Is a Business Incubator Right for You?

General Business News

July 2008

Is a Business Incubator Right for You?

I recently met with a friend and potential client to discuss a new business idea. The idea was intriguing and had a great deal of potential. The only problem, of course, was how to get the idea off the ground. Implicit in that question was where the business would be located. The location question would be easily answered if the business was of the nature that required a storefront, but this was not the case. Rather, all that was needed was a place to meet clients, a little equipment and some administrative support. The answer – a business incubator.

To borrow from Wikipedia:

Business incubators are programs designed to accelerate the successful development of entrepreneurial companies through an array of business support resources and services, developed and orchestrated by incubator management and offered both in the incubator and through its network of contacts. Incubators vary in the way they deliver their services, in their organizational structure, and in the types of clients they serve. Successful completion of a business incubation program increases the likelihood that a start-up company will stay in business for the long term: Historically, 87% of incubator graduates stay in business.[1]

Business incubators can be found in most major metropolitan areas and will typically offer one or more of the following services to their tenants:

Help with the basics of starting and running a business, including setting up proper accounting and administrative records, incorporating or otherwise formally registering a business with federal and state authorities and other functions necessary for all businesses to properly function;

Help with management functions, including mentoring programs with other local businesses executives;

Marketing activities, including networking activities, market studies, etc.;

Providing office space and administrative support so the new business owner can concentrate on developing the product or service rather than being required to purchase fixed assets and hire personnel for which there may be no full-time need in the development stage;

Assistance in developing business plans and presenting those plans to funding sources;

Guidance on protecting intellectual property;

Access to low-cost services of attorneys and accountants;

Multiple other offerings depending on the focus of the incubator and the resources it has available.

Every new business needs access to multiple resources and let’s face it; professionals in any business don’t typically come cheap. The good news, however, is that almost all professionals recognize the need to help new companies succeed. Incubators often establish strategic alliances with professionals that benefit their tenants and the professional. In return for offering services at an initially low rate (with the understanding that those rates will increase with the tenant’s ability to pay) professionals gain access to start-up companies with tremendous growth potential.

One of the main supports a new business owner needs is the wisdom of predecessors and peers. While there are times when reinventing the wheel is necessary, most often the best ideas on how to run a business come from those who have made the mistakes you wish to avoid. Working in proximity with other incubator tenants that may have more experience than you can give you a pool of wisdom to which you might otherwise not have access. Depending on your business, you may also find that you have a ready source of customers.

Typically, managers of business incubators also have a wealth of contacts with financing sources. In many instances, states and local lending institutions have established their own grant programs that offer access to credit for start-up entities. Again, this can ultimately be a win-win situation – the start-up gets financing, the state adds to its economic base and the financial institutions get access to potentially successful long-term clients.

Thousands of pages have been written on the virtues of business incubators and this article certainly cannot enumerate them all. Every model is different because every area has different needs. If you are thinking of starting a new business, give us a call. Together we can determine if a business incubator is a suitable fit for you.

Happy Fourth of July!

These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.