What To Consider Before You Put Your Startup In An Incubator
To some, the word ‘incubate’ paints a picture of a mother bird sitting on her eggs, caring for them so they can hatch, grow up, and learn to fly.
Well, incubators in the business context are pretty similar. Except they’re hatching startups. A fledgling business is given a warm, friendly place with resources to grow. Once they’ve grown enough, they’re ready to hatch — and leave the incubator.
And if you do use an incubator, the goal should be to leave sooner rather than later.
When I founded Washlava, it was my second startup but we dropped into a local incubator when we were first starting out. My partner liked the people and so did I. At the time, it was the right decision for us and I don’t regret it at all. They offered inexpensive office space and incredible enthusiasm and support.
But we were only there for five months.
Does that seem quick? It really shouldn’t. Incubators and the services that come with them are great, but by definition, the goal should be to leave them. The longer you wait, the more difficult things will get.
Here’s what I mean.
How Incubators Work Best
Some people refer to incubators as “accelerators.” Basically, they help speed up the growth of startups and get them to the point where the business can stand on its own two feet. Or at least, that’s the plan.
Incubators have the right programs in place to help you structure a company. They help you create an operating agreement and make your startup more attractive to investors. They give you advice on how many investors to take on and how to keep yourself from getting overwhelmed. In short, they give you the guidance and support you need while you’re figuring things out. You’re not forced to do it all on your own out in the cold. You’re with a group of like-minded people who are also trying to make their visions work. It can be a really empowering situation. But they cannot do the work for you.
Just like that baby bird breaking out of its shell, you have to leave your incubator at some point.
Knowing When To Move On
So, how do you know when the time is right? When we left our incubator, we’d recently received a significant round of funding, and we had reached a point of sophistication that just didn’t fit with the incubator concept anymore.
Your funding is probably the clearest milestone you’ll have for when to move on, because it’s an indicator that the quality is there. Investors are ready to take a chance on your business. They see something that’s worth funding. Most companies that enter incubators never see funding, so getting it means it’s time to move on.
But leaving can be difficult. Trust me. Even once we had our funding in place, we still had people advocating for us staying at the incubator. I mean, you have this cheap office space available, so why not? There were some enticing reasons to stay, but I knew we were past that stage.
Here’s how you should think of it: get your company structured and into the form you want, get a round of funding, and then get out.
Having An Exit Strategy
We found success at our incubator because we left quickly. Honestly, several years inside an incubator is probably a death sentence. If things aren’t moving forward at that point, investors are going to have some qualms about your ability to deliver returns, and justifiably so.
I think you can get more out of an incubator if you have a defined timeframe for leaving. Have a game plan in place that says, “Once we’ve progressed this far, we’re getting out.” Leaving one is a stronger signal about the quality of your venture than staying.
Make sure the incubator knows about your intent to leave. Let them know that you’re going to be gone in five months, or however long you decide on. When we left, our incubator was surprised at the decision. But I just said, “Hey, you’ve done your job. We’ve hit our number, and now we’re ready to leave.”
The timeline you give yourself may not work out perfectly, but it needs to be in place. You need to know when your exit date is coming up, when you’ve passed it. That will keep you moving at a reasonable pace. You don’t want to languish in your incubator when you could be moving onward and upward.
Using Time Wisely
Use your time in an incubator wisely. You’re going to be surrounded by some people who are drawn more to the idea of the startup lifestyle than they are to running a commercial venture. There will be people in the incubator who really aren’t moving forward through those stages. Many of the “entrepreneurs in residence” at these places aren’t that at all, except the in residence part.
And that can be a distraction. It’s just too easy to lose focus and spend too much time around the water cooler or at happy hours. Remember that you’re there for a short period of time. Take moments to reflect on how you’re using that time and where you are in your progression.
Stay focused on your goals, and when you meet them — make the leap. Break the shell and get your own office. You can be thankful to your incubator for helping you get to the point you’re at, but that doesn’t mean you have to stay there forever. Just keep that in mind when you first settle in. This isn’t permanent.