Incubators benefit young companies, the results have been well documented in recent years. Every year, millions of new businesses are formed but a strikingly huge percentage of these businesses fail within the first two years. Lack of required facilities, infrastructure, and necessary management skills are among the most commonly cited reasons for this failure. The business incubation industry has recently emerged to help young entrepreneurs and startups to manage their businesses in a more professional manner.
The success rate of businesses who hired incubators is many times more than those who did everything on their own. However, still most people are unaware of the exact meaning and role of these business incubators. The UKBI (United Kingdom Business Incubation) has defined incubation centers as organizations with necessary infrastructure and business resources to provide focused guidance and development to small businesses. Basically, incubators consist of experienced managers and experts who help startups (and established small businesses) in achieving their goals by assisting them at various different levels.
According to an article published in Forbes, it is better to spend money on business incubation instead of spending resources in a business school. It is surely a big claim. In this article, we will look at some of the benefits and advantages these incubation centers may provide to small businesses and new startups, especially in their very early stage.
Seven Major benefits to Incubators
1: Management Training:
One of the most common problems with new startups is that entrepreneurs usually have a very good and highly profitable idea but still they fail to materialize it. This is because of the fact that such entrepreneurs lack the necessary management skills. Doing everything on own can be very risky and this is where business incubators come into play. These incubation centers usually have highly experienced and seasoned managers. They not only provide the necessary training to young entrepreneurs but also help them in operational and tactical management decisions.
2: Increases goodwill:
Investors are usually reluctant to invest money when there is an inexperienced manager behind a good business proposal. On the other hand, the backing of business incubators is considered to be more encouraging for investors as they know their money is in experienced hands.
3: Economies of Scale:
Small businesses and startups are often short of money. What it means is that they sometimes cannot afford basic infrastructure and facilities such as high-speed internet, computers, and office spacing. Since business incubators have a big number of similar clients, they often appear to be very resourceful and help different businesses share these facilities in order to reduce the overall costs. Operating costs, in this situation, are shared between different businesses.
4: Regulatory compliance:
Among other problems, lack of knowledge about prevailing rules and regulations is also a major issue in startups. From environmental laws to accounting standards, there are a lot of regulatory and legal aspects to consider and small businesses do not have enough resources to take care of these business aspects. While bigger and established companies hire experts to deal with such issues, startups, and new businesses can take the help of business incubators in sorting these matters adequately.
5: Better access to capital:
The business links and contacts of good incubators can be helpful to small businesses and startups in raising finance. On their own, small businessmen and young entrepreneurs would find very difficult to raise finance. There are small value assets and lack of track record to convince banks for the loan, but business start-up incubators often help in securing money of venture capitalists and business angels.
6: Marketing strategies:
Small businesses cannot obviously afford high marketing campaigns. One of the widely accepted benefits of start-up incubators is their help in marketing. They provide sound marketing strategies which can be accomplished with a lesser budget. Similarly, other administrative and operational services can be also of great help.
From Steve Jobs to Bill Gates, each successful entrepreneur learned from business mentors. These incubators can also be of very good help if it is difficult for an entrepreneur to find a suitable mentor. Along with helping in raising finance, managing marketing and providing infrastructure, these experienced managers also act as a mentor for startup owners. They obviously bring a lot of experience and expertise on the table and young entrepreneurs get a chance to learn from them.