Business incubators: A guide for startups

Startups begin with an idea that founders can then formulate into a business plan. However, building and growing a viable business is difficult and requires help from others. To address this, entrepreneurs often look to incubators to help fill the gap between ideas and a real product.

To decide if a business incubator is right for you, let’s dive into what it is and how it helps startup development. The article also covers how to choose the best one for your startup needs.

What is a business incubator?

A business incubator is a workspace designed to give a startup company the resources it needs to succeed. The perks of a business incubator vary from each program, but it often includes mentorship and other professional services. The goal of a business incubator is to turn a promising idea into a developing startup with a strong chance of success.

What is the role of an incubator?

Business incubators are often sponsored by universities or non-profit organizations. Private ventures may also fund incubator programs. Startups can spend a few months or a few years in an incubator before they “graduate.”

Incubators play many roles in startup development. They aim to nurture early-stage companies into sustainable businesses. Incubators provide a range of support, depending on the program. They may help your startup company with:

• Office space — Incubators are frequently housed in a shared workspace with other startups in the program. The office space and equipment are either included or offered at below-market rates. Utilities like internet services are also part of the incubator
• Mentorship — One of the key benefits of an incubator is having top mentors available to you. They can provide guidance and share their expertise to help you navigate challenges
• Education and training — Incubators offer workshops and other programs to help a startup develop the skills it needs to succeed
• Access to investors — Some incubators may arrange pitch meetings with investors to help companies secure funding. Other incubators may offer funding in exchange for equity in the company. Some incubators are prestigious with a high reputation which can gain your company favor from investors
• Networking — Incubators provide a space for startups to meet potential partners, mentors, and investors. Through networking, startups gain a wider network of support and potential business opportunities
• Revenue growth — Achieving revenue growth is easier when your company participates in an incubator. It can lower overhead costs and help you connect with investors
• Professional services — Many incubators provide professional services like legal counseling or accounting. These services can help your company get started on a positive note
• Support from other entrepreneurs — Sharing your incubator experience with other startup companies means you can learn from each other. The inspiration may help you launch your company quicker and more smoothly

Why do startups need incubators?

As you begin to take the first steps to developing your business idea, you may wonder if applying for an incubator is the right choice. Your startup could indeed develop into a successful venture without an incubator. However, a business incubator can provide many opportunities that you wouldn’t get otherwise.

For starters, an incubator can provide tailored support for your startup. As your business plan evolves, your mentors are right there with you to provide guidance and structure. They can also provide advice on how to avoid common pitfalls in your industry. Mentorship is a valuable tool, and you shouldn’t overlook it.

What is the difference between incubators and accelerators?

Incubators and accelerators are often used interchangeably. To be fair, they both provide support to companies, but incubators and accelerators have different key characteristics. If you’re not sure if you should join an incubator or an accelerator, evaluate these factors:

• Venture stage — If you have a minimal viable product (MVP) and a business model, then an accelerator is a better fit for you. If you have an idea and a detailed business plan, then an incubator is ideal
• Founding team — Accelerators prefer a fully functioning team when evaluating companies. Meanwhile, an incubator is more willing to work with solo entrepreneurs or minimal team members
• Funding and equity — Accelerators often provide funding in exchange for capital. Incubators are less likely to have this arrangement and charge a fee instead
• Timeline — Accelerators are often intense programs that take a few months to complete. Incubators have longer timelines and it’s not uncommon for startups to stay for a couple of years or more. However, the timeline will vary from program to program
• Application process — Both incubator and accelerator programs need proof that your idea or product has high potential. For an incubator, you’ll need a strong business plan. An accelerator application will need you to prove product-market fit and a developed business model

The biggest difference between an incubator and an accelerator is the venture stage. Incubators are more willing to work with early-stage startups, even if all they have is an idea and a business plan. Meanwhile, accelerators expect you to have an MVP and already be operational on some level.

Successful startups from incubators

Incubators often give startups the resources they need to succeed. Here are some examples of startups that went through an incubator and are successful today:

• Airbnb
• Instacart
• DoorDash
• Dropbox
• Stripe
• Reddit
• Twitch
• Substack

Don’t think you need a fully developed product and business model to have success. Popular startup program Y Combinator says on average, 40 percent of the companies it funds are just an idea.

How to choose the right incubator

There are many incubators available to startups. The International Business Innovation Association (INBIA) estimates that 1,400 incubators are running in the U.S.

It’s not hard to find an incubator, but it’s difficult to get accepted. Top-tier competitive programs can have an acceptance rate of 1-2 percent. For comparison, the Harvard University acceptance rate for the Class of 2027 is 3.4 percent.

Beyond creating a competitive application, a startup needs to choose an incubator that fits its needs. Not all incubator programs are alike, so it’s essential to evaluate a program’s value before applying. Here are a few things to consider:

• Do extensive research — Make sure you have looked at an incubator’s resources, structure, and services. Is it what you need to succeed? If you are willing to relocate, you may also want to consider incubators in other areas. You’ll also want to consider the experience of the mentors and the weekly time commitment of the program
• Consult alumni — No one knows the value of an incubator better than the alumni. You may want to consider contacting companies that the incubator has helped
• Assemble your team — While incubators may consider a solo applicant, you may also want to consider finding a co-founder or other team members. It’s essential to prove to incubators that you have the skills necessary to build your idea
• Prepare a pitch — Incubators want to know why you think you can succeed. Prepare a well-researched pitch that shows why you are different and how you are a match for the program

Key takeaways

Incubators are a valuable resource for startups with a developed idea that need guidance on what to do next. You don’t need an MVP to apply for an incubator, but you should prepare a strong business plan and a solid pitch. Your goal is to show that your idea has potential.

Choose an incubator that has the resources that are best fit for your needs. The lessons, personalized feedback, and networking opportunities are crucial for building your company.

Featured image source: IconScout

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