Nearly 90 percent of startups fail.
Why? Because achieving growth for your startup isn't easy to maintain by yourself. You may have a great idea and be able to prove the need for your product or service and still have trouble growing your business.
Some founders have started seeking assistance and support from incubators and accelerators to help them reach the next level. Business incubators and accelerators make sense for businesses that are in the early stages of development since they can help you to develop a refined process for success to help you avoid pitfalls.
What Is a Business Incubator?
Business incubators are organizations that provide startup companies or young entrepreneurs with low-cost or free shared workspaces that allow them to take advantage of a collaborative environment with networking and mentoring opportunities. They offer new companies a safe place to grow and thrive.
Many business incubators provide companies with market research, analytics tools, and access to resources, such as loan facilities, legal advice, and accounting professionals. A good number of incubators also have connections with local colleges and universities, which means the tenants can benefit from educational resources.
Pros and Cons of a Business Incubator
A business incubator can give your business the powerful start it needs, but joining an incubator may come with some drawbacks. Take a look at some of the pros and cons to decide if your business can benefit from a business incubator.
- They often offer business development programs, like panel discussions and workshops.
- They may give you access to investors.
- They can help you focus and grow in a structured business environment.
- They usually provide business essentials, such as wifi, equipment, and administrative support.
- They can reduce overhead costs and help you put money back into your business since they are usually affordable or free.
- They offer you the chance to network with like mind individuals who are also building a business.
- They require you to submit an application that is often a competitive and rigorous process. Applicants are typically required to disclose all business activities and a full business plan.
- Many incubators also require you to stay with them for at least a year or two, and you must stick to the schedule they set.
- With an incubator workspace, you aren’t always allowed to come and go as you wish. Think of an incubator as a boss who is invested in your success and checks in on your progress often.
5 Notable Business Incubator Models
There are various types of business incubator models that may have a specific focus due to the industry, market, or geographic location they cater to.
Here are some notable business incubator models for you to consider:
Smilor Incubator Model
Smilor created this model structure in 1987 that describes the main incubator support systems, affiliates, and key outcomes of the incubation process. This model is a transformative mechanism that assists entrepreneurs with constructing their ventures fully.
The Developing Intrapreneurs Model
This incubation model works off of the innovative ideas and solutions that entrepreneurial teams incubate and then tests the new business models. This helps new products and business models to be developed rapidly.
It provides resources to help permit creative thinking and risk taking. Starbucks, Google, and LinkedIn use this model to improve their businesses.
InfoDev Process Model
The InfoDev model is split into three stages:
- Post incubation
This incubator works off of a balance between internal and external factors to help connect the business incubation process to the entrepreneurial lifecycle in a more comprehensive way.
Hackett and Dilts Business Incubator Model
This model can be used for corporate and public purposes. And the structure of this incubator model is a black-box that has inputs of key processes and process activities that results in vital outcomes of the entire incubation process.
Its creators, Sean Hackett and David Dilts, believed that "an incubator is an enabling technology, rather than a critical or a strategic technology."
The Pay-It-Forward Model
This model helps expose entrepreneurial teams to problems that occur in the real world by pairing them with external entrepreneurs in the industry.
The incubator provides them with experts and resources to help them solve the real-world problems they may face on their own. The corporate sponsors don't receive equity for the startup in exchange for their help.
What Is a Business Accelerator?
Business accelerators are organizations that offer startups various support services and access to investments. They allow startups to participate in programs that provide them with access to mentors, supply chain resources, and an office space.
These programs also offer startups access to what they need most... funding. The funding that is provided to a company is given in exchange for startup equity.
An accelerator program typically requires startups to work on time-sensitive projects that are often intensive for about three to four months before they “graduate” from the program.
Accelerators provide many benefits for new businesses and investors alike. Businesses are carefully selected to join an accelerator program, which means investors don’t have to waste their time investing in a business that doesn’t end up providing a good return on investment.
Pros and Cons of a Business Accelerator
Joining a business accelerator may not be the right choice for every startup. Review these pros and cons of business accelerators to help you decide if you should apply to an accelerator program.
- They allow you to gain access to expert advice.
- They provide you with a clear structure and comprehensive curriculum.
- They typically provide you with some funding and access to potential investors.
- They provide you with a network and perks such as financial planning support, access to design agencies, discounted web server packages, and more.
- They often require about five to 10 percent equity in your company to get started.
- They don’t continue to offer you help and support once you graduate from their program.
- They tend to be a large commitment that can relocate you to a different city for months at a time, and they do not mitigate your risk of failure.
- The network in your accelerator program may not be tailored to your industry or profession. You must research accelerators to avoid this because they don’t always make you aware of this.
As you can see with both business incubators and accelerators, there are many benefits and disadvantages to each one. Let's explore what sets each one apart in a more in-depth manner and highlight key distinctions so you know which is the best fit for your startup.
6 Differences Between Incubators and Accelerators
Incubators and accelerators have a lot in common, and they usually offer you the ultimate chance to grow your business.
Here are some of the differences between incubators and accelerators that may not seem apparent at first glance:
They Have a Different Structure.
Accelerator programs typically have a set timeframe. They are structured in a way that requires participants to complete projects, tasks, and mentorship in a few weeks or months.
They tend to help new businesses overcome hurdles within the given time period and then they offer little to no contact or support after the program has ended.
Incubators provide members support and guidance, but are mostly a shared workspace for startups. They usually lock tenants into a one- or two-year agreement that requires tenants to stay in the incubator for that duration of time.
They Have Different Application Processes.
Most accelerators are very selective when they choose businesses for their programs. Businesses must submit applications that are quite lengthy, and they must include information such as:
- Comprehensive details about your business idea, market, and competitors.
- Descriptions of the work you've completed already and challenges you've faced so far.
- Other special qualifications, such as development stage information, and whether or not you have already received funding.
If your application is selected, you must then undergo a series of interview questions so they can gauge whether or not you are a good fit for the program. Highly competitive accelerators have an acceptance rate of about five percent.
Incubators have an application process that is often less rigorous than that of an accelerator. Incubators usually require applicants to submit a business plan, and they may have to meet with a screening committee to go over company goals, plans, strengths, and weaknesses.
Most often, incubators select companies that meet their basic criteria.
They Have Different Ending Points.
Accelerator programs end with an event called demonstration day (demo day for short). The startups pitch their projects and idea to a room full of people, including the media and investors. The business is supposed to be thoroughly developed and vetted by the time the program ends.
Incubators don't usually have a set ending point. Businesses can renew their contracts or agreements with an incubator when their first contract is up. Incubators foster slow growth with educational classes and mentorship, while accelerators are intensive and fast-paced.
They Offer Different Mentorship Programs.
Accelerators are run by individuals who make a living off of helping budding businesses to overcome challenges. The experts that work with these businesses are mentors to them throughout the program, and they introduce them to other mentorship and collaboration opportunities.
Incubators provide resources for mentors and help guide the new business, but they aren't as involved or as intensive with their mentorship.
Their Funding Is Set Up Differently.
Many incubators are run as nonprofits because of their affiliation with educational institutions. They usually don't ask for equity in a company before or after providing access to resources and funding like accelerators.
This may mean that startups have less access to capital when they join an incubator.
Startups can expect to receive more funding from an accelerator since most accelerators offer a certain amount of money to the startups up front, and then introduce them to more investors later on.
They Handle Growth Differently.
Incubators help startups grow and scale their business slowly over time. They usually don't place a timeline on the support they give to businesses.
Accelerators move quickly, with most programs lasting only a few months. This means they can't give as much attention to fostering long-term growth for startups.
No two startups are alike. This means that different startups will need different forms of support to help them grow.
You should select a business incubator or accelerator based on your business needs. Shop around and do some research before you decide to apply to be a tenant of an incubator or a participant in an accelerator program.