There are several types of innovation program that offer startups the opportunity to grow their businesses, and develop scalable and impactful business models. Accelerators and Incubators have become synonymous with startup growth, development and innovation. Both types of concept have the fundamental objective of rapidly growing startups, but they are often misinterpreted as meaning the same thing. In reality, they have rather profound differences. Innovation Labs are also seen as a source of startup development and growth, but they are very much separate from accelerators and incubators, as they tend to be delivered by corporate organisations and are often internally focused.
These types of program do have one key similarity: they all aim to induce business growth or deliver operational efficiency or value chain benefits, but the way in which they achieve these objectives differs considerably. We’ve laid out the main differences below in order to better understand how each concept functions.
Accelerators and Incubators
Accelerators aim to help startups achieve a level of business growth in just a few months, that would normally take anywhere between 12 to 18 months if they decided to do so on their own. They aim to facilitate the development of projects, and provide startups with the tools to establish strong value propositions, in order for them to have the best chance of achieving external funding. The number of startups selected to enter an accelerator is often less than 1 percent of the overall volume of startups reviewed. Startups must be product/prototype ready with clear concepts that can be exploited through partnership agreement. The best accelerators also provide startups with valuable resources to help them design sustainable businesses. Accelerators are very timely. They usually are time boxed within a short three to four month period and invest capital in return for a small equity stake in each startup taken into the program.
Incubators, on the other hand, assist the startups with much longer term business development by providing startups with the time and resources to design and build an efficient and sustainable business model. They seek to mould startups at the idea stage into successful self-sustaining businesses. Startups entering incubators may be supported for a long time period, months often, and the equity taken in each startup tends to be much higher than the accelerators. Still, while resources are provided, incubators don’t invest as much time in establishing pilot projects or shaping the startups to receive external investment. The investment is provided by the incubator.
Accelerators generally work very closely with corporates who partner with the concept, and as a result, startups are selected on the basis that they match the partner and investor requirements. There is therefore an emphasis on putting a lot of effort into facilitating a bridge between the partners and startups. Incubators, on the other hand, don’t always have such close affiliations with corporate partners.
Hartford InsurTech Hub, powered by Startupbootcamp, is an example of an accelerator program. It works very closely with multiple partners from across the insurance industry and hosts startups in a co-working space over three months. The corporate partners play a major role in selecting the startups, and engage with the startups during the program to develop pilot projects. It focuses on providing a platform for the startups to grow as quickly as possible during the program and ultimately receive investment. One of the key outcomes is speed in partnership agreements and the ability to replicate such engagement across multiple groups of partners, and engagement with investors seeking ready-to-invest deal flows.
BXL Business Incubator is an example of an incubator. It provides shared office space for members and helps startups turn ideas into new businesses. In the UK, Entrepreneurs First is also a renowned incubator where Brolly, one of the startups that we have been following closely, was incubated for several months.
The Technology Business Incubator (TBI), located in India, is another example of an incubator. It was set up by the National Institute of Technology Calicut and is supported by the local government. TBI provides the resources to nurture and support the development of early stage companies in information technology and electronics.
Innovation Labs also focus on business growth. They can either be internal to a corporate entity that has the resources and the team available to run their own internal programs, or they can be used by non-governmental organizations and think tanks to encourage innovation within their own organizations. Innovation Labs are strategic and goal focused, and are used as tools to address very specific and individual innovation requirements. It is a fast, flexible and creative concept that adapts to the needs of the host organization. Innovation Labs can be set up for just a few days, or run over the course of a few months. In theory, an Innovation Lab can become an ingrained part of a company that provides a constant source of innovation.
AHIP’s The Innovation Lab is an example of an Innovation Lab, that focuses on creating innovative solutions to complex health plan challenges. AHIP seeks to bring these solutions into their own organization. They encourage external teams to join the Lab and develop and test projects.
Organizations within Hartford InsurTech Hub’s partner groups may decide to launch their own innovation labs in parallel to their engagement with an acceleration program to enrich their capabilities from different angles. Examples include Lloyds Banking Group with whom we work in London.
Accelerators, Incubators, and Innovation Labs all offer startups and entrepreneurs the chance to grow and develop their business, but they have very concrete differences. It is important to understand these to define which one would be best suited to an organization’s strategic imperatives and digital strategy to deliver clear benefits before connecting or engaging with any one of them.