The Truth About Incubators

Incubators are programs designed to help a select grouping of businesses succeed. These programs are increasingly becoming the “Go-To” program for Public Policymakers, Economic Developers, and Cities seeking to grow local entrepreneurs. The intent with incubators is to select the entrepreneurs behind the businesses that will (most likely) be successful and provide local mentoring, capital, and resources to those select few to maximize new jobs and business growth output.

Though this favorite tool for growing entrepreneurship has recently been undermined by a key statistic from the Startup Act for the Sates published by the Kauffman Foundation, that “incubators served, in many cases, to subsidize firms that might otherwise fail.” Further Dr. Yasuyuki Motoyama, a Senior Scholar at the Kauffman Foundation, presented during the Missouri Economic Development Conference last week that businesses leaving an incubator program have a higher failure rate upon leaving the program than those businesses not in an incubator. These insights point to a critical flaw in the use of the incubation tool.

When incubators are used to magically and universally make every business in the program successful, the result will not be favorable. (This assumes the Incubator is being filled with starting or developing businesses, and not already successful businesses in the program to show greater results.) Instead incubators are best used as part of a greater Economic Development Strategy, where starting or growing businesses are guided, mentored, and supported by a community-wide network, and only prescribed into incubators when successes for any business begin to accumulate faster than normal, coined as the “Breakthrough Capacity.” (The Breakthrough Capacity is the point in time when a business is getting ready to experience a time of accelerated growth and is also a time when the amount of resources available will directly affect the amount of success resulting at the end of the period.) This allows incubators to be focused on those currently experiencing the Breakthrough Capacity, as opposed to gambling on any business that might achieve successful.

The key to this incubation strategy is having a community-wide network, commonly referred to as an Ecosystem, to support and track businesses in their early stages. This seemingly simple system of support creates a pipeline of all entrepreneurs and businesses within a community that can be funneled at the appropriate time into Incubators.

(Seth Meinzen is the author of this post and founded a technology incubator called the Avvio Center that operated between 2007 and 2009. The experience of managing the Avvio Center along with his current role at EvisThrive has provided some first-hand insights that are shared in this post.)