Business incubators help such entrepreneurs with inputs that see them through various stages to a successful business enterprise. Built-up space, expensive equipment, funding facilitation and marketing contacts are examples of inputs typically provided by business incubators. They might also relieve entrepreneurs of routine tasks such as accounting and secretarial work.
Significance of Business Incubation
Business incubation is a more efficient alternative to the earlier scenario of entrepreneurs starting their ventures in a basement or garage, and struggling through a learning process to finally establish a successful business. Incubators set up by experienced and successful businesspersons speed up the learning process of novice entrepreneurs, and might also actively help the ventures with the critical funding and marketing activities. This modern alternative could have helped many of the entrepreneurs who failed under the earlier scenario.
Whereas small business support agencies such as SBA of the U.S. are obliged to help all proposals that come to them, business incubators are more selective. They select only startup proposals that have a good chance of succeeding, and then extend much more support to develop these into a successful enterprise than SBA could. In addition to active funding and marketing help, the incubators also mentor the businesspersons through the business operations.
The businesses that graduate through the incubation process will typically be able to stand on their own once they leave the incubator. They would have a business that is operating successfully, and the mentoring and business development processes would have imparted essential business skills to the businesspersons. Studies have found that nearly 90 percent of such businesses survive for the long term, as compared to less than 10% of all small business startups.
Business incubation can help with economic development of specific regions, creating jobs, developing an entrepreneurial climate, empowerment of women and minorities, and even energizing local communities.
Support Provided by Business Incubators
The list below will give an idea of the wide range of services that business incubators provide. Not all incubators provide all these services, and some of them might restrict their support to businesses in specific areas.
Help is typically provided in the following areas:
- Physical facilities such as office space, equipment and connectivity
- Venture funding for innovative and promising businesses
- Commercialization of new technology
- Loans from banks and guarantees for such loans
- Organizing an advisory team
- Assembling a management team with required skills
- Contacts and networking for marketing and other purposes
- Developing skills in gap areas e.g. marketing, financial management
- Business services such as accounting and secretarial
- Help with regulatory compliance, intellectual property protection
Microsoft Innovation Centers, for example, provide access to business and technology training, free development software, computer labs and investor networking. These centers operate in many countries across the world.
The key point to notice is that the typical businessperson starting a new business is not likely to be well-versed in many of these areas. Business incubation thus helps speed up their learning process.
Many incubators provide support for businesses operating from homes or in remote areas. For example, businesses in remote areas are helped through counseling and other help delivered over the Internet and phone. Incubators might also focus on specific sectors, such as computer hardware, life sciences, nanotechnology and software development.
The incubation period typically differs from industry to industry. Industries that need long research-to-market times might remain under incubation for much longer that those who can provide a product or service almost immediately.
How Incubators Make their Money
Governments might extend funding assistance in the form of grants to business incubator companies. The companies will also typically charge for business services such as accounting. Additionally, many might also take a stake in the mentored business, and benefit when the business prospers.
In fact, private entrepreneurs have found that business incubation is good business, and some of them even derive great satisfaction in helping new entrepreneurs grow their business.
Business incubators have changed the scenario facing new entrepreneurs by providing them just the type of support in an organized manner that each startup business needs. The support can range from business space and expensive equipment through funding assistance and networking to business mentoring. Business incubation has proven itself as highly effective in fostering entrepreneurship and economic development.