DESCRIPTION
Business Incubators are also referred to as 'Enterprise Centres' (Qld), 'New Venture Units' (NZ) and 'Managed Workspaces'. Business Incubators are comprised of a set of integrated facilities and services to help new start businesses survive, prosper and grow.
The accepted definition in Australia is:
“Business incubation involves a unique mix of advice, services and support to help small businesses develop and grow. It takes place in incubators, which are infrastructure developments that help businesses to become established and profitable.”
There are several broad types of incubator in Australia and overseas:
•    General-purpose incubator—helping a wide range of businesses, sometimes with industry specific and high technology clusters on site. These are the most common incubators in Australia and overseas.
•    Industry specific incubator—the most common are those focusing on commercialisation and technology transfer with strong links to universities.
•    Incubators without walls—attempts to deliver the same intensity and quality of services to businesses not located in the same buildings. They are experimental at this stage. However, some physical incubators deliver outreach or virtual services to businesses not located on site.
Incubators are also segregated according to their size and the economies of scale they can achieve. There are three broad models.
•    Independent—large enough to cover their own costs;
•    Embedded—too small to cover their own costs and embedded with a complementary organisation;
USES
•    To help new start businesses establish themselves successfully, i.e. to reduce the small business failure rate.
•    Commercialisation of technology.
•    Acceleration of growth.
•    Employment creation through small business development.
•    Provide assistance to particular disadvantaged socio-economic groups such as unemployed people, youth, migrants etc.
HOW IT WORKS
Incubators will generally have the following features:
•    provision of accommodation on month to month flexible terms;
•    pro-active, on-site business counselling and advisory services, to help people learn the necessary business management skills (normally this will start with the manager, but also involve professionals and successful business people from the local community);
•    support for the business person to help them with commitment, maintaining enthusiasm, risk taking and the hard and lonely task of developing a small business;
•    networking—incubators offer an instant on site network to tenants and help link people to other networks in the community;
•    provide comprehensive office services, normally including phone answering, reception, fax, photocopying, bookkeeping and secretarial services (this gives new businesses access to professional services and cuts their establishment costs);
PREREQUISITES
There is a range of prerequisites, which are normally addressed in a feasibility study. The critical prerequisites are:
•    demand for incubator services in the marketplace;
•    a proper understanding of how they function (see warnings);
•    a committed organisation to champion the development and eventual management of an incubator;
•    being able to integrate the incubator with other business and economic development services in an area;
•    a long-term approach—incubators have to be considered over at least a ten year period;
HOW TO START
If there are local bodies with the necessary interest and commitment, there are a number of simple steps in the development of an incubator:
•    educating the community and stakeholders about business incubators (there are many myths and misconceptions) and generating broad community support;
•    commissioning an independent feasibility study;
•    developing a business plan; and
•    securing the necessary funding and resources.
STRENGTHS
•    One of the most intensive and quality tools for the development and growth of new start businesses.
•    After seed funding, incubators should operate as self-sustaining entities, without reliance on any ongoing government funding.
WEAKNESSES
•    They cannot help all businesses. For example: retail businesses where location is the key would be disadvantaged by graduation; and, businesses which are too noisy or noxious will always be difficult to house in a multi-tenant complex.
•    Incubators are normally not commercially viable where they have to pay the capital costs of their buildings or pay commercial rental on their buildings. One way or other they have to secure buildings at no ongoing cost, other than in exceptional circumstances.
WARNINGS
•    They take great commitment and a long term-approach.
•    They are not easy.
•    People often do not fully appreciate how they operate. While an incubator will make most of its income from rent and provision of office services, the critical aspects are provision of counselling and support. This requires expensive on site staff.
•    Economies of scale are vital. The concept works better when incubators are larger. If the necessary economies of scale are not present, incubators will struggle financially and services will suffer, unless the incubator is appropriately embedded with a complementary organisation.
•    Incubators normally will not succeed financially if they have to pay commercial rent on their buildings or pay a return on the capital investment involved in buildings, although there are exceptions.
•    A good understanding of the demand in the market place is necessary.
INDICATIVE PRICE/COSTS
Establishment costs vary depending on how buildings are secured. However, to give a very rough idea an incubator will often require:
•    up to $100,000 in working capital to cover the operational deficit in the first three years;
•    up to $100,000 to put in place the necessary office equipment;
FUNDING RESOURCE OPTIONS
Ideally all three tiers of government and corporate sponsors will be involved in putting together funding and resource packages. However, not all state governments fund business incubators. It takes time and diligence to put together these funding cocktails.
MONITORING AND PERFORMANCE EVALUATION
The key evaluation criteria are as follows.
•    Financial performance—being able to operate without ongoing funding after initial seed funding, generally in a ‘free’ building.
•    Occupancy—attracting tenants. Optimum occupancy should be reached in 2–3 years.
•    Graduation of tenants—tenure should be expected to be in the order of 2-3 years on average.
•    Business survival rates—incubators should achieve business survival rates in the order of 80%.
•    Creation of ongoing employment—in tenant and graduate businesses.
•    Generation of wealth in the community—this can be indicated in terms of the turnover of tenant and graduate businesses.
•    Other outcomes are harder to measure and include:
•    accelerated growth;
SIMILAR TOOLS
•    Business Plans.
•    Feasibility Studies.
INFORMATION RESOURCES
TBA