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Important Incubator Startup Notes
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Premise: Incubators provide the resources, methodology and environment to accelerate business growth.

Fact: They also require resources, methodology and environment to produce.

Fact: There is considerable befuddlement associated with the industry term business incubator, to both consumers and within the industry itself.

Regarding money, should you have no budget with which to start your incubator, alas, I can't assist you further other than providing this very direct opinion based on my operational experience with the industry since 1983 where I've used not one dime of public funding.

First, I candidly wonder how it is you could expect to get an incubator started, having no money?

Incubators cost money. Should you be reluctant to be using yours, well, how can you possibly intend to be teaching entrepreneurship or how to be a small business owner or the free enterprise system or the profit motive or understanding and operating at risk or self-sufficiency?

Second, incubators are not to be confused with charities. With a charity you are giving people a fish and doing so because their temporary circumstances would have them otherwise starve. The mission of a charity is to help those who cannot help themselves.

However, charity is the bane of entrepreneurship. Operate your incubator as a charity and it is not an incubator. Charities do not produce successful businesses. Charities do not empower people to be independent. Remember this.

In an incubator, you are teaching people to fish so they may feed themselves. You are teaching people self-reliance.

Please don't mix charity and incubation to muddle the industry of business incubation to the user because there is a substantial difference in the mindset of those needing a hand out and those seeking a hand up.

Third, any sufficiently advanced technology has its own vocabulary. Let's further discuss muddling for a moment, specifically with regard to the terms clients and tenants. An incubator has clients because an incubator provides more than office space. If all you are providing is office space, then all you have is tenants and you are not a business incubator. Please don't call yourself one. Additionally, if you are using public funding and only providing office space, then you are already competing with two well-established, tax-paying industries called building owners and executive suites. Be assured there is a multitude of U.S. tax-payers not too keen on your continued use of tax dollars to compete with them. Tax dollars are not intended to be used to compete with private sector, tax-paying industries, including those private sector business incubators that you may suppressing, competing with or preventing from starting in your own community.

Fourth, when you are providing associated business education and support services, then you have clients, presuming these people are paying you for these support services. If not, then you are operating a charity and not a business incubator. Please don't call yourself a business incubator because you are not. You are a charity. Call yourself an "economic outreach something or another" and not a business incubator.

Fifth, when you are having your clients enrolled in a structured development methodology based on their individual resources, attributes and aptitude for the entrepreneurial process, then you have participants. While clients can come and go and choose or not choose as they please, participants have a contractual agreement which defines commitments regarding utilization of features of the incubator and a formal reporting of progress to the incubator. When your participants have an office in your incubator, they are called residents.

Sixth, the generally accepted incubation business model is represented as teaching a new business owner the standard business wheel consisting of marketing, operations, administration and finance. The hub is entrepreneurial education; this educational process is an integral function within an incubator's main purpose.

Definition: An effective business incubator provides the resources, environment and methodology to accelerate business growth with the predictable output being client revenue and employees; both very tangible and highly measurable results.

If you are not charging fees and not measuring and monitoring the revenues and number of employees of your clients, you are not operating an incubator. You are operating a charity. If your clients are not producing revenues and corresponding profits, you are not operating an effective incubator. Finally, If you are operating an effective incubator yet do not ensure that your clients are paying taxes, you are breaking the law. Check it out for yourself. You are using tax money in such a manner as to permit those to whom you are providing guidance to evade taxes.

Bottom line #1: An incubator with a structured development methodology will produce successful client companies that pay taxes and does not require on-going tax dollars for operation because the incubator can be paid from the revenues of its client companies. If it is not being so paid, then it is using tax funding to compete with private sector.

Think about it.

Public funding is used to get assistance programs started in the most expedient manner, then removed as private sector steps up to the task. If you are operating an incubator that has not become self-sufficient, either you don't know what you're doing or no one has taken the time to explain these very basic rules to you or you think you are entitled to feed at the public trough.

You may know that there are increased applications for public funding going into a decreased public funding base.

You may know that more incubators have ceased operations because the funding was withdrawn than all other reasons combined.

You may know that more proposed incubators didn't get started because the intended infusion of public funding didn't happen than all other reasons combined.

Do you also know:
#1: If you rely on continual public funding, grants, donations and/or contributions, your incubator will fail because you can't teach self-sufficiency when you've not achieved it yourself.

#2: If you think your funding sources are your clients rather than the companies in your incubator, your incubator will fail because your funding sources are looking to you to produce measurable results in absolute terms of employment and return to the tax base.

#3: If you think your public sector community or your government or your funding sources "owe" you and your incubated companies an incubator, your incubator will fail. This great nation provides opportunity, not guarantees.

#4: If you do not insist that your incubator clients be accountable and responsible and report to an advisory board, including complete financial statements and tax returns, your incubator will fail because you can't play any game without keeping score to demonstrate you know what you're doing.

#5: If you think your good intentions rather than experienced entrepreneurial managers and successful business owners will grow companies in your incubator, your incubator will fail, especially if you rely solely on SBDC staff, another charity, to be your business experts! You can't teach what you don't know.

#6: If you operate your incubator as a "hand out" program rather than a "hand up" program, your incubator will fail because you are not attracting people with the appropriate mindset.

Bottom line #2: How much is it costing the tax-paying public to fund your incubator to produce a successful business that pays taxes and creates jobs? Where are your benchmarks? How does your incubator compare? Are you competing with private sector?

Bottom line #3: Are your graduate companies still in business after 2, 5, 10, 20 years? (Ours are.) If not, why not? Are you tracking your graduates? If not, why not?

Bottom line #4: Your successful graduate companies can be paying the fees required by your incubator out over time, as they continue to grow and prosper. If you can't produce successful graduate companies to be paying your costs, maybe you should find another calling?

See Failed Incubators, Successful Incubators, Flawed Methodology, Letter to Washington and Memo To SBA

Editorial by C. Dean Kring, who bears sole responsibility for content.

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