A helping hand
Incubators build new tech businesses
- By Michael Hardy
- Oct 12, 2007
Roger London, of the Chesapeake Innovation Center, said many small business take on too much when they start out.
"One of the first things to get [tech start-ups] thinking about is how to get the message to people, to get it outside the lab." ? Jim Chung, Maryland Technology Enterprise Institute
The hills of northern West Virginia once bustled with mining activity, and the coal from the mountains created a foundation for the economy in the state.
However, those days are receding, and communities are looking for new ways to thrive. The state is trying to draw technology companies, and the sprawling West Virginia High Tech Consortium Foundation complex in Fairmont is one of its key attractions. Nestled in a park with a NASA facility and other federal offices, the foundation offers an incubator and a variety of services to fledgling firms.
West Virginia is not unique. Technology incubators continue to be a valuable resource for some entrepreneurs, providing them with office space and help in creating business plans, learning how to raise funds, and meeting potential partners and customers. Incubators are usually connected to universities or economic development organizations and often draw on federal agencies and large integrators who steer the small firms through their first two or three years.
"Small businesses have a 50 percent chance of making it through the first year and a 5 percent chance of making it five years," said Stephanie Pethtel, program manager of affiliate services at the center.
"We really want to provide them with a place to grow and a place to graduate," she said. "We hope they'll then stay in the area" and contribute to the local economy.
"A lot of small companies bite off more than they can chew," said Roger London, director of technology scouting at the Chesapeake Innovation Center (CIC), an incubator program in Annapolis, Md. "That's what an entrepreneur is, someone driven by that enthusiasm and passion. That needs to be tempered by experience."
The center works closely with the National Security Agency, located nearby. Through a program called TechBridge, the CIC facilitates communication between companies and the agency.
"We have had some companies, members and nonmembers, run through the NSA gantlet," he said. "We work with the NSA outreach program. We're one of the doors you can use to inform NSA about your products."
Chirag Patel, president and chief executive officer of Innovative Management and Technology Services LLC in Fairmont, started his firm at the West Virginia Foundation's incubator in 2003 and stayed there until 2005. Patel also benefited from a mentor/protégé relationship with Lockheed Martin Corp.
The incubator costs less than renting space at market rates, he said. In addition, "you have an address affiliated with the High Tech Foundation, so you can build your reputation as a solid business rather than a mom-and-pop business in the basement."Some still struggle
Although West Virginia's efforts have been successful so far, the state faces challenges that others do not, said James Estep, president and CEO at the West Virginia High Tech Foundation. It is largely thanks to the efforts of Sen. Robert Byrd and Rep. Alan Mollohan, both West Virginia Democrats, that the foundation gained the funding it needs. The state is unable to provide much money.
Meanwhile, construction in the region is expensive because of the extensive network of subsurface mine tunnels. In many cases, the first step is to find the tunnels and fill them in with concrete.
In addition, Estep said, it can be hard to attract top technology talent to the state.
"West Virginia has a bit of a stereotype to it," he said. "It's totally unfair, but we have it." Estep would like the foundation to play a lead role in chipping away the stereotype, little by little.
NASA's Independent Verification and Validation facility, which houses about 150 full-time employees in the technology center's office park, is one of the foundation's partners, as are other nearby federal offices. The FBI and the National Oceanic and Atmospheric Administration have offices in the park, while the FBI's Criminal Justice Information Center is in nearby Clarksburg.
The agencies, along with large integrators, provide a network of mentors, partners and potential customers for small firms to cultivate, Estep said. "We try to connect the people to mid-size or large companies."
The local workforce is, for the most part, not trained in technology work, so most of the employees at the technology park come from outside the area. Estep recruits heavily for people to relocate to the state and, as much as possible, to get those who have left to return.
The foundation can provide some money for new businesses through its Innova program, but another challenge for the program is the lack of an investment base in the state, Estep said. "Some states put hundreds of millions of dollars into early seed [funds]. West Virginia doesn't have that capability."
Companies housed in the incubator get access to office services, good rental rates, and access to programs and people that will help them develop, Pethtel said. The incubator program has made arrangements to provide health insurance, allowing the start-ups to offer that as a benefit to employees. But getting into one of the nine spots available is a challenge, and once in, companies typically stay two to three years.
"We want to make sure they are a technology-based enterprise," she said. "They can't be a retail company. They can't be a franchise. They have to be located in West Virginia or be willing to relocate to West Virginia. They need to show a competitive position over similar marketed products and services. And we want to be sure they can graduate within the two- to three-year frame."Common mistakes
London said one recurring need at the CIC is to keep companies from foundering under the weight of their own misconceptions.
"Entrepreneurs typically miss a lot of the same things," he said. "They may be more optimistic about fundraising than is likely. They may think the market is going to be faster to adopt their product than is likely. It's our job to be the voice of reason."
Academic entrepreneurs have the same blind spots that others do, and sometimes they are even more pronounced, said Jim Chung, director of the VentureAccelerator program at the Maryland Technology Enterprise Institute at the University of Maryland.
"There are going to be common mistakes, especially with tech start-up founders who are focused on what they do best, which is working in the lab producing new technologies," he said. "One of the first things to get them thinking about is how to get the message to people, to get it outside the lab."
The Maryland institute draws on professors and students from the University of Maryland. Chung looks for technologies that have strong intellectual property protections, making them unlikely to fall to early competition.
"Before they even enter the program, they have to identify some markets," he said. "It may not be the one we end up with, but they have to have figured out where they're going. We're looking for dedicated people who have the ability to create and sustain an actual business. They need to have the vision and personality to start and run a business."
The VentureAccelerator program offers help to fledgling firms on topics such as market validation, business planning, staffing and initial funding through grants or equity investment. Another arm of the Maryland institute, the Technology Advancement Program, serves as an incubator.
No matter how much help companies get, though, there is no avoiding the primary requirement for an entrepreneurial business: hard work.
"Technology's really popular and everybody wants a piece of the market," Pethtel said. "You have to be dedicated. You have to be up to the challenge. I see a lot of [company owners] come in at five in the morning to be sure they can cover calls from different time zones. They stay late for the same reason."Associate Editor Michael Hardy can be reached at email@example.com.
Technology journalist Michael Hardy is a former FCW editor.