What Is the Role and Function of a Business Incubator in a Startup?

Avantika Bhardwaj Avantika Bhardwaj
Apr 14, 2023 9 min read
What Is the Role and Function of a Business Incubator in a Startup?

Small and Medium Enterprises (SMEs) play a vital role in enhancing the standard of living by generating employment opportunities, both in developed and developing nations. Despite numerous studies on business incubators, the significance of entrepreneurial skills in the success of such incubators remains uncertain. Business incubators are instrumental in not only launching startups but also supporting the entire entrepreneurial journey.

Business incubators have emerged as a valuable resource for startups seeking to overcome business challenges. Business incubators provide startups with the necessary support, resources, and guidance to help them grow and succeed. The primary function of business incubators is to enhance the chances of success for innovative startups and facilitate the entrepreneurial process. Initially, incubators were centered around the IT industry; however, they now collaborate with businesses from various industries and orientations. This article delves into the fundamentals of business incubators and incubation, their significance, the various types of incubation services, and the phases that make up the development of business incubation.

What is a Business Incubator?
What is Business Incubation?
Types of Business Incubators
How Business Incubation Works
What is the Role or Function of a Business Incubator?
Incubators v/s Accelerators

What is a Business Incubator?

A business incubator is an organization or program that is designed to support the development and growth of startup companies. They provide services such as management training, mentorship, co-working space, networking opportunities, access to funding, and much more. Business incubators are perceived to be the mainstay of economic development programs. They create value by combining the entrepreneurial drive of startups with the resources generally available to new ventures.

The people working for a business incubator perform intensive research before supporting or funding startups. The primary objectives of business incubators are creating employment opportunities in the local economy and commercializing technologies.

National Business Incubation Association (NBIA) defined Business Incubators as a catalyst tool to Regional and National Development.

The whole idea behind business incubators is to offer a range of business development services, full-access to small spaces on flexible terms, and to meet the needs of new firms. The package of services offered by a business incubator is designed to enhance the success and growth rate of new enterprises; hence, maximizing their impact on economic development.

The number of incubators has grown considerably in recent years. This rise is attributed to factors such as corporate downsizing, increased entrepreneurship, new technologies, economic globalization, and the transfer of technology.

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What is Business Incubation?

Business Incubation is the name given to the process that involves supporting the development and growth of startups through the provision of various resources and services. The goal of business incubation is to help startups overcome the initial hurdles that come with starting and growing a business. There are numerous startups working on revolutionary ideas. But these ventures often need assistance. Business incubators provide this much-needed support. The goal of incubation in a nutshell is to increase the success rate of emerging startups and entities.

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Types of Business Incubators

There are 4 main types of incubators prevailing in the market today. These are:

1. Corporate Incubators

Their objectives are to enhance entrepreneurial skills and to help startups keep up with other industries/competitors. Corporate incubators target internal and external projects related to the activities of the company. The most common challenge corporate incubators face is the conflict between top-level executives and committees regarding objectives and management-related decisions.

2. Local Economic Development Incubators

They work on economic development by supporting SMEs and specific groups for the overall upliftment of society. These groups include small enterprises, handicraft-related businesses, and locally-sourced companies. Governance risk, volatility in management quality, long hours of negotiation, and conflicts are often associated with such incubators.

3. Private Investors' Incubators

They assist high-potential businesses (such as technology-intensive startups) and then reap benefits by selling shares. These incubators lag in terms of quality and durability.

4. Academic Incubators

They offer new sources of finance while supporting the entrepreneurial spirit and focusing on civic responsibility. Academic incubators target external projects and the projects internal to academic institutions.

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How Business Incubation Works

The process of business incubation typically involves several stages:

  1. Application: Startups apply to a business incubator program by submitting an application and business plan. Some incubators have selective application criteria, while others may have a broader range of eligibility criteria.
  2. Screening: The incubator reviews the application and business plan to determine if the startup is a good fit for the program. The screening process may involve an interview or presentation by the startup.
  3. Incubation: Once accepted into the program, the startup works with the incubator to develop and execute their business plan. The incubator provides the startup with access to resources, mentorship, and other support services to help them achieve their goals.
  4. Graduation: Once the startup has achieved its goals and is ready to operate independently, it graduates from the program. Graduation typically involves leaving the incubator's physical space and resources but may still involve ongoing mentorship and networking opportunities.

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What is the Role or Function of a Business Incubator?

Incubators provide resources and services to entrepreneurs, including working space and offices, technical expertise, management mentoring, assistance in compiling an effective business plan, shared administrative services, technical support, business networking, and advice on intellectual property, sources of financing, markets, and strict admission/exit rules.

An incubator concentrates its effort on helping innovative and fast-growth startups that are likely to have a significant impact on the local economy.

Some of the functions of the business incubators includes:

  • They guide startups/ventures on how to compete with established industry players.
  • Business incubators help with the basics of business.
  • They provide networking activities.
  • They help startups save on operating costs.
  • Incubators provide marketing assistance.
  • Incubators help with market research.
  • They provide high-speed internet access.
  • They create long-lasting jobs for new graduates, experienced mid-career personnel, and veteran executives.
  • Incubators help with accounting/financial management.
  • They provide access to bank loans, loan funds, and guarantee programs.
  • Incubators bring credibility to the company. This helps the company receive loans and credit facilities from financial institutions.
  • Incubators help with presentation skills.
  • They have a strong network of influential people who can connect startups/ventures with established businesses and individuals.
  • They provide access to higher education resources.
  • Incubators can tap into their networks of experienced entrepreneurs and retired executives.
  • They link companies with strategic partners.
  • They provide access to angel investors and venture capital.
  • Business incubators organize comprehensive business training programs.
  • They act as advisory boards and mentors.
  • They help in management team identification.
  • They offer marketing and PR assistance to new companies for brand establishment.
  • They help with business etiquette.
  • They provide technology commercialization assistance.
  • They help with regulatory compliance.
  • They provide intellectual property management.
  • They create jobs for mid-career personnel and veteran executives which benefits communities and drives economic growth.

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Incubators v/s Accelerators

Business Incubators Business Accelerators
Assist ventures with both long-term and short-term growth. Assist ventures only for short-term growth and that too for a small duration.
Allow companies to grow at their own pace. Companies are under pressure to grow quickly.
Are generally non-profit organisations. Are usually for-profit organisations.
May not be able to offer access to funds. Offer access to funds and are also known as angel investors.
Don’t promise extensive growth to ventures. Promise substantial growth to ventures.
They provide services such as Office space, mentorship, networking opportunities, business development support. They provide services such as Mentorship, networking opportunities, access to funding, training, and education
Startup Incubators and Accelerators: Definitions, Differences and Benefits

Overall, business incubators are more focused on providing long-term support to early-stage startups, while accelerators typically work with startups that already have some traction and are looking to rapidly grow their business. Incubators may offer a broader range of services and have less selective application criteria, while accelerators are typically more focused on funding and may require equity in the startups they work with.

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The performance of business incubators is often affected by incompetence in business management, financial handling, human resource management, and the lack of interpersonal and people skills.

With regard to the skills required by business incubators to be efficient, it was revealed in several studies that administration, technical, financial management, marketing, human resource management, and interpersonal skills were extremely important.

Access to advanced technology-based facilities, self-sustainability measures, support structures, and funding was found to be the major challenges confronting business incubators. It is also recommended that incubation managers, who lack the necessary entrepreneurial skills, enroll in business courses at local colleges or universities.

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What is a business incubator?

Business incubators provide resources and services to entrepreneurs, including working space and offices.

What are the types of business incubators?

Types of business incubators includes Corporate Incubators, Academic Incubators, Local Economic Development, Private Investors' Incubators.

What are the functions of business incubators?

Business incubators provide networking activities, help startups save operational costs, help with presentation skills, and get access to loans and funding.

What is the role of an incubator in the process of entrepreneurship?

Business incubators provide startups and entrepreneurs get the funding they require and provide access to industry mentors.

When was the first business incubator started in?

The first business incubator was started in 1959 by Joseph L. Mancuso. It was opened at the Batavia Industrial Center in Batavia, New York.

How long does a startup typically stay in a business incubator?

The length of time a startup stays in a business incubator can vary depending on the program and the needs of the startup. Incubator programs can range from a few months to several years.

Do business incubators provide funding for startups?

Many business incubators offer access to funding sources for startups, including seed funding, venture capital, and other types of financing. However, not all incubators provide funding, so it's important to research individual programs to determine their offerings.

What types of mentorship do business incubators offer?

Business incubators offer various types of mentorship, including one-on-one mentoring from experienced entrepreneurs and industry experts, as well as group mentoring and peer-to-peer mentoring opportunities.

How do I apply to a business incubator program?

To apply to a business incubator program, startups typically need to submit an application and business plan. Some incubators may also require a presentation or interview as part of the application process.

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