Hatching Ideas

Dec. 21, 2004
Incubators provide resources that allow manufacturing entrepreneurs to emerge.

Howard Alliger, president of Farmingdale, N.Y.-based Frontier Pharmaceutical Inc., needed someone to test a new bacteria-fighting toothpaste he had developed. But he didn't bother to ship the product to a large, out-of-state microbiology testing firm. Instead, he simply walked down the hall of the 6,000-sq-ft facility that housed his business and asked his neighbor Lorrence Green of Westbury Diagnostics Inc. to do the testing. Green and Alliger are tenants in a manufacturing incubator that is part of the Long Island Forum for Technology (LIFT), which opened in 1996 and houses eight manufacturing companies. Both credit the organization for helping develop their businesses and bringing small-business entrepreneurs together in an economically depressed area. While many venture capitalists continue to invest large amounts in dot.com start-ups and ride the Internet wave up as well as down (high-profile Chicago-based VC divine interVentures reported a $44 million first-quarter loss in July), less-known manufacturing incubators, mostly funded through local economic development departments, have been quietly but successfully nurturing new manufacturing companies in promising industries. Most business incubators are "mixed-use," which means they house a variety of clients including manufacturing, service, and technology companies, says Dinah Adkins, executive director of the National Business Incubation Assn. (NBIA) in Athens, Ohio. Firms that start out in incubators typically increase sales by more than 400% from the time they enter until the time they leave the facility, and the average annual growth in sales per firm in all types of incubators is $239,535, according to a 1997 study by NBIA. "Business incubation is geared primarily to creating new firms and new jobs," says Lawrence A. Molnar, a member of the research team for the 1997 survey and director of the EDA University Center for Economic Diversification, University of Michigan Business School, Ann Arbor. "In an economy where new businesses are creating far more jobs than existing corporations, it's important for communities to have business-creation strategies in place." Manufacturing incubators such as LIFT, the Immokalee Innovation and Technology Center in Immokalee, Fla., and the Corry Industrial Center, Corry, Pa., have moved into rural and struggling economic regions to provide lower-cost rent; access to facilities and equipment such as computers, copy and fax machines, and conference rooms; and professional consultation at minimal or no cost for start-up manufacturers. Rent at LIFT ranges from $10 to $17 per sq ft, which is slightly below the market rate on Long Island, according to Patricia Howley, director of operations for LIFT. But Howley says those rates increase with longevity to encourage businesses to move out on their own. Westbury Diagnostics' Green says the cost of rent isn't what brought him to LIFT. "The important point is that there are lots of things that are supplied that we don't have to pay for," says Green. "These include water, utilities, fax machines, and copy machines. We also have access to many of the facilities of the college [State University of New York at Farmingdale], the most important being the library. To me, it isn't so much the lower rent that makes this a successful incubator as it is the accessibility to lots of intangibles." Good neighbors, business benefits Like Green and Alliger, many tenants take advantage of the supply-chain opportunities offered at incubators. "The big thing here is camaraderie," Green says. "LIFT has done an outstanding job in creating an environment where the companies really do interact. We have eight companies here and we share things. We actually look into all sorts of business opportunities that may have nothing to do with the companies that we're running just because we've established some pretty good relationships. And I think that's unique." For example, the American Society for Microbiology in Anaheim, Calif., asked Green to make a presentation on his findings on the toothpaste this spring at a convention where several members of the news media were in attendance. As a result, Alliger, who was Green's guest at the convention, received more than 150,000 hits on his Web site and now has a backlog of about 1,200 orders for his toothpaste DioxiBrite. Alliger is now looking for his own space since his business has outgrown the incubator. "That's what started us out," Alliger says. "Without [Green] at this incubator we'd still be scratching." In Florida, Larry Fox, the owner of a precision CNC production company, Global Manufacturing Technology Inc., helped raise $4 million in grants to develop a 6,000-sq-ft facility at Immokalee Regional Airport's Industrial Park and Foreign Trade Zone, and to turn it into an incubator for tenants that would benefit his own business. Fox filled the incubator with complementary companies such as a welding and fabricating company, a shipping service, and a manufacturer of water filtration devices, which has provided some design work for Global Manufacturing Technology. The filtration company, Hydro-Guard Environmental Enhancements & Technologies USA Inc., joined the incubator for many of the same reasons Alliger and Green joined LIFT. "One of our supply-service companies is also located in the incubator where we're located. We have a certain amount of machine work that we need done on plastic and metals, and they're able to do that right there on site in the same building as us," says Thomas M. Taylor, president and CEO of Hydro-Guard. Aside from in-house collaboration between companies, the tangible benefits -- office supplies, conference rooms, and secretarial assistance -- and the intangibles such as mentoring and professional guidance are extra incentives for entrepreneurs to join incubators. Richard Novotny, manager of the Corry Industrial Center, says start-ups often do not account for the bare necessities. "There have been times when I've cleaned off my desk and said, 'Look, if you want to make an impression, it's not that I have a great office, but use it and let them think this is your office,'" Novotny says. "It's really not just one thing; it's a host of different things, and you never know what the guy needs. . . ." John Bundas, president of Northwest Industries Inc. at the Corry Industrial Center, says the office assistance allowed him to focus more on business operations. "The advantage of the incubator we were in was lower-cost electric and peak-demand electric. Also, you had a receptionist there to answer phone calls, so you could concentrate on actually doing the work," Bundas says. Alliger says the business and computer symposiums at LIFT were an asset along with the cafeteria, which allowed more opportunity for tenants to collaborate and socialize. Economic development Immokalee, which means "my home" in the Seminole language, is a farming community approximately 40 miles northeast of Naples, Fla. It has a population of about 19,000, which grows to 30,000 during the farming season. The unemployment rate is more than three times the national average, and more than 50% of the population lives in poverty, says Greg Mihalic, director of Housing and Urban Improvement for Collier County. The region's workforce comprises mainly low-income migrant workers. Funded through a grant from the U.S. Dept. of Agriculture and a loan by the Collier County Board of Commissioners, the Immokalee Manufacturing Incubator was developed to diversify the region's economy and to create jobs. Fox moved his company, which manufactures a variety of products from aircraft tools to motorcycle sprockets, to the facility and began to manage it. The incubator opened in September 1999 housing four manufacturing companies at a designated industrial park and a foreign trade zone at the Immokalee Regional Airport. "We [Global Manufacturing] are building a small, diversified, high-tech industrial park in an economically depressed area with the vision and the thought that we will be able to employ, hire, and train highly skilled workers and actually get their wages and incomes up," Fox says. Another 10,000-sq-ft facility is in the works for the incubator, which also will be managed by Fox and is already nearly fully leased. This facility will include a customs facility, a bonded warehouse, and a foreign trade zone, Mihalic says. Pennsylvania's Corry Industrial Center is part of an incubator network in Erie County that is composed of four separate incubators. After a slow start in 1990, the 24,000-sq-ft facility was filled by 1993 with five new businesses. Although the incubator has added only 172 new jobs to the community since 1992, Novotny says in proportion to the population of 7,200, it has been fairly successful. The incubator also attracts other businesses to the area. "It's kind of like a bee's nest, in that when you have an area that's busy and things are happening, it attracts more things to happen . . . ," Novotny says. The Corry Industrial Center has brought $7.1 million in capital investments to the community and has graduated 14 tenants, including Thermat Precision Technology Inc., a precision metal injection manufacturing company that holds rights to more than 35 patents worldwide. Thermat started with three employees, and before merging with Minneapolis-based MedSource Technologies Inc. in April it was up to 60 employees. Novotny predicts that employment will grow to about 200 now that it has merged with MedSource. Incubators also can encourage the local workforce to stay put. Green says LIFT gave him an opportunity to remain on Long Island, where he had lived for 12 years, after his previous employer was acquired by an out-of-state company.

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