What Is a Business Incubator?

A great way to get a business off the ground

Deducting Business Startup Coss
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The startup world can be tricky to navigate, and many emerging companies are prone to fail because they simply don’t know how to bring their ideas and products to fruition. In order to succeed, startups need more than just a great idea. They need ongoing funding, business development, market research, and a viable business plan. Business incubators help turn ideas into viable businesses. Here’s how they work and what you need to know before signing up.

What Is a Business Incubator? 

Business incubators are organizations that offer a collaborative work environment for entrepreneurs to nurture ideas from the startup phase and have them develop at their own pace. Some are even industry-specific. For example, tech incubators have a team to help people with ideas bring new technology or software to life much faster and more efficiently than a single coder could do on their own. There are also non-industry-specific business incubators. 

Business incubators offer several different services and amenities. These include connecting entrepreneurs to funding sources, providing mentoring, physical working space, proof of concept, market testing, business setup, and manufactured products or software. 

Most business incubators are nonprofit organizations set up to give startups a head start. State governments, universities, business people, venture capitalists, and others come together to help launch successful businesses. 

They are often funded by investors, grants, donations, or the rent or membership fees they collect from participants. 

Similar paid services are called business accelerators. Any business can contract a business accelerator to help develop new products or start a new business. 

Does My Business Idea Need an Incubator?

Unless you are wealthy and connected, business incubators offer access that you are unlikely to get anywhere else. Venture capitalists may come to you looking for their next unicorn startup. Skills development programs will help you learn what you need to move forward. Mentors can serve as a sounding board and help you stay on track. And simply not working in a vacuum can spark new ideas to take your startup to new heights. 

The drawback to all of this is the same thing that makes it valuable: Oversight. Meetings, mentorship, and collaboration can break your focus or send you down rabbit holes of side suggestions. 

Before you look for a business incubator, make sure your idea is well-developed. Input from different sources may help you refine your idea and make it better, or it may muddy the waters until your original plan is lost in the murk. 

How to Find a Business Incubator

The International Business Incubation Association (InBIA) offers online and offline resources to help you get started. With various levels of membership, you can sign up at a price that works for your budget and your business.

There are several other state organizations to check out:

How to Choose a Business Incubator

Incubators are not created equal. Some offer far more than others, and some cost a lot more. Here’s some criteria to consider to help you narrow down your selection.

Location

You’ll need to spend a lot of time in the building. It’s a big, full-time commitment. There will be development classes, meetings, and work. As such, it needs to be close to home.

Amenities and Perks

Before you commit, make sure you know what they have to offer in terms of collaborative workspace, office necessities, scheduling, and development classes.

Specialized Equipment 

Some incubators invest in and offer industry-specific equipment, like modeling software, 3D printers, prototyping equipment, or software development labs to help you develop and test your concepts. 

Mentorship

You’ll also want to know who you’ll be learning from. The mentors and advisors should have the skills and expertise to match your needs. 

Curriculum

Does the incubator offer what you need to learn? Make sure the development programs are in line with your needs. 

Track Record

Most incubators list companies they helped launch. If you can, contact the owners for a brief interview about the experience and about their success.

Cost

Incubators may offer low-cost or free membership, and some even pay you seed money up front. The pricing/funding structure can be completely different from one to the next though, and could cost hundred or thousands of dollars.

For example, at TechFarms in Panama City Beach, Florida, you can get a dedicated desk for $175 to $250 per month, or a coworking space for $110 ($50 if you’re a student). The company offers four development programs: Incubator, Web Development, Project Management, and Mobile Development.  

Popular Business Incubators

At Y Combinator, you submit your business idea and the venture fund chooses a group of companies for an intensive three-month program. You don’t pay anything up front. In fact, the organization invests in you, offering seed money for you to live on while you get your business up and running. In exchange, the fund retains a small stake in your company. Founders are expected to move to the Bay Area for the duration of the program to participate in person. Y Combinator has an impressive track record, too. Past participants include such familiar names as Airbnb, DropBox, Instacart, Zapier, and DoorDash.

Meanwhile, 500 Startups charges $37,500 per company to participate, but you won’t have to pay it up front. The venture fund and accelerator offers each business a seed investment of $150,000, and the fee can be deducted from the seed money, leaving you $112,500 in funding.

The Bottom Line

As you solidify your idea and business plan, shop around until you find a business incubator that offers exactly what you need for a price within your budget. Business incubators can accelerate the growth of your company, helping you take your startup idea to small business status and beyond. 

Article Sources

  1. National Institute of Standards and Technology. "Incubating Success. Incubation Best Practices That Lead to Successful New Ventures." Accessed April 15, 2020.

  2. SBA. "Innovation Accelerators: Defining Characteristics Among Startup Assistance Organizations." Accessed April 15, 2020.

  3. Tech Farms. "Tech Farms Pricing." Accessed April 15, 2020 

  4. Y Combinator. "Y Combinator Top Companies List - 2019." Accessed April 15, 2020.

  5. 500 Startups. "500 Seed Program Frequently Asked Questions." Accessed April 15, 2020.