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July 31, 2011

Could Business Incubators Have Better Results

The object of this post is to challenge business incubators do a better job with their resources including entrepreneur advisors, mentors and staff as well as provide some thoughts for companies already part of or trying to gain acceptance to a business incubator.

In our last post, it was shown that business incubators as a whole give start-up companies a better chance for survival. However, business incubator managers have the ability to be selective with applicants. The selection process filters out weaker start-ups and inherently leads to a better than normal chance for survival.

Purpose of a Business Incubator

The purpose of a business incubator is to foster an environment for business development by providing resources so that new ventures have a greater chance of reaching their potential. In order to accomplish this, business incubators will offer both tangible and intangible resources.

Both types of resources play a critical role. It is the tangible resources that are most talked about and publicized. On the other hand, it is the intangible resources, that will make the difference between business fruition and business failure. Let us take a brief look at both and see how business incubators might be able to do a better job helping entrepreneurs realize their dreams.

Tangible Resources for Entrepreneurs, Innovators and Micro Enterprises

Almost all business incubators offer tangible resources in the form of office space, shared equipment and administrative services. Most would also claim that they offer training and seminars on a variety of subjects including business planning, product development, marketing, and raising capital.

First things first, the survival of new and disruptive technology is NOT dependent on office space, office equipment, pep talks from other entrepreneurs, social media training, networking events etc. Although all of this is nice and does have some value it does not address the real issue of business survival.

The two most important tangible resources that business incubators provide to clients are an understanding of the financial aspects of a new venture and the management of intellectual property (IP).

Help with Financials

Understanding how numbers make or break a business is critical to a new venture’s survival. Good business incubators will insist on training, assistance or referrals for understanding:

  • Balance sheets
  • Cash flow analysis
  • Burn rates
  • The amount of capital needed for start-up through the first 5 years.
  • The fund raising process

The key to financial training is understanding how numbers drive the new business entity. Financial statements (when needed) should always be done by a CPA especially when trying to raise capital.

Help with Intellectual Property

Understanding your IP - courtesy LSDSL

Understanding your IP

New or disruptive technologies are usually associated with intellectual property (IP). Innovators should give a great deal of thought about this especially when dealing with academic business incubators or seeking funding. For this reason, good business incubators offer resources which can help new ventures understand:

Although individuals can file for their own intellectual property (patents, copyrights, trademarks, know-how), we would normally recommend using a qualified IP attorney.

Intangible Resources for Entrepreneurs, Innovators and Micro Enterprises

In my opinion, the real turning point of new venture survival comes down to the intangibles resources that should be expected if not demanded with a business incubator environment. Intangible resources can be the ability to collaborate with other entrepreneurs, finding qualified entrepreneur advisors and mentors or developing a fund raising pipeline. Any one of these can help a new venture to succeed.

There is one intangible resource stands above all others. It is the internal resources (incubator staff and management) that challenge the thought processes of entrepreneurs and innovators. Challenging the thought processes of entrepreneurs and innovators means telling them what they need to hear and not what they want to hear.

Challenging the Entrepreneur

Throwing down the gauntlet to entrepreneurs and innovators courtesy of Sandstein

Throwing the Gauntlet Down to Entrepreneurs and Innovators

Six examples of this include telling entrepreneurs and innovators that their business dream will fail if:

  1. They are unwilling to give up some degree of control in order attract needed expertise or funding. Senior managers and investors will want a voice in how the company is run.
  2. They are unwilling to look or seek out new applications for their product. In other words, business incubators must take the blinders off of the innovators and show them a bigger picture.
  3. They are unwilling to make product or marketing changes to have a competitive product. It is not easy to call someone’s baby ugly, on the other hand, it is very important to ensure entrepreneurs know how to access technology and market opportunities.
  4. They do not understand that a business is run by the numbers not by dreams or ambition.
  5. They do not understand they need help and must be willing to share equity/power in order to obtain business fruition. Help can be professionals with backgrounds in operations, sales, HR, marketing or financials.
  6. If they are not flexible to change. From the point of admittance into the incubator until they graduate, business plans may change dozens of times.

Why Business Incubators Fail to Be More Successful

From a business incubator perspective the preceding points of failure can be avoided with:

  • Strong leadership which empowers staff to have a no-holds barred knockdown drag out confrontation with entrepreneurs when necessary. Every entrepreneur and innovator needs an occasional ego check. Confrontations are planned and supported by incubator management when they are needed.
  • Better selection processes of incubator candidates. Business incubator candidate admission should include extensive interviews to weed out the inflexible entrepreneur.
  • Train and develop staff to think that there is no such thing as a problem, only an opportunity to learn, adapt and create solutions.

This brings up the question as to why don’t business incubators challenge entrepreneurs and innovators more aggressively? We know what a business incubator is so let us define an entrepreneur.

“An entrepreneur is a person who recognizes opportunity, sets forth a plan of action and then acts upon the plan taking responsibility for its outcome. Being an entrepreneur is a mindset or a personality as it describes a person who is willing to create value or take a new direction. Although being an entrepreneur is most commonly associated with people who start a new venture, the term also refers to anyone who recognizes and pursues an opportunity within an ongoing business either on a small or corporate scale.”

Source: Glossary for Entrepreneurs and Micro-enterprises

5 Reasons Why Business Incubators Struggle

  1. Academic versus entrepreneurial experience: Incubator management and staff are hired based on academic qualifications and not entrepreneurial experience. Business incubators have become an industry and too often they are managed by people with useless certifications, academic qualifications or no genuine start-up experience.
  2. Energy and Attitude: It is all about finding people with the right energy and attitude. Incubators teams either don’t know or have forgotten what it is like to be hungry and have to eat spaghetti 5 times a week until success is accomplished.
  3. Being an entrepreneur is a mindset which requires hard work as well as a can-do attitude. Incubator staff should include people who have failed, picked themselves up and started again until they succeeded.
  4. Incubators may not have their tenant’s best interests in mind. Many business incubators (academic included) are motivated by money that might be made through venture capital investments, licensing IP or grants/funding dependent upon how many new ventures are in the incubator.
  5. An over reliance on a board of advisors and mentors to challenge companies in the incubator program. A board of advisors or mentor is only as good as their level of involvement. Advisors and mentors should be willing to challenge the entrepreneur but it is the responsibility of the incubator to keep their fingers on the pulse of company in their program.

Could business incubators be more effective? The answer is yes. However, achieving better results requires an entrepreneurial spirit, energy and attitude to be prevalent throughout the business incubator. Business incubators should be less concerned about having NBIA certification and more concerned about having true entrepreneurs willing to give something back to the community.

As a final note, the world is full of great ideas but few have the skill to bring an idea from concept to fruition. Entrepreneurs and innovators should make a point of making sure the incubator they are applying for has the leadership and staff that will challenge them when needed.

Share with us your business incubator experiences. What could they have done better or what did they do that was priceless. This blog is intended to be a free resource for entrepreneurs, innovators and micro enterprises making your feedback a valuable resource for them.

4 Comments on “Could Business Incubators Have Better Results

August 2, 2011 at 3:14 pm

Hi Mark,

Thank you for the feedback. The importance of sales were incorporated into the understanding of how a business is run by the numbers. I would agree with you that without sales (revenue) every business will ultimately fail. 
How sales and marketing are achieved are critical parts of every business plan. However, this post was more about business incubator management with the thought that many new ventures in business incubators are in a research or product development stage. 

Again, thank you for your input.


August 2, 2011 at 12:04 pm

 I was shocked that the word “sales” was only mentioned once.  Of all the reasons that can cause a company to fail, a lack of sales should be at the top.  Entrepreneurs often fail to get their potential customers to know they exist.  Once they do make that connection to the customer, they fail to close the sale.  Or in the worst case I’ve seen, never even asked the simple question, “Do you want to buy this?”  I acknowledge that I am not a sales person, but I have learned it is easier to find the customer first, describe the potential product, and ask if they would buy if it existed.  The opposite approach which is most often employed is, “Build it, and they will come [and buy].”

Bruce Wade
August 1, 2011 at 6:14 am

Stuart, you make some relevant comments. We in Cape Town have a number of incubators, many owned or supported by government at various levels. The private incubators have proven to be more successful as they have an eye on their profit and only become successful when their customers grow and can afford their fees. I own and run the Entrepreneur Incubator and Academy, we are a virtual incubator, offering no office space or equipment or even shared staff. Our model is based on 5 questions to ask and answer in order to grow from “Help I have an idea” to a sustainable business. We engage clients on a 1-on-1 basis as well as in groups for networking, workshops and edutainment sessions. Accountability is key for both the entrepreneur and ourselves. We do as we say and we expect the same from our clients. One of our keys to our 100% success rate is our network of associates that we have gathered. Each plays a key role in working with our clients during a specific phase of business. From graphic designers, web developers and printers to accountants, lawyers and marketing consultants, each plays their role in the development of our client’s business. 
Our job is to help set goals, reverse engineer the future back to today, walk forward with the client, assisting in filling in the gaps with education, mentoring and coaching, adding a dash of enthusiasm and a handful of accountability. 
Once they have secured finance from a VC, got their first Franchise or just outgrown our capacity, we graduate them on to other support structures. 
The selection of our clients is critical, we have a 3 phase Feasibility assessment as part of our application and we keep an eye out for that rugged individual who is often un-coachable.

August 1, 2011 at 10:06 am

Hi Bruce,

I really like the approach that you have described. Recognizing that each client is unique creates greater flexibility for a hands on approach. As you mentioned, accountability is crucial for success.     

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