In both developed and developing countries, Small and Medium Enterprises (SMEs) improve the standard of living by creating employment opportunities. Despite there having been a lot of studies on business incubators, the answer to the importance of entrepreneurial skills in the development of successful incubators is still not clear. The role of business incubators in launching a startup is as crucial as supporting the entire entrepreneurial journey.
Business incubators are essentially organizations that increase the survival rates of innovative startups and support the entrepreneurial process. Incubators earlier used to focus mainly on the IT segment but now they work with companies from diverse industries and orientations. This post discusses the concept of business incubators and business incubation, the role of business incubators, types of incubation services, and the phases involved in business incubation development.
Meaning of Business Incubators
What is Business Incubation?
What are Incubators?
Incubators v/s Accelerators
Role of Business Incubators
Phases of Business Incubation
Types of Business Incubators
Meaning of Business Incubators
Business incubators are formed to help startups. They provide services such as management training, co-working space, and much more. Business incubators are perceived to be the mainstay of economic development programs. They create value by combining the entrepreneurial drive of startups with the resources generally available to new ventures. The people working for a business incubator perform intensive research before supporting or funding startups. The primary objectives of business incubators are creating employment opportunities in the local economy and commercializing technologies.
National Business Incubation Association (NBIA) defined Business Incubators as a catalyst tool to Regional and National Development.
The whole idea behind business incubators is to offer a range of business development services, full-access to small spaces on flexible terms, and to meet the needs of new firms. The package of services offered by a business incubator is designed to enhance the success and growth rate of new enterprises; hence, maximizing their impact on economic development.
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The number of incubators has grown considerably in recent years. This rise is attributed to factors such as corporate downsizing, increased entrepreneurship, new technologies, economic globalization, and the transfer of technology.
What is Business Incubation?
Business Incubation is the name given to the process wherein an organization supports the growth of startups. There are numerous startups working on revolutionary ideas. But these ventures often need assistance. Business incubators provide this much-needed support. The goal of incubation in a nutshell is to increase the success rate of emerging startups and entities.
What are Incubators?
Incubators provide resources and services to entrepreneurs, including working space and offices, technical expertise, management mentoring, assistance in compiling an effective business plan, shared administrative services, technical support, business networking, and advice on intellectual property, sources of financing, markets, and strict admission/exit rules. An incubator concentrates its effort on helping innovative and fast-growth startups that are likely to have a significant impact on the local economy.
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Incubators are usually the collaboration of one or more pro-business organizations. These organizations can be:
- Economic development organizations.
- Local colleges and universities.
- For-profit ventures.
- Government entities.
- Trade associations.
Incubators v/s Accelerators
| Business Incubators | Business Accelerators |
|---|---|
| Assist ventures for both long-term and short-term growth. | Assist ventures only for short-term growth and that too for a small duration. |
| Allow companies to grow at their own pace. | Companies are under pressure to grow quickly. |
| Are generally non-profit organisations. | Are usually for-profit organisations. |
| May not be able to offer access to funds. | Offer access to funds and are also known as angel investors. |
| Don’t promise extensive growth to ventures. | Promise substantial growth to ventures. |
Role of Business Incubators
- They guide startups/ventures on how to compete with established industry players.
- Business incubators help with the basics of business.
- They provide networking activities.
- They help startups save on operating costs.
- Incubators provide marketing assistance.
- Incubators help with market research.
- They provide high-speed internet access.
- They create long-lasting jobs for new graduates, experienced mid-career personnel, and veteran executives.
- Incubators help with accounting/financial management.
- They provide access to bank loans, loan funds, and guarantee programs.
- Incubators bring credibility to the company. This helps the company receive loans and credit facilities from financial institutions.
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- Incubators help with presentation skills.
- They have a strong network of influential people who can connect startups/ventures with established businesses and individuals.
- They provide access to higher education resources.
- Incubators can tap into their networks of experienced entrepreneurs and retired executives.
- They link companies with strategic partners.
- They provide access to angel investors and venture capital.
- Business incubators organize comprehensive business training programs.
- They act as advisory boards and mentors.
- They help in management team identification.
- They offer marketing and PR assistance to new companies for brand establishment.
- They help with business etiquettes.
- They provide technology commercialization assistance.
- They help with regulatory compliance.
- They provide intellectual property management.
- They create jobs for mid-career personnel and veteran executives which benefits communities and drives economic growth.
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Phases of Business Incubation
The whole process of business incubation is divided into 3 phases.
| Physical Facility Support | Networking Facilities | Support Services |
|---|---|---|
| Refers to the incubation services provided within the physical facility. | Refers to the networking facilities provided to startups for growth. | Refers to the various support services provided to businesses/startups for smooth functioning. |
Types of Business Incubators
There are 4 main types of incubators prevailing in the market today. These are:
- Corporate Incubators
- Local Economic Development Incubators
- Private Investors' Incubators
- Academic Incubators
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1. Corporate Incubators
Their objectives are to enhance entrepreneurial skills and to help startups keep up with other industries/competitors. Corporate incubators target internal and external projects related to the activities of the company. The most common challenge corporate incubators face is the conflict between top-level executives and committees regarding objectives and management-related decisions.
2. Local Economic Development Incubators
They work on economic development by supporting SMEs and specific groups for the overall upliftment of the society. These groups include small enterprises, handicraft-related businesses, and locally-sourced companies. Governance risk, volatility in management quality, long hours of negotiation, and conflicts are often associated with such incubators.
3. Private Investors' Incubators
They assist high-potential businesses (such as technology-intensive startups) and then reap benefits by selling shares. These incubators lag in terms of quality and durability.
4. Academic Incubators
They offer new sources of finance while supporting the entrepreneurial spirit and focusing on civic responsibility. Academic incubators target external projects and the projects internal to academic institutions.
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Some other types of incubators are:
- Seed Accelerators: They focus on early startups.
- Public/Social Incubators: They focus on public welfare.
- Kitchen Incubators: They are inclined towards the food industry.
- Medical Incubators: They focus on medical devices and biomaterials.
- Virtual Business Incubators: They support online businesses.
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The performance of business incubators is often affected by incompetence in business management, financial handling, human resource management, and the lack of inter-personal and people skills. With regard to the skills required by business incubators to be efficient, it was revealed in several studies that administration, technical, financial management, marketing, human resource management, and inter-personal skills were extremely important.
Access to advanced technology-based facilities, self-sustainability measures, support structures, and funding were found to be the major challenges confronting business incubators. It is also recommended that incubation managers, who lack necessary entrepreneurial skills, enroll in business courses at local colleges or universities.
