August 7, 2007 in Business

Incubator report raises Sirti hackles

Bert Caldwell The Spokesman-Review
 

A review of Washington business incubators asks the right questions, say two local experts, but the answers lie as much in the social sciences as economics.

Robert Schwartz, who heads Eastern Washington University’s entrepreneurship program, says measuring incubator performance using strictly economic criteria is misguided. And looking at the success of businesses developed in an incubator does not fully take into account the benefits to their communities, not to mention supporting businesses.

At Sirti, Spokane’s largest incubator, Executive Director Kim Zentz says incubator-nurtured businesses may not generate payroll or other easily quantified gains for several years, sometimes not until after the transition to a management team unaware of what help their company received in its infancy.

A legislative committee has raised questions about the return on state investment in Washington incubators or, more exactly, how that return can be determined. Its central question: “If not for the incubator, what would have happened to the firms using its services?”

That’s a good question, Schwartz and Zentz agree, one for which there is no simple response.

To find one, Zentz posits, there would have to be some way of comparing incubated companies with non-incubated peers. You would have to know what services they received, and how much, and whether the business survived or prospered at the end of some reasonable time frame.

Incubators may provide space, utilities, shared secretarial and technical support or other assistance to new companies.

Zentz last week took exception to the study by the Joint Legislative Audit and Review Committee because Sirti was lumped in with independent, nonprofit incubators receiving state grant money. Sirti is a state agency.

The report faulted reporting done by grant recipients, but Sirti files twice yearly to the Office of Financial Management. Sirti tracks the number of jobs, clients, and the financing it has attracted. Since 1995, Zentz says, current and former clients have received almost $180 million in funding on top of $25 million in federal money, plus local matches. They have added 2,423 jobs to the local economy.

The state has provided money for Sirti’s operations.

Sirti last year succeeded in filling all the space in both its University District buildings. In 2007, Zentz says, the news will be the graduation of 11 companies into their own space off-campus.

“That’s what we should be doing,” she says.

Schwartz has spent much of his professional life working for or studying incubators. He continues to run an incubator-without-walls that counsels young Spokane businesses.

He says debate over how incubators should be judged began almost as soon as they were embraced as an economic development tool in the early 1980s. The argument goes on.

Incubators, particularly government-funded incubators, are more than business enterprises, and rightfully so, he says, adding that there is probably no state agency that could justify its existence based on return on equity.

Schwartz says incubators should have an element of social entrepreneurship built in so that non-economic benefits like additions to incomes in distressed neighborhoods figure into assessments of their success. There is value to the education, opportunities and awareness of business that incubators bring to a community, he says.

Some programs have been more about the building than the services, Schwartz adds.

“If not for” is a good question. The answer should be as broad as possible.

Business columnist Bert Caldwell can be reached at (509) 459-5450, or at


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