Incubators help new startup businesses take root and grow

Last week we looked at the difference between startup accelerators and incubators, and how the latter fit into Cincinnati’s business ecosystem. This week we’ll examine the part incubators play in the business lifecycle, and how an entrepreneur nurtures the startup seed.
Gordon Horwitz came up with an idea for a new business after suffering from stress-related fatigue. He did some research and found out that wear and tear on the body, known as “allostatic load,” grows as a person is exposed to chronic stress. As his own doctor was unable to find any medical explanation for his fatigue, Horwitz decided to develop a methodology to measure stress damage in people who are otherwise asymptomatic of illness, and use that information to predict disease and even premature death. Thus Allostatix LLC was born.
 
Horwitz isn’t new to the business startup scene. Allostatix is his third company, and he knows the ropes when it comes to gathering research, identifying a viable idea and making a business plan. The Standard Textile Company recruited him to work in Cincinnati in 1999, but by 2005 he was ready once again to exercise his entrepreneurial muscles. The question then was where to nurture and grow the seed of his idea. That’s where the Hamilton County Business Center (HCBC) startup incubator came in.
 
Planting the Seed in the Right Place
To get his business going, Horwitz needed a space to do allostatic research and develop his business plan, but setting up in regular commercial space didn’t seem like a wise use of money.
 
“In today’s world, everything is done long distance and digitally,” Horwitz says. “Having an office is great, but nobody really comes to see you, anyway.”
 
HCBC offered office and lab space, as well as business coaches, mentors and a large network of investor connections, all for a single rent fee. Unlike startup accelerators, incubators like HCBC are open 24/7 to their entrepreneurs and place no time limit on their services. An accelerator generally takes a very early stage concept and tries to condense two or three years of business development into a few months, whereas an incubator often requires applicants to have a more developed business plan.
 
While HCBC isn’t the only startup incubator in Cincinnati, it’s nationally recognized, supporting and graduating hundreds of successful startups over the past 24 years. It’s distinguished in that it places more emphasis on engineering and instrumentation than on information technology. It also works with many business-to-business entrepreneurs in addition to business-to-consumer. This appealed to Horwitz, who saw enrollment in the incubator as having a bonus network of diverse support and connectivity.
 
“It’s like that second semester of freshmen getting to know each other,” says HCBC director Patrick Longo. “They share in this culture of entrepreneurship, where the environment is conducive to a growing company and you’re around other risk-takers.”
 
With 50 companies currently in the program and 12 sharing offices in the CoWorks Space, Horwitz had access to the advice and expertise of other entrepreneurs working in fields like nanotube development, instrumentation and sensors, environmental science and architectural re-use. The camaraderie developed between entrepreneurs extends further than business and technical support, though.
 
“While building the business, an entrepreneur lives most of the time in a state of controlled anxiety,” Horwitz says. “You need certain anchors, like knowing your rent is covered. You also need to know that you’re not alone. At HCBC there are a whole bunch of people that are at some stage of building a business.”
 
HCBC also connects entrepreneurs with funding once they’ve refined their business plan and pitch.  
 
“We’ve probably helped raised at least $250 million for companies over the past 17 years,” Longo says. “We also have people working only with sweat equity—companies that will probably continue to be owned by the original founders. What’s neat about the incubator is that we have people going down both channels.”
 
With HCBC’s space, services and resources as a springboard, Horwitz and three partners developed the Allostatis Risk Prediction System (ARPS) and launched Allostatix LLC in March 2007. But even after seven years, the company still calls HCBC its home.
 
“When you’re doing analytics and software, you don’t need a lot of people or space,” Horwitz says. “We’ll move when it makes sense economically.”
 
Promoting Broad Growth
Had Horwitz not needed the lab space or more scientific expertise, he could have gone across the river to the Northern Kentucky ezone. Like HCBC, ezone also connects entrepreneurs with capital and mentors to help promote business growth. As part of the Kentucky Innovation Network, which has 12 offices throughout the state, ezone’s entrepreneurs have unique access to a vast network of funding resources, capital networks, suppliers, business partners and experts on markets, business development and idea validation. But rather than specializing in any certain industry or entrepreneurial direction, ezone provides a more general expertise.
 
This doesn’t mean ezone recommends its services to every entrepreneur who walks in the door. Ezone takes an ABC approach with prospective entrepreneurs—Assessment of the company’s growth potential, Business Planning to prepare for further growth, and help raising Capital with a mix of debt, grants and private equity. If a business idea is too specific, or in too early a stage of development, ezone’s volunteers and mentors will point it in the right direction, be that a startup accelerator or another incubator.
 
“For some startups, using ezone is like going to a general practitioner for spine surgery. We don’t want somebody fumbling with your business,” says ezone director Casey Barach. “If you have an idea and you’re not sure, just pick up the phone and call us.”
 
Like other startup incubators, ezone provides internet access, phone systems, office space and equipment. Entrepreneurs also use ezone for its advisors and networking connections, and to have a professional-looking address in the heart of downtown Covington. With 35 active clients in the system currently, businesses at ezone find themselves in the company of others at every stage of development from startup to well-established. That added support network gives younger companies access to the wisdom of those who have already seen success, and more mature companies benefit from the creativity and innovative spirit of newcomers.
 
More Specific Assistance
For those entrepreneurs at the other end of the business spectrum who need all the lab space and technical expertise they can get, the incubator at bioLOGIC is often the best fit. Also located in Covington, it’s the only life science incubator in the wide area between Columbus and Louisville.
 
BioLOGIC exists in the gray space between startup accelerator and incubator, leaning slightly more toward incubation. Anyone with an idea can lease lab space after filling out an online application (which is there mostly to ensure that nobody’s lab work will interfere with or explode on contact with others). The incubator provides the usual reception and administration services, as well as access to a staff grant writer and patent attorney. BioLOGIC also offers some limited training courses, but complements that with a large stock of in-house expertise.
 
“Any company that wants to move in or is already here can present ideas to current residents,” says Keith Schneider, bioLOGIC’s managing director. “They automatically have access to a whole network of people who have been-there-done-that. Before anyone hires outside researchers, we try first to leverage collaboration opportunities and make sure our in-house experts are fully utilized.”
 
Many of the people who use bioLOGIC’s labs and equipment are in the very early seed stage, entering with a rough idea at the top of the funnel, Schneider says. “Most are really in growth mode, working toward higher growth rate to attract venture capital and angel investors. That’s why they need the benches and equipment.”
 
For life science startups, solid research is critical to getting the business off the ground. Entrepreneurs research first to validate their idea, then to acquire patents and go after federal grants, which have notoriously tricky hoops to get through. With respect to funding, bioLOGIC’s Covington address is no accident—unlike most other states, Kentucky will match federal phase one research grants up to $150,000, and phase two grants up to $500,000 over two years.
 
What takes bioLOGIC out of the traditional incubator category is that it occasionally invests in startups in exchange for equity. It provides mentorship and management support, but has yet to establish a specific program of investment or training. Nevertheless, it has attracted medical device and instrumentation companies from as far as Colorado, and continues to draw research and equipment companies to the region’s growing diagnostics business.
 
“We have a range of companies from those just leasing a mailbox to look more like a legitimate business, to Bexion, which takes up a third of the lab,” Schneider says.
 
Bexion, a company developing innovative pharmaceutical cures for cancer, used bioLOGIC’s services to move up and out of the startup phase. Thanks to the incubator’s research, fundraising and networking services, Bexion is nearing a major milestone in which it submits an Investigational New Drug (IND) application and begins running human trials. 
 
Getting the Fundamentals
There is yet another option available for the entrepreneur with the vision and drive of a Horwitz, but who doesn’t necessarily need the technical or institutional support. The Cincinnati Small Business Igniter (CSBI) provides office and administrative services for a minimal monthly fee. Tenants get internet access, furnished office space, a lobby area and use of conference rooms. As with the region’s other incubators, there also comes the intangible benefit of working side-by-side with other entrepreneurs.
 
Current tenants who have seen success in their businesses are available as sounding boards for newcomers. They occasionally hold training seminars in subjects as broad as marketing and human resources, and as focused as how to register an LLC.
 
“Basically, we’re trying to take that person who wants to get started and give them the tools to succeed,” says Pete Montgomery, property manager at CSBI.
 
In 2008, Sedra Tailor started Tailored Training Services in CSBI’s smallest office. The company offers professional development courses and certifications such as CPR and first aid. It has now expanded its footprint to 23 suites, taking up a whole floor at CSBI.
 
Honing the Right Growth
There’s no one-size-fits-all solution for startups. Even within Greater Cincinnati’s niche incubators, there’s room for variability as well as growth upwards and outwards. If ezone’s services aren’t quite right for an entrepreneur, Barach says, he’ll recommend trying another more appropriate incubator or accelerator. Alternately, a company may start at bioLOGIC or CSBI to get on its feet before moving on to HCBC or ezone for continued support and development. Or vice versa. In any case, incubators give companies the option to grow to the point of needing their own brick-and-mortar location, or to continue operating from the leaner, resource-flush incubation space.
 
“I believe that in the beginning of a business, you owe it to the product not to waste your money on expensive outside appearances unless it’s absolutely necessary,” Horwitz says. “That allows you to conserve resources for the main thing: building a product and a plan.”

Next week, the third and final part in this series explores the sources of funding available to Cincinnati startups once they've
graduated from an incubator or accelerator
.

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