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

2005 WBIA Conference Growing Wisconsin Entrepreneurs:Beyond Borders, Beyond Buildings

Michael J. MalcheskiMalcheski International Consulting

727 Henry Street Prescott, WI. 54021

[email protected]

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• 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.

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• 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

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• 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

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• 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

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• 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

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• 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,

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• 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

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• 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

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– Manager and staffing costs– Construction or rehab costs– Pre-calculated break even point @ XX% of lease based

on total space – Depreciation– Building maintenance– Property tax liability

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• 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

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• 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.

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• 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.

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• 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

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• 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.

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• 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

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• 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

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• Western Dairyland EOC– 1992-1998 statistics

• 680 people trained• 360 business plans started• 188 businesses started/expanded• 72 businesses financed @ $2.1 MM• 254 new jobs created• 371 FT/PT jobs created/retained• 81% survival rate > 5 years

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• 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 1998.– 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.

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• 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

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• 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

Documents

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