The nature of the term “startup” lends itself to a new beginning, a burst of acceleration. But the keys to traveling in the direction of stability can be hard to pin down.
What do leaders of incubators look for to determine the likelihood of a new company’s success? The answers may surprise you.
Basic metrics
Institutions called incubators act as hatching grounds for fledgling companies, providing office space, training sessions, guidance and other resources for the entrepreneurs who come to roost there.
Alachua County is home to four incubators: UF’s Florida Innovation Hub, UF’s Sid Martin Biotechnology Incubator, Santa Fe College’s Center for Innovation and Economic Development (CIED), and Santa Fe’s Gainesville Technology Entrepreneurship Center.
In general, three factors are considered to determine a startup’s success, said Jane Muir, the director of UF’s Florida Innovation Hub.
“If you look across the board…the common metrics that people use are job creation, private investment and economic impact brought to the community,” she said.
But that’s just a start. Incubator leaders often see intangibles as of equal importance.
“We like to go beyond that and look at what these young entrepreneurs are learning in the incubator,” she said.
Even a business folding can be a valuable experience.
“There are many entrepreneurs who are successful and have had at least one failure in the past,” she said. “We don’t look at is as a failure.”
She pointed to the example of a previous incubator tenant Aaron Duffy and his business, Apps for Docs. He closed the company after about a year to take a better job in Orlando. Muir said Duffy told her if he hadn’t run the yearlong startup, he wouldn’t have gotten the job.
“In my mind, that’s success,” Muir said. “And you can’t quantify that.”
Choosing to stay small
Bigger isn’t always better.
At least that’s how Dug Jones, Santa Fe College’s associate vice president of economic development, sees it. He oversees the college’s incubators, the Gainesville Technology Entrepreneurship Center (GTEC) and the Center for Innovation and Economic Development (CIED).
The CIED tends to attract specific types of startups: ones that plan to stay small and expand minimally, Jones said.
“We’re pretty comfortable here at the CIED with companies with two to seven employees,” he said.
The reason? Part of it has to do with government regulations. Many entrepreneurs choose to cap their number of employees at six because extra stipulations regarding employee benefits kick in for companies with more than six workers.
Jones said this is often a good thing. A business “can be pretty productive with up to six employees and create a good life for the company” if they keep it small.
A tight-knit team and smaller amount of starting capital also lets a business figure out if their model can be successful and if there’s a market for it. Companies with large sums of initial investments might feel pressured to keep pushing a concept even if market demand begins to indicate otherwise.
“Another thing we like about the smaller launches here is that people can fail or succeed more rapidly,” he said. “Sometimes something that is well-funded but doesn’t work is a long-lingering gaffe rather than something that is successful but boot-strapped.”
A worthwhile investment
Randy Scott, a Gainesville-based partner with investment firm HealthQuest Capital, noted that three factors get the attention of investors looking for profitable projects to fund.
New companies must first demonstrate that their product or service is solving a problem that’s important to the customer. Scott called it identifying a “pain point” —something a customer wants to fix.
Next, startups must be managed by credible people who can succeed in their niche. They should have “done something in the past that suggests they can be successful at this in the present,” he said.
Finally, he said, a prospect of the startup getting acquired by another company must exist. It should be a desirable commodity, something larger companies want to acquire. This matters to investors because, Scott said, “as investors, we only make money when we take money out.”
A long childhood
Patti Breedlove, director of the Alachua-based UF Sid Martin Biotechnology Incubator, said the road to success varies greatly depending on what type of product or service a startup offers.
She said it takes 10 to 15 years for most biotechnology startups to develop their technology and begin to market it.
“These companies have a very long, long childhood,” she said. “They stay with us a long while.”
A good evaluation of a company’s clinical trials can be one milestone pointing to stability for these startups, she said. Gaining publicly traded status can be another.
“By their very nature, they require lots and lots of funding to be successful,” she said.
“It’s not simple, and there are a lot of celebratory milestones along the way.”
Regardless of the genre of startup, Breedlove said each company will have to “figure out what is their market; who are the competitors; what will it cost to develop; what are the steps along the way; (and) how to get money in.”
“They have to answer similar questions, but the answers will be very different,” she said. “Don’t think of success as ‘you have arrived finally,’” she said.
She mentioned AxoGen, launched about 12 years ago, as an example of unconventional success. It graduated from the incubator in 2013, has an established employee base and is traded on NASDAQ. However, it is still considered a very young company.
Another Sid Martin-incubated company, Applied Genetic Technologies Corp., got $50 million in investments and is traded on NASDAQ, too. However, it has yet to produce a product.
“They don’t have a product on the market yet, but that doesn’t mean they’re not successful,” she said. “It’s not a moment in time. It’s a long hike.”
Time to graduate
Incubators are intended to be resource-rich environments to help baby businesses get on their feet. But they are by nature meant to be temporary environments for startups.
Jones said he tries to let individual tenants at the CIED decide when it’s time to branch out of the incubator and move into their own office space.
“It’s not so luxurious and plush here that there’s a reason for someone to stay on here once they’ve gotten what they need,” Jones said.
He likened the transition to a student graduating from college.
“It may be convenient to live at home with the folks,” Jones said, “but it usually makes sense to move to a situation where you have more control over your environment to do things how you want to do them.”
In the end, startup success isn’t necessarily something that can be quantified definitively. Individual companies thrive when they reach their target audience and fit into the big picture of a market’s economic fabric.
“Like an ecosystem, you need the big ones, medium ones and the small ones,” Breedlove said. “There are small, medium and large successes.”
