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Business Incubator

What are business incubators

What is a business incubator?

A business incubator is an organization that provides various types of support to young companies at different stages of development, regardless of their business model. The incubator's job is to offer a range of services and expertise at no cost to the start-up company to help it get back on its feet. It can start with developing the business idea and work towards its commercialization.

It emerged in 1959 when Joseph Mancuso bought a factory warehouse in Genesee County, New York. This warehouse, called the Industrial Centre, began helping local businesses and shops. Similar to Mancuso's warehouse, similar companies soon sprang up all over the US, and by 1985 there were more than seventy of them.

Business incubator definition and meaning

What is an incubator in business in terms of official business terminology?

Business incubators are usually government-funded organizations intended to organize the growth of small or medium-sized businesses and achieve economic success. This growth and success get achieved due to the resources invested by the incubator in the project. These resources include physical space (premises) and financial resources, coaching, professional services, software set-up, etc.

Business incubator definition and meaning

The role and functions of business incubators

Business incubators are still in high demand both locally and internationally as they fulfill the following set of functions:

  • They take care of the financial costs (partially or fully). That is the primary function of any business incubator, so start-ups often turn to them for help first. Thus, incubators allow companies to save on operating costs, marketing, or product launches.
  • Additional security. Business incubators help start-ups with tax accounting and support them in the bureaucratic process by guaranteeing reliability, providing helpful business contacts, etc.
  • Mentorship. Business incubators experienced experts and managers so that a start-up can get advice and guidance anytime. In essence, the entrepreneur learns how to start a business in practice and withstand competition, develop strategies, be a leader and implement technologies using clear examples.
  • Business community. Some business incubators are cohorts in related areas and prefer to turn their affiliated companies into interconnected networks. That improves the efficiency of resource allocation and accelerates joint development.

Simultaneously, incubators are suitable for all types of businesses and areas, from architecture to industry or the beauty industry. Within the framework of the economy and the state as a whole, the role of business incubators also plays a vital role because they:

  • They create jobs. It is of utmost importance that business incubation programs inevitably increase job opportunities and career building. Some incubators offer jobs specifically for students who want to gain business experience under the supervision of experts. Also, the states themselves invest in business incubators to stimulate regional business, due to which the company has the opportunity to expand the staff of specialists.
  • Contribute to economic development. Business incubators often provide valuable services, mentoring, and education. As a result, businesses access the right knowledge, which catalyzes growth.
  • Contribute to the development of innovation. For example, business incubators can afford high technology and often introduce it into the business they take under patronage. In this way, technologies are popularised and distributed.

Possible disadvantages of business incubators

If we talk about the disadvantages of incubators, they are not as significant but still possible:

  • There is an inability to choose the type and format of space provided. If the business incubator finds your business attractive, it sets its terms. The business can only agree to them or not.
  • Paid services in some cases. Not all incubators cover 100% of their costs. Very often, only half of the coverage gets offered, or there is a fee for membership in the incubator's community, after which all the work begins.

Business incubator models and types

Business incubator models and types

The following can be distinguished types of business incubators:

Technology business incubator

Technology business incubator specializes in helping innovative start-ups, mainly in science and technology. They, just like other incubators, provide various services, supervision, and financial support, but they often receive all this from the government. For example, technology incubators are dominant in China and India and exist within the framework of special state programs for economic development.

Start-up business incubator

As the name implies, a start-up business incubator specializes exclusively in start-ups, in other words, rapidly developing and nascent projects. As a rule, such incubators are designed to solve problems specific to businesses in the early stages of development: for example, finding a rental space, developing a strategy, selecting a team, etc. In this case, the goal of a small business incubator is to make its "mentee" stable and let it go free.

Such incubators are usually non-profit organizations that often cooperate with universities or business schools where start-ups are most likely to emerge. They also offer special graduate programs that the government funds.

Virtual business incubator

A virtual business incubator is an incubator that remotely offers its services and support to businesses. That is, all interaction with the company and its development takes place online, e.g., by allowing the business to access digital libraries of business schools, online marketing courses, etc. Such incubators may not even have a physical office and are based solely on one website.

This incubator is particularly in demand in underdeveloped countries such as South Africa. Even well-known international incubators can provide remote services by sending their consultants to physically distant regions or contacting businesses by telephone. However, this is one of the most controversial models of business incubators because it still requires the direct involvement of experts in the industry to develop it fully and evenly.

Business incubator vs. business accelerator

Social incubators

These incubators solely support minority or disadvantaged groups- for instance, women's start-ups, youth start-ups, disaster victims, etc. These incubators operate under the supervision of government agencies or charitable foundations.

Business incubator vs. business accelerator

Business accelerators - are start-up development organizations or programs set up by various foundations, research centers, or large corporations. In accelerators, unlike incubators, business development is done solely through educational activities and mentoring, i.e., without financial support. Accelerator assistance also has a duration - the program can last from two to six months. For the most part, such programs are entirely free of charge. But if global experts teach it, they need to charge a separate fee to the business.

At its core, an accelerator is a group of start-ups aimed at development, led by competent managers and investors. That opens up other business benefits, for example, the opportunity to establish valuable contacts both with other "peer" start-ups and with respected giants. The business cooperates with them, gets acquainted with authoritative representatives of their niche, and has every chance to turn this acquaintance into a full-fledged partnership.

In which case should you choose a business incubator, and in which business accelerator? If your start-up already has an idea, a strong team, and an MVP, but is having trouble raising new capital to scale or getting to the next level, then an accelerator is right for you. On the other hand, if your start-up is at an early stage of development without financial sources and even a stable, proven team or product, you need a business incubator.

Examples of business incubators

There are many small and large business incubators on the market today. The best and top business incubators include:

  1. ZX Ventures, based in the US, nurtures businesses in various fields, from consumer goods to innovation and FinTech. The Ventures portfolio includes, for example, automated minibars for making drinks and multiple devices for home use.
  2. Launch Academy of Canada is both an incubator and an accelerator. One of its services, Launchpad, is an education and mentoring program for high-tech start-ups, while VR/AR Hub offers start-ups a workspace, access to expertise, equipment and investment. However, joining Launch Academy participants is fee-based regardless of the specific business incubator program. This form of support is the most popular in Canada.
  3. Innovate Calgary of the UK, created at the Calgary University, cooperate with the government and is a reference example of a business incubatorInnovate Calgary supports start-ups from idea development to commercialization, offering licensing, intellectual property management, and research, technology, marketers, etc.
  4. The Amity Innovation Incubator, based in India and established in 2008, focuses primarily on agricultural, social, and IT start-ups. This incubator provides funding of up to Rs 10 million.
  5. Faster Capital, based in Dubai, also combines the functions of a business incubator and an accelerator. The former involves mostly theoretical help in creating an MVP and reaching a steady income, while the latter offers investment in design, marketing, sales, and product development. Fasted capital covers up to 50% of all costs in either case.