Sunday, January 18, 2009

Top 5 Reasons why Tech Incubators Fail


I have read a lot of articles and reports about how Incubators help local economies and drive innovation - but I rarely come across anyone talking about why they fail. We have been running a "quasi" incubator for 6 years and so I thought I would share some of our thoughts from our experience.

1. People. I would say that the people running the incubator is the most critical element. I visit incubators where they are managed by an administrator or college professor - and they struggle to find ways to relate to entrepreneurs in the incubator. Also, there needs to be some level of respect between the management of the incubator and the tenants - they need to feel like the people helping them have 'been there and done that'.

2. Lack of Services. Many incubators feel their primary value is giving real estate, Internet access and a printer. This of course makes no sense. Why does this help anyone start a successful company? Sure, it may help keep costs low - but many entrepreneurs (especially successful ones who have had ventures in the past) can work from home or knows someone with a little extra office space. The key to incubation is providing high-value services like technology development, operations, sales and marketing and even temp-management.

3. Location. The location of the incubator matters because it is supposed to draw in a variety of people (investors, service providers, entrepreneurs, etc). Sometimes they put an incubator in an area way outside town that needs economic impact - but is not convenient for people to visit, and entrepreneurs don't really want to be in the middle of nowhere. Entrepreneurs want to be near the action, in a vibrant location where they can connect with other people easily. Downtown locations in my opinion are the best locations. Of course most incubators are located in a University because its convenient for students - but if you are doing an incubator to attract entrepreneurs who are not in college - a city location is a must. Any other location, will drastically reduce the value.

4. Funding. Incubators can help with a lot of aspects of starting a company, but the most important need in many cases is funding. Obviously most incubators are not set up to write an investment check, but it should have relationships with local investors and venture capitalists. It also should be able to help refine the business plan and make sure it is ready to present to investors (go back to #1 People). If there is no link to funding, incubators have a hard time creating sustainable businesses.

5. Politics. This may be the killer for a lot of incubators (typically before they even get started). Since most incubators are tied somehow into public funding (usually a University, City or County) there is always politics in play. Politics can play a role in who runs the incubator, where it is and how its managed. These decisions can be made to please the powers that be, but can completely ignore the needs of the entrepreneur.

In summary, I think an incubator is actually a lot like a startup itself. It needs good management, good product and good execution. And for the most part - Incubators succeed because they address the needs of the entrepreneur. This is what is sometimes lost in the discussion.


2 comments:

irina said...

Great thought, Also, Here is our take on why incubators fail: http://www.sramanamitra.com/2010/03/18/entrepreneurship-education-incubator-business-models/

We would love to cooperate with Startup Florida, Rich. Here is what we do. We are a Silicon Valley-based initiative for startup education. You can reach me at 786-301-2456 (irina) Our interest is helping to build startup ecosystems in different regions, I work with Florida because I am based in Miami, FL.

For example, if you could refer some startups to us, even those that Startup Florida rejected for angel investing, we could try and mentor them through our Silicon Valley support system, it is free for them and online.

Here are some recordings of our mentoring sessions http://bit.ly/b7Rv9Z

Maybe we can help them to fix their biz strategies to a point where some Sarasota angels could invest in them.

Our goal is to teach Silicon Valley’s best practices to entrepreneurs so they avoid common mistakes and improve their chances of success. The businesses don't have to be tech.

As we work together, we can profile Sarasota successful startups, revenues >1million, on http://sramanamitra.com Silicon Valley blog. The blog is monitored by VCs, investment bankers, and corporate development groups working on acquisitions.

Looking forward to hearing from you. Best -- Irina

Bill Van Eron said...

Hi Rich, Irina,
Good to hear others are trying to make a difference and improve how incubators serve entrepreneurs. I liked your list as a start. Allow me to add my own observations as one who served as a senior marketing adviser in a local Colorado incubator for seven years. Also, Irina if this is interesting to you as I suspect it should be, feel free to give me a call.

I have to start with a brief statement that I have tons of backup data about. We are in a time of flux and while most incubators provide traditional and needed business advice, few if any are modeled to provide the input that now defines those that fail or thrive. Creativity in business is the number 1 skill needed to adapt and adapting is mission #1.

As the lone person in a field of 80 senior and successful business advisers that has a deep creative business background - marketing, positioning, game changing strategies, PR, brand, and more - it became clear that the traditional work had to happen first but the hand offs to more visionary, creative problem solving rarely happened. If you read Dan Pink and Brian Solis, you will get where I am coming from but most of our advisers and many others hail from dominant Type A left brained environments where control was number 1. I can and should discuss this in greater detail but suffice to say, there is a huge gap. I also looked at the ratios as an incubator can help up to 30 or so entrepreneurs a year. Maybe about 5 succeed. I interviewed 8 incubators among two more progressive ones - MIT's Startup Boulevard, and Starticus in the UK and most were complacent with old methods. Also the core advisers were not getting any income yet administration was making great income and as you said Rich "as a landlord" and facilitating traditional help. Too many entrepreneurs also felt they were doing the investor dance and that was unproductive so I figured out a way to make it smart and nationwide. I also figured a way to keep the costs low while rewarding productive advisers. As a proven systems thinker and problem solver I defined an online support system. I may try to sell it to an Inc or a Google or Entrepreneur.com but had hoped to find others I can share this with who get it. Colorado did a lot of chest beating about the criticality of innovation yet the answers are shallow. NY and California put the money where their mouths are yet still need a better answer. If you guys are interested, I am open and have been staying on top of this area and education. We also have a system to help that if we get funded. I do creative marketing and business development. Am launching a more genuine marketing approach now that it will finally have a chance to go mainstream after years of spin, intrusion and erosion of trust have lowered the regard for marketing in general. Education and entrepreneurs are my passion. My email is bill@hw2o.com and my phone is 970-221-0751. Love to chat. Bill Van Eron