Is Business Incubator Program Right for You?

What is A Business Incubator?

As defined by Investopedia, an incubator is an organization engaged in the business of fostering early-stage companies through the different developmental phases until the companies have sufficient financial, human and physical resources to function on their own.

Typically, business incubators provide start-ups and early-stage company with support and resources that these young companies have trouble accessing. The supports provided might involve access to networks, investors and mentors or even co-working spaces alongside other businesses and experienced professionals in all sort of fields.

An incubator can be either a for-profit or non-profit entity, ranging from business incubators, research incubators, academic incubators or venture capitalist incubators. Although all these incubators operate with the same principle idea i.e. helping small firms to grow, but, each of them has its own profile so they function differently in how they raise capital, the duration of incubation period and also the type of payment they aim to receive by the end of the day for providing the incubation services.

Type of Supports Business Incubators Provide

Supports given by business incubators varies between for-profit and non-profit incubators based on their existing networking and also readied access to different resources. Nonetheless, the type of supports provided are typically as follows:

• Co-working Space
  Physical incubators, as opposed to virtual incubators, often provide a working space for start-ups to work alongside and learn from each other.
• Networking Opportunities
  Start-ups can share ideas with other like-minded SMEs and entrepreneurs within the incubator while also gaining access to the incubator’s networks.
• Potential Investors
  Incubators typically make seed funding available, alongside exposure to investors.
• Workshops
  Incubators often provides various workshops to start-ups and access to experienced mentors and advisers means there are great opportunities for learning.
• Reduced Rates
  Incubators sometimes provide access to products and professional services such as accountants or lawyers at a discounted rate.

Benefits of Business Incubators

A business incubator is designed to accelerate the growth and success of entrepreneurial companies through a series of business support resources and services. Hence, the possible benefits received could include physical space, capital, coaching, common services, and networking connections. In other words, start-ups and early-stage companies are able to gain access to the followings:

• Access to financial capital through relationships with financial partners;
• Access to experienced business consultants and management-level executives;
• Access to physical location space and business hardware or software;
• Access to information and research resources via relationships with local universities and government entities.

Having access to various resources can make a huge difference to start-ups companies and these advantages can benefit the new companies in various aspects such as:

• Cost Saving. A co-working space is normally available at a reduced cost in an incubator. These services help start-ups to save money on running costs while growing their business.
• Funding Opportunities. An incubator often put start-ups in touch with venture capitalists who might be interested in funding their ideas and acceptance into a credible curriculum will certainly help to attract potential investors.
• Networking with Other Start-ups. More often than not, incubators will put start-ups to share office space with a group of like-minded entrepreneurs for this coworking environments have many advantages for start-ups. Besides saving money by using shared services such as utilities, coworking spaces is also a great spot to network and collaborate with other businesses.
• Improving Focus. Incubators also have a structured atmosphere in which start-ups can put full focus on their job. Start-ups would be able to develop healthy work habits, getting their company off the ground while having regular workshops or planned work time.

What do Business Incubators Ask for in Return?

For non-profit incubators funded by institutions such as universities or community organizations, they typically work on a fee basis in exchange for their services as opposed to taking an equity in the startup. On the other hand, for-profit incubators will aim for gain equity in early-stage company with strong growth prospects in return for their services or seed capital as their ultimate goal since it will provide a financial windfall for the incubator if the early-stage company takes off.

The Application Process

Incubators have access to finance or connections to alternative funding streams as well as access to accountants, attorneys, invaluable coaching and networking opportunities. Hence, applying to an incubator program could be a better choice for most of start-ups and early-stage companies.

To sign up for a business incubator, start-ups will need to apply and get accepted into an incubator program. Each business incubator has different application steps but typically, the application process should comprise a few steps:

• Apply: Fill out an application form and answer questions pertaining the business and founder. Some incubators also look for a business plan and a discussion of their past business activities.
• Interview: Typically, interviews are usually short and designed so the interviewer can learn about the business background experience quickly, like a brief video call, for example.
• Receive a decision: The notification time frame for the result can be varied. Generally, it is rather short, taking just a few weeks for an incubator to make an acceptance decision. If the start-up is interested in financial aid, they can apply after getting accepted into the program.

Who Are Business Incubators Looking For and is it Right for Your Business?

Most incubators are looking for great ideas and start-ups that can grow over a few years. Some incubators are tied to particular industries or academic programs so they will look for business ideas and growing companies that serve the same field. Common incubator sectors include software development and professional services whilst other programs seek a general population of companies across many industries. Some incubators, particularly non-profit incubators, serve particular groups focusing on women-run businesses, underserved populations or university students while others may take applicants from across the country or even internationally.

A business incubator could be a wiser choice for start-ups and early-stage companies to enrol but how do one know if it is right for the business? With so much variation in how incubator programs operate, it is even more crucial to consider which is the right fit for one’s business. Let’s take the following tips and consideration as a guidance cue.

• If you are looking for mentorship and affordable office space as a first-time CEO, an incubator could be the right choice for you.
• If you are looking for seed funding, note that only a small percentage of incubators provide equity investments, which can help to narrows down your options. Depending on your industry, it can be useful to work with coaches who have experience in your field. You may also want to look at alumni and success metrics.
• Incubators work on an open-ended time frame. There is no set schedule or period in which they deem a start-up is ready to launch. You need to consider if a long-term commitment is practical for your business.
• The chosen start-ups are expected to work with advisors and mentors who will to help address questions and dilemmas they face through classroom-style sessions, wherein the teams must perform tasks such as gathering feedbacks from potential customers about their product. Mental strength and patience are important to endure the multiple judgement and feedbacks as team may break if they are not mentally prepared for this.
• Throughout the incubator process, the start-ups will be pushed to improve their ideas and learn how to convey their plans to customers and potential investors alike. It is not uncommon for start-ups to pivot during an incubator program after conferring with seasoned experts and testing their product or service with the public.
• Equity investment may not be something you are interested in due to the dilution of share in the business. Maybe other form of funding such as debt financing would be more appealing. If you have access to similar benefits via your own network, you can take advantage of them without selling a stake in your business.

The Drawbacks

Although there are many advantages of using a business incubator, there are a few drawbacks to remember as well. It is good to have the following in mind when applying for the incubator programs:

• Time Commitment. Incubators move at a slower speed than accelerators and pre-accelerators, which deliver organised, time-bound systems. They are ideal for businesses that need more time to develop.
• Rigorous Application Process. Incubators differ in terms of their selectivity. The services with a better image attract more candidates and are thus, the competition is usually high and it is more difficult to get selected into. Most of the time, particularly at most prestigious universities, the selection process also can be very lengthy.
• Inflexible Schedule. Incubators will relieve some of the pressures of running a company for some businesses. Education, seminars, and social events are often required as part of programmes. While this education can be distracting to others, it can be extremely beneficial to those who want it.