How to start an incubation center?
Entrepreneurship in India is on the verge of explosive growth. This also throws new opportunities for the eco-system to take shape. Angel investors, venture capital, media, startup clubs, service providers, mentors and training companies are going to grow. And one important cog in the wheel is the incubator – the place where startups are born. When a baby is born, he/she is kept in the incubator for first few hours and maybe days – this gives them a chance to adjust to outside environment, and grow stronger before they face the outside world! In a similar way, a startup is incubated in Incubation Center, which gives them a chance to bring their business in shape, before they reach out to the world.
In India, most incubation centers are hosted by an academic institute, and funded by DST (Department of Science and Technology), which gives them access to government agencies, as well as easy reach to professors and students in the college. Some of the well-known ones are IIM A and IIT Bombay. There are other incubators too, like Technopark (Kerala) and IKP Knowledge Park (Hyderabad), with focus on certain specific sectors like technology and biotech. Overall, there are more than 50 incubation centers across India.
With this basic background, let us come to the mechanics of starting an incubation center:
1. Assess the market conditions and entrepreneurs requirements
There are some top quality incubation centers in the country, where there is always a queue to get in. While there are others, who have a tough time ensuring 100% occupancy of their premises. Be aware of the market conditions while thinking of starting the incubation center – and answer questions like whether there is a demand for incubators, where will incubatees come from, what are the capital costs and operating costs of setting up an incubator. One important thing to keep in mind is what do entrepreneurs really want from an incubator – is it access to cheap office space, internet, electricity (the tangible benefits of an incubator) or the spirit to work along with fellow entrepreneurs, chance to meet investors, get access to quality manpower and experienced advisors (the intangible benefits of an incubator). This will help you identify the real pain point of your customers (the entrepreneurs) and address their needs most effectively. It is very important to ask the question – why do we want to setup an incubation center?
2. Identify team and service providers
While it may sound great to have an incubator which connects the entrepreneurs, investors, mentors, trainers, students and faculty – the real test comes in execution. The team that manages the incubator has to be A-class, as they are the ones who will drive the incubator, while the incubatees will drive their individual businesses. It is also good to identify a set of advisors – preferably a mix of industry veterans, faculty and investors, which always guides the incubation managers on strategic issues.
3. Arrange for resources
An incubation center needs resources during setup and operations. Few of them are listed below:
b. Connectivity – internet/telephone/electricity
c. Data center
d. Services – maintenance, security
e. Furnishing – chair, table, cubicles
f. IT Infra and Support – software, LAN, leased lines, wi-fi, printer, scanner, copier, Access control system
g. Others – board rooms, meeting rooms, coffee machines, restaurants etc.
All this comes at a cost, and the incubation center management needs to generate to resources for the same – in terms of capital, manpower and time. For an individual or an institute, it is prudent to setup a project team to take up the task in a systematic manner. Government support provides some subsidy towards this, but comes with its own costs.
3. Establish industry linkages
Once the incubation center is setup, it is very important to establish industry linkages – maybe even before the first company starts operations. This maybe contact with local entrepreneurs, lawyers, CAs, industry associations like CII, FICCI, Nasscom etc. or media (TV, print etc.), and other parts of the eco-system like investors. Many incubators are not able to perform well for themselves or for their portfolio companies because of being too internally focused.
4. Draw out a calendar of activities
It is important to draw out a calendar of activities, which keeps the incubator always charged. Conducting training programs, mentor meets, talks from experts, job fair, product showcases, technology demonstrations etc. from time to time helps the community to grow and brings in a great network effect!
5. Attract, select, retain and manage startups
Last, but not the least, an incubators’ primary reason of existence is entrepreneurs! The team needs to think about ways to attracting, selecting, retaining and managing startups that inhabit their planets. A clearly conceived and stated criterion for selection is important – for example, most college based incubators do not allow anyone else other than their own alumni/students to get incubated. So it is important to communicate the same in advance to avoid disappointment. Another benefit of a government supported incubator is that the portfolio companies get service tax rebate – which again is a way to attract startup entrepreneurs!
The success of any incubator is in the success of its portfolio companies. I hope that all of you, who are planning to support entrepreneurs through incubation, will keep the startups requirements in mind while doing so. Please contribute your inputs and feedback to firstname.lastname@example.org.