What is the difference between a startup accelerator and a business incubator?
They say it takes a village to raise a child, but it takes a whole economy to start a business. As a small business owner, you receive a lot of information in the early stages of your new venture.
One area many small business owners find confusing is the concept of startup accelerators vs business incubators. The terms are often used interchangeably, but there are key differences between the two.
It's also worth noting that they are not always aimed solely at new startups. You might equally access the services of a business incubator because you have an innovation that takes your company into a new market, and you need some sector-specific expertise.
Below we'll look at startup incubators and business accelerators individually, as well as comparing incubator and accelerator programs to help you understand the differences between the two.
A better understanding of accelerators vs incubators can help you to decide which, if any, is right for your early-stage business, as well as knowing what information you will need to compile to apply to what can be extremely competitive programs.
What is a startup accelerator?
A startup accelerator program aims to speed up - accelerate - the growth of a new business by putting in the required funds to support that early-stage expansion. However, it's important to remember that you should be at a stage where you are ready for that level of growth.
Startup accelerator programs often put in place a fairly strict schedule, which can be over as little as a few weeks or months, during which time frame the accelerator will work with you to build your business and iron out any problems you may encounter.
A key accelerator and incubator difference is that with a startup accelerator, you should already have a commercially viable idea that is ready to take to market and scale up massively.
The accelerator program is there to support this upscaling. Although there may be mentoring and other forms of help available as part of the deal, it is usually not there to take forward an idea that is still in the early design stage.
If you have an innovation that is still little more than a thought inside your head, you might need a business incubator instead, where you can get the kind of support you need to transform that flash of inspiration into a physical prototype.
Even if you meet the criteria for a startup accelerator, it is unlikely that you will be successful. The top startup accelerator programs receive 100 or more applications for each place they have available.
If you are among the 1-2% of lucky applicants, make the most of that privilege. Put the accelerator's funding to good use and don't be afraid to access any mentoring that is also available to you, especially as that support is likely to be there for only a few weeks or months in total.
Many early stage startups find this industry expertise and professional advice is the most transformative element of working with an accelerator. The funding can cover practical costs, but the guidance can add value that stays with you for the rest of your business career.
What to consider when applying for an accelerator
Not all startup accelerators use the same approach, so like any professional service, make sure to compare accelerator programs to find one that you think will work well for your business.
Some of the best accelerator programs have a lighter touch. Instead of asking you to work in a shared office space or attend a large number of meetings, they might leave you with more time under your own control to focus on building your business.
You might also prefer to apply to accelerator programs where the advisors take a direct equity stake in your business.
Although this might seem bad - why give away equity if you don't have to? - it means that your mentors have a vested interest in achieving the maximum possible financial success for your venture.
By aligning the best outcomes in this way between the mentors and yourself as the business owner, you make sure that all parties are pulling in the same direction.
The usual due diligence also applies, so consider factors like the duration of the contract, any commitments it demands from you, and any potential penalties if either party reneges on the agreement for any reason.
Finally, check how many applications the accelerator program receives and how many it accepts - if you need support very soon, it might be worth applying to slightly less desirable programs if they offer a significantly higher chance of success.
What is a startup incubator?
Unlike a startup accelerator, a business incubator will not necessarily expect you to be ready to go to mass market. Instead, as the name suggests, this support 'incubates' an idea or innovation from inspiration to launch.
That doesn't mean you won't be expected to do the hard work, but it can mean that the work is made easier for you. For example, a startup incubator might facilitate networking opportunities or put you in contact with investors who are a good match for your idea.
Like a medical incubator, the business equivalent creates the best conditions for survival and growth. In the first instance, it's about making sure your business lives. Beyond that, it becomes more about helping your venture to thrive.
Different startup incubators receive their funding from different sources. Some examples of these include:
- Angel investors and groups
- Venture Capitalists
- Government offices
- Multinational corporations
- Venture capital firms
The source of finance can affect the types of business that a specific incubator is willing to support. An example of this is when a large pharmaceutical brand makes funding available, but only to small businesses entering the healthcare sector.
You might need to be introduced to the incubator by a third party, or complete a rigorous application process to be considered. For some small business owners this can feel quite invasive, but remember incubators are there to help entrepreneurs and to generate positive returns on investment.
If your application is successful, you may need to relocate to be closer to the incubator. Business incubators typically provide premises in the form of shared coworking space where you can be around other entrepreneurs.
You have plenty to give as well as receive - so you might be asked to work from the shared premises full-time, so that your fellow small business owners have equal access to you, your experience and your expertise.
What to consider when joining an incubator
Business incubators are a somewhat more complex offering than startup accelerators, which tend to focus primarily on finance alone.
In an incubator program, the business model includes mentorship, networking and other support services, and these can make it quite difficult to make a direct comparison of costs vs financial rewards.
Remember it's not necessarily a zero-sum. It's not as simple as a bank loan, where the profit made by the lender is equal to the amount of extra interest you have to pay.
Instead, incubator programs offer you the kinds of benefits that you need at an early stage in your business development, and which will continue to pay dividends - both figuratively and literally - for years to come.
Professional mentorship in the first weeks and months of taking your business to market can put you on a path to much higher profits, so try to consider the bigger picture and think about the long-term future.
Your immediate commitment might only last for a few months, with a specified number of hours each week spent working from the incubator's premises.
For that relatively small time investment, incubators offer a lot. Like startup accelerators, that can also mean competition is fierce for the most desirable incubator programs.
Where possible, have a clear business plan to take to the incubator when you apply for a place. If you're not yet at that stage, make sure you have fully fleshed out your concept for your new product or service that you want the incubator to help you realize.
Conduct plenty of research about the incubator itself. Look for past successes - especially with ventures that are directly relevant to your innovation - and try to understand the application process so you can give yourself the absolute best chance to be accepted.
What is the difference between an accelerator and an incubator?
A direct accelerator vs incubator comparison can be quite difficult. There are some key differences between accelerators and incubators. However, there are also some ways each is unique that are harder to compare.
Some of the main differences include:
- Accelerators are more finance-focused; incubators may focus more on mentorship and coaching
- Accelerators are for ideas that are fully realized and ready to take to market; incubators are more early-stage to help you turn ideas into reality
- Accelerators may support your startup in isolation; incubators are more likely to put you in contact with other entrepreneurs in a shared workspace
It is worth noting that there are virtual incubators too. If you prefer the mentorship and support of a business incubator, but you don't want to have to work from physical premises in a specific location, a virtual incubator could be the ideal compromise.
Both accelerators and incubators receive large numbers of applications, so your chance of success is usually in the low single-digit percent. That's no reason to apply to every program you can find.
Like applying for a job, it's better to put in a smaller number of better applications. In accelerators and incubators alike, successful applicants offer the best fit for the program and are those most likely to succeed.
As such, focus on building out your business model and compiling good documentation so that when you apply to a program, you are ready to put forward the most persuasive case as to why your venture deserves the program's support.
Which one is best for my company?
Again, the question of incubator vs accelerator for a startup company depends on your circumstances. If you just need some financial support to help you grow more quickly, an accelerator program could be right for you.
If you're less confident about the readiness of your innovation or venture, an incubator program might be what you need. The mentorship and other support services could bridge that gap from initial idea to realized marketable product.
However, be honest if you're just not ready. Both accelerators and incubators represent a significant commitment, and it's better to wait to apply when you know you have an innovation that you can turn into a saleable product or service.
When you feel like you're not ready yet, taking a little extra time to work on your idea first can help you to build your application. That way, when the time comes, you have a clearer idea of whether your small business needs an accelerator or an incubator.
Both accelerators and incubators have a hugely important role to play, not only in helping new startup companies to get off the ground, but also supporting existing established firms that are trying to enter new markets.
Without the support of incubators and accelerators, there would be much less funding available to early-stage growing businesses, and many of the fastest expanding, most profitable small brands would have died off in their infancy.
In an era when investors are continually looking for the next disruptive unicorn, it's more realistic than ever to set audacious goals for your new startup.
Just a generation ago it would have been unimaginable for a small startup brand to become a dominant force in an established sector like vacation rentals, taxi services or takeout delivery.
But whether your innovation is a physical product or something as simple as an app for an untapped market, it's easier than ever to be truly disruptive - with accelerators and incubators standing by to help you maximize your market share.