In The Boonies, An Oasis Of Success

At the height of the inter-net boom, Tom Mancuso kept hearing from investors who wanted to pick his brain. If Mancuso were a Silicon Valley venture capitalist, that might've been unremarkable. But Mancuso manages a huge industrial complex outside Buffalo, N.Y., with hardly an Internet e-commerce business in sight. The Netheads kept seeking him out because Mancuso's low-tech facility years ago pioneered a concept that became a hot start-up tool in the '90s: business incubation. Developed by Mancuso's family in the '60s, the process had long been a favored tool of economic developers to lure new jobs to old cities. Then, VCs latched onto the concept as a way to hatch e-commerce start-ups like eToys and Priceline.com. Mancuso did his best to help, but he was usually shaking his head by the time he hung up the phone. "I remember thinking, 'There's nothing I can do to help these guys'," says Mancuso, who favors a slow-but-steady method of company-building. "We're not even on the same planet."

As Webmania ended, most of the trendy Net incubators crashed back to Earth. But far from Silicon Valley the concept lives on, helping a new generation of Old Economy companies get up and running. Incubators give nascent entrepreneurs a cheap place to set up shop. The start-ups save cash by sharing machinery like photocopiers and forklifts, and services like payroll. Most incubators also provide business tutoring, helping newbie CEOs dream up marketing ideas or line up financing. Although traditional incubators aren't focused on rushing hatchlings toward an IPO, most do have "graduation policies" that force companies to move into their own facilities within three years. There are roughly 1,000 incubators in the United States, according to the National Business Incubation Association, but at the height of the boom, VCs were starting two or three a week. Suddenly, "everybody thought incubators were all about the Internet and dot-coms," says NBIA executive director Dinah Adkins. Most of the 300 or so Internet incubators have disappeared. But for proof that the concept still works, NEWSWEEK took a field trip to the birthplace of incubation, the Batavia Industrial Center, which the Mancuso family has run for four decades.

The people of Batavia have a history as business boosters. On the wall of Mancuso's office hangs a framed newspaper clipping from 1881, describing how residents took up a collection to buy a piece of land for the Johnston Harvester Co., whose plant in a nearby town had burned down. Batavia wanted those jobs, and the free land persuaded the agricultural machinery company to rebuild near Batavia's railroad tracks. Next to the newspaper clipping hang oil paintings of the factory Harvester built. By the late 1940s, the complex contained 1 million square feet--that's roughly the size of six Wal-Mart superstores--and employed 2,000 people. By the 1950s, however, the owners decided the facility was obsolete and closed it. So Mancuso's grandfather, along with his brothers, bought the complex for a speculative $180,000, and charged his son Joseph (Tom's dad) with finding a big tenant. But in rural Genesee County, whose population today is just 60,000, there weren't any big companies in need of an antiquated factory. So the Mancusos had to lower their sights. "The only people who could come here were little guys who couldn't go anywhere else," says Tom. The first tenant was a signmaker, who created the sign that still hangs over the door.

During the early years they struggled to fill the 36 interconnected buildings. But by the late 1960s the facility was filling up with companies that rented big spaces--30,000 square feet or more--to manufacture pool tables, trailers, radios and dog food. "You name it, it's probably been made here," Mancuso says. One tenant was Mt. Hope Hatchery, which used 40,000 square feet to house chickens. When Joseph Mancuso was showing a visitor around the facility, he pointed out the similarities in their businesses: "They're hatching chickens, we're hatching businesses." In that joke, business incubation found its name.

In the last decade, the Batavia center's mix of businesses has changed to reflect the transforming U.S. economy. Located in a city of 16,000 halfway between Rochester and Buffalo, the center is filled with fewer big tenants and more small ones; altogether, 111 businesses roost in the facility. Most have just a few employees. From the street, you can peer into the windows of a few of the businesses located at ground level: a custom golf-club maker, a music shop, an agricultural laboratory. Inside, it's a place of high ceilings and big elevators (some hallways resemble a SoHo loft), along with cavernous old factory space. Drew Bledsoe's passes couldn't reach the end of some of these buildings. Some of the largest spaces sit empty, owing to the soft economy; today, the average tenant leases just 3,000 square feet.

Unlike the Internet incubators, which took up to half an entrepreneur's equity in exchange for space and services, Tom Mancuso simply charges rent. "You're risking your livelihood, your house, your money to start your business," Mancuso says. "Just give us the rent and keep the rest--you've earned it." To lure in more high-tech businesses, the center is now wired with fiber-optic cable, T-1 lines and DSL Internet hookups. Unlike most incubators, companies in Batavia aren't forced to move out as they grow; some businesses have been under Mancuso's roof for 40 years.

Wandering around the facility recently, Mancuso looked in on one of his newest tenants, Pierluigi Cipollone Associates. The one-man software consulting firm began 15 months ago in the founder's basement. When the siren call of daytime TV began undermining productivity, Cipollone moved into the center. The 390-square-foot office won't win any design awards, but it has wireless Internet access, a server and a small fridge. Over breakfasts at local diners, Mancuso has been counseling Cipollone on how to expand his client base to reduce his dependence on Xerox, which currently accounts for 100 percent of revenues. Next week Cipollone expects his first full-time employee to come aboard. "If things go the way I think, I should have three or four people by the end of the year."

Mancuso's facility has a few other tech-related companies, including an Internet service provider and a computer-aided drafting company. But touring the center provides a vivid reminder of how much of the economy still depends on people creating goods that can't be beamed through wires. Upstairs at Tamarack Graphics, owner Joseph Steinwachs Jr. oversees as his 20 workers print graphics onto plastic bottles. His business has slowed a bit as his big hotel clients have needed fewer shampoo bottles owing to travel-industry doldrums, but life goes on. In Mancuso's office, there's the constant rattle from a machine upstairs that's producing parts for radar fish-finders. Visitors sometimes ask Vicki Mills, Mancuso's business-development manager, whether the noise distracts her. She laughs. "It's the sound of people working--that's what we want to hear," she says.

Roughly 400 people now make their living in the old factory. Mancuso's laying plans to turn a building near the back of the property into a craft center, where artisans could rent stalls by the week to sell their wares. There's also a pristine area with exposed bricks that he envisions as live-work lofts. When Mancuso's phone rings these days, it's rarely from venture capitalists; more likely it's someone taking the first tentative steps toward running his own show. "Out here, people don't have the IPO mentality," he says. "They start a business because they need a job or think they see an opportunity." Beyond the world of e-commerce start-ups, opportunity is still knocking.