Determining the Impact 1
Running head: IMPACT OF A BUSINESS INCUBATOR ON ECONOMIC GROWTH
Determining the Impact of a Business Incubator on Regional Economic Growth
Thomas B. Glennan
Lawrence Technological University
Determining the Impact 2
The southeastern region of Michigan has exhibited significantly slower economic recovery and
growth than what is generally being experienced by the rest of the United States. This study will
investigate the impact that business incubators have on the economic well-being of a region or
community. The subject population would be the Southeast Michigan business community, with
the sample consisting of both public and private business incubators operating within this area.
The instrument for collecting data would consist of open-ended interviews with representatives
from selected business incubators, and the small businesses and venture capitalists who have
used their services. The key result will be the identification of those factors which enable
business incubators to positively impact the region‟s economic growth.
Determining the Impact 3
Determining the Impact of a Business Incubator on Regional Economic Growth
The economic recovery and prosperity that has recently occurred throughout most
regions of the United States has been noticeably absent from the southeastern communities of the
State of Michigan. This situation is the underlying problem that drives the need for research
studies and investigations into potential solutions to Southeast Michigan‟s economic malaise.
Considerable data and empirical evidence of Michigan‟s lagging economic performance have
been documented and published in numerous newspapers, magazines, and journals. These
reports and stories paint a picture of entrepreneurs and business communities that recognize their
plight and are desperately trying to identify both the causes and solutions to their current
predicament. Henderson (2006, October) reports on the poor performance of Michigan stocks in
general, and Southeast Michigan stocks in particular, as an indicator of how broadly the
economic downturn has affected the area. For example, “…79 area companies lost an average of
about 2 percent of their value, while the Standard & Poor‟s 500 were up about 4 and the Dow
Jones were up about 7 percent.” Furthermore, Michigan‟s high proportions of consumer
discretionary companies, as well as small and mid-cap stocks, none of which have performed
well as a whole, add to the problem. But an obvious focus of the region‟s poor economic
situation is the domestic automobile manufacturing industry, otherwise known as the “Big
Three”. Between 1995 and 2004, their share of the U.S. market declined from 73% to 58%, a
drop that also impacted the fortunes of automotive suppliers in southeastern Michigan and
elsewhere (Kosdrosky, 2004). This in turn led to reductions in employment levels, income
growth, and retail spending in those communities by the employees of those companies, which
resulted in the inability of the region to participate in the economic recovery enjoyed by the rest
of the country. David Cole, of the Center for Automotive research, has found that the cyclical
Determining the Impact 4
downturns of the past have been replaced with structural changes that are harder to overcome
(Kosdrosky). With Detroit automakers having a much smaller share of the market, any cyclical
increases in volume are no longer sufficient to raise the prosperity of the region, given the
smaller market share that they are starting from and their reduced profitability. And the increased
emphasis on reduced costs and increased efficiency by the automakers and their suppliers means
that increases in volume may no longer translate into increases in worker paychecks. In addition
to efficiency gains cutting the need for overtime from past levels, the number of workers needed
to address volume increases is reduced. According to Wes Smith, President of E&E
Manufacturing, a metal stamping company, “Before, for every $90,000 of value added (new
business minus costs), you hired a person, but now it takes $150,000 of value added before you
can hire that person, because of the efficiency increases.” (Kosdrosky). Finally, increased health
care costs for an older average-work force add an additional burden to domestic automakers, and
projections showing a regional increase of more than 307,000 people over the age of 65 by 2020,
which will result in a huge increase in the need for health care services by that segment of the
population (Detroiter, 2006). It appears to be obvious, based on this review of existing literature,
that Southeast Michigan‟s economic recovery cannot rely on a resurgence by the “Big Three” as
in the past, and new economic and business models for the region may be required as well.
One strategy for improving the economic growth of Southeast Michigan has been to lure
new businesses and entrepreneurs, as well as venture capitalists, to the area. Such an approach
could leverage the resident engineering expertise, which is one of the remaining strengths of the
region. “There‟s so much engineering talent, even with the globalization of the industry, that the
eastern side of Michigan is still the intellectual capital of the auto industry” according to Neil De
Koker, president of the Original Equipment Suppliers Association (Kosdrosky, 2004). The trick,
Determining the Impact 5
however, would be to apply that expertise to other industries and technologies. For example,
many experts consider Southeast Michigan to be a prime candidate location for further
development and commercialization of technologies relating to advanced batteries, cellulosic
biofuels, and solar energy production, which could require skills learned in the auto industry.
Rodrigo Pridencio, a partner with Nth Power, a San Francisco venture capital firm, states that
“We think the combination for investors looking for new opportunities – California being a bit
crowded and entrepreneurs in Michigan looking for new challenges using their talents – could be
the driver for some successful companies in Michigan.” (Bodipo-Memba, 2007).
Another approach that has been taken is to pursue industries totally unrelated to the
automotive business, such as the life sciences and biotechnology. Such a strategy might not only
succeed in bringing in new business, but again allow the region to leverage existing pools of
skilled workers and facilities. Although the Ann Arbor area was shocked in early 2007 by
Pfizer‟s decision to close its research facility there, the city could do well to learn and profit from
a nearly identical situation that Skokie, Illinois experienced four years ago. Although the move
eliminated 1400 jobs and proved to be a significant economic hit to the community, local efforts
resulted in finding a developer who converted the building into the Illinois Science and
Technology Park, which created 3250 jobs. Some think that such a redevelopment, especially if a
use for the existing specialized, high-tech wet labs could be found, could enable Ann Arbor to
rebound in a similar manner. Other efforts by Michigan based companies and entrepreneurs to
build a life sciences industry in the state, however, have run into difficulties. Although many
current facilities and research institutions, such as William Beaumont Hospital in Royal Oak and
many of Michigan‟s public universities, have resources and facilities to enable such a strategy,
past initiatives have proven unsuccessful, due primarily to the lack of a coordinated effort.
Determining the Impact 6
Randal Charlton, the chairman of Ann Arbor-based MichBio, a trade association, says that
Michigan‟s life sciences entrepreneurs and scientists should be working together with
government and universities to provide information regarding tax incentives, the state‟s 15
public universities, our talented work force, and all the other advantages of starting a company in
Michigan. Instead, the groups are lacking in coordination, which limits the extent to which life
sciences can, or want, to grow in Michigan. “Right now,” he says, “we have all of these little
dots all over the state. We need to connect the dots.” (Dietderich, 2006). This lack of
coordination, and other deficiencies, is hurting Michigan‟s prospects to the point that in a study
by the Milken Institute, a California-based think tank, of the major areas of biotech and life
sciences research in the U.S., no Michigan companies were even mentioned. And an additional
study released by Western Michigan University and Lansing-based Epic-MRA found that “only
28% of respondents were confident that the state can become a leader in life sciences.”
(Dietderich). As with the automotive manufacturing industry observations made earlier, it
appears that any role by Michigan in new or untapped industries such as the life sciences and
biotech is going to require the judicious use of approaches, tools, and strategies that are proven to
be effective for resolving and correcting the lack of economic growth that Southeast Michigan is
Purpose Statement and Research Question
One potential approach found in the research literature for this proposed study would be
to drive economic growth by increasing the creation and use of business incubators, which are
private or public assistance programs that serve to facilitate the commercialization of new
technologies and the growth of business ventures (Beech, 1999). Although considerable
information has been written about business incubators (Hillstrom and Collier, 2002), many
Determining the Impact 7
entrepreneurs, technologists, and business owners are not familiar with them or the services they
have to offer to the business and research communities. It also appears that business incubators
can be quite different from one another, with respect to the sponsoring organization, available
resources, business philosophy, location, and so forth (Mueckenheim, 2002). The purpose of this
case study, therefore, will be to understand and describe the function served by business
incubators and the value that they provide to their clients and customers. Within the context of
this qualitative study, the function and value of business incubators will be defined to include
their mode of organization and operation, the services and resources that they provide, and their
subsequent effect on the business community and environment. The method of inquiry will
involve representatives of existing business incubators, as well as their customers and clients.
Instruments and methods that permit the gathering of data and observations within their
respective operating environments will be used, and consultations with recognized experts
having familiarity with business incubators will ensure the external validity of conclusions and
recommendations made. As such, this study will not include any quantitative research or data
collection, such as the comparing of factors or establishing of relationships between two or more
variables in search of cause-and-effect relationships. The need for such a subsequent study,
however, may well result from the increased understanding of the function and value of business
While my literature search revealed many articles documenting the use of business
incubators to successfully develop and commercialize emerging technologies, or assist with the
creation of a new business enterprise (Jarema, 2006; Morrison, 2006; Nax, 2006; Pare, 2006), I
also found evidence that not all such relationships with business incubators have worked as
intended (Hillstrom and Collier, 2002)). Furthermore, literature does exist that addresses the
Determining the Impact 8
issue of what factors or conditions enable a business incubator to contribute to economic growth
(Steffens, 1992), but it appears to be dated and does not reflect many of the services,
technologies, and resources available today. This leads me to the conclusion that additional
research is needed to understand business incubators as they exist today, and their contributions
to the commercialization of new technologies and research, support for business start-ups, and
the subsequent effect on a regions economic growth. Specifically, these issues and observations
have led me to the following research question, which will be the focus of this study: What are
the factors and characteristics of a business incubator that enable it to positively impact the
economic conditions of a region?
Before proceeding further, it is appropriate to discuss the delimitations which I have
defined for this study, which were used to narrow the focus of the proposed investigation. These
1. This study will focus on those factors and characteristics that benefit or
contribute to (“positively impact”) the economic growth of a region. It will not
be concerned with identifying factors and characteristics that have a negative
2. This study will be limited to business incubators currently in existence in the
Southeast Michigan region. It will not be concerned with factors that may apply
to business incubators outside of this region.
3. This study will be a cross-sectional study that takes place at a single point in
time, rather than a longitudinal study that would occur over an extended period
Determining the Impact 9
The limitations that I have identified for this study, which are used to identify potential
study weaknesses, would include the following:
1. Since I have chosen to include both private and public business incubators in
my study, differences regarding the services and resources available from each
of those types of incubator may affect their performance relative to one another.
2. Although my intent is to consult with a recognized business incubator subject
matter expert, thereby increasing the confirmability of my results, my lack of
an entrepreneurial or business background may bias my analysis and
interpretation of the data.
3. Although the credibility of my qualitative research will be enhanced by my
intent to share the results with the study participants upon its conclusion, the
relatively small number of business incubators in the final sample may limit the
degree of that credibility. This limitation could be addressed by increasing the
Since this study will be exploratory in nature and seeks to better understand an existing
process or phenomenon in a natural setting, I feel that a qualitative approach using the case study
method is appropriate for this research subject. The data to be collected will be more text and
image-oriented, rather than numerical and statistical, and I plan to use strategies that involve
open-ended observations, interviews, and the collection of documents. I also feel that the purpose
statement and research questions may evolve somewhat as the study progresses, which is
consistent with the qualitative approach, although I am confident that the main intent of the study
will remain unchanged.
Determining the Impact 10
A series of interviews will be conducted for the purpose of identifying those factors of a
business incubator which should be assessed for their contribution to the economic growth of the
region. The instrument of data collection chosen for this survey is the open-ended personal
interview. It was selected because it provides the interviewer with the opportunity to ask follow-
up and detailed questions which may be appropriate and desirable in an exploratory study such
as this. Interviews are often easier for, and result in more commitment by, the respondent to
participate, which should increase the overall respondent participation level (Marshall and
Rossman, 1999). The appropriate use of telephone interviews will also be considered, to again
increase the level of participation and the ability to gather data quickly. Finally, because the
interviewer is such an integral part of the instrument, training will be required to avoid
interviewer bias, distortion, and subversion and address all possible contingencies.
The population is defined to include those governmental, business, and educational
institutions identified and operating as business incubators, and the sample drawn from that
population will consist of those business incubators that are located in the Southeast Michigan
area. These business incubators will be represented by their respective directors or other primary
executives or administrators for the purposes of participating in the interviews, which means that
a single-stage sampling procedure, in which the researcher has access to the names of the
individuals in the sample and can access them directly, will be used. This also leads to the
decision to use non-probabilistic sampling methods for the purposes of this survey, which is the
result of the small sample size, and results in increased convenience and availability in
conducting the survey. Since (a) the sample is so small in size, (b) it is not a random sample, and
(c) the intent is to involve all of the sample members, stratification of the sample will not be a
characteristic of this sample. The number of people making up the sample will be determined by
Determining the Impact 11
the number of qualifying business incubators in the Southeast Michigan region, with each
incubator being represented by one qualified participant.
At this point, the survey method is not intended to be a specific, unique instrument, but
rather a typical personal interview consisting of questions to be determined by the researcher.
Therefore, there is no pre-existing data available for use in determining the validity or reliability
of the survey instrument itself. To address the issue of validity, other individuals (one from each
of the business incubators within the sample) will be asked to review the questions, format and
content of the questionnaire to be used in the interview. This field test employing different
participants from the same sample that will participate in the survey will serve as validation of
The independent variables to be evaluated for their contribution to economic growth will
be a consequence and result of the interviews to be conducted. Anticipated independent variables
might include infrastructure, educational system, labor pool skill set, weather conditions,
political climate and financial resources. The dependent variable to be assessed is the resulting
economic growth of the Southeast Michigan region.
Significance of the Study and Expected Outcomes
Much of the literature found while researching this topic alluded to the efforts of
governments, universities, venture capitalists, and others to identify strategies and tools for
improving the economic conditions in Southeast Michigan. I found many references to plans or
recent initiatives to utilize the resources and services of available business incubators (Shamus,
2007; Morath, 2007; Shirouzu, 2007; Morrison, 2006). However, the experiences of others
indicates that, while business incubators may have a place in facilitating the commercialization
of emerging technologies and establishing networks of entrepreneurs and venture capitalists,
Determining the Impact 12
finding and using a business incubator is no guarantee of success. To avoid future
disappointments and wasted resources and time, it is imperative that we provide the businesses
and entrepreneurs of Southeast Michigan with the best tools available to succeed. A critical part
of that effort will be for the business, governmental, and educational leaders of Michigan to
identify those factors and characteristics of the business incubator, which will enable that tool to
contribute as much as possible to the success of new and promising industries and businesses.
Only then will we have optimized our efforts to define and implement a successful strategy fir
growing Southeast Michigan‟s economic growth. This proposed study, and the lessons and
recommendations that will come from it, will play a key role in the implementation of that
Determining the Impact 13
Ahlin, E. (2007, March 31). Café feeds need for business incubator. Omaha World-
Herald (Omaha, Nebraska), pNA.
Summarizes the business case and experiences behind the launching of a small
private business incubator and the services provided to other small start-ups.
Beech, W. (1999). The black enterprise guide to starting your own business. New York:
Provides a list of services and resources that are commonly provided by
business incubators, as well as some of the factors that entrepreneurs should
consider when evaluating an incubator opportunity.
A Blueprint for our future: With our future at stake, the Detroit Regional Chamber is
spearheading an initiative to chart a new course for southeast Michigan (Copy Editor).
(2006, April - June). Detroiter Magazine (Detroit), 97.3, 14 (5).
Reviews the efforts being made by the Detroit Regional Chamber of Commerce to
respond to Detroit‟s current poor economic climate with a plan “for the next
generation”. Included are assessments of the current situation by those involved in
this effort, their thoughts and suggestions on what corrective action is needed, and
comparisons to other communities and regions that have faced similar challenges.
Bodipo-Memba, A. (2007, April 9). Venturing into the spotlight – investors look to state
for energy innovation. Detroit Free Press, 8A.
Identifies areas of the Michigan economy that are most likely to attract venture
capital money (advanced batteries, biofuels and solar energy). Provides estimates
and projections for venture capital funding and investments within Michigan.
Determining the Impact 14
Boone, R. (2006, September 5). A small office space gives start-ups some room to grow; Small
business incubator provides an inexpensive office with a chance to network. Olympian
(Olympia, Washington), pNA
Discusses the benefits and services that will be available to the clients of a
recently-established business incubator in Thurston County; Describes the types
of businesses that have contracts with the business incubator and the advantages
that they expect to realize as a result.
Creswell, J. (2003). Research design: qualitative, quantitative, and mixed methods approaches
(2nd edition). Thousand Oaks, Calf. Sage
Provides an explanation of three approaches to writing research proposals,
including the qualitative approach used in this proposal. Includes templates,
guidelines, and in-depth discussion of when each approach is appropriate for
conducting research, along with examples and suggestions.
DeMoss, J. (2006, August 13). Business incubator in Ogden, Utah, encourages success
for companies. Standard-Examiner (Ogden, Utah), pNA.
Offers interviews with clients of the subject business incubator, which reveal
some of the features and services of the incubator that have contributed to their
success, including mentoring, industry connections, proximity to business leaders,
reduced expenses, and available financing.
Dietderich, A. (2006, June 5). Michigan has the potential to become a biotech powerhouse, but
for a state built on manufacturing, the task of developing that potential has been
described as “Like playing chess with no squares”: Part 1 of 2. Crain’s Detroit Business
Determining the Impact 15
An in-depth story on the possibilities of growing a high tech industry (biotech) in
a state that has relied on other industries for economic growth in the past.
Describes the reasons why the biotech industry should be considered in Southeast
Michigan, the factors that will increase the success of such an effort, and the
specific steps and actions already taken to promote biotech start-ups in the region.
Grensing, J. (2007, February 20). Whitewater plans business incubator. Wisconsin State Journal
(Madison, Wisconsin), pNA.
Focuses on the efforts of the city of Whitewater and the University of
Washington-Whitewater to “determine the characteristics of successful and
unsuccessful incubators in other parts of the country.” Identifies the findings and
conclusions that were the basis of decisions regarding how to proceed with the
incubator at UW-Whitewater.
Henderson, T. (2006, June 5). Expert: State must „rebrand‟ itself for the future. Crain’s Detroit
Business (Detroit), M-8.
Contains statistics and financial information relating to the amount of money
spent by the State of Michigan on advertising and promotional materials and campaigns.
Quantifies the financial aspects of Michigan‟s economic situation, the areas where money
has been spent to improve the situation, and the results of those expenditures.
Henderson, T. (2006, October 9). Regional stocks down, lag national trends in 3rd quarter.
Crain’s Detroit Business (Detroit), 4.
Provides statistics, economic data, and empirical evidence of the state of the
Southeast Michigan economy, and suggests reasons for the region‟s poor
Determining the Impact 16
economic performance in the face of improving business conditions and results
elsewhere in the United States.
Hillstrom, K., & Collier, L. (2002). Business Incubators (Vol. 1, 2nd ed). Encyclopedia of Small
Business. Detroit: Gale, 130-133.
Provides a detailed review of business incubators, their services and resources,
and strategies for using and applying their advantages. Covers the specific
advantages of incubators, factors to consider in choosing an incubator, recent
incubator innovations, and additional references.
Hillstrom, K., & Collier, L. (2002). National Business Incubation Association (NBIA) (Vol. 1,
2nd ed). Encyclopedia of Small Business. Detroit: Gale, 769-770.
Gives a detailed description of business incubators and the NBIA, including
discussion of what business incubators are, the types of services incubators
provide, the different types of incubator sponsors, the criteria businesses must
meet to qualify for assistance, and the benefits of membership in the NBIA..
Jarema, M. (2006, November 21). GVSU president hails partnerships – education is key to
state‟s success, Thomas Haas says. Grand Rapids Press (Grand Rapids, Michigan), B2.
Discusses the value of education in public and private partnerships in Michigan,
and lists the many currently-active partnerships that Grand Valley State
University has in Michigan, including the Alternative and Renewable Energy
Center business incubator in Muskegon.
Kosdrosky, T. (2004, November 29). Economic downshift: The Big Three‟s market share has
dropped 14 points over a decade. Southeast Michigan‟s economy is stuck in neutral while
Determining the Impact 17
the rest of the country has hummed along through a recovery. Crain’s Detroit Business
Explains how the Southeast Michigan economy has suffered as a result of the
fortunes of the Big Three automakers misfortunes, provides statistics and data that
quantify the magnitude of the economic impact, recommends changes and
initiatives for addressing the economic malaise, and suggests metrics that might
be used to monitor and quantify any signs of economic recovery.
Lane, A. (2006, September 18). State Execs see flat regional economy. Crain’s Detroit Business
Summarizes the results of a survey of employers in Southeast Michigan and
elsewhere regarding their perceptions of the state of their local economies and
business environments. Includes statistics from the survey that indicate the
percentages of the responses to survey questions, and empirical data and
comments regarding the business outlook for those regions.
The lowdown on Motown: Developing cities (can Detroit be revived?) (Copy Editor). (2007,
February 3). The Economist (US), pNA.
Discusses Detroit‟s current economic condition, the conditions that led up to it,
and how local leaders business and government, as well as residents of the region,
have responded to their situation.
Marshall, C. & Rossman, G. (1999). Designing Qualitative Research (3rd edition). Thousand
Oaks, California: Sage.
Determining the Impact 18
Provides detailed insight and recommendations regarding the preparation of a
qualitative proposal, including the “what” and “how” of the study, explanation of
the researcher‟s role, ethics, and collecting, recording and analyzing data.
Morath, E. (2007, March 28). Plan adds power to small business – regional coalition seeks
federal, state support for company accelerators. Detroit News (Detroit, Michigan), 1C.
Outlines a plan for securing the funding needed by a coalition of economic
developers to fund an expanded network of business accelerators in Michigan.
Morrison, K. G. (2006, November 3). Hatching haute fashion – Detroit fashion incubator offers
edgy garments by local designers. Detroit News (Detroit, Michigan), 1E
Discusses the creation of a business incubator that is dedicated to businesses in
the fashion design industry in Michigan.
Mueckenheim, J. K. (2002). Retail Business Incubator. Business Plans Handbook (Vol. 9).
Detroit: Gale. 325-347.
A very in-depth review that focuses on all aspects of retail business incubators. It
uses detailed explanations and examples to demonstrate how incubation programs
“have become essential economic development tools for communities that are
trying to improve their economies and keep them healthy.”
Murray, S. (2007, January 25). Hope from past Pfizer closing – drug maker‟s former Skokie site
thriving with new owners. Grand Rapids Press (Grand Rapids, Michigan), E2.
Describes how the community of Skokie, Illinois recovered from a Pfizer plant
closing similar to that experienced recently by Ann Arbor, Michigan, and the
similarities between the two situations that could lead to Ann Arbor‟s resurgence
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Nax, S. (2006, December 2). Warming to a new concept: Local businesses growing at a rapid
rate are getting a little help from CargoBay, a new $8 million business incubator in
Clovis. Fresno Bee (Fresno, California). pNA.
Provides a case study, with details, of how a successful local business was able to
use the services and resources provided by a private incubator.
Pare, M. (2006, December 17). Business incubator full, has waiting list. Chattanooga Times/Free
Press (Chattanooga, Tennessee). pNA.
Summarizes the success stories of several successful clients of a local
business incubator, providing details of what features of the incubator were of
most benefit to each company.
Price, C. (1999). 101+ Answers to the most frequently asked questions from entrepreneurs. New
York: Wiley. 54-56
Provides a brief answer to the question of whether a new start-up should locate in
a business incubator, including a brief history of and facts about incubators, and a
list of the most common benefits.
Promoting business and technology incubation for improved competitiveness of small and
medium-sized industries through application of modern and efficient technologies. (2004).
New York: United Nations Publications.
A very lengthy, detailed report by a United Nations commission on the regional
perspectives of promoting business and technology incubators, and some of the
best practices for providing the benefits of those incubators.
Shamus, K. J. (2007, April 8). Universities‟ alliance will help state, schools say. Detroit Free
Press (Detroit, Michigan). 1A.
Determining the Impact 20
Discusses the success that Michigan‟s three largest public universities have
experienced in converting technologies from their research labs into successful
job-creating start-ups, and their efforts to have the University Research Corridor,
which they created, funded separately from 12 other public Michigan universities.
Shirouzu, N. (2007, April 13). In quest for better battery, keep an Ion Nationalism. Wall Street
Summarizes the current battle in the automobile industry to develop alternate fuel
vehicles, the need for technological breakthroughs in the field of advanced energy
storage systems (batteries), and the incubators and other partnerships that have
been formed in response to this need.
Steffens, R. (1992, May). What the incubators have hatched: An assessment of a much-used
economic development tool. Planning, pNA.