Tuesday, August 07, 2007


Business Incubators

EWU expert weighs in on new report that examines the worth of these start-up programs.

start something big.

Incubator report raises Sirti hackles
Bert Caldwell
The Spokesman-Review
August 7, 2007

A review of Washington business incubators asks the right questions, say two local experts, but the answers lie as much in the social sciences as economics.

Robert Schwartz, who heads Eastern Washington University's entrepreneurship program, says measuring incubator performance using strictly economic criteria is misguided. And looking at the success of businesses developed in an incubator does not fully take into account the benefits to their communities, not to mention supporting businesses.

At Sirti, Spokane's largest incubator, Executive Director Kim Zentz says incubator-nurtured businesses may not generate payroll or other easily quantified gains for several years, sometimes not until after the transition to a management team unaware of what help their company received in its infancy.

A legislative committee has raised questions about the return on state investment in Washington incubators or, more exactly, how that return can be determined. Its central question: "If not for the incubator, what would have happened to the firms using its services?"

That's a good question, Schwartz and Zentz agree, one for which there is no simple response.

To find one, Zentz posits, there would have to be some way of comparing incubated companies with non-incubated peers. You would have to know what services they received, and how much, and whether the business survived or prospered at the end of some reasonable time frame.

Incubators may provide space, utilities, shared secretarial and technical support or other assistance to new companies.

Zentz last week took exception to the study by the Joint Legislative Audit and Review Committee because Sirti was lumped in with independent, nonprofit incubators receiving state grant money. Sirti is a state agency.

The report faulted reporting done by grant recipients, but Sirti files twice yearly to the Office of Financial Management. Sirti tracks the number of jobs, clients, and the financing it has attracted. Since 1995, Zentz says, current and former clients have received almost $180 million in funding on top of $25 million in federal money, plus local matches. They have added 2,423 jobs to the local economy.

The state has provided money for Sirti's operations.

Sirti last year succeeded in filling all the space in both its University District buildings. In 2007, Zentz says, the news will be the graduation of 11 companies into their own space off-campus.

"That's what we should be doing," she says.

Schwartz has spent much of his professional life working for or studying incubators. He continues to run an incubator-without-walls that counsels young Spokane businesses.

He says debate over how incubators should be judged began almost as soon as they were embraced as an economic development tool in the early 1980s. The argument goes on.

Incubators, particularly government-funded incubators, are more than business enterprises, and rightfully so, he says, adding that there is probably no state agency that could justify its existence based on return on equity.

Schwartz says incubators should have an element of social entrepreneurship built in so that non-economic benefits like additions to incomes in distressed neighborhoods figure into assessments of their success. There is value to the education, opportunities and awareness of business that incubators bring to a community, he says.

Some programs have been more about the building than the services, Schwartz adds.

"If not for" is a good question. The answer should be as broad as possible.

Business columnist Bert Caldwell can be reached at (509) 459-5450, or at

The verdict for incubators is not hard to arrive at. The record shows that they do not contribute anything significant to economic development — other than make a public choice investment (subsidy) in private firms — something that should best be left to the market and venture capitalists. SIRTI should be evaluated only in terms of its founding objective — economic development. On the other hand, given the public investment in SIRTI over the years, it makes sense to raise the question of opportunity costs: What might have been done to promote regional economic development with the millions "invested" in SIRTI? Certainly it would have been possible to fund Ph.D programs in Electrical Engineering, Computer Science, and Biology at EWU — investments with a large and proven economic development record elsewhere. The following references should be noted — taken from my work on regional culture and economic development (available as a IPPEA monograph).

Roger Miller and Marcel Cote, "Growing the Next Silicon Valley," Harvard Business Review, Vol. 63, No. 4 (July -August 1985), p. 119. Miller and Cote note that neither incubators ("greenhouses") nor "innovation centers" have had any significant impact on the establishment of new firms. See, also, "Can Business Incubators Justify Their Existence?" Business Week, October 25, 1999, where it is noted that in the past 20 years, no incubator has produced a large, profitable company. In 1989, an 18 month study of U.S. and Canadian incubators by the former chairman of the National Business Incubation Association concluded that, "Individual incubator firms show limited employment growth. Even after several years of operation, few of the incubator firms have more than twenty employees." The same study observed (p.56) that, "…it is also clear from previous research that few of the 'incubating' firms create more than a handful of jobs." See Candace Campbell, "Change Agents in the New Business Economy: Business Incubators and Economic Development," Economic Development Review, Vol. 7, No. 2 (Spring 1989), p. 57. Here in the Spokane region, SIRTI reported (Journal of Business, July 15, 1999) that after ten years of operation it had produced six new companies and 88 new jobs. During that time, however, it had gone through more than 15 million dollars, not counting the 11 million dollar cost of facilities construction, or over 1.5 million per year and $170,000 per job created.

SIRTI became a state agency in 1994, but it began operation in 1989 as a non-state agency.

S. E. Mahoney
Post a Comment

<< Home

This page is powered by Blogger. Isn't yours?