The Real Value in Founding a Startup

Every couple of months I start an application for one of the many startup incubators out there. I haven’t finished one because I have plenty on my plate that I’m not prepared to step away from currently, but it may be a matter of time. I see so much value in launching a startup and going through an incubator’s process.

It’s not a question of money: I understand the odds of coming up with an idea that will land me millions of dollars in investment, let alone offer a clear way to make money down the road. Only a tiny fraction of startups are successful in that way.

It would be nice to earn a giant pile of money from a startup, but that’s not why I want to found one.

The Real Value is the Connections

For a startup to be successful, the founders have to know people. That’s why just about every incubator out there puts such a heavy emphasis on connecting the startups they’re nurturing to mentors, investors and all the other people necessary to a new company’s success. It’s one of the fastest ways to get access to the big fish in the local pond or — if you’re able to get into Y Combinator or another big name incubator — even the big fish on a national level.

That’s a huge deal. Say you meet an investor through your time in an incubator. You stay in touch and when you’re ready to unveil your next project, you’ve got someone you can call up and pitch without any intermediate steps. The odds are against a first business succeeding, but there’s nothing in the rules that says you can’t use your first venture to put yourself in a much better position for the second.

Even if you launch a startup without going through an incubator program, you’re going to have a good reason to ask for introductions — and have a reason that the people on the other end of a new connection will be interested in meeting you. Having that sort of basis for a new connection is crucial: if you just meet someone famous (even internet-famous) for the sake of meeting them, you’re not going to be able to build a meaningful relationship most of the time. Such people just tend to have too many demands on their time to allow for remembering introductions that don’t have a specific purpose.

Side Benefit: You’re Approved

Just like publishing a book traditionally can establish you as an expert, launching a startup through an incubator is like receiving a stamp of approval. In both cases, someone who is supposed to really know these things says that you know your stuff to the point that they’re willing to put money on the line.

Consider the investors who automatically put money into any company that comes out of particular incubators. Y Combinator is the best known; graduates of its program are automatically offered a $150,000 investment from Yuri Milner, plus access to several other key investors. Not every company Y Combinator spits out is a good investment (although the incubator has built an excellent reputation for finding gems), but there are plenty of people happy to trust their judgment and skip doing research.

And you had better believe that there are people who make note of each person that gets into incubators that interest them. When I’m writing about startup topics, those are people that I’ll often email for interviews. Recruiters will do the same thing, as well as plenty of other people interested in the startup scene. Launching a successful startup is certainly an easy way to bypass vetting processes, but so is going through an incubator, whether or not you have a guaranteed success on your hands.

The value that sort of approval offers is incredible. It practically guarantees press and funding for whatever you might do as a follow up act. Especially if you’re in the early days of your career, that sort of launchpad for you future may prove invaluable.

Some Honesty About the Startup Ecosystem

I’ve written up iterations of this post a dozen times over the past few years. One of the reasons is that I’m not sure it’s a good piece to have at the top of my archive if I actually submit an application. Considering the number of startups that shutter or otherwise don’t earn back what investors put in, though, most incubator organizers have to be aware that not everyone applies just to launch a big money maker.

If I ever do manage to finish an application to an incubator program and submit it, my goals are going to be pretty clear. That doesn’t mean that I won’t work my heart out on any startup I might found: there’s no point to making high quality connections if you don’t impress them.

Accelerators and incubators are becoming a sort of apprenticeship for the startup world. Just as I would go in with the goal of meeting certain people, everyone goes in looking for a specific value that will help them in their careers. That can take the form of a very fast business education, a chance to sit down with a top marketing firm or something else. That’s not a bad thing for incubators: it makes them more important to the startup ecosystem.

Before you go worrying about taking advantage of an incubator, consider this: The only danger lies in the cost of running an incubator, at least from the point of view of the person in charge. It’s not cheap, in terms of cash or connections, to operate an incubator. But an incubator only needs a couple of big successes to keep the bills paid for years. As long as an incubator operator can find a few gems on a fairly regular basis, the finances will take care of themselves.

Taking Full Advantage of Creating a Startup

Founding a startup is worth doing. Don’t wimp out or try to save a great idea for your second venture, either: you’ll only get all the benefits that go along with this process if you fully commit. I’ve been through enough business classes where students had to prepare mock business plans that I’ve seen what happens when participants decide that the project is just for educational purposes and they just need to go through the motions. The results are invariably junk.

If you’re going to found a startup, pursue an excellent idea. There’s always the off chance that you might make a fortune. But you’ll also improve your chances of being memorable, of building great connections and having a good time. Furthermore, even the most self-aware incubator operators aren’t going to let in applicants with poor ideas just because their second ventures might be amazing. A good idea is the price of getting started — you’ll need a good idea and more in order to play. Founding a startup for your own purposes is perfectly fair, but you will need to meet the expectations of the rest of the ecosystem if you want to get into an incubator or get any of the other benefits that go along with being a founder.

Image by Flickr user Al Abut

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