The end of startup incubators? Enter the era of the startup ‘excubator’

By Editor August 27, 2013
George Deeb, Ensemble

George Deeb, EnsembleBy George Deeb, managing partner of Ensemble

Recently, five award-winning digital services providers in Chicago decided to join forces under one brand, Ensemble, to launch a one-stop ‘digital services suite’ for entrepreneurs desiring ‘do-it-for-me’ solutions. The concept was to bring entrepreneurs everything they need to succeed under one roof, including startup consulting, venture capital, technology development, search engine optimization, social media marketing, and public relations. At the same time, the concept provides a cash discount for startups who bundle their purchasing of all member companies’ services. An even deeper cash discount is offered for startups in which the member companies are collectively willing to take an equity position. Furthermore, it was designed to materially increase a startup’s ROI and odds for success from the typical 10 to 30 percent by leveraging the collective best practices and go-to-market playbooks of the member companies and their collective base of clients. We like to think about this next-generation model as a startup ‘excubator,’ which provides an inclusive solution for all startups that desire such help, while dramatically improving venture capital returns in the process.

To help identify whether this model will work for entrepreneurs compared to the more typical startup incubator, accelerator or shared location programs, let’s compare the plusses and minuses of these alternatives based on the key criteria below:

ACCEPTANCE: The flaw with most startup incubators, accelerators or shared locations is you need to be approved by a committee in order to participate. As an example, if 1,000 startups applied to get into the TechStars Chicago program this year, almost 990 would be out of luck. An excubator is designed to work for every startup that has a budget to afford the services.

DURATION: An excubator can grow with a company from startup ideation through ultimate scale and success. Compare this to startup accelerator programs that are typically 12 weeks in length—after a few short weeks, startups are kicked out of the nest to figure out the rest on their own.

LOCATION: An excubator brings its services to the entrepreneur wherever he or she desires to work. It does not require a startup to relocate its business to the location of the incubator, accelerator or shared location program.

PEERS/MENTORS: An excubator surrounds an entrepreneur with successful entrepreneurs running prosperous digital services businesses to leverage the learnings of their collective base of clients. The other programs typically surround an entrepreneur with its peers, which can often be failing startups, or mentors that often provide conflicting input and come and go after a few meetings.

CURRENT EXPERTISE: An excubator shares learnings based on current industry best practices and the newest trends in the digital space, as learned by what is working for their other clients in real-time. Many other startup programs teach yesterday’s techniques based on a curriculum or tactics that may be out of date in the ever-changing world of digital marketing.

REVENUES FOCUS: An excubator is firmly focused on maximizing a startup’s ROI through cost-effective marketing programs and other customer acquisition programs to materially scale traffic base and revenues. This helps startups achieve a solid proof-of-concept, which is attractive to future investors and partners. No other program is focused on profitably driving revenues and growth. Instead, other programs are traditionally focused on launching a minimally viable product and seeing how it goes from there.

ONE-STOP SHOP: To be successful, a startup needs a good team, a good product, a good marketing plan, and access to smart capital. An excubator checks off all of these boxes where other programs typically offer some subset of the needed solutions.

WHO DOES THE WORK: Most other programs require the entrepreneur to learn and do the work him or herself, which is a lot to ask of one person. Excubators are vital members of a team—a perfect solution for companies looking for ‘do-it-tor-me’ solutions from proven industry playbooks.

THE RIGHT EQUITY: Most other programs simply take equity in startups by accepting them into their program, locating at their facility or by writing a cash check. Excubators take equity in startups with the clear mandate to scale traffic and revenues—the core of any successful business.

BRAND ASSOCIATION: Theoretically, past success is a good indicator of future success. By aligning with successful excubator members, a company should be perceived as a ‘best-of-breed’ startup powered by best-of-breed digital experts. This brand halo will assist in attracting future investors and partners.

DISCOUNTS: If entrepreneurs are going to have to spend money on building technology and the needed marketing services anyway, why not aggregate such spend with an excubator? That way, the entrepreneur saves money in the process and stretches his or her thin capital resources to other areas.

ODDS OF SUCCESS: We believe that the above list of strengths in the excubator model will result in two-to-three times the odds of success for startups as compared to the other alternatives and will materially improve a venture capitalist’s return on his or her investment.

As an alternative to incubators, the next-generation ‘excubator’ model for startups hopes to solve many of the pain points in the industry and materially improves a startup’s odds of success.

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George Deeb is the managing partner at Chicago-based Red Rocket Ventures, a startup consulting and financial advisory firm based in Chicago. Red Rocket is also a founding member of Ensemble, an all-star powered ‘Digital Services Suite’ for entrepreneurs desiring high-ROI, ‘Do It For Me’ solutions at 20-to-40 percent savings. You can follow us on Twitter at @georgedeeb, @RedRocketVC and @EnsembleHQ.