Does Your City Incubate or

Inhibit New Businesses?

By Joseph Eshun &
Lee Huang
 Outline
Current issues and challenges confronting cities
National League of Cities (NLC) 2004 Study
A Couple of Vignettes
What is a business incubator?
What is business incubation?
What is Business Incubation Competence (BIC)
The supply side
The demand side
Lessons from Philly and Phoenix
Conclusions and Practical Implications for policy
and managerial decision making
 Current issues and challenges
confronting cities

Structural deficits: debt service that devours 10-

25% of the annual municipal budgets
Record federal deficits and two wars
Higher business taxes and fees
Declining infrastructure (roads, bridges etc.)
Downsized police and fire depts.
Business relocations and exits, etc.
Business fluctuation affects property market
An National League of Cities Study
An NLC study of 288 municipal CFOs found that
61% of municipalities will be less able to meet
their financial obligations in 2005 than they were
in 2004.
2004 was the third consecutive year that general
fund revenues, adjusted for inflation declined
While fiscal revenues are declining public safety
and health care costs have increased sharply
Results? Many cities are resorting to severe
budget cuts and increases in taxes and fees
The National Scope of the NLC Study
The scope of the NLC study was not confined to
old industrial cities of the Northeast
Some communities in the West and Midwest are
even worse off including some suburbs
75% of CFOs in Western cities reported
deteriorating conditions
74% of CFOs in Midwestern cities reported
deteriorating conditions
59% of CFOs in Northeastern cities reported
deteriorating conditions
43% of CFOs in Southern cities reported
deteriorating conditions
 Declining Fiscal Fortunes
% change in constant dollar revenue for U.S. Cities

Source: National League of Cities 2004

3
2.5
2
1.5
1
0.5
0
-0.5
-1
'96 '97 '98 '99 '00 '01 '02 '03 '04
 What do the experts say?
“For the most part cities have not confronted their problems head on.
Some are hoping that they will grow their way out of it, but that
notion is fading away.” --James Hughes, Dean of the School of Planning
and Public Administration, Rutgers University, New Brunswick, New Jersey

“If the housing market were to collapse tomorrow, the sting

for cities would be enormous. With a record federal deficit
and a war with no end in sight, I am not sure where
resources could be shifted to cover the local government
budget woes.”--Michael Pagano, Professor of Public Administration,
University of Illinois at Chicago, author of the NLC study

“Cities feel the effects of a recession before other communities, and

the effects linger longer.”--Henry Coleman, Economist, Rutgers
University, New Jersey
Where did the fiscal problems come from?
A convergence of factors
Internal (within city government control)
leadership, politics, flawed financial planning
over generous unfunded pension programs
External (imposed from outside). Federal
regulations: Clean Water Act, Terrorism readiness
and Safety Compliance regulations
Economy: job losses, unpaid payroll taxes
Overdependence on sales/property taxes exposes
cities to economic fluctuations
Phenomenal growth of e-commerce and online
sales decreases city sales revenues
Demographics: A growing number of people with
jobs in cities live in the suburbs
 What the experts recommend
“Cities need to recalibrate their revenue sources.”
--NLC analyst

“Cities are the stage on which the economies win or

lose.”
--Economic Strategy, City of Ottawa

“The health of the twenty-first century city is

measured by the talent of its workers, the
creativity of its citizens, its appreciation of
diversity, the strength of its high-tech sector—
and its willingness to collaborate for success.”
--Economic Strategy, City of Ottawa
 A new mandate for cities
NLC is mandated “to strengthen &
promote cities as centers of opportunity,
leadership, and governance.”--National League
of Cities (www.nlc.org)

“Creating a prosperous city is equally a

matter of collaboration and
competitiveness, and innovation and
adaptation.”--Economic Strategy, City of Ottawa
Practical implications for the city
Worsening fiscal conditions demand that cities
develop new and additional sources of revenues.
Cities should be redesigned or institutionally
structured to become effective incubators of new
businesses, new products, new services, new
technologies, etc.
More new businesses generate more fiscal
income—sales, payroll, property revenues for
cities.
 What is a business incubator?
A business incubator is an
environment designed to stimulate
the birth, growth and development of
new enterprises by improving their
opportunities for the acquisition and
exploitation of resources with the
objective of facilitating and
accelerating the development and
commercialization of new products,
new technologies, and new
businesses.
 What is business incubation?
Business incubation is a dynamic,
market-driven, social and managerial
process that facilitates the discovery,
validation, and application of new
concepts, new products, new
technologies and new businesses
with the objective of accelerating
their development and
commercialization.
What are the prerequisites (essentials)
of business incubation?
Business incubation requires multidimensional
resources and technologies embedded in diverse
and multiple institutions—
physical (real estate, facilities, equipment)
human (scientific, engineering, and professional
[managerial, legal, accounting expertise]),
social (relationships with other institutions),
organizational (programs, processes, systems,
structures, etc.)
Economic/financial (subsidies, incentives,
loans, grants, investments, etc.)
 Resources are embedded in
diverse and multiple institutions
Governments (federal, state, county, and local)
Business and industry
Academic and research institutions (universities,
colleges, vocational and technical institutes,
teaching hospitals, etc.)
Professional, industry, and trade associations
(chamber of commerce, SCORE, etc.)
Financial institutions (banks, venture capitalists,
angel investors, SBA/SBDC loans and grants, etc.
Foundations, Philanthropists, Think-Tanks
Religious institutions, Ethnic Collectivities
 Is your city a business incubator?
How does your city facilitate business incubation?
Does your incorporate a business incubation policy and
agenda in their economic development plan?
Is this articulated to all residents of the city?
How does your city fare under the following conditions?
Do existing institutions in the city execute the 5Cs?
Communicate?
Cooperate?
Collaborate?
Capitalize?
Coordinate?
How does the execution of these roles and routines facilitate
promote entrepreneurship and stimulate new business
formation
 Is there a market for business
incubation in your city?
Research indicates that it is the execution
of the 5Cs that creates and sustains the
market for business incubation
It the existence of critical exchanges
(transactions) and interactions among
institutional stakeholders and
entrepreneurs that constitutes the market
for business incubation
Like any market it consists of demand side
and supply side
 The demand side
The demand side poses the
question, What are the needs or
resource requirements of
entrepreneurs, startups, and
small businesses in your city?
What are their demands and
challenges?
What are they saying to you?
 The demand side
In addition to servicing existing entrepreneurs, startups, and
small businesses, what programs, activities, and events are being
executed to ensure the recruitment, development, and retention
of the next generation of entrepreneurs, entrepreneurs, startups,
and small businesses, ?

Where will the next generation of entrepreneurs come from?

Which institutions are capable of birthing the next generation of

entrepreneurs?

Do these programs reinforce a culture of economic self-

independence and increase the inclinations of individuals to
pursue self employment, business ownership, and formation,
growth, etc.?
 The supply side
The supply side poses the question, what are the roles and
contributions of the following institutions?
Business and industry
Financial institutions
Academic and research institutions
Professional, industry, and trade associations
Foundations and philanthropists
Religious institutions, ethnic collectivities, voluntary
organizations, etc.
Are the resources from these institutions available, accessible,
and affordable?
Do they lead to the recognition and exploitation of
opportunities by entrepreneurs?
 What is a Business Incubation
Competency (BIC)?
A “Business Incubation Competency”
(BIC) is an evaluative criteria or diagnostic
framework designed to assess the
capacity of cities to incubate new
businesses and sustain new business
formation.
BIC evaluates the efficiency and
effectiveness—performance—of cities to
promote entrepreneurship and stimulate
new business formation.
BIC is a combination of social, economic,
and cultural indicators
The business incubation competency
is indicative of the degree or extent
to which multiple and diverse
institutions in a city communicate,
cooperate, and collaborate to
catalyze and capitalize the formation
of new businesses, new products and
services, and new technologies, etc.
Business Incubation Competency (BIC)
is a measure
BIC also measures the extent (breadth
and depth) to which various roles and
routines are coordinated by different
institutions to produce desirable social and
economic outcomes.
The business incubation competency is a
reflection of the pace and intensity of
business incubation activities as it directly
impacts the generation of desirable social
and economic outcomes and drives the
the market for entrepreneurship and new
business formation
 The demand side of BIC

The demand side of BIC will identify

emerging trends, community needs,
and potential outcomes in terms of
-New Products
-New Services
-New Technologies
-New Businesses
 The demand side of BIC
What are the entrepreneurs telling you in
your community?
How is your community unique in terms of
industry/entrepreneur needs?
How does successful entrepreneurship
contribute to the overall quality of life?
What opportunities are available to create
these outcomes?
What are the incentives and rewards
available to entrepreneurs?
 The supply side of BIC
What are the opportunities required to create
these outcomes?
What are the resources, incentives, and rewards
required to create these outcomes?
Are these opportunities and resources available,
accessible, and affordable in the quantity and
quality demanded?
What are the current roadblocks for progress?
Who are the current competitors or collaborators?
 Lessons from Two Cities:
Philadelphia and Phoenix:
Infrastructure (physical AND political)
Collaboration vs. “fiefdoms”
Tax portfolio and its impacts
Location: immigration patterns,
proximity to other high-density areas,
climate
World-class institutions (business,
university, medical)
Street-level character
 Conclusions and Practical
implications (1)
Cities should be an environment capable
of supporting the birth and growth of ‘new
economy’ companies as well as embracing
the reality of the maturity and termination
of ‘old economy’ companies—the so called
creative destruction.
Success for the city will be driven by how
well the city maps out it resources,
diversifies its economic base, deploy new
technologies, and a creates a culture of
cooperation and collaboration among its
multiple and diverse institutions.
 Conclusions and Practical
implications (2)

Success for the city is indicative not only

of collaboration and competition but also
of innovation and adaptation
Success for the city will be measured by
the efficient and effective coordination of
financial, human, economic,
organizational, and social resources
embedded in diverse and multiple
institutions
 Conclusions and Practical
Implications (3)
The city can be proactively designed
and institutionally structured (social
architecture) to facilitate or oppose
business incubation
The city as a business incubator is
characterized by a community of
shared values, norms, routines,
practices, goals, and interests,
 Thank You!
Questions, comments, contributions?

Joseph P. Eshun
Assistant Professor of Management
Pennsylvania State University,
jpe10@psu.edu

Lee Huang
Executive Vice President
The Enterprise Center
lh@theenterprisecenter.com