Business incubators have been around for decades, with most having the primary goal of educating entrepreneurs in best business practices, providing mentorship and guidance as well as offering financial support (either by taking a direct equity stake or arranging investment opportunities with VC and/or angel groups). If you’re thinking about having your startup join one, here are 5 benefits of such a membership.
1) Support system during the “treacherous” early stage waters
According to Mashable, 90% of startups fail. Whether it is a product flaw or an incompetent management team that leads to its demise, incubation programs strive to mitigate that early-stage risk of starting a business through programmatic and developmental resources. It also helps being able to talk entrepreneurs off the ledge when they have a rough day.
2) Access to a vast network of mentors, experts and industry partners
A crucial component of any business incubator corresponds to the large network of business advisors and partners that can help advance the business. From Entrepreneurs-in-Residence which provide high-level strategic guidance to specialized mentors for niche industries, the difference between success and failure can truly come down to who you know.
For instance, at the Center for Entrepreneurial Innovation (CEI) in Phoenix, Arizona, a chance meeting with HubSpot employee #6 and Sales Director Dan Tyre blossomed into a partnership with the prominent inbound marketing organization. This led to CEI being accepted as a member of HubSpot’s Jumpstart program, which provides discounted access to eligible companies; moreover, Tyre himself has taken on advisory roles with several companies resulting in some promising initiatives.
3) Funding opportunities
Everybody knows entrepreneurs need money to expand and grow their businesses, and although many early-stage startup companies raise their initial funds through the 3 F’s (friends, family, founders), there will come a time when a more substantial round of investment is necessary. Membership in a business incubator not only can connect entrepreneurs to venture capitalist and/or angel investment groups, but it can make the business a more attractive investment opportunity to such groups.
Jim Goulka, founder of the angel group Arizona Tech Investors (ATI), cited a lack of awareness of personal limitations and knowledge as one of the biggest “deal killers” for an entrepreneur seeking capital investment.
“It’s not having all the answers…an entrepreneur needs to understand his/her capabilities and seek to build a team which is the essence of a business,” he said.
It is the incubator’s role to fill the knowledge gap and help the entrepreneur build the right team. And a reputable incubation program is also thoroughly vetting their companies’ business models, giving further validation for potential investors.
4) High-tech infrastructure available for entrepreneurs
Many incubators have a physical location that is able to support startup companies with onsite space. In most cases, these facilities are also equipped with additional technology to which entrepreneurs would not otherwise have access, such as video conferencing capabilities, presentation technology, and even specialized laboratory equipment. This saves large overhead expenses for early-stage businesses, particularly when capital is precious.
5) Challenging and inspiring environment
Lastly, you may or may not be surprised to hear that oftentimes magic happens in the hallways of business incubators: collaboration between and among incubator startups; impromptu conversations between entrepreneurs and government and/or economic development representatives; lunch meetings that bring together representation from all companies to explore their respective challenges. The sharing of ideas and opportunities, particularly outside the formal boundaries of an incubation program or curriculum, can yield some of the most rewarding benefits for a startup and advance an entrepreneur’s knowledge by leaps and bounds.
If you or your company has been part of a business incubator, what other benefits have you enjoyed as a result of your membership?