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Entrepreneurship Education: Why Do Business Incubators Fail?

Posted on Tuesday, Mar 2nd 2010

While my previous post on entrepreneurship education, Bootstrapping at B-Schools is still generating hot discussion, I would like to pose another important discussion topic: Why do business incubators fail?

Those among my readers who have perspective and analysis to offer on the subject, please feel free to jump right in.

[Please note that since this discussion started here on the blog in 2010, we have launched the One Million by One Million global initiative, and for incubators looking for a viable business model, you are very welcome to reach out to us to become a partner of our program.]

This segment is a part in the series : Entrepreneurship Education

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Let me start by confessing that I am President of the Virginia Business Incubation Association, and Director of the VT KnowledgeWorks Business Acceleration Center at Virginia Tech.

Incubators come in several flavors, and so do the failures. However, my experience tells me that they fail for the same reasons that other enterprises fail: they often open their doors with a fundamentally flawed concept.

Here are some of the most common mistakes. 1. They can’t/don’t define success in a practical way. 2. The market area they cover simply won’t support the entrepreneurial deal flow required for success (whatever that is). 3. They mistake cheap floor space for meaningful program content. 4. Their sponsors/investors expect instant gratification. 5. They act as if every new business has some fundamental right to live, even hopeless cases.

I could go on. But here’s the essence of it. An incubator is a business, even if it is not-for-profit. All the usual rules apply.

Jim Flowers Tuesday, March 2, 2010 at 3:08 PM PT

Yes, the content-free, floor space + tables and chairs variety is an obvious case for failure.

I also don’t think incubators should be non-profits.

One of the things I have been hearing from the entrepreneurs I coach at my roundtables is that many of them are operating at sub optimal developer levels and need additional development resources, but cannot afford them.

This has led me to explore if a pooled product development team can be part of the incubation process. I can see the need, unambiguously, and the entrepreneurs are validating the need for me everyday.

In my opinion, there are two things needed to get from an idea to a validated business: customer feedback, confirming that the idea solves a pain and that they would buy the product; and a reasonable product that then proves that the team can deliver on its premise.

If these two pieces of the puzzle can be brought together – customer validation + product – then one of two things would happen: (1) the business can become revenue generating, or (2) it can be funded.

My question is, are there incubators who have come to the same conclusion? Are there incubators providing resources / services to address these two aspects of an early stage venture?

I know that a lot of incubators offer a host of commodity services – real estate, desks, chairs, phone/internet, even professional services like accounting, legal, blah, blah, blah. But none of these builds valuation. Only a validated business idea coupled with a product actually builds valuation and fundability / revenue generation capability.

Yet, incubators tend to focus on other things. And of those other things, again, funding is a subject that gets more than its due share of attention. Incubators tend to view “funding” as their success milestone.

In my view, the primary success factor for incubators should be customer validation and a product that can convert the opportunity into revenue. And to this effect, I am even wondering if the best way to set up incubators is with a revenue sharing model such that the need to get to revenue is front and center in the incubator’s own business model.

Of course, there are issues with expectation setting … it is impossible to get to reasonable revenue to provide a reasonable return on investment for the incubator’s investment very quickly. A certain amount of patience is required. If we’re talking about a $5M revenue target, that can be achieved in three years, but certainly not in six months.

I am keen to hear your perspectives. I am also very interested in hearing about best practices on what’s working well at various incubators around the world.

Sramana Mitra Tuesday, March 2, 2010 at 6:15 PM PT

My company, MailerMailer, an email marketing service, started in one of the Montgomery County Maryland incubators with two people, myself and a partner, just off the heels of the successful exit of our last company in the dot com boom days.

I am interpreting your question "Why do business incubators fail?" as one directed at the incubators and not the companies within it.

Part of the issue stems from how an incubator gets recognized as a successful government program, thereby continuing or increasing its funding. They need to be able to show how their existence creates jobs, which subsequently increases tax revenue. Our incubator also needed (wanted?) to show the number of companies that "graduated" from the program. The more they could show, the more successful they felt their program was. This is where I felt the process broke down.

Their goal was to graduate many companies, each one deemed a success just by the fact that it graduated. What is not measured is the success of a company after it leaves the incubator – i.e., is it still in business after 3-5 years, is it still in the county, how much office space is it leasing, how many jobs did it create?

The thing is, we (and many others) were forced to "graduate" before we were ready. We were told within the first two years to start looking for outside office space. This was a big distraction. We were trying to build a business while having the fear of being kicked out of our space looming over our heads – even though we never missed a payment. If I hadn't been able to secure an affordable sublease from a friend's company till we outgrew it, I'm not sure what we would have done. I have since discussed our experience with those who manage the program and they said they have fixed this issue. Our county now has four incubators and all of them have a wait list.

Some companies may use an incubator as a crutch for cheap space. I think it would be better for an incubator to watch the company's growth to determine if that is truly the case and allow it to have more time as appropriate. Incubators should also provide, even require, mentoring from local successful business owners.

We are now considered to be one of our county's success stories. We have done pretty well and I am happy to represent our county as an example of what their incubator program can do. I live in a great county to run a business in. They have spectacular small business programs, including mentorship, and I would recommend their incubators to anyone here that is looking to start a business.

Raj Khera Tuesday, March 2, 2010 at 11:04 PM PT

I was in an incubator for a few years and found that there were a few reasons that the incubator failed.
1) It was part of a University system and therefore was inherently risk averse
2) The managers of the incubator did not have the pedigree of investment bankers who knew how to professionally manage money and raise capital.
3) The incubator was mostly regional in scope where some of the businesses were national and international and needed help with contacts beyond that market
4) The people who ran the incubator had limited experience with their own ventures and again were not big thinkers.
5) The incubator did not participate in the upside of the ventures and ultimately were more interested in renting space. (They forced out the smaller companies based upon their ability to rent a certain sq ft of space)
6) There was no graduation from the incubator. In fact, today most of the larger companies in the incubator were there for more than 5 years.

Andrew Kaplan Wednesday, March 3, 2010 at 3:52 AM PT

The data are inconclusive about the success and/or failure of business
incubators. I think it is premature to ask either: “Why do business
incubators fail?” or “Why do business incubators succeed?”

I am a researcher in the domain of entrepreneurship, and a former small
business owner. Overall, judging the success and/or failure of business
incubators is a problem of identifying performance outcomes. My sense is
that one possible goal, out of many potential goals, of business incubators
is to accelerate the launch of new ventures by providing the venture with
resources to which it may not have had access otherwise.

Then, the question becomes: “What is success and/or failure?” Is it revenue
generated? Over what time frame-1 year, 3 years, 10 years? Is it profit? If
so, how can we account for industry-related effects on operating margins? Is
it employee growth? Some businesses do not need employees and simply have
the goal of being acquired. Or, on the other hand, should we look at
“softer,” more subjective outcomes? What about increased professionalism?
What about owner/founder satisfaction? The problem is relativity-how can we
compare results across ventures with subjective measures. It is not as
simple as it may seem. Both objective and subjective measures of
success/failure are imperfect.

Back to the original question: “Why do business incubators fail?” If we
alter that a bit and ask the question: “Why might business incubators fail
to enable the launch of successful ventures?” then it is possible to gain
insight from the literature. My sense is that business incubators may fail,
in some instances, to launch successful ventures because they create an
artificial competitive advantage which disappears. One important factor for
success is for a business to foster is a durable competitive advantage.
These competitive advantages allow the firm to acquire resources it needs to
survive. If, in a business incubator, these resources are provided rather
than earned, it could lead to less-than-preferred “performance.”

Jeff Pollack Wednesday, March 3, 2010 at 5:14 AM PT

We run a unique shop that is part VC, part incubator, and part consulting firm.

In addition, we are very active with two Top 25 B-Schools where we actively take their students and place them in our portfolio companies or use our companies for in class case studies.

To your question at hand, I have some thoughts:

1. Most incubators fail because they are thinking of themselves in an old world economy. They think what start-ups need is space and infrastructure. When what they really need is human capital and guidance and most incubators are not run/staffed to be able to provide this.
2. There has to be a pipeline of great talent. Incubators need to have great people around in both the portfolio companies as well as resources they can call upon to help the companies.
3. There is not a clear profit formula for most incubators. Most are started as an altruistic venture, when they should be focused o the profit story.

The real key is that incubators need to build value for their portfolio companies. Real value that can be measured and realized.

Tom Kuegler Wednesday, March 3, 2010 at 5:23 AM PT

Incubators face some serious challenges, as those of us in the consulting business can attest. First, many people going into business don’t know what they don’t know. It’s virtually impossible to help people who don’t realize that they need help. Second, start up businesses don’t have budgets to acquire the skills and expertise they need. These tight budgets cause many people to become do-it-yourselfers when starting their businesses. Third, these conditions make it difficult for incubators to generate enough clients to make their centers viable. Finally, because of the investment made in these centers and the lack of committed clients, these centers aren’t able to hold their business clients to the kind of standard that will assure their success and help attract more committed business clients in the future. Absent the ability to hold out for the most committed entrepreneurs, these centers don’t have the success to attract a larger client base. Unfortunate, but these are the realities associated with start up businesses.

Dale Furtwengler Wednesday, March 3, 2010 at 5:34 AM PT

I co-founded and ran a successful incubation company for many years. We started in west Belfast (Northern Ireland), and by all external measurements we were set up to fail – extremely high local unemployment, an unskilled workforce and next to no sources of capital, all in the context of what was in effect a war zone.

Five years later the program was an outstanding success, had won the European Inion Job Challenge Award and we were replicating it throughout the UK and beyond.

I believe there were three main success factors:

1. The program was conceived and delivered by hardened entrepreneurs who were compensated for success;

2. The local government agencies pump-primed initial start-up costs then got out of the way, and

3. We made the first few cohorts exceptionally competitive to get into, carefully selected only high potential participants, and delivered early, headline-grabbing successes – this drove the program virally and produced a great pipeline of motivated applicants for future cohorts, as well as enthusiastic partners and sponsors who wanted to become associated with the program for their own PR purposes.

Short version: business incubators don’t have to fail.

Les McKeown Wednesday, March 3, 2010 at 5:44 AM PT

Answers to your question “Entrepreneurship Education: Why Do Business Incubators Fail? depend on what you mean by fail. As a consultant to small businesses and those who provide services to them, namely incubators and small business centers, I look at this question from two angles – 1) Why do Business Incubators not exist very long and 2) Why do Business Incubators fail their clients. Following are my responses to your question from these two angles.

Why do Business Incubators not exist very long? Because they do not listen. All Business Incubators have to justify themselves to their funding source and to do so many conduct some type of feasibility study from which they develop an operational plan. I have conducted some of those feasibility studies which always include a picture of the local situation including needs, obstacles, opportunities and likelihood that businesses will use a center/incubator. I have also helped centers/incubators develop an operational plan that builds on the feasibility study. Then the center/incubator operators put the feasibility study and operational plan on the shelf, check those two things off their list and set about offering canned, generic and scholastic services and courses. Typically they don’t address the discoveries of the feasibility study. They usually do a lot of assuming and telling instead of listening and guiding. Even though it is a business center/incubator they forget a very basic business principal – if you do not meet your customer’s/client’s needs you will not last long.

Why do Business Incubators fail their clients? For the last eight years I have been doing marketing research for many small businesses, conducting marketing workshops to help businesses make the most of their small, woman-owned or minority-owned status and conducting research for and authoring the book “Capitalizing On Being Woman Owned”. These efforts have brought me to the conclusion that the success of any business is very personal and personalized. The path to success, the methods of reaching success and the measure of what is successful are dependent on the business, its owner(s) and the environment it is operating in. Many, many times I have seen new and existing businesses seek help at a small business center or incubator only to be given a scripted, generic answer that either did not help the seeker or was so general the seeker could not apply it to his/her business. So, I think the reason Business Incubators fail their clients is because they don’t personalize their efforts to their clients.

Janet W. Christy Wednesday, March 3, 2010 at 6:31 AM PT

As with many other seasoned business advisers, I found myself enmeshed in a business incubator during the dot-com-bomb. The convoluted structure of he incubator was unsettling but the allure of helping young entrepreneurs achieve their dreams was compelling.
I quickly became an island in a sea of sharks whose business proposition was to put money in motion from the angels to the VC’s to the start-ups and grab their share before the bubble exploded. I continually asked where the value proposition was and how the business infrastructure was being developed and I was shunned by the MBA’s who were threatened by my questions. I left that year-long endeavor with some valueless stock and some priceless life lessons.
In recent months, I was approached by the “new and improved” incubator that just launched. I was assured that their goal was to mentor viable businesses that would create jobs and value. They assured me that IPO was not in their lexicon and that their business model was to garner only a small amount of stock from those they helped. That business model was the first alarm bell for me.
Reluctantly, I attended the first entrepreneur showcase and witnessed five pitches. It was deja vu all over again. The last young man, pitching an online gift card service repeatedly used the term “pure profit” over and over and was not called to task by anyone but me.
Since I turned in my evaluations, I have not heard another word from the incubator.
In my opinion, incubators fail because the entrepreneurs are out of touch with the realities of running a business and the angels and VC’s do not hold them to task, but become enamored with the glitzy product or service and they all follow the yellow brick road, which has only failure at the end of it.
Those who run incubators and those that sign up for them believe that “once they get the money” success is guaranteed. The only thing that is guaranteed is that the owners of the venue that made the office space available to our new incubator will throw them out the moment the economy recovers and they can rent that office space.

Tom Taormina, CMC, CMQ/OE Wednesday, March 3, 2010 at 6:59 AM PT

If you’re in tech, you’re doing something new. There are a lot of mentors who may have done something similar, but you are in a new space. Only experience as an (failed or successful) entrepreneur can guide you to understand who to listen to and for what.

Having a network is important, knowing who to listen to and for what is incalculable. You can necessarily learn that at an incubator.

Troy Peterson
CEO Nibipedia.com

Troy Peterson Wednesday, March 3, 2010 at 7:07 AM PT

Sramana, great question. First off disclaimer, I’m the co-founder and CEO of Docstoc a venture backed startup in Los Angeles, and I know many of the folks that started the LA based incubators.

The single biggest reason incubators fail is because they don’t have passionate, incentivized founders driving their success.

Building a great technology company is NOT a plug and play process that can be easily replicated. Typically in the early stage of the company the biggest variables to success are the co-founders.

In an incubator, you often divorce the natual process of co-founders comming up wiht an idea that they are 100% responsible for and have to give birth to.

For exmaple, the process of building a product with next to no resources and raising money is a very important qualifer for future success.

When founders are forced to find way to get a product out the door when they have little or no resources, and they have to validate the idea in the marketplace by getting their first outside investment – they’ve gone through a trial by fire that is a key step in setting them up for future success.

People are most motivated to make a new business a success when its directly tied into a BIG WHY (why am I doning this). Most often that big why is the co-founders EGO or their desire to make lots of MONEY.

In some incubators there aren’t co-founders who have tied their identity to the idea, and they are not as likely incentivized with the majority % of the company.

Building a great company, meant to last, is a hurculean process – and it takes very strong willed protagonists to bring it life and shoulder the numerous obsticles that will come up on a daily basis.

If an incubator divorces the natural process of founders identifing opportunities and being 100% reponsible for their success, that the businesses that come out of those incubators are much more likely to fail.

Jason Nazar, CEO Docstoc.com

Jason Nazar Wednesday, March 3, 2010 at 1:01 PM PT

The problem with your argument is that funding is the end-game, and I disagree with that. Most SMB businesses should not be funded because their TAM is too small. Chasing funding is a surefire way to fail, because the businesses are structurally not set up for external financing.

Yet, we need these $5-$10 M TAM businesses to be built for the overall health and sustainability of the economy.

So while I agree that founders’ passion is critical, the criterion of funding is a flawed analysis in my opinion.

Sramana Mitra Wednesday, March 3, 2010 at 1:10 PM PT

Very few incubators fail at what they are asked to do. The challenge is that what they are asked to do often has little to do with encouraging entrepreneurship and innovation (as I suspect you are defining it).

This misalignment often manifests itself in the metrics that incubators are measured by. One measurement used frequently is Companies Served, where success is measured primarily by volume, not by progress against a company’s business plan or financial goals. If an incuabtor team needs to “touch” 30 companies in a quarter then it works to do so.

There are incubators that are required to meet another flawed metric- Occupancy Levels. Full does not mean full of potentially strong companies. I know of at least one facility that declared victory and broke ground on an addition primarily on the justification that the initial spaces filled up quickly.

Local Jobs Created doesn’t always correlate with business success, wealth creation, or the advancement of innovation into the hands of customers to improve their lives. The biotech developing a cure for cancer does not create any local jobs when it runs a nationwide clinical trial or when it is required to outsource small batch production to an out-of-state FDA approved facility. This is a failure to an incubator measured on Local Jobs Created but potentially a big success to its staff, investors, and to society as a whole.

Capital Raising is not always a good metric but it isn’t a bad one either. When used as a primary metric, it chases away good firms that just need time but not necessarily money to become successful (as described by an earlier post). On the other hand, comnpanies that clearly need capital to achieve their goals (e.g. biotechs) should be measured on their success at attracting funding or all the incubator will be left with is lifestyle companies and grant mills.

Another thought- should incubators be fully staffed by employees? There will always be a need to manage the infrastructure, but is there a natural limit to which non-entrepreneurs (salaried staff) can assist a bunch of risk-taking company founders? I wonder.

Robert Okabe
RPX Group LLC

Robert Okabe Wednesday, March 3, 2010 at 5:13 PM PT

I was about to write a longer response and then saw Jason Nazar wrote most of what I was going to write. Yes, founder passion and complete motivation is critical.

Are we talking about incubators failing or their offspring failing? I assume we mean the offspring because without successful hits, the incubator is just a consulting or real estate firm.

I’d say the two main reasons are
1) lack of impassioned, fully incentivized founders (what Jason Nazar said)
2) inability for the portfolio teams to pivot when they need to.

For founder motivation, every company faces really really hard challenges at some point, and the ones that succeed, roll up their sleeves and plow through the muck. If the founders start thinking that they don’t have enough equity or if their reputation isn’t at stake, then they will start to avoid tackling those necessary hard problems because it doesn’t feel worth it.

For pivoting, or adjusting the course of the company when needed, I think many incubators instill a culture that defines the brand of the portfolio company from the start, and is hard to change later. 9-12 months after launch, when a better opportunity presents itself if the company were to take a left turn and follow it, the founders may be directed or feel that they need to keep following the initial vision hatched from the incubator instead. Or perhaps there is personal pride tied up with the initial branded direction. For example: If you were the guy who was known for leading that incubated online document storage startup, and then realize 9 months later that there is more value in providing communication around the docs, then saying you want to become a corporate communications platform may feel like you didn’t succeed in the initial “blessed” direction.

There seems to be implied “failure” in pivoting an incubated team, because, after all, it seems like the incubator could just pop out a new team to go in the pivoted direction. The act of pivoting is absorbed by the incubator itself.

In my experience, having started over 4 companies, is that success rarely comes from the initial business or product plan. The initial plan is a great start to being building a team and learning more about the market, so that when a different larger opportunity is revealed, it can be immediately jumped on.

So, incubators should not get greedy with equity, and let the founders feel properly motivated. And encourage iteration, testing and failure in business directions within portfolio companies.

Andy Stack Wednesday, March 3, 2010 at 5:53 PM PT

hmmm… not sure I’m understanding the same Qstn you’re asking, but can I counter with:

“Sramana: so is it true you’ve finally stopped
beating your husband?” ;)

more srsly, I’d point to 3 very “successful” incubator programs I’m familir with (and all of which I’ve
invested in at least a few of their startups):
– Y-Combinator (invested in 2 companies)
– Tech Stars (invested in 4 companies)
– fbFund REV (I ran last summer, 22 deals)

by “successful” I would define metric as having graduated at least 1/3 of their startups to the next round of financing, and/or break-even viability.

from among the 22 companies in fbFund, at least 8 have already raised $500k or more, or have reached
break-even. likely another 3-5 will raise funding in the next 6 months.

so I feel rather comfortable saying our program was a success against those metrics. I have less visibility into YC or TechStars, but would guess they have seen similar results.

on pure numeric performance the jury may still be out in whether these programs “work” for LP returns. however, it would appear that it’s quite possible depending on how aggressive / selective the program is on follow-on investments.

regards,

for

Dave mcclure Wednesday, March 3, 2010 at 6:12 PM PT

Dave, yes, except statistically speaking, most incubators fail. The motivation of this post is to understand why they fail, and from what I can see, there are some pretty obvious levels of brain deadness that goes on at incubators.

Sramana Mitra Wednesday, March 3, 2010 at 8:34 PM PT

Hi Sramana,

I’ll give my own perspective from Incubators I’ve encountered outside the U.S. (where I have built companies). My experience has been with incubators that are more on the real estate side of things as compared to the VC side of things. I’ve seen two issues really:-
1. The Incubators have been really small and very selective with the companies they take in and they companies they won’t -e.g. service providers to technology companies – At the very maximum they have 10 companies being incubated at any point of time. My feeling is incubators need to focus on being clusters and doing so requires a certain amount of critical mass. As such, I would favor incubators taking on larger number of companies less selectively. I would also say that they should open up to other companies who could serve as service providers to the companies – e.g. consultants, CPAs, Search engine marketing firms, creative artists etc. It’s normal for only 10% of the incubate-es to take an active interest in the ‘community’ and without a certain minimum number of companies, I feel the incubator does not end up having critical mass.
2. I’ve seen incubators being very bureaucratic about the admission process. In an era when incubators compete with essentially the spare bedroom or the study, entrepreneurs are increasingly going to say I’m going to build my product and put it out there first and not spend time with business plans, company profiles and excel sheets. My feeling is incubators should take an approach closer to business centers and make setting up shop as easy as walking in with a credit card. The value added services can be layered to companies later.

best regards,

Roshan D'Silva Thursday, March 4, 2010 at 6:26 AM PT

Roshan, I have to say, I completely disagree with you … incubators need to be selective, and provide more services that create value, not become business centers. There are tons of business centers out there. And other than providing infrastructure, they add no other business value, and infrastructure does not create valuation.

Sramana Mitra Thursday, March 4, 2010 at 7:45 AM PT

I’m currently running a NYSERDA funded incubator for NYU-Poly, which we call NYC ACRE (the New York City Accelerator for a Clean and Renewable Economy). We’re very focused on helping clean technology and renewable energy companies in New York City grow, advancing the City as a role model for a low-carbon future.

While we have specific milestones in our statement of work, we’re currently averaging one new hire per company per month. Two of our tenant companies are looking at term sheets, one is angel funded, others are growing their business with revenue. (While we’d like to ‘de-risk’ early stage investment in our companies, not all will go the venture route. However, every applicant must submit a 24 month cash flow plan and task plan; we work with our companies to help execute this plan, and while operational support (including mentorship and access to our Advisory Board) is a key piece of our value proposition, we also focus on providing access to markets (pilot customers) and access to capital (SBIR, angel, venture, etc.)

Entrepreneurship is a hard and lonely road. If an incubator is not providing structure for tenant interaction, it is flawed. If tenant leases are open-ended, tenants won’t ever leave (especially in NYC, where rent can eat up overhead). If the power of innovation that still exists within University faculty and students is not leveraged, incubator growth won’t reach full potential. If new technologies are not brought to market in a meaningful way to solve the energy/climate challenge, we will have missed a historic opportunity to create new jobs, industries, and exports for American workers.

We certainly haven’t figured it out, but with the support of some amazing partners, we’re beginning to see results. We’re planning for long-term, triple-bottom line sustainability, and our vision is to be cash-flow positive, visible, and durable.

Micah Kotch Thursday, March 4, 2010 at 9:15 AM PT

I worked with Andy Stack at an incubator, and I’m incubating a business inside of a large games developer right now. Additionally, I’m advising Charlie Lewis on the SkySong incubator at Arizona State University. Andy and Jason Nazar are spot on. I’d simply add that if incubators or the businesses being incubated are wedged into a regional business agenda, or are somehow tied to some sort of business stimulus objective, risk of failure is hard to avoid. Any incubator goal should be innovation stimulus and IP development, with the understanding that the IP in development has value in tech licensing even outside of associated startup exits and outcomes.

Aaron Burcell Thursday, March 4, 2010 at 9:46 AM PT

Sramana,

in regards to your response, I agree that most new businesses should NOT try and raise money, as their will not be a liquidity opportunity.

But, virtually every incubator is set up with the express purpose of building businesses with that will have the opportunity to be bought or go public.

There may be a business case for an incubator that provides resources to a new small business and can get a meaningful return based on a dividend payed out over the course of a few years, but I’m not familiar with those type of structures (maybe we found a new business idea).

So I hold to my previous thesis, if an incubator is looking to help start or foster a technology company, and the financial opportunity is a stock position in that company, then you can’t run those companies without clear leadership who own a majority of the company (to start) and have a big reason to see the company all the way through to an ultimate exit.

Jason Nazar Thursday, March 4, 2010 at 10:04 AM PT

You bring up a very important issue of incubator compensation, which I think needs to be something other than equity. It is very difficult to price creation stage ventures, and I think debt (convertible debt, revenue sharing, warrants) is a better model than equity for this stage than equity.

That also has the additional advantage of being able to foster companies that want to grow organically and not take venture money, exit, go public, etc.

Sramana Mitra Thursday, March 4, 2010 at 10:16 AM PT

This is always one of the greatest entertainments for me. Many times authors write on things they have no idea of, nor experience in yet create a theoretical conclusion which justifies the lazy man's actions of inaction. Please, if you will, do more homework on what a true business incubator is, does – and it's impacts and then you will see that one of the most successful tools for small business development is "business incubation" — true business incubation, not the foolishness of tenant facilities with just shared services that have diluted what funds and reputation there is and rapped the concept of true incubation in a misconception which I think this author has bought into. I operate a true business incubator and invite you to come visit me I will stand or fall on my client companies. Here you will see incredible entrepreneurs in action. Mentor teams teaching and interacting, community involved and University staff, faculty and students assisting. You will find young businesses that are growing in proper stages to give the opportunity for success in the years to come thus bolstering our economy. You will see those "start-ups" raising millions of dollars in investments and increasing in sales. You will see our future "Graduates" in action. Business incubation — true business incubation works. Have there been incubation programs that have closed — yes — but find out why before drawing a global conclusion. Each time had it's own reason — from — it should not have ever started but someone "Had to have me of of dem dar things" to funders (legislators and steakholders) falling back on their promise to support small business growth because there wasn't the photo op they thought there would be or they thought it was going to happen over night, to just plain poor training and/or no support for the incubator management. It happens — but — all over this country there are men and women who teach – preach – love and bleed for those entrepreneurs in their incubators because they are willing to invest in their potential. The incubator's success is those entrepreneurs — we do not create jobs, they do and they are doing a dang great job. TRUE BUSSINESS INCUBATION WORKS and is a success. My invitation is open

Russell Combs Friday, March 5, 2010 at 6:31 AM PT

Innovacorp, based in Halifax, Nova Scotia, Canada, runs what we believe to be a successful business incubation system.

Our High Performance Incubation (HPi)™ business model represents Innovacorp’s core business offering. Recognized internationally as a best practice approach to technology commercialization, the model comprises three interwoven resources – incubation infrastructure, business mentoring and seed/venture capital investment – to help entrepreneurs overcome traditional hurdles to business growth.

While far from perfect, our results show we are making a material difference:

In fiscal year 2008-2009 (ending in March 2009), the knowledge-based companies that have benefited from Innovacorp’s High Performance Incubation (HPi)™ business model generated over $278 million CDN in export revenues and directly employed more than 1440 people, resulting in a payroll of $62 million, most of which was in the form of high value jobs (jobs with an average salary of more than 15% above the provincial average). Further, at the end of fiscal 2008-2009, the investment capital raised by leveraging our Nova Scotia First Fund surpassed $101.3 million.

Our annual third party conducted client satisfaction survey shows a high level of satisfaction with our value added services.

Innovacorp is committed to working with our high potential clients from high growth sectors including information technology, life sciences, clean technology, and advanced manufacturing.

We have developed a highly efficient start-up company pipeline system which attracts over 150 potential start-up companies per year.

Check us out at:

http://www.innovacorp.ca
http://www.facebook.com/innovacorp
http://twitter.com/innovacorp

For a closer look at our business plan and the metrics referenced above check out:

http://innovacorp.ca/files/imce/Innovacorp_2009-2010_Business_Plan_u100709_1.pdf

Dan MacDonald
Innovacorp President and CEO

Dan MacDonald Friday, March 5, 2010 at 1:08 PM PT

Incubators can be highly successful if they manage their stakeholder’s expectations and do much more than simply offer space. We work with numerous companies who must first go through a rigorous review for us to determine if they are even a fit for our program. Once they enter, they submit to open book accounting, monthly and quarterly benchmark review, monthly tenant meetings and other things that are written into their lease. This allows us to report cumulative progress of these companies to our stakeholders and understand truly where they are. This in turn gets them to a point where they do become fundable and we then put them in front of our local angel group. Our clients raised over $30 million in angel and VC capital and in the third quarter of last year the average salary was $85k (still getting 4th quarter data). Incubation does work and can be highly successful when the program is run like any company.

Russ Yelton Friday, March 5, 2010 at 1:11 PM PT

As a former incubator manager and a current technology business consultant I feel that I have to weigh in on this topic. I believe that, like all business endeavors, poorly conceived and/or run incubators will rightly fail but that successful incubators will deliver value-added services to its clients that will accelerate the development of those companies. It’s incorrect to lump all incubators together as there are a diverse variety including technology, arts, kitchen, and mixed-use, to name a few. According to the National Business Incubation Association, incubation is not about cheap space. Rather, incubation is a defined as a program designed to accelerate the successful development of entrepreneurial companies through an array of business support resources and services, developed and orchestrated by professional, competent incubator management, and offered both inside a physical incubator and through its network of contacts. Incubation best practices require that an incubator program be integrated into a larger community economic development plan and that the incubator program have adequate community support for its mission and operation. Best practices also mandate that incubator programs begin with a feasibility assessment to determine to true need for an incubation program, and if an incubator is developed, regularly evaluate effectiveness and impact. From my own personal experience managing a life science business incubator, most companies need help with three things: access to capital, access to talent, and access to specialized facilities and equipment. A successful incubator program will be able to help a young company find what it needs quickly and will help them through whatever steps are necessary to obtain those resources. On a final note, I completely agree with the previous comment that incubators are businesses, just like the companies they assist. Not-for-profit only means that no dividends are returned to shareholders. An incubator should be as fiscally disciplined and market driven a business as any it expects to support.

Sandra Cochrane Friday, March 5, 2010 at 1:14 PM PT

We have a great network of incubators in NJ which work very well. The 500+companies that we collectivly supported in 2009 generated over $300 mil in revenue. We all work collectively, but have our own expertise. We put on some great programming that is often open to other incubators, we network our clients with one another, really a very neat support group state wide.

We have had a number of very BIG successes , there is a movie right now about one one of the companies that graduated fron a NJ incubator fairly recently.

With the support the State of New Jersey has provided incubators and the additional support oput parent organization contribute, Incubation inNew Jersey is a really great place for companies and for the state.

michel Bitritto Friday, March 5, 2010 at 1:19 PM PT

For incubators to succeed–whether they are for profit or not for profit–I believe they must offer the startups they work with tangible value in three key areas. First, they must offer investors. Either they are investors, or the incubator manages the angel group (as in our case), or they have significant ability to connect their companies to government and private sector funding. Second, they must offer advisors. Some take an active management role in the companies; others have a pool of advisors they call on; others set up advisory boards; others develop an EO-like program of peer advisement. Third, they must help their companies go-to-market. This involves market validation, market penetration strategies, competitive analysis, customer acquisition strategies and introductions, and so forth. An incubator that offers these values will succeed. In my experience, incubators that make these efforts successfully do not necessarily have to be for-profit. But they need to act as a business, they have a board dominated by for-profit entrepreneurial types, and the staff has entrepreneurial experience. One other thing is also important. They must have adequate deal flow so they can be selective in who they help. It’s not the incubation idea that is flawed. Like all businesses, there are glowing successes, some moderate successes, and some notable failures.

joel wiggins Friday, March 5, 2010 at 1:33 PM PT

At the request of the National Business Incubation Association, I offer these comments in addition to those already published and which, for the most part, I agree with.
On March 17, 2010, in Houston, Texas, we celebrate 27 years of start-up business development, small business incubation, entrepreneurial education and emerging business assistance, without public funding.
I am the most tenured owner, manager, and operator of a business incubator in the National Business Incubation Association and have been recognized by that fine organization ” . . . as an industry leader and pioneer in business incubation . . .”
I founded both Texas’ oldest business incubator (1985) and the first Womens Business Center in the nation (1989), all without public funding.
I am past chairman of the Texas Business Incubator Association and implemented their program to certify Texas business incubators (1993).
To the best of my knowledge, Texas still has the only certified business incubators in the nation.
I watched our local SBDC start 4 business incubators and saw all 4 fail, with the SBDCs blaming their failures on their clients. Quote: ” . . . the companies just didn’t grow.”
I have written letters to the head of the SBA (and all the way up to the White House) that SBDCs compete with private sector by soliciting and servicing clients who can well afford to pay for consulting services and do so purposefully to support their economic development statistics to justify continued public funding, that business incubators can be paid from the revenues of their client companies, and that continued public funding of SBDCs, business incubators and Womens business centers has become, essentially, “pork.”
My opinion is that “if you can’t grow businesses in your incubator (and be paid from client revenues) you should find another calling.”
I, and others in private sector, have grown very tired of seeing our own tax dollars being used to compete with us while there remains so many other worthy projects that falter for lack of public funding.
Are business incubators a bad idea? Absolutely not! Our clients have won virtually every award for growth in Houston, some nationally and some even internationally.
Do I recommend more accountability for SBDCs and business incubators? Yes, of course! And I remind our readers, politicians and public funding sources that public money is used to initiate worthy projects when the only real requirement is expediency, then removed as private sector steps up to the task.
Private sector has stepped up and is perfectly capable of operating business incubators that successfully grow companies, adding employment, wages and salaries, and tax dollars to the economic mainstream totally without public finding, yet public sector continues to insulate itself with walls of unaccountability, bureaucracy, political favoritism and inefficiency.
Dear Readers, it’s time to tear down those walls.
C. Dean Kring
Director of Research
Services Cooperative Association
cdkring@servicesca.org

C. Dean Kring Friday, March 5, 2010 at 1:38 PM PT

It is difficult to answer a question with a premise with which I disagree so fundamentally. The entrepreneur is the key to the entire American economy and way of life, and efforts to foster entrepreneurship should be applauded as a matter of national pride, even on the occasions the efforts don’t pan out. We need to be reminded that the incubation industry is relatively new. It is improving thanks to efforts by groups like the National Business Incubation Association, who establish best practices, measures and support networks to facilitate success.

Jeanine Jerkovic Friday, March 5, 2010 at 1:49 PM PT

I’m surprised by the negative tone in these blog posts. There is no reason incubators need fail. Here at Lehigh University, the Ben Franklin Technology Partners of Eastern Pennsylvania has helped launch about 400 high tech companies, which (according to external non-partisan research organizations) have created nearly 14,000 new jobs and helped retain more than 20,000 existing jobs. The result added a total of more than 125,000 job years and tens of billions to the economy of this region around Bethlehem, PA, formally home to rust-belt Bethlehem Steel.
The University also has student start-up incubation programs that launch growth companies year in and year out.
Their incubator formula is fairly straightforward, but goes far beyond the space and coffee machine model folks are complaining about here. Networking, access to resources and mentoring, and strong collaborative ties to other regional economic development programs are central features. As they say inj their propaganda: “Ben Franklin provides capital to clients as well as crucial links to business and technical experts, college and university resources and facilities, professional associates and mentors, and sources of follow-on funding…In addition to its work with companies, Ben Franklin collaborates with an array of regional partners to promote an innovative infrastructure through new research, development and commercialization models, business incubators and university-based research centers.”

Todd A. Watkins Friday, March 5, 2010 at 2:13 PM PT

Credentials: I am president emerita of the National Business Incubation Association. I retired in 2009 after serving as president & CEO for 21 years. I was a founding member of the association in 1985 and opened my own incubator on the Ohio University campus in 1993. During my tenure, the association grew to represent more than 1,900 members from 67 nations.

The fact is that there are very many successful incubators. There are approximately 1,100 currently operating in the United States, 1,400-1,500 in North America and at least 7,000 around the world; the concept has proliferated because it has been so successful and adaptable. The first business incubator in the U.S. (which opened in 1959) is still in operation, as well as several programs that have been operating continuously since 1980, including the Advanced Technology Development Center at Georgia Institute of Technology.

Most incubator development has occurred since 1980 and it is vastly more sophisticated now than it was in the industry’s early years. A few examples: the Innovation Depot in Birmingham, Alabama, Innovacorp in Halifax, Nova Scotia, the University of Central Florida Incubation Program in Orlando, the Enterprise Center for Johnson County in Lenexa, Kansas, the Accelerator in Seattle, Gwinnett Innovation Park in Norcross, Georgia; the Boston University Business Incubation Program, La Cocina in San Francisco, and BioCenter and the Environmental Business Cluster in San Jose. I could go on and on.

Despite the many successful business incubators, some have failed, primarily for the same reasons companies fail:

1. Poor business model, including a poor financial plan
2. Lack of planning and due diligence
3. The wrong manager (a successful business incubator must have management that has the skills to grow the program and client companies, and also gain support of the business community and investors)
4. A bad building (too large, too small, hazardous waste, etc.); in the early days, it was more common to site incubators in a “white elephant” building cast off by the original owner
5. Insufficient involvement of potential supporters, sponsors and the business community
6. Lack of deal flow; of course this relates to having a poor business model
7. A fall-off in political support caused by a former champion (mayor, governor, dean, university president, agency head, etc.) being replaced by a new one who is not supportive — who doesn’t “get it”

These are the primary reasons for failure. During the history of business incubation, there have been two periods in which a significant number of failures occurred: in the recession of the late 1980s, many states and local governments cut incubator funding, and those early programs that were poorly developed and didn’t have good financial models were forced to close; in the early 2000s, following the dot com boom and bust, many for-profit incubators with poor business models (predicated on flipping companies in as little as 8 months) closed down in droves.

However, as the industry has become more sophisticated during the past 30 years — with better management and access to best practices, and greater understanding of incubator financial and sustainability issues — it has become remarkably stable. For example the majority of incubators, including many nonprofits, survived the recession earlier this decade and are surviving the current one.

There is a large crop of accelerators under development now that invest directly in start-up companies; many are “virtual,” providing a boot camp for entrepreneurs and enough money for founders to buy ramen noodles and develop a prototype. Many serve founders who are developing Web 2.0 applications; not, for example, biotechnology products and pharmaceuticals, defense applications, or nanotechnology products — in other words, they are focused on markets where the barriers to entry are low. Of these, Y Combinator is probably the most famous.

The long-term sustainability of these accelerators has not yet been proven, though several analysts have offered sanguine assessments of the basic model. At the same time that these programs have evolved, many more traditional incubators have continued to expand their services to larger and larger regions and to add “boot camps” to their mix of services. For example, JumpStart in Cleveland, Ohio, provides services in 21 counties in the northeastern portion of the state and the Northeast Indiana Innovation Center in Ft. Wayne services at least seven counties. Georgia Tech’s ATDC also is expanding its traditional model and is currently signing up entrepreneurs to “Entrepreneur Circles” around the state of Georgia with the aim of gaining wider reach and relevancy.

However, to answer the question posed above in brief, I would say that while there is long-term evidence of the success of many incubators and of their positive impacts on their communities (from research conducted by the University of Michigan in 1996 and Grant Thornton in 2008), as in every other field of endeavor, there have been failures. But these failures can often be attributed the challenges faced by businesses generally.

Dinah Adkins Friday, March 5, 2010 at 2:27 PM PT

Russell, no need to be defensive and insult the author. I am offering you a platform to share your point of view, dialog with peers and detractors. Please treat this as a research effort, and by all means share what’s working for you, what’s not working.

Just one point: there is a very strong perception out there that business incubators tend to fail often, and from what I have gathered in the above discussion, at least a segment of incubators are just real estate, cheap office space, phone line, etc. That, in my opinion, is not incubation, and I am not surprised to hear that as a reason for failure.

But as you brag about your tremendous achievements and successes in business incubation, please also try to provide some analysis of what is working and what is not working in your world.

I am actually a great fan of your world, in case you have pegged me otherwise. However, in Silicon Valley, the general perception is that “incubators don’t work”, and I am trying to understand the basis of that perception, as well as, more importantly, figure out how incubators can be made to succeed at a higher rate as part of my 1M/1M effort.

Sramana Mitra Friday, March 5, 2010 at 2:31 PM PT

There are hundreds of successful incubators that host and graduate many successful ventures. The incubators that I know that got in trouble was because of :

1) University administrators who thought the incubator was a real estate operation, and failed to manage properly and have entrepreneur coaches as staff who actually knew about growing ventures. University Administrators are too often risk adverse, and bureaucracy is the natural enemy of entrepreneurs and innovation.

2) Incubator managers who were small business, SBDC or banking folks who knew little about launching and growing ventures. The wrong staff leads to bad help and decisions.

3) Deployed a real estate development model for an old building, rather than building entrepreneur community with strong entrepreneur coaches and services. Some incubators have been too small to be viable.

4) Bad business model usually loading up the building with too much debt so that the incubator was run to meet loan payments and not having funds available for the necessary services.

5) lack of sufficient support from sponsors, community, successful entrepreneurs, political leaders etc. so good incubator people were poorly supported Happenes most often in bad political environment caused from folks who are not entrepreneur smart.

6) Entrepreneurs do not have access to entrepreneur capital thus are severely limited in their growth opportunities.

I manage two incubators on a university tech park, and have more than 100 graduates from the program over 14 years. The common theme above is not having the right entrepreneur minded people involved.

Bruce Gjovig Friday, March 5, 2010 at 3:30 PM PT

A last few comments, based on reading more responses above: Programs/facilities that provide space and do not provide comprehensive business assistance services targeted to address the needs of start-up and fledgling companies — and that do not customize those services for individual clients — are not incubators, as Sramana notes. They are nothing more than real estate. Let’s call a spade a spade, and not be tripped up by people who would appropriate the name without providing the services.

I could call myself a truck driver but would you believe me if I couldn’t shift gears on a big rig?

The perception that a lot of incubators have failed is based almost entirely on the proliferation of for-profit incubators during the dot com boom that had poor business models and that failed in the dot com bust. These flash-in-the-pan programs do not and did not represent the industry at large, which has been stable and expanding, as noted in my previous message.

NBIA will soon publish a new book, a completely revised and expanded “Best Practices in Action: Guidelines for Implementing First Class Business Incubation Programs.” This book will cover a large number of domains (client services, client selection and graduation, finances, program evaluation, etc.) and provide nearly 120 examples and case studies of business incubation best practices. The best practices have been derived from 39 programs, and the high quality on display is frequently mind-boggling.

There is, of course, a wide range of quality in journalism, business incubation, education, and every other field of endeavor. To those who have experienced low-value business incubation, I offer my condolences. But it is also possible that there are surprisingly effective programs available to you. Entrepreneurs need to do due diligence about business incubators in the same way they need to do due diligence about other aspects of their company, their advisors, and potential funders.

This is accomplished by researching the program’s reputation; talking to current clients and the incubator’s graduate companies; determining who are the sponsors and their level of commitment; whether the program has a graduation policy; what kind and sophistication of services are offered; whether your company fits with the incubator’s mission (some are focused on specific industry clusters, for example); who are the incubator’s business advisors and what is their standing in the community; what are the fees for services (and is equity required); how successful are clients in obtaining financing necessary for company growth; and how successful graduates are over time. It’s true that entrepreneurs “don’t know what they don’t know,” but the first requirement of business success is the degree to which the entrepreneur is willing to research and understand his or her options.

Dinah Adkins Friday, March 5, 2010 at 3:44 PM PT

Dinah, Glad to know about the upcoming book. If you are interested, I offer Guest Columns to authors trying to promote books on relevant topics to publish guest columns on this blog. If you would like to access that opportunity, please email Melanie Blake [melanieb50@gmail.com] and she will set you up.
I think, the topic of best practices in business incubation with meaningful case studies would be of significant interest to the readers.

Sramana Mitra Friday, March 5, 2010 at 5:45 PM PT

Incubators do work but they must be more than a real estate entity offering executive suite services. Effective incubators provide business counseling and management assistance to their client firms. The value-added businesses services differentiate them from a office suite. Incubators offer network connections, access to capital, business planning and marketing assistance to their clients. In addition, incubators must evaluate the management capability of the start-up entrepreneurs and assist the company in finding management for these companies. In many cases and especially when the entrepreneur is a technologist lacking business and management skills, it is critical that the incubator assist the owner in finding management personnal that have the skills necessary to manage a successful entity and take it to the next level. Incubators have been very effective in taking start-up businesses to a level of success by providing a solid foundation upon which a business can be built and expanded. Charles D’Agostino, Executive Director of the Louisiana Business & Technology Center at Louisiana State University. The LBTC is in its 22 year and was named the NBIA’s 2005 Incubator of the Year and the 2009 Department of Commerce Excellence in Economic Development Award winner.

charles dagostino Friday, March 5, 2010 at 8:24 PM PT

If a local corner store or any business for that matter “failed” and went out of business
there would probably be a complex set of reasons for the failure. Some of those reasons
might be: poor location, lack of business management skills, poor promotion, low value
product or service offering, lack of passion, etc.

Similar to any business, the level of success of an incubator is certainly not a sure thing with
out a solid recipe of locatrion, management, high value services, etc.

Dan…

Dan MacDonald Saturday, March 6, 2010 at 3:30 AM PT

As a former VC at Bank One Equity Capital (now part of JPMorgan Chase & Co.) and as a co-founder of two successful, rapidly growing technology companies (one services and one products), I have had the opportunity to evaluate the business strategies of a number of incubators. The majority of incubators are designed to provide infrastructure and access to early stage capital, but fail because of a practical operational gap in the traditional incubator business model. Assuming an early stage company has strong, disruptive technology , their biggest challenge is to generate reference customers and revenues to validate their value proposition. For an incubator model to succeed, it needs to enable marketing and sales mentorship along with access to markets via established, branded channels such as systems integrators, software companies and ISPs.

Dave Coxe Saturday, March 6, 2010 at 12:28 PM PT

An incubator is used to process eggs in the right conditions and make chickens. In my opinion, this simple analogy was forgotten by the university incubators. These university incubators have beautiful buildings, are generally well-funded, and the incubated companies start spending money immediately and no one makes sure that they have the “eggs”. The “eggs” in this case are sound inventions that solve important technical or scientific issues for products providing new solutions to existing large markets or with the potential to develop new large markets. Obviously continuing the analogy, if an incubator does not have any “eggs” no chickens will come out. In order to succeed we need to develop generators of “eggs” before the incubation stage.

Zvi Yaniv Monday, March 8, 2010 at 8:42 AM PT

I can speak to my experience in New York City’s first incubator (see NPR coverage at: http://marketplace.publicradio.org/display/web/2010/02/05/mm-calhoun/) as a positive experience. Perhaps most importantly, the 160 Varick Street incubator offers an affordable place to establish roots for start-ups, creating legitimacy, routine and access for our emerging companies. The camaraderie helps to solve issues, celebrate victories and moderate setbacks. Administered by NYU/Poly, the incubator leadership keeps us on-track, and provides access to City resources. At a higher level, it offers New York City the possibility of diversifying its industry and augmenting employment growth, as 65% of new jobs emanate from small business less than 5 years old. All at a very affordable cost to the City.

Joel Monday, March 8, 2010 at 9:01 AM PT

Having read through various comments posted already, I want to underscore the fact that a business incubator – like any business – will fail if it is not grounded in reality.

If a business is to be successful and excel, it must integrate five major areas:

Product – There needs to be a clear understanding of the product that will be sold — and the associated production costs.
Customers – Identifying the customer base and their numbers, and more importantly their value proposition. What are these customers willing to pay for the product the business will be offering?
Distribution – Identifying the product distribution sources that will help maximize efficiency and costs – and acceptable avenues of excellent customer service.
Plant and People Efficiency – Establishing types and quantities of equipment as well as employees the business would need to maintain an effectively lean operation.
Organizational Structure – Recognizing the number of employees and areas of expertise needed to ensure business efficiency

In summary, if the business incubator can provide the means for a business to have a solid business plan that can be integrated and easily presented to potential investors — as well as to the organization itself –then the incubator can help drive the success of a business..

Dianne Durkin

President and founder, Loyalty Factor, a specialized training and consulting firm specializing in building employee, customer and brand loyalty

Dianne Durkin Tuesday, March 9, 2010 at 12:56 PM PT

I am not familiar with the markets and incubators of the country being discussed. I am someone who dreams of incubating entrepreneurs of a certain kind in my part of the world and have experimented with such efforts for a long time. I read these posts with great interest and thank you for the opportunity to learn from so many people.
I am puzzled by this. Neither the blog or the posts mention one role of the incubator that to me is a key. Call it the mind/ attitude / behavior/ psychology whatever, but isn’t that what needs the most support during incubation? Afterall you are not incubating eggs that need mere warmth, moisture and periodical turning. We are delaing with human minds and what is good incubation that does not coach / train or re-engineer this mind to become successful?

Gunasekar Friday, March 12, 2010 at 4:50 AM PT

I have been involved ‘hands on’ with 5 leading teaching and R&D institutions in India in establishing incubators. I have also been an Associate Network Partner of the EU in a project for 4 years to design guidelines for establishing incubators.
In addition I have been invited to give talks on’ Building Enterprises at leading US and European Universities from 2007 onwards.
The question you have posed have multiple dimensions and cannot be answered in a comment form. It needs to be structured in its multiple segments. I am sure you understand what I AM REFERRING TO.
Let me also say that very few institutions in the US are successfully running incubators. Having said that its equally relevant to mention that MIT happens to be the leader worldwide.

Arindam Dutta Saturday, March 13, 2010 at 9:00 AM PT

Many incubators are located within Universities. These incubators are often run by entrenched academics that have no experience with starting a business. The metrics for success may have more to do with renting out space then launching successful businesses. It is no wonder that these incubators have a terrible track record with launching successful start-ups.

To succeed an incubator should at least:
1) Be managed by an entrepreneur or the manager should consult successful entrepreneurs – not venture capitalists – not angel investors.

and

2) Develop a network of successful entrepreneurs, venture capitalists, angel investors, and academics to assist a fledgling start-up with all aspects of launching a start-up from opportunity recognition to financial analysis to market planning to fund raising.

- Remy

Remy Arteaga Monday, March 15, 2010 at 7:19 AM PT

Failure and success are subjective absent quantitative or comparative measures. I have yet to see an incubator provide full disclosure of the firms it has birthed, or another economic measure (jobs, revenue, IPOs, etc.) on which to evaluate its success. It is duly noted that many in this discussion feel that awards and public recognition are sufficient measures for the success of their incubators. I respectfully disagree. If the whole process is to be effective on massive scale, as Sramana suggests, then the measure must be related to how well the spawned companies of the incubator have fared in the market 2-5 years down the road. This information is sorely lacking, even here.

Also, it is interesting that startups don’t really get to choose their incubators from a competitive offering. There appears to be a few incubators in each geographic region who are happy to have waiting lists. Perhaps we need more competition between incubators to weed out the ineffective ones.

My guess is that the secret sauce will be the management and the human leadership skills driving the incubator. It’s an open question how this could be measured or compared.

AgentG2 Thursday, March 18, 2010 at 11:42 PM PT

We are a non profit helping women and men start businesses and help them to the next level by providing counseling with our pros and the hundreds of groups that help entrepreneurs. We send our entrepreneurs to those organizations that can help them with their specific needs. We have attracted over 2000 clients in 3.5 years. What the entrepreneurs who fail lack, in my opinion, is a “saleable” business idea, one that brings in revenues. The other limitation that some entrepreneurs have, and more important, is their own determination and drive. It’s a 24/7 world for many years and entrepreneurs often think they are going to have instant success. It’s the “Build it and they will come” syndrone.

To help our entrepreneurs we are hoping to raise funds to start a pilot program which offers mentors for our entreprenuers to help increase their survival/success rate. Having someone with experience can keep an entrepreneur on track. Our plan is to measure the outcome of these collaborations and replicate the program with our partner organizations.

(Fabianne Gershon, Director, The Thypin Oltchick Institute for Entrepreneurship@FEGS)
http://www.fegs.org (largest health and human services agency in U.S.)

Fabianne Gershon Monday, March 22, 2010 at 9:02 AM PT

[...] Mitra has another interesting discussion on entrepreneurship going on in her often excellent blog – but it starts from an [...]

Test Blog 4 » Business Incubators Don’t Need To Fail Tuesday, March 30, 2010 at 12:00 PM PT

Underfunded clients!

The businesses being incubated don't receive proper funding. Which is the same reason most businesses fail.

Rich Saturday, November 19, 2011 at 8:30 AM PT
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