Business Incubators – The Two Sides of a Coin

Business incubators have become crucial to the entrepreneurial ecosystem of a country. The idea of providing budding startups workplace with basic facilities, personal mentoring, and an opportunity to seek potential investors, originated from the US around late 1970s. However, this brain wave was soon picked up all over the world, and today there isn’t any metropolitan without incubation centers.

As the startup culture is burgeoning with every passing day, so is the popularity graph of business incubators. Aspiring entrepreneurs often prefer to take the more sophisticated and well-paved way that incubators apparently lay before them instead of taking the road less travelled by – bootstrapping.

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Some newbie businesses join the business incubator bandwagon just because it is a la mode. But, should I remind you that business ideas do not get developed overnight and even if you have a solid business idea, it takes a lot to wheel your idea into the application. So, would you not weigh different aspects of business incubators to see if they’re actually worth the hype?

I’ve composed this write-up with a “two sides of a coin” approach, in which I’ll highlight both pros and cons associated with business incubators, so would-be entrepreneurs can make an informed decision about their baby businesses.

The good stuff

The basic concept behind business incubators is to facilitate new business initiatives from their idea stage to execution. It is a very unique kind of institution that offers quite a lot of benefits to its members, some of the main ones are as follows.

Facilities and services

Probably the most sought-after attribute of business incubators is the array of facilities you can get. From support in some major areas like dealing with legal issues, preparing contracts, copyright and patenting, to secondary aspects like a proper office space and access to similar resources, business incubators offer you a fully equipped launchpad.

facilities

Basically, when you start a new business, that too for the first time, you appreciate all the help you can get to reduce the overhead costs and avoid pitfalls as much as possible. And business incubators, by sharing their resources and experience with you, help you do just that.

Gateway to funding

Unless you have stacks of money at your disposal or your friends are generous enough to invest in your idea, your startups will always be needing a capital. One major perk you get from incubators is the opportunity to raise funding or investment for your business.

Most business incubators work in way that they arrange public events in which aspiring entrepreneurs conduct elevator pitches regarding their business ideas in front of investors or venture capitalists. The ideas in which the investors see some potential get shortlisted and are then taken up by the incubators to be groomed further.

Some incubation centers have such deep connections in the venture capital market that they facilitate even a second round of investment for growing businesses (see Y Combinator’s follow up funding).

All in all, seeking investment is a full-time job, and when the incubators help taking that load off your shoulders, all that’s left is for entrepreneurs to work on their goals with greater focus.

Mentorship and networking

When you start a business, you don’t usually have a lifetime to get it off the ground through trial and error, and here’s where mentoring comes in. As a part of their program, business incubators organize seminars and workshops where speakers (usually CEOs, founders or project managers of successful companies) offer you word of advice for your business and help you with your growth as an entrepreneur.

mentoring

Similarly, when it comes to networking, incubators, being well integrated into the local business community, are able to provide a great pool of connections. These connections can range from people related to thriving businesses in your specific field as well as business and commerce journalists.

Networking is a serious business that, if done right, can help you get suitable exposure for your fledgling enterprise which could otherwise be an uphill battle.

The rough side

As a famous saying goes, “nothing interesting is ever completely one-sided”, incubators have certain disadvantages associated too. Let me highlight a few in the following.

Stringent selection procedure

Developing economies are inundated with incubation centers with more of them emerging every year. However, there are still hundreds of to-be startups whose dreams of being a part of an incubator miserably fail mainly because of the over-particular selection procedure of incubators.

Though it is logical that not every business idea is a work of genius, but the notion also remains that only those ideas reach up to the selection ladder that either fall smoothly into profit making or can make for an attractive acquisition a few years down the road.

When business incubators go on a cherry-picking mission of selecting monetarily lucrative business ideas, there are greater chances that certain humanitarian or socially beneficial ideas get walked over (as such ideas don’t usually make tons of money for the investors).

Invisible pressure and distractions

Taking part in an incubation program brings with it volumes of invisible pressure. Why, because joining an incubator is almost like joining a college program in which the participants have to follow a schedule, take part in mandatory meetings or workshops and reach certain benchmarks.

invisible-pressure-distractions

Remember that when it comes to setting a new business afloat, apart from money and other resources, your time makes up for a greater part of the overall investment. But if you spend this time more on satisfying a reporting routine or taking part in activities you’re better off with otherwise, you (or your incubator) are not doing your business any favor.

Location-centric approach

All throughout the world business incubator are usually located in a metropolitan. Though apparently it is not something to frown upon as major institutions are usually based in larger cities, however, if you belong to a smaller town accessibility may cause some hindrance for you to take part in an incubation program.

Basically, incubators encourage (and some rather bound) startup founders to work under one roof for a specific amount of time so they can be regularly monitored. In such a scenario, if you’re bound to a certain location that’s not in proximity to the site of the incubation center, you either have to relocate with your entire team or forget the idea of joining the incubator at all.

How to go about choosing an incubator?

Don’t worry, I’m not going to hang you out to dry by just pointing out the goods and bads on this matter. Even with all the perks and pitfalls, business incubators can turn out useful for launching a new business, however, if you choose wisely.

Just remember to keep the following points in consideration when you go out on a quest to pick out the right incubator for your startup.

  • Do your homework. Inform yourself about each incubator’s reputation, who are their investment partners, the mentors on their panel, overall curriculum (number of workshops, seminars and meetings) and companies they have successfully launched.
  • Don’t set a blind date. There is a myriad of incubators in the market, from industry specific or university based incubation centers to the ones owned by venture capital firms or run by successful enterprises. Don’t just randomly opt for an incubator, rather see which kind of incubator would suit yours and your business’ particulars.
  • Know their takeaway. Incubators keep a share in your budding startup ranging from 2% to 10% or even more in equity. You need to know this before getting into the race and make sure the percentage of equity your shortlisted incubator demands fits in your overall business plan.
  • See if the location is manageable. In case certain limitations keep you from physically joining the incubator, try to opt for offsite incubation. It might be a bit restraining as you won’t have in-person support or real office environment, but you may be able to take advantage of their networks, relationships, and investor opportunities.

An ideal business incubator should be able to provide not just an office space, but real value to the business idea you so dearly developed, and their measure of entrepreneurial success needs to be more than just outside funding. That’s the only way a business incubator will be actually beneficial to you.

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