LNB #016 - Are Incubators Hatching Sound Businesses?

Business incubators were started 40 years ago in Batavia, New York to address common concerns – that first-time entrepreneurs with good ideas weren’t getting the funding, resources and support they needed to succeed and great business ideas were being lost. They address issues of expertise, resources, and social capital with

• Resources: supplying printing, clerical support, internet and telephone services as well as funding,
• Expertise: with business consultants and mentors who can help draft and review business, marketing and operations strategies and plan and
• Social capital: by offering networking opportunities and introductions to key business allies.

They are designed for 2-5 years of participation and the incubators charge either a monthly fee or a percentage of ownership (many times in the range of 20 – 50%).

Issues
There’s very little research and scant results to show the effectiveness of incubators. Few begin their incubator-incubatee relationship with measures, goals and timetables for success.

Conflict of interest when incubators are pushing decisions that support their investment but may not be good for the business’ hopes for long-term growth. Many incubators do not utilize the resources afforded to businesses in the new economy (cheap, fast internet; virtual offices, lean staffing, web delivery) and my offer too much structure, preventing business owners from developing fully as entrepreneurs.

Networking, coaching and mentoring are weak, with the client driving much of the interaction without the proper training to get the most out of these relationships. Also the “coaches” are often untrained consultants who have little skill in helping entrepreneurs challenge their thinking and reshape the personal and professional habits that may hinder business growth.

Considerations
Good incubators are out there. However, business owners must have good insights regarding their needs and must be able to insist on a set of services that would best support them rather than taking a pre-determined set of services that may not fully support their specific development areas.

Further Reading:

• Do Business Incubators Work? -- a report from a Case Western research study: http://weatherhead.case.edu/maps/docs/Stevens%20FYP%202004.pdf
• Dynamics of Minority-Owned Employer Establishments – a report from the SBA’s Officeof Advocacy: http://www.sba.gov/advo/research/rs251tot.pdf
• Business Incubator – an entry in Wikipedia.org: http://en.wikipedia.org/wiki/Business_incubator
• Root Cause Analysis -- an entry in Wikipedia.org: http://en.wikipedia.org/wiki/Root_cause_analysis
• The E-Myth Revisited: Why Most Small Businesses Don't Work and What to Do AboutIt, by Michael Gerber. Describes the three business mindsets -- entrepreneur, managerand technician

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