In the food industry, the terms “incubator” and “accelerator” are all the rage. Although there are companies that are truly trying to change the landscape of food production by helping entrepreneurs, like any trendy thing, there are a lot of people who use these terms trying to make a quick buck. If you are an entrepreneur wanting to get started, here are a few things to look out for.
1. Does the owner of the incubator make food? There is an inherent conflict of interest in an incubator operator that makes food as they are directly competing with their clients. Building and operating commercial kitchens are very expensive, and you are unlikely to get rich running a real incubator. Those that are dedicated to it are interested in seeing people succeed in their companies. However, many, many caterers and food producers call themselves an “incubator” in order to put the costs of running and building the kitchen on others. This gives them a leg up on their food business because they have you paying for their most expensive overhead. Meanwhile, you are subject to being kicked out if they are busy, having your items stolen, and paying by the hour to cover their bills.
2. Do they have food industry specific training available for you? The food industry has very specific issues when it comes to business operations. We are not tech, we very rarely have profit margins 60 percent or higher and we cannot operate like an auto mechanic. The SBA and other business development organizations are wonderful…but they do not often have the expertise necessary to teach safe and profitable food production. Your incubator should have consultants on staff and courses available to teach you what you need to know.
3. Is it a non-profit? How does a non-profit teach you to make a profit, when they are chartered not to? This is highly controversial in the business development industry because the vast majority of business incubators ARE non-profits (and usually tied to a university). But non-profit incubators and accelerators purpose is to teach their cohorts how to attract investors, not necessarily produce their items for profit nor run their bootstrapped companies on revenue. In food, our road is more difficult—our industry is not flooded with venture capital looking for “unicorns”. In many cases, banks rarely lend and investors are not interested until you are already successful. So you need to make a profit and it seems contradictory to ask a non-profit to teach you how to do that.
4. Is the incubator as interested in your success as their own? A great incubator/entrepreneur relationship should be mutually beneficial—if you succeed, so do they. It is easy to open a kitchen. It takes a great deal of work to put together the systems to help entrepreneurs—the supply lines, the marketing, the locations to sell, the training, the coaching, etc. However, the flood of money into the incubation industry can lead to predatory practices with the incubator’s focus on making the quick buck over helping their clients. If you are opening 10 locations in multiple states in 2 years, odds are pretty likely the owner isn’t bothering to put those systems together for their entrepreneurs, but rather looking to cash in on the backs of the entrepreneur. That is not an incubator, that is a foodie tech investor with deep pockets looking to cash in on the food industry.
5. Does your incubator take a portion of your company? Taking equity in a company is a common procedure in tech incubation, but even tech entrepreneurs are advised not to do it too early. The same is true in food. If your incubator is taking equity in your company just for the privilege of their contact list and advise, look at that deal very closely. If they are not offering tangible assets that allow you to make money (like a full-time restaurant/shop operation or location), you should probably reconsider the deal. At some point, you will want investors—when you start building million-dollar restaurants and production facilities. You don’t want to dilute what is available for you to raise funds with when you really need it.