Business Incubators Can Be Key to the Success of Qualifying Small Businesses

If you are a start-up company and you qualify, incubators can be a fantastic resource for you in your Bootstrapping pursuit of success. They provide the “help of others” part of Bootstrapping and the “limited resources” component of our initial definition of Bootstrapping (to pursue success with limited resources and with the help of others).

Here is the NBIA (National Business Incubation Association)’s description of Incubators. “Business incubation is a business support process that accelerates the successful development of start-up and fledgling companies by providing entrepreneurs with an array of targeted resources and services. These services are usually developed or orchestrated by incubator management and offered both in the business incubator and through its network of contacts. A business incubator’s main goal is to produce successful firms that will leave the program financially viable and freestanding. These incubator graduates have the potential to create jobs, revitalize neighborhoods, commercialize new technologies, and strengthen local and national economies.”

Critical to the definition of an incubator is the provision of management guidance, technical assistance, and consulting tailored to young growing companies. Incubators usually also provide clients access to appropriate rental space and flexible leases, shared basic business services and equipment, technology support services, and assistance in obtaining the financing necessary for company growth.

Incubators are physical plants that primarily house the offices of start-up companies. They will rent you flexible leases, which can allow you to expand or shrink your space quickly. Rents vary by incubator, but most often are lower than the market rates at the outset. As you grow, you can upgrade to more space. Specifically the Incubator can provide expert advice in areas such as accounting, legal, marketing, and provide more mundane needs such as telephone systems, fax machines, computers, conference rooms, and clean rooms in Tech Incubators. Fees are charged for some of these services and can vary by incubator. Some incubators have no fees but want equity in your company.

Although there are few of them, there is growing interest in purely virtual incubators. They do not have a physical building for clients’ offices. Services are provided on what you might call an outpatient basis and/or online. There are no face-to-face interactions. This virtual model extends incubation services in areas that don’t have a critical mass of entrepreneurs within a reasonable distance of the incubator.

A hybrid incubation program is gaining considerable traction where traditional physical Incubators are extending their services to off site companies. This fits well for home-based businesses and companies that already have their own buildings.

Incubators come in many flavors. Some are only for technology companies. Some are for a specialty technology. Some are mixed use while others are service or manufacturing oriented.

Here are some Incubator facts from NBIA.

  • There are 1115 incubators in the United States.
  • 27% of incubators have investment funds.
  • 61% have links to angel investors.
  • The average stay in an incubator is 33 months.
  • About 6% of North American Incubators are for-profit programs.

NBIA estimates that in 2005, North American incubators assisted more than 27,000 start-up companies that employed more than 100,000 workers and generated annual revenues of more than $17 billion.

Most incubator tenants accept start-ups, as well as existing companies

Besides the above described advantages afforded to incubator tenants, some other positives are:

  • Networking with other entrepreneurs.
  • Getting business from other tenants.
  • Getting assistance from specialists in the community to supplement on-site mentors.
  • Many Incubators are adding insurance for their tenants.

Be forewarned: it is not easy to get accepted into an incubator. You need to meet the criteria of the one to which you are applying. For sure, you need to prepare for your interview with a sound, well thought out business plan. These plans do not have to be lengthy dissertations. Succinct and short are good.

No matter the tediousness of the application process, an incubator acceptance can be a defining moment in your future success.

A study in 1997, funded by the U.S. Economic Development Administration, found that 87% of incubator graduates were still in business three years after leaving the program. This is considerably higher than start-ups outside of incubators.

To find the incubators near you, go to the NBIA website: www.nbia.org.

About half of the Incubators belong to NBIA. If you do not see one in your area, then contact NBIA. They will advise you of the ones in your locale that may not be their members.

NBIA’s address:

20 E. Circle Drive # 37198

Athens, Ohio 45701-3571

Phone 750-593-4331 Fax 740-593-1996

http://www.nbia.org

Where Not to Look for Money — And Where You’re More Likely to Find It

Entrepreneurs can save time and angst by looking beyond banks and other mythical sources of startup capital.

One of the major obstacles entrepreneurs face in starting a business is raising the money they need. It can be the most time-consuming, frustrating and disheartening factor in launching a new venture. Save yourself some energy and angst by not looking to sources that conventional wisdom would suggest as logical places to find startup capital. Instead, focus on more realistic prospects.

Here is a list of places you shouldn’t be looking for money, followed by where you’re more likely to find it.

Banks
At first blush, bypassing banks may sound crazy — that’s where the cash is. Banks also offer one of the least-costly sources of funding. But banks generally are not interested in lending to start-ups. They seek out established borrowers with a credit history that can help them determine their risk and the probability of being paid back.

No matter their lending criteria, which can vary, banks won’t lend to a start-up in most cases unless the principals sign a personal guarantee and have assets to back up the loan in case of default. Bankers focus on the negative side of new ventures: How can I recoup my money if the business fails? Their depositors do not expect them to risk their money. For this safe approach, depositors are satisfied to receive a lower return on their money.

Venture Capital Firms
VC investors can receive tremendous publicity about their big hits with famous high-profit companies. But they expect that most of their investments will fail. Perhaps two out of 1,000 plans a VC looks at will be chosen for investment. VC investors focus on how fast the company can grow and how big it can get.

Before investing in a company, venture capitalists generally want to see:

Proven successful owners

  • A team of experienced people
  • A business plan whose idea is likely to win out against strong competition
  • The potential for high growth and profit within five years

What’s more, VCs typically insist on a large equity position and the ability to take over your company if you can’t make your projections.

Credit Cards
The media can tend to glorify the rare individual who starts a company on credit cards. It is a route I would not recommend. Credit cards are debt, not an investment. If you are a start-up or small business not yet earning a profit, it’s important to think through how you would pay off the credit-card debt. The odds are good that you won’t, and you will end up with a poor personal credit rating and a frayed relationship with family members you are supporting.

But if you earn a profit and need only a seasonal infusion of capital, then credit-card debt might be a feasible option. One caution: Their interest rates are typically very high.
Keep tomorrow in mind. Starting a business that fails is not fatal to your future. It can be a learning experience that future potential investors usually don’t hold against you. But a spotty personal credit rating can damage your prospects.

Family
Those closest to you can be a good source of money for start-ups. They know you, are on your side, and aren’t as likely to scrutinize your plan like outsiders would. But think twice before accepting family money if you feel the family member cannot afford to lose it and also does not fully understand the risks.

If you don’t look for startup funding from banks, venture capitalists, credit cards and family, you’ll save a lot of time and aggravation. Of course, with some success behind you, these sources may one day be perfect sources of financing.

Where to Look for Startup Funding
Here are some places where you may be more likely to secure the money you need for a new venture.

  • Creative savings. Carefully analyze all your money needs and think creatively about how you can get things for nothing or at a lower cost. This review may not be as difficult as it sounds. For instance, consider bartering and ways to lower your overhead expenses. Look for ways to outsource tasks since this can convert a fixed expense into a variable one and you’ll pay for it only when you make a sale. Accomplishing things without using cash is the same as getting money — with the advantage of not paying interest or giving up equity.
  • Angel investors. These backers tend to invest smaller sums and take less equity than venture capitalists and usually make a more meaningful noncash contribution to your survival and growth, such as advice and introductions to others who can help you.
  • Partner suppliers and customers. No equity is involved in these deals, but your objectives are achieved without paying cash. For example, if you have a product that you sell through retailers or work with regular suppliers, make them an exclusive offer, such as a specific time period for free advertising or an agreement to purchase on extended payment terms.
  • Reinvested profits. Scale back on your plans for quick growth and focus your efforts on organic growth where your profits are reinvested in the business as a substitute for raising capital. It is a slower approach, but it can be more profitable and less of a strain on you and your company’s well-being.

This is from my column for Entrepreneur.

ENTREPRENEURS–TIME TO BE THANKFUL

Whether you’ve had a difficult year in this current environment or have been one of the fortunate ones and prospered, it would serve you well to pause and take stock of all the things you should be thankful for.

Be thankful you are in your own business and your own boss. Millions of people aspire for the same.

Be thankful for all your customers without whom you would have no business.

Be thankful you live in the United States, which affords you the opportunity to pursue your passion and to succeed with no limitations– and yes to fail, which is one of life’s great teachers.

Be thankful you can choose which 80 hours each week that you can work.

Be thankful for your family and friends who are your support team–an essential element for Small Business owners.

Be thankful for your loyal employees who are helping you fulfill your dreams.

Be thankful you are rewarded for your company’s successes while knowing you can pay for its risks.

Be thankful that you can make sure everything is done the right way.

Be thankful you can try to implement any ideas you have and bring them to fruition. The corporate people can’t say that.

Be thankful you are in a position to positively impact other people’s lives.

Bob Reiss www.bootstrapping101.com

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FREE GUIDE — SALES REPS & HOW THEY BENEFIT SMALL BUSINESSES

By Bob Reiss

Sales Reps & Small BusinessI was a national sales rep for 14 years before switching sides and founding or co-founding 16 start-ups, one of which made the INC 500 list three years in a row. . .So, I feel qualified to speak on this subject, which I think is misunderstood and not taught at school. This is why I’ve written this comprehensive and practical Guide to help Sales Reps and Manufacturers understand each other better, to create a positive partnership that will yield more profits for each, and extend the duration of the partnership.

Too often this relationship is adversarial. It shouldn’t be, as both factions need each other.

Clearly, Sales Reps turn the fixed cost of sales into a variable cost and just as importantly, provide immediate access to hard to reach customers.

Here is the table of contents for this Guide:

  • Rep Commissions
  • Who Becomes a Rep
  • Why Work with a Rep?
  • How to Find and Select a Rep
  • Rep complaints about Manufacturers
  • Manufacturers complaints about Reps
  • Training Reps
  • A Tip for Reps
  • Advice for Both Parties
  • Both Parties Tip
  • The Future of Reps

To get your free copy, go to: www.bootstrapping101.com/guide

You also might want to pass this information to a friend or associate who might benefit from it.

FUNNY TAKE ON HOW ENTREPRENEURS ARE BORN

This past Saturday, November 6, Scott Adams the creator of Dilbert wrote an article for the Wall Street Journal and showed us why he is one of the iconic humorists of our time. His hilarious take on how Bad Management spawns new start-ups has much truth in it. I thought I should share this article with anyone who missed it. For those who saw it, enjoy again. Here it is in its entirety:


The Perfect Stimulus: Bad Management

If no one had a hamster-brained sociopath for a boss, who would start new businesses?

by Scott Adams

One of my earliest childhood jobs involved shoveling manure at my uncle’s dairy farm in upstate New York. Things were going well until my uncle explained that no matter how well I performed, I would never be promoted to farmer. Or even cow. I had hit the manure ceiling.

I consider that experience my first economic stimulus package—the unwelcome realization that my current job was a dead end. While my classmates were building snowmen with carrot noses (mostly the girls) and carrot genitalia (mostly the boys), I started to do some serious career planning about how to get out of the fecal relocation profession and into the warm embrace of a loving corporation. I studied hard, and I earned money for college by mowing lawns, shoveling snow, shoveling even more manure, and (my personal favorite) shoveling frozen manure covered with snow. I saved my meager funds, and with the help of my parents, who both took extra jobs, plus a few scholarships, I clawed my way into college.

Years later, my dream came true. I got a job with a large bank, and I never again needed to shovel manure. Corporations use something called PowerPoint instead. Thanks to my farm training, I was so good at designing PowerPoint slides that my coworkers called me “The Natural.” Jaws dropped when I introduced my signature move: the frozen PowerPoint slide with snow on top.

In those days, I was a furious bundle of ambition and determination. The old-timers told me I had a “rocket strapped to my ass.” All I needed to do was get my “ticket punched.” It wasn’t long before I was able to enjoy my second economic stimulus package: bad management.

Though most of my immediate bosses were entirely reasonable and competent, the organization at large was riddled with hamster-brained sociopaths in leadership roles. Surely, I thought, this must be a problem that exists no place else on Earth. Otherwise we’d all be living in caves and holding long meetings on the feasibility of using sticks as stabby things.

One day, a position opened above me, and I was the most obvious candidate to fill it. My boss called me into her office and said she had some bad news. She explained that the media was giving our company a lot of heat because almost all of our managers and executives were white males. Promoting me, she explained, would only make things worse. I asked how long I might need to wait for all of this to blow over. My boss was vague, but she said the timeline involved smoothing out the effects of two centuries of corporate discrimination.

I decided to jump ship and go where my talent and hard work would be rewarded. I took a job at the local phone company and soon discovered, to my horror, that banking was not the only industry in the world managed by hamster-brained sociopaths. Once again, my immediate bosses were quite capable, but interacting with other departments was like being the last human in Zombieville and trying to buy groceries at dusk. Still, it was marginally better than shoveling manure, so I doubled down. I finished my MBA classes at night and distinguished myself as an up-and-comer.

One day my boss called me into his office and explained that the media was giving the phone company a lot of heat because almost all of the managers and executives were white males. So, he explained, promoting me would only make things worse. You might say that was the day that the “Dilbert” comic strip was born, although I had not yet drawn one. Let’s call it a tipping point. From that day on, I considered myself an entrepreneur. All I had to do was figure out what business I was in. The phone company was willing to pay for almost any sort of semi-relevant training or education that I was willing to endure. It was like an accidental school for entrepreneurs. From an economic viewpoint, I was in exactly the right place, with exactly the right amount of career discomfort.

I wasn’t suffering alone. Many of my co-workers already had active side businesses and ambitious expansion plans. The guy in the cubicle behind me was running a concert equipment rental business. Across from me was a guy running a computer tech support business. We had Amway dealers, Mary Kay sales people, inventors, authors and just about any other business you can imagine. That’s not counting all of the business plans in the incubation phase. I think we all understood that working in a cubicle and being managed by Satan’s learning-challenged little brother was not a recipe for happiness.

The way I describe it may sound pessimistic, but consider the alternative. Imagine a parallel universe where employees enjoy going to work. They feel empowered and fulfilled—so much so that they don’t care about the size of their paychecks and never want to leave their jobs. That’s exactly the sort of nightmare scenario that would destroy the economy. The last thing this world needs is a bunch of dopey-happy workers who can’t stop humming and grinning. Our system requires a continuous supply of highly capable people who are so disgruntled with their jobs that they are willing to chew off their own arms to escape their bosses. The economy needs hamster-brained sociopaths in management to drive down the opportunity cost of entrepreneurship. Luckily, we’re blessed with an ample supply.

To put it in plainer terms: The primary purpose of management is to kill any hope that staying in your current job will work out for you. That sort of hope is like gravel in the engine of progress. The economy needs workers who are fed up, desperate and willing to quit their jobs for something better. Remember, only quitters can be winners, because you can’t do something great until first you quit doing something that isn’t.

You see this same dynamic with countries. The United States is a nation founded by people who couldn’t stand the leaders of their old homelands. I’m no geneticist, but I suspect that the “screw it, I’m out of here” attitude can get passed on. We’re probably the most disgruntled, self-loathing, hard-to-satisfy people on Earth. It’s no wonder our GDP is awesome.

Israel is another perfect example. The entire nation is full of people who were displeased with their last situation. And Israel’s economy is one of the most vibrant in the world. If every Israeli became satisfied at once, they couldn’t keep the lights on for a week.

I have always assumed there’s a correlation between imagination and risk-taking. You wouldn’t leave an unpleasant but relatively safe situation unless you could imagine a better outcome. So the people who leave a company first tend to be the visionaries who can best imagine entrepreneurial success. The last wave of people who leave are usually excreted just before the door is chained. They didn’t imagine it would happen so soon. Bad management is how imagination gets wings.


RISK: IDENTIFY, PRIORITIZE, AND MANAGE IT (Part 3)

(Third in a 3 part installment)

A Google alert steered me to an article called “Beating the Odds When You Launch a New Venture” that had just come out in the May issue of Harvard Business Review, authored by Clark G. Gilbert and Matthew J. Eyring. It was one of the best pieces Iʼve ever read about entrepreneurs, their attitudes, and management of risk. They said that entrepreneurs arenʼt cowboys—theyʼre methodical managers of risk.

I thought their concepts applied equally to small and big business. I contacted one of the authors, Clark Gilbert, to discuss his ideas and decided I wanted to share his thoughts with my small business friends. The result is my interview (below) with Clark.

My comments follow his answers and are primarily addressed to small business owners.

Clark Gilbert (gilbert@deseretdigital.com) is the president and CEO of Deseret Digital Media and was formerly a professor at Harvard Business School.

10.BR: What advice can you give a resource challenged new Entrepreneur on where to get advice or the process of going about resolving the ventureʼs risks that he has correctly identified?

CG: Learn from others. Get a group of people around you who are willing to tell you where you are wrong. Do not reinvest until you have learned and adjusted to the market.

BR: You can learn from others by utilizing mentors, a board of advisors, or the free advice of organizations like SCORE, SBDC, and incubators whose missions are to help small businesses start and grow.

11.BR: Why arenʼt experiments good for confirming that your initial ideas are correct as well as to redirect a venture?

CG: Too many people run a test to “prove” they are right, rather than to adjust and learn. The power of experiments is to learn. Thatʼs why I keep coming back to the theme of scarce capital. It forces you to adjust and prevents you from perpetuating a pattern that is not working.

BR: We ran our tests to determine whether we were right or wrong, and the result dictated our next moves regardless of prior beliefs.

12.BR: Do you find managers reluctant to shut down their venture when the evidence shows it wonʼt succeed?

CG: Hope springs eternal for good entrepreneurs. That is a good thing, but it needs to be tempered with forcing mechanisms that help you adapt. You might hold on for pride/ego, because of financial commitments you have made, or from sheer cognitive blindness. Thatʼs why structured experiments and staged capital can be such powerful forcing mechanisms. They enable you to step-back and adjust.

BR: Many managers get a false sense of their products worthiness because they fall in love with their idea instead of in like. They rely too heavily on opinions of family, friends, or employees, who usually are overly supportive and reluctant to express negativity, even if itʼs called for. Often their ego interferes with their objectivity. Better to change course and admit you were wrong, than fail.

13.BR: Could you compare a New Ventures Development between a large company and a bootstrapping entrepreneur, based on their financial resources?

CG: Two things probably stand out. First many large company settings donʼt really treat resources as scarce, and the venture managers receive more resources on average. Second, the resources are not the venture managers, but the corporations so some individuals in large companies donʼt treat the resources with the same sensitivity.

BR: There truly is a difference when itʼs your money or someone elseʼs. The bootstrappers with their money at stake are more dedicated to taking less risks and managing those that they do to reduce or eliminate them.

14.BR: Is it safe to say that from reading your article that you believe that risks do not produce the intended rewards?

CG: Risks in themselves do not produce rewards, risk reduction does. Those who are better at this skill are better at generating returns.

BR: This should put to rest, the publicʼs perception that good entrepreneurs love and seek risk.

BR: Some additional thoughts on risk:

Risk is not absolute. Two people in identical circumstances can have dramatically opposing risks. The one with the experience in running a company with industry knowledge, with a good and experienced team, and a strong rolodex is facing minor risks compared to the person with little industry knowledge, experience, and relationships whose risk may be too much. The former is an insider and the latter an outsider. Risk is a little like beauty—it varies in the eyes of the beholder. The insider sees more beauty than the outsider. No matter which camp you fall into, your assessments and managing of risk must be analyzed and prioritized in light of your assets. Sometimes the best decision one can make is deciding to abort the venture because the deal killer risk canʼt be successfully managed.

RISK: IDENTIFY, PRIORITIZE, AND MANAGE IT (Part 1)

(First in a 3 part installment)

A Google alert steered me to an article called “Beating the Odds When You Launch a New Venture” that had just come out in the May issue of Harvard Business Review, authored by Clark G. Gilbert and Matthew J. Eyring. It was one of the best pieces Iʼve ever read about entrepreneurs, their attitudes, and management of risk. They said that entrepreneurs arenʼt cowboys—theyʼre methodical managers of risk.

I thought their concepts applied equally to small and big business. I contacted one of the authors, Clark Gilbert, to discuss his ideas and decided I wanted to share his thoughts with my small business friends. The result is my interview (below) with Clark.

My comments follow his answers and are primarily addressed to small business owners.

Clark Gilbert (gilbert@deseretdigital.com) is the president and CEO of Deseret Digital Media and was formerly a professor at Harvard Business School.

1. BR: Do you think Small Businesses spend enough time identifying their risks and planning on how to deal with them?

CG: Because capital is scarce, start-ups are not likely to get very far without having to adjust to data from the market. In this sense risk identification is almost “imposed” on a start-up. The scarcity of capital forces discipline. That said, entrepreneurs who think more carefully about the risks they face, systematically target the most critical risks, and remove them will be more successful that those who do not. When you start a new venture, you donʼt have all the data to make the right decisions. You just have to wade into the venture process and learn from the data that comes out. For example, you might have a hypothesis about the pricing structure and you can do things to test it, but until you actually close a sale, you donʼt have the data as to the price people are really willing to pay.

BR: I have found that in start-ups and small businesses, so much time and energy is spent on putting out fires and surviving, that risk management gets short changed. Periodic time outs for reflection are needed.

2. BR: Does this differ between start-ups and established companies?

CG: Believe it or not, one advantage start-ups often have vs. established companies is the lack of available capital. This forces start-ups to be more disciplined with their at-risk capital either because it is scarce or it will cost them equity. Too often, big companies had an overabundance of capital, which makes them less responsive to changes they need to make while the venture is being formatively developed.

BR: To bolster this point and no. 1, I would like to tell you about an interview I had with Stephen Gordon, the founder of Restoration Hardware. In response to my asking, “What were the factors that most contributed to your success?” He answered, “If sufficient capital had been available to me in the companyʼs early stages, I might not have been as successful as I was.” I myself learned that Bootstrapping out of necessity helps you form good habits that stand you in good stead even when you are in a healthy cash position.

3. BR: Do you think Entrepreneurs go into their own business with the idea that they must take risks to be successful and therefore accept more risk than they are comfortable with or capable of overcoming?

CG: Good entrepreneurs donʼt take risks, they manage them. Of course you can manage them completely away, but what I find differentiates good entrepreneurs from others is the ability to not to take risks, but to manage them.

BR: I believe the media has promoted the idea that to be successful, entrepreneurs must see and take on risk. (Think of reality shows like the Apprentice and Shark Tank.) Those that buy into this and donʼt identify risks, no less manage them, will find themselves a statistic in the long list of failed companies. It is surely a myth that good entrepreneurs love risk.

4. BR: In your recent article for Harvard Business Review titled “Beating the Odds When You Launch a New Venture,” you refer to the R&R case to illustrate some of your premises. As I have an intimate knowledge of this case, I was wondering if you thought its lessons apply to service companies as well as to product ones, which R&R is? Also if they apply to large companies, which R&R was not?

CG: I have used the R&R case with non-profit leaders, Fortune 500 companies, and more traditional entrepreneurs. Its lesson applies universally and grows from the idea that entrepreneurship is a way of managing, not a type of company. I remember teaching the case to the new venture group of a major U.S. media company when the lights went on for everyone. They had initially looked at the case as something for a small business owner. But as they got in and looked at how you used risk reduction not just to save money, but to fundamentally increase the prospects of the venture, their perspective began to change. Ironically, the scarcity of capital imposed on the start-up entrepreneur gives him an advantage over big corporations with all of their resources. One executive finally realized: “We need to manage like we donʼt have capital, not to save money, but to raise the probability that we find a winning strategy.”

BR: When the Harvard Business School case was written, R&R was my one person company in a small office in New York City. The case was about my venture to ride the coattails of the rapidly rising Trivial Pursuit game. To give R&R credibility, we obtained a license form TV Guide to use their name and create the 6,000 questions that were needed. It was a time sensitive project as we knew the large toy companies were developing their own Trivia games. Briefly, we outsourced the manufacturing, selling, shipping, and financing of the game. Our major RISK was that we wouldnʼt get the purchase orders we wanted because the large toy companies, who promote their games on TV and Trivial Pursuit reorders would come ahead of us in the order chain. To combat this risk, we asked for and received 5 free ads in TV Guide in exchange for increased royalties. We then promised major retailers their names in these expensive ads at no cost to them. This translated into immediate purchase orders of $3,000,000 prior to our first shipments and eliminated our risk. (This case and all the Bootstrapping tactics employed are spelled out in my book, Bootstrapping 101.)

Part 2 Continued Next Week…

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