Business incubators provide a fledgling entrepreneurial business with needed resources and assistance to accelerate its growth from start-up into a mature company able to stand on its own. According to the National Business Incubation Association (NBIA), around 87% of start-ups who complete a program through an incubator were still in business.
What Is a Business Incubator?
Incubators are public and private organizations including universities, state and local government agencies and community groups that charge a fee for their services. These organizations provide flexible facility rentals in move-in condition including utilities at less than going rates for area industrial or business complexes.
Other services that may be provided include janitorial, high-tech manufacturing environment requirements, T1 and DSL connections, security systems and shared common areas such as kitchens and conference rooms. Administrative office support is provided with other amenities including:
- Common waiting rooms
- Staff to answer phones
- Shared binding machines
- Voicemail systems
- Fax machines
- Audio and visual equipment including presentation projectors, TV monitors and TV/VCR combos
In addition, fledgling companies get a business mailing address, a professional image and a network of other like-minded business owner residents of the same incubator encouraged and eager to do business with one another.
Finding an Incubator
There are currently more than 1,000 incubators in the United States. According to the NBIA, the vast majority (around 93%) of incubators in North America are non-profit institutions while the rest are for-profit organizations.
There are several kinds of incubators that you might use to help launch your business.
This type of incubator typically operates out of a large building and rents out space and office equipment at a subsidized rate to start-up companies. Experts in different business areas are often available to consult with the entrepreneurs to answer questions and provide guidance. The companies are expected to leave the incubator or graduate within 3-5 years.
This type of incubator works best for first-time entrepreneurs who want to make connections in their chosen industry.
The university-based incubator is limited to students and alumni of the school. Start-ups can get free access to experts and equipment through this type of incubator; the company should graduate from the incubator when the student graduates from the school.
This incubator focuses on helping companies in specific niche areas by offering facilities and expert counsel. These incubators often charge lower rates for the services they offer but some also ask for an equity stake in the new company instead. These participants are expected to leave the incubator within 3-5 years as well.
This type works for entrepreneurs who need specialized guidance in niche areas of business.
Accelerator incubators are very structured and are run by seasoned business owners; the new company has to operate from a specified facility for a certain amount of time - usually 90 days. After this time, the entrepreneurs can pitch their new ventures to the people who run the incubator. If the business owners want to join, they give seed money and the start-up generally gives the owners 6% equity stake in the company.
Accelerators are ideal for companies experiencing rapid growth and who want people to invest in the company.
Tips to Finding the Right Incubator
You can find incubators through your local chamber of commerce, a local university, or on the Internet. The NBIA website has a location by state or country. The Small Business Administration can also help you find potential opportunities.
Since there are many incubators out there, you need to find the right one for your fledging company.
- Should your business be in an incubator? All businesses may not work well in this format. Some manufacturing or construction companies may not survive in the confined spaces that are commonly the homes for incubators.
- Look for industry-specific incubators. There are incubators that spend more time in a certain field; for example, there are technology-specific incubators, food industry-specific ones, and service industry-specific ones. The experts associated with these organizations may have singular insights to your new company and the industry you are entering.
- Find out which other companies are in the incubator. There may be other companies participating in the incubator that may be useful to you. Often, incubator companies can forge relationships that may continue even after they leave the nest. However, there may also be potential competitors that you may not want to deal with as well.
- Understand what is involved with participation. Some incubators have time-limited leases or charge for rent and other fees. You also want to know how long you can stay in the program so you can determine if it gives you enough time. You want to be clear about what joining a specific institution entails for you and your company before you sign anything.
- Look at the track record. How are previous companies who participated in the incubator doing on their own? You should ask other participants about the incubator too so you can learn about its reputation.
Other issues to evaluate when selecting a business incubator are services offered, staff experience, and program structure of the incubator.
Thriving in the Incubator Environment
Thriving in the incubator environment does not guarantee that you are going to do well outside the institution but it can be a big help. Some suggestions include:
- Plan ahead: When you leave the program, your costs will go up. Things that you are getting at a discount like office space or expert advice will go back to market value. You need to plan for this in advance.
- Utilize available resources: There are many resources to help you build your company and it is important to use them while they are accessible. You may not have this type of access to experts in your field again so use them to get ideas and make decisions.
- Make connections: Other firms in the incubator may become good allies in the future but they may also have ideas about making your company better.
- Possible investors: If your start-up will need angel investors at some point, the incubator may be the ideal place to find them.
Here are some examples of business incubators located in large cities around the country:
- The Georgia Research Alliance: This incubator, located in Atlanta, was created with cooperation between 6 universities and focuses on biotech, multimedia, computing, and alternative energy start-up companies.
- Connect: This incubator is located in San Diego and has been working with start-up companies since 1985. Connect focuses on high-tech start-up firms and provides mentorship and access to funding.
- JumpStart: This Cleveland-based incubator works with companies with significant growth potential but it targets minority entrepreneurs; Jumpstart provides seed money and mentors.
- Industrial Council of Nearwest Chicago Fulton-Caroll Center Business Incubator: This is one of the first five business incubators in the United States. It provides services to start-ups and young businesses in the Chicago area.
- Rice Alliance for Technology and Entrepreneurship: This Houston-based incubator has been in operation since 1999 and focuses on technology companies in Houston and the Southwest.
Business incubators may give you the resources to help get your company off of the ground. If you have a start-up and need help, look into entering one.