Issue
119
July 2006
Seven Components of a Successful
Business Incubator
Summarized by Teresa Gillotti and Ryan Ziegelbauer*
Business incubators are facilities that provide small,
entrepreneurial businesses with affordable space, shared
support and business development services. They can
help young businesses during their start-up period when
they are most financially vulnerable. While not a panacea
for a community’s economic struggles, incubators can
provide a boost to small business and promote
entrepreneurship. The following are seven components of
a successful incubator from Colin Barrow’s Incubators: A
Realist's Guide to the World's New Business Accelerators.
1. Clear and Well Communicated Goals. There are
many incubator types and structures. Universities develop
incubators to benefit from the science, technology and
intellectual property resulting from university research.
Private investors start incubators as a way to show
investment in multiple firms and to make a profit.
Government’s reasons for starting incubators vary, but can
include jump-starting the economy, job creation, sector
development, etc. Other communities may chose to
create an incubator to fill a missing piece of the economic
mix whether it is a retail, office or light industrial incubator.
Regardless, it is important to determine whether the goal is
simply filling the incubator or graduate tenants to larger,
market rate spaces in the downtown. Other goals may
include developing a complementary mix of retail and
service business, a revitalized downtown, a specific level
of job creation, promoting entrepreneurship within the
community and increasing earnings among residents.
Determining specific goals is essential to developing the
application process and communicating the benefits of
locating within the incubator to potential tenants.
2. Incubator Manager. Incubator tenants will likely
struggle with their start-up businesses. An incubator
manager involved in tenant selection, day-to-day
operations and coordination and facilitation of business
services can be not only an invaluable asset to incubator
businesses, but also the key to the incubator reaching its
goals. The manager would be responsible for all the key
components of an incubator listed here and will serve as a
facilitator, mentor, coordinator and colleague of all the
incubator tenants. Ideally, this manager would be linked
within the business community bringing experience,
contacts, resources and a presence in the community.
3. Business Services. While tenants will come with a
variety of skills and experience, in deciding the services to
provide, it is important to consider the various stages of
business development from planning, startup,
maintenance and eventual expansion/graduation from the
incubator. Below are some services that may be important
for tenants, potential tenants or other entrepreneurs who
may not locate their business in the incubator, but pay a
membership fee to use the facilities and services.
• Business Plan Development
• Promotional Assistance
• Business Network
• Technical Support
• Funding for Startup and Maintenance
• Customer Service
• Hiring and Managing Employees
• Accounting and Finance
4. Shared Resources. Depending on the focus of the
incubator, the shared resources can vary. Some services,
including duplicating, faxing and secretarial services can
be charged to specific tenants based on use either at a
regular or reduced rate. Shared services can include:
duplicating and faxing, answering service, secretarial/
receptionist services, conference rooms, shipping and
receiving, warehousing, computer support, insurance, joint
purchasing agreements, incubator manager or staff, an
integrated sound, alarm and music system, credit reports,
joint marketing and promotional assistance, high speed
Internet service and even an e-commerce website.
Contact: Bill Ryan, Center For Community & Economic Development, University of Wisconsin-Extension, 610 Langdon Street, Madison, WI 53703-1104
PH: (608)265-8136; FAX: (608)263-4999; TTY: (800)947-3529; http://www.uwex.edu/ces/cced
This article may be reprinted for educational purposes by crediti ng “University of Wisconsin-Extension, Let’s Talk Business e-Newsletter.”
An EEO/Affirmative Action Employer, UW-Extension provides equal opportunities in employment and programming, including Title IX and ADA requirements.
5. Physical Space. Space needs will vary with the focus
of the incubator. If several tenants decide to produce food,
a commercial kitchen and cold storage area would be
appropriate common equipment and areas. If retail is
more of the focus, then shipping and receiving docks and
storage may become necessary. Generally, subsidized
rent is the first thing that attracts potential tenants.
Flexible layout and size will encourage the longevity of the
incubator as will the ability for tenants to grow in the
incubator either by occupying a larger space or by
expanding their current site.
6. Financing. The incubator manager or incubator
support team should work to gain access to capital for
tenants by developing partnerships and pursuing grants
and other funding opportunities. Support for tenants
seeking capital in the form of resource lists and contact
information is essential. While access to capital might not
be an initial part of the incubator project, developing a
Micro Loan Program or other long-standing fund may be
best suited for a long-term project such as the business
incubator. While this may not be a priority for the
incubator now, an ongoing fund can assist with
entrepreneurial training and financial support for the
incubator. On a smaller scale, access to information and
practices on accounting and maintaining cash flow will be
essential for tenants and can be one of the business
services provided by the incubator.
7. Application and Acceptance Process. The goals of
the incubator will help determine the application and
acceptance process. The criteria selected should provide
room for flexibility and creativity. The idea-oriented
entrepreneur may not be able to put together the plan,
while the detailed businessperson may be able to run a
shop but not come up with the exciting product or service
to market. Understanding that each entrepreneur will have
a different skill set and that all ideas will be at various
levels of development will allow the incubator manager or
support team to match potential tenants with appropriate
business services. The application process takes time,
and potential tenants should appreciate that the incubator
accepts tenants based on strong ideas and strong
business plans. Good start-ups for the incubator benefits
all involved.
Application Process – Some incubators employ an
informal approach where the potential tenant calls the
incubator contact and talks over an idea to determine if the
business concept—possibly a home business or a just an
idea—is developed enough to be considered. Applicants
should be required to submit a business and financial plan
as well as an application. The level of depth for the
business plan required can vary from a summary or a
more formal, multi-year plan depending on the process.
However, business counseling should be available to
applicants including access to business and financial
planning assistance.
Consideration – Basic assessments include examination of
the business and financial plan looking for clear market
potential, strategy for reaching the market and sound
implementation strategy. The incubator support team may
show preference to certain target population groups if one
incubator goal is draw a certain market segment. The
location and purpose of the incubator will also help
determine if the potential tenant is a good match. There
may be a requirement on who can apply, possibly limiting
the pool of applicants to area residents. Separately,
tenants should consider if the incubator provides them the
services they will need including location, adequate
facilities, appropriate services, enough time before
graduation and cost. Tenants should consider any
tradeoffs they may experience by entering the incubator as
compared with a home business or other location.
Tenancy – Once selected, tenants should have a complete
business and financial plan, a signed rental or leasing
agreement noting any rent increases over the course of
their tenancy in the incubator, and any guidelines
regarding graduation. Additionally, tenants should gain
working knowledge of the facilities and services available
through the incubator.
Review and Graduation – The ongoing review process for
incubator business can be informal business counseling
on a regular basis, completion of specific goals or criteria
or some other assessment, usually on a clear timeline.
Developing and communicating a clear review policy can
strengthen the services available to tenants and help
ensure success of the incubator as a whole. Graduation
policy can be related to businesses outgrowing their space
or a time limit. It will be important for graduating
businesses to update and expand the business and
financial plan to allow for a new location, larger space and
other changes to marketing as well as financing for the
move to market rate space. Business counseling will be
essential to assist these businesses in transition.
Resources:
National Business Incubator Association:
http://www.nbia.org/resource_center/index.php
Wisconsin Department of Commerce:
http://www.commerce.state.wi.us/MT/MT-COM-
2610.html#INTRODUCTION%20TO%20INCUBATORS
Source: Barrow, Colin. Incubators: A Realist's Guide to the World's New
Business Accelerators. Chichester; New York: John Wiley & Sons, 2001.
*Teresa Gillotti and Ryan Ziegelbauer are graduates students in Urban
and Regional Planning at the University of Wisconsin-Madison.
