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Resource  24, Jul 2012

Is your startup fit for an incubator?

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(Credit: Paul Miller)

If you’re a first-time entrepreneur, you have probably been on the hunt for the startup holy grail: a blueprint for guaranteed startup success. Unfortunately, as you’ve probably already discovered, there is no such thing. Fortunately, there are incubation programs.

Joining an incubation program gives you the opportunity to learn from others’ experience so you can avoid pitfalls and common mistakes associated with starting your own business. Studies show that startups that successfully complete a business incubator program are more likely to stay in business (87 percent as compared to the average success rate of 44 percent for all companies, per the U.S. Small Business Administration).

What is an incubation program?

So, what is an incubation program exactly? While there is a class-setting type of incubator program for which you pay a small fee to meet and work with other entrepreneurs, that is not the type of incubator program that has exploded in recent years. With the class setting, you get to rub elbows with other entrepreneurs, but there’s often no real structure and support.

What we’re seeing a lot more of these days is a kind of incubator program that is much more structured, defined, and focused; some call these types of programs accelerators. In these types of programs, you typically get some seed money (the amount of which varies widely) in exchange for a small piece of equity. Of equal or greater value, you will be matched to entrepreneur mentors from your community. These mentors provide you with the support, advice, and practical training you need to get rooted, make connections, grow, and succeed.

Advantages of joining an incubator program

Along with the intangibles, such as the confidence and reputation boost that you may get as a member of a successful entrepreneur community, there are many practical advantages to joining an incubator program (and I’m not just talking about office space!), including:

Strong mentors. The best mentors will be experts in your industry who act as a sounding board, at the ready with helpful advice and guidance—without taking control of your startup.

Seed money. In some cases the seed money is a small amount, other times it can seem like a small fortune. In either case, any early-stage funds are helpful in setting up your infrastructure. Interestingly though, many entrepreneurs who have joined incubator programs say that the connections that they made were much more valuable than the money itself, so no need to be overly-focused on the exact dollar amount of your seed money.

Access to business resources. There are likely some gaps in your startup team. Maybe you’re lacking knowledge around HR, accounting, finance, marketing, or product planning. You can fill these gaps, for the short-term, with the expertise of your incubation program. Whether you need help refining your business plan, creating your business model, crafting your pitch deck for fund-raising, defining your marketing plan, or managing your day-to-day bookkeeping, your incubation program can offer you support and extra hands where you need them.

Connections. Incubator programs not only have their own staffs of experienced entrepreneurs, they also bring in visiting professors, entrepreneurs, and other connected guests and often organize industry networking events. These connections all serve as to accelerate and enhance your networking abilities.

Finding the right incubation program

To get the most out of your incubation program, you need to find the best program for your startup. In the Bay Area alone, we currently have 76 incubator programs and co-location facilities (which are similar to incubator programs but differ in some key ways). From StartX to RocketSpace to 500 Start-Ups to Plug and Play to Y Combinator, there are so many great programs all with their own key selling point. You need to research the background and strengths of different local incubator programs to find the one that is right for you. Do you need a program that can help you finesse your product design? Or a program that emphasizes data? Or would you most benefit from an incubation program that specializes in distribution?

Because you will be giving up some amount of equity in order to join the incubation program, you want to make sure it’s worth it. Choosing the right program will have a huge impact, so choose wisely.

And remember: Your success within an incubation program depends as much on your commitment and involvement in the program as on the program offerings.

If you’re a serial entrepreneur or experienced CEO, an incubation program is probably not for you. Your own hands-on experience and connections are of greater value to you than your participation in an incubation program. But, if you’re just starting out, an incubation program can provide you with invaluable assistance.

This post was originally published on YEC.

About David Ehrenberg

David Ehrenberg is the CEO of Early Growth Financial Services and has worked with early growth companies at every stage in the development process. His expertise includes building high growth technology companies, venture funding, debt financings, mergers and acquisitions, and strategic planning and operational expertise in accounting, human resources, legal and corporate governance, facilities, IT and administrative functions.

The Young Entrepreneur Council (YEC) is an invite-only nonprofit organization comprised of the world’s most promising young entrepreneurs. The YEC recently published #FixYoungAmerica: How to Rebuild Our Economy and Put Young Americans Back to Work (for Good), a book of 30+ proven solutions to help end youth unemployment.

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