Selecting Clients

This incubator has implemented an effective application and screening process that identifies companies that can help the incubator achieve its current mission. [View]

This incubator successfully selects entrepreneurs who support the incubator’s goals, are willing to take advice and share information, and contribute to a positive atmosphere of entrepreneurial support within the incubator. [View]

The selection process identifies a potential client’s needs and indicates how the firm could benefit from the incubator’s services. [View]

During the selection process, incubator management gains each company’s commitment to providing revenue, investment, employment and other necessary data throughout the incubation period and for at least five years thereafter. [View]

This incubator has implemented an effective application and screening process that identifies companies that can help the incubator achieve its current mission.

An effective client selection process has many benefits. It helps an incubation program acquire an optimal mix of client companies; it keeps businesses flowing into a program smoothly and efficiently; it weeds out fly-by-night entrepreneurs from those truly committed to and capable of growing successful businesses; and it helps an incubator manager or selection committee make tough decisions about who receives the program’s limited staff time, space, and equipment. The ultimate goal of a client selection process is to determine whether a good match exists between the incubator’s resources and mission and the applicant’s needs and potential. This is an important step in supporting the first principle of effective business incubation: “The incubator aspires to have a positive impact on its community’s economic health by maximizing the success of emerging companies.”

Selection processes vary from program to program, but the first step in an effective, strategic process is to establish a clear set of admissions criteria. These criteria may include business type, growth potential, and even commitment to staying local after graduation. Setting specific standards (in combination with some well-honed instincts) will keep the manager or selection committee focused on applicants appropriate for the program.

The next step in the selection process often is an informal exchange of information. Prospective applicants might learn about an incubation program through a brochure, Web site, informal interview, and/or an incubator tour. If interested, they can take the next step of submitting a formal application or business plan.

Applicants who meet an incubator’s basic qualifications might then be invited for a formal interview with the manager or an admissions committee. The type of business will determine who participates on a given selection committee. For example, a biotech company applicant might meet with a committee that includes a biotech researcher, an intellectual property expert, and a private investor to help determine funding requirements. Regardless of who conducts the interview, this part of the selection process should clarify an applicant’s needs and determine whether the program is capable of meeting those needs.

No selection process would be complete without a thorough discussion of expectations. For example, the incubator manager will expect timely payment of rent and service fees and participation in incubator activities, while an applicant might need a certain type of space or assistance with market research. A discussion of expectations should include a review of any contracts clients are required to sign, such as leases and equity agreements. This is also the time to explain graduation criteria and possible reasons for a client’s termination from the program; be sure applicants are aware of all required benchmarks and the time they have to meet them.

Excerpted from Cammarata, Kathleen, Self-Evaluation Workbook for Business Incubators, NBIA Publications, 2003, p. 502.

A few basic characteristics of a selection process should include:

• Incubators should accept a diverse range of clients to increase synergy and diminish direct market competition.
  
• Applicants should be for-profit ventures (except in the case of arts incubators or those supporting only nonprofits or when they are service agencies that are anchor tenants that help the agency achieve it’s mission, in which case they are usually not included in the roster of incubated tenants).
  
• They should be identified within the technologies or other cluster supported by the incubator.
  
• Applicants should be early-stage – generally within the first two years of business operations – not yet profitable and still growing. Exceptions may be made for small firms that are changing focus, in a “turn-around” mode, substantially restructuring or launching a new business project.
  
• Those that can properly use access to an affiliated institution such as an university, federal laboratory or other strategic partner should meet the basic requirements of the partner if their success involves using the partner’s resources.
  
• They should have the ability to pay rents and fees charged by the incubator while developing positive cash flow.
  
• They should have a management team that is capable of handling technical and operational aspects of the business or understand the need for and be willing to obtain needed technical assistance.
  
• Applicants should be able to benefit from the added value provided by the incubator and its resource network.
  
• They should provide economic benefits in the form of job and wealth creation or otherwise develop a product or service that will benefit the region and/or sponsor.

• They should not be in direct competition with an existing client or, if they do, management should take care to ensure that any intellectual property risks or other conflicts are mitigated.

Adapted from Wolfe, Chuck, Dinah Adkins, and Hugh Sherman, Best Practices in Action – Guidelines for Implementing First-Class Business Incubation Programs, NBIA Publications, 2001, pp. 61-62. This publication also contains information on the screening processes of several model incubators.

At the Toronto Business Development Center in Toronto, Ontario, Canada, General Manager Ed Hobbs has boiled down the program’s most important selection criteria into a set of “musts.” To gain admission to the incubator, a company must be a new or emerging business, it must not be competitive with existing clients, and it must complete a business plan. “If an applicant does not meet even one of these requirements on our ‘must’ list, they don’t get into the incubator,” Hobbs says.

He says once an incubator defines what a client must have to gain admission, it should then define its “wants” – qualities that aren’t necessary but are desired in a client. For example TBSDC wants clients who have, among other qualities, a high capacity for managerial competence, a sound level of current financing, and products and services that have a positive environmental effect. Hobbs rates applicants according to these wants on a scale of one to ten and rates each in proportion to its importance to the program. For instance, an applicant’s capacity for managerial competence is rated twice as heavily as whether the client’s product or service has a positive environmental effect. These weighted scores are then added together to obtain an overall score that TBDC can use to compare applicants to one another. By using this method, a company that doesn’t have any financing when applying to the incubator, but has an excellent core group of employees, can still become an incubator client.

Excerpted from Walker, Brian, “Selecting Great Clients,” A Comprehensive Guide to Business Incubation, Completely Revised 2nd Edition, NBIA Publications, 2004, p. 124. This chapter is available as a Quick Reference PDF document from the NBIA Bookstore ($5/members; $10/nonmembers).

For further information on selecting clients, see:

• Erlewine, Meredith, “Serving the Inexperienced Entrepreneur,” A Comprehensive Guide to Business Incubation, Completely Revised 2nd Edition, NBIA Publications, 2004, pp. 307-312, and Linder, Sally, “Fishing for Clients,” A Comprehensive Guide to Business Incubation, Completely Revised 2nd Edition, NBIA Publications, 2004, pp. 12-16. Both documents are available as Quick Reference PDF documents from the NBIA Bookstore ($5/members; $10/nonmembers).
  
• Boyd, Kathleen, Developing a Business Incubation Program: Insights and Advice for Communities, NBIA Publications, 2006, pp. 125-129 discusses attracting and admitting clients.
  
• Colbert, Corinne, A Practical Guide to Business Incubator Marketing, NBIA Publications, 2007, pp. 15-18 discusses client identification. This book, one of NBIA’s newest publications, discusses how incubator managers have conducted market research and developed marketing plans; it also covers marketing methods and media relations. A CD that accompanies the book provides more than 40 examples of real incubator marketing products that have been vetted by NBIA, including Web sites, brochures, advertisements, signage and much more. In addition to discussing incubator branding, marketing methods, advertising, direct mail, outreach, public relations, publications and networking, the author covers many topics such as harnessing the power of testimonials, tips for better publicity photos, what to put on your Web site and much more.

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This incubator successfully selects entrepreneurs who support the incubator’s goals, are willing to take advice and share information, and contribute to a positive atmosphere of entrepreneurial support within the incubator.

“When I think of why my incubator uses entrance criteria, I ask myself a simple question,” says Ed Hobbs, general manager of the Toronto Business Development Centre (TBDC) in Toronto, Ontario, Canada. “Does Toronto need one hundred basket weaving companies? No, certainly not. But if the community did, I could make it happen by altering my entrance criteria. And if I didn’t have entrance criteria at all? Well, Toronto might just end up with those basket weavers whether it wants them or not.”

The client screening process is a powerful tool in an incubator’s arsenal of business assistance. A well-designed screening process can help ensure a steady inflow of promising client companies and a steady outflow of successful graduates. It can help attract entrepreneurs with the enthusiasm, drive, and skills to bring an idea to fruition and bring together a mix of clients who will create synergies within the incu¬bator. Ultimately, the role of an incubator’s screen¬ing process is to determine whether there is a good match between an entrepreneur’s business and needs and the incubation program’s mission and resources.

Because most incubators operate with limited staff and financial resources, it’s important that they assist the businesses that will benefit most from incu¬bator services and that have a high likelihood of suc¬cess. “Part of what we’re doing is looking for the win¬ners, the people with the best shot at being successful and creating new jobs,” says Bill Henderson, former president and general manager of the Tri-Cities Enterprise Cen¬ter (TEC) in Richland, Washington.

It’s important to keep in mind, however, that the qualities that define a winner at one incubation pro¬gram may not be the same at another. For example, a program serving a distressed community might seek to reduce unemployment by helping clients who have the drive to start a business but not the necessary skills or experience. A biotech program, on the other hand, might stipulate that a client’s business result in technologies that benefit human health. In other words, an incubator’s mission is a huge determining factor in its screening process. Working with clients who will support your mission helps your incubator establish a track record, which, in turn, is integral to marketing the program, attracting new clients, bringing in financial sponsors and grant money, and, ultimately, assuring the program’s financial well being and longevity.

Because of differences in mission, client type, location, and other factors, every incubator must formulate a client screening process and entrance criteria that suit its unique needs. Choosing clients takes time, consideration, and often a hefty dose of intuition. Read on to see how savvy incubation pro¬fessionals pluck successful clients from communities of eager entrepreneurs.

Excerpted from Walker, Brian, “Selecting Great Clients,” A Comprehensive Guide to Business Incubation, Completely Revised 2nd Edition, NBIA Publications, 2004, pp. 122-127. This chapter is available as a Quick Reference PDF document from the NBIA Bookstore ($5/members; $10/nonmembers).

An effective client selection process has many benefits. It helps an incubation program acquire an optimal mix of client companies; it keeps businesses flowing into a program smoothly and efficiently; it weeds out fly-by-night entrepreneurs from those truly committed to and capable of growing successful businesses; and it helps an incubator manager or selection committee make tough decisions about who receives the program’s limited staff time, space, and equipment. The ultimate goal of a client selection process is to determine whether a good match exists between the incubator’s resources and mission and the applicant’s needs and potential. This is an important step in supporting the first principle of effective business incubation: “The incubator aspires to have a positive impact on its community’s economic health by maximizing the success of emerging companies.”

Excerpted from Cammarata, Kathleen, Self-Evaluation Workbook for Business Incubators, NBIA Publications, 2003, p. 50.

The incubator must support norms and attitudes that include sharing, support, openness to ideas and friendly relations among clients. Potential clients who show evidence of unfriendliness, excessive secrecy and unwillingness to learn from others should be excluded at the outset.

Excerpted from a discussion of eight factors that influence beneficial client networking in Wolfe, Chuck, Dinah Adkins, and Hugh Sherman, Best Practices in Action – Guidelines for Implementing First-Class Business Incubation Programs, NBIA Publications, 2001, p. 30.

For further information on selecting clients, see:

• Adkins, Dinah, and Gregg Lichtenstein, “How to Encourage Networking,” A Comprehensive Guide to Business Incubation, Completely Revised 2nd Edition, NBIA Publications, 2004, pp. 288-291. This chapter is available as a Quick Reference PDF document from the NBIA Bookstore ($5/members; $10/nonmembers).
  

The selection process identifies a potential client’s needs and indicates how the firm could benefit from the incubator’s services.

Identifying client needs is an ongoing process. At the onset, an incubator must clarify the needs of applicants to determine whether the services offered by the incubator can provide sufficient value to adequately fulfill these needs and, thus, justify their admission into the program. The incubator must continually assess the needs of clients on a proactive basis to address the ever-changing environment [they face]. Early in the process this may consist of daily meetings with the management team. As the management team matures, this may diminish to semimonthly or monthly meetings, but pick up once again if the venture works to secure equity capital. Regardless of the situation, needs identification provides the platform from which an incubator can take action to assist its client.

The Role of Needs Identification

• Provides a benchmark for screening new applicants, allowing staff to assess if the ventures are ready for incubation and if the incubation program has adequate value-added services to fill the applicants’ needs
  
• Clarifies actions to be taken and resources to be mobilized by clients as well as incubator staff during coaching and facilitation activities

Excerpted from Wolfe, Chuck, Dinah Adkins, and Hugh Sherman, Best Practices in Action – Guidelines for Implementing First-Class Business Incubation Programs, NBIA Publications, 2001, p. 7.

Applicants should identify products, technologies or services that can benefit from the added value provided by the incubator and its resource network. At the same time, incubator management must feel confident that it has the capacity to help the business succeed.

Excerpted from Wolfe, Chuck et al., p. 62.

For further information on selecting clients, see:

• Colbert, Corinne, A Practical Guide to Business Incubator Marketing, NBIA Publications, 2007. This publication also discusses matching services to client needs.

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During the selection process, incubator management gains each company’s commitment to providing revenue, investment, employment and other necessary data throughout the incubation period and for at least five years thereafter.

Before you begin collecting outcome data from clients and graduates, it’s important to have a conversation with those entrepreneurs.

Those of you who are developing incubation programs have the luxury of beginning your tracking with a fresh slate. You can decide on metrics and set up a way to store and track data. With each incoming client, you can have a conversation about your expectations in this regard both during their tenancy and after they graduate. Be sure to give clients a list of the data points you’ll be requesting and a sample of the survey instrument. That way they’ll know ahead of time what you’ll be asking for and can set up their books accordingly. One of the things often mentioned in news stories about business incubators is how many companies have graduated from the program. This data point is easy to collect and certainly is important – but what are those companies contributing to the local economy?

Far more effective than tallying graduates is providing quantifiable evidence of company success postgraduation.

Collecting graduate data is more time-consuming than collecting data from on-site firms. You can’t just go down the hall and ask them for the data, and sometimes companies have moved or can be hard to find…Some graduates don’t feel obligated to share data about employment and revenues, or they’re concerned about what you might do with the information. If they feel put upon explain to them that public investments paid for some of the services they received while in the incubator, and that in order for you to continue helping other similar companies, you have to demonstrate the return on those investments.

Tracking data for five years after a firm graduates is sufficient to demonstrate persistency in the market. Many managers stop tracking then because persistency has been demonstrated and, beyond that point, it becomes increasingly difficult to obtain data.

Excerpted from Erlewine, Meredith, Measuring Your Business Incubator’s Economic Impact: A Toolkit, NBIA Publications, 2007, pp. 8-10. This 26-page toolkit covering all aspects of tracking impacts from why to do it, what to collect, how to collect it, and analysis and reporting (and more) is available free to both members and nonmembers from NBIA. We developed this product with support from Southern California Edison and offer it to you at absolutely no cost because we believe collecting impact data and reporting on it is essential to best practices business incubation – and it’s seldom done right and perhaps not at all. To read this document in its entirety, see the link at the bottom of NBIA’s home page, or go to www.nbia.org/impact. Utilize this valuable free toolkit today.

The easiest means of ensuring that clients provide data to the incubator so that it can prove its impact to sponsors and stakeholders is to include a requirement for providing this important information in the client’s lease or service agreement. For example, a “letter of commitment” that is an addendum to the lease of a Virginia incubator (the letter of commitment also requires signatures) states:

“The tenant agrees to provide economic impact data to [xxx] for a period of up to seven (7) years. It is understood that all such information will be kept confidential and will be reported only in aggregate form to …”

Lease requirements may also be used to ensure that incubator clients engage in regular meetings with incubator management or advisors and mentors, complete planning exercises demanded by the incubator, and that they make financial records available to the incubator on a regular basis. Having such items in the lease or service agreement ensures the incubator doesn’t have to beg for them later.

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