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Accelerators, incubators, co-working spaces modeled to boost Iowa business

Programs hope to create ecosystem of support for entrepreneurs

    Emily Carlson checks her images while photographing Summer Garcia for Carlson's clothing line, Written Apparel, at de Novo Alternative Marketing in Cedar Rapids on Friday, Feb. 24, 2017. Carlson releases a new pencil skirt each month. This skirt, called Li, was available for pre-order limited release and delivered to customers in March. She was in the 2016 Iowa Startup Accelerator cohort. (Liz Martin/The Gazette)
    Regionalism / Workforce
    Jul 6, 2017 at 4:58 pm

    Emily Carlson’s day was not going as planned.

    As a small-business owner, she’s used to juggling multiple roles — and this February morning was no exception.

    Carlson, owner and founder of the Cedar Rapids-based Written Apparel, had scheduled a photo shoot that day for her latest product. The red-and-black Asian-inspired pencil skirt designed by Carlson was to be photographed for promotional material for its release to customers the following month.

    The photographer booked for the shoot in late February, however, called in sick that morning. That left Carlson to handle every aspect of the photo shoot — not only did she direct the shoot and fix the model’s hair and makeup, she also had to shoot the photos.

     

    But as a small-business owner, one learns to be flexible.

    “You’ve just got to roll with it,” Carlson laughed.

    Carlson founded Written Apparel about two years ago as a fashion company that sells only pencil skirts designed by Carlson and marketed on her website, writtenapparel.com. She started the company with the hope of one day developing her own fashion line.

    Carlson, as with many others, has stepped away from a role in traditional employment to create her own business. These start-ups number around 28 million across the country, with more than 260,000 in Iowa in 2016, according to the U.S. Small Business Administration.

    Lisa Shimkat, state director of the Iowa Small Business Development Center, said her office uses the SBA’s definition of a small business as one with fewer than 500 employees. However, Shimkat said most of her office’s clients have less than 25.

    In some cases, a small business may just entail the efforts of one individual — much like Carlson — who performs all roles, from chief executive officer to accountant to marketing officer.

    While small businesses have been around for decades, some experts say more individuals are taking the risk in becoming entrepreneurs full-time.

    “We have seen an increase in start-ups within the state,” Shimkat said.

    The Bureau of Labor Statistics reports that in the second quarter of 2015, 1,767 small business were created, which are counted when companies hire at least one employee for the first time. In the same period, the Bureau also reporters that 1,659 small businesses failed, resulting in companies going from at least one employee to none and remained closed for at least one year. Chart by John McGlothlen / The Gazette

    In March 2011, roughly 3,700 Iowa small businesses were less than a year old. Four years later, that number increased to about 5,600, according to the SBA.

    But, according to the SBA Office of Advocacy, about one-third of small businesses fail within the first two years. By year five, only half will remain open, and only about one-third of all small businesses in the United States will make it 10 years or more.

    From the beginning of January 2000 to Sept. 20, 2015, 107,664 businesses began operation in Iowa, according to the Bureau of Labor Statistics. But in that same time period, 105,312 businesses had failed and closed.

    The SBA reports that the longer a company exists, the more likely it is to stay in business. However, data shows that businesses — regardless of industry — consistently face challenges within their first years, such as the lack of industry knowledge, issues with a product and lack of cash flow.

    In response, those invested in start-ups across the country have created programs to give small businesses an extra boost to jump those hurdles. These programs often come in three forms — accelerators, incubators and co-working spaces.

    There is some mixing of terms among the programs. Depending on the organization or governing body, the programs can fall under a wide variety of definitions.

     
     
     
     

    Accelerators

    In November, Carlson was one of six teams that completed a 90-day stint in the Iowa Startup Accelerator, a business accelerator in Cedar Rapids. Attending the program was the shot of adrenaline Carlson needed to find Written Apparel’s footing.

    “I look at that first year as a huge learning curve, and I really feel like going through the accelerator program, at the conclusion of that, is when I feel like this became a real business,” Carlson said. “I have a strategy, I have an understanding of some real key fundamentals if you’re trying to run a successful business. If you ask me, I would say November was the start of the Written business.”

    Accelerators support early stage, growth-driven companies through mentorship, education and financing.

     

     

    Following the accelerator, Carlson moved into the co-working space, Dostal House: A Women’s Workspace and Social Club, in Cedar Rapids.

    According to Harvard Business Review, accelerators are designed to support early stage, growth-driven companies through mentorship, education and financing.

    “The accelerator experience is a process of intense, rapid and immersive education aimed at accelerating the life cycle of young innovative companies, compressing years’ worth of learning-by-doing into just a few months,” wrote Ian Hathaway in a March 2016 article.

    IASourceLink, a business resource website, says there are five accelerators in the state, including the Iowa Startup Accelerator. Since its founding in 2014, the Cedar Rapids accelerator has graduated 24 teams from its program, investing mentorship, education and $20,000 in capital into each business that passes through.

     

    When the Iowa Startup Accelerator accepted its first class in 2014, David Tominsky, the accelerator’s managing director, said most of the companies were technology-based and all were from other states. Two companies were even from other countries — Australia and Georgia.

    “Globally, people understood (accelerators), so we’re getting applications from Israel and Australia because people understood that,” Tominsky said. “These things have been happening for quite a long time, but around here, the design of our program was new.”

    But by 2016, when the model was better understood in Iowa, every company in the accelerator was Iowa-based, Tominsky said. Today, it’s the goal of the accelerator to boost Iowa businesses, or businesses with a clear benefit for the state.

     

    Incubators

    According to IASourceLink, there are seven incubators located across Iowa.

    Incubators provide education and mentorship, similar to accelerators, but without an accelerated timeline.

     

     

    Nationwide, many of these incubators focus on a variety of early-stage companies, but about 37 percent focus on technology businesses specifically, according to the National Business Incubation Association.

    Tenants pay a fee to become a member of an incubator, rather than pay rent for an office space or facility. This enables small-business owners to save on expenses while building the company and becoming exposed to the market, said Scott Kruger, director of NewBo City Market in Cedar Rapids.

     

    “In a best-case scenario, you look at the business incubator as a place to develop your business, your skills, your product, your own knowledge on running a business, but you’re doing it in a safe environment,” Kruger said.

    Opened in 2012, the NewBo City Market is an incubator that caters mostly to food-related companies and aims to help bring businesses back to a neighborhood that was devastated during the flood in 2008.

    However, in a worst-case scenario, the incubator aims to provide “a low-risk failure,” Kruger said. If a business in the City Market doesn’t work out the first time, an entrepreneur won’t lose thousands of dollars, and therefore would be more willing to try again.

    “It’s a place where if you try something and it doesn’t work, the consequences aren’t as dire,” Kruger said.

    Tominsky said some incubators are designed to work like accelerators, offering the same education and mentorship to allow development but without the accelerated timeline. Some incubators allow small businesses to reside there for years.

     

    Paul Andreasen owns Saucy Focaccia, a food stand that’s been operating in the NewBo City Market since March 2014. He said he was approached by the market leadership about moving his business from a food truck and into the market.

    “We were looking to build the business without taking too much of a financial risk,” Andreasen said.

    In May 2016, Saucy Focaccia opened the doors to its first brick-and-mortar restaurant in northeast Cedar Rapids. Andreasen said the move was possible with the help of the market, which allowed them to gain name recognition and build a clientele. Oftentimes, these incubators designate a space where business owners and other entrepreneurs can work side-by-side.

    For Traci McCausland, the owner and founder of the Waterloo-based employee engagement consulting company Follow Your Strengths, working with other small business owners in the id8 workspace in Waterloo enabled her to make necessary connections. University of Northern Iowa students designed her website, and her accountant is another entrepreneur — all connections she made while attending start-up support programs.

    “It’s just kind of getting connected to people you need when you get started, and that collaboration with other tenants who were also early in the game,” McCausland said.

     

    Co-working Spaces

    A co-working space is similar to an incubator in that it provides an open space for a diverse group of people to work next to one another. However, some spaces, such as Gravitate in Des Moines, don’t offer the mentorship that a participant in incubators would receive.

    Co-working spaces provide office space and shared amenities to entrepreneurs, remote workers and the self-employed.

     

     

    Tominsky said he was aware of 19 co-working spaces across the state at the end of 2015.

    These spaces are not limited to entrepreneurs or start-up companies. In fact, this model is popular for any individual without an office to go to every day, including corporate employees working remotely, or someone who is self-employed.

    More often than not, these individuals are merely looking for the social aspect of working in an office, said Diane Daby, director of Springboard Coworking in Sioux City.

    Geoff Wood, founder of Gravitate in Des Moines, said his space has become a mix of start-ups and remote workers, many of whom were looking for an ideal place that offered the benefits of “camaraderie” among office mates.

    “We have potlucks, we watch ‘Game of Thrones’ together, we do all those things co-workers do, but we work for different companies,” Wood said.

    Another business, lienwaivers.io, an online platform for construction companies, was founded by Sioux City residents Geoff Arnold, Sean Richardson and Luis Trejo. The three have been working out of Springboard Coworking in Sioux City since the company was founded in January 2016.

    “It’s cool, even though there are different businesses in Springboard, it feels like we’re all succeeding or failing together,” Arnold said.

     

    Will it work in Iowa?

    Is a start-up culture possible in Iowa?

    Despite these support programs, some entrepreneurs within accelerators, incubators and co-working spaces still face major hurdles.

    Shimkat said technology-based businesses tend to be the ones that thrive in these models, but they don’t guarantee success of everyone.

    “Not every shoe fits every person,” Shimkat said.

     

    Percent of small buisness by county

    Here is the Iowa small business percent of employment by county, according to the U.S. Small Business Administration Office of Advocacy. Map by John McGlothlen / The Gazette

     

    Douglass Campbell, a retired pharmacist and owner of a pharmaceutical company called Campbell Industries, had developed a suncare product designed to help prevent long-term sun damage. But Campbell said it was nearly impossible for him to break into the health care market, as big-name companies “almost have a monopoly.”

    “It should have been a grand slam but failed because of market restrictions,” he said.

    Campbell had moved into the Business Incubator in Mason City at the North Iowa Area Community College Pappajohn Entrepreneurial Center, under the guidance and mentorship of director Daniel Winegarden.

    “We worked the process pretty hard, but can’t say we ever found a way to take (Campbell’s) formulary expertise in nutraceuticals and make it a self-sustaining business,” Winegarden said.

    Campbell said his company still is open and operational.

    Even with its risks, there are those in the start-up community in Iowa who are interested in encouraging an “ecosystem” of encouraging small business growth — but going forward, Tominsky, of the Iowa Startup Accelerator, said there’s still a lot of work yet to do.

    Winegarden said one of the main challenges he faces in encouraging more start-up business has to do with Iowa’s unemployment rate — 3.2 percent in February. Entrepreneurs generally are more likely to start a small business when there are no permanent jobs to fall back on.

    “High skills are required for entrepreneurship, (and) when the economy is going strong, the best potential entrepreneurs are more likely to be employed in existing companies,” Winegarden said.

    Those involved in start-up support programs hope to continue building a culture that encourages small business growth throughout the state — but only time will tell.

    “No one has a crystal ball,” West Des Moines’s Eckert said.

    Comments: (319) 368-8536; michaela.ramm@thegazette.com

    Read more: Are entrepreneurs the solution to rural economic revitalization?

    This story appears in the second edition of the Iowa Ideas magazine. Order a free copy here.

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