Benefits of Startup Incubators

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Business incubators provide space, materials and expertise that entrepreneurs may not be able to access on their own.

Many recent MBA graduates hope to follow an entrepreneurship path and launch their own business rather than entering the corporate world as an employee. Having a great business idea, however, is no guarantee of success in today’s competitive environment. Entrepreneurs must also be able to create and run a viable company that turns their concept into a marketable, profitable reality.

To make the leap from idea to operation, many fledgling entrepreneurs turn to incubators for help. Startup incubators are programs specifically designed to give startups the space, materials, expertise, and connections they need to get off the ground.

Success figures are difficult to come by, but a Forbes article by OneClass CEO Jack Tai cites some research that offers insight into the usefulness of incubators, including:

  • A 2010 study from the now-defunct National Business Incubation Association (NBIA) found that incubated companies had an 87 percent success rate—about double the rate of non-incubated businesses.
  • A UK study from 2014 found that 92 percent of incubated businesses were successful.

He also notes that many of today’s successful companies, such as Airbnb, Dropbox, and Reddit, famously got their start in incubators.

With this kind of data and anecdotal evidence to back them up, incubators are an attractive option for many entrepreneurs hoping to launch a business. Before following this path, however, a solid grounding in business basics is essential. This type of grounding can be obtained from MBA programs such as Washington State University’s Online Master of Business Administration. Offering a comprehensive entrepreneurship MBA curriculum, WSU’s online MBA degree program prepares candidates to take full advantage of any startup incubator.

Providing Basic Needs

At their most basic level, incubators help entrepreneurs by providing practical, concrete resources that may be difficult for a new business to obtain or afford, including:

  • Office space. Incubators usually maintain office facilities that young businesses can use at a fraction of the cost of a traditional office. Depending on the business’s needs, participants can choose among options such as shared office space, private offices, and single cubicles. The facility will usually have shared resources such as photocopiers, printers, restrooms, high-speed internet access, utilities, and sometimes even administrative support.
  • Specialized equipment. Some startups require specialized equipment that can be prohibitively expensive to purchase. An example might be a food-related startup that needs kitchen facilities or a medical-related startup that needs laboratory access. Incubators can provide these things. They may also offer professional training and supplies for specialty equipment.

By providing these needs, incubators not only remove some of the financial barriers to entrepreneurship, they also alleviate much of the advance work inherent in starting a business.

“Because the infrastructure of running a business is already in place when you arrive at an incubator, you’ll be able to focus solely on the core of your business without needing to worry about all of the distractions that typically occur while doing so,” explains an organization called University Lab Partners.

Expertise on Tap

Beyond providing the nuts and bolts of everyday operation, incubators also give participants access to useful business information and guidance. This information comes in 3 main forms:

  • Peer contact. Many incubators have enough office or lab space for dozens of startups. Participants constantly run into each other as they go about their work. They have the opportunity to form friendships and swap “war stories” about what they are doing—what is working, what isn’t, successes, and failures. They can also give and receive advice and feedback. This daily peer support is invaluable. “Speaking with and learning from other entrepreneurs can be the inspiration you need to push yourself—and each other—to reach the next benchmarks of success,” says the U.S. Chamber of Commerce-run website CO.
  • Training. Most incubators offer formal training, although the specifics vary from one program to another. According to the financial services website CFI, typical offerings include management training; advisory services; and assistance or training in core business operations such as marketing and market research, accounting, and legal compliance.
  • Mentorship. The opportunity to learn from and interact with established business leaders is a major benefit of incubators. These people are eager to help entrepreneurs get off to a successful start and avoid the many pitfalls of new business ownership. “While making mistakes along the way to success is an expected part of the process, these mentors are there to help you avoid making similar ones they’ve made when they were just starting out,” CO explains.

Networking and Funding

Yet another benefit of incubators is access to networking and funding sources—key elements that any fledgling business needs to survive. University Lab Partners (ULP) discusses the importance of these benefits:

  • Networking. Networking is the process of exchanging information and building relationships with other business professionals. It is essential to any business’s success. “If you’ve never started a company before, you’ll likely find it difficult to develop a strong network without a solid foundation of professional relationships and connections in the industry,” says ULP. Incubators facilitate this process through both peer connections within the program and outside professional connections. Participants should expect to have a strong professional network in place by the time they leave the incubator.
  • Funding. Many startups need outside funding to bring their ideas to life. Some incubators give participants a lump sum of money in return for a small percentage of their business. Others do not provide direct funding but do introduce participants to “angel” investors who may be able to help. The incubator may also provide training and opportunities for pitch sessions where entrepreneurs present their ideas to potential investors.

Finding the Right Incubator

With so many benefits, incubator programs are highly sought after by entrepreneurs. Would-be participants must keep in mind, however, that no 2 incubators are alike. Each program has its own particulars in terms of training, facilities, industry focus, geography, and funding policies. The website Entrepreneur recommends 5 things to consider when evaluating incubators:

  • Do your research. Pay careful attention to the incubator’s resources and services and be sure that they match the needs of your startup. Is the location practical for your business? Is the training curriculum rigorous, and if so, do you have time for it? Does the mentor program offer access to specialists who are useful to you? If funding is a primary concern, does the incubator offer that?
  • Consult alumni. Most incubators list companies that were launched through their services. Contact people at those companies who were involved in the incubator phase, if you possibly can, and ask them about their experiences. Prepare your questions in advance, making sure you ask for details that are relevant to you.
  • Assemble your team. Top incubators are highly selective. The best applications feature strong leaders and strong teams. A sound business idea is also important, but it is secondary—incubators know that ideas change and evolve, so assembling a great team should be your primary concern.
  • Prepare your pitch. Your pitch is a personal meeting where you attempt to convince the incubator that your idea is a great match for its program. Prepare well and rehearse in advance. Be ready to explain why your startup is different and how it is likely to succeed. Incubators are focused on success and they want to pick winners for their program.
  • Determine what you are willing to give up. Are you willing to relinquish a percentage of your business ownership if the incubator operates on that basis? Make sure you know in advance what will be asked of you—and decide whether you are prepared to pay the price.

Top Incubators

Entrepreneurs must do their research to find the best program for their needs. In the United States, a few top incubators to consider are:

  • Y Combinator. Launched in 2005 and based in California, Y Combinator may be the world’s best-known incubator. Twice a year, the company invests $150,000 in a large number of startups.
  • 500 Startups. Based in California, 500 Startups is a global company that has helped to launch more than 2,200 businesses.
  • MassChallenge. This Boston-based company has worked to get nearly 2,400 startups off the ground.

Although a big incubator might be right for your business, a smaller, more targeted program could also be the answer. Whichever you choose, an incubator might just get your startup off to a successful start now—and beyond.

About WSU’s Online Master of Business Administration Program

Washington State University’s Carson College of Business delivers one of the top-ranked MBA programs in the nation. WSU offers an online MBA course curriculum designed to equip students with the tactics, knowledge, skills, strategies, and other resources utilized by today’s high-profile business leaders.

WSU’s Online MBA degree program offers several MBA concentrations—marketing, finance, hospitality business management, international business, and general MBA. For more information, visit WSU’s Online MBA website.

 

Recommended Reading:

Three Things First-Time Entrepreneurs Should Know

Four Critical Skills of the Entrepreneur

Four Global Hotspots for Entrepreneurship

 

Sources:

Statistics on incubator success – Forbes

Incubator success stories – TechLink

Providing basic needs – University Lab Partners

Benefits of peer contact – CO

Types of formal training – CFI

Mentorship – CO

Networking and funding – University Lab Partners

Five things to consider – Entrepreneur

Top incubators – TechLink