What Is a Business Incubator?

If you are a new business owner, there's plenty to benefit from a business incubator. Joining a business incubator can harness positive results for your business. They help you stimulate business growth and facilitate success through diverse resources and expertise.

In fact, experts suggest that a business incubator can boost the success rate of startup companies from a meager 25% up to 87%. Whether limited funds, resources, talent, or expertise, startup incubators can benefit early stage companies. Here's a deep dive into everything there is to know about business incubators.

What is an incubator and its role?

An incubator is a unique organization, program, or workspace designed to support and facilitate the growth, innovation, and success of a startup company.

Incubators typically support businesses in a wide range of services for new companies–varying from office space, to mentorship programs, advisory support, and business education.

Types of incubators and popular examples

Various incubators exist to cater to different business types and sectors. While business incubators differ in origin and sector, they boast the same goal - to support startup growth, innovation, and success.

Types of incubators

Academic incubators or university incubators

Academic and university business incubator programs are typically run by academic institutions–or, through a collaboration between these institutions and other stakeholders.

A good example of a university incubator program is the Harvard Innovation Labs. This is a university-led entrepreneurial incubator intended to support its students and alumni.

The incubator provides support from venture ideas to building, funding, and resources. The incubator caters to any sector. Program beneficiaries can take advantage of the university labs for science-based ventures, like providing medical kits to low-income countries.

Similarly, fintech startups looking to boost financial landscapes through tech can enjoy the university's vast resources.

Corporate incubators

Corporate incubators provide support to their internal employees in creating and growing their innovative ideas. They typically rely on in-house resources, including trainers and mentors.

The Google Area 120 is a great example. This corporate incubator supports Google employees in pursuing their own radical and innovative ideas in various areas, from AI to customer support.

Other incubator types

Other incubator types include venture capitalist incubators, collaborations with government entities, non-profit incubators, and dedicated incubators.

The Founder Institute is one example of a dedicated business incubators. Though an American incubator, the Founder Institute operates in over 180 cities and 65 countries, in chapter format.

Founder Institute is an incubator, entrepreneur training, and entrepreneurs launch program–most known for its 4-month part-time incubator program.

This program targets new and early stage entrepreneurs–particularly employed ones or those at the venture stage. In addition to training and mentorship, the program raises funding for startups.

How do business incubators work?

To benefit from startup incubators, new businesses at the early stages must apply to the incubator–and not all get accepted.

After all, incubators take the time to really invest in companies at their earliest stages. Thus, they always look for companies with a higher potential for success and returns.

Startup companies usually undergo an application process; whereby the most viable and promising startups are chosen.

Currently, Just over 7,000 incubators exist worldwide. Yet, over 300 million startups emerge every year. It's easy to see the steep competition among new entrepreneurs for a place in these incubators.

Further, startup incubators require a lot of time commitment and can result in some loss of control over your business during the program period. However, incubators come with their upside.

To boost success and offer real-life experiences, most incubators function like the corporate world. In their office spaces, they set strict deadlines, run meetings, and even have a direct manager, mentor, or supervisor.

Incubators function as launch pads for early-stage businesses and startups. So, not all graduates will go on to build large innovative empires.

Like in college, some graduates may choose to take a different approach after the incubation program. In this case, some graduates may decide their idea to be unimplementable, shut down, and look elsewhere.

Who is an incubator ideal for: Do I need to join one?

If you are a startup entrepreneur - the short answer is yes, you do need to join a business incubator. Business incubators don't just benefit your business with the funding opportunities they may offer.

A startup incubator can offer a diverse set of opportunities for growth and success for your small company.

From access to specialized equipment to experts at lower rates or training with the best in the field, business startup incubators add value to startup and small companies. Before you pick and apply to join one, ask yourself and answer these questions:

• Am I ready to commit time to a startup incubator program? Can I keep up with a shrewd incubator program schedule?
• Am I ready for training and to give up some control of my business during this time?
• What type of startup incubator do I want? Does it align with my business's core values and vision?
• Am I ready to give up equity in the business? Or, can I simply repay a debt once established?

5 benefits of business incubators for early stage companies

It's worth noting that not all incubators are created equal. However, many incubator services offer perks. Here are the 5 major benefits of joining one:

1. Access to resources: from resident office space to specialized equipment and business assistance services

Incubators offer a great way for new entrepreneurs to get a business footing while saving costs–or, getting access to funds or resources they lack.

‍Most incubators will host beneficiaries of the program under one roof during the duration of the program - serving as a physical space for a resident office.

In addition to office space, entrepreneurs can enjoy access to software, specialized equipment, and even administrative support.

When it comes to specialized equipment, different sectors access what works for them. For instance, tech startups can benefit from software vouchers that offer financial relief as they build. On the other hand, medical startup businesses can benefit from lab access.

2. Investment opportunities: access to seed funding and angel investors

Access to potential investors and funding opportunities is a priority for most start ups. Funding is available through a variety of ways–whether by connecting you with investors or the business incubator raising seed capital for you.

Many incubators also function in an investment model (taking an equity stake from your company or through debt finance) as a way to get their returns.

3. Training and mentorship opportunities

A Business incubator program provides mentorship and training opportunities for beneficiaries. Mentors can guide entrepreneurs on their leadership skills, efficiency, and how to be more confident managers.

They can also provide expert-based training for business management and other key entrepreneurial areas.

4. Networking opportunities

Many business incubators run events where entrepreneurs can network with other entrepreneurs or stakeholders in the industry.

Networking opportunities offer a great way to build connections and contacts and explore further opportunities for growth. Networking can also foster collaboration.

5. Access to skilled professionals

Incubators provide assistance for other ad-hoc services essential for new businesses at the early stage. These include facilitating professional services, like lawyers or accountants, at a much lower-than-market rate.

This is a great way to ensure startups enjoy adequate services without spending too much financial resources or having to retain expensive talent.

Business incubator vs accelerator: the difference

Startup incubators and accelerators have the same goal - to support small businesses' innovation, growth, and success.

These programs come with similarities, including access to training and mentorship, opportunities to network, and funding (though not all incubators), among others. However, startup accelerators and incubators differ in the way they operate.

Here are the key differences between incubators and accelerators:

• Venture stage: Incubators cater to those at the earliest idea stage or early stage of their new businesses whereas accelerators require mid-stage businesses with a team of their own and have already rolled out their products.
• Program design: Accelerator programs are more structured with clear goals of transforming mid-level startups into scalable businesses. Further, most accelerators work like venture capitalists, providing funding in return for an equity stake in your company.
• Funding: Funding is a major benefit for many incubators and accelerators. However, incubators may provide support to businesses in different ways. Accelerators focus on providing funding among their core goals.
• Timeframe: Incubators offer foundational resources - including environment and resources for your start up. Thus, they offer a more flexible timeline until the business is ready to present to investors and kickstart operations. Accelerators are a time-capped (within a few months) and intensive program that offers mentorship, training, and various resources.

Y Combinator is perhaps the most popular venture capitalist accelerator program. Based out of Silicon Valley, Y Combinator offers a 3-month program and up to US$500,000 funding for mid-stage startups in exchange for up to 7% stake in beneficiary companies. Popular beneficiaries of Y Combinator include Airbnb, Stripe, Reddit, and Zapier.