Business incubators are business assistance programs that provide entrepreneurs with an inexpensive start-up environment and a range of administrative, consulting, and networking services.
“They offer low-cost space, shared equipment, and the comradeship of fellow entrepreneurs,” wrote Richard Steffens in Planning. “An incubator usually houses about a dozen tenants, who stay two to three years, then ‘graduate’ to commercial space. At their best, incubators help new firms create jobs and revive communities.”
Indeed, statistics indicate that incubator firms have a significantly greater chance of survival than do other start-up businesses.
The Los Angeles Business Journal … reported in 2000 that companies that launched in incubators remained in business five years later a startling 87 percent of the time, while only 20 percent of all new business startups reached the five-year mark.
ADVANTAGES OF INCUBATORS
Given the myriad advantages associated with membership in an incubator program, small business consultants often counsel their clients to at least investigate the possibility of securing a spot in one. Strengths of incubators include the following:
SHARED BASIC OPERATING COSTS
Tenants in a business incubator share a wide range of overhead costs, including utilities, office equipment, computer services, conference rooms, laboratories, and receptionist services. In addition, basic rent costs are usually below normal for the region in which the fledgling business is operating, which allows entrepreneurs to realize additional savings. It is worth noting, however, that incubators do not allow tenants to remain in the program forever; most lease agreements at incubator facilities run for three years, with some programs offering one or two one-year renewal options.
CONSULTING AND ADMINISTRATIVE ASSISTANCE
Incubator managers and staff members can often provide insightful advice and/or information on a broad spectrum of business issues, from marketing to business expansion financing. Small business owners should remember that the people that are responsible for overseeing the incubator program are usually quite knowledgeable about various aspects of the business world. They are a resource that should be fully utilized.
LEGITIMACY IN THE COMMUNITY
Many entrepreneurs have stated that when their start-up businesses are accepted into business incubator programs, the rewards include an aura of legitimacy and credibility among both vendors and customers. “The fact that a business has been accepted into an incubator offers due diligence value to potential investors,” Adkins told Entrepreneur. “They have already passed an important litmus test by simply being there.”
UNIVERSALITY OF INCUBATOR CONCEPT
One of the key advantages of incubators is that the concept works in all communities of all shapes, sizes, demographic segments, and industries. As Richard Steffens observed in Planning, “a particular strength of an incubator is its ability to aid companies that fulfill specific needs: technology transfer, revitalizing neighborhoods, creating minority jobs, among others.” In many cases, the incubator naturally takes on some of the characteristics of the community in which it is located. For example, rural-based incubators may launch companies based on the agriculture present in the area. But whether based in a small town in the Midwest or a large urban area on the West Coast, proponents of incubator programs contend that the small business people in the community would know more about how to start and operate such businesses than major corporations that focus on mass production.
COMRADESHIP OF FELLOW ENTREPRENEURS
Many small business owners that have launched successful ventures from incubators cite the presence of fellow entrepreneurs as a key element in their success. They note that by gathering entrepreneurs together under one roof, incubators create a dynamic wherein business owners can 1) provide encouragement to one another in their endeavors; 2) share information on business-related subjects; and 3) establish networks of communication that can serve them well for years to come. “Incubators provide psychological support for entrepreneurs, who are far more likely to persist as a result,” stated Steffens. “This support is, perhaps, the incubator’s unique place in economic development.”