04/ 25/ 2005
by Steve Strauss
Q: I have heard about an organization in my area called a "business incubator" but don't know much more. What is a business incubator?
A: A business incubator is a place that fosters and launches new businesses. One problem many entrepreneurs have is that, while they may have plenty of enthusiasm, they may also lack some essential business know-how. So if you didn't go to business school, where do you go to learn how to start and grow a business?
The answer is: The business incubator. A business incubator is a quasi-governmental organization (sometimes public, sometimes private, usually a combination of the two) that, as the name implies, it is intended to “give birth” to successful new businesses. Run as non-profit organizations, business incubators are frequently funded by colleges, governments, civic groups and other organizations interested in job creation and economic development.
Incubators foster business growth by providing inexpensive space, low overhead, clerical services, legal assistance, business know-how and other areas of expertise and assistance that a new startup may need to succeed.
The difference between an incubator and shared space is that incubators are designed to help the businesses housed in them succeed through in-house assistance. If you are fortunate enough to get your startup housed in a business incubator, be ready to learn a lot. You will likely receive an informal MBA in the process.
All business incubators have the same purpose: to help launch and grow successful businesses. Yet even so, all incubators are also unique in their own way, as many specialize in forming businesses applicable to a specific region of industry. In the Silicon Valley, for example, you will find business incubators that foster high-tech startups. In Kansas, the incubator may focus on farming businesses. It all depends upon the region and the purpose of the particular incubator.
For example, in Albany, N.Y., the "Clean Energy Incubator" is an organization dedicated to offering business and financial assistance for the clean energy community. It supports businesses working in the clean energy field, such as those working on renewable energy, fuel cells, alternative fuels, transportation and energy-related e-commerce.
There are obviously many benefits to housing your new business in a business incubator. Aside from the reduced rent (business incubators typically charge between 25-50 percent less than regular rents), you also get shared services and access to financial and business assistance, as well other benefits such as:
- Great contacts
- Client referrals
- Teamwork
- Legitimacy
- Mentors
- Low overhead
That last point is especially salient. Starting out in an incubator with a low overhead increases your chances of success because the money you do raise can be spent on other, more important areas such as product development or marketing.
The bad news about business incubators is twofold. First of all, not all business incubators are the same. Some are more very successful at fostering startup growth than others. Secondly, even if you are located in something less-than-the-best in the way of business incubators, you will still get spoiled. Subsidized rent, friendship, excellent advice and free assistance are hard to beat. And because the point of a business incubator is to launch new businesses, you will eventually have to move out, and sooner rather than later.
The important thing if you want to start your business in an incubator is to do your homework. Check out the incubator in your area. Speak with the director and some of the tenants to discover how successful the incubator has been.
