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March 28, 2018

Supervisors question return from business incubators

Photo/Don Del Rosso
“We needed bigger space, and I wanted something close to home,” says Ken Lukonis, who moved his defense contracting startup to the Mason Enterprise Center in Warrenton two years ago.
File Photo/Lawrence Emerson
In cooperation with George Mason University, the county four years ago opened the Warrenton incubator at 70 Main St.
I like having a place to go to work every day. And I like having people to talk to, to learn about their business — sort of a group environment.
— Ellen Zagrobelny, environmental engineer
By .(JavaScript must be enabled to view this email address)
Staff Journalist
The Warrenton entrepreneur knew the start-up consulting firm probably would outgrow his home office.

For the first few years, Ken Lukonis, whose company competes for Department of Defense intelligence contracts, remained a one-man operation.

But as Strategic Alliance Consulting Inc. expanded, Mr. Lukonis hired an administrative assistant, requiring him to move the company to professional office space.

His search led him to the Mason Enterprise Center, a business accelerator/incubator that George Mason University operates in partnership with Fauquier County at 70 Main St. in Warrenton. It opened four years ago.

Fauquier’s three business incubators — including smaller operations in Marshall and at Vint Hill — have lots of fans, Mr. Lukonis among them. But, during its very difficult budget deliberations recently, Fauquier’s board of supervisors questioned the county-supported program’s ROI — return on investment.

County taxpayers provide a $176,000 annual subsidy to operate the three incubators. They will generate an estimated $41,000 in rent over the next year.

Just before adopting the fiscal 2019 budget last Thursday, the supervisors voiced concerns about the incubators’ success rate and perceived competition with commercial landlords trying to fill lots of vacant office space.

Incubators offer small businesses affordable space, reliable internet access and a range of free or reduced-rate counseling, mentoring and training services.

Conceptually, incubators provide small companies the resources — and time — to get their feet on the ground, grow and move to larger quarters elsewhere in the county. Fauquier hopes the investment will help create local jobs and expand its commercial tax base.

Depending on the amount of space leased, incubator office rent ranges from $600 to $1,000 a month.

Tenants typically lease incubator space for two or three years, according to Fauquier Economic Development Director Miles Friedman.

From the outset, the Mason Enterprise Center seemed like a perfect fit, said Mr. Lukonis, who had worked 10 years for defense contractors and vendors before starting Strategic Alliance Consulting in 2013.

“We needed bigger space, and I wanted something close to home,” explained the retired Army sergeant, who spends about 40 percent of his work week on the road. “It’s been great.”

He began leasing an office at the Warrenton incubator in 2016. All but one of his 28 employees work in the field, handling contracts.

Besides the incubator’s services and amenities — access to conference rooms, a kitchen and basic office equipment — Mr. Lukonis likes the give-and-take with other entrepreneurs who lease space in the Main Street building.

But he expects in about a year to move to other space in Fauquier.

“I see us graduating out of MEC in 2019, definitely,” he said. “It’s time to let a growing office get an office.”

The Warrenton incubator has 12 offices and nine tenants. Fauquier rents the space from Nussbaumer Real Estate LLC for $7,637 per month.

Luanne Lee, who lives near New Baltimore, owns a college planning consulting business. From 2013 to 2015, Ms. Lee operated her business at George Mason’s incubator in Fairfax.

She moved her business, Your College Planning Coach, to the Warrenton incubator in late 2015.

The MEC office meets her business needs, Ms. Lee said.

“I can’t work from home because of the internet — or lack thereof. I can’t do virtual, because I need an office to meet with my clients. From a professional standpoint, people want to come to an office. They want to know it’s a professional business.”

A Warrenton office also means a significantly shorter commute and a chance to fill a local need, Ms. Lee added.

“It’s eight miles from home to the office, and I’ve lived here over 20 years. I wanted to serve the community I live in.”

The incubators also provide different levels of services to businesses that don’t need office space.

“Virtual” and “co-working” clients pay $99 and $200 per month respectively to use conference rooms and services.

“My motto is flexibility,” said MEC Manager Renee Younes, who works with clients to meet their needs. “I’m here to make people stay here and want to be here.”

An engineer, Ellen Zagrobelny works for Ellicott City, Md.-based Center for Watershed Protection.

That organization pays Ms. Zagrobelny’s monthly “co-working” fee, which gives her 24/7 access to the MEC and its services — especially the internet.

“I live in a rural area” near Warrenton, she said. “We don’t have internet.”

While Ms. Zagrobelny regularly visits the center’s home office, “I can’t commute there every day.”

MEC’s broadband permits her to work and live in a rural community, Ms. Zagrobelny said.

Additionally, “I like having a place to go to work every day,” she said of the incubator. “And I like having people to talk to, to learn about their business — sort of a group environment.”

The Vint Hill and Marshall incubators opened in late 2015.

The Vint Hill incubator, which occupies a modular building, has seven offices and five tenants. The county has a three-year, rent-free agreement for the space with owner Vint Hill Village LLC. That lease expires during fiscal 2019.

The Marshall incubator has four offices and two tenants at 8452 Renalds Ave. The county pays Norris Royston’s Top Dog LLC $2,000 a month for the space.

The previous board of supervisors initially invested $400,0000 to start the incubators.

But so far only two businesses have moved, or “graduated,” from them. Both left Fauquier.

A federal government contractor at the Warrenton incubator left Fauquier because the county lacks a building secure from computer hacking, according to Mr. Friedman.

“We’ve got one that graduated, who is no longer in the county,” Supervisor Rick Gerhardt (Cedar Run District) said during last Thursday’s budget deliberations. “So basically, the county and its taxpayers subsidized this business only to see it leave our county.”

Incubator programs take years to mature to become “revenue-neutral” or generate income that exceeds the county’s investment, Mr. Friedman stressed.

George Mason’s incubator in Fairfax, for example, took 20 years to hit its stride, he said.

In the end, the supervisors — strongly committed to economic development — agreed to continue to fund the incubators.

Under the county’s fiscal 2019 budget, the Warrenton incubator will get $115,000 and the Vint Hill and Marshall incubators a combined $62,000.

The county’s rent for the Warrenton and Marshall incubators totals $94,000. Fauquier also pays community relations specialist Jennifer Goldman $41,664 per year to manage the Marshall and Vint Hill incubators, which the county operates independently.

Supervisor Chris Granger (Center) supports the incubator program.

But, “I think we just have to start tightening up how long folks are in there, before they can graduate” to commercial space, Mr. Granger said.
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nonewtaxes · March 30, 2018 at 8:38 am
If you are trying to start a business and can't afford the rent you are probably under capitalized.

The county should publish the success/fail rate of the people who went through the incubator. We know the cost. What are the results?
Savethehyenas · March 30, 2018 at 6:05 am
Why not consolidate the space to one central location and probably save on rental cost??
nonewtaxes · March 29, 2018 at 5:46 pm
SO the county should spend $176,000 so you can network?

George Mason took 20 years to break even?

olsen · March 29, 2018 at 3:40 pm
As an Advisory Board member to the MEC, a resident of coworking, and someone that was interviewed for the article (my comments were not used), I’ like to clarify some things.

I have been a resident of coworking for 4 years now and I’m not sure that people really understand what coworking is all about. It is a communal work environment where people can come and go. Some work in there every day and others more sporadically. It is NOT an incubator. There are no criteria for being a tenant. For me, a freelance designer with no plans to “grow” my business in terms of having employees, it is the perfect answer. I get out of my house, into an environment where I am around people and have access to tools and services I need. Could I rent an office elsewhere? Yes, but I would go from sitting alone in a home office to sitting alone in an office somewhere else and that was not the solution I wanted. The connections I have made through coworking are invaluable to me. It’s also spurred me to become more active in our local business community—something I would not have done if I had continued working from a home office.

As an Advisory Board Member, the figures quoted in this article do not seem accurate to me. However, I am going from memory and will need to ask about this at our next meeting. I can tell you for sure that there are currently only 2 offices available in the MEC and there are seven coworkers with dedicated desks.

I’m thankful that the supervisors agreed to continue to fund the MEC and coworking to show their commitment to economic development. I’m also glad to see that Chris Granger supports the incubator program and coworking, since he was the one who brought up the fact that the county should consider discontinuing funding of the program.

Judy Olsen
BJ · March 29, 2018 at 8:48 am
And irresponsible!

Blaine Johnson
BJ · March 29, 2018 at 8:45 am
Have to agree with nonewtaxes. If I ran our family bank account like the county is running our local government, we would have creditors down our throats. Why is it when it's taxpayers money (either local or federal) that the people in charge of that bank account keep throwing good money after bad. Can't tell you how many times I have heard, "Well it's the government's money not mine!" IT IS YOUR MONEY that is being spent and squandered! I would never run my finances like the local/federal government, and hope to keep our heads above water. It's crazy!
nonewtaxes · March 29, 2018 at 7:55 am
"In the end, the supervisors — strongly committed to economic development — agreed to continue to fund the incubators"

$176,000 cash flow out
$41,000 cash flow in
($135,000) cash flow negative

That ain't economic growth. That's economic death.
zagrobelny · March 29, 2018 at 6:40 am
Two points of clarification: I am a civil engineer, not an environmental engineer, and I work in the co-working portion of the MEC, not the incubator. It would have been helpful to hear more from MEC personnel and from the many small businesses currently operated from the incubator and co-working facilities. I think there is more to the story about what the businesses at the MEC bring to the county than just the various rent amounts, and how the MEC aids us in success beyond simply internet access. Many thanks to the MEC and the county for providing an excellent resource.

Ellen Zagrobelny
Jim Griffin · March 28, 2018 at 9:16 pm
Vickie: Good instinct, though I am guessing they are referring to a SCIF -- pronounced SKIFF -- which is a bit different from a data network secure from hacking.

Sensitive Compartmented Information Facilities have extremely secure infrastructure, including Faraday Cage type shielding (copper meshed to block radio waves). A SCIF is a room constructed to prevent outside access to the information being discussed in it.

Not a bad idea, but likely overkill in a leased facility, especially of this type. While network communications can be encrypted for security, analog discussions and meetings and work sessions requires a special room under federal contracting regulations.

More at https://nbcnews.to/2pP7Csh

Happy to be corrected on this. There may well be requirements with which I am unfamiliar. This one I know and seems to fit the general purpose described.

Vickie · March 28, 2018 at 5:51 pm
Rather than be sad that the two companies that "graduated" or moved on, moved out of County, it might be a good idea to address the complaint about computer security. If a network is not secure enough for a tenant to be a government contractor, then our program is not going to be successful in high tech company growth. That is an issue to address, rather than just think we didn't convert successfully, "Oh well. "
lukonis · March 28, 2018 at 1:58 pm
Just to clarify -
I am not a retired Sergeant.
I am a Service Disable Veteran – 10 years of service – medically released Staff Sergeant. Strategic ACI is a Service-Disabled Veteran-Owned Small Business (SDVOSB.)

Thanks to the Board of Supervisors for supporting Small Business Growth and thanks to GMU for having such a great growth program.

Ken Lukonis
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