On the farm, an incubator is a warm, protected place to put fertilized eggs so they can develop under the watchful eye of the farmer until they hatch. Likewise, the new business incubator on the NIACC campus is a nurturing environment where new businesses can develop and grow during those challenging first few years of existence.
If you look at the nationwide averages for new job growth, only 1% comes from companies moving into an area; 55% comes from existing businesses expanding and 44% comes from new startups. The downside of those numbers is that 60% of new start ups fail within the first five years. By contrast, startup companies that go through incubators have a 90% survival rate for the first 3 years. Of the companies that successfully graduate from incubators, 87% are still in business 5 years later and, most importantly, 84% are still in the community they incubated in. That is why business incubation is important for both job creation and job retention in North Iowa.
Open for Business: A business incubator is the ideal next step for a home-based business that wants to get out of the basement, garage or back bedroom. There is no typical entrepreneur, but all entrepreneurs are similar in having a dream of owning their own business and in their passion to follow through. For some, retirement or downsizing has freed them to go down a different path. For others, it is an itch that they just have to scratch. The Pappajohn Entrepreneurial Center acts as guide on the journey for hundreds of people every month. There is a great independent entrepreneurial spirit in North Iowa. For those willing to put in the hard work and sacrifice that business ownership demands, there can be great rewards.
Business Incubators: Myth and Reality
There is a persistent myth that incubators are all about ‘cheap rent.’ If that were the case anybody could slap the word ‘business incubator’ on any vacant building. Unfortunately, some do and then cannot understand why the businesses inside fail.
Business Incubation is really about the intensive application of expertise. That expertise may be marketing, financial, operational, something else or a combination of things. Ultimately, it is all about helping the entrepreneur achieve more than they would on their own. Certainly, there are businesses that make it on their own every day, but incubation significantly improves the odds of survival during those first dangerous years.
The North Iowa Business Incubator offers all of the traditional services associated with basic mixed use incubation, including:
- Office Space
- Warehouse/Manufacturing Space
- Wet Laboratory Space
- Utilities (Electricity, Water, Natural Gas, Sewer, Internet, Waste)
- Intensive consulting services
- Access to professional specialists
- Access to sources of capital
- Multimedia conference facilities
At the same time, the incubator offers services not traditionally associated with incubators but available because of the incubator’s unique relationship with NIACC and its huge installed base of capital equipment and intellectual assets, including access to:
- Advanced business reference libraries
- Advanced and basic machine tools
- Computer-Aided-Design equipment
- Computer technical support
- Bulk printing and mailing
- Catering services
- Facility rental for special events
- Continuing Education classes
The North Iowa Business Incubator is mixed use incubation space for the temporary development of start up businesses. Tenant occupancy is typically up to 36 months. The incubator features all the traditional services of mixed use incubation with additional non-traditional services made possible by its incorporation into the North Iowa Area Community College (NIACC) and the John Pappajohn Entrepreneurial Center (JPEC).
The initial “hub” facility is on the NIACC campus with subsequent satellite facilities planned for other sites in the service area. Satellites will enjoy access to the same assets as the hub incubator, but most of those assets will remain at the hub.
Goals & Objectives: The incubator is an integral part of a comprehensive economic development plan for the nine county NIACC service area. Developing local, homegrown businesses complements regional efforts to encourage expansion, retention and attraction of companies. The long-range goal is to create new, stable and successful businesses that contribute to the general economic health of the area, increase employment opportunities and add to the variety of products and services available to its citizens.
Selection is based upon a firm’s compatibility with other tenants and the goals of the incubator. Businesses are accepted from those in the idea stage to those working to establish and sustain production and sales at a profitable level. When a business becomes capable of competing in the open market, efforts are made to find it a permanent location in the area.
Eligibility Guidelines: The incubator on the NIACC campus is considered mixed use, meaning it is suitable for business-to-business (B2B) service businesses, research or light manufacturing. The incubator focuses upon firms providing new products, technologies or services that will contribute to the economic base and diversity of the area. Businesses with a national or international customer base are of particular interest.
The incubator is not suitable for volume warehousing or business-to-consumer (B2C) service businesses, including real estate, retail shops or restaurants. Businesses with limited growth potential and those operated as a hobby are not eligible for occupancy.
Applicants should meet the following criteria:
- Be a for-profit entity (corporation, LLC, partnership or sole proprietorship).
- Be a new start-up business or an existing, expanding business.
- Have growth potential with the prospects of creating new products, technologies or services, meeting a demand for services or creating new or expanded job opportunities.
- Meet applicable zoning, building, fire and health codes of the area.
- Submission of a business plan, including appropriate financial statements and projections. The business plan must be approved as a condition for admission.
Tenants are required to submit monthly progress reports (including financial statements) for review by the JPEC staff. Additional information may be required.
Applicants are considered on a case-by-case basis and evaluated on:
- Merit of the business proposal.
- Background and experience of principals.
- Equity position of principals.
- Status of business plan, market research and feasibility studies.
- Growth and job creation potential.
- Applicant’s commitment – both financial and personal time to the venture.
Consideration is given to:
- Existing small businesses operated on a part-time basis prepared to begin full-time operations.
- Firms which suffer from space, management, marketing or financial problems that will severely, limit their growth.
- Companies with high growth potential.
- Firms that support the Iowa Values Fund initiatives in advanced manufacturing, value added agriculture, life and biosciences, information solutions and financial services.
- Companies working to develop new technologies or to redirect new technologies.
- Foothold operations for companies based outside the area.
- Businesses with a high probability of bringing new capital into the service area (i.e. export, products with national distribution)
- New divisions of existing firms or research and development projects which seek to separate from their main operations.
- Individuals who are members of groups traditionally underrepresented in business or industry.
- Early retirees from industry or government who wish to begin a second career.
- Occupancy Terms: The typical occupancy time is 36 months. Actual occupancy is based on the firm’s business plan and the time required for it to become profitable. This may be lengthened or shortened by mutual agreement or with appropriate notice by either party.
- Lease and Service Fees: Certain services and fees are included in the rent. NIACC offers a selection of additional, extra cost services that are charged to tenants if used.
- Lease Cancellation Policy: Either party may cancel within a 30-day period with prior written notice.
- Pre-Application: Potential occupants must submit a pre-application form for review of business type, principals and history for compatibility with the incubator’s goals, objectives and eligibility requirements.
- Formal Application: A formal application includes a business plan, financial information on the business and principals, business status and marketing/feasibility study. If an applicant lacks any of the required items, the JPEC/SBDC may provide assistance to help develop the necessary information. [PDF Application]
- Approval: The Incubator’s Board of Advisors will make the final approval of all applications.
History of Business Incubation: The roots of business incubation go back about 40 years, to a time when, not surprisingly, the industrial landscape was changing in fundamental ways.
It all started when heavy equipment manufacturer Massey Ferguson pulled out of Batavia, New York, in 1959, leaving behind a hulking 850,000-square-foot facility. This catastrophic economic event seemed like the end of the line for the town. As it turned out, it was only the beginning, not just for Batavia, but for a new generation of emerging companies that would change the composition of the American economy.
After the ax fell in Batavia, local resident Joe Manucuso bought the building the company left behind. He hoped to use it to bring new businesses and new jobs to the area. His idea was right for the times and caught on rapidly, as businesses (including an actual incubator, hence the name) attracted by cheap rents, flexible space and shared services, filled the building. “Today,” says Dinah Adkins, executive director of the National Business Incubation Association (NBIA), “business incubators offer comprehensive support to fledgling businesses.”
Business Incubators and Access to Financing: Business incubators are a good path to capital from angel investors, state governments, economic-development coalitions and other investors. Business incubators often provide is access to the kind of early-stage capital that emerging companies need. For instance, according to surveys of National Business Incubation Association (NBIA) members, about 80 percent of incubators provide formal or informal access to seed capital; 77 percent of incubators help clients access commercial bank loans, 74 percent help clients access specialized noncommercial loan funds and/or loan guarantee programs, and 61 percent link clients to angel or venture capital investors. The North Iowa Business Incubator does all those things.
It should not surprise anyone that angel investors tend to hover over business incubators. Client companies are carefully prescreened for acceptance. A business that has been accepted into an incubator offers due diligence value to potential investors. In a way they have already passed an important litmus test by simply being there.
Incubators attract sources of capital because of the simple economics of convenience. Rather than searching high and low for potential deals, investors can easily find a multitude of investment opportunities under one roof.
Finally, the businesses an investor is likely to find inside an incubator can make whatever dollars he or she is prepared to invest go much further. With economical rents, shared services and access to professional services and training at low and sometimes no cost, investors can gain a real sense of comfort that their investment will last longer and take the business farther than might be true within a conventional business environment.