Aug 27 2012

Is a Startup Incubator Right for You?

For some emerging entrepreneurs, a little shelter and guidance is just what they need to get a head start.

Setting up a firewall. Processing credit cards. Securing financing. The to-do list at a startup is varied and often daunting.

“You really have to do everything,” says Kevin Leland, chief marketing officer of BodyShopBids, a startup based at Chicago’s Lightbank incubator venture capital firm, which was created by Groupon founders Brad Keywell and Eric Lefkofsky. Someone who doesn’t like change won’t thrive in a startup, Leland adds. “It’s kind of like organized chaos.”

Leland became a founder in residence at Lightbank (he joins the staffs of startups as they get off the ground) after Lefkofsky, his former professor at the Kellogg School of Management at Northwestern University, invited him to help “start the next Groupon.”

“I’ve learned more the past two and a half years than I have in the 10 years prior to that, just from being so closely involved in these companies,” he says.


The year the first small-business incubator opened in a shuttered Massey Ferguson building in upstate New York

SOURCE: National Business Incubation Association

Not all startups are suited to the incubator model. Entrepreneurs with rigid plans about their goals and how to achieve them are not good candidates for incubators, says Linda Knopp, director of policy analysis and research for the National Business Incubation Association in Athens, Ohio. To get value from an incubator, they must be open to advice and collaboration.

“Getting in is great. That’s the first step. But once you’re there, it’s up to you to make the most of it,” says Erica Bethe Levin, cofounder and editor in chief of CheekyChicago, a startup at the incubator 1871. “It’s not every day that you can meet major CEOs, venture capitalists and successful entrepreneurs all in one place.”

Before selecting a small-business program, it’s important to pay attention to the terms of the program, says Erik Severinghaus, founder of SimpleRelevance, another 1871 startup. Do you need to give up equity in your company to participate? How much does the space cost? How long are you locked in?

Some incubators, also referred to as accelerators, are more hands on — they’ll help fine-tune ideas and create business plans. Others, like 1871, offer education, resources and connections, but they let the startups operate independently.

At 1871, “It’s at that stage where it’s, ‘Hey, I’m ready to go. I just need some electricity and to meet the right people,’” explains Matthew Furlong, founder of 1871 startup ViderExto.