Incubator turns up heat

Hatching an egg requires a safe nest and a good deal of motherly warmth. Businesses aren’t so different and may require a safety net, loving attention and guidance with a pinch of helpful heat.

Business incubators are there to do just that — provide a home while a business grows and develops and mother it into maturity.

“The important part — what makes it an incubator — is that you do something to help companies grow faster than they could otherwise,´ said Jonathon Benson, chief executive of the Wyoming Technology Business Center.

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Since 2006 when Benson opened the business incubator, he has ushered 18 businesses through his doors while self-incubating simultaneously. The result has been expansion across the state, including the addition of a second incubator in Casper this summer, doubling the space available at its center in Laramie. That space already has brought in five clients, and has two more hot prospects. Benson said ideally, the incubator would be full with 15 clients. Between the Casper and Laramie locations, Benson said he has about 40,000 square feet to grow other people’s businesses.

Building blocks

Benson said $3 million to $5 million businesses with profit margins in the 10 percent to 20 percent range are “the building blocks of the economy.” With a budget of about $1.2 million from the state through the University of Wyoming, the Wyoming Business Council and a continuing grant from the U.S. Department of Commerce, he tries to manufacture those blocks.

He said businesses pass through four phases before — like their egg-y counterparts — they are fully fledged and can fly the coop.

Pre-venture: A business starts as a thought or a way to solve a problem – often one faced by other businesses, according to Benson. He said it’s important for the founders of a business in this early stage to evaluate whether they really care about solving the problem they think they’re solving.

Pre-revenue: This is the phase where a product or service is developed. Benson said it ends with a beta test where a potential customer can try out a product or service. “The key is you don’t want to rush through beta-testing,” Benson said. “You want to learn as much as you can.”

Initial sales: All plans aside, “Nothing ever works the way you think it’s going to work, so you stay focused on finding a customer,” he continued. “Through trial and error you learn a sustainable business model.” He said at this point, a business is running with the founder as the principal, with most concerns running through him. Creating systems and honing financial management is important to this step.

First growth: It is in this final stage of incubation that a young business begins to take flight. Customers start flooding in and the founder can no longer just work harder to get everything done. At this point, the owner must step off a ledge, trusting that his staff will catch him.

“Entrepreneurs just can’t give up control,” Benson said. “It’s a hard thing to do. The shift comes when somebody else does something and hits a home run, and you’re as excited as you would have been had you hit the home run.”

Home runs

Benson has seen his share of home runs through the businesses he has helped mentor, despite a gap of two years from the initial full house at the incubator and the next prospect.

Falcon Technology Systems Ltd., doing business as tradingcomputers.com, specializes in selling computers to day traders. The company claims to be “the world’s largest … place to buy trading computers and monitor arrays.” Benson said before the Internet, the niche wouldn’t have worked because it would have required too much costly “smile-and-dial” legwork. With the Internet, things are different.

“You put breadcrumbs out there, and they find them, and it leads them to your place,” Benson said. And founder Scott Tafel, who outgrew his space in the incubator within a year, handled that system well enough to become the No. 686 Inc. 5,000 company in 2009. The companies are selected for their explosive growth, and Tafel’s business grew 409 percent between 2005 and 2008 to land squarely in Benson’s definition of an economic building block with $3.4 million in revenue.

In March, another former client of the incubator – Firehole Composites Inc. (formerly Firehole Technologies Inc.) – was acquired by Autodesk, a Fortune 350 company.

“They had technology that filled a nice hole in our product offerings,´ said Autodesk spokesman Noah Cole in a March interview. The acquisition brought Firehole’s staff of 16 into Autodesk’s staff of 7,000, all while allowing the company to stay put in Laramie and mostly maintain its identity.

“Because of Firehole, Laramie has a division of a big company,” Benson said.

And Firehole founder Jerad Stack said the acquisition is proof of the university’s incubator process. “There should be a lot more Fireholes to come,” Stack told the Laramie Boomerang in March.