Incubators are great resources accessible to early stage companies. Below we break down three different types of incubators to help you decide which one is right for your startup.
What is one of the first things you need to run your business and set your idea into motion? A workplace of course! Stories abound of tech startups mushrooming from garage or basement to huge successful enterprises. Yet, in today’s high-tech world, a garage doesn't always cut it. Many entrepreneurs need a more professional work environment. Potentially with a boardroom for conducting meetings, high speed internet to run operations, a business telephone line, and maybe few comforts too :). A free cup of coffee and a nice desk never hurt anyone. But these small conveniences are not where young entrepreneurs or startups want to invest their money at such an early stage of operations.
This is where a business incubator can be key! As the name suggests, incubators are platforms that support the business during its initial growth stages. These incubators provide assistance and the neccessary resources for startups with limited financial capacities. Incubators provide shared spaces for minimal charge, offering small startups a base camp for operations. The underlying premise of an incubator is to make the starting up process easier and less costly by providing an office like space. An incubator can play a crucial role in assisting a business before they have an office space.
Don't get confused between an incubator and an accelerator. Although there is quite a bit of overlap, an incubator works with entrepreneurs and startups at the earliest stages of growth, while accelerators help already functioning startups transition to maturity. So what type of incubator is right for you? Let's break it down.
Incubation - Three ways
The first type of incubator, is one that is funded by a few successful entrepreneurs to assist the startup ecosystem in a particular city. A group of successful entrepreneurs may decide to invest together, to provide a sophisticated space for budding entrepreneurs to run their businesses at a nominal charge until these startups can acquire enough funding or begin generating revenue. These incubators may offer a lease on the space for a certain number of months. They may also offer a daily rate for certain businesses. These For Profit Incubators can be startup ventures in themselves, startups working to help other startups...what a great idea!
The second type of incubator is one which can be found on a college campus – The University Incubator. The college campus can be an excellent place to start a business and gain inspiration. Usually these types of incubator facilities are free of charge for students enrolled at the University and sometimes for alumni too. To find a space that is free and within walking distance can be a boon for student entrepreneurs. These incubators can be the difference between a University dream and an operational startup. In return, the college incubator gets the notoriety of being the location where a now famous business first undertook its operations. To check out some of the top University Incubator programs and what startups they are investing in read here.
The third type of incubator is known as a Corporate Incubator or a skunkworks. That’s right, these incubators are called skunkworks. The name comes from highly secret development projects conducted by Lockheed Martin in the 1940s focusing on researching and developing advanced technologies. The name now defines research and development projects that have the freedom to innovate but remain overseen and funded by larger corporations. Skunkworks or corporate incubators are usually run by Fortune 500 companies. To learn more about the history of the term “skunkworks” read here. So why would a corporation invest in creating a skunkwork or corporate incubator program?
As large companies begin to grow they tend to gain a certain level of inertia and may become dependent on the management bureaucracy. In order to keep the innovative juices flowing, these large corporations often create corporate incubator/accelerator programs. These spaces are physically and institutionally separate from the parent entity; giving the incubator the autonomy and freedom to invest in creative, cutting edge projects and enterprises. These incubators provide an opportunity for budding entrepreneurs to work on ideas which may later be absorbed or purchased by the parent corporation. These parent companies sometimes hold equity in these startups in return for supplying the space to operate. Certain corporations offer these programs free of charge in order to keep up-to-date on the latest advances in technology. This can be a win-win situation for entrepreneurs who are looking for valuable resources and for large companies that are looking to remain on the cutting edge of technology. To learn more on exactly why a Fortune 500 company might operate a corporate incubator read here.
Let’s break it down…
What are the Advantages to Using an Incubator?
Early stage entrepreneurs must consider overhead costs when growing their startups. Keeping costs minimal is crucial before they start to earn revenue and eventually make a profit. An incubator is a shared space. This means utilities, internet, and conference room charges are all shared between users of the space, making it a more affordable option for early stage businesses.
If the incubator is based on a University campus, and the entrepreneur is not a student, he or she can often use the research facilities at a nominal price. Universities abound with students who are looking for internships, even unpaid positions! The search for a team and new talent becomes even easier if an entrepreneur is operating out of a University incubator/accelerator program. For University students with entrepreneurial aspirations, these incubators can mean the difference between transforming that dream into reality.
Incubators are a great place to connect with people from various sectors and exchange ideas. These spaces can also be great for fostering new and innovative breakthroughs & collaborations.
Corporate skunkworks often offer legal advice through the parent corporation, as well as contacts and other services available via the parent company. The availability of these services saves entrepreneurs money by placing them under the wing of a large stable entity. The startup may also receive direct funding from the parent company when working in a corporate incubator. Although these incubation programs are difficult to access the struggle is worth the pay-off!
In a nutshell an incubator can be a critical asset for an early stage entrepreneur. By taking advantage of the facilities and resources mentioned above, the entrepreneur can save time, money, and resources. Incubators allow budding young entrepreneurs to pool resources and share costs, as well as collaborate on projects while building their networks. The type of incubator an entrepreneur chooses should correspond to their business. Whatever the type you choose, an incubator is a great resource for starting up your company.
To check out incubators in your region, head to the Ye! Country Guides and learn about what types of incubators are available for your startup!
Padmanapan Rao is regular contributor to the Ye! Blog and a Graduate student at Oklahoma State University-Tulsa, USA.
Images courtesy of: Independent & Flickr