Business Incubators: What You Need to Know
If you're in the startup world, you have certainly come across terms like business incubators, startup accelerators, and startup studios. No worries; I will explain all of that.
If you're in the startup world, you have certainly come across terms like business incubators, startup accelerators, and startup studios. You might also be confused about what they are and what differentiates them. No worries; I will explain all of that. I will also try to skim around the incubation scene in Ethiopia.
Visualize you’re an aspiring entrepreneur, or you might be one, having a startup or a business idea that you think will change the world, or at least your country. But you don’t have the resources such as office space, stable internet connection, training, and mentors; what do you do? Incubators to the rescue!; not the egg ones, though. A business incubator is an organization that helps startups and entrepreneurs develop and grow their businesses by providing various resources I mentioned above.
It all started in 1959 in an Industrial Center in Batavia, New York. At first, the warehouse was occupied by a farm machinery company. When the company closed the plant, it left behind an empty warehouse and numerous unemployed people. The Mancuso family, Bativia’s most prosperous family, bought the place and decided to lease it. Because they couldn’t lease the entire complex, they went out to find smaller tenants. To make the site attractive to tenants, Joe Mancuso, son of the eldest Mancuso brother, offered extra services: short-term leases, shared office supplies and equipment, business advice, and secretarial service; this is how the first business incubation began. It later expanded in the US in the 1980s and spread to the UK and Europe.
Currently, different organizations start an incubation program for various reasons. These organizations might include academic institutions, non-profit and government agencies, large corporations, and venture capital firms. For the government-led ones, incubations serve as a means to meet their economic and socio-economic policy needs, such as job creation and community revitalization. As for the private incubation programs launched by investors, they're looking for investment opportunities and are in it for the payoffs.
Above, you saw me mention the terms accelerators and startup studio. They are just an evolved form of incubators having a different way of doing things. While incubators accept newly established startups for more prolonged periods, Accelerators instead take existing startups or companies in a cohort-based program for a limited time, typically three months. The startups will culminate in a public pitch event or demo day. The first startup accelerator is called Y Combinator. Established in the US in 2005, it has launched more than 3,000 companies with a combined valuation of more than $300 billion by January 2021. Notable companies that came out of the accelerator include Airbnb, Stripe, Dropbox, Twitch, and Reddit.
Another newer form of a business incubator is called a startup studio. A startup studio aims to build several companies in succession, also called parallel entrepreneurship. One of the renowned startup studios is called Idealab. Launched in 1996, Idealab created over 150 companies. Startup studios can be either Builder studios, where a company is developed from internal ideas, or Investor studios, where they are developed from early-stage external startups.
Although business incubators are active in developed countries, they are now starting to show up in developing countries such as Ethiopia. A report published in 2021 by the UN on SMEs (Small and Mid-size Enterprises) depicts a survey that identified nine tech hubs in Ethiopia while Nigeria had 85 hubs, Kenya 48, and Uganda 10. The report lists iceaddis, xHubAddis, blueMoon, GrowthAfrica, Gebeya, iCogs-Labs, and Startup Factory as the primary incubators at that time. Among them, iceaddis, established in 2011, is the oldest. Recently, several other organizations joined the Ethiopian incubation arena, such as Orbit Health, Orange Digital Center Ethiopia (ODC), and Creative Hub. The new addition to the incubation space is a startup studio called 1888EC, founded by Solomon Mulugeta, host of the TV show Tech Talk with Solomon. Different international organizations such as Mastercard Foundation, UNDP, UNIDO, GIZ, and many more are supporting incubators in Ethiopia.
Business incubators and similar firms have paved the way in creating several disruptive and prosperous companies. It is also one of the reasons why governments in developing countries are turning their face towards developing and supporting these incubation programs. In Ethiopia, we see a rise in incubation and similar programs. I believe it will not be much longer until several disruptive companies or products come out of these incubators; even now, we are seeing some with great potential.