Business Incubator vs. Traditional Real Estate
Entrepreneurs have a wide selection of business incubators, business accelerators, early stage seed funds to pursue. Each one has their own benefits and negatives, but in the end generally a net gain for any first time start up founder to be a part of.
Deciding whether to be in a business incubator or to find your own building for your new start up office is an important decision many business owners evaluate. Entrepreneurs have lots of resources available for help at the earliest stages of their company whether it is through the government supported Small Business Administration or local chambers of commerce there are as well lots of online tools, meet up groups, and resources available for new business owners to take advantage of when starting a new business. One type of support that a new business owner may be able to take advantage of is joining a business incubator or innovation center that is a building that houses many different companies that are in similar industries. Joining a business incubator is one of the many options for entrepreneur office space. Business incubators often support technology based companies working on software, hardware, clean tech, biotechnology and other tech based products and services, however there are also a growing number of incubators designed for manufacturing start ups and even serviced based business centers focused on supporting independent lawyers or CPA’s. Joining a business incubator as an entrepreneur provides special benefits as well as having some detraction as you aim to build your own independent business with its own unique presence, culture, and identity. The following are some of the key areas to focus on if seeking a business incubator to locate your company at.
According to Wikipedia: 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. This definition leaves open the possibility for so many different types of organizations to claim to be providing business incubator services and there are a variety of different levels of support available on the market. Some business incubators are very hands on with tenant companies extending lots of different support services even providing investment capital and other business incubators have more of a hand off approach and their daily involvement is a much more limited role with the company.
Business Accelerators Invest in Companies
There has been a surge in recent years of business accelerators / incubators that are making investments in companies and supporting them with office space and or heavy business mentoring. There are programs across the West coast from Los Angeles, San Francisco Bay Area, Portland, Seattle and throughout the country in places like Boulder Colorado, San Antonio Texas, Boston, and New York. The following are a few of the most popular business incubators that are supporting start up technology companies develop unique and interesting companies. Business accelerators are able to supporting many different types of companies focused on a wide range of problems.
Y Combinator - Started in 2005 Y-Combinator is the most well known business accelerator, located in Mountain View California. They fund 2 classes of start ups each year with an average investment of about 18k. They are well known for having an all star cast of mentors to support the entrepreneurs at Y Combinator with technical and business advice.
Techstars - Techstars has locations across the USA and is supported with money available to invest from a large number of venture capital firms. They are located in Boulder, Boston, New York, San Antonio, and Seattle.
500 Start Ups - 500 start ups defines itself as a "new kind of seed fund and start up accelerator. Founded by Dave McClure 500 start ups is known for making a large number of small investments all the way up to $250,000 into early stage companies and providing a unique approach to mentoring and supporting a start up that is conducive for early stage companies seeking to grow rapidly.
PIE - The Portland Incubator Experiment is a slightly different approach being that the business accelerator is supported in a partnership with several major brands and Wieden & Kennedy a successful advertising and communications company. Not only are the companies in the program at PIE invested in by the fund, but they have access to business leaders in major brands and support from leading marketing experts at Wieden & Kennedy.
What is a Business Incubator
What Makes Incubators Great
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Incubators and Entrepreneurs
Additional Features and Important Details
Business incubators are naturally shared office space locations. It might be as small as a handful of companies inside a small business suite to a large hundred plus company business incubator. This is one of the largest benefits and as well as detractor of having a company located inside of a business incubator. The biggest benefit is sharing the costs amongst all the tenants for the common space areas like the lobby, break rooms, conference rooms, bathrooms, mail room etc. This common space adds up quickly when acquiring your own real estate office solution in a traditional real estate arrangement. By grouping together with many others inside of a business incubator these costs come down significantly for each tenant.
The shared space ensures that your office space is lively when guests arrive they will know they are in a place of business as their will be other people around rather than an empty space. The shared space does limit some of the abilities for you to create your own companies identity with signage outside as most business incubators only provide very limited signage for each tenant company. Generally only the largest of tenants inside a business incubator may get signage in the facility. You will also have to deal with other tenants and rules of the business incubator may not always suite your liking depending on how you prefer to run your daily business activities.
When located at a business center check into the phone service if you plan on using the phones that are available. Usually the phone number that will be assigned to you can’t be taken with you as your company grows and graduates from the business incubator you will have to leave your number behind. This is why it is important to set up your own 800 number or local number that you utilize for all your main contact numbers so there will be no confusion from your customers. Having your own office facility will require procuring your own telephone solution and provider and will be an additional vendor that you will have to manage an account for with a check each month. A business center will either include a phone with each office as part of the rent package or add the fee as an additional charge between $20 and $30. Of course, you will be responsible for your own long distance charges depending on the location of your calls. Some business centers will issue you a voip phone solution that even can move with you.
At a business center you will share a building address with many different small companies that also reside inside of the incubator. When looking at the location on Google Maps or Yahoo Local it will be very unlikely for your company to appear at the top of an address search do to the fact so many others also are located on the premises. This is a part of the company identity that is lost by joining a business incubator. Check out surrounding companies inside of foursquare or gowalla on an iphone and you will instantly see the confusion that can occur with 50 companies in a single location, it is hard to stick out. While this is something that is not nearly as important to a retail type business which is not the majority of incubated companies so the shared address is not that big of a deal for most start ups.
Signage will be limited at a business incubator. Make sure to spend the money and get a nice sign with your company name or logo for your door or adjacent to your office location. This will help establish your business professionalism inside of a business incubator. In a regular real estate arrangement there are many possibilities for signage from outside monument signs to fixtures on the outside of the building. While these are impressive and share your companies brand with the world they come with a cost that is often too prohibitive for an early stage start up company and so entrepreneurs should focus less on signage at their real estate solution and more on keeping costs down and having a professional business environment to bring clients and investors to.
Business incubators generally have a shared reception area with an individual at the main desk to have guests register and to contact tenants that they have a guest waiting in the lobby. Some incubators provide additional phone reception services and will forward calls or take messages depending on the need of the company. Having mail placed in the mail box and packages signed for and placed in a secure location for pick up is also a standard for most business incubators. All of these basic tasks need to be handled by a person whether it is in a business incubator with a shared front lobby administrator or by the company office administrator.
Business incubators provide a unique advantage over traditional real estate engagements in that they often are focused on a specific industry or set of industries thus placing many different smart individuals in the same building. This generates conversations that may encourage and inspire the other entrepreneurs within the walls of the business incubator. This can be great benefit for entrepreneurs that enjoy socializing with others and discussing their company. Others may enjoy the other benefits of membership at a business incubator but prefer to keep their door closed most the time and focus on working on their product and company.
If you are seeking investment for your company depending on the type of company you are developing and the amount of capital you require to quickly grow your business a business incubator may help. Many business incubators have networks of investors including: angels, VC’s and corporate investors. Some business incubators will invest directly in all or some of the companies that are inside of the facility. Some incubators will require tenant companies to provide small amounts of equity for being inside of the incubator.
Ask about how the incubators support companies in finding capital for their business. Sometimes a company is also best left on their own to find the right investors and put their own capital together. A person starting their first company may find more value in the investor communities attached to a business incubator than a seasoned entrepreneur that already has developed a network of people to reach out to as well as understanding the finer points to raising money.
Events / Meet Ups
Business incubators often in line with their ability to offer great networking opportunities expand on this to have great events and meet up type activities providing more networking at the facility. Business focused events provide business incubators the ability to have industry leaders and investors in the facility interacting with the tenant companies. This additional benefit of a business incubator can provide tremendous value for the inexperienced business team that needs to build a better ecosystem of partners and customers.
Having your own office space is simple buy your own T1 or DSL internet connection speed depending on the need of your business. At a business incubator generally the internet provided is free. Some will have a pay only option and some will provide basic access for free and then an upgraded service that can be purchased for additional bandwidth. Most will manage the network restricting your ability to use services like bittorrent and voip if it is a shared house line.
If you are in a business incubator just make sure that they provide access for 24/7 access into the facility for both your office space and the conference rooms as you never know when you may need to have an important meeting with a client on a Saturday and you don’t want to be regretting the decision to go to an incubator vs. you own real estate solution because you are stuck at the door with no building access.
Most business incubators will provide companies very favorable lease terms. Month to month leases are very common in the business incubator world, however some will require 3, 6 and even 12 month leases. A traditional real estate arrangement will start at a minimum of 12 months and most building owners don’t want to go through all the hassles of bringing in a new tenant unless the lease term is at least 2 years long.
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