by Terry L. Besser
Assistant professor and extension sociologist
Iowa State University Extension to Communities
In an agricultural state such as Iowa, the terms "grow your own" and "incubate" are familiar to almost everyone. They represent honorable undertakings that have the potential to multiply the return from labor and capital invested. Experts in economic development have used these terms to describe certain kinds of development strategies.
One strategy, known as business incubators, creates a locally-based institution that provides shared physical space and business support services to new and young firms. The intention is for the business incubator to nurture local entrepreneurs, resulting in "grow your own" economic activity including new tax revenues and jobs.
By 1993 there were almost 500 business incubators in the United States. It is easy to understand why they are so popular. For one thing, they minimize operating costs. The price of the physical space, maintenance, telephone, answering services, office staff, equipment and supplies, and resource libraries are shared. The services of business consultants, trainers, accountants and other experts are available to individual businesses at a fraction of the "go it alone" cost.
Less obvious advantages were revealed in a case study of a business incubator reported in the August 1995 edition of The Economic Development Quarterly. According to the two authors, Deborah Markley and Kevin McNamara, networking between business owners is an important feature of incubators. They found that owners traded and shared services, technical expertise, and equipment at least on a monthly basis (another way to cut operating expenses). But there's more to it than expense cutting. Owners learn from each other and support each other both professionally and personally. All of these factors together help new businesses stay alive and prosper.
New jobs, especially new manufacturing jobs, have a multiplier effect on the economic activity of the community. Employees in the new jobs buy houses, appliances, pay taxes, send kids to school and eat at restaurants, all of which create jobs for teachers, carpenters, plumbers and sales clerks and increase business at other local establishments.
The incubator in the study mentioned above started with 17 employees in 1987 and by 1993 had 319 employees. Markley and McNamara figure that using the multiplier effect, the 319 new jobs at the incubator added an additional 152 jobs to county employment. Of course, not all incubators will be this big, this successful and have as large a mix of manufacturing firms. Nonetheless, the potential benefits of even a small incubator are obvious.
There are costs to the community involved in creating and supporting business incubators. Some communities build or purchase and renovate an appropriate facility and then lease it back to the entrepreneurs at low or reduced costÑat least at start up. Low interest loans are sometimes provided for equipment and material purchases, and employee training might be available through special government arrangements with the local community college. These days, however, it is not unusual for government to provide support for business enterprises. The authors calculate that the incubator in their study cost the community $6,580 per job, not counting the jobs resulting from the multiplier effect. Compare that to the cost of luring an automobile assembler which runs from a low of $ 11,000 per job for the Nissan plant at Smyrna, Tenn., to $50,588 for each job at the Subaru-Isuzu plant in Lafayette, Ind.
Other benefits to communities from incubator businesses compared to growth from industrial recruitment are, first, that incubator businesses are diverse, more recession proof. If one company provides 300 jobs and that company moves, goes broke or lays off workers, its a major blow to a small town. However, if the 300 jobs are shared between 15 different businesses, and one or two of them goes bankrupt, it is less of a problem for the community.
Second, the town may benefit in a variety of ways from renovating and filling old buildings. The investment may encourage other investment in the same location. It may provide a boost to community pride to fix up and utilize an old eye sore of an empty building. Third, small, local businesses may be more likely to purchase services (legal, accounting, maintenance, building, etc.), supplies and raw material from local sources Thus, they represent a greater economic return to the local community than is possible from firms whose corporate headquarters provide these services. Finally, but maybe most important, local firms are more likely to be loyal to the community that they live in and that nurture their business.
Business incubators are a win-win economic development strategy. They encourage local people with skills and an idea to start a business. These new businesses are supported by the community and as a result have a better probability of succeeding. The community gains economic activity, new jobs, tax revenue and loyal businesses. For more information, contact the Iowa Department of Economic Development 1-800-245-4692.
Contacts:
Terry L. Besser, ISU
Extension Sociology, (515) 294-6508
Del Marks, ISU Extension
Communication Systems, (515) 294-9807
