by Sally Hayhow
The main feature distinguishing business incubators from mere real estate operations is the assistance they give clients. Not just phone answering or conference room privileges, but advice and hard resources available for every aspect of a start-up business. Now try pinning that responsibility on the average incubator staff of three, who does everything else the building, program, board, sponsors and clients require.
Although incubation professionals can and should be very involved with incubator client companies, no time is better spent than time finding, recruiting and managing good business assistance consultants. You need them even if your incubator is lavishly staffed (indeed, is there such a thing?). No staff can be so diverse, so current on everything or so well connected that they meet the needs of every client.
Besides, staff is supposed to be dispensable. “It's dangerous for the incubator staff to be seen as experts to the tenants. [They are] not going with the company when it graduates so the company shouldn't become too dependent on [them]," says Pat Hession, president of Long Island High Technology Incubator, in Stony Brook, N.Y.
If you're going to put your companies' futures (not to mention your incubator's reputation) in the hands of outside consultants, they'd better be ones you trust. Consultants aren't just the volunteers you settle for because you couldn't afford staff to do the job. They have the potential to be the resource that makes your program exceptional and effective.
Now for the best news. NBIA members with strong consultant programs told us in a recent Internet survey that they have excellent people at low or no cost and they have to spend very little time managing them. Managers commonly spend no more than 10 percent and sometimes 3 percent to 5 percent of their working days even when they have more than 100 consultants on their regular rosters.
Here are 20 ways to work smart, not hard, at having an effective program of service providers.
"Prequalify the best and the most patient service providers," says Gus Myran of the Origen Center in Menomonee, Wis., and managers everywhere agree. Whether consultants come to you by referral or you cold call in the community for leads, careful screening will ensure you find talent who understand the dynamics of an early-stage company.
Incubator professionals who expect a lot from their consultants are particularly careful in the choosing. "We literally interview everyone personally," says Bob Calcaterra, president and CEO of the Arizona Technology Incubator, which has more than a hundred high-level consultants, 50 to 60 of whom participate in a special advisory board program for clients.
Bob Thomson, manager of entrepreneurial programs, Ben Franklin Business Incubator in Bethlehem, Pa., says, "Make sure you understand the capabilities, core competencies and time availability of your service providers. The last thing you want to do is waste anybody's time." He also checks references on service providers just as he would employees. "Certain consultants are very capable of embellishing their credentials," he says from experience.
Ross Hunt, director of the San Jose, California-based Software Business Cluster, looks for matching goals between consultant and incubator. His incubator is designed for high-growth software companies, so he looks for partners who have as part of their growth objectives "to identify and develop relationships with high-growth potential start-ups." Because the pay his companies can offer is deferred in the form of stocks, options or warrants, consultants also must be able to wait for returns on their consulting investment. Although the incubator is only four years old, its service providers have already begun to see a payback.
An excellent relationship between clients and business assistance professionals starts first with good clients. By this we mean clients who are ready for the relationship and can take value from it. Some managers even feel you should only send a company to a consultant who has potential to become the incubator company's future paid service provider. Sometimes you may want to handle very young or unsophisticated companies' needs in house until they are mature enough to effectively utilize a consultant's time. Be realistic about your companies, and protect consultants from ones who would waste their time.
Hunt emphasizes that incubators with effective general entrance criteria and screening have an advantage. "The best way to get the best [service providers] is to have very interesting, high-quality start-ups that are capable of growing," he says. And successful ones. One in three of Software Business Cluster companies has raised venture capital and his client and graduate companies have aggregate revenues close to $60 million. "It's a good place for providers to find new customers," to say the least.
Newton Ellis, Hession and others aren't interested in just any consultant. They want the best around. And they don't necessarily seek out individuals, they bargain for commitments from entire companies, not just any company, but the top dogs. "We identified who we considered the best companies for the services needed. Then we identified contacts at the highest levels possible through our board of directors and former students. That got us on the inside, and then we sold them on the idea of becoming a service provider," says Ellis, president of Software CIC incubator in College Station, Texas. Hession corralled Peat Marwick, Price Waterhouse, the patent firm of Hoffman and more.
The earlier in an incubator's development you start forming the pool of consultants the better. That way you'll find out what you can outsource and what expertise you'll have to develop in-house. If you can winnow your in-house load to a manageable amount, you can become expert at the assistance you do provide. Bruce Gjovig, director of the Center for Innovation, Grand Forks, N.D., found it nearly impossible to land good marketing consultants in his rural incubator's region, so staff got very good at doing it themselves. "The Center for Innovation is known as the marketing experts in North Dakota for marketing research, analysis, planning and distribution, even compared to advertising and public relations firms." Gjovig also discovered that although clients could go to plenty of places for help with business plans, the quality was poor. "The financial and investor community is unhappy with most business plans they receive. Thus we also do business plan development in-house whenever securing financing is vital to the success of the company."
Developing a consulting team early means you have plenty of time to get organized. The San Diego Regional Business Incubation Alliance in San Diego, Calif., hosted meetings to which they invited potential consultants. The first round of meetings educated consultants on the purpose of incubators and how they could help. The next round of meetings put the consultants to work. Entrepreneurs with their business concepts came before the experts, who evaluated the plans and gave recommendations. "From this we have built a database of about 150 consultants out of the 250 who have attended the [Alliance] meetings, says Michele Nash-Hoff, president of American Enterprise Inc. Listings in the calendar section of two San Diego business newspapers helped roust out interested consultants.
Ask clients and board members to recommend candidates for your consultant pool. They have the highest stake in making sound referrals. From there, head to the chamber of commerce, local bar association, university officials and the best businesses in town.
Like a university, your incubator also has a pool of alumni from which to draw. Call up graduate companies to find out who's doing good work for them. "The Software Business Cluster has 17 graduate companies who understand the value and have referred associates," says Hunt. Some graduates, though still building businesses themselves, may jump in the consultant pool, especially ones who were effective networkers while in the incubator. At least you won't have to prequalify them!
And don't forget to ask staff, even those not usually involved with your business assistance program. "Everyone on the staff recruits consultants when the opportunity presents itself," says Thalia Mendez, director of Business Incubation Programs for the Wisconsin Women's Business Initiative in Milwaukee, Wis.
...the board of directors, that is. Many incubator boards are composed with client consulting needs in mind. These volunteers understand from the start that part of their duties includes client consultations. A board hard at work helping companies frees up a manager to manage.
"Our board of directors comprises local business people and entrepreneurs who have committed themselves to the success of the incubator and to retaining the emerging companies in this area," says Orly Hardin of the Golden Triangle Enterprise Center, Starkville, Miss. "By providing assistance at reduced or no cost at all, they form a relationship with the incubator tenants and will hopefully maintain this relationship after the company has graduated."
"Try to develop an affiliation with a university," Hardin further advises. The students, researchers, professors and even administrators are a field of dreams for incubators – and not just incubators located on a campus. For Hardin's business student intern program, the University of Mississippi takes on the added role of screening for qualified candidates. Many incubators have university officials on their boards, as does the Ron Reed Economic Development Center in Brookings, S.D. (in its case, a dean and an emeritus professor). One survey respondent offered a caveat, though: Watch out for faculty who expect to charge high consulting fees to pad their salaries.
If another nonprofit agency or established organization in town is competently helping entrepreneurs with certain challenges, work out an arrangement with them to serve your clients. Incubators responding to the Internet survey worked with Small Business Development Centers (SBDCs), minority business development centers, special workforce development programs, economic development corporations, small business consortiums, chambers of commerce, Service Corps of Retired Executives (SCORE), import-export offices, associations and innovation assessment services, to name a very few.
"[You just have to] network, network, network. Get out and meet people in economic development, local and state government and so forth," says Guy Mascari, Director of Marketing, Milwaukee County Research Park in Wisconsin.
Occasionally you will find an organization that may not seem to fit your needs, but could do so with a little tinkering. Arizona Technology Incubator found that true of the local Industry Network Corp. "We convinced them to be much more creative in how they use their NIST [National Institutes of Standards and Technology] monies and to take significantly more risk," Calcaterra says. The result was a good service provider for the incubator and a happy Industry Network Corp. It parlayed the improvements into a model it now uses in five other states.
Do everything you can to promote interaction within the ranks. The value of your companies as consultants to one another cannot be overestimated. "It is a great resource to use other incubator clients to help one another," says Reginald Boudreaux, manager of enterprise zone and business assistance center programs for the city of Dallas, Texas, economic development department. "They are struggling together and it helps both parties."
Pay attention to the mix of clients you have, even in a specialty incubator. For instance, the Rennselaer Polytechnic Institute Incubator – a high-technology incubator – houses a graphic design firm and a printing company. "They do not fit our usual high-tech focus but provide valuable and convenient services to our other clients," says Director Glenn Doell.
For networking to flourish, staff must help broker interaction. "We constantly 'preach' inter-client business development," says Steve Windhaus of the Palm Beach County Business Incubator in West Palm Beach, Fla. "We also demand that exchanges of cash or bartering be at a discount. All clients agree with the policy, and it does work well."
Good consultants are more likely to say yes if they know your incubator's reputation or hear about you through others who talk you up. Grab public relations opportunities and make certain the community knows you're a high-caliber organization. Hession advises incubators to stay in the public eye. "Blow your horn loudly and often – become important in regional economic development issues and they will come." Hunt credits the press the Software Business Cluster receives from publications like the West Coast version of the Wall Street Journal with making his job of finding consultants easier.
If your reputation hasn't preceded you, have ready a spiel that makes your program irresistible. "I get return phone calls because people state that I gathered their interest through my own enthusiasm. They were inclined to look further into incubation," says Roberta DeYoung, director of the Chicago Southland Enterprise Center in suburban Chicago.
Many managers require consultants to agree, either formally or verbally, to follow certain guidelines ranging from nondisclosure agreements to parameters regarding investing in companies. But many had no rules at all, keeping the way clear for consultants and incubator companies to strike up relationships that will last long after the incubator is a memory.
Boulder Technology Incubator uses some agreements, says Executive Director Jerry Donahue, but does so selectively. "We really try to get to know people before recommending them to clients. This mitigates the use of nondisclosure agreements and the like," he says. Check with your local Small Business Development Center – or a legal consultant in your troops – for boilerplate wording of agreements that you can adapt to meet your needs.
Putting a new consultant through a little test drive can help weed out those who are not a good match for your program. Gjovig looks for someone with particular expertise, then puts him or her on a single project. That gives incubator staff and clients a chance to see if they like the consultant's "work, expertise and attitude" and also if he or she rises to the challenge of working with entrepreneurs and small growth companies.
Calcaterra agrees. "In many cases we assign them or introduce them to one of the companies and essentially test drive them to see if they are good, provide the needed time, have the appropriate motivation and so forth," he says. "I make sure the [incubator] company knows we are checking the person out so they know we aren't sure of the individual at the start. If we find the people are good we then get them into all of our advisory boards, etc."
A good service provider will give service; a great one will teach. You will do well to find at least a certain percentage of providers who will make sure the client understands what they have done and what it means to the company's bottom line. "We consider it a part of our mission to teach," says consultant Todd Dollinger of Trendlines International in Israel. "The client must understand the basics of the financials and the assumptions that are employed to establish the financials," he says of the business plan work Trendlines does with companies. "It is [their] company and money."
Gail Williams, director of administration at the Cincinnati Business Incubator (CBI), will try to determine which consultant will be a good match for which client. "Then I make a phone call and say, 'ABC is going to call you about XYZ.'" Knowing who will get along with whom harkens back to the notion of thoroughly screening and getting next to consultants, paying particular attention to their communication styles. The right matches should then make themselves obvious.
Especially for volunteer consultants, be sensitive to the amount of time you expect them to spend. Make sure your companies understand this as well so they don't keep going back and back for "just one more thing." Setting up a structure can help. For instance, Lisa Ison, president of the New Century Venture Center in Roanoke, Va., generally has consultants meet formally for two hours in the incubator with a client. In between meetings they can call the consultant with questions. If there's a more in-depth problem to address, she'll set up extra structured time. One current client has weekly Saturday meetings with its advisor, for instance.
Keeping a generous number of consultants engaged helps spread the work around. "Extend, extend," says Eve Clark, executive director of the Ellensburg Business Development Authority in Ellensburg, Wash. "Build a resource base and nurture it."
Williams compiles a directory of all the professionals who are willing to work with the incubator on its terms. "It gives clients the option to contact different people," says Williams, who has found that some client-professional matches don't click and they need to try someone else. She'll still make recommendations and an introductory call if her client firm wishes, but the directory allows them to make their contacts independently. The directory contains between 20 and 35 consultants, all of whom have agreed to provide their first hour of service free and the remaining hours at below-market rates. Williams knows some people like to size up consultants in person. At the incubator's quarterly Business Night Out, clients get a chance to meet the various CBI service providers. "They can sit down for 15 minutes, one-on-one, and get immediate answers to their questions," Williams says.
You wouldn't settle for staff who make a half-hearted effort. Don't hesitate to expect the same level of professionalism. Lesley Anne Rubenstein, director of the Initiative Center of the Negev in Israel, is somewhat blunt when she says of her incubator's consultants, "If they mess up, we drop them and we let them know in advance we won't tolerate lousy work."
For the Executive Associates program for his software incubator, Hunt looks for the 50-something executive with at least 20 years in high technology, preferably software, who has achieved a level of success as a top executive in either a start-up or large firm. Then he expects them to have a defined strategy for working with start-ups and previous experience working with incubator companies or graduates. Even with such stringent standards, says Hunt, "I typically receive five to 10 calls a week from firms wanting to provide some added value service."
Don't allow the conversation with your consultants to stop after your initial contact. If you want to build long-lasting relationships and make successful client-consultant matches, you will keep a dialogue going. In other words, "Call them when you don't need something," Williams says. Make sure they get newsletters and other informational incubator mailings. Meet with them periodically to get their feedback or ask them to fill out evaluation forms, then discuss the results.
No two incubators structure consultant compensation the same. Some incubators expect clients to pay for all services that don't come gratis from the consultants. Still others include some services in the regular client package and expect companies to pay for others. There are sliding fee scales, fees based on consultant companies' size and other arrangements, such as offering consultants who give substantial value to companies a piece of equity in return, as the Boulder Technology Incubator in Colorado does.
Some managers cut a hybrid deal. Williams of CBI, for instance, negotiates a special rate with business assistance providers for her incubator clients, then agrees to pay 50 percent or $250 of the fee, whichever is greater, out of incubator funds. Charles D'Agostino, executive director, Louisiana Business & Technology Center, Baton Rouge, encourages his professional service providers to start free and ramp up to normal fees. His suggested formula: the first two hours free, the next 10 hours at 25 percent of standard rates, the next 10 hours at 50 percent standard, then full fees from there on out. Few incubator managers are shy about requesting that some or all of the services rendered be pro bono, recognizing that when you set up your client-consultant relationships well, everyone gets value. "Providers appreciate the affiliation with our organization – it keeps them in touch with technology and gives them a pulse on the business community," says Donahue. Ison's pro bono clients not only keep coming back; they bring their colleagues with them.
Dallas Breamer, general manager of the Tri-Cities Enterprise Association, Richland, Wash., pays a modest $35 per hour to the consultants who aren't a part of his pro bono team. But he found that a few companies needed high-test help services that would cost in the five figures on the open market. He is now engaging consultants who will do such things as develop extensive market penetration strategies or prepare a firm for an initial public offering. The providers have agreed to deferred payment because they feel confident their services will substantially increase the companies' revenues. "The client will repay the program once the effort has had a chance to expand the business (about a year) with a percentage of revenues or royalty fee arrangement," Breamer says.
Hession reverses the deal altogether. "I don't compensate them; they pay the incubator $4,000 per year to be affiliated. Their payoff will come with an increased client base," he says.
All in all, the type and amount of compensation doesn't seem as critical as making sure you can work out good deals that young start-ups can afford.
Even when your consultants get paid or find that they convert incubator companies into full-paying future clients, they'll need more to keep them coming back over the long run. "Make consultants feel welcome, valuable and part of the team," Gjovig says. His incubator even provides temporary office space and office support during visits, with access to phones, a copier, the Internet and conference rooms. Many incubator professionals say they invite their consultants to incubator functions and talk them up in newsletters. The Ben Franklin Technology Center hosts an annual Entrepreneurial Advocate Award.
Remember, though, that compensation can serve as an important reward. "We recognize their time is more valuable but the [$35 an hour] we provide lets them know we appreciate their efforts and do not take them for granted," Breamer says.
Finally, when you're sending out press releases, find reason to mention your mentors. "We give consultants any publicity we can," says DeYoung. "Hugs and kisses and lots of PR. Okay, so no hugs and kisses."
Keywords: coaching clients, service provider network, staffing, strategic partnerships
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