Feb 6, 2013
Emily McMackin
Emily McMackin
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Accelerating Innovation: Start-Ups Grow in Unlikely Incubators

Tennessee used $577 million in incentives to help land Volkswagen's assembly plant in Chattanooga.

In an empty factory in Troy, Mich., business is booming once again. Two start-ups now occupy the space where a supplier once built and painted luxury cars for Ford. The firms, which make custom and concept vehicles for car enthusiasts, work together under the name of Automotive Performance Industries — and they are hoping to find other entrepreneurs interested in joining them, either to work individually on their own projects or as part of API’s team.

“We’re not interested in renting space,” Karl Storrie, a partner in the venture, told USA Today. “We’re interested in business partners.”

A growing number of abandoned auto plants in the Rust Belt and elsewhere are being transformed into business incubators for small, entrepreneurial firms.

Though most of these tenants are part of the auto sector, others come from industries ranging from food production to retail. In Ohio, for example, a former GM plant-turned-business-park recently attracted a small organic herb grower from Florida looking to expand its Northeast customer base.

New auto firms occupying these spaces may be small compared to their predecessors, but they are nimble, innovative and on the cutting edge of their industry. In Fremont, Calif., electric car maker Telsa Motors is setting up shop in a former GM-Toyota plant, while Elio Motors is building its newest economy car in a shuttered Hummer plant in Shreveport.

For the two Troy firms that comprise API, the setup is perfect, giving its 30 workers access to the plant’s monstrous space and high-tech painting equipment too costly for most smaller operations. It also creates a creative, collaborative atmosphere that both companies thrive on.

“Nothing is done by an individual anymore,” API worker Kevin Ryszka told USA Today. “It’s a team. If you can bring that expertise under one roof, how can it be a bad thing?”

What’s Old Is New Again
Business incubators are back in vogue, and most of their latest incarnations are specialized centers focused on either reviving a declining industry in a region or accelerating the growth of an emerging one.

The concept of an incubator — offering business assistance, mentoring, and sometimes funding or venture capital to early-stage companies in shared facilities — has been around since the late 1950s, with the opening of the Batavia Industrial Center in New York. By the 1980s, incubators were slowly spreading, especially in the industrial Northeast, which had been hit hard by plant closures.

Before the recession, incubators were assisting more than 27,000 start-up companies, according to the National Business Incubator Association. In the aftermath of the recession, that number has doubled, with 1,200 incubators assisting 41,000 start-ups in 2012.

What’s behind their recent spike? While their low-cost space is a factor, the support, guidance and camaraderie they offer to entrepreneurs is a bigger reason. Tenants report that being around the energy of other start-ups spurs creativity, unorthodox approaches and new ideas — all of which are key to growth in an economy that is becoming more innovation focused.

At least 87 percent of companies hatched in incubators are still around after five years, compared to just 47 percent of those started on their own, according to the NBIA.

Large corporations like Volkswagen are even forming business incubators to keep a pulse on new technologies shaping consumer habits and to infuse their own organizations with the entrepreneurial spirit driving up-and-coming firms, the Washington Post reports.

Colleges are also a breeding ground for incubators, allowing students to launch start-ups before finishing their degrees. Best Colleges Online details a few of the hottest college incubators here.

Do you think incubators are an effective economic development tool? How can industries like the auto sector use them to increase competitiveness? Please share your thoughts below.

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