Incubate New York City: Government Funded Incubators for Economic Development (Print Section)
by Lara McCaffrey
The recession of 2008 threw tens of thousands of Americans out of work and left college graduates scrambling to find a niche in the U.S. job market. Among the millions facing a harsh new economic reality was Khalid David, 26, who finished Columbia University’s civil engineering program in 2010 with very little in the way of viable job prospects.
“I graduated in a tough economy,” said David. “Eventually, I just picked up my business plan and decided to create my own job.”
The result was Bunkershill Construction, a construction company made up of David and his father. The company hires and coordinates subcontractors for small interior renovation projects in New York City. Though most of his jobs were in Harlem, David worked out of his home basement in Westchester County. City office rent was too high. David had little experience in running a business when he suddenly became the owner of one.
“Honestly, it was birthed out of necessity,” said David.
David was lacking the proper space and environment to work although the business plan was there.
In the entrepreneur circles at Columbia, he kept hearing about incubators. After visiting a few, he decided he needed to be in one to start his business. He felt like it reflected the modern way of conducting business: efficient and lean. One of the incubators he considered was the new government funded Harlem Garage on 118th Street.
The Harlem Garage is one of 25 incubators set up with funding from the New York City Economic Development Corporation. In 2009, under then-Mayor Michael Bloomberg, the development corporation embraced the idea of incubators, which were popular in tech-centric Silicon Valley, California but few and far in between in New York City.
The city’s first incubators were in tech-savvy West Brooklyn and lower Manhattan neighborhoods like Chelsea, Flatiron or “Silicon Alley,” where they help entrepreneurs with work space, financial support, mentorship and business classes.
Since 2011, though, the city has begun to fund incubators in some of New York’s poorest neighborhoods. The choices are “driven by a specific need or a specific neighborhood,” says Carly Chase, senior project manager at the NYCEDC. “So industries or neighborhoods we feel are right and will benefit from an incubator and where the private sector is not leading the way so we can fill that gap.”
The first of these incubators was HBK Incubates, a kitchen incubator in East Harlem. Now, there are 6 in areas that are lower income and not known as high tech. The recently established Harlem Garage, Harlem Biospace and Sunshine Bronx incubators are located in some of these areas. The NYCEDC recently announced plans to open an incubator in Jamaica, Queens, another area not normally known as being business savvy. Chase said the three incubators the city has funded in Harlem are “one small part of a larger strategy in Harlem to boost the development that was going on there.”
Khalid David feels an affinity with Harlem. Not just because his friends and clients live in the neighborhood but because the neighborhood’s history makes him feel proud of his own Caribbean roots. “The Harlem Renaissance represented something culturally,artistically to the entire world of blackness, blackness in African-American and Caribbean,” says David. To him, Harlem Garage represents “black tech.”
It began in Batavia
The first small business incubator was developed in 1959 with the formation of the Batavia Industrial Center in Batavia, New York. Joe Mancuso opened the incubator after Massey-Ferguson, the largest company in Batavia, closed down. His intentions were to spur economic development as unemployment in Batavia rose to 20%. He took over Massey-Ferguson’s vacant building and rented it out to tenants including a winery, a charitable organization and a chicken company. Jokingly, Mancuso started calling the building “an incubator” because of the chickens. The name stuck and Batavia Industrial created thousands of jobs over the years. It’s still open today.
The Batavia incubator did not start much of a trend for several decades, said Dinah Adkins, president emerita of the National Business Incubator Association (NBIA). Little information was available about incubators until the NBIA was created in 1985, as a trade group aimed at fostering the growth of incubators.
In the 1980s, the notion of using incubators to foster economic development began to grow. Government economic development corporations put up funding for some incubators, and by the 1990s they had become a popular development tool in California.
In the Northeast, as factories closed or moved to Sunbelt states, some abandoned factories were converted into incubators, said Adkins.
But incubators had a checkered history. Some that were hastily developed in the 1980s failed in the 1990-1991 recession in the United States. The dot com boom of the early 2000s spawned another round of incubator startups – only to see many close at the start of 2005.
Incubators didn’t reach New York City until 2009. By 2011 there were 900 business incubators nationwide, and that number jumped to 1250 in 2012. One of these is the Batavia Industrial Center.
Successful incubators usually have sponsorship from big institutions like universities and economic development corporations, said Adkins. About a quarter of the incubators in North America have startup help from government economic development offices – like the NYCEDC, which made grants to start Harlem Garage, Harlem Biospace and Sunshine Bronx, three of the city’s incubators in lower-income neighborhoods. But regardless of who puts up initial funding, incubators must become self-sufficient, said Adkins.
Incubators for entrepreneurs
Harlem Garage, one of Khalid David’s first choices, opened its doors early November 2013. Desks fill the wide open space, conference rooms with glass panels line the walls and a small lounge area is tucked upstairs in a corner of its tall ceilings.
David had reserved a workspace at the Garage, but before he moved in he decided to go with another incubator that he says had a few things the Garage didn’t have. One was an established community. Also in Harlem, the Harlem Business Alliance (HBA) started in 1980 and had deep roots within the Harlem business community. The actual incubator space opened March 2013 after bidding and losing the RFP the Garage won.
Secondly, the HBA’s size appealed to Khalid. The HBA’s small size also made David feel like he was getting more one-on-one attention from mentors.
The interior design also appealed to him. “As a builder, aesthetic appeals to me a lot,” says David. “I feel like someone really took the time to create a space that feels comfortable, where you can get work done and inspires creativity.”
Although the Harlem Biospace, the Harlem Garage and the Sunshine Bronx call themselves “incubators”, they say they are not incubators by the “traditional” definition. Traditional incubators have been known as shared offices that offer entrepreneurs workspace, mentorship, classes, and equipment in exchange for equity.
The NYCEDC intended for the private sector to follow suit and start their own incubators.
“And I think that’s worked very, very well in Manhattan and parts of Brooklyn and now we’re trying Harlem,” says Carly Chase. “That’s something we’re certainly trying to do in hopes that the private sector follows and in the neighborhoods of Staten Island, Harlem and now we’re trying our hand at Jamaica.”
The incubators in Harlem and the Bronx are significant because those areas lack resources for entrepreneurs.
For the Harlem Garage, it’s the lack of commercial space in Harlem. David Rotbard of MicroOffice, the shared space company that owns the Harlem Garage, says that most entrepreneurs renting space did so to be locally based. Before the Harlem Garage, he says, many Harlem entrepreneurs found themselves working out of their homes.
Joe Carrano, community organizer at Sunshine Bronx, says his incubator offers space for Bronx entrepreneurs to stay local as well as affordable rent space. The Sunshine Bronx, owned by shared office company Sunshine Suites, offers the cheapest shared space rent in New York City according to Carrano.
The Harlem Biospace, the first wet lab shared workspace in New York City, also tackles the issue of lofty New York City real estate prices. A wet lab is a lab where chemicals are handled in liquid or volatile states with direct ventilation and special piped utilities. Executive director Matt Owens says that in addition to all the expensive equipment the high rent in the city puts a bigger financial strain on budding biotech companies.
These incubators give Harlem and Bronx entrepreneurs a network and collaborative work space. Carrano says a center for business collaboration has never existed before in the Bronx.
Rotbard says that people came to the Harlem Garage for this kind of collaborative atmosphere. “People want to be around other creative energies,” he says.
Carrano says the offices of Sunshine Bronx were designed to encourage collaboration. The 11,000 square foot incubator located in an old currency factory building in the South Bronx has plenty of open space, conference rooms and a large lounge.
Like Sunshine, the Biospace also set up in an old factory building. Inside an old candy factory building, the Biospace occupies an L-shaped office space on the first floor of the building with a courtyard area out back for people to take breaks. There’s a shared wet lab bench and lots of desk space.
Running an incubator is challenging
Although potentially good for small businesses, it’s hard to run an effective incubator. “Running an incubator is challenging and there’s not a lot of money in it,” says Catherine Barnett, executive director of Project Enterprise. Getting one started requires sufficient financial backing. Project Enterprise is a non-profit that provides training and access to capital to entrepreneurs that have trouble acquiring it.
To start an incubator, the NYCEDC provided the grant to start and invited proposals. For the Harlem Biospace incubator, it chose the proposal put forward by co-founders Sam Sia and Christine Kovich, who got $626,000 to start the business. Harlem Garage’s creators won a $250,000 startup grant from the city, and so did the founders of Sunshine Bronx.
Sometimes annual subsidies are given to incubators but this is very rare. Dinah Adkins of the NBIA thinks that this isn’t the best financial position to be in because governments usually lose interest in supporting an incubator yearly.
Carly Chase says that the NYCEDC is in constant conversations about whether or not the NYCEDC would continue to fund a struggling incubator. First of all, the network is so new it’s hard to say whether or not an individual incubator has proved its value. In most cases, the NYCEDC expects these incubators to be self-sufficient within three years.
However, Carly Chase says there was an instance in which the NYCEDC found value in providing funds to their first incubator. The Verick Street Incubator needed money to move to a new location at the end of their three year mark and the city decided to lend them a hand.
“I think it’s very much a function of what the private market is doing and how the incubator is doing and seeing if we can actually continue to help or not,” says Chase.
Are they benefiting the city?
Harlem and the Bronx are economically depressed areas that need jobs. Joe Carrano from the Sunshine Bronx realizes this and has decided to try to raise up the neighborhood through the incubator and on his own time.
Sunshine has established an internship pipeline with Monroe College in the Bronx and Baruch College in Flatiron. Currently, there are a few interns at Sunshine Bronx businesses recruited from the pipeline. Carrano has hired a few interns in the past to help with incubator management.
In his spare time, Carrano volunteers with the non-profit Knowledge House teaching computer skills to children in the Bronx.
Besides getting the community ready for technical jobs, the businesses in the incubators have to be doing well enough to hire from the community. Carrano says he’s working with the businesses in the incubator so they can grow.
Robert Seamans, a professor of economics at New York University, says that incubators’ purpose is to give entrepreneurs a place to work and resources, not necessarily create jobs within the community. “The more of these different objectives that we have the more it is to satisfy all of them and i think in order to be really effective you just sort of have to pick one and stick with it,” says Seamans.
What government policy should do, Seamans says, is provide easier access to capital and resources to get businesses off the ground.
The NYCEDC filled a gap when setting up the Harlem Biospace he says. The biotech industry is one that requires a lot of capital.”To the extent that we want to encourage more startups or more small businesses that are focused on biotech or medical devices or something I think that–one of the ways to do that is have a space where an investment has already been made in the infrastructure that biotechs would need,” Seamans.
However, Seamans isn’t convinced that incubators are the best way to provide more access to capital yet. “Presuming the problem has to do with a lack of entrepreneurial or innovative small companies in small areas,” Seamans says. “Is an incubator really the best way to get capital or just sort of help out these sorts of small businesses. I wish i could say ‘yes for sure it is’ but I don’t necessarily believe that it’s not. But i haven’t seen any evidence one way or another.”
Obstacles to overcome
Khalid David ended up not moving into the Harlem Garage although he considered it for a long time. However, David says Harlem Garage “really has the bones to be a good incubator.”
“The Harlem Business Alliance has been in the community for a decade and who provides a lot of support around businesses,” says David. “It just made me feel like I could get one on one attention, be in an environment that I could really thrive and have a whole group of people that’s committed to helping businesses grow whether I was here or not.”
Reggie Stutzman, a pastor who rents an office space from the Sunshine Bronx says he’s seen people rent from Sunshine and stay there and not really hire very much from the community. “But when you come into a needy area and you’re trying to create jobs and so forth you have to think internally and externally…” says Stutzman “So time will tell. Jury’s out. I’m not sure.”
“Well it’s very much an experiment,” says Matt Owens about the Harlem Biospace’s potential success. It turns out this could be the case for other city funded incubators. Since these incubators have just began, their role in economic development is hard to tell.
Despite the further developments needed, maybe New York City won’t be known just as the center of big business, but the center of all business in the future.
My project was developed from a story I first attempted to execute in Ann Cooper’s reporting class Fall 2013. As I was writing the story, I kept feeling like the story was a lot longer than 800 words. Professor Cooper agreed and I expanded the project to a 2,500 word article and 8 minute audio piece.
Originally, I was going to report on a conference the Harlem Business Alliance was hosting to educate Harlem business owners on the importance of technology in the business world. This organization was birthed in the 1980s for the purpose of economic development within the neighborhood of Harlem.
After looking into other efforts to bring resources to Harlem entrepreneurs, I discovered the Harlem Garage incubator and the Harlem Biospace incubator. I learned that these are part of a much larger effort to help entrepreneurs in New York City. The Garage and Biospace are some of 25 incubators set up with initial funds by the New York City Economic Development Corporation.
I decided to expand my research from the neighborhood of Harlem to the South Bronx where another incubator was recently set up. At this point I wanted to research how these incubators might possibly help alleviate poverty in these low income neighborhoods, provide jobs and provide resources for entrepreneurs.
I interviewed managers of the three incubators and entrepreneurs that worked in these spaces to find out more about the inner workings of these spaces. I wanted to know what programs worked and what did not. I also questioned them about their relationships with the surrounding neighborhoods.
I connected with young entrepreneur named Khalid David who was planning on moving into the Harlem Garage. I kept up with his journey for several months. He eventually backed out of the Garage and decided to move into the Harlem Business Alliance incubator. This space opened March of 2013 after not winning the RFP that Harlem Garage won. Understanding David’s reasoning for picking the Harlem Business Alliance over the Harlem Garage informed my research on what it’s like to be in these incubators.
Incubators are a fairly new concept in the business world in general so information on them isn’t readily available. I had a hard time finding an expert character to give me an overall understanding on how these spaces work and how they can be used for economic development. Eventually, I acquired interviews with Dinah Adkins of the National Business Incubator Association, Carly Chase and Ian Fried of the NYCEDC, and Robert Seamans of NYU’s economics department. Conversations with these people informed my research.