Starting a company can be a lonely process for the first-time entrepreneur. There’s a lot of hard work, self-discipline, limited feedback on priorities, and process fraught with potholes -- some critical to the success of the enterprise itself.
Over the last decade, founders and startups have turned to business incubators and accelerators to scale their business. The concept makes a lot of sense for entrepreneurs or early stage founding teams that want to leverage a defined process for success and transition to a sustainable enterprise. But what is a business incubator?
Business Incubator Definition
A business incubator is a company that helps startups and new businesses accelerate their growth and success. Incubators do this by providing support in a variety of areas including management training, office space, capital, mentorship, and networking connections.
Incubators can be sponsored by different types of organizations including venture funds or private companies, municipal economic development organizations, and even colleges or universities.
Business Incubator Models
Some incubators are focused on different types of companies (i.e., fintech startups), vertical markets (i.e., the energy market), or geographic locations (i.e., companies in Arizona).
In fact, the National Business Incubation Association (NBIA) categorizes incubators into five models:
- Academic institutions
- Nonprofit development corporations
- For-profit property development ventures
- Venture capital firms
- A combination of the above
Companies usually spend one to two years in a business incubator -- a span determined by need and/or obligation. A benefit of the business incubator model is that it creates a shared learning experience and supports collaboration.
The ability to receive quick, accurate information from incubator executives, mentors, instructors, or fellow entrepreneurs can have a significant impact on your ability to focus on the right priorities and make the right decisions to grow your business.
What is a Small Business Incubator?
Many business incubators support small businesses or startups. So, if you're looking for a "small business incubator," you're likely simply looking for a "business incubator" that provides support for business infrastructure, training, and capital.
Note that business incubators are different than business accelerators. While incubators exist to nurture the growth of a new business, accelerators are generally geared towards helping entrepreneurs transform their ideas into products or services that are ready for market quickly -- in as little as a few months.
It's important to know the difference between these two models and to discern which is right for your company or idea.
What Does a Business Incubator Do?
An incubator should provide diverse benefits to startup entrepreneurs. These benefits can include:
- Office space - Some incubators offer office space for free or below-market rates to their portfolio companies. This solves several problems for startups. Mainly, it allows them to find a professional space for their employees to work without having to sign a lease -- especially helpful when the company is unsure how quickly they’ll scale production or headcount.
- Specialized equipment - Some incubators invest in specialized equipment, like modeling software, 3D printers, prototyping equipment, or software development labs. This is a huge advantage for scaling companies in their infancy. Access to costly equipment and simulation programs can be crucial.
- Experienced mentors - It’s important for startups to limit critical mistakes while scaling. Most incubators offer an experienced staff of savvy industry executives to help the core team stay focused and avoid mistakes. Incubators usually employ mentors with specific startup experience that can help explain process, planning, and decision criteria -- all while steering new entrepreneurs away from costly mistakes they made or witnessed.
- Group training and education - Many business incubators offer an array of important business training spanning from legal advice on startup documents, incorporation terms, or IP issues to general business challenges like how to ship a product, establish a quality culture, or establish sales and marketing processes.
- Software discounts - From accounting to project management, incubators typically offer business software that helps their startups scale. Pricing and education are typically vetted and negotiated for a standard rate allowing portfolio companies to get right to work. HubSpot offers this type of arrangement to more than 1000 startup partners worldwide.
- Shared business services - Much like leveraging software availability and selection, many incubators offer accounting, banking, marketing, and manufacturing services to help companies scale.
- Community - One of the best attributes of business incubators are the intangibles. Working with a group of like-minded entrepreneurs, using connections for connecting with prospects or customers, and learning from others in your cohort are invaluable parts of incubator life.
Is My Startup a Good Fit for a Business Incubator?
According to HubSpot for Startups’ Christian Mongillo, “The most important criteria is fit. Find a business incubator that works economically and allows you to expand as your team expands.
Look for one that has a selection process and is searching for similar types of companies. It’s not just a coworking space. The best incubators have a great mentor network and produce good results. They also have free wifi.”
Are all companies good fits for incubators? “Not necessarily,” says Mongillo. “If you’re a lifestyle company, a second-time entrepreneur, have access to office space, or want to build your own company culture, it might not be a good fit.
Some incubators require companies to give them an equity stake. So, if you don’t need the special services, you might be better off on your own.”
How Do I Get into a Business Incubator?
Being accepted into a business incubator can and should be a process. Most incubators have an admissions process and require companies to apply for acceptance.
Criteria for acceptance into an incubator varies, but most require you to present a feasible business idea and professional business plan. Here are a few steps to get started finding an incubator that’s right for your business.
- Review your options geographically or vertically - Because of the sheer volume of available incubators, you might have more than one option to choose from. By doing a quick regional search, you can understand and rank the incubators that might be a good fit. Always review the website and ask for references from successful companies they’ve helped as well as a few from companies that have dropped out to get an overall view of fit.
- Review criteria for admission - Most incubators have defined criteria for which types of companies they’re prepared to help. Some require certain milestones or criteria, like headcount, capital, entrepreneurial experience, background, revenue, or product fit. Others require contractual obligations from the accepted companies, so reviewing the application and understanding what’s is crucial to ascertaining fit.
- Prepare a business plan - A business plan might not be required during the application process, but it’s helpful in determining whether the incubator is a good match. I’m a big fan of the three-page business plan rather than an unabridged version. A simple overview of business name, team build, value proposition, competitive advantage, addressable market, go to market strategy, product or service, and a 12-month forecast can help you differentiate your company.
- Be prepared to work with a screening committee - In most cases, incubators will accept initial applications for companies meeting basic criteria. Some incubators require a video submission to explain the basic business model, vision, and mission of the company. The second stage is usually to meet and discuss your goals, plans, strengths, and weaknesses with a screening committee. This might take the form of an application, pitch or interview, and a series of meetings to set expectations for each side.
Best Startup Incubators
- Parallel 18
- Founder's Co-op
- DreamIt Ventures
- 500 Startups
- Amplify LA
- Y Combinator
- The Hatchery
- Excelerate Labs
- Capital Factory
- New Venture Challenge
1. Parallel 18This international incubator requires portfolio companies move to Puerto Rico to participate in the five-month program. Business models must be socially responsible as well.
Focused on startups with revenue or pilots ready to scale in the areas of healthtech, securetech, and urbantech.
5. 500 Startups
7. Amplify LA
8. Y Combinator
10. The Hatchery
11. Excelerate Labs
12. Capital Factory
Choosing the right business incubator is a big decision. Use the criteria in this article and our Ultimate Guide to Entrepreneurship to jumpstart your journey and your success.
Need a little funding to help get your idea off the ground? Check out our list of the best crowdfunding sites to launch your business or product.
Originally published Jun 27, 2019 10:00:00 PM, updated June 28 2019