Providing a Home for Start-Ups
by Carl HoffmanPhoto Gallery
It seemed easy enough on paper: Glenn Johnson would start a business manufacturing display racks for retail stores. As a veteran plant manager for a major store-fixture manufacturer, he knew the ins and outs of the business as thoroughly as anyone. But the cold reality was this: "I had no confirmed orders, no money, no equipment, nothing," says Johnson. "I want your business," he would tell prospective clients, and they would answer, "Fine; when you get your business up and running, give us a call." "It's like the chicken and the egg," Johnson says. "I couldn't afford to make and sell my product without orders, but I couldn't get orders until I had a product."
As any entrepreneur knows, Johnson's problem wasn't unusual. But he found a solution: in 1997 Johnson, a part-time secretary, a draftsman, and two fixture builders—NOVA Manufacturing in its entirety—opened for business in a small space at the Shoals Entrepreneurial Center (SEC) in Florence, Alabama. A multiuse business incubator, the SEC acts as a greenhouse for tender young sprouts like NOVA, providing a sheltered space in which to grow, and heaps of advice and support. Today, just four years later, NOVA occupies 16,000 square feet of space and employs 21 workers; its retail sales topped a million dollars in 2000. Soon NOVA will be graduating from the incubator, moving out so other new businesses can take its place.
"In the center," says Johnson, "there was just so much expertise." He could expand the business at his own rate, and when cash flow got tight, he was able to obtain a bridge loan through the center. "And every time I needed to discuss something, I could sit down with Jerry Davis, the center's director."
Since opening in 1992, the Shoals Entrepreneurial Center has housed 71 businesses, 64 of which are still in business, and produced more than 800 jobs. Now operating from two locations-the original at Florence and a second, which opened in 1997, in Sheffield-the center is a temporary home for 22 businesses. Thanks in part to a grant from the Appalachian Regional Commission's Entrepreneurship Initiative program, the SEC will soon open a third location, which will house a cafeteria and commercial kitchen to nurture food-based businesses. "We make it so that the cost of going into business is minimal," says executive director Jerry Davis, "and then we help each one of our businesses flourish as much as we can."
Plans for Success
Part of helping a business flourish is making sure it is well organized from the start. Before would-be entrepreneurs can rent space in the center, they must submit a business plan, which has to be approved by Davis and a client selection committee. The committee and Davis look for businesses with the potential to create fairly high-paying jobs; ideally, businesses that are different from any other in the region; and preferably businesses whose market will be out of the region, thereby bringing new money into Lauderdale and Colbert Counties.
"We go over every business plan again and again," Davis says, "and ask lots of questions, particularly about their numbers. We never tell them not to open a business, but we ask some pretty strong questions."
Often, he sends potential entrepreneurs to the Small Business Development Center (SBDC) at the University of North Alabama to further develop their business plans. That careful scrutiny alone dramatically increases an entrepreneur's chance of success.
"Independent entrepreneurs often don't go through that careful planning process," says Carolyn Long, an account executive with the SBDC. "They may have an idea but don't look carefully enough at the financial feasibility and whether or not there's a market and what their break-even point is-all that up-front research. Many times there are hidden start-up costs that could be devastating if they're not budgeted, and getting an outside source to look over everything is key."
"There are a lot of great ideas out there with no organized strategy behind them," says Rob McNeilly, president and CEO of SunTrust Bank, Alabama, and current chair of the center's board. "Just being forced to form a business plan automatically instills a level of discipline and planning."
When a business is accepted into the center, the benefits are immediate. For a reasonable rent, the SEC provides small businesses with the kind of back-office infrastructure usually enjoyed only by long-established companies with deep pockets: multiline telephones, facsimile machines, postage meters, conference rooms, Web-page design and implementation services, access to presentation software, copy machines, overhead projectors, a small business library, a computer learning center, computer tracking for UPS-delivered packages, a Dumpster, and even secretarial back-up. In effect, the SEC's clients become instant full-fledged businesses. "Our goal is for every company in the center to have a twenty-first-century office," Davis says, "so all they have to focus on is growing their business."
Though that may sound superficial compared with a sound business plan and good management, it is anything but. "For an entrepreneur," says Phillip Forsythe, president of Forsythe and Long Engineering, "your number-one resource is time. You can't afford to hire other people, so if you can't do something yourself, you can't do it; your time limits the growth of your company, and you can get into a real hole. All those little back-office distractions take away from the thing you should be focusing on, which is your business."
Forsythe knows what he's talking about. He and his wife, Margaret Long, started their engineering firm in 1992 in the center's Florence facility. By the time Forsythe and Long Engineering graduated from the center in 1996, the company had 35 employees, and its annual gross revenue was $2.5 million. Today, out in the real world (and located just around the corner from its former home), the company has grown to about 50 employees, with $6 million in gross revenue. "In the center it was easy to grow; every time we needed an extra thousand square feet of space, there it was, and since we didn't have much money, being in the center freed up capital we would have had to spend on things like fax and copying machines," Forsythe says.
Hitting the Ground Running
Leon Balentine agrees. A veteran of nearly 40 years in the trucking industry, Balentine had grown up in Florence and wanted to start a business in his hometown. "I wanted to provide an opportunity for people who had worked for me previously," he says, "but also to pay back my community." In 1996 he presented a five-year business plan for his proposed trucking company, USA Motor Express, to Jerry Davis. The plan was approved, and in 1997 Balentine bought his first tractor-trailer. That year the company brought in $2.4 million in gross revenue. USA Motor Express graduated from the center in 1998, and today it owns 177 trucks and is on track to gross $21 million for the year. "We hit the ground running and were in business from day one," says Balentine. "We were in a professional environment from the start, and that gave us credibility with our investors."
Davis hopes to duplicate the SEC's success with the Shoals Commercial Culinary Center, set to open in Florence this spring. "You've got all these people making wonderful pies and barbecue sauces and specialty foods out of kitchens in their homes," he says. But growing these tiny businesses can be particularly hard. Private-label bottlers, for instance, often won't bottle fewer than 2,500 bottles. Commercial-size kitchen equipment is expensive. But Davis figures the kitchen incubator will solve those problems, creating a commercial-grade, licensed kitchen essentially for rent by the hour. "Now an entrepreneur can make 500 bottles of barbecue sauce locally," Davis says, "and not be locked into large capital outlays for equipment. All these people can test the market at a reasonable rate." And, of course, they get all the same encouragement, experience, and hard-nosed business advice that Davis gives his other clients.
"It all comes down to making more jobs for our people," says Robert Redd, president and CEO of First Southern Bank in Florence, and a founding director of the center. Communities can try to recruit already existing companies or try to grow their own, by doling out heaps of business TLC in an incubator. Though that may take some extra up-front costs and effort, Redd says, ultimately it's money well spent. "Bankers look much more favorably on companies that come out of the entrepreneurial center. If they've built a track record after two or three years in a sheltered cocoon, they'll more than likely be successful on their own. By the time they graduate, we know they know what they're doing. We know they can cut the mustard."
Carl Hoffman is a freelance writer based in Washington, DC.