Just 2 out of 5 startups are profitable, and 1 in 3 will lose money and 1 in 3 will only break even. Choosing the right tool from Incubators & Accelerators for startups is the key. And the funny thing about that is, it takes money to make a successful startup. According to Small Biz Trends, 29 percent of small businesses failed just because they ran out of cash; almost half (42 percent) because the market didn’t need them. Oh – and if you still don’t believe it’s a tough world out there, about 90% of starts up fail, according to Failory – 10% within the first year.
Startups are a big part of the US economy. Startups created more than 2 million jobs in the US alone, according to the U.S. Census Bureau. And after 2018, which saw 145 “active unicorns” in the United States (worth a combined total of $555.9 billion) it’s easy to tell a glamorous story about building a business.
But the reality is, building a successful startup is anything but easy.
Okay, enough of the bad news. Building a successful startup is tough. And even tougher if you refuse to look to strategic partners for their help, whether that is for funding, networking, experience, or resources. But today’s entrepreneurs don’t have to be holed up alone in a garage (even though it does make for a nice rags-to-riches story later). Instead, you can lean on the support of an incubator or accelerator to cultivate a strong business – all you need to know is which model is right for you. Business Incubators vs. Accelerators
What is an accelerator?
An accelerator typically begins with a rigorous application process to kick off a program with a fixed timeframe (generally ranging between a few weeks to a few months) to rapidly grow an already established startup. For context, well-known accelerator Y Combinator accepts just 2% of the applications it receives, according to TechRepublic.
Companies generally have to have already exhibited rapid growth and a minimum viable product (MVP).
Once a startup is in, the accelerator will prop them up with a small seed investment, and provide access to its network of experts. In exchange, it starts up offer equity in the company.
And when it’s all said and done, the hope is the business has done several years’ worth of the aggressive building in a much shorter timeframe and is ready to pitch to investors and the media at a demonstration day.
What is an incubator?
An incubator typically begins with a very early stage company or even sole entrepreneur and focuses on cultivating the business outside of any specific timeframe or schedule. Many incubators will mentor startups for longer than 18 months.
Incubators also tend to adopt a local focus, and churning out fast-growing startups isn’t the goal: creating jobs or licensing intellectual property is.
Incubators can be independent or supported by angel investors, major companies, or government entities, and some may specialize in a single market or vertical.
Typically, companies in an incubator relocate to work near the other companies in the incubator. During their time in the incubator, a company will hone its idea, establish a business plan, assess product-market fit, network in the ecosystem, and identify IP issues.
Accelerators vs. Incubators at a Glance:
|Resources||Seed investment, network access||Co-working environment, network access|
|Exchange||Equity Stake||No Equity Stake|
|Goal||Rapidly accelerate business development||Build out and refine the business ideaBuild out and refine the business idea|
Both accelerators and incubators can provide many benefits to the startups in their programs – it’s up to you as a business leader to determine which program is optimal for your organization based on where it is today and where you want to go. Some important to questions to consider are:
Where is your company’s development? If you’re still on the hunt for the right co-founder or first few employees, an incubator is probably a better fit.
What speed is your company growing at? If you’re experiencing rapid growth, an accelerator can heighten it; if you’re still slowly developing, an incubator could be the better selection.
Is the mentorship network right for your needs? If you’re sold out to developing the latest cosmetics application, joining a healthcare incubator isn’t likely to connect you with the right people. Be sure to vet the network and expertise to make sure it’s a fit for your business as much as you’re a fit for their network.
Richardson Incubator Accelerator: Accelerators offer to fund; incubators do not; however, they can help refine a pitch to garner funding if that’s a better option.
Learn how HEXA Venture can help you take your business to the next level – whatever that next step is. Contact us at email@example.com to start a conversation today!