Why Our City's Next Big Bet Should Be on Small Business Incubators

Cities should strategically invest in small business incubators, but success hinges on prioritizing structured training, mentorship, and networks over just providing physical space. The choice between general economic development or technology-focused models should align with city goals to foster local entrepreneurship.

Marco Alvarez

March 31, 2026 · Updated October 17, 2026 · 5 min read

Yes, a city should bet on small business incubators, but the bet only pays off if the incubator is built around training, mentorship, and networks rather than cheap square footage. Analysis from the Kenan Institute of Private Enterprise argues that incubators should treat business training as a core value proposition and actively push entrepreneurs toward networking and mentorship opportunities. That distinction, between a real growth engine and a subsidized office suite, is the decision local leaders have to get right before any ribbon is cut.

Beyond the Buzz: What Are Business Incubators?

The National League of Cities, in guidance authored by Jeremy Grossman, defines business incubators as shared spaces with facilities and services that help new businesses grow during their early stages. That definition matters for municipal leaders because it positions the incubator as one tool in a wider entrepreneurship strategy, not a standalone solution. The same guidance pairs incubators with education programs covering business management, marketing, financial planning, and regulatory compliance, and with local business directories that showcase and promote area businesses. In other words, even the basic municipal framing treats the incubator as a bundle of services, with the building as only the most visible part.

The concept has a track record in city government. New York's Varick Street Incubator, launched in 2009 as a partnership between the New York City Economic Development Corporation, the Polytechnic Institute of New York University, and Trinity Real Estate, provided low-cost office space and valuable training to emerging innovative technology companies, and graduated 22 companies three years after launch. The example is illustrative rather than a guarantee, and it is one program rather than a comprehensive survey, but it shows what a city-sponsored model can look like when government, a university, and a private landlord share responsibility for early-stage companies.

It is also worth distinguishing what an incubator is not. The Kenan Institute's analysis separates incubators from coworking spaces and accelerators, and its central warning is that a facility without structured support does not deliver the incubator's actual value. For a city council weighing a capital request, that distinction is the difference between funding economic development and funding real estate.

Two incubator models classified by primary goal, key services, and example focus
Incubator Model	Primary Goal	Key Services	Example Focus
General Economic Development Incubator	Broad economic growth and job creation across diverse new businesses	Shared spaces, facilities, and general business support services	A city-sponsored incubator supporting diverse small businesses, such as New York's Varick Street Incubator, which graduated 22 companies in three years
Technology-Focused Incubator	Nurturing businesses within a specific high-growth or innovation cluster	"Plug and play" space, mentorship, education, and links into networks of local government, universities, and corporate partners	The Los Angeles Cleantech Incubator, which connects cleantech entrepreneurs to city government, universities, and corporate partners such as JPMorgan Chase

More Than Walls: The True Drivers of Incubator Success

The strongest caution in the evidence comes from the Kenan Institute of Private Enterprise: an incubator that offers only space is not fulfilling its potential. Incubators should promote business training as a core value proposition and employ assertive strategies to help entrepreneurs take full advantage of opportunities such as networking and mentorship. The word "assertive" deserves attention. It implies the incubator's staff should actively connect founders to mentors and networks rather than simply making those resources available and hoping they get used.

In practice, that means a city evaluating an incubator proposal should ask what curriculum, mentor pipeline, and network access it delivers, not how many desks it contains. A proposal that budgets generously for a building but thinly for programming is the exact failure mode the Kenan Institute's analysis warns against. The National League of Cities' guidance reinforces the point from the municipal side, listing training on business management, marketing, financial planning, and regulatory compliance as a core component of business development alongside the incubator itself.

There is also a cheaper alternative worth weighing. The same Kenan Institute analysis notes that if an incubator is not right for a community, alternative policies can promote entrepreneurship, including zoning changes that make low-cost business space more available and small business skills workshops. And the pandemic demonstrated that most incubator programming, including trainings, pitch competitions, and networking events, can be effectively provided without the need for physical space. A city that cannot fund a building can still fund virtual programming, though this article does not weigh the relative costs of these options or offer legal advice on zoning.