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May 04 2014

Select the right incubator program for your business needs

Select the right incubator program for your business needs Photo Credit:REUTERS/Muhammad Hamed
04 May 2014
Are you confident of your business concept but need help setting up your business? Do you require mentoring to develop the mind-set required for an entrepreneur? Are you worried about funding your business?

If you are facing some or all of these questions, then enrolling in a business incubator may be a good way to start off. The time, energy, and resources used up by many start-ups in their trial-and-error road to success are often eliminated by enrolling in a business incubator.

Business incubators come in many flavors. Here are five questions to check whether an incubator program meets your business needs.

What are the services provided by the incubation program?

An oft-cited advantage of business incubators is their emphasis on "lean start-up". This means that the new product or service is extensively tested to ensure it meets a consumer need. Methods such as testing the product with focus groups, getting feedback through user surveys, and tweaking the business concept are used to ensure market acceptance. Business incubators play an important role in providing research and development facilities to transform a product prototype to a sustainable business proposition.

Business incubators also hold classes and work-shops on project set-up, financial management, economics, and other entrepreneurial skills. Help is provided to register the business, apply for clearances, and get required approvals. Business founders are also provided office space and facilities such as copying, faxing, and kitchen services during the incubation period. These programs also help with business funding by arranging presentations to potential investors.

The number of start-up ventures enrolled in a business incubator program can vary from six to 30 or more. The interaction of mentors as well as other aspiring business founders within an incubator provides an energizing environment of learning and motivation. Some businesses find that the contacts made through networking opportunities in an incubation program are especially useful to run their businesses.

What type of business incubator would best suit your needs?

Most business incubator programs are not-for-profit ventures run by universities, government agencies, and municipalities. Their objectives in setting up incubator programs include boosting employment, promoting an entrepreneurial culture, and developing niche industries. Some incubator programs admit "mixed-use" groups comprising different businesses. Others focus on specialized fields such as food production. The cost of the space and other facilities provided is recovered by charging a subsidized rental fee from all participants. An incubation program usually runs for about 3 years.

There are also incubators or accelerators run by experienced business professionals on a for-profit basis. The 90 day incubation period is used to mentor, fine-tune the business proposition, and help with funding the start-up. In return, the incubator owners usually request an equity stake of up to 6% in the venture. This model works well for start-up companies in software development or service industries where repeated product testing and tweaking can be done with minimal costs. At times, the program managers may advise business founders to "pivot" or alter their concept to meet market needs.

There are also business incubator programs that provide virtual mentoring or work with affiliates to help businesses resolve problems.

What is the track record of the business incubation program?

Most business incubation programs report high success rates both in the numbers of new ventures launched and funds invested. It is difficult to ascertain whether such success is due to the intensive coaching and inputs provided during the incubation process or because the program's admission criteria filter persons having a greater probability of succeeding as entrepreneurs.

Against this back-drop, founders of new ventures can check on the successes of past graduates in launching and maintaining their ventures and inquire how useful the program was to them. New entrepreneurs can also check on the qualifications of the persons running the program and what efforts they take to keep their skills and knowledge current.

Does the new business start-up meet admission criteria set by the incubation program?

In order to be accepted to a business incubation program, new business founders may have to pass a test that indicates their entrepreneurial spirit and commitment to the business concept. Most programs require the submission of a business proposal and proof that the product or service fills a consumer need. Some university programs welcome participation by its own students. However, this does not mean that others are turned away.

Are you prepared for possible disadvantages of joining an incubation program?

While there are many benefits to be had from joining a business incubation program, there are also some disadvantages. For instance, is the incubation period provided too short or too long? Is the time spent in an incubator a productive investment that will help de-bug many of the kinks in the product?

If you work with a for-profit business incubation program, is the infusion of around 6% equity worthwhile in return for the services provided? If you find it hard to woo investors and the program is able to arrange funding with potential investors, such an equity stake may be acceptable. Also, the fact that you graduated from a particular incubation program may be viewed favorably by some investors.

Some incubator programs also require that participants sacrifice some time for group activities such as informing the public and other participants about the benefits and progress of the program. Such time needs to be planned so as not to hamper the development of your venture.

Business incubation programs operate based on the success of the start-up ventures they nurture. This shared vision helps the incubator owners and business founders to work hard and stay motivated to achieve this goal. However, there are instances where the initial business concept is changed or "pivoted" to make it meet profit goals that the founders may no longer identify with the concept or feel the same passion to see the project through.

In summary, a business incubation program works well for those entrepreneurs who need help in various ways with launching a product or service. Most program graduates report that the programs helped them to crystallize their business concept and launch their products faster than if they had struggled on their own. The five questions posed above should help in identifying a business incubation program that provides the best return on your investment.

© Zawya BusinessPulse 2014

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