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The Texas economy: incubators and economic development.

The Texas Economy: Incubators and Economic Development

A new economic development strategy has emerged in Texas. Since the mid-1980s, public and private organizations have increasingly emphasized the importance of building indigenous or home-grown companies. Industrial relocation, long the central focus of regional economic development, continues to be important. But economically, it tends to be a zero-sum game - one region or location benefits only at the expense of another. Encouragement of indigenous companies on the other hand presents opportunity for long-term economic development for several reasons. First, this strategy harnesses local entrepreneurial talent. Second, it builds companies, which in turn create jobs and add economic value to a region and community. Third, this strategy keeps home-grown talent within the community. Fourth, it encourages economic diversification and technological innovation by creating a climate that rewards productivity and innovation. In this context, new business incubators are proving to be a key component in the development of an indigenous company strategy in a region or community.

The increasing importance of an indigenous company strategy is reflected in the growth of business incubators in the United States. As shown in the accompanying chart, incubators have been steadily increasing since the early 1980s, and there are now about 350 business incubators in operation.

Texas is among the leading states in incubator development. As shown in the second chart, Pennsylvania currently has 42 incubators; Illinois and New York have more than 20; Michigan, Wisconsin, Ohio, North Carolina, and Indiana have more than 10; and Washington and Texas have 10 each. The new business incubator is attracting widespread attention not only in the United States, but also in many other countries including France, Germany, Sweden, England, Japan, and Canada. It goes under a variety of names including "innovation center," "enterprise center," and "business and technology center."

Innovative System

An incubator is an innovative system designed to assist entrepreneurs in the development of new firms. By providing a variety of services and support to start-up and emerging companies, the incubator seeks to link effectively talent, ideas, capital, and know-how to leverage entrepreneurial talent, accelerate the development of new companies, and thus speed the commercialization of technology.

The word incubate means to maintain under prescribed and controlled conditions favorable for hatching or developing. It also means to cause to develop or to give form and substance to something. To incubate fledging companies implies an ability or desire to maintain prescribed and controlled conditions favorable to the development of new firms. The "controlled conditions" include four types of support systems: secretarial support, administrative assistance, facilities support, and business expertise, including management, marketing, accounting, and finance. In addition, the incubator attempts to extend the networking capabilities of the entrepreneur through affiliations with the private sector, universities, government entities, and nonprofit institutions. The expectation is that this system can result in viable tenant companies that generate economic growth, diversification of technology, job creation, profits, and successful products.

Texas Incubators

Although incubators in Texas are relatively new, they are already contributing to economic development in the state. The ten Texas incubators have a total of 133 companies currently operating in their facilities, and they have graduated 39 so far. Since 1985, the Texas incubators have generated 953 jobs. The table appearing on page 4 provides some basic information on each of the incubators operating within the state. The newest of the Texas incubators, the Austin Technology Incubator, is unique in that it is a joint venture sponsored by UT-Austin, the City of Austin, the Austin Chamber of Commerce, and private donors with a focus on developing new technology-based businesses. All ten of the incubators in Texas have been started within the last five years.

As with other incubators in the United States, the Texas incubators have a diverse set of entrance and exit criteria. For some, the entrance criteria are quite flexible, meaning there are no specific guidelines for admission. Others specify a range of requirements used in the admission evaluation process. In terms of exit criteria, some incubators have an open policy, meaning they do not require tenant companies to leave the facility. Others expect firms to graduate or leave in two or three years or progressively raise rents to encourage graduation so that other, new companies can be admitted to the incubator. [Tabular Data Omitted]


New business incubators reflect an increasing emphasis on an economic development strategy that focuses on the building of indigenous companies. Communities throughout Texas have established incubators that in turn are contributing to economic development in those regions of the state.

Raymond W. Smilor Executive Director, IC [sup.2] Institute and Associate Professor of Management University of Texas at Austin
COPYRIGHT 1989 University of Texas at Austin, Bureau of Business Research
No portion of this article can be reproduced without the express written permission from the copyright holder.
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Title Annotation:business incubators
Author:Smilor, Raymond W.
Publication:Texas Business Review
Date:Aug 1, 1989
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