An incubator is an organization that helps businesses grow by providing mentorship and networking opportunities. According to the National Business incubation Association, business incubators are catalysts for national or regional economic development. In this article, we will discuss incubator development in detail. If you are a startup entrepreneur, this article will help you understand why you need an incubator program to accelerate your business growth.
What is an Incubator Program or Development for Business?
An incubator program is a collaborative plan for businesses often situated in a centralized workspace and structured to help startups and small businesses by offering training, seed funding, and workspace.
Types of Business Incubators
Some business incubators focus on a particular industry and focus on uniting similar businesses. Here are different types of business incubators you should know.
· Virtual Business Incubators
While virtual or online business incubators started in the early 1950s, they only took off in the late 1950s. These companies support startups that require advice or capital to realize their business ideas. With the popularity of the dot-com era, many high-tech investment incubators grew too, marking the beginning of a transformation in the business incubation program world.
Many incubator firms during that era adopted the virtual business model. In the conventional incubator model, companies establish a brick-and-mortar facility at the incubator’s site. However, in the virtual incubation model, businesses can gain from the provided resources and advice without setting a base at the incubator’s location.
· Public/Social Incubators
Today, social intrapreneurship is a global occurrence that revolutionizes human lives by leveraging innovative methods to solve social challenges. Worth mentioning is that this approach combines entrepreneur-based discipline with a passion for a social mission.
Public/social incubation is a new strategy that guarantees sustainable development, mitigates poverty levels, manages social problems, and generates employment opportunities. Remember, many experts consider public incubation a revolution in responding to a wide range of challenges. It allows you to initiate change rather than demand it.
Different initiatives are striving to leverage and develop social entrepreneurship and this is where social incubators become necessary. They provide the ideal knowledge and resources to ensure entrepreneurial businesses bear social good. Benefits that new companies can reap from a public/social incubator include:
- They don’t have to fit in a particular group to qualify. Instead, they need is a business idea to deliver a positive social or environmental impact.
- The public incubators provide businesses with the knowledge, enabling them to establish and manage their startups.
- Successful businesses on a public/social incubator program can access financing even when dominant financiers turn them down.
· Local Economic Development Incubators
These incubators target small businesses working in the craft or service industry. These incubators can offer a wide range of services like administrative and hosting tasks. They also provide different coaching and consulting options while helping businesses to access external financing.
· Startup Studio
Unlike incubators and accelerators, studios are expert idea generators. They can start with a team or an idea before outlining a unique procedure to verify the concept and determine its market worthiness by taking it through various stages that allow you to make decisions based on core metrics and milestones.
Startup studios often accumulate a big stake in a small business administration which can be more than 40%. Unlike incubators and accelerators, startup studios do not operate on a determined time frame. Instead, they strike each milestone or stage-gates until they realize product-market fit.
· Medical Incubators
Many medical startups across the world face challenges in terms of accomplishing successful product development and verification. They can also face financial-based challenges that stall long-term economic growth. However, startups that focus on providing healthcare can collaborate with medical incubators to increase their chances of success.
Medical accelerators and incubators are critical to the startup business economy. They provide upcoming medical gadget companies with the resources, data, finances, and direction to actualize their product ideas. Medical incubators are the core of a triangular network that consists of venture capital and healthcare startups and systems.
· Kitchen Incubators
The appeal for kitchen space has resulted in the execution of the kitchen incubator concept. Culinary incubators give small food businesses a competitive edge when navigating the local marketplace. They accomplish that by offering the following:
- Enough kitchen space for food preparation
- Resources associated with accounting, branding, financing new products, marketing, and insurance
- Adequate capital to beat restrictive barriers of the high costs affiliated with leasing or buying kitchen equipment and space
· Venture Builder
Venture builders collect business ideas from their network of resources and find qualified business developers, sales managers, and advisers to develop them. Remember, venture builders can develop various systems, projects, or prototypes instantly. They can also build different companies around each idea by allocating operational resources and capital to those businesses.
Venture builders often raise the required funds, obtain staff resources, develop MVPs (minimum viable products), create business models, work with the ideal legal teams, and host internal coding conferences. These firms also consult business development managers and supervise marketing drives to guarantee pre and post-launch stages.
Stages of Business Incubators
Here are various stages that business incubators use.
Physical Resources Support
In this stage, business incubators help new businesses by providing physical support like technical equipment and office space.
Here, incubators offer various types of business support like operational training and skill development.
In this business incubation stage, startup companies get an opportunity to connect with like-minded business people who can help your business grow. You can meet through business seminars, professional associations, and networking groups.
What is Incubation Strategy for Business?
Here are some key strategies that incubators use to help businesses grow.
Directly Investing in Startups
Getting early-stage funding is crucial for startups because they have to develop products and assess business models. Many incubators offer this funding as an investment or grant in exchange for equity. Further, startups hosted in incubators do not need to budget for ordinary business overheads like rent, which allows them to use their funding better.
Linking Investors to Startups
Startup companies have to meet and satisfy the needs of elusive potential investors. Some investors spend a long time seeking and struggling to secure appointments, while others opt for costly intermediaries.
Established incubators can save startups money and time because they are affiliated with large networks of angel investors and venture capitalists. As a result, they can introduce you to the ideal organizations based on your business concept.
Offering Proficient Exposure and Coaching
Proven and reliable incubators mentor and help startup entrepreneurs, understand the principles of business, and assist them to design an investor-ready business plan.
What is the Purpose of the Incubators?
The goal of business incubators is to:
- Guide and prepare small businesses to compete with established players in the industry.
- Offer networking opportunities
- Provide marketing research opportunities
- Provide high-speed internet access
- Help entrepreneurs understand the principles of business
- Offer marketing assistance
- Create long-term jobs for skilled executives, experienced mid-level personnel, and new graduates
- Help startup businesses cut down operational costs
- Give access to loan funds, bank loans, and guarantee plans
- Assist with the financial/accounting management
- Give the company credibility enabling it to obtain loans from financial firms
What is a Growth Incubator?
Business growth incubators offer targeted support to entrepreneurs by creating a conducive environment that enables them to initiate their business ideas and build their ideas into market-ready products. Growth incubators also facilitate the attainment of business knowledge, allow businesses to raise the required finances, and introduce them to relevant networks.
Growth incubators are highly beneficial to new businesses. For example, they help them acquire operating space at friendly prices. They also furnish small firms with expertise and advice to help them develop their businesses.
Organizations often spend up to two years in a business incubator. During that time, they usually share production equipment, secretarial office, and telephone costs with the startup companies, reducing operational and overhead expenses.
What are the Benefits of Incubators?
New companies can reap various benefits from business incubators, as seen below.
· Reduced Start-up Expenses
Starting a business involves lots of expenditure. Often, entrepreneurs spend money on non-profit development corporation expenses like administrative costs, paying the internet, and office rent. Joining a business incubation program helps you enjoy shared conference rooms, co-working facilities, and services, cutting down expenses and costs.
· Support Network
Business incubators create a motivating business environment where staff can discuss and exchange business strategies and ideas. Colleagues get an opportunity to offer constructive criticism to one another’s services and products. The support network program provides opportunities for business collaboration.
· Funding Opportunities
For many startup companies, getting capital can be a big challenge. Business incubators can introduce them (startups) to non-profit organizations or individuals who can fund their businesses. Through business incubators, startup entrepreneurs can access willing investors who can pump more capital into your establishment.
· Business Networking
Business incubation helps businesses connect with other entrepreneurs, creating a team of like-minded individuals. By joining a business incubator program, you get a chance to bond with other entrepreneurs and form lasting friendships. Long-term relationships are vital for both startups and established companies.
· Marketing Support
Some business incubation programs help you market your services and products. Market support is a vital component in facilitating business growth. Incubator firms can help you design a marketing plan or introduce your services and products to the market.
· Facilities and Services
Joining a business incubator program gives you access to its facilities and services like setting up an office space, choosing your board of directors, forming a business development center, designing stakeholder’s agreements, and conducting a feasibility study. Your startup will benefit from an incubator’s support services like; media coverage and promotion which exposes your business to a bigger audience.
· Mentorship and Reliable Advice
Successful and wealthy business owners often run business incubators. Still, joining a business incubator program allows you to access a chain of accomplished mentors who can help startup entrepreneurs run their small businesses. Further, you will also mingle with skilled mentors and gain experience from successful entrepreneurs and alumni of the incubator program. Before choosing a business incubation program, determine the amount of time each partner allocates for mentorship.
What Are Some Examples of Incubator Programs?
Here are examples of some of the most reputable and successful offsite incubators.
· One Million by One Million
1M/1M is a wholly digital global incubator that strives to ensure that one million entrepreneurs accomplish USD 1 million in annual revenue within four years. This process results in ten million jobs. Through this program, entrepreneurs connect with digital mentors and video lectures. While features of the 1M/1M virtual incubator are free, only certified members access the entire program.
eFactory is located at Missouri State University. This incubator program targets job creation, startups, and emerging firms. Interested parties can access eFactory for support services, administration support, counseling, and shared facilities. This program involves virtual conference rooms, mail services, access to mentorship, and mailing lists are part of this program.
· DreamIt Ventures
DreamIt targets corporate innovators, investors, and startups. It’s among the most active incubators that seek to help entrepreneurs grow by acquiring capital and attracting customers. DreamIt also collaborates with corporations and brands to facilitate tech advancement and pilot programs. Leading venture capitalists and angel networks also partner with DreamIt to form a robust startup ecosystem.
· 500 Startups
More than 3,000 founders, numerous companies, and over 50 countries have collaborated with 500 startups to scale, grow, speed up, and follow the right path to guarantee long-term success. 500 startups are popularly known for their diverse projects across the globe. They invest in a wide range of startups and give businesses a four-month accelerator program that furnishes you with office space, learning, mentorship, and $100,000 in exchange for 5% of your startup.
What are the Requirements to Create an Incubator?
To create a business incubator and assist your local business society, you need:
· An Exceptional Value Proposition
As business accelerators and incubators become more popular, each needs to set itself apart from competitors. Experts advise aspiring incubator founders to carve a niche, determine an angle, and be the best at their network.
Focusing on a well-structured association of target customers is ideal for businesses. If your incubator program targets diverse companies, designing services that satisfy their needs in the long term amid evolving market settings becomes a daunting task.
Incubators can target businesses based on their growth stage, industry, shared cultures and interests, and shared business regions.
· Buy-In and Credibility from Others
Credibility is one of the most crucial factors that determine whether a business will join your incubator or not. Remember, building credibility takes time. While your experience is vital, you must diversify it to increase your knowledge.
To develop credibility, organizations usually form advisory boards comprising CEOs, investors, and some members from economic development firms and the local government. According to experts, if you are yet to attract ten active angels and 20 lucrative CEOs willing to spend up to 5 hours with your incubation class, it’s too early.
Commit another year to lay a foundation. According to available data from local economies, incubators should expect slow growth during the first few years.
Your incubator firm requires cash and a robust business plan to run smoothly. Incubators can start by acquiring local funds or grants from local universities or the government. However, such funds may not sustain an incubator in the long run. Experts recommend up to $75,000 per startup to cover overheads and seed funding.
What is the Purpose of Business Incubators in the Context of a Small Business
Business incubators provide small businesses with space and critical services. Apart from office supplies, many business incubators offer other resources that startups need to run their businesses efficiently. These resources are shared. However, small businesses can access them at cost-effective prices than they would when operating independently.
Through Business Incubators Startups can Reduce Operating Costs
Business incubators help small businesses cut down the overall cost of launching and running a small business by 50%. They also offer a wide range of investment and funding opportunities.
Employees in a business incubator have numerous opportunities from different outlets than entrepreneurs would get independently.
As a result, the entrepreneurs get a chance to meet and connect with multiple large-scale private investors in a community that nurtures innovation to meet their needs.
Giving small business founders easy access to a robust network of promising business investors and partners enables them to adopt the most proactive and productive approach to learn from professionals.
Business Incubators Stimulate Startups, helping them Focus
Giving startup entrepreneurs infrastructure allows them to focus on the most critical parts of their businesses. Business incubators help startups eliminate unnecessary noise and pay more attention to running the entity efficiently, creating products and services, and assessing them before launching them in the market to ensure they meet customer needs.
What is the KPI of a Startup Incubator
Incubators have varying purposes. Their key performance indicators depend on their objectives. Worth mentioning is that design differences can influence the development of universal KPIs to facilitate incubator management. Startup incubators have varying forms based on:
- Whether ideas are developed or filtered. Are the teams involved in developing ideals in-house through an ideation process? Is the incubator looking for founding professionals with fully or partially-developed ideas?
- The extent of involvement, or the amount of participation the incubator displays when supporting the startup varies over the long and short term. They also depend on the incubator’s objectives. Here is an illustration you can leverage to understand these concepts.
- Some company incubators create a business idea through an innovation process before raising or investing capital, structuring teams, and supporting the business extensively in the long term. Business incubator portfolios are more comprehensive and offer higher equity ownership based on each venture.
- Business accelerators like 500 startups often gravitate towards teams with already existing ideas. They assist founders to reinforce their offering and focus less on a long-term agreement. Still, their portfolios are more significant and diverse.
- Venture-backed incubators focus on providing the best incentive streams for investors.
- Corporate-sponsored incubators focus on defined research to build an ecosystem within a principal technology.
Based on the objectives of the incubator, KPIs can be calculated through:
- Revenue growth
- Financial activity
- Investor returns
- A business’s survival rate
- Job creation
- The churn rate
In every venture activity, business incubator executive directors must understand that they can only demonstrate clear results over the long term. Due to that, they focus on various KPIs affiliated with the incubator’s structure to determine growth and forecast financial returns over time.
What will the Incubator of the Future Look Like
While business incubators seem to have a future, they need to adopt more innovative strategies apart from sharing rental space, printers, developers, and funding. Incubators will need to adopt innovative measures like outlining an innovative medium to deliver de-risked, scaled up, and new transformative growth. By adopting a modern-day approach, incubators will help companies succeed using the following steps.
Often, organizations focusing on long-term or insubstantial growth only define some vast application, or technology themes or domains to drive their innovation efforts. A good example, in this case, would be mobility as a service or AI in the supply chain. Often, these broad applications are less effective in choosing the appropriate external innovation associates or even prioritizing investment.
Business innovators that thrive in delivering considerable new growth invest more effort in creating motivating visions driven by well-thought objectives. For example, they seek to determine the future unfulfilled customer needs, challenges they should beat to meet their needs, and articulate their goals based on practical innovation drives.
Embrace an Incubation Medium Structured to Help Businesses Scale
Some organizations are now creating purpose-driven channels to incubate and produce new de-risked, scaled-up businesses in non-core fields instead of traditional startup incubators. These channels can either be externalized or even run within the organization.
These channels should receive robust autonomy and independence from the parent corporation. They should work with external partners like established businesses, expert service providers, and startups. These channels are different from traditional incubators in various ways like:
- They are structured to run a complete end-to-end procedure from the concept to launch and help scale a new service or product line.
- They leverage single lead delivery teams to facilitate goal achievement, collaborate with dedicated teams to manage the process, and take advantage of input from different external partners.
- They use an agile procedure for new service or product development and integrate commercial, technical, strategic, and operational input, adopting more than one solution and testing them to ensure they work appropriately. Doing so helps businesses launch their products faster.
Leveraging Different Affiliate Engagement Tools Jointly
Numerous companies today use different innovation tools and mediums like:
- Startup accelerators and incubators
- Internal research and development teams
- Intrapreneur programs
- Corporate venturing
However, these tools often run as independent challenges and projects. Incubators that succeed in growing businesses use multiple mediums and tools to address different challenges jointly. They also encourage a collaborative culture across the organization. For instance, a core European organization recently discovered that merging tools is crucial for innovation success.
Its venturing team established new companies in progressive mobility and handed it down to the organization’s breakthrough incubator. Remember, the breakthrough incubator should have borrowed ideas from the internal research and development teams for the partnership to be successful.
Such connections ensure that an outcome from a venturing plan breeds a new business location while guaranteeing engagement with internal intrapreneurs along the process.
· Surpass the PoC (Proof of Concept) Before Business Integration
The incubator of the future will help businesses surpass the proof of concept stage where many firms fail. Through advanced mediums and tools, business opportunities will withstand the PoC stage through testing and scaling up before incorporating them into the overall business. As a result, businesses have a bigger chance of succeeding.
· Invest in the Integration Phase
The incubator of the future will need to focus more on structuring and implementing an extensive integration and transition process. Doing so will be instrumental in ensuring that the proper systems and administration are in place for startups. Further, it will ensure that core functions like operations supply, finance, and marketing are available to offer support while ensuring valuable culture and approach lessons are seized and transferred.
What do Startups Look for in an Incubator
Startup entrepreneurs consider various factors before choosing a business incubator which includes:
Determine the selection procedure for the business incubators you plan to work with. Incubators will want to know your business idea and your progress. The ideal incubators perform a comprehensive assessment of your business founder’s personality for traits like organization, openness, and diligence skills. Having such characteristics increases your chances of succeeding during the incubation period. The ideal business incubator should conduct sufficient due diligence on applicants.
Determine the most critical factors you want to achieve from the incubator experience. The availability of physical space and other incentives can easily attract you. However, startups should find an incubator with extensive programming and incubator manager.
Networking activities and events enable you and your startup to meet new potential customers, mentors, investors, and business partners. Incubators that provide solid networking events and give you dedicated incubator managers accelerate success for your startup.
Many incubators fall under the competitive or collaborative culture, while some use both cultures. Determine the appropriate culture for you. A competitive culture promotes aggressive learning by each participant, while a shared arrangement promotes mutual support and information sharing.
The latter can result in the common application of different participants’ newly gained knowledge. Modern-day incubators can start with the competitive culture but switch to the collaborative system after participants hone their knowledge and harness their competitive drives.
Incubator programs vary based on the fields they focus on, their mentoring and educational services, and the level of expertise their leaders offer. Knowing how different incubators complement your firm’s needs is crucial to picking the appropriate one.
Ensure Your Timing is Right
Picking the wrong incubator and collaborating with an incubator at the wrong time are two of the biggest mistakes startup founders should avoid. Applying early in the business could be a recipe for rejection, especially if your startup lacks sufficient traction. If you establish your network first and wait until the business starts generating considerable revenue, you may not need an incubator after all.
Assess the Incubator’s Mentorship
Collaborating with the right community can be what startups need to succeed. Reports suggest that the extensiveness of an incubator’s mentoring community is connected to the program’s general success rate.
Besides determining the number of mentors that participate in a specific incubator, startup entrepreneurs should establish who the mentors are. The experience and achievements of incubator program mentors should reflect the field your startup is in and your objectives.
Define Your Startup Company’s Principles
Incubators are choosy because they want to collaborate with startups whose ideas are robust. As a result, your concept should be relevant and viable to the market, supported by a passionate and knowledgeable team committed to helping grow it.
When startups are backed by a powerful incubator team with proven accomplishments, experience, and education, succeeding from the incubation program becomes easy.
Master Your Pitch
Pitch presentation is the final obstacle you should conquer before joining an incubator program. Remember, you have limited time to present your case, and every minute counts. Understanding your company, vision, and mission gives you a higher chance of developing a compelling and persuasive pitch.
Starting a business is challenging but startups can leverage the power of incubators to thrive and accelerate growth. Startup entrepreneurs should understand the purpose of business incubators before adopting the program. Hire business incubators now to get your business off the ground.