The Incubator Approach and Startups

Earlier today I had the opportunity to meet with another entrepreneur in town that I hadn’t met before. We got to talking about what his ideal role would be once he made his FU money and he said it was to build a startup incubator or lab that created a number of companies where he helped get them off the ground but someone else would run them.

Interestingly, a story came out today where Kevin Rose, founder of Digg, took the acqui-hire route and sold his incubator to Google after their first product wasn’t successful. Rose is a guy who made his FU money, started a product incubator, and has now moved on to a giant company.

Here are some pros and cons with the incubator approach to startups:

  • Idea to product won’t take much time at all since there aren’t any legacy customers to slow things down
  • Hockey stick-like revenue growth often occurs several years in, assuming things are successful, so if you start five or 10 companies simultaneously, you still have a long time to see good cash flow even after killing the ideas that aren’t working
  • Some startups are successful because they hang around a market long enough to find the pot of gold but with an incubator the staying power is less likely
  • Timing a market is one of the most difficult things to do, so building multiple startups at the same time increases the chance that the timing for one of the markets is right

Idealab (great video) is one of the most successful incubators ever and should be closely studied by anyone thinking about doing their own startup lab. Building a successful incubator is hard, and I believe it’s even harder than building a successful startup (successful startup defined).

What else? What are your thoughts on the incubator approach and startups?

2 thoughts on “The Incubator Approach and Startups

  1. I think an important part of an incubator is to provide “true” mentorship. Many times an incubator will just provide an environment with some classes, general advice and some resources sprinkled about but the true value lies in the mentors taking the time to learn the startups business and provide honest feedback, direction and resources to help them grow.

  2. I was around in e-hatchery’s hay day and was involved with a handful of other incubators. All of the incubators failed. My guess is that there are many compellng ideas but too few entrepreneurial leaders to turn the ideas into a successful business. As such, the incubators end up betting on the “horse” over the “jockey”, when it should be the other way around.

    I believe the biggest lack of resources in entrepreneurial world is not money, nor ideas. I think it is leadership. Entrepreneurial leaders are a rare bread. A good many people can be leaders “in an organization” but i believe far fewer people can be leaders “of an organization”.

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