How Can Incubators & Accelerators Contribute To a Better Economy and Why They Fail?

Although often used interchangeably, startup incubators and accelerators are totally different, serving different segments. So while accelerators help startups with MVP, incubators help new entrepreneurs start their businesses from the ground up. However, both play a vital role in supporting the startups and building a strong entrepreneurial ecosystem that positively reflects the economy.

Role of accelerators and incubators in ecosystems

Incubators and accelerators are some of the key pillars enabling the growth of any ecosystem. They support entrepreneurs to validate and scale their ideas and prepare a pipeline of investment opportunities for investors and VCs.

They prepare the ecosystem to help build the local economy and thus contribute to reviving local economies by generating more jobs and products.

The impact of accelerators and incubators currently 

There may be 100 or more startup accelerators and incubators in the region here; each has at least 2 cohorts per year, with an average of 10 startups per cohort. Yet the number of startups that continue to strive, grow and expand, theoretically, means that we should have at least 200 new successful companies every year (since only 2 in 10 startups survive their first year.) However this is definitely not the case, we hardly see this number of new companies every year, more than 90% of the startups fail to survive post the program regardless of all the support they got.

So, where is the problem exactly? 

Incubators and accelerators create and develop strong programs that are very attractive that 100s of startups apply to join every cohort. Although they demand certain essential criteria in choosing their cohorts like the strength and skills of the team, signs of traction and new innovative ideas, still many startups don’t really benefit from these programs. Startup programs usually focus a lot on providing the startups with lots of amenities, physical space, technical facilities, mentoring, connections and some seed funds, however, the true value of actually working with them on developing their businesses is lost.

However, some critical points are often overlooked, like the product-market fit, which is responsible for 34% of startups failures. Most startups spend a lot of time, money, and effort developing outstanding solutions and products to discover they don’t fit the market needs. The second most common reason for startups to fail is running out of cash due to poor financial planning and forecasting.

How can we fix it and support quality startups and entrepreneurs?

The solution is easy and can save incubators and accelerators efforts, investments, and time wasted over dead-end projects. The programs should prioritize business plans as essential elements startups have to work on and develop during their incubation. Business plans drive founders to do their homework, do market research to check the product-market fit. It also pushes them to create financial forecasts, which helps estimate the needed cash flow.

Successful startups that make it to the program should maintain working on their business plans during the program. Mentors should track the progress and provide support and guidance based on the real data and inputs startups have in their plans. This will lead to more effective mentoring sessions since they will be able to tackle real issues and monitor their improvement.

Dynamic business plan dashboards are significant assets for programs to use; they will help the startups develop their businesses and continue to provide the programs with updates about their portfolio even after graduating from the program.

Dashboards will also facilitate the investment decision for investors; VCs can easily check and monitor the growth and performance of any startup during their whole journey and accordingly make more solid investment decisions.

Incubators and accelerators should be aware that they are in the business of lending money. If they fail in reducing the failure rate of their startups and increase the size of their successful portfolio, improve the quality and sustainability for early growth businesses, they will not be able to sustain for long.

Startup programs have the opportunity with BznsBuilder software to expand their portfolio, qualifying and landing opportunities for Financial institutions, banks, VCs and investors.

Incubators and accelerators can be the launchpad for a prosperous economy by selecting and boosting the right startups. They can channel the government’s efforts and funds to support startups in the proper directions, paving the way to an economic leap.

Resource: Riham Abu Elinin

Founder & CEO BznsBuilder

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