In the last blog posts I explained why corporates have to review their business models and need to innovate, adapt and overcome the challenges of new business contexts.
One way to do so is through Business Incubators / Business Accelerators.
Accelerators & incubators
The goal of an incubator, as in the meaning of the Latin word “incubare” is to hatch a business from the very start and nurture its first steps. This can be put into context in terms of helping a freshly created venture in its very first business steps and escorting the young company through its very fragile early developmental stages.
A business accelerator provides the framework, tools and methods as well as access to knowledge, which a young company requires to grow. The goal of the accelerator, as in the meaning of the Latin word “accelerare” is to bring it up to speed. This can be put into context in terms of bringing young ventures up to speed regarding understanding, developing and leading a business and as a result guide the young company all the way through its very fragile early developmental stages towards true growth and first significant financing.
Even though very similar to a business incubator, corporate accelerators are often seen as slightly more formal than incubators by not running regular cohorts of startups. Accelerators and incubators can be understood as a co-working space with some mentorship and classes and are two descriptions of the same phenomenon (even though there is contradicting statements in the literature).
Incubators provide a nurturing environment for an entrepreneurial idea to develop, out of which a business can be developed. Accelerators usually not only provide the framework, but also offer guidance through mentorship and workshops, financial support and often provision of required infrastructures for these young startups to grow further.
Also, there is an overlap between incubators and accelerators in the developmental stages of a startup.
The development status of startups and young ventures are known as the Marmer Stages. These stages describe the developmental lifecycle of a startup and provide an overview of the main goals during the specific stages.
- The Discovery Stage:
The entrepreneur discovered a problem and develops a solution (product) for it. The venture is now in its rawest form. During this stage, the entrepreneur learns if its business idea (product / service) provides a solution to a real problem. This is the earliest stage of any venture and contains the highest number of young ventures.
- The Validation Stage:
The startup evaluates if people are interested in the product / service and generates its first metrics (user traction, first revenues or other attention) for validation. If an interest in the product / service cannot be confirmed the startup either ceases or pivots. This stage is essential for the venture to fully understand its business model and prepare the business for future growth.
- The Efficiency Stage:
In this stage, the business idea is proven to be viable and repeatable. The business model of the venture is improved to increase the operational efficiency. The startup improves its operational excellence and user acquisition. During the efficiency stage, startups usually start to raise more money.
- The Scaling Stage:
The venture is becoming more efficient in its execution and pushes the further development of the company in order to grow effectively. It aggressively drives the customer acquisition and implements processes. At the beginning of this stage, external investors tend to board the venture. During this stage the startups often are supported by financial investments.
- The Profit Maximization Stage:
The startup successfully scaled its business and can now be considered an established company. It now expands production and operations in order to increase its revenue. This usually happens under the guidance or with the support of an investor unless the startup is bootstrapping, meaning starting its business without any external investor. During the profit maximization stage the startup makes the most money from its performance.
- The Renewal Stage:
The Renewal Stage prevents the company to sooner or later shut down. The startup has to reinvent its business, and come up with a new innovation in order to stay alive. Similar to the product life cycle, a renewal stage helps the startup to prevent decline.
Incubators and accelerators differ from a professional company builders like Rocket Internet, Rheingau Founders or Venture Stars. Let’s analyze how:
Incubators support young ventures to evolve their business ideas and are therefore mainly active in the discovery and in some cases also in the validation phase of venture development. Accelerators take the development a step further and accompany the ventures from discovery and validation through the efficiency and scaling phase.
Most corporate accelerators and incubators have to follow key performance indicators which might not necessarily be related to the development of startups. These KPIs can also act as a obstacle towards the fast and efficient progress of venture development. Not all KPIs consider the importance of key success factors used by the startups.
Company Builders Company builders accompany their ventures throughout the entire developmental value chain.
Often disputed some company builders are described as fast copycat business model “borrowing” successful business models from others and take proven tech ideas to emerging markets. However not all company builders act that way.
In the end company builders are more deeply involved in the development of their ventures than accelerators or incubators. This proximity to the venture itself also generates another way to measure the progress of the venture. The company builder is actively involved in the performance and is aware of all key success factors the venture needs to focus on. In comparison, an incubator and accelerator are following the same goal, which is to support young companies in their first developmental steps towards a viable, repeatable and successful business.
The company builder accompanies its young ventures all the way, until they either exit the venture or the venture is dismissed. In doing so they act as co-founders.
Accelerators and incubators only escort ventures for a part of their developmental journey.
In the European accelerator and incubator as well as company builders environment it is still too early to say which model is more successful. However there are only a few successful and professional company builders and an increasing number of more or less successful incubators/accelerators.
Their approaches in supporting young companies differ and one thing catches the eye: The difference in how to measure of progress.
Company builders with a high proximity to their ventures appear to have an overall better success and survival rate when it comes to their startups. A rule of thumb states that between 60–90 % of all startups fail. With company builders this percentage is lower.
The venture development tool (which will be partially described over the following posts) includes aspects of the company builder approach, but in the acceleration and incubation context.