Growing a Business

Randy Gunter started out as a university professor with a business idea. Like many would-be entrepreneurs, Gunter needed help transforming his idea into a viable company and his employer, the University of Central Florida, had an answer: a business incubator.

Business incubators help nurture young companies during the start-up phase of growth, when new businesses are most vulnerable. Often, they are compared to the incubator that people may imagine when they hear the word -- those that help babies make their way into the world.

"That's exactly what we do, with little companies," said Carol Ann Dykes, chief operating officer of the UCF Technology Incubator.

"The goal of most full-service incubators is to provide a complete environment to get (businesses) through the start-up stage faster and cost effectively," Dykes said.

The UCF Technology Incubator houses high-tech start-up companies centered on biotechnology, nanotechnology and virtual reality, among other things. And while Gunter's business plan is Web-based -- the premise is an online course on how to integrate education technology into U.S. schools -- it's not along the molecular biology lines of his start-up business neighbors.

While not a breakthrough high-tech company, Gunter's business, 21st Century Learning Solutions, addresses the growing divide between digital students and their non-digital courses and teachers -- specifically in the math and science fields. 21 CLS proposes to address the problem of fewer U.S. students venturing into STEM (science, technology, engineering and math) fields. In 1975, the U.S. ranked third in the percentage of students receiving STEM degrees, according to 21 CLS online, and now is 17th.

This widely viewed problem is a major reason why Gunter's business was accepted into the renowned UCF Technology Incubator -- named Incubator of the Year in 2004. Dykes described Gunter's business as affecting the long-term goals of the incubator by helping educate future scientists and mathematicians.

"It directly affects the pipeline of our other clients," Dykes said.

Need to incubate

According to the Small Business Administration, less than half of small businesses survive four years, with faulty business plans, bad location and tax-related problems among the widely cited reasons for business failure. However, organizations that have matured within an incubator seem to fair much better in the business landscape.

Bruce Wright, associate vice president for economic development at the University of Arizona, estimates that 80 percent of incubator businesses are successful after the first five years -- quite a turnaround from their non-incubator equivalents.

"The use of the incubator is instrumental in increasing the success rate of small start-up businesses," Wright said. "Particularly the high-tech businesses that are very complicated and capital intensive."

As a backer of start-up companies, the universities have a vested interest in seeing that the businesses become successful, but they are not the only interested group. City planners, government officials and other merchants all have a stake in the small-business market of a local economy, as do community members looking for employment.

And incubators do create jobs. The National Business Incubation Association estimates that in 2005 alone, North American incubators assisted more than 27,000 start-up companies, which provided full-time employment for more than 100,000 workers.

What's in it for the school?

While it's not difficult to see start-up businesses wanting to tie themselves to the credible name of their local university, it may not be as clear why schools would want to go out on a limb for fledgling businesses.

For starters, it benefits the students.

Jennifer Reid, a second-year graduate student, is currently an intern at the University of Arizona's Science and Technology Park -- a university-housed business incubator for technology start-ups.

"It's been a great experience to be part of a start-up company," Reid said. "How quickly things can change; heading off in a direction that you never anticipated."

Reid describes her internship as being designed, in part, for the professional science master's degree program in which she is enrolled -- a union that is a huge plus in the eyes of a student looking ahead to employment.

The company Reid is interning with is MSDx (Multiple Sclerosis Diagnostics, LLC) a start-up focused on improving the diagnosis of multiple sclerosis, which Reid says is currently an expensive and time-consuming process that is not always accurate.

"The goal is to have blood tests that test for specific antigens (molecules on the surface of a red blood cell)," Reid said of MSDx.

While learning more about molecules and the science field in general, Reid is also furthering her business skills -- the major focus of the incubator. Reid points out that she participates in market research, has learned the process of writing a business plan and was involved in intellectual property discussions.

"I would consider working for a start-up, but at the same time I wouldn't mind working for an established company," Reid said. "I'm glad to have exposure to what it's like at a start-up."

While an incubator helps students looking to gain real-world experience, other facets of the university benefit as well.

"We engage in a dialogue and discussion with our faculty members (at the University of Arizona)," Wright said. "Particularly those that we know are engaged in research in areas that might have commercial potential."

Once a faculty member's technology plan is deemed commercially viable, Wright says that they are taken step-by-step through the business process -- something that would likely not be an option if the school did not house the business incubator.

Universities are also playing a bigger role in the economic development of communities. With high visibility and community influence, Dykes said that universities are willing to play a key part in their local economy, though they need industry partners to make an impact.

"Research is just research unless it makes its way to the marketplace," Dykes said.

Call of the community

Universities do not venture into the incubation process with a get-rich-quick mentality. The process is not known as a profitable one and there is obvious financial risk involved with promoting companies that are just getting started.

"Incubators are very challenging to organize and manage," Wright said. "They're not typically money-makers."

Wright and Dykes both describe community support of incubators as a critical component to the process. This involves established business players to serve as mentors and experts, as well as other community volunteers such as attorneys and venture capitalists contributing advice and information.

Gunter's 21st Century Learning Solutions is one start-up that has taken advantage of this community assistance. Gunter says 21CLS has benefited greatly from local attorneys, banks and economic developers, contributing time and effort, pro bono.

"Corporate attorneys come in and sit with incubator clients for no cost," Dykes said. "Accountants, CPAs, a whole range of them come and help, give advice, guidance and suggestions."

With volunteerism gaining popularity in the U.S. -- California Gov. Schwarzenegger recently established the secretary of service and volunteering position within the Governor's Cabinet to answer the call for community service -- this aspect of the incubator equation may be the one to watch.

As for Gunter, thanks to the business incubator housed at his school, he is no longer a university professor with an idea, but instead a university professor with a thriving technology-based company.

"The incubator has been wonderful for us," Gunter said. "It is that simple."

Four Stages of Incubation

• Discovery stage: The inventor comes up with the idea and begins to develop the concept, invention, product or service.
• Technology development: The technology is evaluated for commercial potential, involving invention disclosure, trying to secure a patent, and doing a proof-of-concept analysis.
• Business development: The incubation component where the concept is vested into a business and a business plan is put together.
• Full commercialization: The company is out marketing the product, producing the product and generating jobs, wages, shareholder value and so on.

Source: Bruce Wright, associate vice president for economic development at the University of Arizona.

Incubation Nation

• The National Business Incubation Association (NBIA) estimates that North American incubator client and graduate companies have created about half a million jobs since 1980. That is enough jobs to employ nearly every person living in the city of Denver.
• Research has shown that for every $1 of estimated public operating subsidy provided to the incubator, clients and graduates of NBIA member incubators generate approximately $30 in local tax revenue alone.
• NBIA estimates that in 2005, North American incubators assisted more than 27,000 start-up companies that provided full-time employment for more than 100,000 workers and generated annual revenue of more than $17 billion.
• Historically, NBIA member incubators have reported that 87 percent of all firms that have graduated from their incubators are still in business.

Source: National Business Incubation Association

*This story is from Converge magazine's Spring 2008 issue.