What Metrics Makes a Successful Incubator?
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An Incubator is a set-up to reduce the chances of failure of an early stage start-up and provide necessary support and access to resources that results in the financial and economic viability of the start-up. The value proposition of an incubator, therefore, depends on how successfully it can develop a robust and relevant support structure to fulfil these fundamental needs of these early-stage companies. The success of an incubator cannot be decided based on a single parameter, there are narrow but diverse set of metrics such number of start-ups incubated, percentage of successful exits, financial sustainability of the incubator, engagement with mentors, faculty and investors, funding support, infrastructure support and employment generation that determine the success of an incubator.
Fig . 1
Various Success Metrics for an Incubator
If an incubator’s success or failure is based on one metric rather than a holistically reviewing the progress, it would be a flawed conclusion. However, it is also impractical for an incubator to tag an incubator unsuccessful if it has not achieved one or two metrics. It is up to the incubator to distribute the weightage of these parameters based on the in-house skills and access to resources. Most incubators are evaluated by the amount of funding raised by the start-up as the sole criteria, this also leads to misleading interpretations as the start-ups begin to think the organic way of growth, self-sustenance and bootstrapping is not the way forward.
Effectiveness rating and analysis will help in tracking the effectiveness of an incubator by benchmarking key performance indicators. It also is a good exercise in identifying the performance and need-gap between the incubator and the incubates. The incubator is really effective if their start-ups grow faster than average and also when start-ups fail faster than the average.
Incubators are not all uniform and should be categorized based on the objective of the incubator. Categorization would help to identify the unique features of each incubator and the success factors for each incubator model will further translate to setting a benchmark for successful models appropriate under different conditions. Comparing incubators outcome randomly without understanding the motive often leads to unrealistic and unfair comparisons like comparing Apples with Oranges. The need, resources and support required by an entrepreneur varies from domain to domain, for example, needs of an IT & Software start-up would differ extensively from that of a Manufacturing or a Healthcare start-up.
Entrepreneurs and incubator staff also have different perceptions about the importance of the incubator’s resources provided by the incubator while incubator staff feels that the training, coaching and networking are of great importance to incubated start-ups, entrepreneurs apparently do not agree. This difference in perception has a huge implication on the success of the incubator. It is vital for the incubator to take the needs of the incubated start-ups into account to showcase some success stories. On the other hand, it is also important that the start-up make optimum use of the incubator’s resources, which could partly explain the outcome of the incubator. For example, while an incubator is organising a seminar, mentoring session for entrepreneurs to acquire necessary business, knowledge, the entrepreneurs must actively participate and engage in these activities.
Which Incubation Model Succeeds?
90% of the start-ups fail, and most incubators are start-ups too. Failing in this context means not able to sustain. There are thousands of incubators but very few business models that work. There is no cookie cutter method to choose the right business model, every incubator has its unique differentiator. It is suggested that incubators execute hybrid models with a high-quality filter, broad portfolio, highly experienced executive and constantly pivot as a combined approach to find out what works for the incubator. It is also imperative that an incubator has come revenue generation to keep its operations going. Most incubators operate on a not-for-profit model with an objective of creating a better ecosystem, however, failing to have a business model in place will only let the incubator survive for a short run.
To sum up, incubators must set a combination of success metrics which is relevant and in tandem with their goal. Continuous reviewing and need gap analysis is crucial to make an incubator successful.