Thinking of Joining an Incubator? Check Off These 5 Things First.
Business incubators -- organization that supports startup and fledgling companies by providing a variety of resources and services meant to accelerate its development -- are becoming very popular and growing in number, reach and effectiveness.
While incubators vary widely in services and resources provided, as well as cost to be accepted, most entrepreneurs find them invaluable. The application process is grueling, with thousands of companies applying for a very few number of spots. For this reason, would-be entrepreneurs need to be prepared before they even start.
Resources at incubators include such things as access to experienced entrepreneurs, new human resources talent, and even startup capital. On most occasions, the business incubator provides these services in an exchange of a portion of the startup's equity.
I spoke with Mike Schroll, director of Startup.SC, a small-business incubator, in the beginning stages of development itself, which was recently funded by a significant grant by the South Carolina Department of Commerce. As an entrepreneur who himself has successfully gone through a startup accelerator, TechStars, I asked him about what startup companies and entrepreneurs should expect when going through the process of applying and working with a business incubator.
1. Do your research. Not all business incubators are the same. It is important to understand the resources and services offered, the cost of being involved, and make certain the whole package matches the needs of your company.
You should not prioritize startup capital as your primary reason for applying, as a good incubator can typically offer many more resources other than money. Ultimately, you do not want to be accepted into an incubator that wastes your valuable time. Look specifically at:
- Mentors: Do the entrepreneurs and specialists in the incubator have experiences and networks that are beneficial for your startup?
- Location: Most incubators will require you to relocate for the duration of your experience. Be sure the location is agreeable for you and your business. Consider also that as you build your network in this location, you may consider staying there after the program. Can your business flourish with the resources in that city?
- Curriculum: Entrepreneurs who go through a business incubator are typically required to go through rigorous trainings and educational seminars. Be certain you can handle the curriculum, especially if your business is already operating and needs regular management.
2. Consult alumni. Most incubators will list the companies that have gone through the process. Do your best to contact and discuss the experiences of former incubator businesses. While asking them to rate their experience is important, also ask what they did specifically. One company’s bad experience may be another company’s ideal challenge. Prepare your questions in advance and be thorough.
3. Assemble your team. Business incubators look for strong founders with strong teams first, business ideas second. A startup that goes through an incubator will more than likely exit a completely different and certainly more refined business. It may even turn out that, in the course of the incubator, that the company changes directions altogether, pivoting toward a more feasible or economic business model.
The founders and their teams may also go through a transition, but ultimately, it is the original entrepreneurs that the incubator is depending on to execute the end business strategy. Make sure you have the right people in place.
4. Prepare your pitch. Your pitch is how you will differentiate your startups from the other applicants and should be well prepared and well rehearsed. Keep in mind that the incubator wants companies that can succeed, not only because they have an equity stake, but also for recruiting future investment capital and promising companies.
More important than winners, the incubators want doers -- founders that demonstrate the ability to execute. Be sure to focus on how your business will succeed, not just what it needs.
5. Determine what you want to give. As mentioned before, the cost of being accepted into an incubator is typically an exchange of equity in your company. Ask yourself how much you are willing to give to be in the incubator and make certain it matches the needs and goals of the incubator.
It would also be very beneficial to have your own legal counsel or advisor to help you with the final term sheets. One thing is certain, being comfortable with the experience before you go in will greatly increase your chances of having a great experience throughout.
Being accepted to a business incubator is an incredible opportunity for a startup. If not properly prepared, however, your great startup idea will be lost in the thousands of other applicants. Worse yet, if you are accepted into the wrong incubator, you could find it a colossal waste of time and valuable company equity. Follow these tips and do your homework to get the most out of your experience.
Have you been through a business incubator? Please share your experience with other entrepreneurs in the comments section below.