BUSINESS INCUBATORS NURTURE STARTUPS TO DEVELOP INTO COMMERCIAL REALITIES

BYLINE: Andrew Johnson, The Arizona Republic

Mark Banister and his business partners had an idea to make a disposable pump for delivering liquid drugs to patients, but they knew they were going to need outside help to turn their potential innovation into a successful business.

Enter the Tucson-based Arizona Center for Innovation, a high-tech business incubator founded in 2003 to help early-stage companies like Banister's Medipacs LLC.

The center is one of a handful in the state that aim to nurture startup companies by giving them office and lab space, business-development services and support.

Having access to those resources can make or break new companies, according to small-business advocates.

They point out that incubators also connect budding entrepreneurs with others who are encountering the same challenges and lend them credibility that can help land partnerships with investors.

"It's a real address. It's a real place," said Molly Gilbert, director of tenant and public relations at the University of Arizona Science and Technology Park, home to the Arizona Center for Innovation.

"People have heard of the tech park, and it gives them this tangible, reputable piece," she continued. "It's not just something going on in their garage, not that there's anything wrong with (that), but that this is a real business focused on business."

Banister added, "What has helped us here is it's almost like going to school to learn how to do this." Banister serves as president of Medipacs.

For the second year in a row the company is one of three businesses nominated for the Innovator of the Year award in the startup category of the Governor's Celebration of Innovation contest next month.

Survival rate

The National Business Incubation Association says that 87 percent of businesses that participate in members' programs are still operating after they graduate. The rate of demise is just as high for startups that do not participate.

The association also states that incubator clients and graduates create about $30 in local tax revenue for each dollar the programs spend in public investment.

While each one is different, most programs select businesses based on their potential for success and knowledge of operating a business.

For example, the Northern Arizona Technology and Business Incubator in Flagstaff looks for businesses that have a realistic business plan, a clean credit history and enough financial resources to remain in business for at least six months.

"We need to be adding value to what those clients need and providing them the resources that are going to help them be successful," said Will Ott, president and CEO of the incubator.

Don Richardson attributes part of his telecommunications business' success to the Northern Arizona Technology and Business Incubator.

Such programs can guide entrepreneurs "around the landmines associated with starting up a business," said Richardson, president, CEO and co-founder of Aspen Communications LLC in Flagstaff.

In 2005, Richardson's 16-employee company reported $3.6 million in revenue. The company has experienced double-digit growth each year of its existence, Richardson said.

Currently, the Northern Arizona Technology and Business Incubator does not have physical space for clients, but it plans to build a facility with a minimum of 10,000 square feet, according to Ott.

Office space

Incubators such as the Arizona Center for Innovation charge clients $750 per month for office space and typically limit clients to two years in the program.

Companies that use the center's shared lab space also pay $420 per month.

Instead of charging rent, the business incubator at Thunderbird, the Garvin School of International Management in Glendale takes a 10 percent ownership stake in the companies.

That approach benefits early-stage businesses because it saves them money, said Robert Hisrich, director of Thunderbird's Center for Global Entrepreneurship, which oversees the program that was started in April.

"I've started companies myself and one thing we always need to do is control our cash," Hisrich said. "This is definitely very good to them because they don't have to pay any rent."

Hisrich also noted that the approach is an incentive to work fast to make participating companies successful because the center does not get a return on its investment until a business is generating revenue.

The Edson Student Entrepreneur Initiative at Arizona State University in Tempe gives student companies free office space in a 2,500-square-foot building near campus and seed money to grow their businesses.

The incubator was started in 2004 and provides about $200,000 in seed money annually, according to program manager Patrick Duran.

Unlike some business incubators, the Edson program accepts both for-profit and non-profit entities.

"I think the best thing about the space itself is you're surrounded by other young people who are working to create that same vision," said Courtney Klein, executive director of Youth Re:Action Corps, a non-profit organization that works with high schools to identify community-service opportunities.

Klein is in her second year in the Edson program, which she said has allowed her to fine-tune her business plan and turn her vision into a "full-functioning non-profit organization that has a full-time staff and programs in two states."

Even entrepreneurs who are not ready to be incubator clients still can benefit from talking to business experts about their idea, said Marie Wesselhoft, interim director of the Arizona Center for Innovation.

"The good answers during incubation are yes, no and not now," Wesselhoft said. "You come to a point where your prototype is either commercially feasible or it isn't. So that's why an incubator exists."

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Incubation at a glance

* There were more than 1,400 business incubators in North America as of last month, compared with 12 in 1980.

* About 90 percent of North American incubators are non-profit organizations trying to spur economic development and about 10 percent are for-profit groups.

* For every 50 jobs an incubator client generates, about 25 more jobs are created in the same community.

* National Business Incubation Association members say that 87 percent of companies that have graduated from their companies are still in business.

* Association members also report that 84 percent of clients remain in their communities and continue to provide a return to their investors once they graduate.

Source: National Business Incubation Association

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Reach the reporter at (602) 444-8280.