July 28, 2009

City, Private Business Foster New Startups

Dan McCue  /  Charleston Regional Business Journal

Forward thinking in a down economy

We're still in a rough economy, but some are embracing the future by providing in-demand resources for startups in technological, "knowledge-based" industries.

Last week, the City of Charleston dedicated its Flagship business incubator at the corner of East Bay Street and Calhoun. Come December, the city and the South Carolina Research Authority will open a massive biotech incubator on upper Meeting Street.

And it's not just Charleston or organizations like the SCRA. At least one small business in the area, KFR Services in Summerville, is offering entrepreneurs use of vacant space in its building as well as its back-office expertise to turn dreams into commercial success.

"The traditional way to looking at economic development is that it is a zero-sum game," says Ernest Andrade, executive director of business development for the City of Charleston.

"(Economic development) has always been a matter of going outside of our community and looking for someone we can potentially lure here. In other words, one community wins and another one loses," he says. "What the rise in incubator developers signals is a realization that over 80 percent of job growth in a community comes from within the community.

"So if you're going to foster real job growth and opportunity, the way to do that is to look within, to look at the potential of what's here," Andrade says.

Although they don't call it an incubator, preferring instead the phrase "co-working business environment," the 5,500-square-foot Flagship is already creating a buzz in the Charleston entrepreneurial community.

Weeks before its official, July 23 opening, only four of its 11 spaces for start-up companies were vacant, and that was just from word of mouth. Andrade says that the building should be near capacity next month.

For however long they stay at the Flagship –- the official maximum stay is a year, with some wiggle room –- entrepreneurs can take advantage of the benefits of a mid-city location, technological connectivity, and interaction with other entrepreneurs.

The city itself has both a short- and a long-range goal. In the near term, it gains from the revenue generated by the business license fees paid by incubator residents. In the long term, it hopes to encourage the fledgling businesses to stay within the city proper when the time comes for it to go out on its own.

"Historically, a lot of startups in Charleston began with their 'office' being Starbucks or Dunkin Donuts or a similar space with wireless access," Andrade says. "What the city is saying in establishing the Flagship is, 'You don't need to do that anymore. If you are interested in helping to grow the knowledge-based economy in Charleston, we are here to help you.'"

If the Flagship makes one think "business," the "innovation center" currently under development on upper Meeting Street already screams "science" and "university technology."

Once it opens this coming December, the 28,500-square-foot facility will be home to 11 chemical and drug labs, and up to 10,000 square feet of office space.

"Our objective is to be a birthing place for bio-tech and bio-pharmaceutical companies," says John Gregg, the SCRA's chief technology officer. "At the same time, the facility will also be a resource for the community, housing a police station and public meeting facilities."

It's a model the SCRA is also rolling out in Columbia and Greenville, although the Charleston facility will be the first to open.

"Since signing a long-term lease on the site, we've invested about $6 million to create an environment where ideas initially formulated in a lab at the Medical University of South Carolina can reach their full commercial potential," he says.

Entrepreneurs will be required to pay rent during the 18 to 36 months they stay at the center, but Gregg emphasizes that the rent will be far less than rates found in the commercial market.

"The going rate for lab space in this area is probably between $50 and $60 per square foot, our space will be closer to $30 a square foot," he says. "We're looking at this to be a break-even proposition. Of course, the real pay back is the creation of high wage, high knowledge jobs in the community."

KFR Services, a diversified Summerville company with subsidiaries serving the telecommunications and maritime industries, is also embracing the concept of giving entrepreneurs a leg up in a difficult economy.

It has decided to turn unused space in its headquarters into a business incubator where startups will be afforded advice, back-office services and the space to grow, without their founders being asked to sign away a portion of their dream in the process.

"With the economy being what it is –- and with people either losing or worrying about losing their jobs –- this is when would-be entrepreneurs naturally start thinking it's time to go into business for themselves," says Stephanie Fetchen, co-president of the company.

"At the same time, because we've always been a diversified company, our management team concluded we have the expertise –- especially in the back office and operational areas –- that most entrepreneurs don't have," she says. "Our hope is that by providing support and guidance to these start-ups, they'll prosper and in time be able to grow on their own."

The hardest part, Fetchen says, was figuring out how KFR Services would ultimately be compensated.

"Initially we talked about taking an equity stake in the companies, but we decided we'd all be more comfortable –- and our future entrepreneurs would be more comfortable –- if we had a contract that called for a set payment at some point down the line, after the start-up begins to show a profit," she says.

KFR Services began promoting the program last week, and the application is available at kfrservices.com/incubator.htm.