The major benefit of business accelerators and incubators, according to Michael Chambers, JD, associate vice president of research at the University of South Alabama (USA), is that they help aspiring entrepreneurs “develop a better product and more profitable customers” in a matter of weeks rather than years.
While both are designed to help entrepreneurs quickly develop their business ventures, they have a few key differences. Accelerators typically culminate in a public pitch and provide entrepreneurs with access to investors. Incubators, on the other hand, are more often housed in nonprofit organizations, receive public funding, and are evaluated on their ability to create new jobs in addition to new businesses.
[Above: Entrepreneur Germaine Gaines, a participant in the University of South Alabama’s Minority Business Accelerator Program and the 2017 winner of the program’s final pitch competition]
Both offer services that can often otherwise be challenging for female entrepreneurs and those of color to access; these include mentoring and networking services, business education, free or subsidized office space, and access to capital. Yet, according to a report by JPMorgan Chase & Co., the rates of participation by these groups in incubators and accelerators are low, especially in the high-tech sector.
Increasingly, however, U.S. business schools are designing more of these initiatives to specifically increase opportunities for women and people of color by addressing the barriers they face to entrepreneurship. Research universities house the majority of these — approximately one-third, according to JPMorgan Chase & Co. — and thus play a significant role in supporting business innovation for women and underrepresented groups in the U.S.
The Neo Lab at Duquesne University was founded in the spring of 2016 to address the needs of Hispanic entrepreneurs in Pittsburgh, Pa. Initially funded by a one-year grant, the lab’s services were folded into the university’s broader Program for Immigrant Entrepreneurs (PIE), which provides services for the city’s immigrant community.
Brent Rondon, manager of PIE, says that many of the people he advises need to rethink their concept of doing business when it comes to working with outside contractors and meeting government regulations. In their home countries, he says, it is easier to do things privately rather than deal with red tape and potentially corrupt governments.
“They are coming from countries that have weak institutions to a country that has strong institutions. They have to … learn the way we do business here,” he explains. Rondon and his team of volunteer lawyers and certified public accountants educate prospective business owners about how to obtain a credit score and comply with government-regulated codes and inspections.
Female entrepreneurs face different challenges. For example, they tend to have a “more risk-averse mentality,” says Laura Frerichs, director of the EnterpriseWorks incubator at the University of Illinois at Urbana-Champaign (UIUC). A 43,000 square-foot facility, EnterpriseWorks was established in 2003 and supports female and underrepresented entrepreneurs looking to launch businesses in the tech sector. According to Frerichs, many would-be female tech entrepreneurs end up doing contract work as consultants because it is considered a more financially secure path. The problem with this route to entrepreneurship is that it’s not generally fundable by venture capitalists.
To get more women to launch businesses, EnterpriseWorks occasionally works with female consultants, encouraging them to redirect their efforts toward developing their own companies. This has resulted in at least one highly successful startup by a female civil engineer, Chetana Rao, PhD, who had previously been a consultant to the construction industry. “She was able to launch a new proprietary product that could test asphalt binders, ensuring that the quality of new asphalt would withstand traffic,” explains Frerichs. “She was also able to successfully secure Small Business Innovation Research funding from the federal government, and then she went on to receive a multimillion-dollar contract from the U.S. Department of Defense.”
Frerichs explains that investing in nontraditional candidates — such as women who have consulting experience but who haven’t yet developed their own idea for a company — helps empower those who may feel cautious about transitioning to the startup world.
In Alabama, people from underrepresented racial and ethnic groups own only 3 percent of businesses even though the majority of the state’s population is African American. However, Chambers says that entrepreneurs of color face many of the same challenges as those who are white. “From my own personal experience, the problem all entrepreneurs have is that they don’t have a lot of experience, but they have some really great ideas,” he says. “And they can make some critical errors early that really cause problems.”
USA’s Minority Business Accelerator offers five entrepreneurs, or company teams, the opportunity to gain experience and expertise through a comprehensive eight-week training. Following this period, each team develops and delivers a business pitch to compete for prize money.
The program uses a “lean launch” startup model in which an intricate business plan is replaced by a “business model canvas.” Using this framework, founders summarize their hypotheses, rapidly develop a bare-bones product, and repeatedly solicit customer feedback until they land on an iteration that best meets the needs of their target audience. Such a model emphasizes experimentation rather than execution. In fact, Chambers believes that one highly successful outcome of the Minority Business Accelerator may be “the fact that somebody decides not to do what they initially started to do and does something else.”
A common thread in each of these programs is an emphasis on connecting women and people from underrepresented groups with other business owners of the same gender or race. Research shows that building these connections can mean the difference between conceiving of a business and implementing an actual business plan.
The JPMorgan Chase & Co. report found that one reason women and underrepresented groups are often shut out of entrepreneurial projects is that venture capitalist selection panels, which are composed of a majority of white men, tend to select entrepreneurs who are also white and male. Susan Marlow, PhD, entrepreneurship expert, author, and professor at the Nottingham University Business School in the U.K., refers to this phenomenon as the “people like us” theory — the idea that people are more likely to identify with and favor those who are similar to them.
For underrepresented entrepreneurs in particular, creating networks is critical in helping them gain access to much-needed capital. Thus, at PIE, Rondon works to connect immigrant entrepreneurs with bankers from similar ethnic or racial backgrounds, which he says has led to more loans being approved for these individuals.
In addition, PIE helps these entrepreneurs secure a space for their business by working with landlords who are also immigrants. “The landlords see themselves 40 years ago and say, ‘I want to help you out, we’re going to make this work,’” Rondon says.
Frerichs notes similar outcomes when women work with other women.
“Access to capital is something that all startup companies think about, but for women, their access to capital has historically been and continues to be challenged,” she says. “There is still a very small minority of investors who are women themselves. So we try to introduce female venture capitalists to female entrepreneurs to help guide them through that pathway.” At EnterpriseWorks, for example, two female entrepreneurs-in-residence — Karin O’Connor and Lori Patterson.— mentor female participants. As successful entrepreneurs themselves, they are able to help other women with pitching ideas, hiring employees, and negotiating deals.
Another way the incubator strengthens connections among female entrepreneurs is through UIUC’s Women in Tech. Launched in 2010, this group hosts luncheons every other month where successful female tech entrepreneurs present their areas of expertise and give motivational talks.
EnterpriseWorks’ Accelerating Women and underRepresented Entrepreneurs (AWARE) program.— funded by a $100,000 grant from the National Science Foundation — helps women in science and tech who want to launch their own companies learn about “customer validation.” The entrepreneurs talk to different potential markets for their technology, receive feedback, and then develop more specific target audiences for their products.
“The path of entrepreneurship is one that has a lot of risk and needs a lot of perseverance,” says Frerichs. “So I think our job is to be good cheerleaders for [these women].”
Duquesne University’s, USA’s, and UIUC’s incubators and accelerators each have stories to tell of individuals who, when provided access to resources, mentorship, networking opportunities, and capital, were able to turn an idea into a successful company.
Becky Fuller, PhD, an associate professor of animal biology at UIUC whose research interests focus on the intersection of biology and computer vision, is one such success story. Through AWARE, she was able to develop a technology to help anglers select better lures for catching bass.
“Most of our female founders are scientific in orientation and are starting companies that are often selling into male-dominated industries,” says Frerichs.
Germaine Gaines, a 2017 participant in USA’s Minority Business Accelerator and the winner of the university’s final pitch competition, dramatically increased the revenue of his company, Gaines Plumbing, by adopting a unique pricing strategy. “People always hate to call a plumber because they never know how much it’s going to cost, so he [decided to] offer a monthly plan instead,” explains Chambers.
Chambers believes that what constitutes a successful startup can be surprising. “We are not Palo Alto or Boston or New York,” he says. “And not every startup is a Facebook or a Twitter.”
PIE successes include Argentinian engineer Federico Ahualli, who left a corporate job to start his own business, AustralTek, which provides automation services to the steel industry. After working with a PIE consultant, he was able to expand his business to include international government contracts and exports, Rondon says. There’s also Hugo Colan, who opened one of the first Peruvian restaurants in Pittsburgh under the guidance of Rondon’s team.
Each new business launched through PIE, or any incubator or accelerator for that matter, benefits the surrounding community as well as the individual entrepreneur. And Chambers believes the community impact of diverse business owners should not be underestimated. “For those people who believe that businesses and communities are inextricably linked,” he says, “there has to be a priority on diversity and inclusion.”●
Ginger O’Donnell is a staff writer for INSIGHT Into Diversity.