What's the difference between a business incubator and a business accelerator?
If you’re an entrepreneur looking for guidance or investment it can be a daunting task to figure out the many players in the arena. There are incubators, accelerators, seed-funds, VC’s (Venture Capitalists), Angels, Angel Groups and maybe even one or two other fringe groups I failed to mention. In this article I want to take a look at two specific groups, incubators and accelerators, and discuss what they are and who they help.
The Business Incubator
A business incubator is just what it sounds like. It’s mentoring by experienced business professionals designed to foster and grow an entrepreneur’s ideas. The outcome is not guaranteed to give rise to a business so the mentoring may vet out the need for a pivot, a re-design of a product, or a conclusion that the targeted customer may not want the product or service offered at all. (as a side note – don’t be discouraged if your idea may not be a viable business. Better to know that now and where there’s one idea there’s usually another!) Usually, a pitch is given to an incubator group by the entrepreneur. It is (or should be) understood by the mentors running the incubator that the pitch (or pitch deck) may be less than complete. The concept here is that the entrepreneur has an idea which may or may not be completely flushed out. Maybe they’ve thought about the potential market and done some research. Maybe they’ve attempted to make a prototype and even looked into manufacturing or in the case of software, software development. After the pitch the incubator mentors try to determine whether the idea is viable and if there is a potential definable market to pursue which in turn gives rise to a business.
Typically, if invited to the incubator, the entrepreneur may give up a small piece of equity or agree to give a percentage of their subsequent funding raise to the incubator. In many cases the incubator will charge the entrepreneur a small fee to enter the mentor program which is anywhere from 6-12 months long. The entrepreneur is assigned a main mentor but the incubator mentors can all be available to the entrepreneur as well. There might be a structured mentoring program or the mentoring can be loosely defined and particular to the exact needs of the entrepreneur and their business. At the end of the program, the entrepreneur should be very close to either having their MVP (minimum viable product) or ready to make prototypes. Their market is defined and validated such that their pitch deck is complete and ready for F & F funding (family and friends), an angel investor or they’re ready for the accelerator.
The Business Accelerator
The business accelerator is different from the incubator in that it comes into play when the entrepreneur already has their MVP finished and has a defined and validated market. The accelerator actually provides funding in exchange for equity. The accelerator also provides a structured mentoring program along with services such as physical office space, cloud services, legal services, some marketing services and a dedicated EIR, Executive in Residence. The accelerator usually invites several companies and has “class dates”. This allows the accelerator to bring in the companies on a specified date to their location and provide the services above with added benefit of a collegial atmosphere in the accelerator space. Think college dorm meets business.
Within this atmosphere, besides the dedicated EIR’s that meet with each company on a weekly basis, there exists a dedicated mentor staff and support staff to provide redundant mentoring and services to the various companies in the class. Along with EIR mentoring and the ad hoc accelerator mentoring during the business day, the accelerator’s program also usually holds discussions and topic seminars weekly that the companies attend in the common area. This leads to further open discussion and enhances any peer to peer knowledge within the group. The entire program can be 3-4 months long and at the end of the program each company has refined their business and pitch for additional funding needs. The accelerator then holds a “pitch day”, where VC’s and other funding sources are invited to hear pitches from all the companies in the accelerator. They then discuss funding directly with each company in this very controlled yet collegial atmosphere.
So, which is better?
Neither is better than the other, they are different entities with different missions. Confusion can set in when either the incubator or the accelerator accepts entrepreneurs outside the above definition. This in turn confuses the entrepreneur community. I’m personally involved with both incubators and accelerators and I’ve seen the confusion first-hand. You can imagine how can this happen. The incubator mentors hear a pitch where the entrepreneur might be farther along and almost finished with their MVP. The incubator doesn’t want to turn them down because they believe that the idea/product is good and funding will happen and for a little extra mentoring, the incubator wants their percentage take of the entrepreneurs next raise. In my opinion, any mentoring group should clearly define their mission to the community.
How should the entrepreneur proceed?
As an entrepreneur, I recommend making sure these groups are who they say they are and also ask what their acceptance parameters are before pitching. If the answer is wishy-washy, steer clear or at least understand that their response to your pitch could be confusing. If you have an idea that is not yet a product or service but feel you’ve done more than just to “ponder it”, then the incubator is for you. You’ve done some research on development, product costs, a little on the potential market, etc. Put together a pitch deck (PowerPoint presentation) and search out incubator mentor groups in your area. Don’t worry about your deck. The mentors are smart enough to see through the presentation shortcomings. What you need is the ability to talk about what your idea is, what pain it solves for the consumer and why your passionate about making this into a business. If you can speak to the potential market, so much the better.
Alternatively, If you have already marched down that road and made your prototype or MVP and have validated your customer, then you’re ready to pitch an accelerator. Let me say one thing about customer validation. There are several ways to validate your customer. 1. Pound the pavement and talk to potential customers. 2. Utilize and online survey company like survata.com. 3. Utilize a professional Human Centered Design consultant to lead a focus group. It is imperative that you perform at least two kinds of independent customer validation studies. One thing I tell the college classes I teach regarding entrepreneurs and inventions is that entrepreneurs invent products that are for themselves. They believe they are the barometer of normal and if they like the idea, everyone will. That’s definitely not the case. A great idea may or may not be a business. This is why in most cases, the entrepreneur’s vision may be sound, but there may be a product or market pivot needed in order to make it a business.