Plain Economic Sense News Release

Can Rural Communities Be Business Incubators?

April 28, 1997

By Mark A. Edelman
Extension Public Policy Economist
Iowa State University Extension to Communities

According to the National Business Incubator Association (NBIA), 90 percent of the business incubators are nonprofit organizations sponsored by local governments, economic development agencies, universities and two-year colleges, and neighborhood/community revitalization groups. NBIA research classifies incubator tenants as being 35 percent service industry; 27 percent light manufacturing, 22 percent research, development, and technology products; and 16 percent other.

In 1995, 184 incubation programs responded to an NBIA survey. The results show that an average of 17 in-house firms are served per program and have successfully launched an average of 21 graduate companies since their program began. This translated into an average job creation per incubator of 288 full-time positions.

Geographically, 31 percent of the incubation program respondents were in the north-central region, 27 percent in the south, 23 percent in the west and 18 percent in the northeast. While 48 percent identified themselves as being located in urban locations, 21 percent were located in the suburbs and 32 percent were in rural areas. Twelve percent had been in operation since before 1984, 47 percent from 1984 through 1989, and 41 percent since 1990.

The average age of business incubation is 6.4 years, up from an average age of 4 years found in a previous NBIA study.

A newer trend found that incubators are increasing their outreach efforts and that 51 percent of the respondents reporting serving "affiliate" clients. Affiliate clients were defined as firms located in the community or region but not housed in the incubator facility. In the latest survey, affiliate firms represented 34 percent of the current incubator clients.

Respondent incubators reported that the business incubation services they most frequently offered were general management advising (97 percent), business planning and implementation (85 percent), office services such as keyboarding, reception, etc. (85 percent), assistance in obtaining financing (84 percent), marketing assistance (79 percent), financial accounting services (65 percent), technology consulting (49 percent), legal and intellectual property assistance (43 percent) and other services (19 percent).

The incubators surveyed reported total operating revenues that ranged from a low of $3,000, to a high of $4.2 million. The median level of operating revenue was $150,000, but one-quarter of the respondents had operating revenues of less than $80,000.

Finally, the surveyed incubation programs were asked to rank several performance measures in the order they considered most important in evaluating their own incubator. The three criteria ranking highest most often were the number of jobs created, the number of clients served, and the number of graduates.