BUSINESS INCUBATION

DARIUS ASKS…

I recently read about Business incubation and the opportunities they hold for small and upcoming entrepreneurs. I do not know how true and/or appropriate to me this could be. Could you please shed some light on this?

Business incubators are programs designed to accelerate the successful development of entrepreneurial companies through an array of business support resources and services, developed and orchestrated by incubator management and offered both in the incubator and through its network of contacts. Incubators vary in the way they deliver their services, in their organizational structure, and in the types of clients they serve. Successful completion of a business incubation program increases the likelihood that a start-up company will stay in business for the long term: older studies found 87% of incubator graduates stayed in business, in contrast to 44% of all firms

One area to consider carefully is whether your business is really ready for this step. The business must be entrepreneurially sound, able to function on its own, if needed. The incubator cannot replace business initiative, personal effort and resourcefulness. There is a term used called “incubator syndrome” in which the entrepreneur allows their initiative and judgment to be replaced by those of the consultants in the center. While the consultants may give superb advice, it is the entrepreneur’s responsibility to make the business succeed.

A growing trend in incubators is for the incubator to receive a piece of the action in exchange for office space, cash and lots of business support. They are essentially becoming venture capitalists with the benefit of being on site to help get the business off the ground. The usual amount such incubators ask is about a 20 percent equity stake; many of the incubators that operate this way style themselves as “startup junkies.” They know a lot about what gets a company off the ground right and are enormously helpful in getting a business off on the right foot. For an investment of anywhere between KES.100,000 to KES.300,000 plus office space and services, they receive the vicarious thrill of being part of a startup and substantial returns if the business succeeds.

Choosing the Right Incubator

In deciding to use a business incubator, explore the following items before making a commitment:

Space and Service-related Issues:

• What are the charges for space and services at the incubator?
• How do those rates compare to market rates locally?
• What services does the incubator provide?
• What are the lease requirements?
• Is there room for your business to grow?

Quality:

• What information does the incubator provide about the extent and quality of the services the incubator provides?
• Does the incubator management seem to understand your business needs and can they offer on-site assistance and access to valuable contacts and community business services needed by your firm?

Success Rates

• If the incubator has been open long enough to have a track record, what is the experience of firms who made use of the incubator for a few years and have now moved to other space?
• How do the current tenants feel about the incubator?
• Ask for references and check them.

Policies and Procedures

• What are the policies and procedures of the incubator?
• Are some services provided free of charge?
• How long can you remain a tenant?
• Is there a graduated rent structure as your firm matures or does the incubator want to take royalties or an ownership right in its tenants’ businesses in return for reduced charges?
• Can you leave easily if your business turns bust?
• Does the incubator provide seminar or training programs in addition to other business assistance services?

Management
a)Does the incubator appear to be managed well?
b)Does the management appear to have good ties with and knowledge of the business community?
c)Does the incubator have the continuing support and commitment of sponsoring organizations? Who are these sponsors and what are their goals and reasons for supporting the incubator?

Have an exciting time hunting for an incubator and growing your idea.