As a start-up you may not be sure how entrepreneurship actually works and you may be dealing with restricted funding, personnel or time. At this point, you’d probably appreciate having access to guidance and education of the best ways to go about growing your young business so it’s sustainable. When you’re ready to grow your business and you’re uncertain about how to overcome the hurdles you’re encountering, a business incubator may be what you need.
What is a business incubator?
Incubators work with start-up companies or single entrepreneurs to help by providing free or low-cost workspace, mentorship, expertise, access to investors and sometimes capital in the form of loans. Unlike accelerators, incubators do not operate on a set schedule.
Joining an incubator is similar to the process of becoming part of a college program where you must apply, be accepted and follow a schedule to meet incubator-defined benchmarks. If you proceed with an incubator, you’ll need to commit to being part of the incubator for a particular length of time, usually one to two years.
Some incubators are independent while others are sponsored or funded by venture capital (VC) firms, government entities, major corporations or angel investors. It is common for incubators to focus on specific industries such as healthcare or technology. This enables them to offer more targeted resources and expertise to participants.
How incubators help start-ups develop and grow
Incubators help early-stage companies refine their ideas, create their business plan, work on product to market fit, identify potential intellectual property issues and network with other start-ups. They promote development and growth in ways such as:
Investing in start-ups – In the early-stages, new start-ups need funding while they test business models and develop products. Funding options through incubators vary and may be available in the form of loans or investments in exchange for equity. Plus, start-ups may take advantage of workspace offered by incubators, reducing budgetary demands such as office rent and overhead. They also offer the opportunity to share resources with other start-ups, allowing them to make best use of funding they receive.
Connecting start-ups to investors – Raising capital often takes start-ups months, searching for and pursuing elusive investors or may be costly when using highly-paid intermediaries. Incubators have the ability to potentially save founders time and money by connecting them to their large networks of venture capitalists and angel investors. They can introduce you to those best suited to your business type and industry. Plus, you’re better prepared for meeting with them and increase the odds of winning one because incubators usually help shape your pitch.
Supplying mentorship and experience – Experienced entrepreneurs provide coaching on business basics and assist in the creation of an attractive business plan that’s ready to be presented to potential investors. Incubators also offer events where you can practice the delivery of your pitch to potential funders or partners and network with them.
Things to consider before using a business incubator
Before you decide to apply to and participate in a business incubator, here are some pros and cons to consider so you may make an educated decision:
Potential benefits of business incubators include:
Free or low-cost workspace helping you minimize budgetary demands while you grow.
Access to perks to help advance your business such as office space, services, knowledge, mentorship, influence in the business community and potential capital.
Business development programming including panel discussions and workshops.
An advantage when seeking funding by having a reputation with potential investors of selecting the right start-ups and guiding them to become successful businesses.
Possible access to office must-haves such as incubator-provided administrative support, production equipment and internet.
Improved focus for effective business growth as a result of a structured environment and curriculum.
Potential disadvantages of business incubators include:
Having a somewhat exhaustive and competitive application process requiring applicants to provide a detailed business plan along with a discussion of all business activities completed thus far.
Requiring a time commitment of one to two years.
Compliance to a strict schedule set by the incubator including attendance of trainings, workshops and other activities. Although you’ll learn a lot, these put added demands on your schedule.
Constant mentorship and networking with entrepreneurs, although beneficial, have the potential to be distracting, reducing the focus on your business in the early stages.
All business incubators are slightly different including different benefits and shortcomings so it’s important to weigh your options carefully before committing to a particular one. Consider carefully whether your business is at the right point where it would fully benefit from an incubator. If you select to investigate this option, be sure to shop around. Don’t apply to the first one you encounter.
If your start-up business is off to a good start, you may be considering an incubator to take it to the next level. The challenge here is that there are so many incubators around the world that you must carefully select the one that’s the best match for you and your business.