The Challenges and Opportunities of Rural Incubators

Business incubators provide start-ups with below-market work space, shared office services, technical assistance, networking opportunities and financing. While there are hundreds of incubators in both rural and urban parts of the country, rural incubators face particular challenges to — and opportunities for — success:

• Challenge: Incubators are expensive to develop and operate. Sometimes the start-ups that move into an incubator are not able to pay rent, and usually there is an exit policy requiring businesses to move out of the incubator after a certain amount of time. Thus, cash flow can be a problem for incubators.

• Opportunity: One possible source of funding is a sponsorship from a corporation in a similar industry niche. Bill Steiner, Executive Director of the Northwest Pennsylvania Regional Planning and Development Commission, an Economic Development Administration funded district in Oil City, suggests trying to get a building donated to the community by a corporation to be used as an incubator. If this is not possible, Steiner recommends “pursuing an incubator program only if you have combined local, state and federal resources available to purchase a facility outright.” He also suggests developing a facility that has space for start-ups and existing small firms that need space for expansion. Steiner explains, “The more established firms will provide the cash flow which will sustain the incubator until such time as the new start-ups can carry their share of the financial burden.”

• Challenge: Some incubators do not have in-house financing services.

• Opportunity: To best serve their clients, incubators should offer a menu of finance options that can include a revolving loan fund, venture capital connections, federal loan guarantee programs and bank contacts.

• Challenge: Management consulting services are limited in rural areas and difficult to provide over large areas. Opportunity: In general, incubators should provide services not available elsewhere. If business development services are offered by another entity in the region, the incubator should develop a partnership with that provider and not waste resources on developing an in-house program.
• Challenge: Because rural areas have low population densities, they have limited entrepreneurial pools that are spread out over wide distances. Rural incubators often have difficulty getting clients that can be physically located in an incubator building.

• Opportunity: A traditional incubator may not be the best use of resources for some areas. A feasibility study that looks at costs, local demand and other factors should be conducted before deciding to proceed with a program. There are alternatives to the traditional form of incubator. If networking is the primary need of entrepreneurs in a rural area, incubators can achieve economies of scale by bringing together online as many organizations associated with the incubator (e.g., capital sources, purchasing and marketing networks, local colleges, business development service providers) with entrepreneurs in a multi-county region. Such “incubators without walls” (see March 2000 Digest for an example) can take many forms and can effectively leverage limited resources.

• Challenge: Incubators sometimes try to be all things to all entrepreneurs, which is nearly impossible, particularly with limited resources.

• Opportunity: There is value in developing a niche market incubator that has specialized contacts and industry expertise that are invaluable to entrepreneurs. The niche can be based on current industries in the area or the incubator can develop a new one (e.g., food production, high tech).

  By William Amt, EDFS Project Manager

  Resources

  The Art & Craft of Technology Business Incubation, National Business Incubation Association (NBIA), (740) 593-4230, www.nbia.org

  The Complete Guide to Federal and State Support of Business Incubation, NBIA, (740) 593-4230, www.nbia.org
  A Comprehensive Guide to Business Incubation, NBIA, (740) 593-4230, www.nbia.org

  Incubating New Enterprises: A Guide to Successful Practice, The Aspen Institute, (202) 736-5800, www.aspeninstitute.org

  November Index | Back Page | Next Page