Starting your own business from scratch is a difficult and scary process, and it takes a great deal of time and capital simply to launch, let alone become profitable. Reaching a point where you’re making a living for yourself may be years away.
That's why many entrepreneurs turn to business incubation programs to help accelerate their growth, profits and success. Often referred to simply as "incubators," these programs are sponsored by private companies, municipalities and public institutions, such as colleges and universities. The goal of incubators is to assist in creating and growing young businesses by providing them with essential business resources and services, including retail, office and warehouse space, mentoring and coaching programs, networking opportunities, capital and even office supplies.
Startup companies on average spend two years in a business incubator, and during that time, they’ll share services, production expenses and space with other startups to reduce everyone's operational costs.
If you're considering joining an incubator, you’ll need to know all the facts so that you can weigh the pros against the cons to determine if the arrangement is right for you.
PRO: Being accepted into an incubator is already a huge accomplishment.
Incubators typically consist of experienced entrepreneurs and other experts, and they know what it takes to succeed. They are groups of people who are passionate about assisting new businesses and are willing to invest time and money into what they believe are good ideas.
CON: It can be very competitive.
Most startup incubators establish cycles where they announce that funding is available and call for application submissions. You could be up against dozens—if not hundreds—of other businesses, so you must present a comprehensive and detailed business plan. Screening committees from the incubator programs will carefully review your plan to determine if you meet their admission requirements. The programs' finances and resources are limited, so they will be looking for only those businesses that stand a good chance to succeed. Your best bet for acceptance is to apply before you are operational but after you have created a product or service that you can actually demo. If you are only in the early stages of developing your business—and you're looking for help to flesh out your idea or product—your chances of joining an incubator are slim.
PRO: You benefit from the group's experience and resources.
You will be able to receive help on legal issues, contracts, establishing HR policies and procedures and so on. In addition, by sharing services, space, supplies, technology and other resources, you receive savings that increases your profitability.
CON: You will give up equity.
Those services come with a price. Incubators can take anywhere from 2% to 20% of your business when it is all said and done. Know for certain that you are willing to pay that price—even if you don't reap the full benefits of the incubator. Remember that the incubator will own part of your company, and you will be stuck with them even if you clash when it comes to how you will run your business. You must be willing to adapt and adjust your original plans—sometimes even when it feels wrong.
PRO: You will receive coaching and inspiration.
Your incubator group will consist of experienced and successful businesspeople. You'll gain insight that only years of success can offer, and that will make you a better businessperson. You will also be surrounded by other motivated entrepreneurs in the incubator who can provide inspiration, insight and even potential partnership opportunities.
CON: Mentoring is often spread thin.
For any one incubator program, tens or even hundreds of other companies will be operating, and all of them will be competing for the mentors' attention. If you only receive one quick check-in each week, you aren't going to benefit from the program. The people who run businesses with the highest chances of success will receive attention first, so if yours is struggling, you may find it hard to even receive a phone call.
Perhaps worse than little mentoring is bad mentoring. Do your research before you join an incubator. Take a look at the list of mentors and make sure that they have proven themselves in business and in your industry. In addition, find out how much time you can expect from mentors—and ask for feedback from alumni to see if coaching is regularly available and well-seasoned in the industry.
PRO: You have access to a large network of incubator alumni.
The networking potential is enormous. You can turn to incubator alums for advice on how to resolve issues, grow your business and so on. They can also help you build your client base—some may even become clients themselves. In addition, they can connect you with service providers, contract workers and potential employees long after you are no longer a live member of the incubator. The alumni group also offers you an opportunity to have peers review your ideas and products. Free constructive feedback from a group of people you know and trust could save you time and money because it will allow you to improve your product or service before you go to market.
CON: You will be under a lot of pressure.
You have to work well under pressure, and you have to be able to accept a flood of criticism. You'll be asked to change your business model and move in new directions. Not only will your brain child be at risk of turning into something entirely different than what you dreamed, but you could also spend too much time meeting the requirements of the incubator program, including reporting, attending training events and so on. That is time that will take away from growing your business, and it is especially problematic if you are a one-man show or if you don’t have any employees who can take the reins of the business while you focus on the incubator.