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Business incubators, known as business "accelerators" in Europe, serve as homes and training grounds for new companies, providing them an affordable start-up environment and a variety of administrative, consulting and networking services.
When President Obama came to Cleveland on Feb. 22 to talk about ways to help small businesses, Sen. Sherrod Brown used the opportunity to tout legislation he has written called the Business Incubation Promotion Act, which would help create more business incubators in hard-hit regions of the country.
In an opinion piece he penned for The Plain Dealer, Brown said: "For every $10,000 invested in business incubators, up to nearly 70 local jobs are generated."
An impressive success rate, we thought, and a potentially worthwhile investment -- if true.
So we decided to put Brown’s claims through the Truth-O-Meter.
Brown spokeswoman Meghan Dubyak directed us to an independent 2008 study commissioned by the U.S. Department of Commerce’s Economic Development Administration.
In its report, titled "Construction Grants Program Impact Assessment Report," Grant Thornton LLP, an audit, tax and advisory organization based in Chicago, updated and improved on a 1997 EDA study performed by a team of Rutgers and Princeton university economists.
The study concluded that "EDA's strategic focus on innovation and entrepreneurship makes sense, in that investments in business incubators generate significantly greater impacts in the communities in which they are made than do other project types."
The majority of the literature we found on the subject supported the Grant Thornton study’s conclusions, and the field of business incubator press clippings are ripe with success stories. In 2000, for instance, The Los Angeles Business Journal reported that companies launched in incubators remained in business after five years 87 percent of the time, compared to only 20 percent of all new business start-ups reaching the five-year mark.
The advantages of incubators includes shared operating costs, consulting and administrative assistance, improved access to capital, legitimacy in the community, and the support of fellow entrepreneurs, according to the Reference for Business, the Encyclopedia of Small Business.
Conveniently, the National Business Incubation Association is headquartered in Athens, Ohio. Over the past year, Brown has trumpeted EDA grants of more than $12 million for Ohio start-up businesses and incubators, including JumpStart Inc. of Cleveland, Kent State University and the Community Improvement Corp. in Tuscarawas County, the city of Twinsburg, and the Barberton Community Development Corp.
Such local support for business incubators is vital, based on the Grant Thornton study’s findings that about 84 percent of incubator graduates establish their businesses within 20 miles of the incubator facility.
The study’s findings support Brown’s claims of "nearly 70 local jobs" generated per $10,000 EDA investment in business incubators. The exact range is 46.3 to 69.4 jobs per $10,000, which far out-distances jobs generated by other federal projects such as commercial structures (9.6 to 13.4 jobs generated), roads and other transportation (4.4 to 7.8), industrial park structures (5 to 7.3) and community infrastructure (1.5 to 3.4).
The study concludes that money spent on business incubators appears to have the largest correlation with future economic growth. "In this context, it can be seen that EDA’s strategic emphasis over the last several years of entrepreneurship makes sense in terms of its jobs figures."
On the Truth-O-Meter, we rate Brown’s claim as True.
The Plain Dealer, "Lessons from a comeback city," Feb. 22, 2011
Grant Thornton LLP, "Construction Grants Program Impact Assessment Report," study for the Department of Commerce, 2008
National Business Incubation Association
CNBC Magazine, Hatching A Revolution, November 2010
Reference for Business, Encyclopedia of Business, 2nd Edition, Business Incubators
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