The most difficult part of starting a small business is, of course, starting. But a growing network of business "incubators" has sprung up to provide a warm and cozy place for infant firms to gain strength and face the world.
Incubators give entrepreneurs a place to set up shop, usually for below-market rent, and get free or discount access to a variety of services. Incubators offer on-site assistance that includes marketing, legal and accounting advice; laboratories; administrative services; and copy machines. Often there's a stringent review process for admission to an incubator, and a one- to four-year deadline by which the company must graduate and operate on its own.
According to the National Business Incubation Association (NBIA), companies that have graduated from incubators have a greater chance of survival than the typical small business. A recent study showed that 87 percent of incubator graduates survive for five or more years, while nationally only about half of all small businesses make it to four years. This success rate has led more universities, municipalities and even private companies to get into the business of helping others get into business.
"They are also very affordable programs for communities -- the cost per job created is low," said Sally Hayhow, director of publications for the NBIA. "A lot of people feel this is a no-lose situation."
The group said there are nearly 600 incubators in the country, compared with just 12 in 1980. In the Washington area, the concept of incubators was slow to catch on -- until now. The rapid creation of high-tech firms here is spawning a new group of tech-based incubators and helping existing ones expand.
The oldest and best-known of the area's incubators is the Technology Advancement Program at the University of Maryland in College Park, which recently moved into a new building with state-of-the-art labs. Its graduates include Digene Diagnostics and Martek Biosciences.
"We try to focus on companies who would really derive a boost from being here and would benefit from the research facilities" at the university, said Edward Sybert, director of the incubator. The program's funding comes from state and local grants and fees paid by the incubator companies.
The Maryland Technology Development Center, a Rockville incubator run by the state and the nonprofit High Technology Council, has expanded into a new building. And Phase 1, a private high-tech incubator in Laurel, will graduate its first two companies this fall.
Elsewhere in the region, incubators are in various stages of research and completion. In the District, contractors are putting the finishing touches on the Small Business Incubator, a public-private facility in Adams-Morgan that will cater to three types of companies: day care, hospitality and technology.
For tech entrepreneurs looking for capital -- and who isn't? -- two new groups are setting up in the District to incubate and fund tech start-ups. Internet Enterprises Inc., an incubator that opened in February, now houses four fledgling Net companies and is looking for four more by year-end.
TechBank, which calls itself "a merchant bank for the new economy," is looking for space downtown or in the close-in suburbs to do much the same thing: provide seed capital for software entrepreneurs, and then run their businesses while the entrepreneurs develop products.
"If you have some twentysomethings coming out of a dorm room, they don't know how to raise money or put a company together," said Mary Nugent, a principal with TechBank. "This accelerates the time to market -- and with the accelerated business cycle, you can miss your market in three months."
There are other incubators on the way, too. Friedman, Billings, Ramsey Group Inc., the Arlington investment bank, is setting up a high-tech incubator, and a group of investors that includes Washington entrepreneur Jonathan Ledecky is planning to sell stock to the public in an incubator venture. The Ibero American Chamber of Commerce recently got a grant from Virginia to study the feasibility for an incubator in Arlington that would focus on Hispanic businesses.
Other groups also offer valuable assistance to entrepreneurs, even if it's something less than full incubation. The nonprofit Center for Innovative Technology in Virginia, for example, helps run an "incubator without walls," said Catherine Renault, the center's managing director for technology commercialization. It's a way to to provide assistance to start-up businesses outside the confines of an actual incubator, she said.
"There are always more dreams than there is management talent, and we try to help sort that out," she said.
Local Business Incubators
Maryland Technology Advancement Program
High technology and biotechnology
Can accommodate 15 companies; not quite full
Technical and business review by a panel of experts. Company can be in formation during review but must exist to enter the incubator.
Companies pay a monthly fee; TAP takes a stake in the company of 1 percent per year in the incubator.
Maryland Technology Development Center
High technology and biotechnology
Currently has 14 businesses; by end of year should be full, with 18 to 20 companies.
Applicants must submit a business plan, then meet with an advisory panel to discuss plan, management team and financial projections.
Negotiated. Companies pay monthly rent and can either pledge royalties on future sales or give up a stake in the company.
Phase 1 Business Incubator
Four companies; currently full, but two companies should graduate this fall.
Strong business plan a plus but not required; main review is "intensive interviewing."
Companies pay no rent. Phase 1 gets 3 percent to 5 percent stake.
Small Business Incubator
Day care, hospitality/tourism and high tech
Can accommodate about 20 or more businesses; nine currently enrolled.
Interviews with the board.
Negotiated. Some businesses will give an equity stake; others will pay a modest fee for the incubator's services.
Internet Enterprises Ltd
Four current businesses, looking for four more by end of year; room for more later.
Interviews with founders and meetings with businesses in the incubator. Must have high likelihood of being commercialized.
Incubator provides seed capital and other financing and takes an equity stake, to be negotiated; businesses pay a monthly fee.
Looking for space in close-in Northern Virginia or D.C.
Ten businesses, none chosen yet
Interviews with principals, discussion of business plan.
TechBank provides seed money and takes 75 percent stake; when it as made back 75 percent of its investment, its interest drops to 25 percent.