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Now and Then: In Conversation with Thomas Mancuso

The Batavia Industrial Center enjoys the reputation of being the world's first business incubator. Can you give us a brief history...
The building that is now known as the world's first incubator started as a manufacturing company called Johnston-Harvester, and then Massey-Harris. My great-grandfather and grandfather worked on the construction site and it was the factory that enabled my grandfather to go on to to trade school and become a plumber. This eventually led to the family business of Mancuso Plumbing and soon after that they diversified into car dealership and real estate (including a movie theatre).

The late 1950s were economically difficult and when the Massey-Harris plant closed shop in 1958, local unemployment rose to twenty percent overnight. My grandfather and his brothers realised that the closure of the biggest employers in town could adversely affect their businesses as well, so they decided to buy the factory for USD 185,000 and find an alternate tenant. Things, however, did not work out quite like that, as there was no single business willing to take the risk. Eventually they started taking in smaller tenants to fill the space - the first one ever was a sign-maker who made the sign that still hangs on the building today. By 1976 they had a thousand people on site, but success brought with it increased maintenance costs and electricity bills. At this point Atkinson's Enterprises offered to potentially put in more time and money into the upkeep and running of the place, but the project forced the company into Chapter 11 bankruptcy. Soon after, the bank invited the Mancusos to resume the running of the business till a new owner could be found - they were convinced this was the best chance to recoup losses and support the Batavia business community.

Two years down the line it was obvious significant infrastructural improvements were needed to deal with the ever-increasing running costs and in order to do this, Joseph Mancuso had to look to see what sort of returns he would get if he made improvements that would serve different industries... software, agro/farm sector, laboratories etc. Then in 1984 Joseph, with the help of the Genesee County Industrial Development Agency, state agencies, the community, and banks, put together a financial package that enabled him to re-purchase the building and make lasting improvements to its infrastructure.

What are the origins of the term business incubator?

When my grandfather and his sons took my father out of the hardware store to start running the Batavia Industrial Center they told my father: "Eh Joe, we have to fill the building, create jobs and make money by doing it". That's still the job 53 years later. Since bills were high from the word go and given that a lot of space was occupied by warehouses or other activities that didn't create a lot of jobs, we soon came to realize that we had to find job-creating businesses replacing those less labour intensive ones. One of the first businesses at that time was the Mount Hope Hatchery, a chicken hatchery from Rochester, New York that used 80,000 square feet of space to hatch baby chicks. My father was showing a reporter around the facility once day and while explaining the business in a rather light-hearted fashion remarked, "While they are busy incubating eggs, we are busy incubating businesses". And the name stuck - and today it is synonymous for business development enterprises worldwide. By the late 1980s, almost all business development organizations were identifying themselves as business incubators.

What were the crucial turning points and the role (if any) played by the public sector in this venture?

The public sector had little impact on the original business. In 1984 however, they provided a low-interest loan that covered forty percent of the project costs. Parties with vested interests in the bail-out suggested we borrow money from the Federal Government to create a local revolving fund generated by the loan repayment. That fund only lends up to about US$ 20,000, but in our experience small businesses need mentoring more than money. There was a five-year lull in public sector involvement and then we attempted to tear down the original structure and build a more modern complex to better address the needs of emerging businesses. The State helped with some grants, but we borrowed the rest.

How did the incubator - which began as a real-estate operation - deal with the high costs structure that typically affect this kind of business?

We worked very hard to fill the building as fast as we could and we used that money to maintain the building, make its operational management more efficient and self-sufficient and finance development programmes for the small businesses. The Batavia Industrial Center, the incubator that most people know, has grown to 900 thousand square feet with 30 acres of land. In my experience the cost of the people, the management that provides the assistance to the tenants, is as high as the cost of the building upkeep. It's one of the reasons why we focus on larger buildings so that we can spread the cost of the programme over enough space, thus keeping rents low enough to help and attract the businesses.

What do you think may have been the main competitive advantages for the companies being located in the incubator facilities of Batavia?

For some businesses Batavia has a strategic location, being close to big cities and to Canada, for some it offers flexible, growable spaces. For others it is about the facilities: high ceilings, cranes, trucks, warehouse and storage. Our services are comprehensive - we provide tenants with bookkeeping, telephone answering, administrative services, copiers, faxing, document scanning, postage, conference rooms, short-term office rental, warehouse services (loading & unloading), courier services & supplies. We also provide market and business advice, from developing a business plan, preparing a web page, access to debt and equity financing, market analysis, intellectual property advice, recruiting and supplying a labour force.

Most of the tangible assets are owned by the Batavia Industrial Center and are specific to the way we manage the needs of the the businesses we serve, but our strategic assets are the intangibles; human capital being key. Our main strength is the network we have created over the years, across the region - universities, trade schools, banks, etc and we make connections between the business people, the business owner and the resources. We are with our tenants when they start, we are with them when they grow, and even when they leave the incubator, if they stay in the region, we help them find, rent or buy buildings...

What would be the salient figures of the Batavia incubator? Industries, manufacturing capabilities, service activities, revenues, employees, companies created, jobs created, contribution to the local economy etc?

In 2005 we had served over 2,700 businesses and we stopped counting. I would say our main focus is jobs. Today there are 80 businesses inside the incubator and about 400 people working from our facility - but we know there are at least four thousand people outside the building that are professionally connected to businesses we have helped to grow.

What are the standard services provided by the managing team to the tenants? Which of these can be customized and offer a higher value-add ?

Well, almost everything we do can be customized. Our goal, perhaps our core competence, is to connect businesses to the outside market by providing whatever they need throughout their entire life cycle, from start-up to development stage to their retirement. We are fortunate to be near several excellent universities that allow us to expand the scope of services we offer - for example, the support they need in managing IP rights, patents, licensing and so on. Universities seldom charge for these activities, unlike other market services that have to be paid market prices, for example, IP attorneys or venture capitalists. Tenants can pay extra and buy as many other services as they want: forklifts, cranes, office labour, industrial labour, equipment. Furthermore, we also offer a combination of training, advice, mentoring, out-tenant and virtual programmes for pre and post occupancy clients covering the entire business life-cycle - from start-up to retirement.

What are the payment schemes for different services provided and which of these are included in the rent, and which are charged separately and why?

The largest share of the rent is based on the space occupied by the tenant and include almost all of the services available within the incubator such as coaching, advising, networking events, secretarial and administrative services, and so on. Almost everything is included, except the tangible assets and the labour. If you use equipment like a forklift, crane, copier or scanner you will have to pay for usage. Similarly a client would have to pay for the services of the Incubator team members as and when they need it. We are in the business of teaching people how to run businesses in the real world. We initially start with low-rents, but that goes up gradually (often exceeding market prices) to enable a tenant to decide the value of being in or out of the incubator. Our building is very large and we always have space available, and while we don't need to make them leave the building, they must at some point leave the subsidized part of the programme.

What are the core and strategic competencies of the management team? Which ones are provided in-house and which ones are sourced externally, if at all?

As much as 80 percent of the people working for the Batavia industrial Center are resources on site, including those of the management team which is made up of six people. The people we hire are local and therefore care about the people they work with. We provide whatever help we can in-house and for those elements we cannot cater to, we try to find connections in to the local community. Our staff are all experienced and business people themselves. I have run businesses all my life. I've been in the board of a bank for many years, our leasing man comes from the industrial rental sector, our operations manager is an industry professional. But we also try to pick people who have displayed a commitment to the community over their lifetime: volunteers from the non-profit sector, for example. We try to put all of this together to offer our tenants a comprehensive, caring, customised package. Fifty years later this model still seems to be working.

How would you compare the public and private business models in the management of the incubation value chain, taking into account the differences between developed and developing economies?

I'm more familiar with the private model of incubation even when we talk about development policies which are used to define the business incubator sector. As an original member of business incubator association in the U.S. I realised that most incubators are public or university based. I personally favour the market-driven model, but I understand that it has to be different based on the available talents in the community.

In developing countries, policies are aimed at increasing investments in technology and attracting large enterprises. All good, but 90 percent of businesses are small businesses and are the the spinal cord of these economies. The public sector may play an important role in the very early stage of a business' life-cycle, when the business idea needs to be fine-tuned and tested before competing in the marketplace and the young entrepreneur may not have access to funds or bank loans. For example, the city of Batavia has a programme that gives the business owner up to thirty thousand dollars, only half-repayable, provided that the entrepreneur commits to getting some education in business, develops a business plan and stays in business at least for three years. We have periodically loaned money to businesses, in addition to subsidizing them with rent. The rental subsidy is actually a funding mechanism, but some businesses that graduate from the programme are paying market or above-market rent. The city has a revolving loan fund and there are banks that grant loans. But sometimes nobody will loan the money that the businesses need and every now and then we get involved in that, thus providing some kind of micro-financing for short periods of time. Even though I favour the private model, there are several advantages in the area of public-private partnership, at least when the partnership is led by the private sector. I feel, in these instances, the projects will be market-driven and provide a timely response to the needs of the community.

Based on your Sicilian roots and incubator know-how, can you suggest how we here, in Sicily, can free ourselves from dependency on public subsidies to support to our start-ups and spin-offs?

I would welcome the opportunity to help create more businesses and jobs in Sicily. I think the process is much the same as here. Based on a strong business experience and an in-depth understanding of what the community is like, what its unique needs are and what it can provide, we start firstly by clearly defining what our goals are, that is to create jobs and pay bills. Afterwards, we define what is successful and try to carry on doing it. Our model used an existing building, capitalising on an existing asset. I think in Sicily is much the same. You find a building or a collection of buildings that are big enough to spread the cost of the programme, then you'll probably need some help either from investors or benefactors who are passionately committed in the community or some public investment, provided that the management stays market-driven till you are self-sufficient. We have a phrase we use to define our approach:cooperative self-reliance.

You certainly have enough people and lots of businesses. Focussing on your unique products, talents and strategic assets of your community, whether it's a city like Palermo, Agrigento or Noto, or a collection of little places like those my family is from, would be a good starting point. I would like to remind you and everyone in the Sicilian community that the first business incubator in the world was created by a Sicilian.

Alessandro Collura has more than 15 years experience in the field of development policy. He has worked with Sviluppo Italia Sicilia since 2003 as a senior professional business analyst and market analyst and is a member of the team responsible for the development strategy of Sviluppo Italia Sicilia's business incubators network. His main skills and expertise include designing and evaluation of feasibility studies related to development programmes in the fields of innovation technology and renewable energy sources, management of foreign investor relations, designing of financial incentives aimed at developing large industrial investments in developing areas and an in-depth analysis and reporting on Sicily's investment opportunities in different fields.
Published on 27-02-2013 12:23 by David Tee. 1387 page views

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