Business Incubators are Growing Up

Bill Shander knows how to start a business. He opened Beehive Media in Chelmsford, Mass., 15 years ago. The six-employee, $3 million Web design group boasts such clients as PricewaterhouseCoopers and the University of Chicago. But last year, when Shander started exploring an idea for a company that would allow people to merge their online and offline identities yet control the information available about them, he felt he was entering foreign territory. “I never did a startup where we launched our own product,” Shander says. “It’s a whole different beast.”

An inexperienced entrepreneur might logically have turned to a business incubator for startup advice. Surprisingly, that was also the best route for veteran Shander, who signed on with a new incubator that lets busy founders participate online.

Incubators, like the companies they support, are evolving to accommodate a tech-savvy clientele and startups with new priorities. Some offer novel models for delivering their services; others target socially responsible businesses. “I see a lot of experimentation going on these days,” says Dinah Adkins, president emeritus of the National Business Incubation Assn. in Athens, Ohio.

Production-Line Advice
Many incubators are taking advantage of the expertise of a generation of successful entrepreneurs who have cashed out and are eager to pass on their experience. Y Combinator, co-founded by Paul Graham in Mountain View, Calif., in 2005, is probably the best known. The incubator—Graham prefers “venture accelerator”—works on the premise that it’s possible “to apply mass-production techniques to the founding of a startup,” or at least to Web startups, he says. Y Combinator enrolls about 10ÜWeb startups in its three-month program, giving each $15,000  in exchange for a 6% equity stake. Entrepreneurs work at the Y Combinator offices and get weekly dinners with a startup expert and regular meetings with Graham and other founders. In week 10, each team pitches to investors. Similar venture accelerators have sprung up in Philadelphia, Phoenix, and Atlanta.

The roughly 40,000 entrepreneurs who run so-called double- or triple-bottom-line businesses—which seek to create benefits that are explicitly social, or environmental, or both—encounter unique challenges. These include measuring progress toward social goals and setting up employee ownership plans.

Enter the social business incubator. The Business Accelerator for Sustainable Entrepreneurship (BASE), at the University of North Carolina at Chapel Hill’s Kenan-Flagler Business School, was launched in January and serves 21Ütriple-bottom-line startups. Entrepreneurs pay $600 for the one-year program. BASE doesn’t provide office space, but companies get advice from a 13-person advisory board as well as a network of lawyers, accountants, and other professionals. MBA students work as consultants. Regular lunches cover such subjects as marketing and financing.

For Beehive’s Shander, the Founder Institute in San Francisco was ideal. The institute, which calls itself an equity exchange program, provides online access to mentors and workshops for those who can’t come to its offices. “Why should we expect people to drop everything and pursue an idea when it’s not fully fleshed out?” asks founder Adeo Ressi.

The institute takes 3.5% of each company in the form of warrants, which become part of a bonus pool the incubator shares with mentors and fellow startups to encourage collaboration. Shander enrolled when the institute opened in June and is planning a soft launch of his company, Buzub, this month. “It has made me a better businessperson all around,” he says.

Reprinted from the November 16 issue of BusinessWeek by special permission, copyright © 2009 by Bloomberg L.P.