Monday, September 1, 2014

Will A Business Incubator Help Hatch Your Startup?

Incubator_Baby_DuckOne of the reasons that now is the time to be an entrepreneur is the explosion of startup assistance organizations, usually called incubators or accelerators. According to the National Business Incubator Association (NBIA), there are over 7,000 of these locations worldwide, and even new online versions like Pitchswag springing up here and there.

Most of these are non-profits, set up by a university to commercialize new technologies, or a municipality to foster business development for the local economy. A few are still trying to make a profitable business out of nurturing startups, but it’s a challenge to make money when your customer startups don’t have many resources to give.

But there are notable examples of for-profit incubators that are thriving, including YCombinator, led by Paul Graham in Silicon Valley, and TechStars, led by David Cohen and located in several key cities around the country, that have an excellent reputation and track record. I believe their competitive advantage is their top on-site leadership, exclusivity, and connections to investors.

Variations on the incubator theme are sometimes called business accelerators, science parks, or the Small Business Administration's Small Business Development Centers (SBDCs) in almost every state in the US. Accelerators generally accept startups at a slightly later stage, and attempt to compress the timeline to commercialization into a few months, instead of a year or more.

Common resources provided by most of the incubators and accelerators today include the following:

  • Access to shared office facilities for multiple startup teams at a very low cost.
  • Shared business support services, including telephone answering, conference rooms, teleconferencing, administrative support, and a business mailing address.
  • Mentoring and technical assistance from volunteer or paid experts.
  • Direct seed funding, for a share of the equity, and introductions to investors.
  • Peer-to-peer networking with other startups and founders in the same stage.
  • Health, life, and other insurance at group rates.

If you don’t need these common resources, but need specialized technology services, you should look for technology parks and research facilities, often sponsored by leading companies in specific technologies, like Intel New Business Initiatives and Google Ventures. As well, these companies usually bring real new venture funding opportunities to the startups they sponsor.

To get started, go to the National Business Incubation Association (NBIA) web site, and use the lookup tool provided to see what’s available in your area. This association is definitely one of the world’s leading organization for advancing business incubation and entrepreneurship. Another good online approach is a simple Internet search for articles like the “The 15 Best Startup Accelerators in the U.S.

But don’t expect incubators to magically convert your pre-hatched idea into a successful company. The good incubators are highly selective, and expect you to demonstrate your commitment and a hard work ethic to meet expected milestones and show continuous progress. In a recent cycle, YCombinator had a thousand applicants for thirty slots, and several of these fell out before completion. Think of that challenge like competing for limited venture capital.

I believe the real value of an incubator is in the relationships you can build there, with peers as well as domain experts, investors, and potential strategic partners. An incubator won’t help you if the market opportunity is small, the competitors are large, or your solution doesn’t address a real need.

As evidence that it does work, TechCrunch recently aggregated the combined valuation of YCombinator graduates at $14.4 billion, with the total amount raised topping $2 billion. That’s over 500 successes in less than ten years. However, if you are looking to find an incubator like YCombinator for easy money and free services to hatch your startup, it probably won’t work.

Growing up and surviving in the entrepreneur world requires a fine balance between an independent determination to be self-sufficient, and a humble willingness and ability to listen to and learn from the best and the brightest startup mother-hens out there. Are you and your startup ready to make the cut?

Marty Zwilling


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