Five “Musts” for Business Incubator Success (cont.)

Many incubation programs offer commercial kitchens and bakeries for entrepreneurs to develop and produce specialty food products. The Fulton- Carroll Center in Chicago, for example, gives clients access to a large-scale bakery.

To be successful, an incubator must be run like a business. That means being nimble, adjusting to the market and reacting quickly to changing conditions. These are qualities most often seen in the business sector, rather than the academic or government sectors. Therefore, bringing in management from the business community is key.

Additionally, business incubation programs can set up formal means of soliciting input and direction from the business community. Boards of directors can bring valuable business acumen to the incubation program, and often are a source of professional help for incubator clients. Those incubation programs that operate under an umbrella organization’s board can instead set up advisory boards that don’t have fiduciary responsibilities but that still can assist incubator management and clients in strategy and projects.

In addition to issues related to management and governance, entrepreneurs need other experienced entrepreneurs, legal, accounting and financial advisors, the expertise of university research staff and faculty, and access to those familiar with structuring and financing new companies and preparing them for growth. Most of these individuals reside in the business community, and to gain their involvement it’s necessary for the incubator staff to be grounded in real business culture and to have credibility with that community.

2. Incubator developers need to take a holistic view of incubators’ role in entrepreneurial development – they are not, in and of themselves, magic bullets.

It takes a lot of actors and resources to develop an appropriate support network for entrepreneurs and speed their success. Yet doesn’t it seem that we sometimes hear that a particular effort – an incubator, science park, academic entrepreneurship education program, microloan program, angel financing network, or cluster development effort – will provide the needed solution?

It just doesn’t work that way, of course. To the extent possible, entrepreneurs need all those things. Nobody should engage in an incubator development project without at least considering whether any industry clusters are appropriate for the program. Incubator developers must also consider whether there is sufficient access to professional service providers, capital, university technologists and other key entrepreneurial resources in a community before moving forward with a program. If these resources are not present, is there potential for developing them?

It is a mistake for any community to develop an incubator without considering whether appropriate space is available for companies to graduate into, such as industrial or science parks may provide. It may not be necessary to have that space available on day one, but it’s important to consider when it might need to be phased in. Otherwise, the incubator could end up graduating companies into other communities.

There’s a simple rule here: It takes a lot of resources to grow a company from the concept stage to a self-sufficient entity. Consideration must be given to the larger environment and resources that are already available or that need to be put in place to ensure company success and, consequently, community wealth creation.

3. The community, academic or other sponsors of the incubator must hire management with the expertise to help companies grow and to run the incubator in a businesslike fashion. This includes providing adequate compensation for experienced management.

These rules are frequently ignored by incubator developers, to their detriment. In fact, we have seen incubator sponsors hire low-paid individuals who answered the incubator’s telephones but didn’t have experience in growing companies. In effect, they got a “concierge” to manage the building, but were unable to breathe life into an incubation program that successfully grew companies, created jobs or contributed to community wealth creation.

In the worst such situations, the programs failed utterly as they lost community and political support. And hardstrapped local governments found themselves paying much more to subsidize failing programs than they would to support successful ones. The projects became “black holes” that sucked away resources, rather than generating new ones.

Having a successful former entrepreneur or individual who worked closely with start-up companies at the helm of an incubator is important for many reasons. Incubator clients will need been-there, done-that advice, not academic theory. And, they’ll need that advice from someone who is used to moving at the pace of business. Incubator clients also will need to trust that when incubator staff do not have needed expertise, they can quickly connect clients with professionals in the business community who do.

Finally, the incubator manager’s salary must be sufficient to attract an experienced company-grower, in order to maximize the program’s return on investment.

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