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Should Individual Corporate Incubators Give Way To Industry Incubators?

04/04/2014 12:06 EDT | Updated 06/04/2014 05:59 EDT

With startups and innovation the hot trends in the corporate world at the moment, it is no wonder that numerous corporations are opening incubators to capture startup and innovation momentum. The increasing need to innovate in today's globalized business environment is encouraging corporations across all industry sectors to innovate. One of the most talked about and discussed methods has been incorporating incubators into corporations.

Incubators have numerous advantages for corporations, including:

(1) Early Market Entry: By investing in early stage disruptive startups, corporations have the ability to enter new disruptive markets sooner, thus enabling them to manage the degradation of existing business while ramping up for new ones.

(2) Increased Profit Potential: Entering earlier in the disruptive cycle is beneficial for corporations, as it enables them to profit in two ways. First, they can profit through the increased valuation and eventual sale of the startup. Second, corporations can benefit through the new revenue streams provided by the startup.

(3) Managed, Smart Risk: One of the benefits of corporations is the fact that they are usually proven, reliable organizations within the chaotic business environment. However, this benefit is increasingly proving to be a liability. As such, incubators have the benefit of providing corporations with the ability to take calculated and limited risk while attempting to bring innovation internal to the organization.

It is clear that nearly every corporation in every industry sector is attempting to jump on the startup and innovation bandwagon, as evidenced by the large number of corporate incubators that are being developed While it is heartening to see that corporations are joining the startup and innovation game, one must analyze whether the multitude of individual corporate incubators are beneficial to the startups or the corporations themselves.

The unpredictability of disruptive startups means that nothing is predictable or safe. A disruptive startup can change everything from business models to customer experience to industry standards. As such, many startups wonder if joining a corporate incubator could be more of a hindrance than an aid in moving forwards.

Startups face a number of concerns when joining a corporate incubator, including:

(1) How much flexibility and freedom will the startup have, given that they might be building something that could completely disrupt the industry?

(2) Is it possible for the startup to work with direct competitors of the corporation backing the incubator?

(3) Can a corporate incubator truly have the culture and resources to launch a startup successfully?

All of these concerns are not trivial. They are the very tenets that can make a startup succeed or fail.. Pairing the abovementioned concerns that with the lack of concrete success from existing corporate incubators, one may wonder if there is another way to combine the resources of corporations with the innovation of startups. One potential solution is the creation of an industry incubator.

The concept of an industry incubator is simple in its definition. Instead of running the incubator as an arm of a single corporation, an industry incubator would be corporation agnostic, since it would be funded by more than one corporation. The benefits of an industry incubator include:

(1) Independence: With the incubator funded by multiple corporations, there inevitably will be a need for transparency and independence in its operations. This means that the incubator will be run free of individual corporate interests and operating for the benefit of the entire industry.

(2) Startup Culture: Run as an independent entity, an industry incubator has the ability to create a culture that is based on successful startup incubators versus adopting a corporate culture that may not be beneficial to the startups.

(3) Right Resources: Free from the political pressures of hiring the "right individuals" to ensure long-term funding, industry incubators can hire the individuals to provide the right coaching and mentoring to enable startups to succeed.

(4) Enabling Industry Disruption & Standards: The successes of recent startups have been mainly as a result of them disrupting established industries by exploiting existing loopholes in current business models. Indeed, startups will be increasingly clashing with established industry players who will do everything possible to prevent this disruption. Unfortunately, preventing disruption is nearly impossible in today's interconnected globalized business environment. The best thing that multinational corporations can do is be part of the conversation become early adopters rather than stifling the new innovation.

(5) Right Startups: The general financial premise of a corporate incubator is that it should inevitably be self sustaining and avoids being an expensive marketing tool used to demonstrate that a multinational corporation is an "innovating" player. Unfortunately, corporate incubators may not be attracting the right type of startups due to reasons including; startup fears of being mere corporate pawns, and that startups are looking for incubators with the best track record of success. By creating an industry incubator that is independent and has the right resources, it could increase the likelihood that the more successful startups will apply.

(6) Incubator Consolidation: As incubators continue to be formed around the world, there will be a point in time where industry consolidation will occur. This is an inevitable reality since, increasingly, there are a large number of incubators chasing too few successful startup ideas.

With incubator consolidation and the need for a corporation agnostic platform growing, the time is right for the creation of an industry incubator. The lack of successful exits with corporate incubators and the increasing need to demonstrate success while demonstrating true corporate innovation, are all primary reasons for the future rise of industry incubators. In addition to reducing the costs for corporations, their independence encourages the right resources and startups to collaborate, enabling both financial and innovative success.