Incubators have been hailed as a source of economic growth; in recent years, both governments and companies have established incubators in the hopes of improving the local economy. Nonetheless, little research has been conducted on the effectiveness of the model. Now Endeavor Insight reached out to 64 business incubators to examine the effectiveness of the incubator model and identify some key challenges that incubators are facing today.
The results indicate that business incubators are facing two major challenges today.
Challenge #1: Fulfilling the Mission of Job Creation
Although many incubators are created to contribute to economic growth through job creation, Endeavor’s research suggests that the majority of programs do not produce successful graduates, which may bring into question the sustainability and effectiveness of the incubator model as a whole.
In half of the incubators in the study, the most successful graduate companies created 27 or fewer jobs. In addition, 72 percent of incubators noted that their most successful graduate had created less than 100 jobs. The National Business Incubation Association estimates that in 2011, incubators helped companies that employ a total of nearly 200,000 workers,1 but the results of this study indicate that this may be the case because a very small number of incubators accounted for a disproportionately large portion of the 200,000 additional jobs.
Challenge #2: Funding incubation
The data suggests that the incubators often struggle with financial sustainability regardless of their sponsoring organization, location, size, or any other characteristic. Over half of the incubators interviewed identified funding as their greatest challenge.
Nearly 66 percent of the 64 respondents in this project identified funding as the key challenge that they face. Incubators are in need of funding for operations as well as capital for the companies in their program, and finding these funds has often proved challenging.
Contributed by Lili Torok.