Small Business Builder: Incubators

ByABC News
June 12, 2001, 11:52 AM

June 13 -- It's an old story entrepreneur has hot business concept. Gets cold shoulder from investors, cool reception by lenders. Even Grandma is lukewarm. Idea simmers on back burner, finally evaporates. The End.

Or just the beginning, at least in this revised version idea simmers on back burner, heats up when entrepreneur finds warm welcome at business incubator.

After two or three years of "incubation," the enterprise will likely be self-sufficient and the story will end on a happy note, since incubator alumni perform better and stay in business longer than do entrepreneurs at other startups.

From Swanky to Virtual

Incubators are nonprofit or commercial concerns that help baby businesses learn to fly. They come in all sizes and shapes. Some serve particular industries or populations. Others are general purpose. Some have swanky facilities, others are no-frills. Although most incubators are physical facilities where new and growing companies can settle for a while, there are "virtual incubators" with no facilities at all.

Incubators are not small business development centers, which support entrepreneurs but do not adopt small businesses in the way incubators do.

Nor are incubators places where investors throw money at Internet startups hoping to reap a fortune in return, as was common during the dot-com glory days. Though some investment groups call themselves incubators, they offer no guidance, expertise, services or other forms of nurturing.

Among some 3,000 business incubators worldwide, about one-third are in the United States. Of those, only about 10 percent operate for profit, receiving equity in exchange for their services. Most incubators are organized by nonprofit organizations and agencies, often in partnership with other groups, individuals or businesses.

Tribal governments, chambers of commerce, church groups, arts organizations, community development councils, federal agencies, colleges and universities all have joined the business-incubator movement.