Business Incubator Feasibility Study

““Build It And They Will Come”Build It And They Will Come”
is Not a Strategy: How to Conduct ais Not a Strategy: How to Conduct a
Business Incubator Feasibility StudyBusiness Incubator Feasibility Study
Association of Small Business Development CentersAssociation of Small Business Development Centers
Annual ConferenceAnnual Conference
San Diego, CASan Diego, CA
September 8, 2011September 8, 2011
Presented by Sandra Cochrane, Technology Business ConsultantPresented by Sandra Cochrane, Technology Business Consultant
MI Small Business & Technology Development CenterMI Small Business & Technology Development Center
Kalamazoo, MIKalamazoo, MI

GoalsGoals
• Help participants understand what a business incubator is and
what a business incubator is not
• Give participants the tools for conducting a feasibility study
– Overview
– Track One: Fact Finding & Orientation
– Track Two: Preliminary Plan
– Track Three: Facilities & Services
– Track Four: Funding & Implementation
• Incubator failure and success factors

What is Business Incubation?What is Business Incubation?
A business incubator is….
– a program designed to accelerate the successful development of
entrepreneurial companies
– through an array of business support resources and services,
– developed or orchestrated by incubator management,
– and offered both in the incubator and through its network of
contacts.
A business incubator is NOT….
– cheap rent
– a way to use an old building

Incubation Industry TimelineIncubation Industry Timeline
1959—First U.S. incubator founded in Batavia, N.Y. by Joseph Mancuso
1985—National Business Incubation Association founded; 40 members
Today—7,000+ incubators worldwide; 1,900 NBIA members; 60 countries
Industrial Technology Research Institute Incubator Center, Hsinchu, TawainIndustrial Technology Research Institute Incubator Center, Hsinchu, Tawain
2006 Randall M. Whaley2006 Randall M. Whaley
Incubator of the YearIncubator of the Year

The Incubation DifferenceThe Incubation Difference
– Help with business basics
– Networking activities
– Marketing assistance
– Help with financial management
– Access to capital
– Links to university/corporate partners
– Business training programs

But What’s the Difference?But What’s the Difference?
Small Business Development Center:
• By law, works with any small company that asks
• Works with small businesses at any stage
Research/technology park:
• Focuses on large or established companies
• Offers few or no business assistance services
• Permits companies to stay as long as they like
Business incubation program:
• Works with select, viable start-up and early-stage companies
• Offers targeted, specific business assistance services
• Requires companies to graduate

Successful IncubatorsSuccessful Incubators
• Integration into larger communityIntegration into larger community
– Part of overall community economic development planPart of overall community economic development plan
– Community/sponsor support for mission and operationsCommunity/sponsor support for mission and operations
• An effective teamAn effective team
– Professional management with adequate payProfessional management with adequate pay
– Network of business advisors, mentors and consultantsNetwork of business advisors, mentors and consultants
• ProfessionalismProfessionalism
– Emphasizes client assistanceEmphasizes client assistance
– Models good business practicesModels good business practices
– Strives for financial sustainabilityStrives for financial sustainability
– Measures effectiveness and impact regularlyMeasures effectiveness and impact regularly
Source: NBIA Principles and Best Practices of Business Incubation

Types of Incubation ProgramsTypes of Incubation Programs

Incubation Program SponsorsIncubation Program Sponsors

The Bad News….The Bad News….
Seven out of ten new employer
firms last at least two years, and
about half survive five years. More
specifically, according to new
Census data, 69 percent of new employer
establishments born to new firms in 2000 survived
at least two years, and 51 percent survived five or
more years.
(Source: U.S Dept. of Commerce, Bureau of the
Census, Business Dynamics Statistics)

The Good News….Incubation WorksThe Good News….Incubation Works
Return on investment:Return on investment:
– $1 public investment in incubator = $30 in local$1 public investment in incubator = $30 in local
tax revenuetax revenue
Business retention:Business retention:
– 84% of graduates stay in community84% of graduates stay in community
Increased likelihood of business success:Increased likelihood of business success:
– 87% of incubator graduates stay in business87% of incubator graduates stay in business
(Data provided by NBIA)(Data provided by NBIA)

Why Incubators FailWhy Incubators Fail
• Expecting too much too quicklyExpecting too much too quickly
• Selecting the wrong managerSelecting the wrong manager
• Overestimating the incubator’s roleOverestimating the incubator’s role
• OverspendingOverspending
• Failure to leverage resourcesFailure to leverage resources

GoalsGoals
• Help participants understand what a business incubator is and what a
business incubator is not
– Overview

1. Overview of Feasibility Studies1. Overview of Feasibility Studies
Why conduct a feasibility study?Why conduct a feasibility study?
• The process can galvanizeThe process can galvanize
support from numerous potentialsupport from numerous potential
stakeholdersstakeholders
• Creative ways to overcomeCreative ways to overcome
obstacles can be explored andobstacles can be explored and
identifiedidentified
• A comprehensive plan includes aA comprehensive plan includes a
facilities plan and a servicefacilities plan and a service
program business plan, importantprogram business plan, important
tools for operation of the projecttools for operation of the project
• Most funders will require such aMost funders will require such a
studystudy

1. Overview of Feasibility Studies1. Overview of Feasibility Studies (cont.)(cont.)
Four major areas (developFour major areas (develop
concurrently)concurrently)
• Fact-finding andFact-finding and
orientationorientation
• Preparing the preliminaryPreparing the preliminary
planplan
• Facilitates and servicesFacilitates and services
• Finances and preparationFinances and preparation
for implementationfor implementation

Track One: Fact Finding & OrientationTrack One: Fact Finding & Orientation
Step 1. Determine funding needed toStep 1. Determine funding needed to
complete feasibility stage (usually $25kcomplete feasibility stage (usually $25k
for a consultant)for a consultant)
Step 2. Create an RFP (or study guide) thatStep 2. Create an RFP (or study guide) that
states what you want the feasibility tostates what you want the feasibility to
accomplishaccomplish
Step 3. Test community reactionStep 3. Test community reaction
Step 4. Explore potential project fundingStep 4. Explore potential project funding
sourcessources

Step 5. Explore possible facilities/buildingStep 5. Explore possible facilities/building
sitessites
Step 6. Create outline of planStep 6. Create outline of plan
Step 7. Present outline of plan’s conceptsStep 7. Present outline of plan’s concepts
to small groups of interested partiesto small groups of interested parties
Step 8. Forge consensus and identifyStep 8. Forge consensus and identify
community resourcescommunity resources

Some notes on demographic statisticsSome notes on demographic statistics
– Demographic statistics should play a secondary roleDemographic statistics should play a secondary role
in revealing some obstacles and/or resources that canin revealing some obstacles and/or resources that can
indirectly affect the project.indirectly affect the project.
– Beware of the consultant who devotes a majority ofBeware of the consultant who devotes a majority of
time to collecting demographic statistics on yourtime to collecting demographic statistics on your
community as the key data upon which success orcommunity as the key data upon which success or
failure is predicted. Collect community demographicfailure is predicted. Collect community demographic
data yourself, even if using a consultant.data yourself, even if using a consultant.
– Demographic data can be found in many placesDemographic data can be found in many places
– Not all demographic data is equally importantNot all demographic data is equally important

– Demographic statistics can help:Demographic statistics can help:
• Identify any and all clusters of companies/industriesIdentify any and all clusters of companies/industries
• Identify clusters of companies that can serve as a source ofIdentify clusters of companies that can serve as a source of
customers for incubator companies as well as a source ofcustomers for incubator companies as well as a source of
spin-off technologies to grow the cluster.spin-off technologies to grow the cluster.
• Establish a foundation upon which you can prepare aEstablish a foundation upon which you can prepare a
“needs” section of a grant proposal to support the project.“needs” section of a grant proposal to support the project.
• Locate potential incubator candidate facilitiesLocate potential incubator candidate facilities
• Identify a source of prospective clients via databases thatIdentify a source of prospective clients via databases that
collect business registrationscollect business registrations
• Identify features of the community that can be organized toIdentify features of the community that can be organized to
support new company developmentsupport new company development

Problems to watch out for….Problems to watch out for….
• Feasibility study that does not provide adequate detailFeasibility study that does not provide adequate detail
on critical topics.on critical topics.
• Overly ambitious financing assumptions—“If all theOverly ambitious financing assumptions—“If all the
stars align, the groundhog doesn’t see his shadow,stars align, the groundhog doesn’t see his shadow,
and the Lions win the Super Bowl, we can make thisand the Lions win the Super Bowl, we can make this
work….”work….”
• Study team failed to be realistic about theStudy team failed to be realistic about the
entrepreneurial activity that would support theentrepreneurial activity that would support the
incubator.incubator.
• ““The horoscope study.”The horoscope study.”

Feasibility QuestionsFeasibility Questions
Organization & ManagementOrganization & Management
• What does the sponsor or any other potential stakeholder expect byWhat does the sponsor or any other potential stakeholder expect by
way of outcomes from the incubator’s activities? How will success beway of outcomes from the incubator’s activities? How will success be
defined?defined?
• Which legal entity and organization structure will achieve the expectedWhich legal entity and organization structure will achieve the expected
outcomes? Are those expectations aligned with the financialoutcomes? Are those expectations aligned with the financial
commitments being made?commitments being made?
• Who will become the key champion(s) of the project?Who will become the key champion(s) of the project?
• How will the management team be assembled, evaluated, andHow will the management team be assembled, evaluated, and
rewarded?rewarded?
• What significant organizational or political barriers need to beWhat significant organizational or political barriers need to be
surmounted?surmounted?
• What organizations or groups which are not now involved could beWhat organizations or groups which are not now involved could be
valuable contributors to a successful effort?valuable contributors to a successful effort?

Feasibility TipsFeasibility Tips
Purposes of the Core Planning TeamPurposes of the Core Planning Team
• Shape the vision of the projectShape the vision of the project
• Commit the resources of the sponsor(s)Commit the resources of the sponsor(s)
• Decide if there should be any co-sponsors, besides the originalDecide if there should be any co-sponsors, besides the original
sponsorsponsor
• Make key planning decisions which will help in the further definition andMake key planning decisions which will help in the further definition and
refinement of the project.refinement of the project.
• Brainstorm tactical development alternativesBrainstorm tactical development alternatives
• Provide the development team or consultant with introductions to keyProvide the development team or consultant with introductions to key
individuals and organizations in targeted industriesindividuals and organizations in targeted industries
• Recommend potential funding strategiesRecommend potential funding strategies
• Exploit media opportunities creativelyExploit media opportunities creatively
• Critique interim reports or documents and approve final business planCritique interim reports or documents and approve final business plan
recommendationsrecommendations

Feasibility TipsFeasibility Tips
Board Structure TipsBoard Structure Tips
• Limit the number of membersLimit the number of members
• Be clear about expectations of Board members’ rolesBe clear about expectations of Board members’ roles
• Seek clarity from Board about staff prioritiesSeek clarity from Board about staff priorities
• Let each Board Member participate in an area where they are mostLet each Board Member participate in an area where they are most
skilledskilled
• Set up procedures in the bylaws to eliminate problems (i.e., lack ofSet up procedures in the bylaws to eliminate problems (i.e., lack of
attendance)attendance)
• Consider two different Boards, each for a different purpose (FiduciaryConsider two different Boards, each for a different purpose (Fiduciary
Board and Advisory Board)Board and Advisory Board)
• Allow any person who will work with the Board have a role inAllow any person who will work with the Board have a role in
formulating its compositionformulating its composition
• Keep the Board well informedKeep the Board well informed
• Don’t allow Board meetings to become a forum for the sponsors to beatDon’t allow Board meetings to become a forum for the sponsors to beat
up on each other (i.e., play out other agendas)up on each other (i.e., play out other agendas)

Track Two: Preliminary PlanTrack Two: Preliminary Plan
Step 1. Construct a corporate identityStep 1. Construct a corporate identity
– Private non-profitPrivate non-profit
– Public authorityPublic authority
– Separate corporationSeparate corporation
– Non-profit/for-profit hybridNon-profit/for-profit hybrid
Step 2. Formulate the mission statementStep 2. Formulate the mission statement
Step 3. First private draft of feasibility report. VeryStep 3. First private draft of feasibility report. Very
brief (6-8 pages)brief (6-8 pages)
Step 4. Present the First Cut Plan to the PublicStep 4. Present the First Cut Plan to the Public
(20-30 pages)(20-30 pages)

Track Three: Facilities & ServicesTrack Three: Facilities & Services
• Step 1. Develop a marketing plan as part of theStep 1. Develop a marketing plan as part of the
business planbusiness plan
– Are there prospective customers for the incubator inAre there prospective customers for the incubator in
the community?the community?
– Do not rely on demographic analysis—perform firstDo not rely on demographic analysis—perform first
person interviewsperson interviews
– Benchmark: minimum of 25,000 jobs. If communityBenchmark: minimum of 25,000 jobs. If community
has less, perform additional researchhas less, perform additional research
– Analyze clustersAnalyze clusters
– Evaluate new entrepreneurial activity in theEvaluate new entrepreneurial activity in the
communitycommunity

• Step 2. Target the FacilityStep 2. Target the Facility
ANSWER THESE TWO QUESTIONS:ANSWER THESE TWO QUESTIONS:
– Is there enough money to support the monthlyIs there enough money to support the monthly
payment with the anticipated subsidy for thepayment with the anticipated subsidy for the
first three years?first three years?
– Is there enough money to support anIs there enough money to support an
unsubsidized program at “full occupancy?”unsubsidized program at “full occupancy?”

• Step 3. Establish the Service ProgramStep 3. Establish the Service Program
– Services can aid in recruitment. Start servicesServices can aid in recruitment. Start services
up to a year before facility opening.up to a year before facility opening.
– Focus on quality, not quantityFocus on quality, not quantity
– Office practice servicesOffice practice services
– Management servicesManagement services
– Determine which services to include in the rentDetermine which services to include in the rent
and which are fee-basedand which are fee-based

• Step 4. Line up Funding SourcesStep 4. Line up Funding Sources
– Establishing a nonprofit entity will offer widest range ofEstablishing a nonprofit entity will offer widest range of
funding optionsfunding options
– Expect one year of planning if targeting federal fundsExpect one year of planning if targeting federal funds
(like EDA)(like EDA)
– Raise enough initial money to cover 18-months ofRaise enough initial money to cover 18-months of
operationsoperations
– Do not plan on federal/state funding support beyond 3Do not plan on federal/state funding support beyond 3
yearsyears
– Get creative when looking for funding supportGet creative when looking for funding support
– Weigh grant funds with a critical eye…compliance canWeigh grant funds with a critical eye…compliance can
be difficultbe difficult
– Do not under-capitalizeDo not under-capitalize

Key Questions (marketing plan)Key Questions (marketing plan)
– What are the highest priority, target markets for the incubator?What are the highest priority, target markets for the incubator?
What is known about the stage of development, technologyWhat is known about the stage of development, technology
intensity, or business support needs of these targeted firms?intensity, or business support needs of these targeted firms?
– From which sources (e.g., college faculty, corporate spin-outs,From which sources (e.g., college faculty, corporate spin-outs,
industry associations, the entrepreneurial community, etc.) will theindustry associations, the entrepreneurial community, etc.) will the
bulk of incubator candidates be drawn?bulk of incubator candidates be drawn?
– How will we continue to court the existing database of prospects?How will we continue to court the existing database of prospects?
By what timetable will incubator space and services be available?By what timetable will incubator space and services be available?
– What mix of on-going marketing activities and promotion will attractWhat mix of on-going marketing activities and promotion will attract
clients and tenants?clients and tenants?
– What realistic absorption rates can be projected for the incubator?What realistic absorption rates can be projected for the incubator?
Are the projected rental rates achievable?Are the projected rental rates achievable?

Key Questions (facility)Key Questions (facility)
– What is the demand for and supply of physical space in theWhat is the demand for and supply of physical space in the
vicinity of the proposed site? Under what terms and conditionsvicinity of the proposed site? Under what terms and conditions
are early-stage companies currently leasing space?are early-stage companies currently leasing space?
– Is there a cost effective strategy in which the project can beIs there a cost effective strategy in which the project can be
developed in construction phases or at different related sites?developed in construction phases or at different related sites?
– Are there any local facilities now providing “shared space” andAre there any local facilities now providing “shared space” and
common services for early-stage companies?common services for early-stage companies?
– How easily can the facility be reconfigured to maximize theHow easily can the facility be reconfigured to maximize the
creation of appropriate, flexible space and at what cost?creation of appropriate, flexible space and at what cost?
– Has the build new vs. renovate old decision been made yet?Has the build new vs. renovate old decision been made yet?
– Are there any special build-out strategies that might be employedAre there any special build-out strategies that might be employed
with the facilities tailored to these particular target markets? i.e.,with the facilities tailored to these particular target markets? i.e.,
what kinds of space do you bring on-line first?what kinds of space do you bring on-line first?
– Who might be available to help design and construct/rehab theWho might be available to help design and construct/rehab the
incubator facility?incubator facility?

Key Questions (service program)Key Questions (service program)
– How can the sponsor work collaboratively with other businesses andHow can the sponsor work collaboratively with other businesses and
technical service providers in the area?technical service providers in the area?
– WhichWhich existingexisting services of the sponsor can be offered to the incubator’sservices of the sponsor can be offered to the incubator’s
clients and tenants and whichclients and tenants and which newnew services and resources will need toservices and resources will need to
be developed?be developed?
– What specialized services and resources of the sponsor wouldWhat specialized services and resources of the sponsor would
distinguish the incubator from other “similar” projects in the area?distinguish the incubator from other “similar” projects in the area?
– What are the projected costs to develop, manage, and deliver theseWhat are the projected costs to develop, manage, and deliver these
business and technical support services?business and technical support services?
– What business and technical support services will entrepreneurs pay forWhat business and technical support services will entrepreneurs pay for
and how much will they pay?and how much will they pay?
– How can the services, resources, and facility be integrated into aHow can the services, resources, and facility be integrated into a
comprehensive support program to achieve the expected businesscomprehensive support program to achieve the expected business
growth outcomes of the incubator firms?growth outcomes of the incubator firms?

10 First Cut Criteria10 First Cut Criteria
1.1. Ability to lease sufficient space (usually around 30,000 s.f.) in orderAbility to lease sufficient space (usually around 30,000 s.f.) in order
to reach minimum critical rental role.to reach minimum critical rental role.
2.2. Ratio of at least 75/100 net rentable to gross s.f.Ratio of at least 75/100 net rentable to gross s.f.
3.3. Ability to meet all facility mortgage, tax, insurance, and operationalAbility to meet all facility mortgage, tax, insurance, and operational
costs at no more than 75% leased.costs at no more than 75% leased.
4.4. Ability to offer lease rates at 80% - 95% of the market rate.Ability to offer lease rates at 80% - 95% of the market rate.
5.5. Existing interior fire wall rated partitions accommodating multi-Existing interior fire wall rated partitions accommodating multi-
tenant occupancy.tenant occupancy.
6.6. One parking spot per 300 s.f. of leasable space.One parking spot per 300 s.f. of leasable space.
7.7. Detailed as-built drawings and complete history of building useDetailed as-built drawings and complete history of building use
available for review.available for review.
8.8. Building has value appreciation potential.Building has value appreciation potential.
9.9. Acquisition/renovation compares favorably to flex-type re-Acquisition/renovation compares favorably to flex-type re-
engineered new construction.engineered new construction.
10.10. Environmental issues are known and resolved.Environmental issues are known and resolved.

– Develop a relationship with localDevelop a relationship with local
commercial real estate agentscommercial real estate agents
– Formulate a clear set of standards byFormulate a clear set of standards by
which all properties will be judgedwhich all properties will be judged
– Identify sources of funding for bricksIdentify sources of funding for bricks
and mortar projectsand mortar projects
– Understand the importance ofUnderstand the importance of
LOCATIONLOCATION to the potential clientsto the potential clients
– Research patterns of industrialResearch patterns of industrial
development in the areadevelopment in the area
– Justify your decision to build new vs.Justify your decision to build new vs.
renovate based on solid criteria and arenovate based on solid criteria and a
reality-based understanding ofreality-based understanding of
available propertiesavailable properties
Build or Renovate?Build or Renovate?

Track Four: Funding & ImplementationTrack Four: Funding & Implementation
• Step 1. Identify Critical AssumptionsStep 1. Identify Critical Assumptions
– Leasing schedule (monthly and quarterly)Leasing schedule (monthly and quarterly)
– Break-even pointBreak-even point
– Utility costsUtility costs
– Bad debt (usually 6%-8%)Bad debt (usually 6%-8%)
– Third-party income (i.e., political “pork” support)Third-party income (i.e., political “pork” support)
– Tenant mixTenant mix
– Environmental conditionsEnvironmental conditions
– Costs of tenant improvementsCosts of tenant improvements

Track Four: Funding & ImplementationTrack Four: Funding & Implementation
• Step 2. Go/no go decisionStep 2. Go/no go decision
– Over 90% of feasibility studies recommend the projectOver 90% of feasibility studies recommend the project
proceed. Hind-sight complaints are usually one of fourproceed. Hind-sight complaints are usually one of four
reasons.reasons.
– Be sure the target facility shows potential to provideBe sure the target facility shows potential to provide
enough rental income.enough rental income.
– Re-evaluate your program to see if it is really organizedRe-evaluate your program to see if it is really organized
to feature services as your market niche and if thoseto feature services as your market niche and if those
services are worth paying for.services are worth paying for.
– Check the timing of application deadlines and anticipatedCheck the timing of application deadlines and anticipated
award/rejection dates for funding sources.award/rejection dates for funding sources.
– Examine your financial assumptions.Examine your financial assumptions.

Key QuestionsKey Questions
– What is the magnitude of the funding sought?What is the magnitude of the funding sought?
– What are the possible and likely sources of funding for programWhat are the possible and likely sources of funding for program
development, facility acquisition, and/or capital improvements?development, facility acquisition, and/or capital improvements?
– What are the projected cash flows in the context of organization,What are the projected cash flows in the context of organization,
market, real estate, and program?market, real estate, and program?
– What are the possible and likely sources of funding forWhat are the possible and likely sources of funding for
operations support? For example, you’ll need to cover the short-operations support? For example, you’ll need to cover the short-
term and medium-term shortfalls typical of projects until theyterm and medium-term shortfalls typical of projects until they
reach break-even.reach break-even.
– Given the above, what are the projected returns-on-investmentGiven the above, what are the projected returns-on-investment
(ROI) the stakeholders can expect? What tradeoffs between(ROI) the stakeholders can expect? What tradeoffs between
financial outcomes and other non-financial outcomes arefinancial outcomes and other non-financial outcomes are
acceptable and what ones are unacceptable?acceptable and what ones are unacceptable?
– How and when will a fundraising campaign be orchestrated?How and when will a fundraising campaign be orchestrated?

Self-sufficient or self-sustaining?Self-sufficient or self-sustaining?
Self-Sufficiency: The Holy Grail?Self-Sufficiency: The Holy Grail?
1.1. How do the stakeholders define self-sufficiency?How do the stakeholders define self-sufficiency?
2.2. Are there grants or loans available?Are there grants or loans available?
3.3. What’s included in “project expense?”What’s included in “project expense?”
Pros:Pros: More autonomyMore autonomy
Run incubator like a businessRun incubator like a business
Flexibility for new endeavorsFlexibility for new endeavors
Cons:Cons: May not be financially possible given the business dynamicsMay not be financially possible given the business dynamics
Doesn’t take into account other benefitsDoesn’t take into account other benefits
May force an unwanted “bottom line” focusMay force an unwanted “bottom line” focus
Self-Sufficiency vs. Self-SustainingSelf-Sufficiency vs. Self-Sustaining
Every incubator needs a self-sustainability plan.Every incubator needs a self-sustainability plan.

Key steps in financing your projectKey steps in financing your project
• Determine the scope and scale of theDetermine the scope and scale of the
projectproject
• Decide on financial goalsDecide on financial goals
• Sell the financial model to theSell the financial model to the
stakeholdersstakeholders
• Monitor and tweak the financial modelMonitor and tweak the financial model
• Wear the fundraiser’s hat (always!)Wear the fundraiser’s hat (always!)
• Remember Murphy’s LawRemember Murphy’s Law

GoalsGoals
• Help participants understand what a business incubator is and what a
business incubator is not
• Explain best practices of incubation
– Mission driven & market responsive
– Sustainable
– Management & leadership
– Client selection
– Client graduation
– Measurable outcomes
– Overview

Why Do Business Incubators Fail?Why Do Business Incubators Fail?
OrganizationOrganization
• No clear definition of stakeholders’ roles, responsibilities, andNo clear definition of stakeholders’ roles, responsibilities, and
aspirations for the projectaspirations for the project
• Unclear understanding of personnel responsibilitiesUnclear understanding of personnel responsibilities
• Lack of a “champion” or core development teamLack of a “champion” or core development team
• Underestimation of the complexity of developing and running anUnderestimation of the complexity of developing and running an
incubator projectincubator project
• No integration of the project into regional economic developmentNo integration of the project into regional economic development
planplan
• Cumbersome and/or overlapping board structuresCumbersome and/or overlapping board structures
• Lack of knowledge of similar projects on a national levelLack of knowledge of similar projects on a national level
• Reluctance to use outside advisors—NIH (not invented here)Reluctance to use outside advisors—NIH (not invented here)

MarketMarket
• Inadequate budget to support ongoing, systematic marketingInadequate budget to support ongoing, systematic marketing
campaigncampaign
• Focus on “cheap rent” instead of quality business and technicalFocus on “cheap rent” instead of quality business and technical
support servicessupport services
• Confusing the concept of advertising with that of marketingConfusing the concept of advertising with that of marketing
• Failure to understand tenant companies’ needsFailure to understand tenant companies’ needs
• Insufficient analysis of local market conditionsInsufficient analysis of local market conditions
• Managers unfamiliar with real estate salesManagers unfamiliar with real estate sales
• Ineffective use of “referral agents” (accountants, bankers,Ineffective use of “referral agents” (accountants, bankers,
lawyers)lawyers)
• Failure to engage the local real estate agents/developersFailure to engage the local real estate agents/developers

ProgramProgram
• Inadequate budget for support programs and lack ofInadequate budget for support programs and lack of
delivery on promised servicesdelivery on promised services
• Hiring of business support personnel with noHiring of business support personnel with no
entrepreneurial or start-up business experienceentrepreneurial or start-up business experience
• Undue reliance on pro-bono services by professionalsUndue reliance on pro-bono services by professionals
• Unkept promises of financial support for individualUnkept promises of financial support for individual
companiescompanies
• No subcontracting of support services to private companiesNo subcontracting of support services to private companies

Real EstateReal Estate
• Substandard property in a bad locationSubstandard property in a bad location
• Underestimation of fixed costs to run buildingUnderestimation of fixed costs to run building
• Site has severe environmental remediation problemsSite has severe environmental remediation problems
• Building size is insufficient to reach critical mass of tenantsBuilding size is insufficient to reach critical mass of tenants
• Architectural design not geared to start-up companiesArchitectural design not geared to start-up companies
• Inappropriate mix of uses by tenant typeInappropriate mix of uses by tenant type
• Unworkable traffic flows of interior spacesUnworkable traffic flows of interior spaces
• Net leasable space too small a percentage of total spaceNet leasable space too small a percentage of total space
• Property subject to historical/landmark restrictionsProperty subject to historical/landmark restrictions

FinanceFinance
• Lack of diversified and ongoing approach to raising capitalLack of diversified and ongoing approach to raising capital
• No reality-based financial projectionsNo reality-based financial projections
• Unsuccessful monitoring of cash flowUnsuccessful monitoring of cash flow
• Lack of foresight regarding financial contingenciesLack of foresight regarding financial contingencies
• Disagreement around projects need for break evenDisagreement around projects need for break even
• No provision for working capital funds for start-up tenantsNo provision for working capital funds for start-up tenants

When is a Business Incubator Feasible?When is a Business Incubator Feasible?
CommitmentCommitment
• The stakeholders have developed a mission statement andThe stakeholders have developed a mission statement and
established measures by which the project will beestablished measures by which the project will be
evaluated.evaluated.
• The stakeholders understand the kinds of investmentsThe stakeholders understand the kinds of investments
(land, money, time, other resources) they will be required to(land, money, time, other resources) they will be required to
make over time and the respective magnitudes.make over time and the respective magnitudes.
• A single project champion or group of advocates has beenA single project champion or group of advocates has been
identified to marshal resources in the early stages of theidentified to marshal resources in the early stages of the
project.project.

ResourcesResources
• Adequate cash flow analyses have been performed andAdequate cash flow analyses have been performed and
threshold levels of financing have been secured.threshold levels of financing have been secured.
• A building can be secured which lends itself to the needs ofA building can be secured which lends itself to the needs of
early-stage companies (easily modularized, flexible, coreearly-stage companies (easily modularized, flexible, core
infrastructure, multi-use).infrastructure, multi-use).
• Specialized equipment and/or office furniture is available atSpecialized equipment and/or office furniture is available at
minimal cost.minimal cost.

ExpertiseExpertise
• The project manager understands the role of the incubatorThe project manager understands the role of the incubator
within the context of other local and regional economicwithin the context of other local and regional economic
development projects.development projects.
• A team experienced with incubation will lead or coach theA team experienced with incubation will lead or coach the
formulation of the business plan.formulation of the business plan.
• People with experience in construction/rehab will be part ofPeople with experience in construction/rehab will be part of
the business plan development effort.the business plan development effort.

MarketMarket
• The incubator offers specialized business and technicalThe incubator offers specialized business and technical
assistance services in order to meet the needs of targetedassistance services in order to meet the needs of targeted
entrepreneurs.entrepreneurs.
• The people testing the feasibility complete a marketThe people testing the feasibility complete a market
assessment that identifies a significantassessment that identifies a significant quantityquantity of potentialof potential
client candidates (2X more than the # expected).client candidates (2X more than the # expected).
• The feasibility study team can identify a sufficient number ofThe feasibility study team can identify a sufficient number of
qualityquality candidates to enter the incubator.candidates to enter the incubator.

Wrap-UpWrap-Up
Were goals met?
• Help participants understand what a business incubator is and
what a business incubator is not
• Explain best practices of incubation
Please complete evaluation form.

Thank you!Thank you!
Questions?Questions?
Email: sandra_cochrane@gvsu.eduEmail: sandra_cochrane@gvsu.edu
Cell Phone: 269-267-5489Cell Phone: 269-267-5489
@scochrane@scochrane
sandra.cochranesandra.cochrane
Sandra CochraneSandra Cochrane

Business Incubator Feasibility Study

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