Subtitle: What is the Importance of Business Incubation?
Business Incubation is the name given to the process, wherein an individual or an organization supports the establishment and growth of a start-up. Those supporting the start-up or new companies are called business incubators.
These business incubators see the growth potential and weigh the opportunity before supporting or funneling funds into any start-up. The selection of a start-up involves a high level of research before any decision is taken to support or fund a start-up. In a nutshell, we can say the goal of incubation is to increase the success chances of business.
Over the years, experts have defined Business Incubation in their own way. The underlying concept, however, remains the same. According to Sherman and Chappel, a business incubator is an “economic development tool primarily designed to help create and new businesses in a community.” Further, Sherman and Chappel note that the business incubator support emerging businesses with several services, such as assistance in building management teams, developing business and marketing plans, funds, professional services, shared equipment and more.
Importance of Business Incubation
There is no dearth of start-ups that work on a brilliant idea with a huge scope of scaling. However, these companies have little knowledge about management, and therefore, burn cash rapidly. Business incubators help the start-ups to manage finances and ensure proper utilization of the money. Managing a business at a very local level play a significant role in making the foundation strong and scale it. Business incubators essentially perform the same function.
There are various business incubators that target businesses that want to establish themselves formally in the market. Such businesses with great growth potential might require various types of support such as planning, training and development, research support and so on.
Stages of Business Incubation
The whole process of business incubation is broadly divided into three categories:
- Physical Facility Support
This refers to the incubation service provided within the physical facility.
- Networking Facilities
After the physical facility, business incubators help the start-up with networking facilities so as to grow the business.
- Support Services
Once the business is up and running, the incubators offer various support services to the businesses in order to run the business smoothly.
Incubators – Who are They?
Incubators are usually a partnership or collaboration between one more pro-business organization. These organizations can be:
- Economic development organizations
- Government entities
- Local colleges and universities
- For-profit ventures
- Trade associations
- Services Offered by Business Incubators
Start-ups usually have a rich idea but lack the resources to execute it. Thus, they require business incubators to perform significant roles or fill the gap. Following are the most common services offered by the business incubators:
- Help a start-up to start basic operations and financial management.
- They offer marketing and PR assistance to new companies to set up a brand name.
- Business incubators have a strong network of influential people, and therefore, they can connect the business with the same to grow.
- Incubators also provide assistance and resources for conducting market research.
- They also help the start-ups in sorting their accounting books.
- Incubators bring credibility to the company. This helps the company to get loans and credit facilities from financial institutions.
Often the start-ups do not know how to create an effective presentation to impress angel investors, venture capital and other investors. Business incubators, with plenty of experience behind them, help these companies with the presentations as well.
Business incubators also act as mentors and advisors and assist the start-ups in all sorts of business-related issues.
Types of Business Incubator
Majorly there are four types of incubators prevailing in the market today. These are:
- Corporate Incubators
Objective – to enhance the entrepreneurial spirit and help the start-up to keep up with others in the industry
Targets – usually target internal and external projects related to the activity of the company
Challenges – conflicts between the management regarding the objectives and management-related decisions.
- Private Investors’ Incubators
Objective – assist the potential business model and then reap benefits by selling the shares.
Targets – technology-intensive start-ups.
Challenges – quality and durability of the project.
- Academic Incubators
Objective – offering new sources of finance, supporting the entrepreneurial spirit and civic responsibility.
Targets – external projects and the projects internal to the institution before the creation of a company.
- Local Economic Development Incubators
Objective – economic development, supporting SMEs and specific groups for the overall upliftment of the society.
Targets – small, handicraft, locally sourced business companies.
Challenges – conflicts, governance risk, management quality, red-tapism, long hours of negotiation.
There are other types of incubators as well, including Seed Accelerator (focusing on early startups), Public/Social Incubator (focusing on the public good), Kitchen Incubator (focusing on the food industry), Medical Incubator (focusing on medical devices & biomaterials) and Virtual Business Incubators (online business incubators).
Whether you’re thinking about starting your own business or need to reignite that fire, you’re probably searching for the right advice. You need advice that you are likely to be able to actually incorporate into your schedule.
Get started on the right foot.
Before getting too far ahead of yourself, make sure that you start your small business on the right foot. It won’t guarantee that your business will thrive, but it will reduce the chances of it failing. So, how exactly can you get your business started the right way?
- Be passionate about what you do. This is going to keep you pushing forward during any rough patches.
- Start your business while you still have a full-time job so you’ll have money to survive until your business takes off. Set aside some cash so that you don’t have to borrow as much.
- Don’t go it alone. Entrepreneurs have this mindset that they have to do everything on their own. That’s not the case. You’re going to need support from your friends and family, and advice from mentors.
- Build traction. Start building a customer base before officially launching.
- Write your business plan. Your business plan is going to guide you throughout the entire life of your business.
- Do your homework. Conduct market research to better understand your industry and target audience. Become an expert on your industry, products and services.
- Bring in the pros. For example, if you’re not an accountant, hire a CPA to handle this area of your business. Don’t waste dollars trying to save pennies doing jobs you aren’t qualified for.
- Get the money lined up. Start looking for ways to fund your business, such as through peer-to-peer lenders or investors, before you’re in a real cash crunch.
- Become a professional. Start by getting business cards, a business phone number and an email address. Always treat people in a courteous and professional manner.
- Get your legal and tax issues in order. You’ll save yourself a ton of time, money and headaches down the road if you get your legal and tax responsibilities right from the get-go. Those things the most importance of knowing business incubators.