For entrepreneurs, are incubators worth the trouble?April 20, 2012: 12:43 PM ET
While many entrepreneurs vie for admission to prestigious incubators like Y Combinator, some are opting out, at least for now. Here's why.
FORTUNE -- When Poornima Vijayashanker started Bizeebee, a Silicon Valley site that helps yoga studios and other membership-based businesses expand, in 2010, several incubators approached her about joining. She'd been the second engineer hired at Mint.com.
But Vijayashanker took a pass. She'd noticed that many incubators focus heavily on technology development but didn't teach the business skills she wanted to master. "I was talking to people who had graduated from these business incubators, and the vast majority were still asking business questions," she recalls. "They were talking about 'How do we market? How do we find customers?'" As she did her research, she found that entrepreneurs in a variety of fields who'd built a company outside of the incubator scene "had the most knowledge and experience," she said.
Since she launched six-employee Bizeebee, it has grown to serve about 500 customers and has attracted a small amount of angel funding.
Staying independent has freed her to experiment with her business model in a way that would be difficult in the traditional incubator environment, where resident startups are expected to focus on building a product and finding a market for it rapidly. "I really wanted that six months to a year to explore and try out a few ideas," she says.
With the startup scene thriving, so are business incubators, offering everything from office space to professional business advice. The National Business Incubation Association estimates that there are more than 1,000 incubators in the U.S., compared to 12 in 1980. Some incubators are highly specialized, catering to startups beyond the tech scene in industries like baking.
With many entrepreneurs clamoring to apply, I've been curious about incubators myself, as a co-founder of 200kfreelancer.com, a site aimed at helping independent professionals build their businesses. While many entrepreneurs vie for admission to the more competitive ones like Y Combinator as a calling card that can open doors to venture capital funding, some are opting out, at least for now.
Brewster Stanislaw, a Seattle entrepreneur, says he and his business partner, Joey Kotkins, were accepted to the Founder Institute, a multi-city incubator program, but declined to enroll. Though he saw value in the networking opportunities it offered, the former Wall Streeter concluded that the program, which allows participants to join with a minimum 15-hour-a-week commitment, was geared to people who were working elsewhere while launching a business. "I quit my job to pursue the world of entrepreneurship full time," says Stanislaw, whose startup is developing technology for content publishers.
Some are deterred by the prospect of devoting the extra time to participate in incubator-based activities. Andrew Schrage, a New York City-based co-founder of Money Crashers, a 40-employee personal finance website founded in 2009, considered incubators but ruled them out. "As a new small business owner, it's imperative that you squeeze every second out of every day to remain competitive," he says. "The idea of integrating a business incubator into my venture just seemed like a non-effective use of my time."
Simon Schnieders, a search engine optimization expert and veteran of the startup scene, is co-founder of Explore.to, a Lewes, Del. startup, but lives in England. He and his business partner, also based overseas, considering applying to two U.K.-based incubator programs for the business -- a local search engine that features small business listings -- but decided against them.
Schneiders has a wife and three-year-old daughter, and forcing everyone to live on Ramen noodles was not a viable option. "When you're an experienced founder and you've got family, being asked to move hundreds of miles away and live in digs is not viable for you," he says.
But there were business factors, too. He didn't like the fact that one incubator he considered joining required 20% of the equity in his business or that its founders did not have professional experience that would help his business tangibly.
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At another incubator Schneiders considered, the partners hoped to meet a particular venture capitalist in the process of applying, but discovered that they would not get this opportunity until they made it through a vetting process. Rather than invest the time in competing to get in, they've opted for bootstrapping the business, starting it with less than $40,000, while they look for venture capital.
"I really don't see why, with a little bit of investment from your side and an ability to get cloud hosting cheaply, why you wouldn't want to try to do it yourself, " he says.