How to run a local incubator
This is a practical how-to guide for anyone wishing to manage a local business incubator well, compiling best practices from 15+years of experience in the field. It includes everything from creating a program of activities, to nurturing a community as well as the boring logistical details and a budget. It is meant as a suggestion for a cheap and effective way a local incubator can be set up successfully.
Over the last two decades, every local community around the world wanted to have its’ own Silicon Valley, a place where talented (young) people would come, get inspired and launch businesses that would create jobs, wealth for the local population and create a better world. Many millions of euros/dollars, mostly from the taxpayer, have been committed into these initiatives, especially in the developing regions, but the results vary. Some have been very successful, but sadly, the vast majority, are not achieving the desired effects.
In this guide, I am hoping to present a case for what makes a local business incubator effective and a playbook of activities that should be implemented in any incubator wishing to be successful: to help nurture a new generation of entrepreneurs, to support those just starting out, and to create a community where innovation can (and does) happen.
Motivations behind a business incubator in a local region
The case for a business incubator is clear. Nobody will disagree with having one somewhere nearby. There is a building in need of repair and it would look great to have a shiny incubator with hi-tech business, the unemployment rate is high, maybe a lot of educated people are moving away to the big cities, high growth startups are attractive and besides, everyone else is doing it. On top of that, there is EU funding easily available and local elections are coming up. Starting an incubator is really good optics and good politics. So nowadays, pretty much every town has one.
All of these motivations are correct, of course… but we need to look a bit deeper and take a more critical approach, otherwise we are doomed to spending a lot of money for little results.
The first thing to consider is what is the realistic goal for the business incubator in your region. It cannot fix all the problems with unemployment and lack of development, but it can be a launchpad for a few dozen new businesses every year. It might just offer very affordable office space for rent. It might be a hub of innovation for a particular field (wine production, metallurgy, etc.). Or be a way for students to try out micro businesses and maybe spin out startups from ideas in research labs of the university. Maybe it can help struggling artists learn basic business skills to be able to freelance and make a living. But probably, it cannot do everything from the list above. It is much better to only focus on one area and do that well.
Most local incubators decide to focus on helping early stage small businesses, which might be food and agriculture-focused in more rural areas, which makes sense.
What are the essential things an incubator must provide
Just dedicating a couple of offices for a business incubator and declaring the imminent coming of high-tech, venture-backed international high-growth startups isn’t going to work. Shiny buildings are really nice to have, but the incubator succeeds or dies by the quality of the program offered to entrepreneurs. After you know what you want to achieve in your incubator, focus on creating a well thought-out plan of activities.
At a bare minimum, an incubator must provide the following:
general business education (workshops where people can learn what steps to take to start a company)
mentorship and connections (an opportunity to reach out to people willing to share advice and open doors to potential customers/partners)
a community of entrepreneurs (meetups, events, happy hours or anything else that facilitates entrepreneurs to meet and befriend each other)
More details on how to achieve this in an effective way are provided below . For now understand that any activities apart from these bare essentials should only be considered if these basics are covered. If budget is an issue (it almost always is), those three should be prioritised above all else. In particular, do not spend money on expensive facilities, fancy office furniture or hi-tech gadgets. In fact, there are many very successful incubators that never owned their own space and took up whatever empty building available, simply moving whatever little furniture they have to a new location when they were forced to relocate. Any temporarily vacated office or building with an internet connection is completely enough for an incubator to operate in.
An incubator is also usually a place where entrepreneurs can rent desks or offices for their young companies. In my opinion, these are getting less important as most early-stage businesses are now started from home on a laptop. Offices are mostly needed when a team urgently needs a place to work together and cannot afford the market rate rent. Offices in an incubator should be basic and cheap. Joking only a tiny bit - I love it when the chairs in the incubators are uncomfortable and squeak. This motivates entrepreneurs to grow their revenues quicker so they can afford their own comfortable office as soon as possible, thus speeding up their progress and vacating incubator space for the next team sooner.
Do not think specialised facilities or investment in hardware is necessary for a good incubator. This is not true. A motivated entrepreneur will always find a way to persuade someone to let them use a 3D printer, so there is no need to purchase one for the rare occasions it might be needed. Finding a supportive community on the other hand is much harder - so funding a good support program for local entrepreneurs is always a much better investment.
Additionally, many incubators offer some additional things, which are nice to have, but are not essential:
access to free/cheap/discounted services at the start of the business life (legal, accounting, incorporation, social media marketing…)
awards from business competitions (annual contest to award a few thousand euro/dollars for startup capital, etc…)
ability to introduce entrepreneurs to funding opportunities (a friendly angel investor who is able to meet with them, a person good at writing EU grants…)
For most of these, having informal connections to people you can call should be more than enough. More on this later.
Understand there are three types of future entrepreneurs that need completely different support
In the context of running a business incubator, entrepreneurs should be split in three categories, and treated accordingly. These are:
People starting a small business because of a need
Imagine someone who worked as a teacher in a local school and has been laid off. They might decide to pursue their own freelance tutoring business as a way to make ends meet. They would prefer to be employed, but have no good alternative to self-employment. For those kinds of entrepreneurs, the incubator must be a safe space where they can learn everything necessary to manage their small business - how to legally incorporate, how to invoice clients, best practices in finding and keeping customers, personal promotion and financial management. It is not a good idea to ask them to think about their scaling plan and creating investment pitches, it is a distraction and demotivating. The mentorship intervention for them should be simple and down to earth - looking for ways to find enough clients to survive as soon as possible, and providing support because times will be tough for a while. Mentors should be there to provide accountability and help them be as proactive as possible in sales (which will be their biggest challenge).
People starting a business because of a vision (might be called potential startup founders)
Imagine someone who is an expert in their field and came up with a unique solution to a problem they had in their job. They were thinking about this for many months and are now considering turning that into a product and offering it to other potential customers. Or imagine a local farmer that sold generic dairy products to a farmers collective and now wishes to earn more by creating a brand of premium local cheeses and selling it to the end customer directly. For those kinds of entrepreneurs, the incubator must provide the basic business education on how to test if a business idea is viable on the market and then to guide them as they quickly prototype it into an early product. After that, the incubator must provide them the support and mentorship to develop it as best as possible and set up a successful business model. Often times, after the first validation phase, these entrepreneurs will rely on the network of the incubator for finding cofounders, contractors, partners, resellers and funders. The mentorship intervention for them should focus on creating an ambitious vision, grounded in an achievable timeline, then supporting them with introductions to the right people. Mentors should be very critical about their early business ideas and challenge entrepreneurs to iterate until they are absolutely sure they are on to something and generally be warning them of potential mistakes.
Youth/students testing things out that want to learn how a business is started
Imagine a curious student or young person who is not really sure what to do in their future career, but has heard about business and considers trying it. For those people, the incubator should offer a sandbox where they can learn about the methodology behind starting a small business and can actually try it out for themselves. Typically, incubators who engage with young, potential entrepreneurs, do this by organising school entrepreneurship courses, hackathons, startup weekends or similar events where it is fun and risk-free to try something out. The mentorship intervention for them should focus on the fun of it and skill transfer. It is absolutely not important what business idea they choose to test-drive so mentors should just ask them to try as many ideas, even stupid ones. Mentors should generally be optimists and talk about possibilities and opportunities. It should not be expected these ideas will survive more than a few months, but instead that entrepreneurs will learn so much, and get motivated to try again later with a more serious idea.
Additionally, be mindful not to confuse a startup with a small business. A 55-year old lady doing embroidery and selling it as a hobby on Instagram is not a startup, even if she is highly ambitious. A startup is a business that has potential for exponential growth, usually relying on some novel insight, technology or innovation. There are thousands of books and open source methodologies on how to start a startup, which are great - but are not useful for someone whose only ambition is to earn a few thousand euros a month with their skills. Thoughtlessly using the startup methodology from Silicon Valley for such small businesses will not be effective.
So, how to make the best possible support system for entrepreneurs in a business incubator?
The program of a local business incubator
It is easy to think that just offering as many workshops as possible will have an effect, but that is not completely true. The journey of an entrepreneur from just thinking about maybe starting something to running a profitable company follows a series of phases and the support program should reflect that. Support activities should be organised through the year in a series of interventions aimed at guiding the entrepreneurs through all the steps necessary for success. This should be imagined as a funnel, with a lot of potential entrepreneurs on the top, getting basic information and advice on starting out, followed by more concrete instruction on testing and developing their idea, so some of these people can decide to commit to an entrepreneurial journey, and finally to the newly established businesses getting individual mentorship support for growing their small companies. All activities should link to one another. After every workshop or seminar, participants should be invited to the next activity in sequence - with the expectation that after completing all of them, they will be able to survive on the market on their own.
Best practice shows there are a number of interventions that should be done periodically over the course of a single year. Here is a rundown of educational activities that should be offered in an incubator setting:
Monthly or bi-monthly seminar on how businesses start (for the general intake of new entrepreneurs)
The local incubator must have regular introduction seminars where the local community can come and learn the basics about being an entrepreneur, as well as an overview of what the incubator offers. There are two purposes to this. Firstly, people who were not exposed to the business world yet should be given an overview on what entrepreneurship is so they can decide if this is for them, and hopefully, get motivated to try it out for themselves. Secondly, this is an opportunity for the incubator to sell itself to the local population. Such a seminar is often called a “motivational workshop” with the explicit aim to bring more people in the incubator. It typically lasts less than an hour and is delivered by the most engaging mentor in the incubator, or an established local entrepreneur. It should be followed up by an informal meet and greet where participants are given the chance to individually talk to the incubator team/facilitator and the organiser should gather the contacts of all participants to invite them to future events. These events should be occasionally held at local schools, universities, etc. The goal of this should be to reach as many people in the community as possible, and to search for new potential entrepreneurs.
This is the main recruiting activity of the incubator and should be done about once a month and promoted heavily. It is far better to spend money on advertising and/or social media promotion to promote this seminar than to buy general ads about the incubator. It is a great idea to hold these seminars together with the community meet-ups (see below). This will give a chance to anyone interested in joining the incubator to meet the team and also interact with the existing community.Periodic business crash course/academy (to teach the basic steps on how to start a business for those willing to try)
One of the biggest challenges for future entrepreneurs is that they do not know what to do to start a business. Conventional wisdom will often lead them astray as they will think they must spend a lot of money to develop a really good product, then after everything is done, spend even more money to start selling it. This usually results in them trying to sell something nobody wants, and wasting a lot of time doing things like designing business cards, getting legal advice for incorporation and dealing with problems that will not be important until they actually become sustainable companies.They should be taught the basics of quick product testing by talking to potential customers immediately, then guided as they test their product until they know their business idea works. The job of the incubator is to help the entrepreneurs by offering a regular “crash course” or “business academy” for beginners which teaches them the basics of entering the market so they are able to develop their product or service and start selling. This should be a fully practical workshop lasting for a few weeks or even a month where entrepreneurs are encouraged to try their business out for real by trying to secure a preorder or a first sale. This workshop should be delivered by an experienced entrepreneur. It is often best to hire an outside speaker, a professor at a university, an investor at a venture fund or a proven facilitator.
This should be the flagship program of any local incubator, offered a few times a year - whenever there is enough prospective entrepreneurs to form a good group. The course should cover the basic steps from the initial business idea to testing it on the market, finding early customers and creating a sustainable (small) business. An example of this type of workshop is available here.
While it is tempting to create a “pre acceleration” program lasting a few months that includes other content like digital marketing, legal, fundraising and other topics, this should be avoided. Entrepreneurs at such early stages are very new to things and will be uncritical to the content provided - and if they see 20% of the course is dedicated to fundraising or legal for example, they will think they must spend 20% of their time fundraising or writing up legal documents. This will be to the detriment of what is really important at the earliest of early stages for a business, to find new customers, make sales and create a sustainable business. Such topics are better suited for regular community events (described below) and the main general business workshop should only focus on the foundational knowledge.
Ideally, every incubated entrepreneur should complete this business academy before entering the incubator (either as a member or renting a space in the incubator). It should be the default practice of the team running the local incubator to invite prospective entrepreneurs who reach out to the incubator with a request for help to sign them up for the upcoming batch of this workshop. After the entrepreneurs graduate from this course, they should be invited to join community events, receive notifications of future seminars that might be relevant to them, compete at business competitions for funding and be given a chance to tap into the mentor network of the local incubator.
It should be noted that this course should be joined by the managing team of the incubator as it offers the best possible insight into the entrepreneurs and their business prospects. Knowing the needs of the local entrepreneurs will allow the team to be much more effective in helping them.Regular community events (meet-ups, fireside chats with entrepreneurs, happy hours, business breakfasts, etc. to maintain a community)
Every experienced business incubator manager will tell you that the most important thing for a successful operation of an incubator is a healthy community of entrepreneurs. If it is not fun to visit the incubator, people will not come. If the community is vibrant and friendly, it will attract new members. If the entrepreneurs establish connections and become friends, they will encourage each other and persevere longer, even if chances of failure are high. So when it comes to community events the most important thing to understand is that making the events pleasant is more important than what the events are. Of course, a local incubator will consider setting up a speaker series, or a regular happy hour, perhaps a business breakfast where a specially chosen speaker will come, but equal time should be dedicated to thinking how to make these events fun and exciting.
If the incubator has a venue to do this in-house, that is great. But it is often better to do such events at a local pub than to hire a conference room. There should always be time dedicated for the informal meet and greet after the speaker is done. This is the time when entrepreneurs will freely discuss what they are working on and random connections will be made.
The other thing to consider is that such events should be regular. Most often, incubators decide for monthly events. It makes sense to have speakers come or even to conduct workshops on specialist topics (like the aforementioned fundraising talk by an investor, or a lecture by a business lawyer), but it is completely okay to have events without a formal program and just organise a community happy hour. It is also a very smart decision to send an email invitation to these events to all past speakers, the entire mentor pool and the local business community. Not everyone will show up every time, but some will. It might take a while for the community to form, but if done regularly, after a few months, the results will pay off in many unexpected ways.Annual showcase or presentation (to provide an opportunity to celebrate the graduation of those who finish the program and a forum to connect with the broader business community)
The last part of the programming in a local business incubator is an annual showcase or a presentation of the businesses active in the incubator. Often times, this will be in the form of a small business pitch competition where the local community will give prizes to the most promising teams. This is an important part of the incubator program, and not just for the PR value and the chance to show the financial backers the results. If done right, competitions or showcases like these are a great opportunity for the entrepreneurs to connect with key partners or future customers.
Like with the community events, the actual pitch contest, if it exists, is the least important part. All the entrepreneurs in an incubator should take full advantage of the opportunity to speak on stage and present their company to local movers and shakers. The goal of this event is not to simulate an investor pitch and pretend the tiny companies in an incubator are investable and ask for angel funding. They will not get it. Instead, such an event will not be hard to promote to the Mayor, the big company owners in the region, the important decision makers, local entrepreneurs, and many other influential people in the community - and the incubator must make sure they are all there. The entrepreneurs should make a presentation to explain what they do and what kinds of customers or other help they are seeking, and they will probably find people in the audience who will approach them. Many good incubators know this and ask their entrepreneurs who to invite.
As a final note, announcing this showcase several months in advance is a great way to create an artificial deadline for entrepreneurs starting out - they will be motivated to show some kind of result on stage and will work harder because of it.
All of these activities must be systematic and feed into one another. Encouraging entrepreneurship is very similar to creating a talent pool for professional sport. If we want to have an olympic champion, there will need to be many local clubs where kids can train the sport, and a bunch of regional, amateur, semi-professional and elite national competitions to find and nurture the best talent. The sports terminology would call this a talent pyramid. The business incubator should follow the same principle. A lot of people should take part in the easygoing motivational workshops, and a smaller number then go on to the more serious business academy. Those who complete it and wish to pursue business more seriously, can be given additional support by the incubator - mentorship, office space, etc.
How to organise mentorship in a business incubator
Maintaining a pool of mentors is one of the most important activities for a business incubator. They are able to help entrepreneurs by sharing practical advice, discussing and solving potential problems and making useful connections. An incubator should strive to have a wide pool of mentors from the local community who are willing to help early stage entrepreneurs.
Setting up a mentorship pool is easier than one might think. Fortunately, businesspeople and entrepreneurs are usually very happy to pass their knowledge on to the next generation and many see this as their responsibility. Most businesspeople will therefore be more than happy to join - as long as they have the time and you do not make it too much of a hassle or demand too much.
It is best to keep these mentorship relationships informal, without contracts or discussions about how many hours per month they will dedicate to the incubator. Asking mentors to be available for a set amount of time on a regular basis is much more difficult than asking them to be willing to talk to an entrepreneur over the phone or meet with them when needed. Also, a business incubator should not pay mentors. This sets a bad tone to the relationship and attracts the wrong type of mentor.
There are two types of mentors a local business incubator needs:
Business generalists willing to spend time with entrepreneurs starting out
Every business incubator should have 4-5 experienced entrepreneurs who are capable of having a critical discussion about a new business idea with an entrepreneur, both supporting them when they brainstorm how to make an idea work, as well as taking the role of an experienced colleague and reminding them of possible pitfalls. Their main job is to be available to the entrepreneurs for any kind of general, strategic advice, visit the incubator on occasion, join the community events, and be responsive via email when entrepreneurs have a question for them. Typically, they will meet with the entrepreneurs more than once, establishing a friendly relationship.
The organiser of the incubator should spend a lot of time finding these people and establishing a personal relationship. The best type of person for this role is either an entrepreneur who has recently retired or a business owner with great interpersonal skills willing to interact with other entrepreneurs and talk about their business ideas. Ideally, that is a person who likes to “talk shop” in their spare time and genuinely considers talking to young entrepreneurs as a hobby, not a work responsibility. They should be asked to drop by the incubator regularly as guests at community events. They should be considered the most important people in the community and acknowledged and thanked for their time at events.Experts in certain topics willing to help pro bono when needed
The second category of mentors are domain experts. Think social media managers, digital marketers, lawyers, accountants, branding experts and the like. For these, an incubator must create a long list covering all the domains that touch upon the early business life of entrepreneurs. The agreement with these is to be available to take calls from the entrepreneurs or the incubator and be open to an hour-long pro bono consultation when an entrepreneur needs advice. It should not be expected these mentorship relationships will go much deeper than that. They should expect to gain value by having a source of future clients out of the incubator. Also, the incubator can work with them to organise workshops (free or paid) that can serve them for promotion and customer acquisition.
The organiser of the incubator should look for local companies offering these services then reach out with a request to be available. Again, most will say yes because it makes sense to them and it should be relatively easy to bring them on board.
Avoid engaging mentors who do not have personal business experience. It is not possible to offer good business advice unless you are a company founder yourself. People who work for chambers of commerce, in entrepreneurship agencies, consultants, middle managers, accountants or lawyers who do not have any other business experience or haven’t started some other company, are usually not good mentors, even though they can often be the most eager to help out.
How to find and recruit mentors
To find mentors, start by looking at members of other business organisations like trade associations and chambers of commerce. Then make a list of well known good businesses and existing entrepreneurs in the region. This is useful in any case as it makes sense to invite these people to events in the incubator. Aim for about 50 names. For a small incubator dealing with 20-30 entrepreneurs, 4-5 generalist mentors should be more than enough. So email and call every name on the list and ask them for help with the entrepreneurs in the incubator. Tell them you will make sure the mentorship relationships will be stimulating and that you will make sure you respect their time. The ask for them should be to come to an event and get introduced to the working of the incubator, and then ask if they would be willing to sit down with an entrepreneur sometime in the future if needed. Discuss with them what kinds of businesses they are interested in mentoring and what expertise is needed. You should have no problem selecting five good mentors with real business advice, and you will probably get a mix of people from various sectors. Connect them with the entrepreneur only when the latter explicitly needs mentorship support. Let that connection be the start of a more “formal” relationship. If all works well, you can then discuss with the mentor if they are willing to repeat it.
The key to having a good mentor pool and motivated mentors is preparing the entrepreneurs for a good mentorship relationship. This is done by teaching the entrepreneurs some rules for working with the mentor. These are discussed individually before making the intro, as well as including this topic in the intro seminars and the business academy. The advice is relatively straightforward:
the entrepreneurs are in the driver’s seat of the relationship. This means they will reach out to the mentor with questions, be proactive with asking for help, follow up and follow through
the entrepreneurs will be respectful of the mentor’s time. This means they will be prepared for the mentor sessions with questions and will try to take advantage of the expertise the mentor that cannot be googled or found elsewhere, and that they will take the advice seriously
the entrepreneurs will say thank you. There is an expectation of treating the mentor well, so that they have a great experience, which is important for all the entrepreneurs in the community because a happy mentor will gladly help other entrepreneurs as well.
Apart from that, it makes sense for the incubator to establish ties with other key actors in the entrepreneurial ecosystem. There do not need to be any formal agreements, but it is certainly necessary for the leadership of the incubator to personally know the representatives of other business organisations in the community, neighbouring incubator, the national entrepreneurship agency, the local conference organiser, the local angel investors, as well as most prominent businesses and startups in the region. They should be invited to the incubator’s events. The goal here is not to have them become regular visitors, but just to know the team at the incubator and be willing to pick up the phone when they call. They should be open to meet with the entrepreneurs in the incubator if asked, or to make introductions on their behalf. That is more than enough.
Do not make this process bureaucratic. Do not use any applications, instead have the entrepreneurs arrange everything with the mentors the “old fashioned way.” Mentors hate busywork nor is it their job to submit reports or deal with another tech platform. Their time is valuable, so it should be 100% spent on mentoring. If there needs to be a report for mentor relationships for any reason, it is the responsibility of the entrepreneur to prepare it. Having the mentors to sign contracts, monitor hours or submit reports is the most sure-fire way to lose them.
After a while, committed mentors can become indispensable parts of the incubator team. There are numerous examples of mentors taking on more responsibility in incubators or bringing in new mentors. This is why it is important to manage the mentor relationships, talk to them on a regular basis, invite them to a thank you dinner every so often, send them gifts or similar. If done right, a local incubator should have no problems with mentors.
How to be a good mentor
It makes sense to have some guidelines on being a good mentor, which can be emailed to every mentor that is going to be introduced to an entrepreneur from the incubator. Also, the team running the local incubator will be in constant contact with the entrepreneurs and because of this they will be pulled into the mentorship role as well. So here are the basic principles that underpin a fruitful mentor relationship:
The mentor should be responsible with their advice. The mentor is experienced in the process of starting a business, because they have done it before. The entrepreneur, on the other hand is the domain expert and knows the product or service they are offering, and the market they are operating in. It is the job of the mentor to defer to the entrepreneur about technical matters, but it is the job of the entrepreneur to defer to the mentor about the steps needed to market a product. The mentor should exercise judgment and constraint with advice.
The mentor should do everything for the entrepreneurs, but noting instead of them. It is excellent if the mentor is willing to brainstorm with the entrepreneurs, even to co-create things, but it should never be expected for them to do anything instead of the entrepreneur. They should encourage entrepreneurs, but not be the parent who makes sure something was done right. It is also completely right and proper for the mentor to tell the entrepreneur that what they are asking the mentor to do can be done by themselves.
The mentor should also support the entrepreneur on a personal level. This does not mean becoming a therapist, but because novice entrepreneurs are doing something for the first time, they do not need only advice, but also encouragement and confidence. The mentor should take time to explain that business is hard and that getting early customers takes a long time, and that things go wrong along the way. Often times, because of their business experience, mentors can and should tell the entrepreneurs that it will all be okay.
The mentor should never have a personal agenda of any kind. They should be there to help and convey knowledge, taking the role of the supporter and not the decision maker. They should take the time to understand the motivations of the entrepreneur and help them achieve that.
The mentor should be willing to make introductions and connections. They should open doors within the local business community and help the new entrepreneur establish the necessary professional connections for future success.
For mentors who work with entrepreneurs for longer periods of time, which is particularly true for the team in the incubator, it is useful to consider the mentor is always wearing four hats, and is always jumping between them:
Teacher: the mentor knows things in business that the entrepreneur does not and they are able to point the entrepreneurs in the right direction in most business situations. This can range anywhere from how to pick a good accountant to what is the best platform to run ads on.
Coach: the mentor should hold the entrepreneur accountable and encourage them to execute and meet deadlines. This can be a good-hearted discussion over a drink to commit to a new idea, to a more stern talking about meeting deadlines and having discipline.
Older brother/sister: often times, things will be hard and scary. In some cases, it is the role of the mentor to provide the confidence the entrepreneur does not have. Someone to tell them everything will be okay, or to let them know that they will be on their side if it looks like someone is trying to take advantage of them.
Friend: lastly, the mentor should also be the person to buy a beer to celebrate a success, or comfort the entrepreneur when something did not work.
It is beyond the scope of this piece to discuss this in more detail, but it should suffice for everyone working in an incubator to be mindful that all four are needed within the core community in the incubator for the support system to work. Missing any one of these within the incubator community, the entrepreneurs will be far less successful.
What should be taught in an incubator
There are two things an incubator must strive to teach to its’ community. First, the general steps to start a business (testing the idea, the iterative approach, user testing through prototypes), and second, the specialised skills and topics that deal with particular elements of a business (setting up a website, running ads…). Sadly, when it comes to this, most incubators focus too much on the latter and ignore the former.
It is really easy for an incubator to prepare a very full program with all kinds of seminars like TikTok marketing, preparing a term sheet, using no-code to build applications, and of course all the buzz word seminars like how to make money with A.I. and crypto. While it is okay to have a variety of speakers and content for the community events, the organisers should really stick to the basics and try to only offer seminars that are directly necessary for the current batch of entrepreneurs. If there are a lot of entrepreneurs trying to sell their local produce to supermarket chains, it makes total sense to set up a course on B2B sales and invite a purchasing officer to talk to them, but trying to do a seminar just because it is currently trendy might be risky because it can lead entrepreneurs astray, and certainly won’t have the desired effect. The golden rule should be to always wait for a clear need for a particular topic before jumping ahead and dedicating resources to it.
In broader terms, the educational goals within a local business incubator should be to teach the entrepreneurs the value of an iterative approach and trying to get out of the building and in front of customers as soon as possible. Teaching sales, and the general sales-oriented mindset is therefore always a good idea. Be mindful that everything you wish to teach can be obtained online, so the “softer” skillsets are more useful. A workshop on skills like goal setting and time management might have a bigger impact than, say, a how-to guide for a task management tool like Asana.
Similar to this, the local business incubator should avoid topics that are not relevant to very-early-stage companies. Two examples for this are international scaling and raising venture investment. While there is a need to learn both of these subjects at some point in the journey of a large company, the tiny businesses within a local incubator are certainly not there yet. Thinking wistfully about what might be and focusing time and energy on strategising about a global expansion or preparing an investor deck if you are a freelance jewellery maker only takes time and energy away from finding new clients. It will have a direct negative effect because it will slow down company growth and distract the founders. If there are not enough actual startups with growth potential in an incubator, such topics should not be offered.
In the future, the incubator can and should evolve to offer services for later-stage companies as well, but this should be driven by the needs of local entrepreneurs. Building a support ecosystem for entrepreneurship does not start on the top by establishing a venture fund, but rather on the bottom, nurturing a business community that might, over time, produce more and more startups - and eventually, there might be enough of them to start considering the creation of an investment fund. It only makes sense to offer support for later-stage entrepreneurs when there is a critical mass of them in the region.
Best practices for rules and policies of the incubator
In many places it will be necessary to have a formal incubation agreement or contract for incubated companies. While I fully understand the need for this, it should be understood by all parties that the entrepreneurs will naturaly consider this very bureaucratic and find all reporting a burden. All policies should be created with this in mind.
Some considerations about renting offices in an incubator: first, any rent agreement should be time-limited. For example, entrepreneurs are not allowed to be renting an office in an incubator for more than two years - after that time they should either be able to afford their own space or shut down the company. The purpose of an incubator is to support new and up-and-coming businesses, not subsidising local entrepreneurs. And second, the incubator should never have all the spaces rented out. When a new promising team shows up and needs a room, the incubator should be in a position to take them in immediately.
The contract for the incubated company should be simple. If they are also renting an office, the entrepreneurs should be made to understand they are entering a community and everyone hopes they will take part in its’ activities. Entrepreneurs should never be forced to attend events or seminars, but should be gently encouraged to take part in the happy hours and informal gatherings, and the management team of the incubator should dedicate time to introduce everyone new to the community. Any and all reporting that is done should be kept to a minimum and unless there is a very good reason to do so, all hi-tech digital reporting or mentorship apps should be avoided. Do it the old-fashioned way, as it works best in a community setting and does not cost anything.
While it says so on paper, there should be no hard cut-off for a team to stop using the services of an incubator after the “incubation period” is over. Sure, they might be asked to find an office elsewhere, but they should still be given the opportunity to take part in the events and attend seminars. If there is capacity, advice, services, introductions and anything else an incubator offers should be provided freely even to non-members under the assumption that helping an entrepreneur is always a good idea. Likewise, allowing an unincorporated student team with a good idea to use an empty office for a few weeks without signing a contract should also be okay.
As a rule, every new member company of the incubator should take part the core educational program (the business academy) when they join. This is to make sure the basic methodology of starting a business is taught, but also because it serves as a first and important touchpoint with the mentorship team in the incubator. During this time they should be taught how to manage mentor relationships (see above) and be encouraged to take part and actively contribute to the community. All member companies should also take part in the end-of-year showcase in front of the community.
I will not touch upon the questions about manners and reasons to kick someone out of the program for bad behaviour, but instead it has to be pointed out that one of the worst offences entrepreneurs can do is to be unprofessional towards an outside, volunteer mentor. Not showing up to a meeting, running late, disregarding agreements with them is making it very difficult for that person to agree to help others and is directly detrimental to the working of an incubator. Such cases should be dealt with quickly and repeated offences sanctioned.
In conclusion, the important thing to understand here as an organiser is to stay in touch with the member entrepreneurs on a regular basis. Certainly, there should be a conversation, call or at least an informal chat every week with every team. It is not important how this is done and what reports are written. The team managing the incubation program should be aware of what is happening with their entrepreneurs so they can run the program and respond to their needs. That way most issues can be resolved quickly. Assign people to this task if needed.
The team managing an incubator
Many successful business support groups are completely volunteer-run by people working full-time elsewhere. The size of the team managing the incubator is not important, if it is focusing on the right things. The key tasks every team should focus on are the following, in order of importance:
Managing the community of entrepreneurs: being in touch with every team and making sure the introductions to mentors and other stakeholders are made when they are needed. Personally making sure every team has what they need and inviting entrepreneurs to community events and happy hours.
Managing the educational program of the incubator: creating a timeline of the program and all the activities, including the regular business academy program and all other seminars, meet-ups or other activities. This includes selecting speakers, promoting the events, setting up the venue and posting pictures from the events on social media.
Managing the mentor pool: recruiting, communicating with and maintaining the relationships with mentors. Personally making sure every mentor is satisfied and willing to continue working with the incubator.
Managing the relationship with the funders and other stakeholders: this includes everything from staying in regular touch with the funding organisations to doing PR for the incubator.
Managing the facility of the business incubator (if it exists): self explanatory.
Typically, a local incubator will have two or three full-time employees. In this case, the two main entrepreneur-facing roles should be the head of programming in charge of setting up the educational program of the incubator, all the seminars and workshops, who will also take the majority of responsibilities for mentoring the entrepreneurs, and the community manager, in charge of arranging informal events, maintaining relationships with mentors and outside partners, who will also personally interact with the entrepreneurs both within the incubator and in the broader community. Ideally, the head of programming is someone with business experience who will be confident in assessing the needs of entrepreneurs and preparing a program that will be suited for them. The community manager can be someone more junior who has experience in organising events, running an association or an NGO and has excellent people skills. Together, these two should be able to manage an incubator serving anywhere up to 20-30 entrepreneurs.
The incubator should hire lecturers/facilitators to deliver workshops and dedicate an annual budget for this. There should be a reasonably large unpaid mentor pool, but a person on staff (the community manager) should be responsible for managing it. This structure is usually much better than hiring an additional person full time to work as an in-house mentor.
The costs of running a business incubator
Excluding costs of the facility and the cost of salaries, a business incubator delivering the program outlined above, will require the following annual budget (prices given for a country roughly in the EU average):
Cost of 10 introduction presentations about business (travel costs included) - 4.000EUR
Cost of two business academies (speaker fees included) - 7.000EUR
Cost of 10 community events (snacks and drinks included) - 5.000EUR
Cost of end-of-year event (venue and food/drinks) - 2.500EUR
Budget for the community (occasional drinks, etc.) - 1.500EUR
Maintaining the mentor network (visiting mentors, recruiting, gifts) - 3.000EUR
Promotion (materials, online presence) - 5.000EUR
Misc. supplies (gifts, hoodies, t-shirts) - 2.000EUR
Other operational costs (transport, etc.) - 4.000EUR
Total annual cost of the program: 34.000EUR
This should serve as an approximate guide for planning a budget of a local incubator providing support to about 20 new entrepreneurs every year.
Business incubators are neither profitable or sustainable
It is usually not possible, or desirable, to charge a fair market price for the services provided to early-stage entrepreneurs, and its’ impact in new job creation or company growth is typically not seen for years to come, if at all. So it is basically impossible to expect for an incubator to have a profitable business model, and they are never self-sustainable. Don’t try to fool yourself you can do this, or promise your funders you will achieve this. It will not work.
Nobody in the world (that I know of) has been able to create a successful business model that would not rely on government money, grants or donations. There are a few cases of successful accelerators that make a profit from investing into the companies they support (like Y combinator), and a tiny fraction of large incubators or technology hubs that are somewhat profitable because they run their own conferences, events, or offer revenue-generating educational services, but these usually needed decades to establish themselves and are based in a large city (and even they were usually started with large initial funding or a passionate team that moved mountains to make it all work). All of these are extreme outliers and not at all representative when considering local incubators.
Over time, most incubators turn into grant-seeking organisations and run EU financed projects and try to fund the “core” incubation service out of those - and sadly, after initial money runs out, many have a really hard time maintaining effective support for early stage entrepreneurs. This should be avoided by making sure the key program activities are always written into any funding or project proposal the incubator might be considering. There are numerous incubators investing tons of project money in fancy telephone booths, smart conferencing hardware, pingpong tables and attractive co-working spaces, only to find out they are not nearly as effective in helping entrepreneurs as regularly hosting a series of well thought-out community events, and become a major burden when project money runs out. Do not seek funding for things that are not directly helping entrepreneurs.
Conclusion
This guide hopes to be a practical overview for anyone running a local incubator or trying to set one up in their region. It was inspired by 15 years of working in the entrepreneurial ecosystem in Europe, the Balkans, Latin America and U.S.A., and personally visiting over 200 different incubators, teaching classes to entrepreneurs there and talking with the management teams. The key takeaway from all those visits is that incubators spend too much money on their facilities and equipment, but not enough on the community and the educational program for the entrepreneurs. Most incubators have a dedicated budget for their programs, but often it is not spent thoughtfully enough, with funds going towards unnecessary activities and are teaching content that is not directly useful to early-stage entrepreneurs. Following the approaches outlined above, incubators should be able to both decrease their operational costs and increase their impact.
