Incubation

Business Incubators are a new hybrid type of economic development facility that combines features of entrepreneurship, business facilitation and real estate development. They have proven to be the most effective technique yet devised for creating employment, commercialising new technologies and developing local economies.

Business Incubators provide a physical location in which a new business can commence, coupled with support services such as shared facilities and business advice.

A typical business Incubator with about 1500 m2 of leaseable space would accommodate between 20 and 50 new businesses. Once fully operational it would graduate an average of 15 businesses per year. Over a ten year period such an Incubator would "hatch" over 150 new businesses, employing a total of 600-900 people and turning over around $200m per year.

Not all communities are large enough to manage an Incubator of this size, but smaller communities can have a scaled down version which is networked with neighbouring Incubators to achieve the necessary economies of scale to enable the Incubator to be financially self supporting. Some communities can support much larger facilities.

For a listing of Australian Government Funded Incubators operating April 2005 CLICK HERE

What are the benefits of an Incubator?

General purpose Incubators typically have employment outcomes as their highest priority. Technology Incubators seek to commercialise new products/services. Specialist incubators focus on specific industry areas, for example, art and craft businesses, agriculture, aquaculture and food production, software development and "green" technologies.

Incubating businesses locally is much cheaper and more likely to produce economic benefits than incentive programs that seek to entice existing businesses to an area only to have them leave when a better offer is made.

Incubators are the most cost effective labour market program available. Over a ten year period the jobs created by an Incubator in which $.5m has been invested by government will cost less than $1,000 per job.

How do you set up an Incubator?

Typically Incubators operate from existing buildings that are surplus to requirements: disused factories, warehouses, schools and office blocks have been adapted to make successful incubators.

Usually these buildings are provided by local authorities on a peppercorn basis for the Incubator facility. A refurbishment grant of up to $500,000 is available to successful applicants through the Federal Government Small Business Incubation Program - AusIndustry - to make the buildings suitable for incubation.

The tenant businesses pay normal commercial rents and the income from the rent is used to meet the cost of the business support programs and services provided by the Incubator.

In strict market terms, the refurbishment cost plus opportunity cost in the forgone rent/sale of a surplus (i.e. cheap) building can make an Incubator proposal economic for government and private owners. Purpose built Incubators provide a return to government, but do not work on a fully commercial basis for the simple reason that an incubator project cannot afford to meet both the capital costs of the buildings and the operational costs of the incubation program. The economic return to governments comes from the increased level of business activity.

At the Federal level, savings in unemployment benefit and tax revenue generated by each job (costing a once-off $1,000) would be about $13,000 per annum for as long as that job continues to exist.

A thorough feasibility study is needed to determine the market demand and type of Incubator required. Feasibility studies are best carried out by an external consultant with experience in business incubation techniques.

Business Incubators, once established operate as a self-sustainable business. When properly set up they need no further government assistance.

BIIA can supply a variety of resources and a list of experienced consultants to assist in the processes of

Feasibilty Studies
Establishing a Business Incubator
Managing an Incubator
Review of Incubator Practice
Benchmarking Incubator Practice

Who should set up and run an Incubator?

Local governments or regional development organizations and community groups usually initiate Incubator projects. During the feasibility stage other stakeholders are identified, and invited to participate. Potential buildings are located. A skilled Board of Management is established to manage the establishment of the incubator - the Board draws up a business plan, seeks refurbishment funding for the building(s), and appoints a manager to roll out the Incubator.

Neither the Federal nor State/Territory Governments have a program to support Business Incubators once established. It is anticipated that funding provided in response to the feasibility will enable the Incubator to be self-sustaining.

Members of parliament can help by supporting the establishment of a more formal program of support for Business Incubation.

What is Business Incubation?

Business Incubation involves a unique mix of advice, services and support to help business develop and grow.

It takes place in Incubators, which are infastructural developments that help business to become established and profitable.

Business Incubators are committed to 3 core principles. They:

focus on nurturing and growing successful businesses;
are themselves run as self-sustaining businesses;
offer services designed to meet the needs of their client businesses.

There are over 80 Business Incubators in Australia.

They play a role in developing local economies and creating employment.

Incubators are also called: enterprise centres, nursery estates, shared workspaces, managed workspaces venture unit.

The types of business advice provided in Incubators include:

developing business idea
business and strategic planning
proactive support
financial and legal advice
marketing and sales
management

Business services often include:

secretarial services
reception and telephone answering
office and/or workshop accommodation
conference and meeting rooms
photocopier, fax and postage services
bookkeeping and word processing

Business Support includes:

mentoring
synergies with other client businesses
hard services (savings in capital)
networking

Incubators can focus on:

passive incubation – where the main benefits come from shared facilities, networking, synergies with other clients and advisors available on call
pro-active incubation – where the business advisors seek regular contact with client businesses
power incubation – for businesses wanting to accelerate growth through regular and detailed interventions

Models in Australia

Standard independent model: 1500-2000sq meters of usable space (more if mainly industrial, but less if mainly office based businesses).

Embedded model: smaller Incubators dependent on another organization for some of its operations.

Without walls model: (or virtual incubator) which uses electronic and visiting services. Currently in the early development stage.

Special purpose model: industry specific e.g. high tech, food production or aquaculture.

Networked Incubators: Incubators on different sites sharing sites.

Real estate developments or facilities that do not encourage graduation are not Incubators.

Best Practice Incubators are:

committed to the 3 core incubation principles
base their operations on a thorough feasibility study and business plan
are financially self sustaining
offer flexible support, business advice and mentoring which focus on the needs of the business clients
are part of a wider network of business support services
have staffed skilled in business development and management
operated in suitable buildings
select clients with the potential to grow
attract considerable community support
engage in continual performance and improvement