A Closer Look at The Startup Incubator Industry
You may have seen these posts on the Modern Business Mind Instagram (@MBMJeremy) and Twitter (@JeremyMbm):
So here it is, the deep dive and closer look at the startup incubator industry in attempt to answer the questions posed. Let's start by defining what an incubator is. Our good friends at wikipedia have some pretty solid information - check it out. Their definition is:
"A business incubator is a company that helps new and startup companies to develop by providing services such as management training or office space."
There you have it! short, sweet and to the point. However, if you read a bit further you'll see this section that I really like about how it is different from a Small Business Development Center (SBDC). To summarize, incubators are different because they serve only selected clients where as SBDC's are required by law to work with any small business at any stage.
So incubators help new startup companies to develop by providing services... but who incubated the first incubator? Well, it sounds like it sort of happened by accident in a place called Batavia, New York. The so called "birth place of West New York" is home to the Batavia Industrial Center, which started in the late 1950's (their website says 1956 right there on the link I shared and 1959 on the about me of the Mancuso Business Group ).
After thumbing through those sites, it seems incubators have a pretty epic origin story, and to quote fan favorite Jeff Goldblum: "Life, uh, finds a way". Oddly enough, coming up with an exact number of how many Incubators there are is proving difficult. So, let's refine the search to Incubator Businesses in the U.S. and use the UK as a reference. Ironically, wikipedia seems to have the most coherent listing of Incubator Businesses but, there is no way of pinpointing its accuracy through their cited references. After some digging, the most legitimate counts I found for Incubators in the US is the 2016 SBDC's report using numbers published by Corinne Colbert, Director of Publishing at NBIA. She reports that there are 1,100 to 1,200 Incubators in the United States.
For the referential UK, this report published in April 2017 says there are approximately 206 Incubators... good to know we got 'em beat
This information polarizes the rapid growth of Incubator Business in the US. Something that started in Batavia in the late 1950's exploded in only 60 year's time. I'll let you do the math for percent change and growth... not my area of expertise.
So here it is, the deep dive and closer look at the startup incubator industry in attempt to answer the questions posed. Let's start by defining what an incubator is. Our good friends at wikipedia have some pretty solid information - check it out. Their definition is:
"A business incubator is a company that helps new and startup companies to develop by providing services such as management training or office space."
There you have it! short, sweet and to the point. However, if you read a bit further you'll see this section that I really like about how it is different from a Small Business Development Center (SBDC). To summarize, incubators are different because they serve only selected clients where as SBDC's are required by law to work with any small business at any stage.
So incubators help new startup companies to develop by providing services... but who incubated the first incubator? Well, it sounds like it sort of happened by accident in a place called Batavia, New York. The so called "birth place of West New York" is home to the Batavia Industrial Center, which started in the late 1950's (their website says 1956 right there on the link I shared and 1959 on the about me of the Mancuso Business Group ).
After thumbing through those sites, it seems incubators have a pretty epic origin story, and to quote fan favorite Jeff Goldblum: "Life, uh, finds a way". Oddly enough, coming up with an exact number of how many Incubators there are is proving difficult. So, let's refine the search to Incubator Businesses in the U.S. and use the UK as a reference. Ironically, wikipedia seems to have the most coherent listing of Incubator Businesses but, there is no way of pinpointing its accuracy through their cited references. After some digging, the most legitimate counts I found for Incubators in the US is the 2016 SBDC's report using numbers published by Corinne Colbert, Director of Publishing at NBIA. She reports that there are 1,100 to 1,200 Incubators in the United States.
For the referential UK, this report published in April 2017 says there are approximately 206 Incubators... good to know we got 'em beat
This information polarizes the rapid growth of Incubator Business in the US. Something that started in Batavia in the late 1950's exploded in only 60 year's time. I'll let you do the math for percent change and growth... not my area of expertise.
When searching for those reports, the term "Accelerator" kept coming up. Unfortunately, I didn't find a way to separate the numbers specific to Business Incubators with precision, which leads me to believe that the numbers above could have been skewed by the count of Accelerators. Here is a snapshot of the 2016 Accelerator Report
Here you'll see that they list 579 Accelerator Programs globally with 178 of them in the US & Canada. I think you should subtract that from our 1,100-1,200 range if you were going to do the math.... Regardless, the numbers are still pretty significant.
Just in case if you're curious as to the difference between the two models, here is a nice little comparison of where the difference is between the two:
(If you want to take a closer look at Accelerators, check out this research done by Brookings.)
So we defined what an Incubator is, where it started in the U.S., and tried to capture how quickly it has grown as an industry and how many there currently are - but we haven't answered the original questions: "Why are Incubators mostly non for profits?", "Are Incubators staying innovative and scaling appropriately?", "or is it a function of the businesses they're servicing?"
What conclusions can you draw from the information in this post? To me, these questions and their answers are a bit more subjective in nature... but, if I had to answer on the spot after writing this post I would say that: innovation and scaling has is in part been answered by the incubator counts shown above and the mention of accelerators. To expand, the customer demand for an Incubation service obviously seems to have scaled appropriately when looking at the Incubation count, and innovation seems to have occurred through the creation of an Accelerator model. I am comfortable with this macro answer in this context, but I would definitely not stand by it if asked to look into individual organizations case by case. In order to do that, I'd have to see how that specific organization scaled appropriately to meet their specific target market within the parameters of their mission statement and goals. Bring me a case study you'd like to see that done on and I'd gladly do it!
Furthermore, the first question of "why are incubators mostly non for profits" also seems to have been answered through the information above, largely by the original definition used: an incubator provides a service and resources. Traditionally, it has been the primary function of non for profit organizations to provide services and resources to those seeking help. It is through organizing that they can help a greater amount of people and thus, have a greater impact true to their mission. Great examples are: the church, the Salvation Army, and the Peace Corps.
Again I am comfortable with standing by this answer in the greater context, but I wouldn't stand by it if conducting a case study. Being a non-for-profit might be advantageous in the sectors these companies operate, or simply the tax system was ideal. I speculate that we might see more for-profit Incubators with the rise of the Trump Administration's new small business tax plan in compliment to the positive startup/entrepreneur trend.
In the end, I argue that Incubators and Accelerators are not innovating enough as a model. I believe they are expertly exploiting the startup trends in the market, and that this is why we are seeing extreme dollar amounts as a result. My argument forms through the belief that the Incubator and Accelerator model have the potential to produce unbelievably high impact technology and products through the collaborative nature of their organizations (and the perceived level of brilliant talent in their spaces).
What would happen if YCombinator and TechTown both had trade mark products being made in their facilities?
If Incubators and Accelerators are the manifestation of the mindsets they are servicing, should they also be producing something?
Could they leverage the talent inside their buildings to compete with the likes of SpaceX, Google and Apple?
I hope you found this interesting and that I have sparked some curiosity in you. Don't be afraid to comment and critique!
Sincerely,
MBMJeremy
Here you'll see that they list 579 Accelerator Programs globally with 178 of them in the US & Canada. I think you should subtract that from our 1,100-1,200 range if you were going to do the math.... Regardless, the numbers are still pretty significant.
(If you want to take a closer look at Accelerators, check out this research done by Brookings.)
So we defined what an Incubator is, where it started in the U.S., and tried to capture how quickly it has grown as an industry and how many there currently are - but we haven't answered the original questions: "Why are Incubators mostly non for profits?", "Are Incubators staying innovative and scaling appropriately?", "or is it a function of the businesses they're servicing?"
What conclusions can you draw from the information in this post? To me, these questions and their answers are a bit more subjective in nature... but, if I had to answer on the spot after writing this post I would say that: innovation and scaling has is in part been answered by the incubator counts shown above and the mention of accelerators. To expand, the customer demand for an Incubation service obviously seems to have scaled appropriately when looking at the Incubation count, and innovation seems to have occurred through the creation of an Accelerator model. I am comfortable with this macro answer in this context, but I would definitely not stand by it if asked to look into individual organizations case by case. In order to do that, I'd have to see how that specific organization scaled appropriately to meet their specific target market within the parameters of their mission statement and goals. Bring me a case study you'd like to see that done on and I'd gladly do it!
Furthermore, the first question of "why are incubators mostly non for profits" also seems to have been answered through the information above, largely by the original definition used: an incubator provides a service and resources. Traditionally, it has been the primary function of non for profit organizations to provide services and resources to those seeking help. It is through organizing that they can help a greater amount of people and thus, have a greater impact true to their mission. Great examples are: the church, the Salvation Army, and the Peace Corps.
Again I am comfortable with standing by this answer in the greater context, but I wouldn't stand by it if conducting a case study. Being a non-for-profit might be advantageous in the sectors these companies operate, or simply the tax system was ideal. I speculate that we might see more for-profit Incubators with the rise of the Trump Administration's new small business tax plan in compliment to the positive startup/entrepreneur trend.
In the end, I argue that Incubators and Accelerators are not innovating enough as a model. I believe they are expertly exploiting the startup trends in the market, and that this is why we are seeing extreme dollar amounts as a result. My argument forms through the belief that the Incubator and Accelerator model have the potential to produce unbelievably high impact technology and products through the collaborative nature of their organizations (and the perceived level of brilliant talent in their spaces).
What would happen if YCombinator and TechTown both had trade mark products being made in their facilities?
If Incubators and Accelerators are the manifestation of the mindsets they are servicing, should they also be producing something?
Could they leverage the talent inside their buildings to compete with the likes of SpaceX, Google and Apple?
I hope you found this interesting and that I have sparked some curiosity in you. Don't be afraid to comment and critique!
Sincerely,
MBMJeremy
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