By Cliff Ennico
“I am a partner of a midsized law firm in the Midwest. We have laid off a number of attorneys lately, and as a result have a glut of office space in our building. Our lease doesn’t come up for renewal for several years yet so we can’t just hand back the excess space.
In an effort to be creative (something lawyers aren’t generally known for), I have suggested we vacate one floor of our office space and create an ‘incubator’ there – inviting local entrepreneurs to rent the space at low rent and give them the chance to build businesses, hopefully with some paid legal advice from our firm once they can afford it.
What do you think of this idea?”
I think this is a dandy idea, and would encourage all landlords with space that’s sitting idle right now consider doing this.
When people speak of “incubators,” they are usually referring to designated spaces established by universities, with support from state and local government agencies, where local entrepreneurs can share idea, exploit research developed at the university, and otherwise “hang out” with the goal of starting profitable businesses.
I’ve always been suspicious of incubators created by government and academia. Entrepreneurs inhabit an entirely different culture from these folks, and the two mindsets do not always meld. Private incubators are, in my opinion, a much better solution and more likely to succeed because all players share the same motivation.
There’s an art to creating a “private” incubator. Rather than running the incubator yourself, it may be wise to engage a couple of successful entrepreneurs to manage and run the incubator for you. Evgeny Hvastovich and Michael Alatortsev, serial entrepreneurs who have set up the Colodesk incubator in Stamford, Connecticut (www.colodesk.com) – in the offices of a law firm, no less!
“Most incubators are organized by people who have never themselves launched or built startups,” cautions Michael Alatortsev. “They’ve worked for ‘the man’ all their lives and they have impressive resumes, but they’ve never actually ‘walked the walk.’” Michael has certainly walked the walk, having run his own company since 2001 and launched “hundreds” of projects.
Evgeny said the duo were motivated to establish an incubator in Stamford because of the lack of infrastructure and networking opportunities for entrepreneurs in New England compared to, say, California. “There are no places for entrepreneurs to go to build something quickly and launch it,” he says. “Everyone is sitting in their little cocoons, and they don’t know there’s somebody sitting next door who can solve their problems in one day.”
Startups wanting to participate in Colodesk have a number of choices. For $961 a year ($89/month), they have the ability to participate remotely via the Web but no physical location in the incubator space. For $2,397 a year ($235/month) they get a shared desk and legal support from a local law firm. For $4,335 a year ($425/month) they get a dedicated desk at the incubator, and for $9,639 a year ($945/month) they get an office with three desks.
“It’s important that everybody is a paying member of the incubator,” says Michael. “This weeds out the ‘wannabes’ and ensures we only work with people who are serious about launching their businesses.” Evgency adds, “and also you need to pay your bills.”
If Colodesk likes how a startup is performing, it may offer additional assistance where the startup can receive up to $100,000 in various technology (storage, traffic, hosting), marketing, and legal services, and Colodesk takes an equity position in the startup.
The key to operating a successful incubator, they say, is to focus on a niche, which in Colodesk’s case is technology. “It can be a pharmaceutical idea, but the driving force must be technology, such as a Web based service for an iPhone application,” Michael says. That’s partly because technology is what he and his partners know, but also because it is now possible for technology companies to launch successful businesses without venture capital funding.
“We are big believers in ‘bootstrapping’ – not using outside capital to grow your business,” says Evgeny, who points out that many technology concepts can be launched for far less than the $1 million venture capitalists usually want to invest. Michael adds that the equity crowdfunding method authorized by the federal J.O.B.S. Act will be revolutionary for early-stage technology companies: “with crowdfunding you won’t need professional investors anymore; if you collect $100 from 1,000 people you have the money you need and can be up and running in weeks” he says.
The founders also stress the importance of “execution” when evaluating candidates for Colodesk membership. “Ideas are useless; everybody’s got a ton of them,” says Michael. “Our members need to have clear experience in their industry and the willingness to get results quickly, even though the product or service may not be perfect at the time of launch. With rare exceptions (such as Steve Jobs) perfectionists in general make terrible entrepreneurs.”
Cliff Ennico (www.succeedinginyourbusiness.com), a leading expert on small business law and taxes, is the author of “Small Business Survival Guide,” “The eBay Seller’s Tax and Legal Answer Book” and 15 other books. Follow Cliff https://twitter.com/cliffennico.