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Kudzai Mubaiwa Business Hub
The ability of an incubator to cover expenses with predictable, reliable sources of funding is what is called self-sustainability, and the pursuit of it is a best practice.

This means the incubator that generates income that contributes to its operational budget, does not depend on a single source of external support, and ensures that outside support received is either reliable or replaceable.

All these are guidelines given by the National Business Incubation Association (NBIA), and they also refer to some incubators as self-sufficient, meaning they cover all expenses from their own operations. Sustainability is both a topical and elusive issue for incubators the world over!

Single promoter funding

Typical hubs are funded by institutions with a specific goal or agenda to push at the incubator or through its specific clients.

This is fine if the space has a similar agenda, but can be a source of pain and anguish to the people on the ground if:

a) The promoters have an agenda at variance with the current situation in a geographical location at that moment in time and

b) The promoters have pockets so deep they keep changing goals, and thus, goalposts such that you can’t ever quite point a finger at what you are and what you have achieved as a space. Granted, most hubs are like start-ups, who start off with a minimum viable product which they proffer and test, validate with a view to modifying and then either iterate or completely pivot from their value proposition, informed by market reaction.

However, there must be focus at some point, in order to achieve progress. It helps greatly if the space not only has a business model we detailed last week, but a full business plan complete with financial projections over at least three years.

This document should be accompanied by a related work-plan that is shared at both advisory board and operations level, to assist all stakeholder to appreciate the direction and objectives of the hub.

Relying on just one source of funding can be a serious headache; naturally, there is hardly any objectivity and creativity of operational staff is often stifled by the fellows with the bag.

It may be a start, but not encouraged, for innovation’s sake. Promoters of this nature can be local government seeking to stimulate community economic development, an educational institution desiring to promote student entrepreneurship and innovation, a successful entrepreneur who wants to afford budding entrepreneurs a fairer chance in establishing and commercialising their ideas.

Multiple promoter funding

Anything that has no head is a monster, but so is anything with more than one head! Having multiple sources of income is yet another headache as the hub manager may have to deal with many competing demands.

However, this, strangely, is a more preferable situation. First, because there are options and second because innovation may more easily occur, what binds all the contributors to the one space is the overall goal for its existence and they are but participants in a bigger picture so workarounds remain feasible even when not all funders are happy. Classic promoters under this description can be civil/non-government actors, corporates and economic development institutions.

This can work very well if each donor is clear about their expectations and the operations team has the capacity to balance out all the requirements, keep everyone happy both sides of the fence – the donors and the clients receiving the services.

Support may come by way of cash such a grant, or in kind such as property, furniture, devices, refurbishments and fittings, services, and even a good word aptly placed will open the right doors.

Some will be happy to sponsor certain physical rooms in exchange for having them named after them for an agreed period, or sponsor certain recurring events that give them limelight in return; or are visible as their corporate social responsibility.

Such help is handy when starting up, but can easily blind hub managers from looking into the future and modelling their spaces in a way they can afford.

Leasing Space and Community Member Subscriptions

A more inward-looking fund-raising activity, charging for space; is a common way of covering costs.

Shard facilities offer access to shared equipment and services that would otherwise be unavailable or sap up a start-ups financial position.

Collection mechanisms have to be firmly put in place, else this becomes a waste, and the rental amounts must be attainable otherwise this becomes an inconsistent stream of income. In developed economies and more established ones, some space can live entirely off client rentals, but it takes a special kind of entrepreneur to appreciate this locally and pay on time, all the time!

Community members can also pay some periodic fees as subscriptions, with a tiered approach used in tandem with services accessed.

In-house services can be offered or distributed at a surcharge, albeit subsidised: metered internet, utilities, usage fees for copiers, reception, long distance calls.

This works best in spaces that charge from the start, sadly we have many young people who do not appreciate the value of what they receive and if it continues being offered for free, any kind of charge attracts their ire.

Meeting rooms and conference rooms may be availed to non-community members for a fee as well, as can be day passes to work for a few hours. Ancillary stuff like an on-site cafeteria, vending machines or games can bring in a little cash.

Consulting and research

This yields greater value for hubs, many of them will be uniquely positioned to understand and deal with particular groups of people: youth or women or students, and can best deliver particular services such as entrepreneurship or tech training to them, or extract information under a research mandate from institutions.

Hubs can outsource support to non-affiliated members and make some commission; host funded entrepreneurial training programmes and participate in regional economic development work as advisors or technical experts.

Granted, a guaranteed pipeline of deals is required to give comfort, but it is certainly an avenue worth pursuing to derive income, and when secured is rewarding.

Private equity/venture capital investments

Some spaces in addition to incubating and accelerating ideas, have funding set aside to invest in them.

It is rather logical to want to obtain a stake in a business you have helped build since you understand it.

The amount of shareholding or equity stake varies and the models differ, they can be very lucrative once the start-up is successful as was the case of Dropbox, which passed through Y-Combinator’s programme and has done very well in yielding a return.

This is an area to seriously think about in Zimbabwe, we have some low hanging opportunity of family and friends outside the country who have access to cheap money and it would be interesting if this was put in an innovation fund that deliberately invests in high potential start-ups across all sectors in exchange for a little equity.

Indeed, many innovators would be thrilled to find a lead for an exit, even at $50 000 in this economy!

This would be helpful in the current situation where banking institutions are exceedingly rigid and microfinance institutions are charging high interest rate while the few private equity players find the typical incubator graduate company too small for their minimum investment amounts.

The hub would be able to generate revenue from both equity investments and/or advancing loans to businesses they thoroughly understand.

There is space for an Innovation Fund targeting small businesses, and it can start off with as little as $100 000 invested in four brilliant ideas, and can grow with various partners coming together with lines to fund the same.

Key to sustainability is the incubator minimising the costs of facilities and facilities management as well as ensuring a very lean but competent staff complement.

Typically, in its first one to three years, no more than three heads are necessary to keep things going quite well, while utilising an advisory board and community members as human resources, off the payroll.

Start lean and stay lean until you have utility for more people; and of course, can afford to pay them.

Bloated staff structures are best trimmed to remain with a few good resources who can achieve the goals at affordable levels.

Many spaces will operate as social enterprises, which reinvest any realised “profit” into the next cycle’s budget.

Be very clear what your mandate is, the resources it requires to be attained and thus the sustainability initiatives that are needful; without deviating from the ultimate mission and vision.

Kudzai M. Mubaiwa is an economic development professional and managing consultant of InvestorSaint (Pvt) Ltd, a financial education company. She is also a certified incubator manager and co-founder of iZone, a mixed use incubation programme that provides a platform for capacity building of youth and women enterprise owners in the digital age. She has participated in and presented at economic development and innovation/tech platforms in East and Southern Africa, Asia, North America and Europe. You can reach her via email on [email protected] or Twitter handle @kumub