7 Lessons from an Startup Incubator Experience

Startup in Berlin

Startup in Berlin
Image credit: https://flic.kr/p/dP6W49

Don Charlton wrote an interesting article about his experience being in an incubator. This is a summary of the 7 lessons he wrote about in the article: 7 Lessons from My AlphaLab Experience.

Lesson 1: Even a small amount of operating capital from an investment can be extremely useful.

The primary purpose of the $15-$25K provided by startup programs is to support the development of your business. Expenses such as leasing a server, buying computers/ software manuals, paying contractors or attorneys could add up to a large amount a be a potential deterrent to starting a company. Being able to chip away at a small five figure bank account to support the business operations is extremely helpful.

Lesson 2: Startup programs accelerate your understanding of the investment world.

Raising funds is a long and tedious journey involving meetings, due diligence, and the actual negotiations of terms involving important issues such as dilution, option pools, pre and post money valuation, convertible note, etc. Knowing how to speak this language emits the confidence worth of an investment. The experience of convincing the program to invest in your startup lays the foundation for when you may be negotiating for your future funding rounds. You’ve done all the paperwork and learnt about the strings attached in the past. You’re more prepared than you were before :)

Lesson 3:  Developers succeed in startup programs. Business people fail.

Rapid development, production, and iteration with as few people as possible is the key to succeeding in an early stage startup. Developers writing code are much more valuable than MBAs writing business plans since actual technical skills is required to get the product out.

Lesson 4: Demo Day is not magical.

Demo Day in most startup programs is the day where the media, investors, and other influentials gather to see demos of the newly-formed businesses. While there may be some heavy-weight attendees, a majority of the attendees are investment analysts vetting the startups, and bringing only the most interesting to the venture partners. Only a small number of startups can attract VC interest simply from Demo Day. Entrepreneurs should look at Demo Day as a official coming out party, exude the attitude that they are moving forward with the idea, instead of seeing it as a do or die opportunity to land an investment.

Lesson 5: Financial projections are both utterly ridiculous and insanely useful.

Projections are ultimately ceilings on the potential of the company that everyone agrees to. Investors need to see it, and though rarely openly admitted, startup programs want you to make some guesses. While projections are not based on any real facts, they are useful when you apply the math with real data and “work backwards”. It is revealing to see how much money the company would earn if you got one more customer. It puts your revenue goal in perspective and helps you to see how many customers you need to achieve that. Hence, plugging in the numbers gets you thinking about how to manage the initial growth of your business.

Lesson 6: Everyone roots for startups.

One of the biggest reasons to get into an incubator is for the amazing support system which makes you never feel alone or abandoned. The organizers will go out of their way to help you get off the ground, such as getting you press, helping you find employees and advisors, and even raise more capital. Venture capitalists and other influentials will contact prospective customers, make introductions, share tips, and help you in many other ways expecting only for you to succeed. Most importantly, all you need to do is to ask for help :)

Lesson 7: You’ll know when to start your startup when not starting it is no longer an option.

You need to feel that you have no choice but to do your startup. More often than not, this does not stem from desperation, but rather, for other wonderful reasons. Perhaps you just can’t sit on the idea any longer. Or maybe you need to feed that desire to be your own boss. Or when you get your first customer and feel an absolute obligation to be there for them 24/7.