Business Incubators -- Bad For Your Health

I thought the incubator concept was dead. But, against all logic, new ones keep opening.

So, I guess it shouldn’t have been a surprise that I’ve been asked by some entrepreneurs whether or not they should "join" one. I have to say, I laughed out loud at the use of the word "join" rather than "rent" -- a terrific marketing gimmick.

My experience with incubators is that they just don’t work. The reality is that the needs of most tenants and the business model of the incubator are not in alignment. And it’s the tenant that gets screwed.

Here’s what I have to say to all you entrepreneurs thinking about joining an incubator.

While you’re tired of being in a virtual office environment and not able to do even the simplest things like make a xerox or have a potential client come to your office, what you most need help with is building your business. Things like signing customers, product development, finding and retaining the right team, and securing appropriate capital. You’re going to live or die based on whether you get those things right. At the end of the day, incubators are not set up to help you succeed in those areas.

Their business model is really the same as any landlord’s. They have to fill the rooms/offices with paying tenants. And an incubator needs its tenants to use the other services available like the xerox machine and conference room (which most end up charging for if you need it more than a set number of hours per month). The incubator staff’s workdays are filled with making sure that there’s heat and hot water, that the equipment’s working and that the environment is clean and safe. It’s those areas that they have to be expert in.

I’m sure that they mean well when they say that they’ll help you with your business plan and introduce you to potential customers and investors, but it just doesn’t make sense that they have the expertise to do that. If you think about it, doing that well for you requires an understanding of your company and its industry. Even if the incubator restricts itself to tenants all in the same industry, that doesn’t mean that their business development staff is qualified to help. Ask yourself, if this advice wasn’t "free," would you hire this person? My guess is that your answer is "no" and if that’s the case why would you want to waste your valuable time brainstorming with them? You have too many other things to get done.

Some incubators take equity in your company as a way of compensating them for the reduced rent that they claim to offer and for the business development services they promise to provide. Their ownership interest is supposed to motivate them. After all, they’ll be successful when you’re successful. The problem here is that the amount that they could possibly make from any individual tenant when combined with the odds that it’ll actually happen (i.e., that they’ll be able to sell their shares in your company for a lot of money) is low. It ends up being not enough to keep their time and attention focused on you, and certainly not enough to hire and retain the level of professional that could make a significant difference in your business.

It was clear to me from the beginning that incubators were solving the wrong problem. They thought they were going to help build their tenant companies but in fact, all they were doing was providing a solution for the difficulties many businesses face getting that first office. So, if you’re considering "joining" an incubator just make sure you’re looking at it as an office rental and nothing more.

If you can’t tell, I don’t buy the incubator concept -- at all.

I invite all incubators to show me that they’re really not landlords in disguise!

Comments

[Ilya Belov]

Dear Beth,

I'm currently considering to "join" an incubator in NYU. I do expect the incubator to introduce my business idea to potential mentors and investors, as well as I'm willing to give back to the incubator.
What is your take on "non-profit" incubators attached to Universities ?