Conclusions

The results of the 2004 ARC survey of Appalachian business incubators help draw a picture of a growing economic and business development initiative involving approximately 85 incubator programs found throughout the ARC region. The measurable outcomes from the incubators that participated in this survey are notable, with almost 38,000 jobs created and almost 1,300 companies spun out of the incubators into surrounding communities. With the goal of reaching socio-economic parity with the nation, these results should garner interest in and support for business incubation in Appalachia.

In a number of respects, Appalachian business incubators are following the best practices of the incubator industry, such as providing extensive basic office and business assistance services, housing non-start-up tenants, and providing services to nontenant affiliates. On average, these programs are appealing to sufficient numbers of clients and tenants to ensure a high level of interaction and vitality among these participants. Furthermore, the programs are led by well-educated managers.

However, there are several areas of concern with Appalachian incubators. The most significant concern is related to the level of subsidy required by many of these programs. Only half of the surveyed programs are achieving financial self-sufficiency or even self-sustainability, leaving dozens of Appalachian incubators at the mercy of unreliable funding sources for their operating capital. This problem is compounded, as the average required subsidy is more than 50 percent of the incubator's annual operating budget. Other major concerns include the following:

• While the average Appalachian incubator is appropriately sized, the 2004 ARC survey reveals that 30 percent of the incubators are 15,000 square feet or less in size, meaning they are marginal in terms of their ability to become financially self-sustaining or self-sufficient, and they are perhaps too small to handle growth demands by tenants.
• Appalachian incubators, as a whole, are not charging adequately for their space (and probably, by inference, their other services). As reported, 57 percent of surveyed incubators indicated that they charge below-market rental rates.
• Appalachian incubators, while having well-educated managers, do not compensate those managers adequately. Appalachian incubators were twice as likely to pay managers a low salary, and half as likely to pay them a high salary, compared to NBIA national data.
• Appalachian incubators often rely on predetermined time limits in deciding when a tenant should move out, and just one-half of the incubators surveyed provide placement assistance to the companies exiting the incubator facility.

With the possible exception of the last finding, all of the others have a common thread: Appalachian incubators are limiting themselves, financially, by their own actions and decisions. Undersized incubators charging below-market rents, for example, cannot afford to pay their managers a competitive wage and must rely on operating subsidies that may come from unreliable sources.

In conclusion, Appalachian incubators as a whole are doing a lot of things right and are generating impressive company-graduation and job-creation statistics to prove it. One area needing attention, however, is helping Appalachian incubators with uncertain sources of operating funds to evaluate how they can improve their financial stability. Incubators can be long-term business and job-creation engines, but not if they run out of gas and are forced to close because they failed to achieve a sustainable financial position.