Business Incubators: Pros and Cons
For fledgling businesses, joining a business incubator can be a big boost to stimulate business growth and promote success.
As you start your business, you might be dealing with limited funds, time or personnel, and you might be wondering how entrepreneurship really works. You might wish you had more resources, a mentor or more education to help you through the process of growing your business so the operation and the finances become more easily sustainable. If you’re ready to grow your business, but you’re not sure how to overcome these hurdles, then a business incubator might offer the resources you need to succeed. In this article, we’ll take a look at the benefits and downsides of business incubators so you can decide whether joining one is right for your business. But first, we’ll answer the question: what is a business incubator?
What is a Business Incubator?
An incubator is an organization designed to help startup businesses grow and succeed by providing free or low-cost workspace, mentorship, expertise, access to investors, and in some cases, working capital in the form of a loan. You’ll work around other entrepreneurial businesses, often with a similar focus as yours.
Joining an incubator is almost like joining a college program: You have to apply, be accepted, and then follow a schedule in order to meet benchmarks set by the incubator. You’ll also need to commit to a length of time to be a part of the incubator, typically one to two years.
Based on the definition, you can already see some of the pros an incubator can provide to businesses to get a powerful start. Make sure to research potential incubators carefully to be sure they provide the following benefits:
- Your incubator should provide a free or low-cost workspace that allows you to reduce overhead while you grow.
- Look for an incubator that will give your business access to benefits that can help accelerate your business, including office space and services, mentorship, expertise, influence, and sometimes capital.
- Incubators may also offer business development programming such as workshops and panel discussions.
- Make sure investors trust the incubator to invest in the right startups and groom them into successful businesses. Joining this type of incubator will give you an advantage when seeking funding.
- Businesses in some incubators might have access to office must-haves like internet, administrative support, and production equipment. Office services vary from program to program.
- The structured environment and curriculum of an incubator can help a new business keep focus and grow in the right direction.
Many incubators target specific industries-such as digital education, green technology, homeland security, fashion and food-and thus offer targeted resources and expertise. It’s important to make sure you have a clear understanding of what an incubator provides before applying.
Not all incubators are equal; some provide more or better benefits than others. Here are some potential downsides:
- The application process can be rigorous and competitive. For most incubators, an applicant is required to submit a detailed business plan and disclose all business activities.
- Many incubators require a time commitment of around one to two years, plus adherence to the schedule set by the incubator, which can include many trainings and workshops. Yes, you will learn a lot, but you’ll also spend a fair amount of time doing it.
- For better or worse, an incubator is a professional environment. You can’t simply come and go as you please, and you’ll be expected to answer to someone other than yourself in regards to your progress. Think of an incubator like a boss who is invested in your success.
As you can see, the benefits can be great for the right applicant. Make sure you are willing to dedicate yourself and your business to the program in order to reap the rewards.
How to Choose a Business Incubator
Choosing an incubator for your startup business is a big decision, especially if you’ll be giving up a hefty chunk of time and equity for its resources and expertise. Here is what you should look for in a business incubator before you choose a program:
Research the incubator’s offerings to see if they match your needs. Learn what resources and services the company provides. Study the incubator’s mentors and advisers to determine if their expertise, skills, and networks match your business’s needs.
Many incubators require rigorous training and have strict schedules. Assess the curriculum to make sure it teaches what you need to learn in order for your business to succeed. Make sure you can take it all on while still running daily operations.
Incubator Track Record
How have similar businesses performed with the support of the incubator? If possible, contact alumni for their take on the experience. Most incubators list graduate companies on their websites.
How much does it cost to use the workspace and the equipment? If applicable, what are the loan terms offered, or what percentage of equity will the incubator take? Make sure the cost fits with the sacrifice you’re willing to make.
As previously mentioned, joining an incubator is not unlike joining a college program. Because you’ll be going to class several times per week if not every day, you’ll need to be on campus–that is, in close proximity to the incubator. This may mean relocating to be closer to an incubator if you can’t find the right fit close enough to home.
Incubator Example: Hot Bread Kitchen Incubates
Hot Bread Kitchen (HBK) Incubates helps startup and growing food businesses in New York City proper by offering licensed commercial kitchen space and business development support.
HBK Incubates Program Description
If you want to sell food commercially, you must use a licensed commercial kitchen and have your own food business licensing. It’s expensive when you’re just starting out, so HBK Incubates gives startups an affordable option during that beginning, awkward growth phase.
HBK Incubates allows food businesses the chance to grow by using their reduced-rental rate commercial kitchen. While the typical commercial kitchen rental costs $25 to $60 per hour in New York City, HBK Incubates charges much less. HBK Incubates also offers a low-income rate for qualified users, plus a subsidy that allows them to use the kitchen.
In addition to production space, HBK Incubates also offers a suite of business development resources to position its member entrepreneurs for growth and sustainability. HBK Incubates offers ongoing workshops, panels, and exchanges that provide content on various small business topics like access to capital and marketing. Members are also able to schedule one-on-one financial and business counseling sessions with HBK staff.
Program members also benefit from the network and growth of Hot Bread Kitchen’s bakery business in the form of introductions to potential sales accounts and other access to market opportunities.
HBK Incubates also provides attendees with business and culinary workshops and commercial kitchen training. HBK requires a minimum of twelve hours of kitchen utilization per month.
HBK Incubates Program Goals
The program helps a diverse group of business owners with proven sales who are expanding beyond their home kitchens. These business owners need a commercial space to legally grow.
HBK Incubates is committed to helping members get past the profitability and cash flow transition in the early years of their businesses so they can get off the ground. In order to do this, HBK Incubates provides members with training to boost sales and access to market opportunities that support healthy business growth.
HBK Incubates Success Stories
While there have been fourteen graduates of the program since its inception in 2011, one inspiring business is the Harlem Pie Man, a husband and wife team that sells pies and pastries on 125th Street in Harlem, New York. When they outgrew their home kitchen, they applied to HBK Incubates and were accepted into the program. In addition to low-cost kitchen time, HBK Incubates has worked with the couple on best practices, has facilitated catering contracts, and more recently has made introductions to a major retailer for potential distribution.
2015 HBK Incubates graduates Catherine Oddenino and Ruthie Vishlitzky are founders and co-owners of Luca & Bosco, a specialty ice cream business. About the program, they say, “HBK Incubates taught us the basics of how to operate in a commercial kitchen. Monthly workshops were helpful for us, especially the workshop on catering. Workshops encouraged us to meet other members and introduced us to helpful resources like Accion. We learned which suppliers [other HBK Incubates] members were using, and even found our current production space thanks to an HBK Incubates member.”
HBK Incubates 2015 graduate Loliware is a company that produces a line of biodegradable and edible cups. Co-Founders and Co-CEOs Leigh Ann Tucker and Chelsea Briganti say, “The biggest thing for us was having the opportunity to get into a food production facility in a way that was affordable and flexible and that had the equipment already there. The growth of our business would have been entirely different if there wasn’t a place that we could rent the kitchen on an hourly basis.”
Who Can Participate in HBK Incubates?
Any culinary entrepreneurs in New York City can participate, but the program is designed especially for motivated food-based business owners who have outgrown their home kitchens. These entrepreneurs are ready to formalize and expand their businesses.
Some indicators that you might qualify to participate in HBK Incubates:
- Your product, menu, or product concept is strong and unique.
- You have a comprehensive business plan that shows you know how to produce, sell, and market your product.
- You already have sales or have already gained a fan following for your product.
- You’re ready to go into commercial production and sell at higher volume within weeks of beginning the HBK Incubates program.
- You have a food business that needs support, mentorship and counseling in order to accelerate growth.
Program attendees must also have general liability insurance, workers compensation insurance, a sales tax certificate of authority, and a food handler’s license from the Department of Health.
NYCHA’s Food Business Pathways Program
One example of HBK’s dedication to culinary entrepreneurs who have outgrown their home kitchen is NYCHA Food Business Pathways. HBK partners with Citi, The New York City Housing Authority (NYCHA), NYCEDC, the NYC Department of Small Business Services and Start Small Think Big to prepare eligible NYCHA residents of public housing to start food-based businesses. Participants in HBK through NYCHA’s Food Business Pathways Program receive classroom training, business coaching, and free licensing, permits, legal advice on choosing a business entity, and grants to pay for it.
This part of the program offers a 15-class curriculum, which is known as Fast Trac, which is customized to teach business owners best practices of food business operations and how to maximize profits. Selected participants in NYCHA’s Food Business Pathways Program receive HBK’s commercial kitchen access and storage for five months at no charge. Others who graduate have the tools and resources necessary to apply on their own.
How to Apply
To become a member of HBK Incubates, businesses must submit an application. Completed applications are accepted and reviewed year-round. To request an application for the HBK Incubates program, please fill out the request form. You will receive an application electronically.