Small Business Incubators: A Positive Environment for Entrepreneurship

The topic of small business incubators is receiving considerable attention from state and local development organizations, universities, and firms that commercially promote new enterprise. A small business incubator is a facility that aids the early-stage growth of companies by providing rental space, shared office services, and business consulting assistance. The number of business incubator facilities is rapidly increasing. As of the spring of 1985, the Small Business Administration was aware of sixty incubator facilities. One hundred-fifty facilities are expected to be operational by the summer of 1986. The limited literature on incubators is directed primarily toward economic development practitioners, not a business audience. The purpose of this article is to present a descriptive overview of incubators and address their potential for enterprise development. It is generally recognized that few businesses make it through their early years. Management problems and under-capitalization are frequently cited as general reasons for small business failure. Small firms are often created to exploit a market segment not catered to by other firms. Entrepreneurs may have considerable knowledge about such market niches because their previous experience in larger firms usually involves related products, technologies, or markets. But although entrepreneurs may have specialized knowledge, they often lack a full array of business skills. This is where the incubator facility plays a key role. Incubators provide the assistance that fills the knowledge gaps, reduces early-stage operational costs such as rent and service fees, and establishes entrepreneurs in a local enterprise support network. Sponsors of incubator facilities are quite diverse, and their objectives often differ, as do their oganizational arrangements. Private sector sponsors, such as corporations and investor groups, are primarily interested in property development, transferring innovative technology, and investment opportunities in tenant firms. Public sector sponsors, such as nonprofit development organizations and local governments, are primarily interested in job creation and economic diversification. Education sector organizations, such as universities and vocational-technical schools, are primarily interested in training opportunities for students and commercial outlets for faculty research. To achieve these different objectives, sponsoring groups pursue different management policies. For example, in admitting tenants, publicly-sponsored incubator facilities are more likely than others to consider job creation potential and local ownership. Private facilities are often more concerned with obtaining full occupancy than with selecting a particular type of tenant. To avoid challenges of undue benefit to private entities, universities and public facilities are more likely than private ones to place a time limit on tenant residency. Although sponsor objectives and management orientations may differ, the universal purpose of an incubator is to increase the chances of a firm surviving its formative years. THE DATA The data for this analysis were collected during early 1984. Twelve incubator facility managers in Pennsylvania were called to inform them of the study and to obtain the names of all tenant firms currently occupying the facility and that of the chief executive officer of each firm. Surveys were sent to 126 firms in late February, 1984. The sample for the analysis consisted of 56 firms, a 44 percent response rate. Comprehensive information concerning the twelve incubator facilities was collected by the Pennsylvania Department of Commerce. Site visits were made along with follow-up telephone calls. Two data files form the source of information contained in this article. The first, based on the site visits, contains information about the twelve incubator facilities. Thus, the incubator is one unit of analysis. …