As an entrepreneur, I spent over three years in two different startup incubators – Brazil’s Genesis Institute, part of PUC-Rio’s university, and Maryland’s Rockville Innovation Center, run by Montgomery County’s Economic Development Department. As mentor, I have also had the opportunity to coach several incubated companies, from incubators like 1776 and beyond. I could experience firsthand the benefits of business incubation, which can be significant for early-stage entrepreneurs.
The definition of business incubator (or startup incubator), according to the Entrepreneur’s Encyclopedia, is an “organization designed to accelerate the growth and success of entrepreneurial companies, through an array of business support resources and services that could include physical space, capital, coaching, common services, and networking connections”. They are usually funded and/or managed by private companies, municipal entities, or colleges and universities.
Incubators played an important role in leveraging the growth of two of my startups, providing valuable support in their early stages. In fact, I’m not alone. According to the US Small Business Administration, 87% of incubator graduates stay in business, in contrast to 44% for all firms. To be fair, it is hard to know how much is due to good selection of companies versus good resources and mentoring – but you still want to be among the 87%, don’t you?
7 reasons to join business incubators (no particular order):
- Seal of approval. When you’re nobody, it’s good to be associated with somebody. So if you’re new and the market doesn’t know you, as an incubated company in a prestigious institution, when you go out to look for partners, clients, or investors, you can at least show some credentials. People will know that you went through a selection process and were capable enough to join the incubator. They will know there is support behind you and will tend to have more confidence in your ability to commit and deliver than if you were unaffiliated.
- Administrative support. May not seem as much, but when you’re only a couple of people working on a startup (or worse, a lone wolf) it comes handy to have accessible support to multiple daily tasks, so you have more time to focus on the important stuff, on actually developing your business. Administrative help usually comes in the form of a common assistant, interns (especially if the incubator is associated with a university), free or affordable bookkeeping, CPA and legal services, as well as access to basic office gadgets and supplies.
- Facilities. Good incubators offer you a nice office or working space, as well as common meeting rooms and a professional atmosphere – certainly much more than your basement or garage! This is important when you need to meet with clients and partners, interview candidates, or pitch investors. It is also good for the entrepreneur’s morale. I could get much more work done after walking into a vibrant and professional setting, in a nice building, surrounded by other entrepreneurs, than working alone from home. Also, incubators usually offer flexible and affordable rent and utilities, which you won’t usually find elsewhere.
- Cross fertilization. Being close to other entrepreneurs is great. You can interact with like-minded people, most of whom are going through some of the same issues you are facing. You share tips, contacts, and experiences. Startups in incubators tend to help each other out and often engage in partnerships and become each other’s clients. My first startup, for example, did business with two fellow incubated companies. Also, if your incubator is affiliated with a university or company, you may develop fruitful R&D partnerships and have access to great talent for your team. Finally, at the very least, as part of an incubator, you feel you’re not alone.
- Mentorship and professional services. Incubators are catalysts for mentors and consultants of all kinds. As an entrepreneur, I was often approached by people wanting to help: some for free, some for equity, others for fees. Not all help is the same, of course, and sometimes I passed; but one can find specialized support much more easily than if working alone. Incubator managers also usually have a rolodex with useful contacts, such as designers, marketing specialists, business development folks, engineers, coders etc., who work regularly with incubated companies and are just one phone call away.
- Access to capital. Early stage investors – angels, seed funds, venture capital funds, commercial banks with small business products – have their radars on incubators, especially the ones with a successful record of spinning good companies. Incubated businesses are often approached by investors, either one-on-one or at pitching and networking events. Also, incubators often do a good job of opening your eyes to funding opportunities you never knew existed, including small business grants and subsidized loans. My first company earned a large government grant from the Brazilian government thanks to the hint we got from Genesis incubator and their help in putting together a winning application.
- Connectivity. Besides connecting with fellow incubated companies and adjacent resources, there are several national, regional, and even global incubator networks and initiatives, such as US’s National Business Incubation Association, Brazil’s Anprotec, the International Business Innovation Association, and the World Bank’s infoDev. This means that if you want to internationalize your business, find strategic partners in different countries, or simply benchmark experiences, being in an incubator can also be useful. Although early stage startups normally focus on local markets first, depending on the business, having international capillarity from the get-go can be an advantage.
Naturally, don’t expect miracles. The success of your business ultimately depends on your company developing products and services people care about and your ability to innovate, adapt, and deliver. But if you’re starting out and have very few resources, an incubator is definitely a good place to consider.