By understanding the needs of entrepreneurs and companies at different stages of the company life cycle, ecosystem builders, economic developers, and others seeking to assist with company startup can determine the right entrepreneurial support model (typically, accelerator or incubator) to create and launch. Entrepreneurs undergo different challenges at different stages. To best understand how to assist entrepreneurs and early stage companies, you must identify the specific company life cycle stage to target, and then pinpoint the appropriate model that is aligned with that stage.
In practice, I split early stage into two stages of the life cycle: (1) development, and (2) startup. Development may be defined as the stage in which entrepreneurs and company teams conduct proof-of-concept and test market viability through customer discovery. They develop an early business model and may secure limited seed funding. At the end of the development stage, the entrepreneur or team determines can proceed with company startup and operations, aka the startup stage. Here, the entrepreneurial venture emerges, and its first stage of operations is launched. While still pre-revenue at first, the startup continues to conduct research and development on the product in addition to market research; develops a complete business model; expands the team beyond the founders; generates early product sales; and obtains the first funding from outside investors. While the particular activities that occur within each of the two stages will vary, the general milestones remain the same.
The needs of entrepreneurs and companies at the development stage can be met through an accelerator. At BCD, we define an accelerator as a fixed-term, cohort-based program—typically, for a targeted vertical–that puts entrepreneurs through a rigorous process of customer validation, business model creation, and initial product development, and culminates in a Demo Day.
On the other hand, the needs of companies at the startup stage are best addressed through an incubator. At BCD, we say that an incubator is aimed at accelerating the successful development of entrepreneurial companies and provide an array of business support resources and services that are individualized and milestone-based, over typically an 18 to 24-month period (depending upon the targeted vertical). Companies that complete an incubation program generally have customers, sales, employees (versus founders), and outside funding.
For business retention, and to increase the chances for creating successful and profitable businesses, communities should target both stages, development and startup, and therefore have both accelerators and incubators. Together, they help to provide a solid foundation for businesses. Some communities and organizations create hubs that include both accelerators and incubators in a combined site. Alternatively, accelerators and incubators in a particular community or region can choose to partner, or just work together, to form the pipeline from one stage to the next. These relationships can be created among non-profit and for-profit entities. After all, they have a shared goal: building successful and profitable businesses.
When conducting a market assessment to determine how to support entrepreneurs, look closely at the needs of entrepreneurs and early stage businesses and the stage of the life cycle in which they operate. Determine if, or how, the stage is currently served. When you find the gap, you’ll know which stage and model to target.