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The pros and cons of the Startup Incubator approach

by Alastair Lechler on 12 Nov 2018
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In an earlier post, we discussed how organisations across diverse industry sectors are increasingly seeking more innovative ways of working. We also looked at the Fast Follower approach to innovation and the pros and cons of being second or third to market.

In this post, we take a look at the growing trend in the UK of start-up incubators and discuss the pros and cons of this approach.

Start-up Incubators

Business incubation is an established concept. As defined by the former UK Business Incubation Association, “Incubation is a highly flexible combination of business development processes, infrastructure and people, designed to nurture and grow new and small businesses by supporting them through the early stages of development and change”.

Start-up incubators are designed specifically to help companies in their very early infancy. They serve as a great platform for helping entrepreneurs to build the foundations of their business; from idea and product development to finding follow-on investors. Members can use an incubator for an indefinite amount of time, allowing them access to support for as long as they need it.

As of last April, there were 205 active incubators and four virtual incubators in the UK, according to government data. These are spread relatively broadly across the country, and the majority either focus on digital technology or have no sectoral preference. And they tend to be run by government bodies or universities.

Many start-up incubators have a broad focus on digital technology, but certainly aren’t limited to it. Some of the biggest start-up incubators in the UK include Bathtub 2 Boardroom in London, which offers affordable office space, funding advice and a community of fellow entrepreneurs to engage with, and UCL BaseKX whose members can benefit from seminars, demo days and help from UCL’s innovation and enterprise team.

The pros

If you’re a start-up business, your focus is on innovation; developing a product or service and a business model to get it off the ground. And an incubator helps start-ups do just that.

Incubators offer benefits like seed funding, legal guidance and accounting assistance. This support frees up start-ups to focus more on the core business, i.e. developing their product or service, and less on administrative tasks. They also offer a workspace at a lower-than-market rate for members, meaning members are able to put more of their budget into building their core business. By paying rent or a membership fee, start-ups don’t need to worry about incubators taking equity in their business.

They tend to provide mentoring and training schemes too. Often from people who were once entrepreneurs themselves; who know the challenges of building a business from scratch, and who can use their personal experience to help companies develop their vision and strategy.

A start-up can join an incubator for an indefinite amount of time, allowing them access to long-term support. The lack of a distinct time frame means they can access the working space and additional support for as long as they need to build their core business.

And it’s a collaborative environment, meaning start-ups can learn from each other’s successes and mistakes. Start-ups also have an opportunity to tap into a large network of potential business partners. It gives them a backing, meaning investors are more likely to take notice of them as opposed to if they were out there on their own.

The cons

Not all incubators are created equal. Some provide more or better benefits than others. So researching potential incubators and speaking to other start-ups already signed up to the scheme is essential. Advice and guidance is most valuable to start-ups, so finding the ones that will deliver best in this area is important.

But is an incubator a business or service?

If it’s the former, they’ll have their own interests. So entrepreneurs need to make sure the incubators interests are aligned with theirs. And there are other options for advice and support, such as the National Enterprise Network and School for Start-ups that can act as more independent sources of guidance.

The application process itself can be tough. Usually, applicants are required to provide a detailed business plan and disclose all activities. And ultimately, the incubator acts as a boss of sorts, as someone who is invested in the start-up company’s progress, so members need to be ready to answer questions or provide any information as required.

Though start-ups welcome the opportunity for long-term support, not having a set timeline can have its downsides. Without clearly defined structure or expectations, programmes have the potential to drift or stagnate. Members need to be dedicated to reap the rewards.

Incubators versus Accelerators

Though the two are often thought to be synonymous, incubators differ from accelerators, which are fixed-term cohort-based programmes for start-ups who have already developed their foundation and ideas and are looking to accelerate their growth. The vast majority of accelerators are corporate funded, and start-ups are provided with space to work in the host company’s offices, as well as mentoring and guidance. And at the end of the fixed-term, usually three or four months, the company may choose one or two start-ups to partner with or invest in.

Ultimately, incubators and accelerators are designed to support new businesses at different stages of their infancy; incubators when in the very early stages of innovation and product/idea development, and accelerators when they have the foundations in place and are ready to start growing their business.

Incubators give start-ups the opportunity to jump-start their company. Designed specially to help companies in their very early days, they provide a space to work, support and guidance. Having this system in place means start-ups have the time to dedicate to what’s most important - developing their core business and ideas.

Innovation healthcheck

Topics: Innovation

Alastair Lechler

Written by Alastair Lechler