Just Managing: The Myth of the Turnkey Company
There's a lot of buzz today about business incubators, which have
become so hot that they are not only taking their seedlings public,
they're also selling their own root stock.
Idealabs, one of the first and best-known Internet incubators,
recently announced plans to go public (and was thus unable to speak
publicly), while others, such as CMGI and ICG, are richly
valued by shareholders enamored with the idea of rapidly seeding
companies. The rise of business incubators is underscored by a belief
that smart operators can make the startup process routine. By providing
a shared, standardized set of business processes and tools, a centralized
idea factory can quickly capitalize on great ideas.
Incubators, however, are suffering a backlash. That's because
many are sprouting up out of nowhere, asking for too much equity
in their sprouts and pretending to have more knowledge and authority
than they actually do. Tell me, would you really want a college
student as your business guru just because he's managed to raise
Such concerns, which are certainly valid, could be called the
low-hanging fruit of incubator bashing. I have a different set of
concerns. For instance, the current crop of company-birthing centers
are not incubators in the traditional sense.
The National Business Incubation Association's executive director,
Dinah Adkins, points out that the vast majority of the more than
800 business incubators are nonprofit entities designed more for
economic development than as investment vehicles.
This new breed functions more like venture capitalists of five
or 10 years ago. Before the recent onslaught of money forced them
to seek larger initial stakes in their companies, venture capitalists
would help fledgling companies with small investments and connections
to the right people and resources. Today, they are chasing such
big ventures that they can't afford to get involved at the inchoate
That's created a market for incubators like eCompanies,
the richly publicized venture of Internet heavyweights Jake Winebaum
and Sky Dayton. It enjoys the same type of selectivity that the
elite VC firms have traditionally displayed. Having raised more
than $130 million to invest, the company is still choosing with
the utmost caution. According to Christian Gunning, eCompanies will
proceed with about eight ideas this year. The hyped new venture
receives about 300 business plans a month yet goes in-house for
80 to 90 percent of the companies it backs. In other words, few
beginners have any legitimate chance of benefiting from its expertise
Moreover, investment incubators raise a key startup issue: Can
you build a "turnkey" operation? Is it possible for smart operators
to compile enough prefabricated components to rapidly form a viable
company around a great idea? Intuitively the idea makes sense. After
all, people who drive cars don't necessarily need to know how to
build an engine. Likewise, how many people using a spreadsheet or
e-mail could debug a problem in the code?
Here's one reason why simultaneously meeting the common needs
of Internet companies (from Web design and experienced help to capital)
isn't enough to ensure success: Despite everything everybody says
about Internet speed, there are fundamental elements of building
a company that you can't accelerate. And the most important element
is learning. Traditional companies stay in traditional incubators
for close to 2 1/2 years, says Adkins, a period in which the founder
develops a tremendous amount of experience and education about what
the startup needs. Learning takes time. It is a natural, organic
process and can't be forced, regardless of external market exigencies.
The learning curve raises another critical issue, which is that
owners tend to discover the unique makeup that works best for their
unique company. Owners need to realize the value of building their
company from the ground up, assembling the tools themselves. There's
nothing wrong from tapping into such resources from one source,
but it isn't necessarily the right answer. Company builders who
learn how to adopt the most appropriate processes and resources
for their specific enterprise are those who understand how to adapt
on a dime in this fast-moving economy.
Building a company is, above all, a heuristic process: The act
of building the company teaches you what you need to know. Early
failure, for example, often pushes companies into a market that
they should occupy or forces them to adapt a product to better suit
their market. Many incubators consider themselves "accelerators,"
with an ability to bring a company to fruition in 90 to 180 days.
Under the new laws of the Internet economy, that's certainly possible.
But failure to tend to the oldest need of endeavors - human knowledge
- will do nothing but accelerate failure.
Read or print the Intro
and Chapter 1.
Read the book reviews at Inc
Read the publisher's press
this book from Amazon.com.
the companies that Tom discusses in the book
Hear a recent lecture by Tom on the Startup Garden
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and industry resources for your startup. Simply send me an email
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Managing – articles that Tom wrote for The Industry Standard and some
written for Inc., Fortune Small Business, Harvard Management Update, and other
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