What Is a Business Incubator? All You Need to Know

What Is a Business Incubator? All You Need to Know

You don’t know me, but I do. Let me make a guess, and if it is wrong, you might just leave this webpage:

You’re either an entrepreneur or aspiring to be one!

Since you’re still here, I’m assuming that you are indeed a future aspiring entrepreneur, and you’ve probably heard of the term “business incubator” and couldn’t stop wondering what it meant. 

Before we start, let me give away a small secret:

Each year, about 305 million total startups are created, but about 90% of these startups fail. As for the remaining 10%, those who were lucky enough to find business incubators; happen to have an 87% survival rate!

Today, we’re answering this question: What is a business incubator and how can it save your business?

What Is a Business Incubator: Simple Definition

Starting a company isn’t easy, and we all know that. Although some startups may have all it takes to start operating without any external help, most new businesses don’t, and that’s where incubators come in: 

Business incubators are organizations that support startups turn their ideas into reality, and help them survive the huge competition in the market today as, according to First Site Guide, “19% of startup leaders agree that competition is the greatest challenge when starting a business.”

Whether it’s a physical or a virtual business incubator, the question is:

  • What is it that incubator companies offer?

Types of Incubation Services

One of the major reasons 90% of startups fail is their lack of resources; whether it’s physical, human, intellectual, or financial resources. To fix that, incubators offer the following services:

Co-working spaces

New companies can rarely afford a huge headquarters like that of Google, and that’s probably why 69% of U.S. entrepreneurs start their businesses at home. Luckily, incubators hold the perfect solution for that: Coworking spaces!

These physical spaces are not only for work as they come with a handful of perks:

  • An affordable physical space
  • Team bonding (which is crucial for the business’s success)
  • Flexibility to expand as the business grows
  • Networking opportunities with other startups

Note that virtual business incubators may not provide this service.

Mentorship 

business incubation mentorship

Most entrepreneurs love taking risks, but not making mistakes. Incubators help them avoid several decisive errors by providing them with professional experienced advisers. And it doesn’t stop there, they even arrange workshops for the company’s team and make sure they’re up to date with their industry. 

Let’s say you want to start a writing agency. You might have a great experienced team, but they haven’t tried copywriting before. A business incubator will make sure your team masters copywriting!

Note: Most Virtual business incubators provide online workshops and courses.

Investment Opportunities

Funding can be a heck of a challenge, but not when you have a business incubator by your side. Having a large network, incubators will bring investors to your door, and all you have to do is say “Yes”!

Let’s get back to our writing agency: It’s quite rare to find that many investors in this sector and it’s rarer to convince one to trust a newly established writing agency. But incubators make it happen.

Technical Resources

We were just talking about how hard funding is for startups. Another challenge is equipment; which, as you know, costs a lot! 

Business incubators provide physical resources such as:

  • Land
  • Buildings
  • Manufacturing equipment
  • Vehicles 
  • Distribution networks
  • IT equipment
  • Point-of-sale systems
  • and the list goes on!

Reduced Rates

Back to our writing agency. After a few months from launching, you started making some good revenue, and you decided that you might need financial management. However, your team members are mostly in the writing industry. If you were to hire a financial adviser on your own, it may cost you up to 10,000 dinars for one month, but incubators can provide you access to such services at an unmissable discount rate.

The 8 Types of Incubators

By now, you must be wondering what the process of business incubation is, but before we go there, we must have a look at their 8 types:

1. Virtual Business Incubators

Virtual business incubators, also known as online incubators: This type of incubators is most convenient for businesses that already have a physical office/warehouse since they do not require businesses to work at their location. 

The main service that virtual business incubators offer is mentoring. They will offer you advice and stand beside you until your startup stands on its feet.

2. Medical Incubators

Studies have shown that 98% of medical startups fail, and that’s due to:

  • A lack of equipment
  • A lack of medical professionals
  • Funding difficulties
  • Bad marketing strategies…

Medical incubators offer a wide range of services such as medical devices & biomaterials, marketing, and financial specialists, and they guide the business throughout the way.

An example that jumped to my mind is Thomas O. Daniel Research Incubator and Collaboration Center at Celgene, one of the most known medical incubators in the US, it offers laboratories and all necessary pieces of equipment to its collaborators.

In 2021, with the spread of Covid-19, medical incubators seem like the go-to of any company in the healthcare industry.

3. Kitchen Incubators

We all love food, and that’s what makes the food industry one of the largest out there. According to Statista, “In 2020, the size of the global foodservice market reached 3.5 trillion U.S. dollars”, and that’s about 10% of the world’s GDP.

Kitchen incubators, also known as culinary incubators, can give a huge push to new companies in the food industry by providing them with:

  • Funding
  • Marketing services
  • Kitchen spaces 
  • Professional chefs
  • Bakers
  • Food trucks
  • Packaging, label printing
  • Distribution
  • Legal aid
  • Business development training

4. Social Incubators

Before we dive deeper, what is social entrepreneurship? 

In a nutshell, social entrepreneurship focuses on solving community problems such as

  • Pollution
  • Education
  • Internet connectivity to remote communities
  • Health,…

Like all acts of good, social entrepreneurship costs much more than it produces, and that can hinder the long-term growth of any business in this industry. Social incubators help these businesses address various challenges such as getting fundraising opportunities, accounting management, marketing, networking…

One pitfall of social incubators is that nothing is guaranteed, and that’s, to an extent, dependent on the nature of these startups.

5. Startup Accelerators

Startup accelerators (also known as seed accelerators) are centered on the initial growth stages of companies, and (as the name implies) they usually take a narrow period that is often less than a year. 

What is special about this type is that it accepts new businesses from different fields, and that’s what makes the competition to get into the program harder and harder.

It has been revealed that the application to such programs (we will dig deeper into this once we reach the process of business incubation) is the toughest of all, and the most fruitful one.

6. Startup Factories/Seed Generators

“The best way to have a good idea is to have a lot of ideas.”_Linus Pauling

If I owned a startup factory, this would be my slogan!

The concept of this type of incubator is based on brainstorming and generating ideas. The question is: how is it better than team brainstorming?

Adding to all the services listed below, having professionals choosing the best business idea with you can save you and your team from going into a losing battle. However, this doesn’t come at an easy cost, as seed generators take a stake in new ventures that is up to 45%.

7. Venture Builders

Venture builders are every entrepreneur’s dream. To make a long story short, these are organizations that produce new companies in an endless cycle. They do that by following this incubation process:

  1. Identifying business ideas
  2. Building teams
  3. Funding
  4. Managing the ventures
  5. Providing shared services (not core to the business)

8. Corporate Accelerators

Corporate accelerators are a distinct type of seed accelerators and thus provide similar services (mentorship, technical assistance, recruiting support, fundraising advice, …) to t early-stage startup companies. 

How are they distinct?

Corporate accelerators are sponsored by large corporations, and they derive their objectives from their sponsors. These objectives center around the hosting company(sponsor)’s strategic needs.                

The Process of Business Incubation

Now let’s get to the practical side: how does an incubator work? 

Although the incubation process differs from one incubator to another, there are some essential steps they all (or most of them) go through.

Here’s how the process of business incubation looks like in most cases:

1. Application

Everything sounds perfect until now, and it may seem that getting your startup to rock the market couldn’t be easier, but here’s the elephant in the room: 305 million total startups are created every year, whereas the total number of incubators is no more than 7,000. Even though this number is continuously growing, it’s still relatively low, which makes applications the hardest part of getting into an incubation program!

Most incubators will have certain criteria such as:

  • Team skills
  • Idea’s market potential
  • Alignment with the incubator’s priority sectors
  • Readiness (some incubators expect the product/service to be developed or at least at the prototype stage)
  • Addresses socio-economic challenges (mostly for social incubators)

2. Interview

Once you get through the application, you jump into an interview. Virtual business incubators do interviews online, and so do most other incubators. In that case, the interview is a brief video call during which entrepreneurs give more details about their ideas and their insights.

3. Growing Your Business

Once your company gets selected, which would generally take a few weeks to receive acceptance notice, you immediately start growing your business!

Most incubators would require you to work at their location, which is usually a coworking space, except for virtual business incubators that expect you to have a warehouse.

How long does it take to see results?

The majority of incubators would stick with you until you start seeing results, and that might take up to 3 or 4 years. However, startup accelerators would predetermine the time period, which is usually less than one year.

How Much Do Business Incubators Cost?

This question must be on your mind right now. We’ve been talking about how incubators can save you money, but it’s surely not for free! As they say “There ain’t no such thing as a free lunch”.

Some businesses may ask for a specific amount of money for their services, others will take a percentage of equity. Either way, what you pay is incomparable to the perks incubators will bring to your business!

Can you get into a free business incubation program? Coworky says YES! In our incubator program, entrepreneurs are provided resources, mentoring, partners, and opportunities to network to build their businesses. To help you achieve your business goals and reach the heights you wish to achieve, we link the dots.

Add a Comment

Your email address will not be published.