SOUTHERN CALIFORNIA ENTERPRISE : They're Fruitful and They're Multiplying : Trends: 'Business incubators' help reduce the risk and costs of starting a firm, and they're rapidly gaining popularity.

By NANCY RIVERA BROOKS

Nov. 20, 1995 12 AM PT

TIMES STAFF WRITER

Joseph LaStella makes an unusual product in an unusual place.

LaStella’s company, Battery Automated Transportation International, produces electric cars and bicycles in the high-ceiling hollows of an old Lockheed factory in Burbank that is now home to Calstart, a public-private consortium devoted to nurturing an advanced transportation industry in California. There, Calstart operates Project Hatchery, a so-called “business incubator” that helps companies get a start in business.

LaStella’s neighbors at Project Hatchery include another electric bike company, a cab company that uses natural-gas-powered vehicles, a company that has developed a system for giving traffic information to drivers over cellular phones, and firms working on advanced batteries. They can take advantage of cheap rent, research and computer facilities, business consulting services and a machine shop for making prototypes.

The allure of Project Hatchery induced LaStella to relocate his company from Utah last year. Under Project Hatchery’s roof, BAT International has grown to 16 employees and now is looking for additional production space outside the incubator.

“I wasn’t perceived as being a major player in Salt Lake City. The minute I moved to Calstart, things changed. It gave us respectability,” LaStella said. “Being at Calstart is nice because people come from all over the world to see what’s going on in the transportation industry.”

Incubators hatch eggs. Business incubators hatch companies, which create jobs.

Among the economic development set in Southern California, business incubators just might be the hottest thing since job training tax credits. New incubators are forming nationwide all the time, with several scheduled to open in Southern California in the next several months.

Incubator advocates say that the combination of below-market rents, shared business services and management assistance have helped hundreds of small companies nationwide--dozens of them in Southern California--survive those brutal early years.

“There are great benefits to the tenants,” said Pete Collins, director of entrepreneurial advisory services for the Coopers & Lybrand consulting firm in New York.

“The challenge is to separate out the difference between real estate deals and true incubation,” said Collins, who has conducted several studies of incubators and is chairman of the National Business Incubation Assn., based in Athens, Ohio.

“True incubators provide services to the tenants that relate to their business development,” Collins said. “The idea is that the companies should graduate and move on in two or three years.”

Incubators come in many sizes and specialties, and are “proven tools for creating jobs, encouraging technology transfer and starting new business,” according to the National Business Incubation Assn. Some are operated by economic development agencies, some are affiliated with educational institutions and some operate on a for-profit basis.

Incubators typically house several businesses under one roof and provide such things as favorable lease terms, office services and equipment, an on-site manager for business advice, access to business and technical consultants, financing help and networking opportunities with other incubator firms.

“There is a lot that goes on around the water cooler or the coffee maker,” Collins said, adding that 60% of incubator tenants sell goods and services to other tenants in the same incubator.

Incubators reduce the risk of starting a company and give entrepreneurs access to equipment and services that they might be unable to afford otherwise. The NBIA estimates that more than 80% of the companies that have graduated from incubators are still in operation, compared to a failure rate for small business that approaches 80% at the end of five years.

More than 500 business incubators operate in the United States, and about a dozen operate in Southern California. The first business incubator opened in 1959 in Batavia, N.Y., but the idea did not begin to flourish until the 1980s.

It was slow to spread to Southern California, primarily because the thriving economy masked the need for small-business help, but now it has become downright popular. Most local incubators have opened since 1990, and several more are in the works.

“We like the concept so well that we’re taking over a building in Garden Grove to open another one,” said Paul Garza, who runs the Santa Ana Business & Industry Services Center, an incubator once sponsored by the city of Santa Ana but now operated by Rancho Santiago College. The incubator supports seven tenants with below-market lease rates, subsidized business services and consultants from the college’s Small Business Development Center.

“I think these things make a great deal of sense given the fragility of small businesses,” Garza said. “Incubators can provide a great deal of support.”

Some incubators provide help for inner-city businesses. Two of those locally are the Vermont Slauson Business Enterprise Center in South Los Angeles and the CHARO Enterprise Innovation Center in East Los Angeles.

Others, like Calstart’s Project Hatchery, focus on a specialized industry niche.

Calstart has graduated one company, which now employs about 80 people and has 22 tenants in its 155,000-square-foot facility, all working on some facet of the fledgling advanced transportation industry, said Glenn Perry, Calstart’s chief operating officer.

“We do weed out the perpetual motion machines--they don’t make it in the door,” Perry quipped. “We want to make these companies viable and increase their chance of survival, then put them out into the economy.”

The incubator has worked well enough that the consortium is starting another at a military base that is being closed, Alameda Naval Air Station in Northern California, he said.

USC’s Annenberg Center for Communication recently launched a multimedia incubator called EC2, The Annenberg Incubator Project, and lured small-business expert Jon P. Goodman away from the university’s entrepreneurship program to run the incubator. The first two tenants should move into the high-tech facility on West Adams Boulevard next month.

“Most garage companies tend to have two people who got together because they had a great idea, but they don’t know where to take it from there,” said Elizabeth Monk Daley, executive director of the Annenberg Center and dean of USC’s School of Cinema-Television. “This facility will have everything they need or could ever want and the people to help them use it.”

Los Angeles County’s Community Development Commission has several incubator projects under way, said Robert Swayze, manager of special projects. The county expects to open a high-technology incubator in the next few months. It will be housed temporarily at Calstart before moving into a building near Jet Propulsion Laboratory in Pasadena. Another county incubator is being considered for the Watts area.

The county also is working to establish an incubator network and a loan fund for incubator tenants with money from county, state and federal sources and from Southern California Edison, Swayze said.

As popular as they have become, incubators are not for everyone, USC’s Goodman said.

Retail and general business services firms usually do not fare well in incubators, she said. And incubators that offer little more than cheap rents usually have dim futures, she added.

“Incubators as thinly disguised real estate deals don’t work,” Goodman said.

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Incubators in Southern California

Here are some of the local business incubators, which nurture small companies during the difficult start-up years.

* Calstart Project Hatchery, (818) 565-5600

* CHARO Enterprise Innovation Center (213) 269-0751

* EC2, The Annenberg Incubator Project (213) 743-2344

* Lancaster Economic Business Center (805) 945-2741

* Lynwood Entrepreneur Development Academy (213) 249-4980

* Pasadena Enterprise Center (818) 398-9971

* Ridgecrest Business Technology Incubator Center (619) 384-1118

* Santa Ana Business & Industry Services (714) 564-5202