So You Want to Start an Incubator? II

Last month, Sandra Cochrane gave us an overview of how to start an incubator. Judging by the sheer number of emails and direct messages (via Twitter) we received, it’s without a doubt that many of you are interested in learning more.

Through Cochrane, we got in touch with Mark Long “The King,” a very likable incubation veteran with 3 decades of experience under his belt. In this interview, Long imparts his expertise in founding an incubation facility and talks about what it takes to start an incubation program, the investment required, and some common mistakes would-be incubators make.

Long is the former president and CEO of Indiana University Research and Technology Corporation (IURTC) and Indiana University Emerging Technologies Center (IUETC), a life sciences incubator. Now, he’s the chief of Long Performance Advisors, a consulting firm specialized in business incubation, technology transfer, and business and economic development.

He’s also an accomplished ballroom dancer and an animated Elvis impersonation expert. Beat that.

* Edited interview

VH: If an angel investor wants to start an incubator, how does she know whether she has what it takes to be a founder of a successful business incubator?

ML: Wow, tough question, and tough answer. Starting an incubator is no easy process. I’d definitely recommend the “Incubator Manager Certification Program” offered by the National Business Incubation Association (NBIA). Completing the program should tell you if you “have what it takes” to start a facility.

Also, it’s often best to have a qualified professional or organization to perform a feasibility study on the area where you wish to start an incubator. There are many, many factors that determine the success rate of an incubation facility, not the least of which is the pipeline of entrepreneurial ventures in your area, which are possible candidates for acceptance into your facility, plus your own ability to operate the facility.

VH: Say the investor has what it takes to found a successful incubator; what are the next steps and investment required, etc.?

ML: There are some critical steps to be taken to determine the pipeline, the processes, and the product model for your proposed facility. For example, is this a good location for a biotech facility or a mixed use facility? Do you have a good source for intellectual property for different types of entrepreneurial ventures, or one specific type, or ANY type?

As far as investment required, the typical successful incubator is around 40,000 square feet and, depending on the location and type (hi-tech, mixed use, kitchen), could cost anywhere from – take a guess.

It’s a broad range of cost, but it’s not inexpensive. The facility I operated was primarily a life sciences model, and cost just over US$10 million to re-habilitate an existing building. Annual operating expenses were approximately US$250,000.

There are many sources of revenue for a typical incubator, which include –

• rent
• fees for services
• personal consulting
• service contracts or grants
• program (seminars, speakers, training, etc.)
• subsidies from state, local, and federal government

VH: In terms of for-profit incubation programs, which incubation model, in your opinion, is most profitable?

ML: I’d say the Plug and Play Tech Center, founded by Saeed Amidi, out in Silicon Valley. Saeed has put together all the necessary elements for success, and has included links with universities, private funding, networking events, corporate partners, and a host of services for his client companies to ensure success for all residents of Plug and Play. It’s an outstanding example of a well-run, well-planned program in the private sector, and frankly, this model would succeed outside of Silicon Valley, if planned in the proper format for the location of choice. If I had to name another one, Idealab is good, too.

VH: What common mistakes do would-be incubators make when forming incubation programs?

ML: Finally, an easy question. NOT PLANNING AHEAD and not doing the “groundwork” in advance. Too many people think incubation is simple – let’s just get a building, put an “Incubator” sign up front, and “if we build it, they will come”.

Guess what – they don’t! It takes careful study of the entrepreneurial environment to pre-determine your needs:

• Will you need “wet” labs?
• Will you need basic management training seminars?
• Where’s the capital going to come from for your clients?
• Will you need significant organization of a local angel network, or does it already exist?
• After the initial group of clients, where will you “fill your pipeline” continuously over the years?
• Where will your clients graduate to for future space requirements?

All these factors need to be determined up front, not after you built a building.

Want to invest in incubator companies instead of starting a facility? Check out part 1 of the interview, Investing in Incubator Companies: The How and The Why.

Link:

• Long Performance Advisors