STRATEGIC FRAME WORK FOR COMMERCIAL REVITALIZATION
Part II of an Exploratory Study to Establish a Special Improvement
District on Springfield and South Orange Avenues, Newark, NJ
Report to the Corinthian Housing Development Corporation and New Community Corporation
May 11, 1998
Business Incubators
Business incubators provide entrepreneurial and management resources and services in an effort to accelerate their development and success. The goal is to produce financially viable and independent firms that have the potential to revitalize communities and strengthen local, state, and national economies by creating new jobs and generating tax revenues.
A study by the University of Michigan Business School of 50 business incubation programs found that:
- Incubated firms help create many new jobs. Incubators reported that in 1996 each firm, on average, created 13 jobs.
- The estimated public subsidy cost per job created was $1,109.4
- Business incubation programs produce graduate firms with high survival rates. Eighty-seven percent of firms that graduated from their programs since inception5 were still in business in 1996.
- An average of 84 percent of graduating firms remain in their local communities.
- Incubation contributes to a client firm's success and expands the community's entrepreneurial resources. Sixty-six percent of incubated firms rated the incubator as important or very important to their success.
- Community stakeholders and incubator managers unanimously rated incubators as effective in improving community and neighborhood image. They reported that incubators made positive impacts beyond direct incubator activity. These included retaining healthy businesses in the community, strengthening opportunities for student jobs and internships, and enhancing the area's business climate.
Most incubators provide office and work space to young firms, often at a reduced rate, and the majority also offer shared basic administrative services (i.e. secretarial and phone services) and equipment (i.e. fax, copy machines). Incubator managers and staff develop and provide technical assistance, business services, and management consulting. Some services are offered in-house, while others are offered through an outside network of resources and contacts.
The New Communities Corporation has begun plans for a business incubator in the distressed West Side Park area. Neighborhood businesses face challenges such as high unemployment, lack of investment, and a lack of access to capital. The empowerment/micro-enterprise incubator model seeks to foster the growth of businesses located in similar troubled communities. Empowerment incubators often target low-income, minority, and women-owned businesses. The goal of these incubators is to stimulate revitalization by providing intensive entrepreneurial assistance and resources to nurture new businesses and create new jobs. This assistance may include business plan writing workshops, credit counseling, or networking and marketing assistance. Incubators may forge partnerships with lending institutions and potential investors. They may also create co-provider, co-bidding, joint selling or distribution arrangements for their firms. It would be difficult, if not impossible, for an individual firm to create such a vast network of services and resources on its own (Molnar, 1997).
Summary of Alternative Funding and Program Sources
A combination of these resources, such as utilizing UEZ funds to make grants and low-interest loans available, has been a successful option utilized by communities researched. The implementation of a Neighborhood Preservation Program coupled with the support of PSE&G and other private investors could generate the long-term momentum necessary to sustain Special Improvement District. No one program has led to success - multiple sources are needed.
While all of these programs are certainly viable solutions, they all require two fundamental aspects of community planning -- initiative and consensus. It will take everyone in the community - residents, business owners, City Hall, the non-profits and the private sector believing in the neighborhood to make it work.
4The study notes that even if one-half of all jobs credited to incubation programs would have been created without the incubator, the public subsidy cost per job would be only $2,218, which compares quite favorably with other business development programs.
5The incubators included in the survey were, on average, established in 1987.
