HOW INCUBATORS FACILITATE BUSINESS SURVIVAL
Business incubators are business assistance programs that provide entrepreneurs with an inexpensive startup environment and a range of administrative, consulting, and networking services. In essence, these programs, which may be managed by econo0mic development agencies, local governments, for-profit businesses, or colleges and universities, serve as home for new companies.
They offer low-cost space, shared equipment, and the comradeship of fellow entrepreneurs. An incubator usually houses about a dozen tenants, who stay two or three years, then ‘graduate’ to commercial space. At their best, incubators help new firms create jobs and revive communities. Indeed, statistics indicate that incubator firms have a significant greater chance of survival than do other startup businesses.
In addition, the world’s increasing technology driven economy has spawned new wrinkles in the incubator concept in recent years, such as internet incubators and other arrangements within existing companies.
Advantages of Incubators
Given the myriad of advantages associated with membership in an incubation program, business consultants often counsel their clients to at least investigate the possibility of securing a spot in one. Strengths of incubators include the following:
Shares Basic Operation Costs
Tenants in a business incubator share a wide range of overhead costs, including utilities, office equipment, computer services, conference room, laboratories, and receptionist services. In addition, basic rent costs are usually below normal for the region in which the fledging business is operating, which allows entrepreneurs to realize additional savings.
It is worth noting, however, that incubators do not allow tenants to remain in the program forever; most lease agreements at incubation facilities run for three years, with some programs offering one or two, one year renewal options.
Consulting and Administrative Assistance
Incubator managers and staff members can often provide insightful advice and/or information on a broad spectrum of business issues, from marketing to business expansion financing. Business owners should remember that the people that are responsible for overseeing the incubator program are usually quite knowledgeable about various aspects of the business world. They are a resource that should be fully utilized.
Access to Capital
Many business incubators can provide entrepreneurs with access to the kind of early stage capital that emerging companies desperately need. According to a recent survey, 83 percent of incubator owners and directors provide access to seed capital. Seventy-six percent provide assistance with obtaining federal grants, 74 percent assist with preparing financial proposals. Sixty percent can help obtain royalty financing, and 57 percent cam lend a hand in obtaining purchase order financing.
Legitimacy in the Community
Many entrepreneurs have stated that when their startup businesses are accepted into business incubator programs, the rewards include an aura of legitimacy and credibility among both vendors and customers. The fact that a business has been accepted into an incubator offers due diligence value to potential investors. They have already passed an important litmus test by simply being there.
Universality of the Incubation Concept
One of the key advantages of incubators is that the concept works in all communities of all shapes, sizes, demographic segments and industries. A particular strength of an incubator is its ability to aid companies that fulfill specific needs: technology transfer, revitalizing neighborhoods, creating jobs, among others.
In many cases, the incubator naturally takes on some of the characteristics of the community in which it is located. For example, rural based incubators may launch companies based on the agriculture present in the area. But whether based in a small town or large urban area, proponents of incubator programs contend that the business people in the community would know more about how to start and operate such businesses than major corporations that focus on mass production.
Comradeship of Fellow Entrepreneurs
Many business owners that have launched successful ventures from incubators cite the presence of fellow entrepreneurs as a key element in their success. They note that gathering entrepreneurs together under one roof, incubators create a dynamic setting wherein business owners can 1) provide encouragement to one another in their endeavors; 2) share information on business related subjects; and 3) establish networks of communication that can serve them well for years to come.
Incubators provide psychological support for entrepreneurs, who are far more likely to persist as a result. This support is, perhaps, the incubator’s unique place in economic development.
Factors That Weigh In Choosing an Incubator
Many incubators have been pivotal in nourishing businesses to the point where they can make it on their own. But observers note that the programs are not foolproof. Some small business fail despite their membership in such programs, and incubators themselves sometimes fold, crippled by a number of factors.
According to many incubator managers, the most common causes of failure are lack of sustained funding, lack of tenants, and inexperienced management. A poorly run incubator or an underfinanced one will go under, as will any other business. Entrepreneurs, then, need to recognize that some incubators are better suited to meet their needs than others.
Considerations to weigh when choosing an incubator include the following:
Is it a true Incubator?
Some office building owners falsely advertise themselves as incubators in order to lure tenants. Entrepreneurs need to study the details of each offer to determine whether such claims are legitimate.
Length of Operation
Incubators take time. To get funding, incubator promoters and managers tend to promise all things to all people. Then, if early results are not promising, the supporters often panic. One manager says that the creation of an incubator typically takes two years from concept to opening, then two more years from opening to full occupancy.
Many analysts contend that entrepreneurs can learn a great deal about the fundamental quality of an incubator program simply by studying the program’s leadership. Is the incubator managed by people with backgrounds in business, or by general college or agency administrators? Can the managers provide long-term business plans that show how they intend to guide the incubator to financial independence?
Does the incubator’s setting adequately address your fledging company’s needs in terms of target market, transportation, competition, and future growth plans?
Is the incubator’s financial base a reliable one, or is it on shaky ground?
Entrepreneurs interested in exploring the incubator concept can request information from several sources, including the Small Business Administration, or area economic development agencies .Would-be business owners should have a complete business plan in hand before applying for entrance into an incubator program. Most incubators maintain a stringent screening process to ensure that their resources are put to the best possible use.
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