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Getting Started with Business Incubators

Getting Started with Business Incubators

Are business incubators a profitable option when preparing to start-up a business?

Laura Ciocan 

You have a head spinning with business ideas but you encounter difficulties in financing? Or you have recently started your great potential business but are not yet turning profit? A fundamental aspect for your business, financing is usually the most frequent obstacle in starting a business. You have the option of resorting to a business incubator on condition that your business idea seems viable and promising. Now if you wonder how they are going to find out whether your idea is worth investing, the answer is a very sensible (and predictable) one: by analyzing your business plan.

What are business incubators? How many types are there?

A business incubator is a system offering support for start-up businesses or recently founded ones. The facilities it offers go from financing, inexpensive office space, various business services (such as secretarial assistance) to management advice and support. Their role is to produce viable, standalone companies at the end of the program they are included in. Also, the selection they perform works like a measurement unit for the viability of the applicant business and gives entrepreneurs a chance to re-think their business strategy. The success rate of businesses created by incubators is of around 85%.

There are two categories of incubator sponsors: profit and non-profit.

  • Non-profit entities are supported by the state or a local government directly, through a college or university, or in conjunction with a chamber of commerce. Such incubators have been used to achieve social and economical objectives as decreasing the unemployment rate, increasing the enterprise formation rate, social assistance for disadvantaged groups - youth, minorities, enhancing regional economy etc.
  • Private companies are generally looking to make a profit. Applying for a program of such incubators should be highly questionable and a matter for thorough analysis, as it may involve long-term hindering agreements, or sharing a percentage of 20 to 80 of the company ownership and it just may not be worth it.

Who may apply and what are the conditions?

Any entrepreneur may apply for entering an incubator program on condition that his business project is viable or his business has great potential. An necessary condition is that the applicant must have a business plan containing relevant information.

There are also specific conditions and requirements for admission into such programs that vary from case to case, usually referring to the business industry, business location, the for-profit/non-profit strategy of businesses or financing means.

Programs usually last up to three years.

Advantages and disadvantages of resorting to a business incubator

On one hand, business incubators provide:

  • financing, without requiring
  • customized professional assistance
  • entrepreneurial training
  • economical access to facilities
  • inexpensive business services
  • opportunities for entrepreneurs to connect with people who can promote business growth and profits
  • a forum for exchange of ideas among entrepreneurs

On the other hand, there may be some inconveniences too with business incubators. For instance, with incubators that have the goal of gaining a profit, the necessary agreement to be reached upon can be most of the times a very cumbersome one for most firms.

Also, with non-profit incubators sponsored by governments there is the tendency to favor high tech startups that plan for rapid growth (as thus they will create more jobs) rather than more traditional businesses.

However, business incubators may be a very helpful opportunity to start your business; they can constitute a real boost for a beginner business.


About The Author

Business Planning

Laura Ciocan writes for Business Planning where you can find more information about what is a business plan.

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