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Making a Case for Incubators

Posted by on May 21, 2015

How to Make Incubators and Accelerators Work

There have been some articles lately on the proliferation of incubators/startupaccelerators and debates on whether or not they provide a worthwhile service, or in fact, actually help to launch companies.

I can say unequivocally yes, they can be a valuable part of the start-up landscape if set up and managed correctly.

I say that with the caveat that you’re starting an incubator to actually assist promising start-ups, and not just to be in the property rental business, as so many incubators are.

Check your motives for entering the space prior to launch; a few years ago, I was hired by a law firm to create an incubator. In the early days of the discussions, they asked me if I had seen a law firm enter the space before, and my reply was “twice, once moderately successfully, the other a spectacular disaster.” They wanted to know what differentiated the two, and the answer was black and white: the successful law firm had long term goals in mind, and were willing to furnish professional services and invest cash into the enterprises; the failure was the type of the incubator that was more in the landlord business, with the hopes that someday the firm would get some billable hours out of the start-ups, as well.

Our venture fell into the spectacular failure category. The firm’s ulterior motive was to grab as much equity as possible in exchange for their ‘contribution’ of professional services and office space, run up actual billable hours whenever they sensed they could get away with it, and not put a nickle into any of the ventures. They buried the young, often naive, entrepreneurs with reams of legal mumbo jumbo paperwork.

How to practically guarantee success with an incubator or accelerator? Here are some tips:

  • Be as selfless as possible about why you are getting into the space, your primary motivation should be the joy of seeing budding young enterprises succeed, not with the expectation or hope that you have the next billion dollar valuation start-up under your roof.
  • Create an environment around a category you know, and know well. Too many investors look solely at tech, because the segment gets most of the publicity about rapid rises in values. But as the internet changes the way we, as a society, do nearly EVERYTHING, there are opportunities in nearly every industry segment for start-ups and disruptors.
  • There are real opportunities for major companies to create start-ups that are focused on solving problems the sponsoring company might encounter in the future, or to design new products or processes. Coca-Cola is leading the charge in the space, but many, many companies should be looking at incubators as a way to grow new revenue segments in-house.
  • Know that bringing a start-up into an office and telling them to “have at it” is simply not going to work. Have a group of mentors at the ready that can make real contributions to the future of the start-ups. Don’t have experts in-house? Tap into a gaggle of experienced executives as SCORE, a division of the SBA. There’s about a million years of expertise sitting in SCORE offices, yours free for the asking.
  • There is a big need for incubators/accelerators focused on FMCG start-ups, and pent-up demand.
  • Consider going into a space that nobody else is in.
  • Avoid companies that will end up with only asset on the balance sheet will be “trade name and good will.” Work with companies that MAKE something, or provide a tangible service.
  • Have both your senior and junior staff aware of the projects, tenants, and your company motivation for entering the space. Assign mentors from your execs.
  • Hire someone full-time to oversee the process, space, and intake to enable you to keep spending your time where you are needed – in your core business.
  • If you take equity as part of your deal, play nice.

So yes, incubators and accelerators can provide a valuable environment for start-ups, if they are able to stay focused on the motivation for entering the space and the big picture, rather than short-term bumps.

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