Some of the UK’s most successful businesses have been nurtured through the process of an incubator – but what is an incubator and what does the future hold for the concept? This article will also look at the true impact of their introduction to the UK. How are they evolving? And what support do they offer businesses and entrepreneurs?
Incubators come in many different guises, varying considerably in their offerings and areas of focus. In general, they all share the common remit of helping early-stage businesses achieve growth quickly by providing support around office space, mentoring, professional support, subsidised or free professional services and access to funding.
By offering all these resources, participating businesses can focus on achieving product market fit, as opposed to spending valuable time securing this from external sources.
How are incubators helping businesses?
Typically, incubators work with companies that aim to disrupt current business models in a variety of sectors to grow British industry, both at home and abroad.
In late 2019, the Department for Business, Energy & Industrial Strategy (BEIS) issued a report which looked at the effectiveness of UK-based incubators. The report states that out of “428 start-ups that have previously or are currently attending an incubator or accelerator, we find that most start-ups consider the contribution of the incubator or accelerator as significant or vital to their success.”
Dr Francine Morris, Associate Dean, Enterprise and Industry Engagement at the University of Salford Business School, gives more detail around the benefit of incubators: “Incubators are vital support systems to those in the early stages of setting up their business.
“They provide a sense of community and a safe place to test a business idea, whilst surrounded by like-minded people. They can also give the entrepreneurs the necessary training and networks to become successful.”
And, according to Nesta, 73% of start-ups consider the contribution of the incubator or accelerator they attended have been significant or even vital to their success.
So, with entrepreneurs and start-ups gaining more opportunities to survive and thrive, the role of incubators has also become crucial to upskilling workers to new age technologies and working practices.
Johnathan Matlock from Bristol-based incubator Unit DX comments: “In my experience, one of the key factors of an incubator is to upskill members of a team that wouldn’t have had the opportunity or experience to learn certain skills before. Employing people with the right skills is great, but one of the keys with incubators is providing the opportunity to give people that industry-ready experience and skills. A key role of incubators should be a way for people to access opportunities to upskill from c-suite, all the way down to apprenticeships.”
Matt Smith, Director of Research and Policy at the Centre for Entrepreneurs, agrees. He said: “Incubators are important for closing the skills gap because of the in-house nature of the services which they provide – many offer opportunities to businesses and start-ups to not only develop their businesses but also harness key skills through different services they offer within the incubator space.”
Smith also believes that entrepreneurs can benefit heavily from developing their company or companies in an environment like an incubator. He comments: “Entrepreneurs believe direct funding, access to office space, lab space and technical equipment are the most valuable support that incubators can offer. However, access to investors, access to peers, help with team formation, direct funding, press or media exposure, mentoring from an industry expert, help measuring social impact and mentoring from an investor are shown to have the highest positive impact upon entrepreneurs.”
Incubators are providing start-ups and entrepreneurs with an easier route to becoming a successful and stand-alone business. By providing a collaborative eco-system, these businesses within an incubator can share the trials and tribulations of starting a company – with the environment stopping an entrepreneur from shouting into an echo chamber.
Leon Howe, Incubation Manager at Durham City Incubator, comments: “Incubators help businesses by providing a workspace to share with other like-minded entrepreneurs which nurtures collaboration, sharing of experiences and contacts. Providing a space, support and access to investment is critical to any new business. Incubators can develop the founders to understand the stages in starting and growing a business and if they get it right, have the potential to scale and create jobs and wealth for the economy.”
Impact on the economy
The natural question would be to find out what impact these incubators have had on British businesses and the wider economy – especially as this government (BEIS) has revealed ambitions to continue to support the concept.
Howe continues: “Providing a safe environment where founders are supported and also challenged can help them develop the business concept into a business model that can secure investment and scale. Not every business will be a success, however those that succeed are likely to have a greater impact on the economy.
“Many incubators in the UK have some flagship businesses they have supported which have grown into successful businesses, creating wealth and employment opportunities. For those that don’t succeed, the founders have the knowledge to establish their next venture and make it a success.”
Individual incubators have provided information on the successes and failures of the companies and individuals that use their platforms and spaces. In 2018, an independent study was carried out by Warwick Economics to access the economic impact of SETsquared – ranked the world’s leading business incubator.
The study concluded that:
- 965 businesses were supported by SETsquared between 2015 to 2017, with the partnership providing 3,645 business assists since 2002.
- The Gross Value-Added contribution of SETsquared-supported businesses each year indicates that they have directly contributed a total of £5.8bn to the UK economy between 2002-17.
- The level of employment supported by these businesses is estimated at 10,900 jobs in 2017. This is projected to rise to 22,200 by 2030.
- Projecting the forward impact of the programme, assuming the level of support continues at the current rate, supported companies could rise to 6,650 and contribute a further £12.4bn to the economy between 2018-2030.
- Including an estimate of supply chain impacts of the businesses, the cumulated direct and indirect impacts on the UK economy are estimated to be £8.6bn by 2017 and a further £18.3bn by 2030.
Jane Khedair, Director at Institute of Innovation and Entrepreneurship at London Business School, comments: “Business incubators undoubtedly have a huge impact on the UK economy; creating jobs, stimulating innovation and fostering entrepreneurial flair to enable new products and services to be brought to market which would otherwise remain only as ideas.
“Although the selective nature of incubators, only taking on the best start-ups, makes it difficult to quantify their added value, it’s widely recognised that both success as well as survival rates are generally much higher for businesses which have been supported by the resources an incubator programme typically offers.
“It’s well documented that, across the UK, less than 40% of start-ups exist after three years so a survival rate in excess of 80% for the businesses that we incubate at London Business School is hopefully indicative of the efficacy of incubation as a whole.”
The growth of incubators has increased significantly in the past few years and has had an positive impact on both regional and national economies.
According to Nesta data, in 2019 the presence of an incubator within a two to three kilometre area was associated with increased growth in normalised wages (i.e. average of wages relative to average wages in a specific sector and occupation) and increased high-level occupational change up to four kilometres away.
Examples of successful business incubator services include the SETsquared Partnership, an incubation and start-up growth acceleration network, which is forecast to contribute £30.7bn to the UK economy by 2030.
Have they been a success?
An additional way of judging the success of incubators is to look at their popularity across the country. In terms of capacity, a report from the Centre for Entrepreneurs showed 75% of UK university incubators were at or close to full capacity, demonstrating their demand from start-ups and entrepreneurs.
Matlock comments: “Without these incubator spaces, there wouldn’t be any innovative and disruptive companies entering the market because you are relying on people discovering those elements of starting a business on their own. When an incubator provides a lot of shared resources and advice that can sit across multiple businesses. With businesses in an incubator you can surround yourself with creative and knowledgeable people that can sit across multiple companies – helping them all to share ideas and grow together.”
And the future for the whole incubator space looks set to have a positive impact on the economy too. Matlock comments: “If you look at the government’s Industrial Strategy 4.0, it’s about identifying which industries and sectors are going to add to the UK’s GDP over the next ten years.
“One of the key elements of that is that those companies need somewhere to be. These are the spaces where innovation and disruptive technologies are born. Incubators are absolutely critical to the formation of new companies that contribute to the UK economy.” n