For many would-be entrepreneurs there are two basic routes open to achieve their goals. The first is to bootstrap, to figuratively pull yourself up by your own shoelaces and slug it out in a decade (or longer) march to achievement. Possibly, along the way, funding can be obtained through business Angels or other forms of participation.
The second is to hook up with one of several start-up incubators.
The differences between these two ways of running your business are significant and it would help to be aware of those differences before making a decision. It seems as though many people view the ‘bootstrap’ route as an alternative or last resort but in my opinion both alternatives have significant pros and significant cons.
In this article I’ll try to list those pros and cons as objectively as possible. To quote a dutch soccer legend: “Every downside has an upside”, and this holds true for most of the incubator vs bootstrapping debate. Almost every ‘pro’ for an incubator translates in to a ‘con’ as well, and the same holds for the ‘pros’ of bootstrapping. Which factors weigh heavily for you is highly dependent on your situation, your personality and your comfort zone, so you will have to assign your own weights to these items in order to be able to help you in reaching a decision which route is the right one for you.
Just in case you’re unaware of what a start-up incubator is, let me give you a quick recap: A start-up incubator is a group of people operating through an investment vehicle that enables would-be entrepreneurs to attempt to reach their goals by abstracting out many of the common elements in launching a new business and to facilitate those elements. Typically a start-up incubator is run by very seasoned, successful and wealthy entrepreneurs. Start-up incubators usually – but not always – have cycles during which they announce funding is available for new companies with an application procedure where the would-be entrepreneurs present their projects to the incubators. Typical examples of (very visible) incubators are Y Combinator and TechStars, but there are many more.
Facilities
Working with an incubator means that you have immediate access to all their facilities, including lots of experience setting up corporate legal structures, shareholder agreements and possibly even things like office space and other down to earth needs of a fledgling company. Typically they’ve done this sort of thing lots of times before you came around and you get the benefit of all that experience. Do remember during the negotiation phase that you are on opposite sides of the table and it is typically a negative to let the other party arrange all the contractual work, so make sure you get any contracts reviewed by your own legal representative. If you are going to use office space, a reception desk and so on, make sure that these are charged at a rate that is at or below market value, if this is not the case consider going elsewhere for your needs.
Mentoring
One of the great advantages of working with an incubator is that since they’re (supposedly) all experienced business people and will be able to mentor you to help you grow in your capacity of being a business person yourself. You have to keep in mind though that a typical incubator will have 10′s or even more than a hundred other companies that are ‘live’. Each and every one of them is competing for the attention of the available mentors.
If an incubator has a well connected network of alumni this can help offset some of the disadvantages here, but typically the attention of the operators of the incubator can be (logically) expected to go to those that are most likely to succeed. If you plan on signing up for an incubator try to get an idea of how much time there is allocated by the various partners in the incubator for this mentoring and maybe talk to some alumni to see how well that worked out in practice.
Low hanging fruit
Incubators tend to focus on the ‘low hanging fruits’, the companies that are either very easy to make profitable or very easy to ‘flip’ to a larger party in a tech acquisition or a team acquisition. Various incubator operators are on the record stating that they are ‘in for the long haul’ but the statistics do not bear this out and incubators tend to stay away from companies that really intend to ‘change the world’. The ‘change the world’ companies are typically not launched from incubators, though there is no reason why that should continue to be the case.
However, if you are planning on a project that has a long runway, that requires large amounts of capital or that requires the development of completely new technology then you are probably not going to find many open doors with incubators. Incubators revolve around the ‘team’, not around the ‘product’ and if your vision of the product is a rigid one and you think in terms of years to market rather than a ‘minimum viable product’ in three months time then trying to get in to an incubator may well be wasted time. Hardware based companies, a new pharmaceutical company, biotechnology, energy start-ups and so on are better off trying to hook up with specialized investment vehicles serving those markets.
Network of alumni
Probably one of the bigger advantages of being in an incubator is that you have immediate access to a large network of former incubator bred entrepreneurs. The combined wealth of experience here is something that is hard to quantify but it is probably safe to say that if you’re faced with some kind of immediate problem that the network of alumni will have at least a reasonable idea of how to solve it. You’ll still need to do the solving yourself, but that’s still several points ahead to being out there on your own. It’s hard to see any downsides to this, other than maybe that it may lead to a feeling of seeing everything through an incubator tinted glass and forgetting that there is a whole world outside of the companies started through incubators that may have a valid (and sometimes conflicting) opinion as well.
Peer review
Having a network of alumni factors big in one other aspect, to have respected peers to review your ideas, products and demos. Constructive criticism is hard to come by and to have ready access to a large number of individuals that are willing to provide this service to you at no cost other than reciprocity is a huge advantage. Again, the combined experience is likely to be substantial and most of the tuition fees in terms of mistakes made and accidents survived have already been paid, so this can help substantially in improving your product before you demo it in public or hit the market.
