There seems to be a considerable amount of confusion about the differences between business accelerators and business incubators. Many people use the terms interchangeably, but there are a number of elements that distinguish one from the other. At the same time, there are indeed overlaps across incubator and accelerator services, which might explain much of the confusion. The aim of this article is to help clarify the difference between the two.
It is sometimes easier to grasp the differences between two adjacent paradigms by first knowing about the elements that they share. For example, both incubators and accelerators prepare companies for growth by providing guidance and mentorship, but in slightly different ways, and more importantly, at different stages in the business life cycle. Due to the staggering number and variety of accelerator and incubator services that exist, it is difficult to provide clear definitions — but here’s an analogy to help.
What Business Incubators Can Do for Startups
In order to get this straight, let’s draw an analogy and say that the life of a business is like the life of a human being. There are roughly three major stages of life:
Childhood –> Adolescence –> Adulthood
Like a father to a child, an incubator provides shelter where the child can feel safe and learn how to walk and talk, by offering office space, business skills training, and access to financing and professional networks. The incubator nurtures the business throughout the startup phase (childhood) and provides all the necessary tools and advice for the business to stand on its own feet.
While learning to stand on its own is a great entrepreneurial achievement, the walk through adolescence is often wobbly and filled with challenges, and the need for guidance is far from over. As any parent knows, guiding a teenager through adolescence is perhaps the most trying period in that person’s life, as the adolescent gains a sense of self and identity. One major challenge facing most companies that operate on the verge between childhood and adolescence is that sooner or later, they get stuck in the trenches of day-to-day operations, and more often than not fail to incorporate long-term strategic planning in the development of the business. The company may lose track of its unique value proposition – its identity – during this phase.
What Business Accelerators Can Do for Startups
It is at this critical point in the business life cycle that most incubator programs end, as the firm is technically ready to spread its wings. Nonetheless, the journey towards sustained growth is far from over. Often it becomes necessary to receive additional advice and guidance on the path towards sustained growth.
Here the services provided by a business accelerator can be immensely useful. By means of acceleration services, often in the form of an “acceleration program,” business accelerators help companies get through adolescence and prepare them to enter adulthood, i.e. helping them develop strong arms and legs (institutional strength), sound values and a clear mindset (vision and strategy) for the future. In other words, while incubators help companies stand and walk, accelerators teach companies to run.
An important note is that business accelerators can be roughly categorized into two categories: seed accelerators (like Y-Combinator) and second-stage business accelerators (like Impulsa Business Accelerator). The seed accelerator‘s services often include provisions of pre-seed investment (usually in exchange for equity), and the focus is usually on business model innovation. In contrast to an incubator, the seed accelerator views the startup period as short, and startups are often supported in cohort batches or ‘classes’ during a seed acceleration program.
Moreover, incubators usually provide a physical office workspace for startups in their program; this is always the case with seed accelerators. Instead, a seed accelerator program is commonly viewed as more of a preparatory phase with a duration of just 2-4 months, during which the startup is mentored, gets access to the right network, and that ends with a “Demo Day” during which the startup gets a chance to pitch in front of venture capitalists and/or business angels.
In contrast, a second-stage business accelerator is very different from incubators and seed acceleration programs. The incubator model is suitable for a large variety of companies, but over the recent decade, an upsurge of high-tech startups has constituted a large part of incubator portfolios. The time a startup spends under the ‘protection’ of the incubator before graduating varies depending on the needs of the company for it to get on its feet, but may last for many years. On the other hand, a business acceleration program usually lasts between 3-6 months. The emphasis of the business accelerator is on rapid growth, and to sort out all organizational, operational, and strategic difficulties that might be facing the business. It can be understood as a holistic business advisory service, often bearing strong resemblance to traditional management consulting practices, but adjusted to fit small and medium sized organizations.
It is important to note that, compared to people, companies don’t grow by the tides of time per se, but by means of expanding their markets. An established company can still be sucked into the trenches of operations, or face other obstacles in accelerating their business. Hence, be it a young or established company, business accelerators can step in and straighten out the journey towards adulthood.
Both incubators and accelerators are important economic resources/institutions to foster and boost the growth of firms, be it from early startup or in strengthening established organizations. And as we all know, the growth of firms is the lifeblood of any economy.
Have you used an accelerator or incubator? What was your experience?
Leandro Margulis is the director of Impulsa Business Accelerator, Silicon Valley office. Impulsa enables companies to achieve accelerated and sustained growth to become the next generation of market leaders. Since 2004, Impulsa has accelerated over 400 companies with an average revenue increase of 30 percent the first year after acceleration.