The incubator or accelerator concept for start-ups is simple. Wikipedia initially defines Business incubators as "programs designed to accelerate the successful development of entrepreneurial companies through an array of business support resources and services." The question for a young start-up becomes "what is the value of working with an incubator — and what are the tradeoffs?"
I spoke with Steve Barsh, a managing partner of Philadelphia-based DreamIt Ventures and a Project Faculty member at the University of Pennsylvania's Wharton School, about how DreamIt works with Startups. (I also had the privilege of speaking to this summer's group back in August. )
Howard Greenstein.: What's the role of an accelerator/incubator?
Steve Barsh: The number one blended role is to help them refine their idea and de-risk it. Entrepreneurs run around with assumptions, thinking that everyone is going to want their product or service. Most business ideas are based on three to five key assumptions. How do you test and remove risk from those assumptions as quickly and as capital efficient as possible? By turning assumptions into knowledge as quickly and cheaply as you can. Build a product or service, release it to the world, and get it out to your market and test metrics. That way you de risk. Figure out "What did I learn?" and then iterate.
Another way of doing it is to speak to your target market first, before you build anything. There is no need to build software to test entrepreneur's assumptions. Ask your market and you'll get requirements you didn't know about, including feedback and reactions.
HG: What resources can a company get from an incubator?
SB: The most important thing is a mentor, a been-there done that entrepreneur who can help you through the process. Another critical resource is a speaker series that is very pragmatically focused with tips, tricks and help that companies can use to take action immediately. Professional support like accountants and attorneys and office space are usually included. Don't minimize the ideation time, bouncing thoughts off others. The teams cross pollinate and work together and the whole is greater than the sum of the parts. Finally, they provide some working capital -"mac and cheese money" — so you don't worry about paying the rent and eating. We take pressure off so you can focus on ideas.
HG: What are some of the tradeoffs?
SB: It will be a lot more intense — people describe it as "working out at the gym vs. working out at home." Everyone is watching; so you lift more, work harder. You're in a more competitive situation — if another group met with business prospects, you feel pressure to meet with business prospects. Another tradeoff is a some of your company's equity. For some of the entrepreneurs, they had to move to Philly for the summer, find a sublet and just work - like boot camp for 3 months.
You can learn more about the start-ups Dreamit worked with this past summer on their Demo Day page. In the next few weeks, I hope to have one of the 'graduating' company's feedback on their experience. Did you work with an incubator? Share your story below.