Beating the Odds

Posted: July 15, 2012 by Rodney D'Souza in Ecosystem, Innovation, People, Planning, Startup

IS NOT just having a unique, one-of-a-kind idea. While inventing the idea is necessary to start a new venture, execution of that great idea distinguishes successful from unsuccessful startups. To execute well, entrepreneurs need to take advantage of every resource in their environment such as the industry connections, mentorship, access to capital and market intelligence. If you are new to the startup world, or even if you are a veteran, Business Incubation has proven to be a great model that helps entrepreneurs better navigate their environments, and dramatically increase their survival rate and success.

The Small Business Administration (SBA) data indicates that 40% is the success rate for startup businesses – meaning that of 10 businesses started today, six will disappear over the next 5 years. In contrast, the National Business Incubation Association (NBIA) reports a success rate of over 85% for incubated businesses. Business incubation provides entrepreneurs with an array of targeted resources and services critical to young, growing companies. Incubators come in many flavors – both for profit and nonprofit, target a range of early stage companies, and focus on a single industry (such as BioLogic a life science incubator in Covington Kentucky) or a variety of industries (such as the Hamilton County Business Center).

They could be spun out of university research labs or launched by people trying to jumpstart their hometowns. Tony Hsieh, founder of Zappos.com, is doing just that in Las Vegas. Broadly, these incubators can be classified in to two categories – the classic incubator model and the accelerator model.

Classic incubators work out of a shared space at advantageous or subsidized rent. Tenants have access to infrastructure such as computers and office equipment, as well as staff members and access to knowledge experts. Tenants graduate from the incubator once they have ‘outgrown’ the space and need to expand (typically three to five years). Incubators rarely invest in their tenants and do not own equity in their tenants. Entry to classic incubators is usually open year round. Examples of incubators in our area include the Madison eZone and the Hamilton County Business Center.

Accelerators, however, serve as a ‘bootcamp’ typically three months long, where entrepreneurs receive seed investment and mentorship. Accelerators invest anywhere between $18,000 and $100,000 for a share in the entrepreneur’s company (between two and nine percent). Entrepreneurs graduate from accelerators at the end of the class by presenting their businesses to investors. Unlike classic incubators, accelerators accept one or two classes of applicants (a highly competitive process) a year and generally need a strong team and a viable business model of their applicants. Examples of accelerators in our area include The Brandery, UpTech, BioLogic and Innov8forhealth.

A number of variations of these two models exist. For example, the Haile/US Bank College of Business at Northern Kentucky University offers The INKUBATOR that acts as a feeder to business accelerators.  The INKUBATOR is a cross campus competitive initiative helping students and alumni with creative ideas build strong teams. Over the 12-week course, entrepreneurs develop acommercializable business modeland the INKUBATORprovides them with seed funding, mentors, and a relevant course material and training. The University of Cincinnati’s Center for Entrepreneurship and Education Research offers its students grant funding through the Bearcat Bridge Fund and rental space by way of the Bearcat Launch Pad.

Additional resources are available at the Greater Cincinnati Venture Association website at http://www.gcva.com.

Rodney R. D’Souza is an Assistant Professor of Management at Northern Kentucky University and director of THE INKUBATOR at NKU.

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