Initial Seed Capital Works for Companies and Incubators...but Where Does the Company Go from There?
Small businesses face a daunting challenge in their evolution – executing their business plans. Business plans are developed in university and business incubator settings with extensive advice and mentoring, but lacking the real world experience of what it actually takes to bring that company / product to market at that point in time. Here is where the rubber meets the road and historical experience stops and real time adaptation is needed. Changing market trends, events, supply / demand, external forces, and most importantly real time customer feedback must be taken into account in getting to revenue. This may be the most challenging and demanding time for a business where the previously methodical and deliberate business plan development.
Prior to this go to market challenge, what is shared by universities, incubators, and companies is the search for seed capital. Companies achieve a lifeline to move forward and advance their product(s) evolution, provides revenue and sponsorship income to the universities as well as ownership of the company in many instances, and sponsorship income to business incubators – all measures of tremendous success…….to date. Everybody wins and takes the proceeds and moves on.
And now, the company graduates and faces new variables and the challenge of getting the product to market and revenue with a potentially large uptick in expenses – known as ‘burn rate’. A major obstacle is often real estate costs and managing reality and business plan expectations. The real estate market follows the same methodology – lease the largest footprint at the highest possible lease rate for the longest possible term. It works for the owner because it reduces effort on their end and maximizes revenue with minimal risk – only that the company fails and then they move on to the next tenant. In the meantime, they are relentless and rigid in enforcing lease terms including using collections firms and courts of law to ensure enforcement.
I recently spoke with a company CEO in the energy field in MA. The company had received seed capital three years ago and was completing the 3rd year of a 5 year lease, was still paying a lease for three times the amount of square feet that they have used (nor plan to use in the next 2 years), and at a significant lease rate – particularly for them. During this 3 year term they have replaced the CEO who executed the lease. They may have expended more time worrying about making the lease payments than they have spent on the product. This company is a business incubator graduate.
At CI Works, we lease space to companies based upon the amount they actually need at that point in time to conserve capital and lower their burn rate – and grow incrementally with us as revenues grow and they actually can utilize the expanded footprint.