Everyone would love their startup to be the next Pinterest or Instagram — a business that rockets to the top quickly. But getting a startup off the ground depends on many factors. Among them, you need a talented team, a great product or service, strong marketing and sales, a business model that’s feasible — and some money and even business partnerships to make it all work. Sometimes you may think the planets have to align just right! That’s where startup accelerators or business incubators come in.
Business incubators (for our purposes we will include “startup accelerators” under this term) can give startups and small businesses access to tools, office facilities, administrative support and mentoring. Most offer a significant financial boost. Incubators can save your startup money (examples: free or subsidized office space and Internet connections) or even serve as a source of seed funding or a way to connect with investors — all to give your startup that extra edge and much needed support.
What Is an Incubator?
A business incubator is a program designed to provide support to new businesses to help them succeed. Every incubator program is different, but incubators and accelerators typically include access to mentors or experts from different areas of business (finance, marketing and management, for example) who provide guidance on the startup.
Some incubators are place focused, and provide office space and even light manufacturing or technical facilities for a period of time. They may provide shared access to servers and software, high speed internet connections, telecommunications, and other technical support. Some also provide shared services, such as administrative or marketing support.
Other incubators are more of a process. They may focus more on mentors, seed funding, introductions to business partners, and opportunities to present your business to qualified investors. One example that falls more into this latter type of incubator is Y Combinator, which puts on Demo Day at which its high-tech startups get to pitch to and connect with investors. Getting investment is a significant end goal of that type of incubator.
While business incubators date back as far as the 1950s, the explosion in growth began with the dot com bubble of 1999. Today, there are more than 1,500 business incubators in North America, and around 7,000 globally.
Each incubator has a different aim. The majority in North America are nonprofits focused on economic development. Some are supported by state and local communities. Some are supported by large corporations or corporate foundations, such as the Citrix Startup Accelerator. And while the media tends to focus on the technology-centric incubators (approximately 39% of North American incubators are tech-focused), there are plenty of others if you are in services, manufacturing, food production, green tech or other niche markets.
What Incubators Do For Startups
In some ways, incubators are like business school on steroids. But instead of spending two years writing fake case studies and research papers, you’re learning hands-on … with your own business. And unlike with business school, the stakes with a startup are higher — after all it’s your livelihood and that of your employees.
But like business schools, business incubators often have programs for a set period of time. The program is led by teachers (i.e., mentors) who walk participants through the process of taking a fledgling business and developing it to the point that it can fly on its own.
You learn from the teachers. You learn from other students (i.e., other startup founders) who may be in different stages of business than you are. You learn how to tweak your business idea, make it a profitable or successful one, and sometimes “sell” your idea to investors. Meanwhile, depending on the program, you may have access to worldclass facilities, tools and technology.
At the end of the incubator program, you and your startup “graduate.” This may mean getting enough investment in your business to grow to the next level. Or it may mean that the business is ready to stand on its own two feet without assistance. Either way, your startup leaves the nest.
Not All Roses and Unicorns
While you hear a lot about the benefits of incubators, there’s not a lot of focus on the level of commitment and hard work you will endure. It’s by design.
Some incubators involve an intense training or immersion program for a period of time. In them, an objective is to weed out any participants who aren’t up for the challenge of a startup. The idea is: if you can’t handle this business crash course, it’s possible that you won’t be prepared to meet the challenge of seeing your startup all the way through to growth and success.
If you have a family, you may not have as much time to spend with them, given the sheer workload some incubators will put you through. Additionally, if there isn’t an incubator in your city, you may have to relocate for the program, separating you from your family.
Participating in an incubator may bring you to the realization that your business model is bad. No one likes his or her business being criticized, but if you’re not up for it, don’t join an incubator. It’s actually a good thing, being run through the wringer, as it helps you focus your business idea and get advice from seasoned entrepreneurs who know the makings of a solid business.
Going through an incubator program (if it involves an intense period of mentorship and training, for instance) may take time away from running your startup. Some startup founders resent the time taken away from the business to go through intensive bursts of training or meeting other program requirements.
Incubators vary on the program requirements they place on founders. Understand the program requirements thoroughly in advance, and be realistic about your expectations as you shop for an incubator. Are you willing to have a doubled workload and scheduling inconveniences in exchange for knowledge you won’t get anywhere else and access to investors? It’s worth the price of admission if you’re willing to put in the time and effort.
How to Choose
The incubator that will best serve your startup depends on what you’re looking for. Here are some criteria to keep in mind:
- Geography: Look close to home first. If nothing is available, consider relocating if relocation will not be an issue for your family. Note: some incubators have very specific “place of business” requirements.
- Fits With Your Needs: Does the incubator offer what your startup REALLY needs? If what you need is investors and industry partners, then an incubator that focuses on mentoring, providing seed funding and making connections with influential investors should be your focus. If your greatest need is access to physical facilities, utilities and telecommunications/Internet, then focus your search on incubators that provide those benefits. Be sure to make a list of your needs first.
- Difficulty to Get In: Of the thousands of applications that the most successful accelerators receive, only a fraction are accepted. The more difficult ones to get into tend to be the most rewarding.
- Track Record: You’ll want an incubator that has successfully helped businesses launch, find funding or otherwise succeed. Research to find out what percent of graduates have accomplished these milestones, and what the incubator did to ensure that success. Speak with graduates to get their take on the program as well.
- Who’s Running It: If you’re going to dedicate time to an incubator, you want to be assured that the people running it have their own proven track records as entrepreneurs. What experience do they have that will help you run your company better? How much time do they spend with participants?
- Amount of Time You’ll Need: Some incubator programs will sap all of your mental energy and time, so consider that this will be time spent away from your startup (in the sense of daily operations) and family.
- Niche: Many incubators focus on tech and Web companies, but there are others that focus on other niches. You want one that will connect you to leaders in your industry, has mentors who understand your industry, and/or can provide industry-specific facilities.
There’s no rule saying you can only apply to one incubator, or even the same one once. Make a list of those you’d get the most benefit from and apply to any you’d be willing to relocate for. Some startup founders attend multiple incubator programs, getting more contacts and more experience they can apply to their businesses.
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