Small Business Creation Can Create Merchant Class Critical to Poverty Fight

Few distressed neighborhoods are creating the number of small companies they should.  While the majority of residents working to achieve economic equality will do so by working for other people, true economic equity cannot be achieved with the development of a merchant class in these distress communities.  A prime tool to support the development of small business is the creation of business incubators.  Business incubators address the high failure rate among small and medium size enterprises in the developing world estimated at approximately 75% within three years. Researchers conducted a study to examine nine incubator programs with a total of 175 incubated businesses in Missouri and it revealed evidence that these businesses had created 502 jobs in total, or an average of 60.5 jobs each.   Finally, researchers reviewed the impact of a business incubator model on global economies such as Germany and found a direct correlation of growth in their Gross Domestic Product.  Supporting the growth of business incubators can also be tied to the development of Revolving Loan Funds that can support small business creation by providing a ready, available source to capital. 

The first business incubator is believed to have originated in New York as Batavia Industrial Centre in 1959. Business incubators are defined as a business support process that accelerates the successful development of start-ups and fledging companies by providing entrepreneurs with an array of targeted resources and services. Well over 1,000 business incubators exist in the United States today and globally it is estimated there are 17,000 business incubators. 

Business incubation services can be divided into three categories: preincubation, incubation and post incubation.  These services incorporate different processes and procedures that govern the incubator-incubate tenant relationship and illustrate an end goal of helping the startup company not just succeed but to not need the support of the business incubator over a period of time. Pre-incubation services includes the process of attracting, applying for the business incubator, and vetting of potential tenants of the incubator. The terms and conditions including agreement on rent payment, duration in the incubator and use of the facilities. Incubation includes support from idea crystallization and development, prototype building to commercialization. Key performance indicators include progress reports, gaps identification and filling with the help of incubator management, networking, financing, marketing and business acceleration. Post incubation this is the period after graduation from the incubator where the tenant business has exited the incubator and follow up on progress by the incubator staff to monitor progress and maintain relations with previous tenant firms through virtual or visits to incubator seminars and workshops.

Business Incubation is a model of building entrepreneurial capacity; it provides start-ups with networks for building relationships. Incubators offer training, business support, technology support, infrastructure and mentoring which are critical for survival start-ups without much capital to develop into a full fledge enterprise. Incubators provide work space, furniture, legal, back office services that incubates need not worry about, and business incubators can focus on developing technology companies or small business in other industry sectors. Technology and business incubators also have a set of services they provide to small companies starting up, including:

  • Business planning, ranging from introductory courses such as those provided by the SBDC, to individualized assistance in developing business plans;
  • Coaching and mentoring assistance, which may include service provider referrals, one-on-one coaching, industry mentor programs, and advisory boards;
  • Financial advisory services, including budgeting assistance and help in identifying or obtaining capital;
  • Market development assistance, including market research, advertising and public relations support, and contract procurement. Some organizations have sponsored reverse trade shows to promote business to business or business to government sales;
  • Export assistance, partnered with state export assistance resources;
  • Networking opportunities to develop sales leads, foster collaboration among entrepreneurs, and build mentoring relationships; and
  • Software addressing business needs such as planning, marketing, human resources, and accounting.

The creation of a business incubator is a common Technology Based Economic Development strategy. Technology Based Economic Development initiatives are attractive because they create high wage “multiplier” jobs with companies in the growth mode for the Information Age economy. Half of the jobs created in the United States recently have been done so by firms that did not exist a decade ago. Many of these jobs were born in the high-tech revolution that boomed in the 1990’s and continues today. 

Fortunately, both business incubators and Revolving Loan Funds are eligible for funding from the $1.5 B in U.S. Economic Development Administration and $5B in U.S. Community Development Block Grant funding from the federal stimulus package.  The completion of a regional Community Economic Development or CEDS strategy and a business incubator feasibility study is required before the U.S. Department of Commerce’s Economic Development Administration will award funding for a facility. A business incubator feasibility study should identify the incubator structure design for promoting the creation of new high-wage jobs through company creation with emerging technology and small businesses.

Some states are also targeting investments in destressed communities to support company investments.  The JobsOhio Inclusion grant provides financial support for eligible projects in designated distressed communities and/or for businesses owned by underrepresented populations across the state.  Small to medium-sized companies in JobsOhio’s targeted industries and business functions not including retail and other population driven businesses owned by racial minorities, woman or veterans in an economically distressed area are the targets for this program.  Projects require a commitment over time and will be defined by an appropriate combination of the following metrics: fixed asset investment, job and payroll creation, job and payroll retention, employees trained and training costs. Eligible projects that improve operational efficiency along with job retention will be considered for support.  The JobsOhio Inclusion Grant targets fixed asset investment in machinery and equipment, real estate investments including redevelopment, and training costs.

Montrose Group is engaged with several communities and companies focused on economic equity projects and please contact Dave Robinson at if we can help your company or community address these issues.