From time to time, I get calls from consultants doing feasibility studies for economic development directors about incubator projects in and around Phoenix, where I live in the winter. I get these calls because I've worked among startup entrepreneurs for twenty-five years, including a stint on the advisory board of the Arizona Technology Incubator, a project that failed in the late 80s or early 90s after not producing very many successful graduates.
Being associated with that incubator, belonging to NBIA, and watching the startup environment in Silicon Vally during the summers has taught me many things that I try to share with the consultants who call me, but I am never telling them what they want to hear, because they only want to hear that an incubator in their city will produce entrepreneurial companies that create jobs. They want to build or lease a building, move a bunch of startup companies in with a bunch of services, and hope for magic.
They're dreaming. Think about the origin of the incubator. It's a place for the sick babies. The healthy ones are born and go out into the world. And so should the companies. The consultants and the economic development people who hire them think they can suppport the incubator through rent. But the incubator is an expensive machine, and the babies can't support it — if they could, they wouldn't need it.
Why don't we need a physical incubator?
First of all, most companies can be started today at home, because they don't require an assembly line or a fab. (Biotech companies may be the exception to this rule, but they can start at universities). Both HP and Google, very different kinds of companies, started in garages. The space was FREE. You are dreaming if you think startups would or should pay for space, no matter how "flexible" or inexpensive.
Second, the services incubators used to provide—expensive telephone systems, Internet access, secretaries, conference rooms — are now readily available either on the web as free services, or at coffee shops. Or they can be outsourced. Even large companies are working in virtual distributed teams.
Third, the services entrepreneurs REALLY need, like good attorneys, financial analysts, and marketing strategists, are never willing to hang around in an incubator. They have their own practices, and the entrepreneur should be willing to go to THEM.
Fourth, most entrepreneurs really need to raise money. The bureaucrats who run incubators seldom have those connections. You have to get out into the world to make them.
So what really is necessary to accelerate startups? Mostly things that are virtual, rather than physical. The entrepreneur needs mentors, or people to bounce ideas off. That's why co-working, an informal free space in which people gather to share resources, has become popular. It's now a nationwide movement.
What else is necessary? Good advice. This comes from experienced attorneys, accountants, and people who have been there before. Also, a good team. This comes from a network.
And a nestegg or a home equity line to seed fund your startup, because I don't really know anyone who gets money anymore based on just an idea, even in Nirvana (the Bay Area). Except if they are chosen by YCombinator and Techstars, both of which are FUNDS, not incubators.
So forget about your incubator spaces, and think about aggregating the virtual services entrepreneurs need rather than the physical spaces. An incubator is not a real estate play.