Are Incubators Beneficial to Emerging Businesses?

Incubators are often thought of by public officials as a helpful way to encourage startups and emerging entrepreneurs. But are they effective? After examining more than 35 academic articles, including a review paper that systematically examined 38 studies, key takeaways from the literature show that incubators might not prove more effective at creating successful businesses than unincubated businesses.

Incubators may not deliver on their promises

Incubators claim to provide a wide variety of services, from basics like internet access and office supplies, to low-level training on finance and presentation skills, to high-level guidance on intellectual property management and securing funding connections. Yet the average incubator has less than 2 full-time staff and serves 25 firms [1]. It is arguably implausible that so few employees could adequately provide services to so many firms.

Most incubator research does not study incubated businesses against unincubated businesses

Incubators are viewed by both the public and government officials as offering a helping hand to struggling startups, and much research has been done about what makes certain types or functions of incubators more successful. Overall, those studies tried to analyze factors thought to help incubators succeed, including connection to a university, length of time in an incubator, and an incubator’s selection criteria. However, the essential question we ought to ask is: “Do incubated businesses perform better than unincubated businesses?” Unfortunately, most academic literature about incubators does not measure incubated businesses against a control group (in this case, comparable unincubated businesses).  Such research would help confirm if incubators do contribute in a positive way to the entrepreneurial landscape.

Incubated businesses do not outperform unincubated businesses

We have identified only one piece of research (Amezcua 2010) which examines whether incubated businesses are more successful than unincubated businesses in terms of job growth, revenue, and overall survival. The study shows there is little difference between unincubated and incubated businesses. Although incubated businesses have slightly higher employment growth and sales, they also have slightly lower survival rates after they graduate. Overall, the difference in performance between incubated and unincubated businesses is “marginal.”

Conclusion

More research is needed to answer definitively whether incubated businesses outperform unincubated businesses. Only after that should we start to investigate what kinds of support incubators can offer to be most helpful to companies. Is it providing networking opportunities between incubated firms? Connecting to local mentors or experienced entrepreneurs? Training on finance, intellectual property, or sales? Better integration into the local ecosystem of entrepreneurship? Increased research into what types of support help entrepreneurs can help increase the number of startups that are both independent and successful.