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8 Types of Business Incubators Every Entrepreneur Should Know

A busy business office.

What do you think a startup would need to survive the growing competition in the business world? No one can guarantee that your small business will bring fortune and fame, but you hope it will. Most business experts will encourage you to work hard, keep your clients satisfied, and price your products right.

Well, there’s nothing wrong with that advice. Indeed, it can help you get your business the results you seek.

But you forget something important, and I hate to break it to you. Launching a business really sucks. You must be ready to work 60 hours weekly for months preparing to launch a new product that will probably fail terribly and leave you bankrupt!

If this doesn’t scare you from launching a business, then I have good news. We’re living in an era of entrepreneurial spirit and technological revolution. And part of this enthusiasm is driven by accelerators and business incubators.

What are business incubators?

A business incubator is simply a workplace created to provide new ventures and startups access to growth-related resources they require, all under one roof. Incubators often offer office-related resources, access to advisors, training, administrative support, potential investors, and mentorship programs.

Many incubators serve as a temporary launching pad for new ventures, expecting that participants (the newly launched businesses) will eventually grow and move out. Unfortunately, not all companies achieve this objective as some realize their business ideas were not viable and end up shutting down.

Accelerators vs. incubators

Most people use these words interchangeably, but the two programs have different goals and timeframes.

Incubators vary and often exist to help business founders determine if a business idea is viable. They also help put startups on an aggressive growth trajectory. Some incubators set a time limit, often one to two years, for the newly founded business to stay in their space. Remember, you’ll be charged a fee to be in the incubator’s space, or the incubator may take an equity stake.

On the other hand, accelerators are fast-paced, short-term, structured programs lasting for three to four months. Most of them limit the number of participating businesses and are competitive. Basically, business accelerators offer cash infusion after a milestone achievement or upfront.

Business incubators are partnerships or collaborative unions sponsored by pro-business organizations. Some of these organizations include universities, colleges, government entities, for-profit ventures, and economic development organizations.

Types of business incubators

The term ‘business incubator’ often refers to commercial space offered to new ventures. However, some incubators specialize in a specific industry and work to bring similar businesses together. Here are the eight types of incubators you should know.

1. Virtual business incubators

A couple office workers working on their laptop.

Also known as online business incubators, virtual company incubators began in the early 1950s and didn’t take off until the late 1950s. These organizations offer support for startups that need capital and advice to actualize their business concepts.

As the famous dot-com bubble grew and busted, most high-tech venture incubators did so too. This was the start of the revolution in the world of business incubation. Most of the incubator organizations that survived the bubble switched to the virtual business model.

The traditional company incubator model requires you to set up a physical shop at the incubator’s location (site). On the other hand, the virtual incubation model allows businesses to garner the advice and other resources that incubators offer but still maintain their own warehouses and offices away from the incubator’s site. A common example of a fully virtual business incubator is the One Million by One Million program.

Higher learning institutions such as Springfield Technical Community College and Auburn University are providing virtual company incubation. They provide a huge library of resources, and others offer the use of their physical facilities.

2. Medical incubators

A female medical professional near a computer, on white background.

Most medical startups in the United States and other regions in the world face many challenges when it comes to achieving effective product development and validation. They also experience financial-related difficulties, and this hinders long-term growth.

The good news is that startups focused on the provision of healthcare can always turn to medical incubators to boost their chances of becoming the next success story. According to a report published on Forbes in 2018, medical startups raised over $ 2.8 billion (capital funding). This amount represents about a 70% increase from $ 1.64 billion reported in 2017.

Medical incubators and accelerators play a key role in the startup economy. They offer new medical device companies the information, direction, resources, and finances necessary to start bringing their product concepts to life. They are the center of a somewhat triangular network that comprises healthcare systems, healthcare startups, and venture capital.

Today, healthcare incubators and accelerators are driving innovations in the medical industry. Their services are beneficial to healthcare startups that focus on healthcare services, digital health, medical technology, genomics, and informatics.

Medical incubators primarily aim to boost the performance of healthcare companies. In the process, they cultivate entrepreneurship, create new jobs, facilitate the growth of healthcare-centered services, and commercialize medical technology.

3. Kitchen incubators

A couple bonding in the kitchen.

A decade ago, the concept of the incubator kitchen was a novel concept. However, the food industry has evolved pretty dramatically. It is now flooded with artisan products and enjoys unparalleled access to outstanding food trucks and food services.

This evolution and the changing business landscape have increased the number of food entrepreneurs who meet the consumer demand for both local and unique products. The resultant demand for kitchen space has fueled the implementation of the incubator kitchen concept.

Kitchen incubators are also known as culinary incubators. They are designed to offer small food businesses a competitive edge when entering the local marketplace. They achieve this objective through the provision of the following;

  • Certified insufficient kitchen space for food preparation.
  • Sufficient capital to overcome restrictive barriers of the high cost associated with purchasing or leasing kitchen space and kitchen equipment
  • Resources related to branding, accounting, marketing, financing new products, and insurance.

Kitchen incubators also minimize the risk of business failure by eliminating extra startup barriers associated with a lack of specialized knowledge in the areas of maintaining and managing a commercial kitchen. They also offer specialty food businesses such as farmers, food cart vendors, and mobile food truck businesses the chance to start from nothing and steal their business to success.

4. Social/public incubators

A group of people conducting a team meeting.

Social incubators aim to offer social entrepreneurs the necessary resources to expand their businesses. So how do they work?

Social intrapreneurship is now a global phenomenon that transforms the lives of citizens via innovative approaches to solving social challenges. This concept combines the passion of a social mission with entrepreneur-like discipline. It is now heralded as a novel strategy to address social problems, ensure sustainable development, alleviate poverty levels, and create employment opportunities.

Most experts perceive it as a transformation in addressing various challenges. It enables citizens to take responsibility for initiating a change instead of demanding it. Generally, there is a growing acceptance of social intrapreneurship as an effective approach to addressing social issues.

As a result, numerous initiatives are flourishing to leverage, encourage, and develop social entrepreneurship. This is where social incubators come in. They offer the necessary knowledge and other resources to enable entrepreneurial businesses to deliver social good. Here are the benefits a social incubator can offer.

  • You don’t need to fit in a specific category or be a social enterprise or a charity to qualify. All you need is an appropriate business idea intended to deliver a positive environmental or social impact.
  • Successful businesses to a social/public incubator scheme can access finances regardless of whether or not they were turned down by mainstream financiers.
  • Social incubators are aimed at regional and local communities. That means you can still get support at the grassroots.
  • The incubators offer a wealth of knowledge to help you launch and manage your startup. Perhaps you are a brilliant interior designer but no idea of business finance or accountancy. The incubator can provide such knowledge.

One downside of social or public incubators is that you will need commitment, time, and drive to succeed in the social intrapreneurship. Besides, there is no guarantee you will successfully pass every development stage. So, getting finance approval isn’t a one-way ticket to your success.

5. Seed accelerator

A group of people working together.

These business incubators are also known as startup accelerators and are focused on the early growth stages of startups. They are fixed-term, cohort-based programs that offer education and mentorship assistance to startups. Seed accelerators can either be privately or publicly funded and usually focus on a broad range of industries.

The well-advertised boom in venture capital and startups in recent years has coincided with the advent of a new player (seed accelerator) in the startup ecosystem. This new player (accelerator) is now playing a significant role in startup communities in the United States and other regions. These organizations have helped improve startups’ income, and their benefits are now spilling over into the entire startup communities.

Unlike other business incubators, the application process for most seed accelerator programs is open to every business but very competitive. It is, therefore, recommended to learn different types of seed accelerators before submitting your application. This could increase your chances of qualifying for their services.

6. Startup studio

A startup studio, modern design.

Unlike accelerators and incubators, studios are specialists in idea generation. They can either begin with an idea or a team, then set forth a unique path to validate the idea and determine whether or not to take it to the market by passing a series of “stage gates” that give a “go/no go” decisions depending on key milestones and metrics.

Startup studios usually take a larger stake in new ventures, up to 45%, and don’t operate on a set time frame like accelerators and other types of incubators. Instead, they hit each of the ‘stage-gates’ or milestones until product-market fit is realized. Note that passing the last gate stage means a “launch in the market.”

The concept of startup studios isn’t new. Bill Gross’s IdeaLab is among the first and most successful startup studios that preceded the rise of business accelerators. This organization has been testing and spinning business ideas off into companies since the early 1990s.

Another successful and famous startup studio is the Dollar Shave Club. It was hatched out of Science Inc., another startup studio, and sold to Unilever for a billion dollars. Just like other startup studios, Science Inc. takes a hands-on approach to most of its investments, which include strategic guidance, mentorship, access to financing, and other operational resources.

7. Venture builder

Two businessmen shaking each other's hands.

If you have not yet heard about venture builders, allow me to introduce them to you. Venture builders are organizations that build business ventures using their own resources and ideas.

Unlike business accelerators and incubators, venture builders never take any applications nor run any sort of competitive programs that culminates in a Demo Day. Rather, the pool business ideas from their own network of resources and get the right team of advisers, sales managers, business developers, and other experts to develop them.

These organizations can develop many models, projects, or systems at once and create separate companies around each promising idea by assigning capital and operational resources to those portfolio businesses. In its basic form, a venture-building organization is a holding company that owns different levels of equity in various corporate entities it has helped create.

Many successful venture builders are usually more hands-on and operational than holding companies. They usually raise the necessary capital, host internal coding sessions, acquire staff resources, work with the right legal teams, design business models, and build the minimum viable products. These organizations also hire business development managers and oversee marketing campaigns to ensure successful pre-and post-launch phases.

8. Corporate accelerator

Man in a suit holding a slingshot.

A corporate accelerator is a program run by a large corporation that provides a fixed-term, cohort program that includes mentorship, seed capital, and other resources that a startup needs to grow. This program often ends in a ‘demo day’ or formal pitch event where the startups pitch the giant corporation sponsor for an extended partnership or investment.

Unlike seed accelerators, corporate accelerators are ‘hosted’ or sponsored by a giant corporation looking to innovate around its strategic needs. This model is different from corporate venture studios in which a company partners with an outside the specialist organization to develop a homegrown spin-off venture. That means the resources of the parent corporation and studio are being pulled together in the process.

Start it up!

Forget what I said about starting a business. It doesn’t suck.

With different types of business incubators, accelerator programs, and venture building programs, it’s easier now than never to become an entrepreneur.

There is just one major hurdle on your path to launching and steering your business to success – deciding to take action.