Member Article

Tech incubators: do they foster small business success?

There are plenty of clichés to describe how it feels to run an SME. ‘Backs against the wall’, ‘keeping your head above water’, ‘a rollercoaster ride’. For many, while starting off a business is the best thing they’ve ever done, such clichés paint a picture of the tough situations founders sometimes find themselves in trying to survive and thrive.

Starting and running a SME does require blood, sweat and tears. But this doesn’t stop founders being optimistic about growing and ultimately breaking through the start-up chrysalis to become a smooth-running, successful business.

This is perfectly illustrated by the FSB’s latest survey. It claims that three-fifths of SMEs expect to grow in the next 12 months and that record breaking confidence is set to see small firms continue to spearhead the economic recovery.

What’s driving this growth, confidence and success? One potential contributor is that it’s partly down to the swathe of support given by incubators, accelerators and ‘Tech Cities’ that are popping up across the country to help nurture individuals and businesses.

There’s the hyped Silicon Roundabout in London’s Shoreditch. There’s also Seedcamp that has support from Google and Facebook. Ignite100 has a big presence in the North of England. And then there are global organisations like Techstars.

Will these hubs support your business? Here are some things to consider.

Incubators are great because:

They offer a collaborative office space: It’s not unusual to hear a founder talk about spending 18 hours a day cooped up in a garage. While this is admirable, having access to a shared space filled with like-minded and energy fuelled individuals can be invaluable. It creates a backdrop where ideas, creativity and innovation are readily shared between peers. Some spaces are huge and have a constant churn of new individuals racing in and out in an attempt to kick start their business. Others are smaller and have members that bed in for a while to get their business off the ground. Either way, there’s a diverse pool of ingenuity and ideas to tap into.

They provide a good source of advice: Any good incubator will be laden with investors, VCs and mentors who have a record of making businesses and ideas of all sizes work. They also have a vested interest in making your business succeed. When the business is up and running, this collection of individuals can provide connections that will help you take your business to the next level.

They can help you expand your network: Birds of a feather flock together in business. An entrepreneur will be drawn to an incubator that has form in growing a business in a relevant sector and by virtue of this, will throw up plenty of networking opportunities with relevant individuals. This might be through unearthing cheap or unique suppliers, discovering processes that build efficiency or simply the opening of a right door to get those crucial first leads in.

You can access and pool resources: The small things count when running a business. Not having the nuts and bolts in place wastes time and money. A small but significant support incubators and accelerators provide are free resources such as IT equipment and Wi-Fi, crucial in your earliest days when time and budgets are tight.

They may not be necessary when:

There are plenty of other funding sources: Decent amounts of cash can be dangled in front of start-ups by incubators and while this is useful, there are many other ways to secure funding. Stats from the Bank of England’s Funding for Lending Scheme show that most small business aren’t getting help from the banks. Instead, options come in the form of regulated crowd funding platforms like Funding Tree or online business networks like Tradeshift which gives loans on the back of data collected from within its network. The Government is also working on its ‘British Business Bank,’ which aims to learn from the mistakes of previous SME lending schemes.

You need to hang on to as much equity as you can: Many incubators take a percentage of equity for the privilege of their funding, counsel and the use of their services. This is a tough call on many levels. In the early days of a business it can feel like everyone who helps asks for a slice. There are some that only ask for a low percentage or others that don’t require equity at all, but these are usually government-funded grant programs that charge members monthly dues. Either way, there is usually something required in return, and a judgement call should be made on whether turning a back on funding and support is worth it to protect your share.

You don’t need to be based in the centre of the action: London is a big tech hub. Cambridge is an innovation capital. York was in the news recently, labelled the latest start-up scene. But what if there’s no market demand for your product in the area that the incubator is in? If a business is localised, such as a manufacturer or retail organisation, it’s unnecessary to tie it to somewhere unrelated. Especially as around these hubs the likes of cost of living and labour tend to be high. Also, setting up outside a tech hub gives you the impetus to get out and work on the move, which can be critical in a business’ early months when as much time as possible should be spent on the ground getting in leads.

Tech is available to everyone: The cloud, internet and mobile are reducing the need for physical hubs and workspaces. A business can be based and run from anywhere, consultancy and inspiration can be taken from numerous online sources, and leads can be generated by just popping a laptop down and working from a coffee shop. It makes little sense to run many micro businesses from an office. Also, a lot of the collaborative tools, systems and processes that are provided by incubators now have cloud-based rivals at a fraction of the cost. There are online tools that will help you manage cash flow, find investors, indeed, manage an entire organisation - freeing up time to run and build the business.

So, while ideas, connections and a helping hand can be sought from incubators, it’s not the be all and end all. With the right technology and support you can run your business – and its crucial business processes - from anywhere, so it’s just a matter of figuring out what’s right for you and your business.

This was posted in Bdaily's Members' News section by Rich Preece .