breeding new business

By Melanie Coffee

M any dream of starting a new business, hitting it big and making a name for themselves. But the reality is that over the last four years, only 50.5 percent of new companies have survived, according to the U.S. Bureau of Labor Statistics.

However, with the burgeoning of incubators and accelerators, startups now have an immense amount of support they lacked in years past — support that improves their chances for success. “Incubators and accelerators give a business space to test and find the right business model in an environment where they can get additional collaboration, mentorship and discounted services,” says Linda Darragh, executive director of Kellogg’s Levy Institute for Entrepreneurial Practice and the Kellogg Innovation and Entrepreneurship Initiative.

Incubators are a bit like that elementary school science project where kids watch eggs turn into peeping tufts of yellow. They give startups a physical home under one roof where businesses can find their footing as well as take advantage of the resources and networks available for growth.

Accelerators, on the other hand, have a specific duration. Participants work with mentors to quickly test their business ideas and figure out how to pivot and find investors. The participants are usually given some seed money and agree to give the accelerator a percentage of equity in the company.

And where a startup ends up — be it an incubator or accelerator — depends on that business’ needs.

Right place, right time

For Erik Severinghaus ’12, 1871 was the perfect spot for his company, SimpleRelevance, which helps online merchants have personal interactions with customers.

He was already working on his startup in Chicago’s Merchandise Mart building, holed up in a grotty space on the 19th floor as part of a self-organized, informal incubator called Fail Cube. Then, word spread about an innovative new space that was coming to the 12th floor, an incubator called 1871 that not only would provide space but also educational and mentoring resources to Chicago’s blossoming technology scene.

Severinghaus, 31, thought it made sense to move. “It was clear from the beginning that this was going to be the hottest digital technical community between the coasts,” he says.

Now, 225 startups call 1871 home. Others who have a presence in the 50,000-square-foot office include five venture capitalists and four universities, including Northwestern. The atmosphere at 1871 buzzes with friendly competition and collective wins. If teams struggle with their marketing, development or a myriad of other obstacles, there’s always someone within walking distance who has been there, done that and is willing to help.

“[1871 is] this neat sort of confluence of amazing people from political and social circles and the technology community,” Severinghaus says. “It gives you more chances — luckily or serendipitously — that could really launch your business.”

Build fast or fail

When entrepreneurs haven’t done much more than dream up a business plan, accelerators can help them quickly figure out if that idea will fly.

Take, for example, Jeremy O’Briant ’14. Before attending Kellogg, he was a certified public accountant. To keep his license, he had to take 40 hours of classes each year and found the continuing education process to be quite disjointed.

O’Briant decided to build a better mousetrap and created License Buddy (mylicensebuddy.com), which helps licensed professionals manage their continuing education requirements. He took his idea to Northwestern’s Startup Incinerator last October, a weekendlong competition where more than 80 teams pitched their business ideas in an “American Idol”-like contest. In the end, the teams were whittled down until one was left standing: License Buddy.

“That weekend helped the team and me organize the idea, demonstrated that others believed in it and gave us confidence and support to go full speed as entrepreneurs, which was invaluable in retrospect,” says O’Briant, 31. For winning the competition, License Buddy received $10,000 in legal consulting, and O’Briant was given a seat in The Farley Center’s coveted NUvention Web class. During the course, O’Briant worked with students from different disciplines to build his web product. “NUvention gave us a few extra hands on deck with different skill sets that helped turn it into a business,” he says.

Following NUvention, O’Briant was accepted this summer to New York-based DreamIt Ventures, a highly competitive, threemonth accelerator where participants are given up to $25,000 in seed money. In return, DreamIt receives a 6 percent equity stake in the company.

“All of us were really interested in entrepreneurship, but we had never been through it before in a meaningful way,” he says of his License Buddy team. “The intensity of the programs pushed us along and provided invaluable lessons that just can’t be taught in the classroom.”

In the end, License Buddy emerged a leaner, stronger company, with people continuing to sign up every week. O’Briant still maintains the site, although only part time. O’Briant plans to spend his remaining year at Kellogg working on a media-related startup that came out of his experiences over the last year. “If we hadn’t had the opportunity to participate in these programs, I’d still be on the sideline with ideas in my head,” he says.

Support, support, support

When Severinghaus felt SimpleRelevance was ready, he applied to Techstars Chicago (formerly Excelerate Labs). A satellite of Techstars, it’s one of the largest accelerators on the planet and a pioneer in mentorship-based accelerators. Out of more than 900 startups, SimpleRelevance was among the 10 chosen for the Chicago branch’s annual three-month summer program.

“We have gotten a tremendous amount of value out of [Techstars] as far as messaging the company better, getting sales, getting client interest,” Severinghaus says. “I think it did very much what it was meant to do.”

Having the support to strengthen a new business is what helped inspire the concept of a business incubator. The first one was in 1959 in Batavia, NY, according to the Ohio-based National Business Incubation Association. The idea didn’t catch much fire, and by 1980, there were only a dozen. Today, the association estimates there are more than 1,250 in the United States.

Accelerators came out of the Silicon Valley scene in 2005 after the Boston-based Y Combinator moved out West and started funding companies like Dropbox and Reddit.

Now, experts say, there are more than 1,000 accelerators worldwide. “These mentorship-based accelerators are effective because they help the entrepreneur learn more in a shorter period of time than was ever possible,” says Troy Henikoff, managing director of Techstars Chicago and an adjunct lecturer on entrepreneurship at Kellogg. “They provide the mentors with a way to get meaningfully involved, helping entrepreneurs, seeing the new technologies and getting a great view of the new companies that are potential investment opportunities. All parties are served well.”

The growing trend of incubators and accelerators is changing the face of entrepreneurship. Though many factors obviously contribute to a business succeeding, it’s worth noting that the incubation association says historically 87 percent of businesses that went through an incubation program are still operating nearly 10 years later.

“They have done a great service to entrepreneurs,” Severinghaus says of incubators and accelerators. “It’s lowered the barriers in a lot of ways in getting connected to people who can help you be successful.”