Bureau of Business Research College and Graduate School of Business, University of Texas at Austin August 1989 
The Texas Economy: 
Incubators and 
Economic Development 

A new economic development strategy has emerged in Texas. Since the mid-1980s, public and private organizations have increasingly em­phasized the importance of building indigenous or home-grown companies. Industrial relocation, long the central focus of regional economic de­velopment, continues to be important. But econo­mically, it tends to be a zero-sum game-one region or location benefits only at the expense of another. Encouragement of indigenous com­panies on the other hand presents opportunity for long-term economic development for several reasons. First, this strategy harnesses local en­trepreneurial talent. Second, it builds companies, which in tum create jobs and add economic value to a region and community. Third, this strategy keeps home-grown talent within the community. Fourth, it encourages economic diversification and technological innovation by creating a climate that rewards productivity and innovation. In this context, new business in­cubators are proving to be a key component in the development of an indigenous company strategy in a region or community. 
The increasing importance of an indigenous company strategy is reflected in the growth of business incubators in the United States. As shown in the accompanying chart, incubators have been steadily increasing since the early 1980s, and there are now about 350 business incubators in operation. 
Texas is among the leading states in incubator development. As shown in the second chart, Pennsylvania currently has 42 incubators; Il­linois and New York have more than 20; Michigan, Wisconsin, Ohio, North Carolina, and Indiana have more than 10; and Washington and Texas have 10 each. The new business incuba­tor is attracting widespread attention not only in the United States, but also in many other coun­tries including France, Germany, Sweden, England, Japan, and Canada. It goes under a variety of names including "innovation center," "enterprise center," and "business and techno­logy center. '' 

Innovative System 

An incubator is an innovative system designed to assist entrepreneurs in the development of 
Growth of U.S. Incubators 



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Top Ten States in Incubator Development 
Texas Washington Indiana North Carolina 
Ohio t:W""""""""".,,. 
Michigan ....,..__ 

NewYork ......--= 

Illinois ~~~~~ 

0 10 20 30 40 50 
2 . 
Source: Incubator Database, IC Institute. 

new firms. By providing a variety of services and support to start-up and emerging com­panies, the incubator seeks to link effectively talent, ideas, capital, and know-how to leverage entrepreneurial talent, accelerate the develop­ment of new companies, and thus speed the commercialization of technology. 
The word incubate means to maintain under prescribed and controlled conditions favorable for hatching or developing. It also means to cause to develop or to give form and substance to something. To incubate fledgling companies implies an ability or desire to maintain prescribed and controlled conditions favorable to the devel­opment of new firms. The "controlled condi­tions" include four types of support systems: secretarial support, administrative assistance, facilities support, and business expertise, in­cluding management, marketing, accounting, and finance. In addition, the incubator attempts to extend the networking capabilities of the en­trepreneur through affiliations with the private sector, universities, government entities, and nonprofit institutions. The expectation is that this system can result in viable tenant com­panies that generate economic growth, diver­sification of technology, job creation, profits, and successful products. 
Texas Incubators 

Although incubators in Texas are relatively new, they are already contributing to economic development in the state. The ten Texas in­cubators have a total of 133 companies current­ly. operating in their facilities, and they have graduated 39 so far. Since 1985, the Texas in­cubators have generated 953 jobs. The table ap­pearing on page 4 provides some basic informa­tion on each of the incubators operating within the state. The newest of the Texas incubators, the Austin Technology Incubator, is unique in that it is a joint venture sponsored by UT­Austin, the City of Austin, the Austin Chamber of Commerce, and private donors with a focus on developing new technology-based businesses. All ten of the incubators in Texas have been started within the last five years. 
As with other incubators in the United States, the Texas incubators have a diverse set of en­trance and exit criteria. For some, the entrance criteria are quite flexible, meaning there are no specific guidelines for admission. Others specify a range of requirements used in the admission evaluation process. In terms of exit criteria, some incubators have an open policy, meaning they do not require tenant companies to leave the facility. Others expect firms to graduate or leave in two or three years or progressively raise rents to encourage graduation so that other, new companies can be admitted to the incubator. 
Conclusion 

New business incubators reflect an increasing emphasis on an economic development strategy that focuses on the building of indigenous com­panies. Communities throughout Texas have established incubators that in tum are contribu­ting to economic development in those regions of the state. 
-Raymond W. Smilor 

J
Executive Director, IC2 Institute and 
Associate Professor of Management 
University of Texas at Austin 


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Employment and Unemployment Rate by Metropolitan Area 
Total nonagricultural employment Total employment Unemployment (thousands) (thousands) rate 
Percentage Percentage Area May 1989 May 1988 change May 1989 May 1988 change May 1989 
Abilene 49.3 48.8 1.0 50.0 49.7 0.6 5.8 Amarillo 76.8 78.5 -2.2 92.0 93.9 -2.0 4.9 Austin 354.9 355.6 -0.2 398.9 404.1 -1.3 5.0 Beaumont-Port Arthur 134.9 133.3 1.2 147.7 146.3 1.0 8.4 Brazoria 61.8 58.7 5.3 78.6 75.3 4.4 6.3 Brownsville-Harlingen 70.1 68.1 2.9 88.1 84.8 3.9 10.5 Bryan-College Station 51.5 49.3 4.5 58.0 55.7 4.1 4.1 Corpus Christi 126.4 125.8 0.5 145.4 145.8 -0.3 7.7 Dallas 1,350.1 1,345.6 0.3 1,364.0 1,374.8 -0.8 4.8 El Paso 196.6 194.6 1.0 216.9 216.0 0.4 9.0 Fort Worth-Arlington 537.5 527.4 1.9 649.1 644.9 0.7 4.9 Galveston-Texas City 72.5 72.6 -0.1 98.8 100.0 -1.2 6.9 Houston 1,469.7 1,427.2 3.0 1,537.4 1,497.2 2.7 5.3 Killeen-Temple 72.7 70.5 3.1 89.1 86.8 2.7 6.6 Laredo 39.5 37.7 4.8 42.7 40.8 4.7 10.3 Longview-Marshall 66.0 66.6 -0.9 71.9 72.6 -1.0 7.8 Lubbock 94.9 93.4 1.6 108.4 107.7 0.7 4.2 McAllen-Edinburg-Mission 98.2 93.5 5.0 133.8 128.9 3.8 13.2 Midland 44.1 44.6 -I. I 45.8 46.5 -1.5 5.8 Odessa 42.4 43.2 -1.9 47.4 49.6 -4.4 7.6 San Angelo 36.8 36.5 0.8 42.6 42.6 0.0 5.3 San Antonio 513.9 500.9 2.6 567.5 560.6 1.2 6.5 Sherman-Denison 37.2 38.2 -2.6 44.7 46.5 -3.9 5.1 Texarkana 45.7 44.7 2.2 53.5 52.5 1.9 7.0 Tyler 61.0 60.9 0.2 69.6 69.4 0.3 6.3 Victoria 27.8 27 .8 0.0 33.6 33.7 -0.3 5.6 Waco 80.4 78.8 2.0 87.3 85.9 1.6 5.0 Wichita Falls 50.6 50.9 -0.6 53.4 54.1 -1.3 5.7 
) 
Total Texas 6,771.7 6,649.5 1.8 7,743.8 7,697.8 0.6 5.9 
Total United States 108,629.0 105,533.0 2.9 117.039.0 114,222.0 2.5 5.0 
Note: Data are not seasonally adjusted. Figures for 1988 have undergone a major revision; previously published 1988 figures should no longer be used. Revised figures are available upon request. All 1989 figures are subject to revision, with the exception of Texas and 
U. S. total employment. 
Sources: Texas Employment Commission and U.S. Department of Labor, Bureau of Labor Statistics. 

Nonagricultural Employment in Five Largest Texas Metropolitan Areas 
(January 1984=1 .00) 

1.25 Fort Worth 
1.20 
1. 15 
1. 1 0 
1.05 
1.00 
0.95 
~ 
0.90 1984 1985 1986 1987 1988 1989 

Total Employment in Five Largest Texas Metropolitan Areas 
(January 1984=1.00) 

1.25 
Fort Worth 

1.20 
1. 1 5 
1. 1 0 
SanAnto~ 

1.05 
•.,•., Dallas ,. r. 

1.00 ~.. :~.;~
I I"" 
I 
1 • ::._ 1'•.. //. i ~ 
,, •_, I ,. ,/ ' 
.,. ~., ""'· 

0.95 Houston •, /
'•/ 

0.90-i+t++H+-t++-~l++lf++if+-ti!++f-t+t'++f+++++++++H+H+-t++~l++-l+til+tH 
1984 1985 1986 1987 1988 1989 


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Incubator Activity in Texas, 1985-1989  
Incubator  Entrance  Exit  Current  Companies  Jobs  
name  criteria  criteria  companies  graduated  created  

* This is currently the only incubator in Texas that takes an equity position in its tenant companies. 
Control Data Business and Technology Center San Antonio, 1985 
Corpus Christi Enterprise Center Corpus Christi, 1986 
K. Woten Industrial Incubator Building Corsicana, 1987 
Victoria Incubator Foundation 

Victoria, 1987 
The Dallas Business Incubator* 

Dallas, 1988 

Heart of Texas Business 

Resource Center Incubator 

Waco , 1988 

The City of Houston Business 

and Technology Center 

Houston, 1989 

Southwest Business Incubator 

Austin, 1989 Austin Technology Incubator Austin, 1989 
Advanced Dynamics Corporation Arlington, 1985 
Totals 
NA: Not available. 
Source: Incubator Database, IC2 Institute. 


1 .1 0 
1.05 
1.00 
0 .95 
0.90 
0.85 
0.80 
0.75 
0.70 -++-++t+t-++-++++-t+tl++++t+ll++l++++ll+-ll++++ll-Ml+++l-++l~ 
1986 1987 1988 1989 
Texas Index of Leading 
Economic Indicators 

(January 1984=1 .00) 
Total Employment 



Business plan 
Product/service not currently offered in Corpus area Flexible 
Flexible 
Flexible 

Interview, application, background of company 
Credit rating, trade references, 
business potential 
Austin-based company; low-income 
residents, minority/ women preferred Technology-based product or service, entrepreneurial capabilities, written business plan, potential for growth and job creation 
NA 
Open  60  32  375  
Open  2  0  200  
Open  4  0  225  
Open  4  0  10  
Progressive  20  4  70  
rents  
3 years  12  3  35  
Open  14  0  NA  
2 years  16  0  31  
2-3 years  0  7  
NA  NA  NA  NA  
133  39  953  

1 2 1 1 1 0 9 8 
7 
5 
Texas and U.S. 
Unemployment Rates 

Texas 

4 +IH++tH*HHl+tHffff1Ht+tll+lt+fHIHiHl**Ht+H+H++tl+IH 1984 1985 1986 1987 1988 1989 
Source: U.S. Bureau of Labor Statistics. 

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Lubbock: Education, Agribusiness, and Services 
The Lubbock metropolitan area is best known to most Texans as the home of Texas Tech University. It is also a major agricultural center and is growing in importance as a provider of medical and other services to the surrounding region. With a population approaching 250,000, Lubbock is medium-sized among the 28 Texas metropolitan areas, ranking twelfth. 
Lubbock has a relatively short history among Texas cities. Although archaeological evidence indicates humans were living in the area as long as 12,000 years ago, references to pioneer days in the area refer to the last days of the nine­teenth century and the early days of this cen­tury. Lubbock County was organized in 1891 with Lubbock as the county seat, but there were few early settlers and no rail connection with the outside world until 1910. 
One of the biggest events in Lubbock history was the opening of Texas Tech University as Texas Technological College in 1925. Legisla­tion authorizing the school had passed two years earlier, and Lubbock was selected over 36 other communities. Texas Tech has an enrollment of about 24,000 and is a major factor in the local economy. Another school in the area is Lubbock Christian College, with an enrollment of about 1,000. 
Agriculture and related activities are very im­portant in the Lubbock area. Lubbock County and several nearby counties are typically ranked among the leading agricultural counties in Texas. Cotton is the dominant crop. Lubbock is said to be the world's largest cottonseed processing cen­ter and the second largest inland cotton market in the world. Grain sorghum, wheat, and com are other important crops, and there are a num­ber of major cattle-feeding operations in the area. 
Most of the growth in the Lubbock economy in recent years has occurred in the services sec­tor. In 1986, the latest year for which detailed data are available, services already contributed a larger percentage to Lubbock metropolitan area income than to statewide or national in­come. Health care services represented about 42 percent of all such income in Lubbock at that time. Lubbock is becoming one of the ma­jor medical centers of West Texas. 
During the past three years, total nonagricul­tural employment in Lubbock has increased by about 3,100. During the same time, the increase in Lubbock area services employment was about 3,900 jobs. Declines in construction and government employment during the period ac­counted for the difference, with most other sec­tors holding fairly steady or growing slightly. 
Unemployment rates in the Lubbock area are typically below the statewide average. During the past year the unemployment rate in Lubbock has been about 2 percent below the Texas aver­age and about equal to the national average. The presence of a large college student population tends to hold Lubbock per capita income levels below the state and national averages, but most nonstudent households are relatively prosperous. 
Lubbock area residents are not strangers to cycles of boom and bust. Despite extensive ir­rigation, agriculture remains a risky business, and the vagaries of weather and changing de­mand routinely cause sharp rises and falls in agricultural income. Although Lubbock County is not among the largest oil and gas producing counties, there has been significant production in the county since 1941. 
Athletic, academic, and cultural events at Texas Tech University draw many visitors to the Lubbock area. The Lubbock Memorial Civic Center, built on the site of some of the worst devastation wrought by the 1970 tornado, is one of the most versatile in the state and has a variety of lodging facilities nearby. One of Lubbock's best attractions is rather subtle. The 12-acre Ranching Heritage Center on the Texas Tech campus has no cattle stampedes or gun­fights on the hour, but does provide a realistic glimpse of life in rural Texas in the days before air conditioning, satellite dishes, and cruise control. 
The occasional dust storms are probably the most negative feature of life in the Lubbock area. Even visitors from other parts of West Texas accustomed to bursts of wind and dust find Lubbock dust storms impressive. In the early spring when the wind blows hard and the plowed fields are mostly bare, Lubbock can pro­vide a convincing demonstration of the Dust Bowl in the 1930s. More than one proud but crusty native has remarked, "If it weren't for the dusters, everybody would want to live here." 
-Charles P. Zlatkovich 
Associate Professor of Accounting 
University of Texas at El Paso 



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•
1Bureau of Business Research 

• 	
P.O. Box 7459 Austin, TX 78713-7459 


Address correction requested. 
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U.S. Postage 
PAID 
Austin, Texas 
Permit No. 1630 

Editor: Lois Glenn Shrout 
Texas Business Review is published six times a year (February, April, June, August, October, and December) by the Bureau of Business Research, Graduate School of Business, University of Texas at Austin. Texas Business Review is distributed free upon request. 
The Bureau of Business Research serves as a primary source for data and information on Texas and on the dynamics of change. The Bureau's research program concentrates on the deter­minants of regional growth and development. The information services division answers in­quiries by telephone and mail, responds to walk-in visitors, and offers computerized data from the 1980 census of the population and on manufacturing firms in Texas. The publications division produces periodicals, directories, books, and monographs on a variety of topics that shape the development of the Texas economy. 


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Announcements 
The first edition of the Bureau's Directory of Texas Wholesalers will be ready for release to the public in August. More than 10,000 whole­salers are listed, with firm name, mailing ad­dress and physical location, phone number, sales volume, contact name, and primary pro­duct. Price for the one-volume publication is $50 plus $3.88 tax for Texas residents. To order, call (512) 471-5179. 
Recently released per capita income figures from the U.S. Department of Commerce have been printed in the last two issues of the Bureau's Texas Economic Indicators. County income figures for 1986 and 1987 appear in the June issue; MSA figures appear in the July issue. To obtain copies, call (512) 471-5179.