BEGIN New Venture Center: Spinning Off Socially Responsible Firms

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Objective: Support the growth of inner-city business as a means of combatting urban poverty. BEGIN is the only Social Enterprise Incubator in the United States, and defines itself through it’s mission, the business plans it accepts, and the culture of social responsibility it engenders in businesses.

Main Topic: Cluster-based economic development
Sub Topic: Food and Tech Clusters
Sub-Sub Topic: Social enterprise incubator

Geography: St. Louis, MO
Major Participants: St. Patrick Center (SPC), US Department of Commerce, US Dept of Housing and Urban Development, SBA, SCORE, Justine Petersen (details listed below).

Background: BEGIN New Venture Center began as an outgrowth of SPC’s support programs for St. Louis’ homeless and hard-to-hire populations. SPC is the largest provider of services to the homeless and ex-convict populations in St. Louis; its programs assist more than 9,000 people annually. BEGIN is a non-profit incubator with a unique mandate to operate as a Social Enterprise incubator, developing businesses that will hire from among, or provide services to, SPC’s patrons. Their mission is to create long-term solutions to the issues of unemployment and homelessness through the business development process.

The challenge: BEGIN was born in response to the wave of unemployment that followed the 2008 economic downturn. Once the crisis hit, several organizations that once provided job training services lost funding and were forced to close down. BEGIN seeks to provide startup and early stage companies with business support services to grow and succeed within their community.

How it happened: St. Louis already benefitted from a strong network of incubators. Many of these programs were able to respond to the demand created by high skill workers in the market by absorbing their skills into tech-oriented start-ups. However, opportunities for low-skilled, inner city residents were limited. In an attempt to fill this gap, SPC applied for funds to open a business incubator that would develop firms that would then serve and employ these residents. . The Department of Commerce provided SPC with a $3.5 million seed grant. This funding, along with support from Missouri’s Incubator Tax Credit program, was used to create a home for the incubator in 15,000 sq. ft. of vacant downtown office space owned by SPC.

Jan DeYoung, an experienced economic development adviser with 40 years in the field, was brought on as Executive Director for the incubator. DeYoung had been working with St. Louis County Economic Council’s Enterprise Centers Program, where he advised many of the St. Louis area incubators. On his watch, these incubators have graduated several of the businesses ICIC has included in the Inner City 100 program (DynaLabs, Pangea). He says that his work at the incubator has been motivated by “a desire to create a long term sustainable solution to inner-city poverty in St. Louis.”

How it works: The SPC staff carefully reviews all applications to the incubator, including an analysis of the applicant’s business plan, target market, financials, and relevant skills. What makes this incubator unique is that it requires all applicants to sign an explicit commitment to service and/or train SPC’s patrons. The aim is to craft a culture within the incubator, and so DeYoung frames the admission process as “carefully adopting people into our family.”

There are two distinct programs within the incubator: entrepreneurs interested in service industries—such as marketing, landscaping, and video production, and those looking specifically for space within a shared commercial kitchen. The commercial kitchen incubator also recently developed a track for food truck vendors.

DeYoung believes the key to a successful incubator is to create an environment of mentorship. BEGIN does this by providing business expertise targeted to each incubating firm through SCORE, a national nonprofit association of volunteers serving small businesses. Incubating firms receive support such as business plan refinement, marketing, accounting and legal advice. Many local entrepreneurs also volunteer time to the incubator to mentor and coach the budding entrepreneurs. In connecting the incubating companies to other entrepreneurs, services and companies, it strengthens relationships that can then be drawn on as future business partners when the incubating companies spin out of BEGIN.

The target period for graduating companies is within one to four years. At this point, there is an understanding as to whether the company will be profitable or not. If It does not appear as though the incubating firm has a sustainable business model, they are encouraged to move on to a different venture.

Results for local economy: Collectively, the programs have supported 30 businesses and graduated two in just under four years. The incubator is on track to graduate 6-8 more this year. These businesses have created 80 new jobs, 20 of which have come from the 2 graduate businesses. Fifty percent of these businesses are minority-owned, 70% are co-owned or solely owned by women. The majority of these business owners are also St. Louis residents from low-income backgrounds.

Lessons Learned: DeYoung cautions against dependence on foundation funding, encouraging potential incubators to plan for the incubator to be sustained through fees. In the social enterprise space, this must be balanced with the mission, but government funding can bridge this gap. In their case, BEGIN received seed funding from the U.S. Department of Commerce ($3.5 million grant), Catholic Charities of St. Louis ($400,000 grant), and the U.S. Department of Housing and Urban Development ($200,000 grant).

One key reason BEGIN successful is because of its community engagement strategy. BEGIN has mobilized the support of local government, universities, and business leaders. These organizations help define community business challenges then help construct the solutions through BEGIN. Major partnerships include:

• St. Louis Development Corporation: Provided operational funding to BEGIN for its first 2 years. 
• SCORE: Provides significant assistance to mentorship and business plan development services
• Small Business Association: Provides advisory and financial support. 
• Justine Petersen: Provides micro-loan financing, credit improvement assistance, and financial counseling to qualifying business owners. 
• MO Small Business & Development Centers: Provides mentorship through statewide network of business experts. 
• The Veterans Business Resource Center: Provides business counseling and consulting, business plan review and assistance, loan packaging assistance and other supportive services to Veteran clients. 
• SLATE: Works with both neighborhood associations and Economic Development Corporations in the St. Louis area to connect businesses with graduates from area job training programs. 
• Occupational Safety and Health Association: Provides technical assistance and consultation programs to assist in implementation of safety standards.

Remaining Challenges: There are three challenges that BEGIN continues to face. First is space constraint. The incubator is located in an office building that houses most of SPC’s departments. The building is currently at capacity, so if BEGIN wants to expand, it will likely require a move, potentially far away from their downtown home.

Second, BEGIN is still trying to find a sustainable funding model for their programs. The fees the companies pay now are small and only cover a fraction of BEGIN’s cost. The low lease costs allow companies to get a start before giving back to the community. Many of the entrepreneurs rush to grow and create jobs for the hard-to-hire populations, but try to do so without becoming profitable first. BEGIN has to work with these companies to realize that the social impact has to come after profitability.

Finally, BEGIN continues to struggle to get all community stakeholders around the same table and agree on a mission. The goal is to create a community ecosystem, but too often each entity is too concerned with its own fiefdom to come to the table and collaborate with the others around a common goal.
 

Last Updated on April 30th, 2012

TAGS: small business | economic development | jobs | entrepreneur | workforce | homelessness | job training | workforce development | st. louis | st. patrick center | social enterprise | incubator | clusters