For a few decades now local governments have been trying to “grow” new businesses by “incubating” start-ups…typically that means offering them some space, advice and networking opportunities.
During the recession these public-private experiments have thrived. One version of an incubator opens this Wednesday in Shaker Heights. Cleveland Heights is already home to one incubator, and hopes to open another by the end of the summer. The city of Cleveland boasts seven incubators. But are cities getting a good return on their investments? Reporter Ida Lieszkovszky went looking for answers.
Todd Goldstein is walking down a hallway that is entirely glass on one side and full of half-assembled cubicles on the other.
"And you can see almost all these walls in here have white boards and really the idea is to keep the creative juices flowing and people can write wherever they need to go."
He's not joking. Pretty much every inch here is covered with white boards - including table tops. This place, by the way, is the Shaker Launch House, and Goldstein is one of its co-founders. It's an incubator for entrepreneurs who are in the very beginning stages of creating a business.
"From what we've seen there's nobody in Northeast Ohio that invests in the seed stage."
There are plenty of incubators in the area, but Goldstein says those work with businesses that are already off the ground, whereas the Shaker Launch House works on ideas that could become businesses.
"Entrepreneurship is the way to make a successful city and a successful economy."
Then there's a newly opened post-incubation space on Euclid Avenue, part of the health corridor. Some of it is still under construction, but the first tenants of the finished part are already moving in. Cleveland Mayor Frank Jackson recently toured the facilities, and he would agree with Goldstein that investing in start-ups is key to a healthy economy.
"That's what happened with Microsoft so you start somewhere and you have to invest in the risk and you minimize the risk by doing certain things and creating the right environment. But once you catch that's where the growth is, it's in the risk."
"Statistically the mayor is wrong."
That's Scott Shane. He's a professor at Case Western Reserve University who specializes in entrepreneurs and he says for the most part, betting on start-ups is very risky, it usually yields no reward.
"New companies fail at a high rate and take all the jobs away when they go under."
Shane says only two percent of start-ups see any significant growth in their first year, and half fail within their first five years. He says it's actually a better bet for cities to invest in keeping existing, already successful companies in town - even if it means bending over backwards to do so.
"A job saved is the equivalent of a job created. Our goal is for people to have jobs as opposed to being unemployed."
That's something most economic development directors get. Brad Sellers is Beachwood's new consultant on economic development and a 10 year veteran of the same job in Warrensville Heights.
"Day 4 on the job, almost a full week into this thing and so far so good."
He says there's always a chance a start-up could turn into the next Microsoft or Facebook.
"You don't want to miss an opportunity so you do have to participate in this to a degree."
But, he says, that's not the norm.
"The norm is a small company growing to be a productive company and you hope as the company grows that they still stay in the community they got the help from. They're not chained to stay here."
That's the catch with start-ups. Even if it is the next Facebook, there's no way of knowing if it will stick around.
U.S. Senator Sherrod Brown has lobbied heavily for business incubators. He’s cited a study from the Economic Development Administration that says more than 80 percent of businesses that go through an incubator set up their company within 20 miles of it. What’s more, that same study shows that for every 10-thousand dollars invested in an incubator, 70 local jobs are created.
Still, the game starts all over once a company does make it - cities have to invest to keep successful companies in town while also spending money on the next potential big thing. As Mayor Frank Jackson put it...
"You have to pat your head and rub your stomach at the same time."