If you have ever been part of a startup company, you will know all the challenges involved.
Most small business owners, freelancers, and entrepreneurs start out with a lot of risk and very limited resources. It also gets tough when you have to work hard, have self-discipline, and work alone most of the time.
In order to actually survive and thrive, startups need a couple of crucial resources. These resources could be capital, basic office structure and resources, or a mentor or coach to help them as they get started.
Most startups are forced to shut down due to lack of access to these kinds of resources. Even if they plan to use the bare minimum resources, they still require help and support.
This is where a business incubator comes into the picture.
In the past ten years or so, more and more startups and small business owners are looking for business incubators to get their business off the ground.
Business incubators offer support to startups until they grow big enough to support themselves. Let’s take a look at what business incubators are and how they play a huge part in the success of startup companies.
What is a Business Incubator?
A business incubator is an organization that offers assistance to startups and small businesses in order to help them grow and establish themselves.
The support is usually in the form of a coworking space to share with other small businesses, some funding support, mentoring or coaching, and shared equipment and supplies.
In this kind of environment, entrepreneurs and startup owners get to collaborate with each other, share business ideas, build their network, source funding, and share expensive equipment to bring costs down.
A business incubator is therefore a safe place where startups can scale up and grow, without too much risk, and with a ton of support.
Business incubators are usually non-profit organizations funded by the government. Although this is not a new concept, it became popular only in the 1980s when many colleges and institutions began opening business incubators to help their students in their careers.
Following this model, thousands of business incubators have opened all over the world today to give young entrepreneurs and startups the boost that they need to plant their feet on the ground and increase their ROI (return on investment).
Business incubators could be general or industry-specific.
Although a majority of them are funded by the government, there are some that are sponsored by private companies or educational institutions such as colleges and universities. We’ll be talking about the different models of business incubators in a later section of this post.
In a study called Business Incubation: A Key Ingredient to Economic Growth and Recovery, business incubators were regarded as a boon to economic development. This is because of the high ROI ($4.96 for every dollar of public operating subsidy) that was achieved with low cost of program.
Business incubators can either operate locally, in a building or space that houses shared equipment, training facilities, and networking opportunities. It can also be remote, where people who own startups and small businesses all across the globe connect virtually, making connections and sharing knowledge they would not have access to anywhere else.
What is The Main Goal of a Business Incubator?
Although business incubators may have different funding sources and may deal with a niche of startups, their main objective or goal is the same – to support the growth and development of financially stable and independent startup companies.
Business incubators achieve this goal by working to provide mentoring and administrative support to startups in a safe environment.
As there are usually more than one startup working under the same roof, there are excellent chances of collaboration, networking, and sharing of common resources, saving small business owners money and energy till they are big and stable enough to support themselves.
In essence, a business incubator’s goal is to ensure the success of your startup company.
Usually, they are run by non-profit organizations who receive their funding from the government, donors, and the rent or fees you would pay them as a startup company under their program.
Business incubators select non-competitive participant (or tenants, as they are sometimes called), and their success is based on the success of the companies they support. They are constantly guiding participants and providing them with all the tools and resources required for their growth and learning.
The Importance of a Business Incubator
Business incubators play a major role in the success of participating startups. In this section we will see the importance of business incubators in various aspects of a startup owner’s journey.
1. Business Incubators Help in Finances
Startup owners generally do not have access to a huge capital when they begin. Finding a business incubator will help you save a lot of money on operating costs.
Since more than one company shares the facilities, you can save money on utilities, resources, office equipment, rental equipment/ tools, reception and maintenance services, and other overhead expenses.
The building and office space may also cost less in terms of rent since incubators usually set up in shared spaces.
As a startup owner, you will also have the benefit of networking with investors, donors, and venture capitalists who are tied up with the business incubator. Incubators will also provide guidance on how to present your startups before potential investors.
Getting the approval of the incubator will also give your startup more face value and help when you need funding.
2. Business Incubators Provide Guidance
The reason why some business incubators take on startup companies only in a specific niche or field is because they can provide them with special guidance.
This guidance could be in terms or management or operations, and is given based on the experience of many experienced people in the same field.
For instance, if the business incubator deals with startups in the hospitality field, they will be able to provide counsel and guidance from retired and experienced businessmen in the hospitality field.
Learning from people who have already gone through your journey and experienced success will allow you to learn from their failures and use the methods and tactics that they have used to get so far.
Having experienced entrepreneurs and other prominent individuals in their network can immensely benefit startup companies, and business incubators allow that to happen.
3. Business Incubators Foster Community-Building
As an entrepreneur, you’re never alone on your journey. It takes many skillful and talented people to build a successful company, although one person may have started it and is running it.
Business incubators allow you to make connections with other businesses who may not be in direct competition with your business, but may have products or services that can help you grow your business.
The relationships you build in a business incubator last well after you leave. Apart from encouraging each other and providing meaningful advice, you can collaborate with each other and conduct joint campaigns.
These bonds that you develop will give you a boost in your journey as an entrepreneur, since outside an incubator, it takes years to even network with skillful and talented people.
4. Business Incubators Are Beneficial For The Economy
Thousands of startups fail everyday because of lack of support or lack of resources. Business incubators enable budding businesses to prosper, allowing them to employ more people in the society.
Unlike some startups that start recruiting people and then shut down due to various reasons, startups that have established themselves under a business incubator are more well equipped to face the real world. They are more sustainable businesses and develop greatly over time because of the foundation that they have laid for themselves.
A strongly established new company means more jobs for graduates and experienced people, which in turn means growth of the economy.
The Role of a Business Incubator
We’ve spoken about the role of a business incubator vaguely in the beginning of this article, but in this section, we’re getting down to the specifics.
What exactly is the role of a business incubator?
What are the things that a business incubator does that can bring a startup from being inexperienced to knowing the ins and outs of the business world?
Here’s what they do:
1. They Offer Shared Office Space
The number one expense when it comes to setting up your own small business is office space. Business incubators allow startups and entrepreneurs to work in their shared office space for free or for a very minimum rent.
This cuts down costs for small business owners who are unsure of how profitable their business is going to be when they first start out. This is also helpful when as a small business, you want to scale up your headcount without having to pay too much for a huge space.
Shared office space also allows you to network and form valuable connections. Working alongside other entrepreneurs and business people on an everyday basis will allow you to exchange ideas and adopt systems that are tried and tested by others.
2. They Provide Access To Special Tools And Equipment
Specialized businesses require certain tools and equipment that may be expensive for a startup. Business incubators can easily invest in these equipment and offer it to the small businesses at a nominal fee or free of charge.
Some of these tools/ equipment could be 3D printers, modeling software, SEO software tools, or other specialised software that are expensive and may have monthly subscriptions. In that case, the subscription cost could also be shared by the members of the incubator program.
Sharing the same tools and equipment also reduces maintenance costs. It also allows members to share knowledge on how to best make use of these tools and equipment in your business.
3. They Have Experienced Mentors And Guides
When you are just starting out on your own, it’s hard to come across good mentors and role models. The best part about being in a business incubator program is that you have unlimited access to those who have experience setting up a business similar to yours and being successful at it.
Most business incubators have a trained and experienced staff who know the industry in and out and can help entrepreneurs stay focused and set realistic goals for themselves. These mentors can share what worked for them in the past and what didn’t, so budding business owners know what mistakes to avoid.
Business incubators sometimes hire a group of talented and experienced mentors who have been in a specific industry. This way the mentors can provide personal training and guidance on the processes they followed, the planning steps, and making crucial decisions for your business.
It is important to join a mentorship program that is specifically meant for the niche related to your business. Then you can gain more knowledge about the industry and receive more targeted advice.
4. They Conduct Regular Group Trainings
Another huge benefit of enrolling yourself in a business incubation program is that you will never be alone throughout the learning process. With an equally focused and determined group, you will be able to motivate each other and share your learning, as well as your networks.
Business incubators conduct regular group training programs that could range from training on legal advice and IP issues to other business challenges lie finding your target market, establishing a good employee culture, and determining your marketing strategy.
Learning in a group will also help you build your social and networking skills and help you build lifelong connections.
Business incubators also regularly plan out polishing courses and workshops such as soft skills training, presentation skills training, and training on the latest software and tools that are being used in the market.
5. They Provide Shared Software And Management Tools
Apart from the technical tools and software that are specific for your business, business incubators also provide access to management software and tools.
These tools could be used for marketing, accounting, manufacturing and even banking purposes.
Most startups lack the resources and tools they need to scale their businesses. They also lack knowledge about the best tools and software that are currently being used in the business.
Business incubators provide new startups with assistance in marketing, market research, tools for market analysis, and the best practices when it comes to marketing and scaling your business.
They also give you access to the best accounting professionals, legal professionals, legal advice, higher education programs, grant programs, library access, discounted courses, and also loan facilities.
The Benefits And Drawbacks of Business Incubators
Although business incubators have a ton of benefits, they do have a couple of drawbacks too. We will talk more about the overall advantages and disadvantages of enrolling yourself in an incubator program in this section.
Benefits of Business Incubators
Although we have already discussed the importance and role of business incubators, we will now highlight the benefits of being part of a business incubator program.
The basic aim of any business incubator is the same – to offer resources and a networking community to startups and small businesses. Apart from the resources and capital, being a part of a business incubator program has the following benefits:
- Opportunities to reduce overhead costs
- Work in a professional and productive environment
- Support from mentors and peers
- Opportunities for higher education
- Regular trainings and workshops to develop business skills
- Opportunities to find investors
- Assistance in figuring out marketing strategies
- Not time sensitive like accelerator programs
- Not required to share equity with incubator
- Shared software resources and technical equipment
- Shared expenses for utilities and exhaustible resources
- Shared administrative, maintenance, and reception staff
Drawbacks of Business Incubators
Every program must be having a few limitations or drawbacks, and business incubators have a few:
- Business are mostly non profit organizations, which means that although they do offer you opportunities to raise capital, it may not be as much as what an accelerator or an angel investor can offer you.
- Business incubator programs are not as intense as accelerator programs. This means that they will be able to support your gradual growth over a period of years, they might not be able to promise you instant results.
Even with these drawbacks, business incubators are an invaluable source of support as you start out.
Business incubator programs may not be ideal for every business, but it’s worth a consideration to see if the program suits your business. Each business incubator program is different, so it is important that you check out the details and what the program has to offer you as a business.
The Types of Business Incubator Models
There are different types of business incubator models in existence, They could, for example, be based on the type of company, the type of industry, or specific to the geographic location.
According to the National Business Incubation Association (NBIA), there are five different business incubators models. Let’s look at these five types of incubator models and how they work:
Business Incubator Model 1: Higher Educational Institutions
Some higher educational institutions like colleges and universities have tie ups with experienced businessmen and mentors who have been in the industry for a while. This makes it a perfect place for fresh graduates to come across world class mentors in various business incubator models. The businesses on the other hand, have access to bright young minds who have qualified for the incubator programs.
Post graduate students who have specialised in a certain field of study and are keen on starting their own businesses can benefit greatly from incubator programs conducted by their universities. It allows them to get in touch with the best mentors in the industry and helps them collaborate with their peers in order to make their startups successful.
Entrepreneurs that are successful at a young age contribute immensely to society and can go on to become future mentors and role models for their juniors in college.
Business Incubator Model 2: Non Profit Organizations
Nonprofit organizations exist to further a social cause. Business incubator programs conducted by nonprofit organizations are designed to support and uplift struggling startups and small business owners so that they can contribute to the society.
Nonprofit organizations use the revenue they generate to push their cause further, rather than distributing the revenue among shareholders or owners.
Since nonprofit organizations run on the basic principles of faith, trust, honesty, accountability, and other such virtues, they are mostly made up of people who are passionate for the particular cause.
This passion will convert into great ideas, innovative ways of sharing office space and resources, and a wonderful working environment where budding entrepreneurs can learn and grow. Most of the startups who have grown in these kind of environments share in the cause and later on become mentors and guides for succeeding startups who join the program.
Business Incubator Model 3: For-Profit Ventures
Although nonprofits are seen more as selfless in the eyes of the public, thereby receiving a lot of charity and funds, sometimes it is not the best way to go when you are seeking a good business incubator for your startup.
Depending upon the business model of the venture, and the overall vision and mission of the business incubator, you will have to choose wisely between a nonprofit and a for-profit model of business incubators.
For-profit incubators may have better resources and more sustainable programs. They may have access to better software, resources, and mentors than non-profit models. However, there are pros and cons for each type of business incubator model, so you must choose wisely depending on your startup’s needs.
Business Incubator Model 4: Venture Capitalist Firms
Venture capitalists are those firms that offer new high risk startups who exhibit a high growth potential capital in exchange for an equity in their company.
Besides the capital investment, venture capitalists also provide advice on the industry and marketing strategies, office space, human resources, and administration and maintenance facilities.
Since startups run a higher risk of loss, venture capitalists ask them for a piece of their company in the form of stock ownership, and a place for the venture capitalist on the company’s board of directors.
Since the venture capitalists have control of the company’s decisions, their goal is to make the startup grow. This mentorship in the form of training, guidance, and decision making is very valuable to a startup’s success.
Business Incubator Model 5: A Hybrid of The Previous Types
The last type of business incubator according to the NBIA is a hybrid of two or more of the business incubator models mentioned above.
Combining two or more different models means there is more variety in terms of resources shared, ideas exchanged, and mentors available.
Since you will be spending a few years in the business incubator program, it is crucial that you choose the right kind for your business venture.
Being a part of these programs will give you access to the best mentors and the best guidance that will propel your business to the success it deserves.
Christian Mongillo of HubSpot for Startups rightly said, “The most important criteria is fit. Find a business incubator that works economically and allows you to expand as your team expands. Look for one that has a selection process and is searching for similar types of companies. It’s not just a coworking space. The best incubators have a great mentor network and produce good results. They also have free wifi.”
He goes on to say that not all companies would ideally benefit from a business incubator program. This is especially true if you are a second-time entrepreneur, own a lifestyle company, or already have your own office space.
Getting into a Business Incubator Program
Okay, so you have finally decided that a business incubator program is the right choice for you and your startup. Now how do you go about finding the best program and enrolling your company in it?
Getting accepted in a business incubator program is a careful selection process. You will need to scout for the best suited programs for your company and apply to each one individually.
Although each program may have different criteria for you to get accepted, the main criteria are the same. You will need a viable business plan that is profitable and scalable.
State the plans you have in terms of products or services your company has to offer and create a business plan to present to them with ideally a 12-month forecast. This will ensure that your application stands out from among the rest.
Once you have successfully crossed this stage, you may be required to present your business in front of a screening committee. This would be like a pitch or an interview as they would be trying to understand if your company would be a good fit for that particular program.