I used
to run an incubator. We had
some successes, as measured by the quality of start-up companies that went through the program (many of which
still exist and some of which were sold for large amounts of money!), and we had some problems that we never
quite solved. The biggest and most obvious challenge was that incubators are hard to fund, and difficult to
sustain over the long term, unless there’s a willingness to (a) select only companies that have high growth
potential and (b) if the incubator itself is in a position to somehow benefit from the success of the companies
it supports. Unfortunately, the incubator I ran back in the first few years of this century was not configured
to be able to benefit from the growth of the companies it helped start. If I were to do it again, I’d fix
that.
Anyway, I still
get asked every so often to offer some ideas on what our state and local governments can do to help promote
effective incubation of early stage, high-growth ventures. I was recently approached to do just that, and
offered up the following. Warning: some
of the following is a little inflammatory, but this is my space, so here
goes:
-
It is time for the
state of Virginia (the same goes for other states, by the way, but I live in Virginia …) to stop
focusing its business support programs on companies that fit the traditional “small company” model,
i.e., retail, services, sole proprietorships, light manufacturing, and the
like. Despite their political clout, such companies are at the tail end of the
innovation chain, and do not “drive the
economy”. Instead, the state and local economic development departments should
focus on new, high-growth companies, and STOP worrying
about companies that start small and are designed to stay small! Study after
study has shown that such “life-style” companies do not have a net impact on job creation over
the long term and it’s time to stop bending over backward to support
them.
-
It’s time to
consider a New Business Administration to replace the Small Business Administration. A growing number
of studies have shown that the bulk of net job creation comes from new companies that start small, but
are designed to grow. According
to the Kauffman Foundation, for example, new, high-growth companies have consistently produced
between 2/3 and 3/4 of the net new jobs since World War II. The key
here is “new”, as in innovative approaches to emerging markets, and “high-growth” as in
“sure, we’re small
now, but we plan to grow and you’d better invest now while the opportunity is still
available!”
-
If we do a better job
at supporting new, high-growth companies, all those traditional, “life-style” companies will benefit as
well, because the high growth companies and their employees become the core customers that support all
the other kinds of companies in the economy.
-
Generally speaking,
new, high-growth companies need four things:
-
-
Access to
capital that is appropriate to their growth stage and industry (in most cases, this means
equity capital, not loans);
-
Access to
professional advice & counsel that reflects their growth stage and
industry;
-
Access to
talent and technologies (again, I’m not just talking about technology companies – the need for
new technologies is a productivity and business model-enabler that has helped companies of all
types grow into new markets); and
-
Access to
networks of people and institutions that enable the prior three
items.
-
Incubators are Programs, not
Buildings: Let’s be
clear what we mean when we say “Incubator.” They come in several forms and, when done right, can have a
meaningful impact on the larger economic environment (including the “entrepreneurial culture” of the
region in which they operate). In short, an
incubator that builds a “program” focused on providing the four things listed in the previous
item will be successful in attracting and nurturing new, high-growth companies. An
Incubator that doesn’t will ultimately devolve into a real-estate venture, offering little more than
cheap space and warm place to sit, or worse.
-
Successful Incubators
fill an unmet need:
Duh …
An incubator that focuses on the kind of companies that already exist in a region (e.g., military
contractors in Hampton Roads …) is not making much of a difference. At the risk of
annoying some folks, an Incubator should help the region target new and different markets, and be
a catalyst for ideas that are outside the usual way of doing business. Incubators
should lead, not follow, and it’s not leadership if the incubator is helping take the region to
where it already is …
-
Culture matters and, with the right leadership, incubators
can play an important role in integrating the services that are available in a region and
provide a focal point for the energy and passion that is vital for
growth of a region’s entrepreneurial environment. Put another way, incubators only work if they are a
highly visible part of the entrepreneurial environment in a region and play an active, hands-on role in
encouraging entrepreneurship and celebrating the successes of new companies in the
region.
-
The incubator has to evolve as the region
evolves! With any luck, there comes a time when the
entrepreneurial culture in a region is robust enough that incubators can begin to provide
less comprehensive services, and focus more on specific markets, technologies,
or niche requirements. In other words, if a prospective entrepreneur can easily plug-in to a network of
early-stage investors, professional managers, service providers, employees, partners, and customers (!)
without having to enlist the broad, hands-on the support of an incubator program, the region has
clearly matured, and the incubator program should reflect that reality. There are still a number of very successful
incubators in Silicon Valley, for example, but they focus on much different issues than they did before
and during the internet boom of the late 1990s. Here’s hoping that there comes a time when we can say
the same thing here in Hampton Roads.
As always, if
there’s anyone out there reading this stuff, don’t hesitate to send me a note with your thoughts
(Marty@General-Ideas.com).
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Marty Kaszubowski is President of General Ideas, a Norfolk-based technology venture
consultancy, helping early stage companies and solo entrepreneurs figure out what they want to be when they grow
up. Marty is the former Director of the Hampton Roads Technology Incubator and a former President
of the Hampton Roads Technology Council, and is a long-time participant in the on-going, regional efforts to
promote a more robust entrepreneurial culture here in Hampton Roads. Marty
can be reached at Marty@General-Ideas.com.
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