As any entrepreneur will tell you, guiding a startup to success is no mean feat. During the crucial, early stages of a business venture, though, there is often help at hand. Faced with building a robust business plan, raising investment, capturing market share, and ensuring adequate growth, new startups can benefit from the support offered by incubators and accelerators.
Incubators and accelerators are professional management programmes sponsored by independent organisations that extend management guidance to new companies, giving them a better chance of success. Incubators nurture innovative businesses in the medium to long-term, focusing on steady growth; accelerators, meanwhile, aim to speed up the growth of startups, working with their founders for a period of just a few short months.
So, how do you know which one is right for you? Let's take a closer look at both incubators and accelerators, including their pros and cons, and how to decide which best fits your startup.
What is an Incubator?
As mentioned, incubator programmes support the development of startups in their early stages by offering guidance in business planning and execution, go-to-market strategy, and attracting investment. Typically better suited to companies that have not yet embarked on their completed operations, incubators also provide access to valuable contacts that can influence your business' introduction to the market and its subsequent trajectory.
Incubators deliver their services at their own premises for a period of two to five years, and participating companies tend to relocate their operations there to work along with the other startups that are managed via the programme, encouraging a productive and collaborative ecosystem.
Pros
- The management guidance offered is based on experience accumulated over several years in fostering the success of startups across industries. This advice can be transformative and be the difference between success and failure in your company's infancy.
- Due to the collaborative operational model of typical incubators, your startup can gain access to discounted professional and financial services, supplier contracts, production facilities and more. An incubator can secure favourable rates by ensuring that the startups they manage share such services, and therefore reap the benefits of economies of scale, lowering the operational costs for all involved.
- Gaining access to funding is a significant benefit that attracts startups to incubators. As a founder, you will be put in touch with potential investors, and receive training on how to deliver pitches and succeed in raising the adequate capital needed to launch and grow a business. In addition to investment connections, your company can also find potential employees, partners, associates, suppliers and more through the extensive networking opportunities available.
- As startups utilise the support of their incubator for a significant period of time, you can complete your introduction to the market and begin your growth trajectory while still under the supervision of expert management. This minimises the risk of serious challenges arising early on and harming the company, something that could either result in financial loss or closure without the correct support.
Cons
- Gaining access to incubators is highly competitive due to the reasons listed above. Therefore, you cannot take for granted that you will work with the incubator you've applied to, despite being required to share detailed information about your company's operations and plans in your submission.
- For a young business, entering into a highly structured environment can be overwhelming, particularly compared to the internal self-structured, self-paced approach of a startup. The incubator's management will act somewhat as corporate superiors, monitoring both your business' growth and your learnings, meaning that you will have to get used to answering to somebody other than yourself.
- The medium-term period required to complete the incubator programme represents a significant time investment at such an early stage in your startup's life. Despite the many advantages, this timeline can be tough to commit to, and may even come at the expense of further innovation.
What is an Accelerator?
Similar to incubators, accelerators support startups' growth. Their approach to profitability and management guidance is far more concentrated, however, as their programmes have a duration of just a few months.
As guidance is delivered within an incredibly intensive structure, this option is best suited to young startups that have already launched their full operations, and are in a position to implement the advice received immediately.
Most accelerators offer direct investment to startups in return for equity in the business; this secures the programme operators' vested interest in the success of your startup, far beyond your 'graduation'.
Pros
- Driven by a focus on business mentoring, accelerators pass startups through rigorous learning workshops, pinpointing the sweet spots that will be key to their success.
- As the process lasts just a handful of months, you will have access to a wealth of information, skills and experience from the programme's mentors. This allows you to draw from your mentors' wisdom in a short space of time, positively influencing your chances of success.
- An accelerator will educate you on crucial aspects of business operations and management, such as sales structures, marketing and advertising, accounting, crisis management and more.
- Your company can benefit from internal funding, which, though granted in exchange for equity, can often be challenging to secure alone at a company's initial stages.
- Accelerators also offer networking opportunities with external investors upon the completion of their programmes. Therefore, you will have the chance to demonstrate your business' potential, products and services face to face with multiple angel investors at events coordinated by the accelerator's management.
Cons
- The many advantages of enrolling in an accelerator can potentially turn into disadvantages for startups not suited to its structure. Despite requiring a shorter time investment than participation in incubators, accelerators still require three to six months of dedicated attention - a period of time that can be crucial for a young company in today's fast-paced global market. This commitment is even more costly if you are the sole founder, as it means that you will be unable to continue the daily management of the company throughout the duration of the programme.
- The demanding nature of accelerator 'express' programmes can also mean that you are cramming an awful lot of activity into a short space of time. This can even result in valuable time wasted when you are required to complete specific learning or networking activities that are not tailored, such as spending time with potential investors or community members who are not relevant to your startup.
- As noted previously, most accelerators require equity in exchange for their funding. Although the equity requested may seem minuscule in your startup's early stages, this can soon translate to significant profit lost once the business begins to grow and become successful.
Which One is Best for Your Business?
While both options offer similar services to help startups thrive, the differences in their structure make them better suited to specific businesses.
Incubators target the development of innovation, by offering young businesses an environment conducive to growth, complete with resources, services, learning and funding. These programmes are usually run by not-for-profit organisations and will therefore not seek to gain shares in the startups they work with. Due to this reduced focus on financial gain, however, your company would receive less financial support from an incubator rather than an accelerator. They are also more suited to startups looking to grow slowly and organically, as they operate on a long-term basis, typically spending several years working on growth guidance.
Accelerators, meanwhile, are better suited to startups that have the flexibility to allocate several months to intensive workshop-style training, focusing wholly on this process, with more than one founder or several team members available to continue daily management of the business as this goes on. As accelerators are for-profit and require equity in exchange for seed funding, only startups with the risk adversity to accept this term should follow the accelerator path.
The key to making the decision on which option is best for you lies in evaluating your startup honestly, looking at your needs, and what you are willing to part with to fulfil them. Entrepreneurs should take time to assess the pros and cons of both options, and make the best decision based on their knowledge of their company and their own business acumen.
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In the meantime, take a look at our list of the top incubators in the world right now - and where you can find them.
Do you have experience of life in an incubator or accelerator? Join the conversation below and tell us all about it.