The Higher ED Blog: Advice from the trenches on running a business incubator
Michelle Madden / September 12, 2016
Small businesses are important to the economy. They account for 98% of all businesses in Canada and employ 70% of the total private labour force. However, 30% fail before their second anniversary, and half fail before their fifth. Given small business’ impact on the economy and labour force, many communities have turned to incubator programs to help them survive the startup phase.
Some years ago, when he was the General Manager of the Elgin Business Resource Centre, John Regan decided to make the case for an incubator in Elgin County. He did this via his Year 3 paper, Key factors in developing effective, successful and sustainable business incubators.
The paper draws from major sources like the National Business Incubators Association’s State of the Business Incubation Industry report (2006) and Statistics Canada’s Characteristics of Business Incubation in Canada, 2005. It also uses some original research John collected from incubator managers, administrators, and other experts at the Canadian Acceleration and Business Incubation’s 2009 conference. His findings shine a light on the challenges and successes faced by Canada’s incubator industry, as well as the lessons they’ve learned. I’ve pulled a few highlights that should be of interest to economic developers and incubator managers.
Roles of government, industry, graduates
Since John worked for a government agency, he started by asking what role government should play in incubators. Three quarters of the respondents felt that governments should provide funding, at least at the beginning. One respondent insisted that funding is only necessary for the first 3-5 years, after which the incubator should be self-sufficient. In addition to financial support, the incubator managers and staff said that local agencies should work closely with the incubator to help make it a one stop shop and to share resources and services.
Meanwhile, industry has an important role to play too. Every one of the survey respondents said established entrepreneurs should serve as mentors to the incubator tenants. Their experience and networks, particularly in the local area, are invaluable to the fledgling business owners. For the same reasons, they should be invited to sit on the Board of Directors. Since there are opportunities to be gained from this engagement (cluster development/strengthening, import substitution, etc), industry may also be convinced to contribute funding.
Graduates of the incubator can be tapped as mentors, directors, and financial contributors as well. As former tenants, they understand what the current tenants need and how the incubator can help them. They can also be champions of the incubator out in the community.
Why do incubators fail? What can be done to prevent failure?
John asked the survey respondents to name the most common reason for the failure of an incubator and got an earful. While there was no consensus on any one item, the responses reflected the need to have a great leadership team. In this context, great leadership means understanding the business of incubation.
Incubators support businesses, but they are also businesses themselves. That means they need strong leadership, a business plan, and adequate and sustainable funding. They also need staff and mentors who know their stuff and can provide a quality service that local entrepreneurs want. Like in any business, the leadership needs to run a tight ship to ensure that the entrepreneurs are getting the training and support they need.
What makes an incubator successful?
As mentioned above, an incubator needs to be run as a business to succeed. More specifically, the survey respondents said that the incubator should have:
- Regular milestones,
- a sound marketing plan,
- regular business plan reviews and updates,
- the right management team,
- a performance measurement strategy,
- a strong network of community partners and champions,
- a committed Board of Directors without hidden agendas,
- strong entrance and exit criteria,
- exit interviews with tenants and a process to implement feedback,
- consistency in the delivery of programs,
- ongoing professional development for staff,
- mandatory and regular (i.e. weekly) training for tenants
- flexible space that can be adjusted to tenant needs, and
- rent prices that balance the tenants’ and incubator’s business models.
The advice John got from his respondents don’t end there. For a more thorough summary of his findings, check out the appendix of his paper.
As a final note, Elgin County did get an incubator. The Innovation Centre for Entrepreneurs (ICE) was created in 2010 with funding from the federal government and local sources. Since Elgin is largely rural, ICE is a mixed-use incubator that supports small and growing businesses in a variety of sectors, and even includes home-based businesses.
About the authors
Michelle Madden is the editor of Higher ED. She is also the Outreach Manager for the Economic Development Program and a graduate of the University of Waterloo’s Local Economic Development master’s program. She has authored many Higher ED articles sharing information relevant to economic development practitioners. She has published several of her own blogs on economicdevelopment.org as well. Follow her on Twitter at @michelle_mad.
John Regan, Ec.D.(F), was born in Calgary and raised in London. He was the General Manager of the Elgin Business Resource Centre at the time of writing his paper. He was also serving as a council member for the Municipality of Thames Centre. Before joining the Elgin CFDC, John’s previous work experience spanned more than 25 years in a variety of business sectors and focused on business development, as well as sales and marketing processes. John has been self employed for most of his life and was an owner-operator in several businesses, including digital imaging, supply chain logistics, inventory optimization, die casting, automotive parts and accessories, and environmental products. He is now the Chief Administrative Officer at the Municipality of French River, and the President of the Economic Developers Council of Ontario (EDCO).
About the series
Higher ED: Insights for the Next Economy is a platform for students, guest speakers, staff and faculty of the University of Waterloo’s professional and graduate economic development programs to share knowledge with the field at large. The series takes works destined for an academic audience and reworks them into a fresh, easy-to-digest blog article.
Established in 1988, the Local Economic Development program is the only master’s program in Canada devoted solely to local economic development. It offers a balance between theory and practice by combining coursework, a major research paper, an internship, and weekly seminars featuring guest speakers. Students are prepared for careers in local, community, or regional economic development.
The Economic Development Program is a nationally-accredited provider of professional training. It delivers certification programs and seminars that offer a deep understanding of the Canadian context in a convenient block format. Peer learning is combined with informative lectures and practical case studies to provide dynamic instruction that is beneficial for junior and senior-level practitioners.