Finding the Right Business Incubator
Did you know that the first business incubator was started in Batavia, N.Y., in 1956? Joseph Mancuso was the founder, and after seeing newly hatched chicks running around from one of his portfolio companies, he coined the business “incubator”. From there on out business incubators started gaining popularity. There are currently 1,200 in the U.S. They have caught the attention of local governments and universities interested in retaining entrepreneurial talent. An example of this is LaunchHouse’s partnership with the city of Shaker Heights.
If you are a small business owner or thinking of starting a business, you’ve probably asked yourself the question: should I join a business incubator? Before making your decision, let’s start with the basics. The National Business Incubation Association (NBIA) provides a list of FAQs many entrepreneurs face regarding business incubators. Here are a few of them:
What are the different types of business incubators?
94% of U.S. incubators are non-profits focused on organizational development.
54% are mixed-use, assisting a range of early-stage companies.
39% focus on technology.
4% focus on service businesses.
3% serve manufacturing firms.
How do business incubators differ from coworking spaces?
Coworking spaces exist to give independent businesspeople and freelancers a place to work that eliminates the isolation of working from home. They are great for networking, collaboration, and receiving help with everything from legal, accounting, and marketing questions. Coworking spaces are for people whose main desire is to work independently in a space that enables collaboration and assistance with different aspects of a business.
How do business incubators differ from business accelerators?
In many cases, accelerator is used synonymously with incubator, but there is a difference. An accelerator usually accepts a limited number of startup teams to work in its space for a specific amount of time. During that time, teams receive focused mentorship, funding and resources to accelerate the early-stage process in hopes of dropping their idea into the market at the end of the program.
Now that we’ve looked at some of the basic questions, let’s explore what an ethical and successful business incubator looks like. The NBIA has identified two guiding principles that all incubators should adhere to:
1 – The incubator aspires to have a positive impact on its community’s economic health by maximizing the success of emerging companies.
2 – The incubator itself is a dynamic model of a sustainable, efficient business operation.
Keeping those principles in mind, here are some best practices of the industry:
- Structure for financial sustainability by developing and implementing a realistic business plan
- Prioritize management time to place the greatest emphasis on client assistance, including proactive advising and guidance that results in company success and wealth creation
- Seek to integrate the incubator program and activities into the fabric of the community and its broader economic development goals and strategies
It’s important to know as much about the incubator as you can before committing your business to association with it and its resources. To further explore the different types of incubators, I’ve laid out the four categories of business incubators:
|4 Types of Business Incubators||Classic||University||Niche||Accelerator|
|Program||Shared building w/ rent, office, experts||Access to equipment and experts||Facilities & specialized advice||Work in space for specific time|
|Cost||Fee-based, $100-$1K/month||Free but limited to students & alumni||Fee-based, some take equity||Approx. 6% equity for $18k financial investment|
|Exit rules||Tenants should graduate in 3-5 years||Company should graduate when students do||Similar to classic model||Program usually lasts 90 days|
|Examples||TechColumbus in Columbus, OH||ARCH New Bus. Incubator at U. of Chicago||Sparkseed in San Francisco, CA||TechStars in Boulder, CO|
|Best for||First-timers wanting connections w/ new industries||Student entrepreneurs||First-timers needing specialized guidance||Fast-growth companies attracting investors|
|Questions to ask||Lease agreement? Kinds of co’s? Experience?||Stipend? Restrictions w/ money? Profs? Advisors?||Current & former tenants? Experience? Knowledgeable staff?||How much equity? Investment? Living arrangements?|
I hope this post helps you figure out which kind of business incubator is best for you and your startup! Entrepreneurship, once the road less traveled, is becoming more apparent, and that’s seen in the rise of business accelerators. Any questions about startups, incubators, and/or accelerators can be directed to firstname.lastname@example.org. Startups are our passion and we’re glad to be a part of the entrepreneurial process!