than a billion dollars in economic activity and helped revitalize the business community in Birmingham, Ala.

In 2010 alone, amid the worldwide economic downturn, it spawned nearly a half-billion dollars in sales, sales impact and earnings impact, based on government metrics. Published data from the past four years demonstrate Innovation Depot's economic impact has remained steady and is now increasing.

It is an undeniable reminder of the power of a best-practice incubator.

Depending on where you mark its beginning, Innovation Depot is either 25, 10 or 6 years old. The Entrepreneurial Center, one of its two constituent forebears, was formed a quarter century ago. In 2001, it combined its business incubation program with that of the University of Alabama at Birmingham's Office for the Advancement of Developing Industries, and in 2005, they decided to move into one facility.

That facility, which was ready for occupancy in 2007, is a former Sears store that had been empty for two decades. Acquiring and renovating the building consumed $18 million and required three years. Innovation Depot raised $11 million in private and public funding and an additional $14 million through a New Market Tax Credit bank loan. The surplus loan funds accommodate the loan structure and repayment schedule.

"This building had been vacant for 20 years and was the largest eyesore in the community," says Devon Laney, chief operating officer. "We bought the building and renovated it. Now the whole area has been designated an entrepreneurial district."

Led by CEO and President Susan Matlock, who headed up the Entrepreneurial Center and was executive director of the Office for the Advancement of Developing Industries before there was an Innovation Depot, the incubator employs a full-time staff of six in addition to interns and volunteers to run the 140,000-square-foot facility. Currently home to 76 companies, Innovation Depot has graduated approximately 130 companies since its 1986 inception.

Innovation Depot is a hub of the growing Birmingham business community.

"A lot of that is due to longevity," Matlock says. "We have been pioneering in terms of entrepreneurial development in the area for a long time. We've been at the center of it here for more than 20 years. Now we have a very high-energy, very active place."

Matlock and her staff have made a point of being involved in broader Birmingham business circles, enabling the incubation program to draw the interest and assistance, both formal and informal, of the region's business associations.

The result is a rich business ecosystem, carefully formed by the Innovation Depot. The incubator sponsors events such as the "Tech Mixer," typically drawing 700 or more people from the city's tech community, and an annual "Venture Cafe," with as many as 400 attendees.

Community business leaders regularly meet with incubator clients, offering advice and adding deal flow. Incubator functions help spark such meetings through informal, social introductions.

The Innovation Depot's board of directors comprises university representatives and community leaders, including investors, lenders, lawyers, corporate executives and accountants. Board members are actively engaged with incubator clients, sometimes acting as informal mentors and participating in incubator functions. The community involvement benefits both the incubator and its clients.

For example, the Birmingham Angel Network meets at the Innovation Depot, bringing the investment community into the incubator. "Recently, there has been an effort to put together formalized networks of investors," Laney says. "Pitch meetings are held here at the Innovation Depot, and we have a great relationship with the established angel network."

In addition to hosting meetings of the angel network, Innovation Depot houses the Biotechnology Association of Alabama, TechBirmingham (a nonprofit organization promoting technology-based businesses, investments and jobs in the Birmingham area), the Birmingham Venture Club and the Alabama Small Business Development Consortium.

Open communication pervades the incubator. "When entrepreneurs are in a place where they can communicate with other entrepreneurs, good things happen," Laney says. "With so many companies, there is constant support and interaction. We have such a critical mass and such diversity. You'll see a guy in a white lab coat having lunch with an IT guy, for instance."

The building is located near the UAB campus, facilitating technology transfer in surroundings more business-oriented than a lab. "University researchers enjoy being adjacent to campus but not on campus itself," Laney says. "It's a real plus for them."

About one-third of the incubator's clients have a relationship with the university, mostly due to the commercialization of university-developed systems and products. "Ours is a partnership association," Laney says. "We think of ourselves as a model for tech transfer."

Innovation Depot also hosts two UAB business development classes and an annual statewide business plan competition. Exposure to the incubator helps students see business techniques in action, and incubator staff and mentors coach students in business plan development.

Building an entrepreneurial community

As the Innovation Depot has thrived, the surrounding area has experienced a rebirth.

"We have nearby the retail outlet for a local culinary institute," Matlock says. "It's almost like having our own cafeteria." The restaurant, called the Culinard Café, "serves the clients at the Innovation Depot and is popular with customers from across the region, including UAB employees, bankers and other downtown professionals," says Matlock. The Culinard Café is not itself an incubator client, she adds.

Though Innovation Depot serves more clients than the average incubator, Matlock, Laney and the other staff maintain a close relationship with them. Laney's office is right inside the front door and Matlock's is in the center of the building.

"That's one of the parts I enjoy the most, getting to know the clients, getting to know the entrepreneurs," Laney says. "We make it all work, so surprises are rare," adds Matlock. "If something does happen, they can't wait to tell us. We are their confidantes. There is a trust relationship – we don't share confidential information with anyone. It wouldn't work otherwise." In keeping with best practices, clients also make formal quarterly reports to the incubator management.

Additionally, Matlock notes, the program is willing to allow clients to use more space as they grow – and less space if economic conditions demand it. This has reduced company overhead during difficult times, allowing clients to devote resources to growth, rather than the cost of space they do not need.

Matlock and Laney are active outside the incubator, too. Laney is president of the board of directors of the Birmingham Venture Club, a group promoting venture capital activities in the Birmingham area. Matlock serves on a financial corporation's board of directors and is a past-chair of the NBIA Board of Directors.

Given the incubator's record of success, it is not surprising that competition is vigorous for residency there. Typically from 15 to 18 companies are accepted from among about 130 applications annually.

And the clients that are accepted recognize the value the incubator provides to them. "The first year, they [rents] are slightly below market, but not by much," Laney says. "We're not selling cheap space, we're selling added value."

2011 Randall M. Whaley Incubator of the Year

Dinah Adkins Incubator of the Year, Technology Focus

Innovation Depot
1500 First Avenue Northt
Birmingham, AL 35203

Year established: 1986

Incubator size: 140,000 square feet

Incubator clients: 76

Incubator graduates: 128

Organizational structure: A public-private economic development effort, Innovation Depot is funded by the Birmingham regional business community, the Community Foundation of Greater Birmingham, other leading private foundations, the University of Alabama at Birmingham, the city of Birmingham and Jefferson County.

Mission statement: The Innovation Depot strives to diversify the local economy and be the catalyst for sustainable economic development in the Birmingham region through successful development of high-growth technology companies, job creation and retention, and partnering with the University of Alabama at Birmingham to help facilitate tech commercialization.

In 2007, Innovation Depot renovated a former Sears store and transformed the area into a booming entrepreneurial district.

Keywords: NBIA programs, university partnerships, best practices, Incubator management-general

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