What do we mean by Business Accelerators and Incubators?
A business is an institution or enterprise that performs commercial and professional activities ranging from manufacturing and trading activities to providing various types of services to its clients. Most of the business activities are done with the motive of earning profits. However, some businesses operate with a non-profit objective as well. In recent times, the concept of business accelerators and incubators has gained significant importance. Both the programs are support systems run by experts for new start-ups or businesses that have not been in existence for long. All such businesses can take any form like a sole proprietorship, partnership, a public or private company, etc.
A business accelerator “accelerates” or expedites the growth and development of an already existing company with a product or a service offering in hand. The business owner or proprietor receives a mentorship program. He also receives the resources to help and create networks to push its products or services in the market. Also, the accelerator provides financial assistance to the business owner to fuel its growth activities.
- What do we mean by Business Accelerators and Incubators?
- What are the key Differences between Business Accelerators and Incubators?
A business incubator takes care of a business right from its inception or birth. Its work starts from the point where the entrepreneur may not even have an idea or offer in hand. The incubator helps the entrepreneur to generate fruitful ideas and finalize the product or service to offer. It will then help the business to go ahead with the idea and pitch the product to investors and consumers. They can help it to create a perfect product line and mix, as well as help it to select the right markets for its offerings. In short, incubators assist a business right from its birth till the time where it can stand all by itself.
What are the key Differences between Business Accelerators and Incubators?
Let us now have a look at the key differences between a business accelerator and an incubator.
Business accelerators and incubators both select their clients or businesses by an application process. They screen the various applications on the basis of the viability of the business idea and offer, market potential, project team, financial requirements, and other such parameters that are vital for success. The entrepreneurs are interviewed, screened and only a few of them make it to the eligible final list.
Thus, the process of application and selection is applicable in both cases. But the difference remains at the level of scrutiny and eligibility criteria. And this remains somewhat lenient for incubators as compared to accelerators. Business ideas with good future potential can make it to the final list, even if the business is not in existence.
The application process for business accelerators is much more rigid and rigorous. Only the businesses that are already in existence, have a solid business plan and potential, have already demonstrated a fast growth rate, make it to the final list. The success rate for selection can be as low as 1%-3% from the overall global applications for accelerators.
Minimum Viable Product (MVP) Requirement
An already-existing and active product or offering is a must for a business accelerator. Such offerings are known as MVP or Minimum Viable Product in such a case. It means that the business should have at least one product offering that is already available and running in the market. Customers must be paying for it or some part of it or may even be a part of a free product promotion campaign. The business accelerator should foresee strong chances of success in the company’s product offering. That means the company is already in the market with its product and/or services. Basically, the company’s products or services are beyond the launch stage with good growth potential. And for expansion of the markets or volumes, the company seeks advice and funding.
As opposed to accelerators, the incubators help the entrepreneurs from the early stage (maybe even at the drawing board stage). The business can be totally new, with no existing product or service being offered in the market. The idea may still need to be refined or the product is still in the internal trial stage. Therefore, there is no compulsion for having any running product or service for approaching incubators. Of course, a good idea must be there.
Share in Equity
Business accelerators often command a share or cut in the equity of the company in exchange for their services. They also provide capital to the company in return as a support measure to help it grow and stand.
Business incubators do not take a cut in the equity of the company. They assist the business to raise funds and capital through their networks and approaches with angel investors, venture capitalists, and other sources. They do not provide capital to the business directly.
Business accelerators target those businesses that have substantial and fast-paced potential. The likelihood of their success is high within a short period of time. Hence, they have a time span of just 3-12 months for their entire support program.
On the other hand, the business incubators may offer their services ranging from a year to as long as five years to one business. The idea is to build a business right from inception. It aims to take it to a stage where it is ready to take on the market and the competition.
Business accelerators have a small duration of time in hand and hence have a rapid implementation approach. They provide mentoring and training services from experts in their respective fields. Most importantly, they provide seed funding. It is essential for any business idea to nurture and succeed.
Business incubators have a more laid-back approach while offering services to their clients. They provide assistance from industry experts right from idea generation to product development and its launch. They help the business to raise capital through their well-established network of investors. Incubators may also provide other supportive services such as legal and other operational assistance.
Let us see suitability in Business Incubator and Business Accelerator
- Businesses that have yet to establish a good product line and mix.
- Businesses that needed Incubators mentoring and training.
- They are novices in their field.
- Businesses that need help in building an effective team, make new product launches and enhance the value of the business.
- Businesses that are not looking for capital from incubators, as they themselves do not provide capital. Of course, they help the business to get the capital from other sources.
- A business that is already present in the market.
- The business should be readily scalable.
- Accelerators are suitable for those who are on the lookout for capital infusion and are willing to offer a share in their equity capital.
- The business owner should be able to perfectly pitch his ideas and the products to the accelerator program in order to get selected for it.
- He should be convinced that his business can touch new highs within a short span of a few months with the help of the mentorship and guidance of the program.
Both the programs i.e. business accelerator and incubator have one common goal- to groom a new or relatively new start-up, steer it through the right channels, grow its business, and make it valuable in the eyes of the investors and consumers. The obvious question remains is which of these programs should be preferred or which one is a better source.
As we discussed above, both types of programs have their own merits and demerits. The right choice will depend upon the operational stage of the business, product or service offering in hand, the ability of the entrepreneur to sell his idea to the investors, etc. More so, clarity of what the business is exactly looking for and what it has in hand to offer to the mentors. A wrong decision can result in the loss of money, time, and the reputation of the business as well as shatter the confidence of the owner. Therefore, businesses should introspect thoroughly before choosing the right program for themselves.