Did you ever work with an incubator in your high school Biology class? You might have used it to grow bacteria but what’s important to understand is that the role of an incubator is to take something small and undeveloped and make it larger and more organized.
If you’re an entrepreneur and your business startup is in the planning stages or very close to launch, you might benefit from a startup incubator.
Here’s how they work: Because you’re new, you’re probably lacking the resources you need to grow. Resources like money, expertise, networking, access to advanced tools that help you analyze your business, and a lot of education to help you become an expert entrepreneur are just a few ways that an incubator can help your business.
In exchange for these resources, the incubator usually asks for a small stake in your company. The percentage they ask for is usually much less than a venture capitalist would want making this a perfect resource at a time when other funding options are likely not available to your company.
Incubators aren’t just for startups that haven’t launched. Existing companies can apply to be a part of an incubator too. American Express tells the story of Mike Onghai, the founder of AppAddictive. AppAddictive, is a company that helps businesses acquire customers through their Facebook powered app.
Onghai gave up a lucrative job at a hedge fund to join one of the top small business incubators in the county. His company already had 50 million users but needed to transform his company in to a more investor-friendly operation. Because of his incubator experience, AppAddictive just secured a $1.2 million injection of seed funding.
How to Find
Some states have listings of business incubators but one of the best resources is the National Business Incubation Association. Their site has a search feature that allows entrepreneurs to search for incubators in their state. You can find that page here.
Some incubators are better than others making proper due diligence of each, a necessity.
Business incubators present a unique opportunity to selected small businesses that give the entrepreneur substantial access to resources they would otherwise not have without significant cost. Incubators will often ask for a percentage of the company in exchange for these resources making incubators inappropriate for businesses that either don’t have the structure or don’t want to give up any control.
For some entrepreneurs, the United States Small Business Administration may be the best place to find resources without having to give up a piece of their business.