How To Pick The Best Incubator For Your Startup
Jun 27, 2019
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When Dropbox had its first ever IPO last year, it was valued at $12 billion . However, just 11 years earlier, its founder was pitching the startup's business idea to well-known business incubator Y Combinator. Did the incubation program contribute to Dropbox's success? Notably, as reported by FiveThirtyEight, only 11% of Y Combinator startups have died , and other program participants have included Airbnb and Reddit. With countless entrepreneurs chasing their own startup success story, participating in an incubator could be a valuable first step to getting your business off the ground. Let's dive into how business incubators could help your business to grow, as well as what you should consider when choosing an incubator for your business. What is a business incubator, and how does it help startups? The focus of a business incubator is to provide the type of real-world support that goes beyond the business theories that you may have learned in college. When you're running a startup, profitability is no longer an exam question. Instead, it's a practical necessity that ultimately determines the viability of your idea and business model. Business incubators can provide startups with valuable support and resources. Rather than being left on their own, an incubator can provide a framework for startups to avoid pitfalls and speed up growth. There are many different types of business incubation programs, each targeting a different slice of a startup's needs. There's even some disparity about what's considered an incubation program. Typically, business accelerator programs are in a different category, but sometimes economic development programs and even co-working spaces can be grouped with business incubation programs. How does business incubation affect a business's success? To my knowledge, there are no industry-wide standards on business incubation. However, a 2010 study from the National Business Incubation Association (NBIA) found that companies that participated in a business incubator had an 87% success rate — nearly double the 44% success rate of businesses that didn't incubate. This figure is still widely cited today. A U.K. study from 2014 had similar results: The average survival rate for businesses that went through incubation programs was 92%. Business incubators can be competitive, but the most competitive ones typically have the highest success rates. I've experienced firsthand the value of a business incubation program. My founders and I launched our small business as college entrepreneurs, juggling work and school, a feat that I discuss further in a recent article . After graduation, Canada's biggest accelerator, FounderFuel, provided essential resources and valuable mentorship from leaders with industry experience. The program helped us secure funding from world-renowned investors, allowing us to achieve rapid growth to support millions of college students. What do incubators typically provide? Across North America, there are about 1,500 business incubators , each offering a different set of benefits to early-stage startups. Some focus on IRL benefits such as office space, networking opportunities and even makerspaces. Others work with businesses remotely to provide operational or product support. Some incubators are affiliated with government agencies. Others work with universities to address facility needs through biotech labs or clean energy research facilities. In many cases, an incubator addresses the intangibles that can lead to success. According to InBIA's IMPACT Index , 90% of incubator and entrepreneur programs seek to grow entrepreneurial culture, 75% of programs currently or plan to provide mentorship programs, and 70% seek to encourage minorities or women. Only 12% of entrepreneurship programs directly offer seed funding. If this is your goal, you'll quickly narrow down your program options. What should you look for in an incubator? The best incubation program will be the one that suits your business' needs. When making your decision, it helps to be your own matchmaker. Collate a list of your business' weaknesses, what support you need in the short term and how an incubator can help you achieve your big-picture goals. Then, begin your search for a program that's best suited for you. As you get closer to the application process and focus in on the programs that interest you, consider an incubator's track record as evidence of the program's quality. Helpful metrics include success rates, business growth rates and notable alumni. O ne of the most important factors in choosing a program is connections to future capital. Whether it's through structured contacts made directly through the program or networking opportunities that indirectly resulted from the program, participants are taking a long-range view to lay the groundwork for funding and continued business success. Will your industry determine your incubator program? Not all industries have the same needs or startup trajectories. For example, a tech-focused incubation program would likely be structured differently than one in the fashion industry. Let's look at another example: A food services business has significant infrastructure needs while also having health and safety requirements. This can make it difficult to leap from producing in a home kitchen to establishing an independent manufacturing facility. A food-services incubator can provide an intermediary facility to help food startups scale up by providing the infrastructure of commercial-grade shared kitchen facilities. Additionally, the industry of your startup may mean that you're less concerned about infrastructure and more concerned about connections. Some industries have geographic strongholds. You could get a leg up by choosing to incubate your tech business with a San Francisco-based program. Similarly, a fashion startup may want to choose an incubator in New York, rather than Chicago. There's no one-size-fits-all solution to choosing the right business incubator. Instead, it's about leveraging available programs to find a solution that works best for your business.