Acceleration vs. Incubation
What is better: Acceleration vs. Incubation?
For the past few years, there has been an amazing evolution and diffusion of intrapreneurship, corporate entrepreneurship programs, accelerators, incubators and corporate venture capital. On one hand, this has become possible because companies have begun to realise – especially when they need to renew themselves and develop edgier solutions – that real innovation requires a different approach. Of course, this is mostly true for companies whose culture is traditionally not geared towards novelty and impeding innovation rather than promoting it internally.
At the same time, it is true that corporate incubation and acceleration have become fashionable and the number of accelerators and incubators which have been developed in the last few years has grown exponentially. Despite this growth and the number of corporates involved in accelerators and incubators, there is still a lot of misunderstanding about what incubators and accelerators do. The objective of this post is to provide some insight on the differences as well as posing a few practical questions which help with assessing which one of the programs is the better choice for any corporate environment.
From a chronological point of view, accelerators are actually a derivative and an evolution of incubators, and in particular, of the incubators which appeared during the dotcom boom of the late nineties. Back then, incubators were mostly investment instruments which promoted Internet start-ups and would also offer them a number of non-primary services by helping founders focus on the core of their business.
The accelerator is born with the same objective in mind, which is promoting the ability of companies to grow, but with a different strategy and a different approach. As a matter of fact, accelerators focus on earlier stage ventures with a cohort type of program: they offer mentoring, lecturing, and they help the founders build meaningful, Spartan yet viable products.
Some accelerators focus on traction as well by helping founders with building leads and even revenues, during the cohort, which normally lasts between 10 and 12 weeks. For sure, all accelerators share the commonality of concluding their program by having participants present to a group of investors who potentially will invest in the start-up itself. That is the famous demo day, which is usually the closing bell of an accelerator’s in-house program.
During the educational part itself, the companies are located together on-site at the accelerator’s location, but after the demo-day, they are free to find their own office or even join an incubator. However most firms will stay at an arm’s length of the location to exploit as much as possible the network and cluster effects.
Incubators, on the other hand, while still offer networking opportunities, mentoring, and inspirational lectures, they don’t really try to help companies in developing an MVP. Rather, they help them focus on the primary objective of the company, which is product development, manufacturing, and sales and marketing. This is achieved by taking care of no-nonsense types of services such as intellectual property, accounting, IT and telcom services, etc. Generally, the incubator is a longer type of relationship, which usually lasts between three and five years, traditionally also linked to a real estate offering. The owners and the founders can also receive inspiration, mentoring, and seminars if required, but the focus is to really help those companies operate and build traction on their products and services.
A notable difference between accelerators and incubators is the types of companies they work with along with the focus of their industries. Incubators, because they require longer periods of times, tend to avoid direct competitors being incubated at the same time while they have a focus on a vertical. For accelerators however, this risk is reduced. Hence, they have more industry and vertical focus, and often have some direct or indirect competition between companies being accelerated within the same cohort.
Acceleration vs. Incubation: what should you focus on
So far in this post, we have been treating acceleration and incubation as two extremes of a range. However, the truth of the matter is that there are many hybrid ways of combining the two together and creating specific programs offering the benefits of both. In order to simplify the decision, we have put together a framework which treats them as opposite extremes. The model includes five major areas that need to be taken into consideration before deciding which is the best approach for corporate incubation.
First of all, real estate. Is there already a real estate component which can be leveraged? Is there an existing space that can be used to host the company in the short term and the long term?
The second question deals with equity. Particularly, do you want your corporation to become an equity stakeholder of the incubated and accelerated companies? Or alternatively, do you want to provide them with grants? Are you simply trying to build an ecosystem where you finance and introduce innovations without necessarily owning the companies themselves?
The third question has to do with innovation objectives. Are you attempting to create future customers and build new providers in new areas? Or is your firm organising and identifying a number of competitive businesses that can drive the transformation of the industry in a certain direction? For example, European Space Agency has a grant program that is trying to develop more start-ups and a start-up ecosystem where they expect to use their own satellite technologies once they are established companies.
Microsoft, Google, Sysco have a variety of acceleration and incubation programs which have differing purposes. In some cases they are a vertical place, sometimes they want to create more customers or suppliers, or sometimes they focus on businesses that they think might destroy or cannibalise their revenues and eventually become the core business revenue of the corporation itself.
The final two aspects to be taken into consideration deal with the time horizon and the role to play. The time horizon is crucial regarding the type of companies that your firm wants to take into consideration because we often refer to start-ups as generic, but the umbrella includes a lot of many different concepts. Some ideas originate from companies that don’t have a product – they simply have a vision and need to build a product and find traction. For these companies, typical accelerators are the best type of programs.
On the other hand, if you have a company who already has a product and simply needs help scaling up internationally, perhaps the accelerator isn’t useful at all. The younger the company, the longer the time horizon needs to be taken into consideration. Hence, it is very important to clarify what we want and what we expect. If we are planting seeds, we need the plant to grow first before we can expect results. If we plant the plant however, we can expect the flowers and fruits sooner.
Finally, one important question the corporate venture manager needs to ask is what role they want this entity to play within the competing innovation framework, covering both internally and externally activities. Are we talking about a corporate venture plan which includes venture capital, acceleration, incubation, or start-up programs? What is the role of each these activities? Because although competition and diversification is important, it is clear that these programs work best when they have identifiable and measurable roles. Furthermore, the money is better spent when there is no confusion regarding how the resources are to be used in the long term.
In conclusion:Acceleration vs. Incubation
Acceleration and incubation is currently a very exciting world albeit a dangerous one because it’s fashionable and trendy right now. There are plenty of corporate entrepreneurs and many experts in how corporations can innovate a start-up, but I think there are basic questions corporate managers should ask themselves before envisioning one route or another. This is especially relevant in a contest where many suppliers are trying to sell a turnkey solution.