NWSCDC

In 1991, I was honored and privileged to represent the American CDC community at an international conference in Swansea, South Wales, entitled ‘US-UK Community Economic Development’. At the conference, I served on a panel regarding business incubators with Patrick McShane, of the Fund for Northern Ireland. Alan Twelvetrees edited a book that was developed out of the conference named ‘Community Economic Development: Rhetoric or Reality?’. Mr Twelvetrees took many of my notes and later comments and created the following chapter for his book from the workshop.

Incubators in the US: MetroWorks

Howard Snyder

MetroWorks is the small business incubator system set up by the Northwest Side Community Development Corporation (NWSCDC) Milwaukee, Wisconsin.

Freestanding incubators can be, and are, success stories. However, while NWSCDC uses its incubator as a method of expanding the base of small business, such businesses also need to be seen in the context of the wider community and the other work of the CDC, namely, work on industrial retention, older building preservation, retail development, marketing and merchant organizing and the general recycling of money through the neighborhood economy.

In a 1995 report the National Business Incubator Association (NBIA) estimated that there were 497 small business incubators in the United States. However, there are probably no more than 30 which are operated by non-profit community -based organizations (CBOs).

After ten years in the incubator business, MetroWorks contained 11 businesses and had started up over 80. The total number of full-time jobs in the Metro Works incubator was 120 full-time and 188 part-time. The percentage of minority companies started up was approximately 80 and there had been 15 successful ‘graduations’ from the facilities (‘graduate’ means that a company has successfully left the incubator). There were 15 outright failures, and ten businesses left for other reasons not to do directly with the operation of the incubator. Today, there are in the facility seven manufacturing and three service tenants, and one construction tenant.

After several years of operation, staff felt they had learned the following lessons:

1. Business incubators should be part, but not the whole, of a neighborhood-based economic development strategy.
2. CBOs can and should run incubators. But CBOs without a building or significant experience of real estate or business development should only go into the business if there is a supportive building/owner with whom to collaborate.
3. Jobs? It’s the only thing anyone cares about, but is the least important thing incubators do! Their role in feeding into a wider neighborhood development strategy is more important than incubators themselves.
4. Smart marketing is the only way to get good businesses to come to you. Today, the competition for good small business prospects is intense.
5. Start-up capitol (and access to an in-house source of capital) for companies in the facility is critical. But this is very hard to provide well. For instance, it is easier for us raise start-up capital than to lend it, since businesses have to show that they can meet minimum requirements we set. While we make loans which banks would ‘laugh at’ we need to maintain an image of fiscal prudence to encourage confidence in the fund. MetroWorks staff insists on collateral. They have not made imprudent loans, and they expect to be repaid.
6. Business services are critical as a marketing tool. Also, having someone whom the tenants can trust for good business advice is essential. But many tenants will not come to the business development specialist. They require both encouragement and the mandatory submission of regular profit and loss statements. Some businesses are too inexperienced to use even the most basic clerical services.
7. A well-run incubator, with an external programmer of public relations, can be invaluable to a low-income neighborhood in creating that vital thing, a positive image.
8. Volunteers can sometimes do a good job, but need training and guidance, even if they volunteer what they do for a living. Bankers are usually bad advisers of small businesses.
9. An incubator is a long - term proposition and not create short-term dramatic success
10. At least three full-time staff is required to operate the incubator: an external marketing person, an internal small business development person, and a business services/clerical person.
11. Real estate services such as janitorial services and ‘built out’ space (that is, space built out of available space in the interior of the building itself) are two critical operations.
12. Providing assistance to companies in a’ pre-development’ ’phase of their business takes time and resources away from companies located in the incubator. Staff cannot give away their time for every emerging firm
13. A majority of contacts to MetroWorks have been minority and women-owned firms that were, in the main, service-oriented, very small, with little or no start-up capital, and which anticipated little, if any job growth in the first several years of life.
14. Word of mouth is the most effective marketing tool attracting tenants to the facility.
15. MetroWorks allows the CDC to be enormously creative, using older buildings, lending money, developing networks of free business advice and counseling, while attracting minorities and women, who are inherently the most risk-taking of the clientele.
16. However, running an incubator can also be a source of tremendous frustration, highlighting harsh economic realities and unfairness. For instance, white men still succeed in obtaining financing while, by and large; women and minorities do not. Older buildings are a magnet for building inspectors, as well as being insecure, impossible to work with, difficult to acquire and containing toxic and other ‘deal-busting’ environmental wastes.
17. People talk about entrepreneurs but do not know how to motivate, guide or control them. They need careful handling.

Finally, it is necessary to think of whole neighborhoods as incubator systems and places of economic experimentation, using incubation as one element of a regeneration strategy.