If you’re a budding start-up entrepreneur or inventor, then a business incubator could be just what you need.
The purpose of an incubator is to give entrepreneurs the tools and help they need to succeed.
There are a range of business incubator programs and services across Australia. Getting into the right one can help ensure your start-up not only survives but thrives into the future.
- What is a business incubator?
- What is an example of a business incubator?
- How to apply to a business incubator
- A short history of business incubators
- What is the difference between an incubator and an accelerator?
What is a business incubator?
A business incubator is any organisation set up for the purpose of helping fledgling start-ups and entrepreneurs to get their ventures up and running. They can provide a range of support services to help these start-ups survive in the crucial early period when revenue streams, cash flow and operating systems aren’t fully established.
Think of a business incubator as being like a baby incubator.
Hospitals use incubators for newborn babies who aren’t quite ready to fend for themselves. The incubator can support the baby’s survival until it can thrive on its own. Similarly, a business incubator can support the survival of start-up businesses until that support is no longer necessary.
It's important to understand that a business incubator doesn’t guarantee a start-up’s survival, any more than a baby incubator can guarantee a baby’s survival. But both types of incubators can improve the chances of survival.
Beating the odds
Unfortunately, the failure rate of start-up businesses in Australia is high. According to the latest figures from the Australian Bureau of Statistics, the five-year survival rate of new businesses is just 52%. That means almost one in two start-up businesses in Australia fail within the first five years.
If you’re going to start a business, you may as well give yourself every opportunity to survive. One way to do that is to take advantage of the business incubator programs that are available.
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What does an incubator do for a business?
Different business incubators can provide different benefits. However, the main benefits that a good business incubator should be able to provide for start-ups are:
1) Support from experienced mentors to help with planning and decision-making
2) Training in back-office business skills
3) Resources that start-up businesses may not otherwise be able to access —such as potential investors, operating space and equipment/technology.
Related: Small business hardship grants
How does a business incubator work?
Business incubators typically accept applications from start-up founders when they are still in the “ideas phase” for their products or services. These applications are assessed by the body running the incubator.
The highest-quality eligible applications are accepted.
Once accepted, start-up founders can access the incubator’s resources for a set period of time. An incubator gives start-up businesses a grace period during which they can:
- Be innovative
- Develop sustainable competitive advantages
- Iron out any wrinkles in their product or service
- Connect with other entrepreneurs and business resources
The goal is to maximise their chances of becoming commercially viable before they fully launch.
Who runs business incubators?
Different business incubators are run by different bodies, including:
- Government agencies
- Not-for-profit community organisations
- Corporate (i.e., for-profit) organisations
The right type of incubator for your start-up idea or fledgling business depends on your specific needs. It’s important to do your research before applying to one.
What are the types of business incubators?
Business incubators can be broadly classified into four categories.
- University business incubators
As the name suggests, these incubator programs are run by universities. They may (or may not) accept applications for start-up business ideas from those who are not currently students. It depends on the university.
- Social business incubators
These incubators can be run by government agencies or other not-for-profit organisations. They tend to focus on start-ups with an idea that will benefit the community and/or stimulate the economy. In other words, start-ups that will provide social benefits if their idea gets up and running.
- Corporate business incubators
A corporate business incubator operates as a separate entity within an established business to help develop innovative new products and services.
One of the drawbacks of this type is that the sponsoring business may own the intellectual property of any idea developed within the incubator.
Corporate business incubators may therefore not be suitable for start-up founders who are looking to develop their own separate businesses.
- Virtual business incubators
Traditional business incubators require start-up founders to be on-site for some (or all) of the time that they are using the incubator’s program or services. Virtual business incubators on the other hand allow everything to be accessed virtually. They are most suitable for fully digital businesses and/or start-up founders based in remote locations.
What is an example of a business incubator?
There are a range of business incubator programs and services across all Australian States and Territories to help eligible start-up businesses.
New South Wales
- BlueChilli, a Sydney-based incubator that focuses on helping early-stage entrepreneurs who have ideas with potential global appeal.
- Cicada Innovations for start-ups in the science and engineering industries.
- PushStart, a community-focused organisation to help start-ups with the resources they need.
- StartInno Ventures, a Byron Bay-based incubator for start-ups in the consulting, financial services, professional services and venture capital industries.
- Australian Institute of Music Innovation Hub for start-up ventures in the music industry.
- Incubate, a start-up program that’s designed for University of Sydney students.
- LaunchVic for start-ups in the finance, financial services and “fintech” industries.
- FOOD INC (Food Incubator and Network Centre) specialises in helping start-up food businesses by providing access to suitable workspaces, equipment, training and advice.
Queensland has a range of incubators that focus on the information and communications technology (ICT) industry. They include:
- The Precinct in Fortitude Valley is a start-up hub offering incubator programs and resources.
- Ventures at the University of Queensland.
- The Gold Coast Innovation Hub, an incubator community for start-up and digital business founders.
- The Innovation Centre at the University of the Sunshine Coast.
- Fixe offers a broad range of incubator programs in the space, defence, agribusiness, hi-tech, digital, creative, health and well-being, energy and business services sectors.
- The Business Station, which provides a range of incubator programs for WA start-ups in the allied health and business industries.
- The Alpha Incubation Group focuses on connecting entrepreneurs and their start-up businesses with mentors, training programs and potential investors.
- The Business Incubator and Accelerator Pilot Program is run by the Tasmanian government to spur the creation of new Tasmanian businesses.
- The Canberra Innovation Network is a co-working, training and networking space for start-up Canberra businesses.
- The Darwin Innovation Hub gives eligible Northern Territory start-ups access to a range of programs, services and resources to help commercialise their ideas.
How to apply to a business incubator
All business incubators will require you to apply to receive their help or be accepted into their programs. Places in the best incubator facilities and programs are normally limited, so it’s important to have a strong application.
Make sure you supply as much information about you and your start-up idea as possible.
Include as much information as possible about:
- The problem that your innovative product/service idea is solving
- Your credentials, as well as the credentials and experience of anyone on your team
You will often be asked for a business plan to demonstrate that you have done a thorough job of thinking through your strategy. This business plan should include information on your potential market and your commercially viable business model. If your application meets the incubator’s eligibility requirements, you will usually be required to take part in a formal interviewing process. Make sure you are as prepared as possible to answer any questions about your start-up business or idea.
This is your chance to pitch your business to receive the business incubator’s support.
”You don’t get a second chance to make a first impression” as the old saying goes, so make sure you put plenty of time and thought into your application and that you prepare well for the interview process if you progress to that stage.
The pros and cons of business incubators
Like anything, there are pros and cons of joining a business incubator (or applying to join one). Let’s look at the main advantages first.
- The opportunity to access the incubator’s resources and services.
- The chance to minimise the risk of business failure before you commit too much of your own funds or time into your start-up venture.(Learn more about minimum viable products here)
- A reputable incubator program may provide you with the structure and expertise you need to transform your ideas into reality.
- Free rent if you need premises and can access the incubator’s co-working space.
There are also some potential disadvantages of business incubators.
- The application process can be very selective and time-consuming, and there is no guarantee that your application will be accepted.
- You may have to pay a fee to access the training programs of some business incubators (for example, university-run programs).
- Some incubator programs may require you to commit for a specific length of time to access their resources.
- The quality of business incubator programs and services can vary. Make sure you do research and choose one that’s the best fit for your start-up needs.
A short history of business incubators
Business incubators have been around in various forms across the globe for almost a century.
The CSIRO was arguably Australia’s first business incubator.
It was set up in 1916 to encourage innovation and invention in Australia — and it’s still going strong today.
Over the years, the CSIRO has expanded its range of services to include the Lindfield Innovation Hub. It’s an incubator where both start-ups and existing small to medium-sized Australian businesses can develop innovative, high-tech products.
Successful applicants can access the CSIRO’s physical/human resources and their network of industry contacts in an attempt to successfully commercialise their ideas.
In addition, the federal government recently concluded a $23 million Incubator Support Initiative that helped a range of innovative Australian start-ups to develop their commercialisation capabilities for international markets.
What is the difference between an incubator and an accelerator?
Business accelerators are the next step along from a business incubator.
Accelerators provide services to speed up growth of particularly promising existing businesses.
The key difference between business incubators and business accelerators is that:
- Incubators focus on very early phase start-ups that are still in the product/service development phase (i.e., those that haven’t yet brought their products/services to the market).
- Accelerators focus on growing start-up businesses that have already developed viable products or services and who have some early adopters (and therefore potential markets that can be expanded).
In addition, business accelerators often invest in the businesses they accept into their programs in return for an equity share in the business. Incubators generally don’t do this, but they can often connect start-ups with potential investors who are in their network. Many organisations offer both business incubator and business accelerator programs to cater for start-ups at different stages of development.
When is an incubator the better choice (and vice versa)?
An incubator is a better choice for you if you are in the very early stages of your start-up and you are still developing or refining your product offering and business model. However, a business accelerator would be a better option if you:
- Have reached the stage where you already have a product or service and some customers
- Are looking to grow your business as quickly and sustainably as possible
Either way, you will need to apply to get into a business incubator or business accelerator program. As with the business incubators, the best business accelerators tend to be very selective in terms of who they accept into their programs and services.
The failure rate for start-up businesses in Australia is high. However, the right business incubator can help to turn an innovative start-up business idea into a commercially viable reality. Business incubator programs and services are designed for start-up founders who are in the very early stages of their product/service and business model development. There are a range of business incubator programs and services across Australia. It’s important to do your research and apply to an incubator that is the best fit for your start-up business needs.