It can be difficult to get a small business started up in its first days, especially if the entrepreneur is working on their own with the idea. This is where the incubator business model can be very helpful. A scary statistic is that 90% of incubator businesses are going to fail, but that’s actually 2x better than the general business market.
Could an incubator be the right business model to use for your next great idea?
What Is an Incubator?
When a business incorporates the incubator business model, it will be physically locating its services into a central location with other businesses incorporating the same model. Virtually any industry is able to do this, but there are some types of businesses that adopt the incubator model more than others.
- Commercial kitchens allow for multiple businesses to create products by mutually sharing costs on equipment with a timeshare in place for using it.
- Technology startups can share office spaces with IT hookups easily enough while working simultaneously.
- Administratively based occupations, such as writers and graphic artists, can share creative space outside of the home.
Sometimes a local Chamber of Commerce will start a business incubator for anyone who qualifies and contributes to the program. Many incubators, however, are generally funded by the same venture capitalist. This gives the VC an easier way to supervise their investments while still providing a start-up the chance to find success.
What Are the Benefits of the Incubator Business Model?
There are two key benefits that come with an adoption of the incubator business model: mentorship and scalability. Unlike an accelerator program that will typically allow 120 days or less of a presence in the mutual space, an incubator allows a company to stay indefinitely until its needs change. This gives a VC or local business gurus the chance to directly mentor each incubator business and help it to find success.
Then, when the business grows large enough, it can move from the incubator and into its own location.
Depending on the incubator program and its participants, a third benefit might also appear. Businesses are able to work with each other, support each other, and the shared learning often results in an enhanced period of growth. There is also a unique marketing opportunity that can even help to provide added levels of exposure to a new business. That’s value that can’t be ignored.
Does the Incubator Business Model Have Any Disadvantages?
It can be challenging at times to work inside a business incubator. An entrepreneur might be advised by 8 different mentors on an idea that is being worked on and receive 8 different opinions about how to proceed. The total number of programs that are operating simultaneously inside the incubator can also be problematic because the environment can become distracting.
It isn’t uncommon for the VC to want updates and meetings about progress. Mentors are going to want updates and meetings on progress as well. How does the entrepreneur cope with these distractions?
They must have a filter. For the incubator business model to operate effectively, every entrepreneur must have the ability to filter the advice they are receiving so that they can take the good out of each comment receive. Some incubators have businesses that are under-performing and that extra weight has to be ignored.
What About a Digital Incubator Business Model?
Thanks to the growth of bandwidth and internet coverage around the world, a new form of the incubator business model is starting to grow. Sometimes called the “excubator business model,” the purpose is still the same. There is typically a VC and there will be mentors in place to track the progress of the business. Instead of being in a physical environment that is shared, however, the environment becomes virtual.
That’s right. In this incubator business model, the entrepreneur can outsource the work at home. Digital incubators can even incorporate other business entities on the same network if they so choose to have mutual learning and scalability.
Many incubators receive thousands of applications, so not everyone is going to be able to take advantage of this unique business model. For those who can, the benefits clearly outweigh any difficulties that might be experienced. Apply for a local program, start a digital program, and take advantage of the incubator business model benefits for your next entrepreneurial idea.
It might just be the perfect opportunity for growth.