Incubator-Start Doesn't Guarantee Company's Success

Business incubators are supposed to work like incubators for chicks or babies. The idea is that subsidized costs, and business advice for entrepreneurs, will help keep nascent companies alive. A new study finds success can be elusive for small businesses that start in incubators.

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Business incubators are supposed to work like incubators for babies. The programs provide physical space and resources for entrepreneurs with the goal of keeping infant companies alive. But the time spent in an incubator does not necessarily translate into economic success.

Emma Jacobs reports for The Innovation Trail, a journalism center that covers Upstate New York.

EMMA JACOBS: By the end of high school, Brent Angeline had three years of computer programming experience. In college, he tried out every obscure operating system he could get his hands on, and after graduation, he started building his own.

Mr. BRENT ANGELINE (Computer Programmer): I figured, why couldn't we take your entire computer operating system - your whole sort of desktop environment - and move it to the Web, so that you can really bring up the same thing on every screen?

Let's jump back in here.

JACOBS: Now at 29, Angeline operates out of a spacious office in the Greater Binghamton Innovation Center. He has no customers yet because his product's still in development. But in about a year, he's expected to be financially ready to leave the incubator and go it alone.

Mr. ANGELINE: By that time, we'd certainly be able to tell one way or the other. But we're definitely in good shape for that. It's not like it's impossibility.

JACOBS: But here's the catch - and it's a big one for an incubator like this one that's funded by half a million dollars in state and federal economic development money: The first study to try and compare incubated companies to businesses on the outside finds companies like Angeline's housed in incubators aren't actually performing better.

Mr. ALEJANDRO AMEZCUA (Researcher): The data showed that being in an incubator actually hurts your long-term survival in the economy.

Jacobs: Alejandro Amezcua conducted the research with funding from the Kauffman Foundation. He was surprised to find that drop off. He's not sure yet whether incubators are propping up businesses that would fail on their own, or if maybe access to expert advice convinces failing entrepreneurs to get out early. But he also found that only three percent ever tried to make it on their own. Amezcua's study looked at 18,000 businesses in 950 incubators.

David Monkman heads the National Business Incubation Association. He says the results are counterintuitive.

Mr. DAVID MONKMAN (Director, National Business Incubation Association): It's unfortunate. Yeah. I think it's unfortunate to see a number so low as that, and it doesn't correlate with some numbers we have.

JACOBS: Since Amezcua is the first to try and make this kind of comparison, there's not much research to compare his numbers to. Monkman points to some very successful examples, but his survey of the industry relies on data self-reported by his members and excludes facilities that aren't providing enough services.

Mr. MONKMAN: Business incubation programs are more than bricks and mortar. The best performing business incubators relative to the graduates and their performance are those that have received packaged, integrated bundle of services that help them become more competitive.

JACOBS: The county official who helped found the incubator where programmer Angeline works is Darcy Fauci. It's too early to gauge the incubator's success rate, and she's still working to develop support services for her tenants. She says she's concerned about maybe a third, but still thinks, with work, the investment can pay off.

Ms. DARCY FAUCI (Director, Greater Binghamton Coalition): Nobody's ever gone into an incubator business thinking that this is a home run and everyone who goes in is going to be a success. But what we can help them with is an environment where they can spend time focusing on their product - get a market, get orders, get customers, and then they can - the other stuff will naturally come, hopefully.

(Soundbite of laughter)

JACOBS: The Kauffman-funded study found some high performers. University affiliations and female entrepreneurs in incubators seem to do better.

For NPR News, I'm Emma Jacobs in Binghamton, New York.

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