by Mark Long
“Get everything in writing.” That’s a popular phrase in business, but an honest one. To protect yourself, it’s always a good practice to do things by the book — and to get everything in writing, taking nothing for granted and certainly leaving nothing to the imagination. All details become important when there are questions concerning responsibility, liability or decisions. That’s why it’s important to understand the significance of having the proper documentation in place.
Anyone who has ever been burned on a verbal agreement can probably think of many reasons why incubation programs use written agreements to formally document their relationships and interactions with clients. Verbal agreements can be informal, leading to inconsistencies in how an incubator interacts with individual clients and allowing both sides to interpret pacts differently.
Incubator documents address all aspects of working with clients, from how to use the photocopier to the acceptable amount of time a client may remain in the program. Some documents are commonly used among incubators of all types, while others are more closely tied to an incubator’s specific mission and needs.
Some common documents that many incubation programs use include:
Some of these materials are informal documents that provide general information and guidelines, while others are binding contracts. To be a binding contract, an agreement must include three things: an offer, acceptance of that offer and consideration – something of value (e.g., a payment such as rent).
Obviously, when it comes down to legal enforceability, a written document that clearly describes the nature of the relationship and/or the interaction between the incubator and the client is the best option. In addition to limiting an incubator’s liability, written agreements and policies provide a record of significant interaction between an incubator and its clients and help define the incubator/client relationship.
Having formal documents also can help prevent countless misunderstandings with clients, ranging from how an incubator handles overdue rent to expectations and requirements for graduation. By clearly delineating the incubator/client relationship, written documents help both parties better understand their rights and their responsibilities.
Developing incubator documents, policies and procedures that clearly describe and define the relationship between the incubation program and its clients is an important part of the incubator development process. In fact, an incubator should have its documents in place – particularly documents dealing with client space and services – before it begins accepting clients.
It’s much easier to use these documents to define the incubator/client relationship from the start than to add them later, when existing clients have come to expect an informal relationship with the incubator. However, many incubation programs expand their documents after they’ve begun operations, as needed.
When developing policies and procedures, incubator developers and managers can draw on the experiences of others, but they shouldn’t just duplicate the documents used by another program. Each incubation program has its own mission and operates in a unique environment – and state laws vary, impacting contract provisions, particularly in the real estate arena – so incubation professionals must tailor documents to their particular situations and legal environments.
The most effective incubator documents reflect the program’s mission, which clearly states its fundamental purpose and helps guide its activities. If that’s not the case, the incubator could easily get off track and be pulled in directions that take the program away from its primary reason for operating.
Preparing documents that define the relationship between the incubator and its clients should be a team effort between the incubator staff and an attorney. Based on their knowledge of the incubation industry (either through personal experience or through information they’ve gleaned from NBIA or other incubation professionals), incubator managers can help attorneys understand which issues are of most concern to incubators. On the other side, attorneys understand business and real estate law, as well as the particular laws in a given state. Their job is to make sure the incubator has protected its rights, while creating documents that staff and clients understand.
By including clear, straightforward language in incubator documents, the program can help avoid any confusion about such issues as when clients’ rent is due, whether a lawsuit against a client constitutes default according to the lease agreement or what kind of business assistance services an incubator makes available to its clients. Because incubator clients don’t just rent space, incubator documents must address the full range of the relationship, which extends far beyond that of the traditional landlord and tenant.
Before an entrepreneur becomes an incubator client, incubator managers must assess whether the business is suitable for the incubator – and whether the incubator is a good match for the entrepreneurial firm. But where do you start? What do you need to examine when you are considering a company for admission to the incubation program?
The first document most companies see from an incubator is its written application, a formal document used to apply for admission into the program. Every company considering an incubation program should complete a written application. Why? To help the incubator manager keep accurate records on who has applied to the program.
Applications come in various forms – short and long, simple and complex. However they’re set up, applications document a company’s interest in joining an incubation program and give the incubator manager a detailed look at the prospective client and how it might fit into the incubation program. Based on the information in the written application, incubator staff may invite the applicant to go through a more extensive screening process.
Some incubation programs begin the application process with a preapplication questionnaire to obtain in-depth information for a preselection interview procedure before any actual application is made. This initial screening process helps weed out companies that are obviously a poor fit for an incubation program, before these firms invest the time and any application fee to apply to the incubator.
But before an incubator is ready to accept applications from potential clients, it must decide on some general parameters. For instance, at what stage must applicants’ firms be in order to be eligible? Should applicants have a completed business plan in hand? What level of growth potential is acceptable? If the company requires space modifications, is the cost reasonable and the end result reusable?
Because each incubator is different – depending on its particular goals, requirements of its sponsoring organization, type of client served, etc. – there’s no one-size-fits-all application that works in all incubator environments. Specific details about the incubator’s mission, goals and sponsor may drive the format of its application.
To demonstrate return on investment to stakeholders and sponsors, incubation programs must be able to demonstrate its impacts on its community. Unfortunately, regularly evaluating an incubator’s processes and outcomes is one of the most overlooked best practices in business incubation.
To be successful, incubation programs need to have a clear understanding of how well they’re doing their job and how they can better serve client needs. The most successful incubation programs have learned that having current impact data from clients and graduates goes a long way toward proving their program’s contribution to their local economy and helping to secure stakeholder buy-in. When many organizations are competing for limited public dollars, being able to show sponsors and stakeholders that an incubator’s efforts are making a difference in the region’s entrepreneurial environment could be the key to securing continued support.
According to Incubating Success: Incubation Best Practices That Lead to Successful New Ventures, a 2011 research study conducted for the U.S. Department of Commerce Economic Development Administration, most top-performing incubators collect outcome data from client companies, both while the firms are in the incubator and for a certain period of time after they graduate. This data includes client and graduate firm revenues and employment, firm graduation and survival rates, and information on the success of specific activities and services. To download a copy of Incubating Success, visit www.edaincubatortool.org. For more information about the importance of collecting impact data, see Measuring Your Business Incubator’s Economic Impact: A Toolkit at www.nbia.org/impact. Created in cooperation with Southern California Edison, this free online toolkit also contains downloadable spreadsheets for data collection.
In addition to collecting outcome data from clients and graduates, incubation programs should also review their array of services and the effectiveness of those services periodically to make sure the program is providing the types of assistance clients need most.
Many incubator managers have found it’s easier to collect data if they gain commitment from clients to provide this information up front, either through an informal agreement or through the incubator’s formal application process. As each new company enters the incubator, the manager should have a conversation about their expectations and requirements for sharing impact data such as revenues, jobs created, tax dollars generated and other basic metrics – both while the firms are in the incubator and after they graduate.
Formal documents serve many purposes in an incubator setting, including:
Keywords: application – client, documents – incubator, lease, legal issues, policy
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