2005 WBIA Conference Growing Wisconsin Entrepreneurs: Beyond Borders, Beyond Buildings Michael J. Malcheski Malcheski International Consulting 727 Henry Street Prescott, WI

WBIA Conference Growing Wisconsin Entrepreneurs: Beyond Borders, Beyond Buildings Why Start an Incubator? Definition of an incubation program: –A comprehensive program of entrepreneurship training, education, promotion, business startup and ongoing business growth technical assistance delivered by and through a locally determined demand for technical assistance and space utilization for business creation and development by an organization dedicated and committed to such activities for the benefit of the local economy with partners and stakeholders for the long term.

WBIA Conference Growing Wisconsin Entrepreneurs: Beyond Borders, Beyond Buildings Why Start an Incubator? –Multiple good reasons: Diversify the local economy Respond to business closings Improve business opportunities Create jobs at a faster rate Serve a targeted population

WBIA Conference Growing Wisconsin Entrepreneurs: Beyond Borders, Beyond Buildings Why Start an Incubator –Have an entrepreneurial climate of technical assistance & support –Local organization willing to take the time and effort to organize and implement WITH dedicated staff time –A local “champion” who spearheads the community involvement process

WBIA Conference Growing Wisconsin Entrepreneurs: Beyond Borders, Beyond Buildings Why Start an Incubator? –A committed support network of professionals who are dedicated to the long term effort AND understand the need for dedication –Money available to provide for proper service to clients, tenants, and to cover operational expenses – A building-in most cases-that is reasonably useful to house the operation without massive renovation costs, the exception is an incubator without walls

WBIA Conference Growing Wisconsin Entrepreneurs: Beyond Borders, Beyond Buildings Why Start an Incubator? –A demand for space that can fill a facility and provide for positive cash flow regularly based upon a feasibility study –A Board of Directors who actively work in support of the project, socially, financially, and operationally –Tenants who can pay rent AND who understand that benevolent TA and management oversight are part of the value added service they get and they must participate in

WBIA Conference Growing Wisconsin Entrepreneurs: Beyond Borders, Beyond Buildings Why Start an Incubator? –Feasibility You have a DEMAND based feasibility study that tells you what your potential space opportunity is based upon about an 80-85% lease up for break even point –Also tells you whether the existing and startup entrepreneurs want and will USE the TA, the facility and its services This will show the need. It is survey based and should be considered as accurate hard numbers. A niche to fulfill with a specialty, i.e., women and minority entrepreneurs, high tech, specialty manufacturing, spin-offs,

WBIA Conference Growing Wisconsin Entrepreneurs: Beyond Borders, Beyond Buildings Why Start an Incubator? –Feasibility –Anchor tenant that can smooth out the cash flow fluctuations –Financing arrangements/partners for tenants and associates –Feasibility study based business plan for the incubator for three years, revised regularly to reflect fluctuation in tenants and cash flow

WBIA Conference Growing Wisconsin Entrepreneurs: Beyond Borders, Beyond Buildings The Feasibility Study –Components –Surveys of the stakeholders, service providers and potential tenants & affiliates –Should be used as commitments as much as possible –Review of existing available space and its quality –Demand for new space –Business technical assistance provision –Location, mix, & niches of existing businesses

WBIA Conference Growing Wisconsin Entrepreneurs: Beyond Borders, Beyond Buildings The Feasibility Study –Components –Manager and staffing costs –Construction or rehab costs –Pre-calculated break even XX% of lease based on total space –Depreciation –Building maintenance –Property tax liability

WBIA Conference Growing Wisconsin Entrepreneurs: Beyond Borders, Beyond Buildings The Feasibility Study –Components The Financial Feasibility –Long term Capital improvements plan –Legal action to recapture due rents Exit plan –Loss of support and resources –Development of a new facility

WBIA Conference Growing Wisconsin Entrepreneurs: Beyond Borders, Beyond Buildings The Feasibility Study –A Capital Budget. Start-up Financing. Building Design Issues affecting costs, size and codes. –An Operating Budget. Cash Flow-Alternative Profit Centers. Deal Flow. The key goal is positive cash flow at less than full occupancy.

WBIA Conference Growing Wisconsin Entrepreneurs: Beyond Borders, Beyond Buildings The feasibility study –Potential Sources of Funds Equity funds U.S. Department of Commerce, Economic Development Administration (EDA). U.S. Department of Agriculture-Rural Development. U.S. Department of Health and Human Services, Office of Community Services (OCS). Wisconsin Department of Commerce. Local Financing--Tax incremental finance districts. Debt from local financial institutions.

WBIA Conference Growing Wisconsin Entrepreneurs: Beyond Borders, Beyond Buildings The Feasibility Study Other potential niches –food production –targeted industry-such as arts incubator –video conference center where none exists, –training/educational center –geographic or environmental strategic advantage

WBIA Conference Growing Wisconsin Entrepreneurs: Beyond Borders, Beyond Buildings According to State CBED legislation an incubator must meet two of the following four criteria: –Provision of below market rent. –Access to shared services Telephone, copier, facsimile, computer equipment, audio- visual equipment, and/or conference room –Access to management/technical assistance Business planning, market research, loan packaging, accounting/bookkeepping,etc –Access to capital.

WBIA Conference Growing Wisconsin Entrepreneurs: Beyond Borders, Beyond Buildings Rural versus Urban Incubation –Difference in opinions about viability of incubation –There are success in each area –Western Dairyland EOC is a great example of w/o walls success. –WBIC a rural incubation program with facilities –The critical aspect is the program of nurturing and generating entrepreneurs at a rate to fill space regularly

WBIA Conference Growing Wisconsin Entrepreneurs: Beyond Borders, Beyond Buildings Rural versus Urban Incubation –Difference in opinions about viability of incubation –There are failures in each area; –Loss of support by a operator, major contributor or partner –Organizational chaos –Lack of use of an operational plan of management –Bad decisions –Disinterest –Grandiose expectations

WBIA Conference Growing Wisconsin Entrepreneurs: Beyond Borders, Beyond Buildings Western Dairyland EOC – statistics 680 people trained 360 business plans started 188 businesses started/expanded 72 businesses $2.1 MM 254 new jobs created 371 FT/PT jobs created/retained 81% survival rate > 5 years

WBIA Conference Growing Wisconsin Entrepreneurs: Beyond Borders, Beyond Buildings Wisconsin Business Innovation Corporation –Created in 1996 by NWRPC to promote innovation and technology transfer in the northwest region of the State. –Role expanded to rural areas statewide –Manages a network of five Enterprise Centers and provides assistance to three others, representing combined space of over 258,000 square feet of gross leasable space.

WBIA Conference Growing Wisconsin Entrepreneurs: Beyond Borders, Beyond Buildings Why Start and Incubator? –Incubation does NOT fail –The organization doing incubation fails because it does not follow the formula for successful operation of an incubation effort –Incubation is NOT a building, it is a PROGRAM. –The VISION is critical & sets the tone for the effort for future accomplishments –Board MUST be retrained in its responsibilities at every personnel change

WBIA Conference Growing Wisconsin Entrepreneurs: Beyond Borders, Beyond Buildings Why Start and Incubator? –More information is available from –WBIA’s continuing series of reports –Incubator managers –The NBIA bookstore –WBIA member incubator program operators