Ten years ago corporate incubators were all the rage. A number of large companies set up some kind of incubator or accelerator to nurture new business lines and innovative products. They had a limited vision of ‘incubator’ – generally designed to host new startups within their facilities. They offered them resources, support and, as they matured, market access.

A decade into it, many of these enterprises have scaled down their efforts or largely abandoned them. Corporate incubator 1.0 did not realise its somewhat loose ambition. A number of more innovative companies and a few management consultants are working on the next generation of corporate incubator.

Many corporations set up in-house incubators and accelerators as their primary means of start-up collaboration – vehicles to help develop start-ups during their early months or years. These provide facilities, advice, training, funding, and sometimes market access, to help them scale. There was a steep increase in corporate-funded start-up incubators and accelerators up to 2016, with some 70 active programs listed in the corporate-accelerators.net database, although it is likely that the actual number of programs was well in excess of this.

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However, of those 70 programs listed in 2016, by 2019 nearly half closed down, either completely or to be replaced with a different type of vehicle. While some of this was due to an oversupply of incubators and accelerators relative to the number of start-ups, a major factor was dissatisfaction with progress. An ADL/MMV survey found that only 31 percent of companies considered their collaboration activities successful. Many, such as Qantas, Intel, Qualcomm and Citrix, to name a few, have abandoned or downsized their accelerator programs, or else shifted to third-party managed accelerators.

The most often quoted reason for failure include:

Lack of major impact on growth: Too few proofs of concept reached scale.
Unclear objectives: Some launch start-up vehicles without any clear strategic rationale because they see their competitors doing it.
Inadequate resourcing: A recent Nesta survey found that 33 percent of larger companies in Europe identified lack of internal resources as a major barrier. Management support being the most essential.
Lack of a systematic approach: ‘New business groups’ are often run as collections of unconnected emerging new-business projects, with little or no systematic approaches to ensure early de-risking and fast-enough “speed to scale”.
Cultural mismatch: Fitting the maverick David inside a more deliberate and cumbersome Goliath.
Lack of a home: In particular, a pathway for results to be scaled up, implemented and absorbed into the business.

Some have have been asking themselves whether corporate incubators can work. There is no reason why they should not succeed, provided that they design the incubation vehicle specifically with the intention of delivering major new, scaled-up, de-risked, transformational growth. This is in contrast to the old model, in which the incubator concept relied on running a number of experiments in peripheral business areas, in the hope that one or more proofs of concept might lead ultimately to a viable business.

The days are limited for hands-off corporate incubator 1.0, which is an organization that helps startup companies and individual entrepreneurs to develop their businesses by providing a range of corporate services starting with management training and support, and office space, sales distribution, supply chains and financing. Where the corporate acts like a third party venture capital organisation rather than the holding company for a new approach to developing internal, scaled business units and innovative new products and ventures.

Corporate incubator 2.0 will be about making the incubator a centralised, strategic function and a core process within the business to deliver future growth, at-scale. Designed to run a full, end-to-end process from ambition though to launch and scale-up of a new product/service line or complete business. Some will attempt to find strategic outsourcing partners to operate the incubator.

Corporate incubator 2.0 forces the enterprise, and senior management, to take direct responsibility for the incubator’s strategy, objectives, process and performance. The executive team should green light new ideas with genuine merit, monitor their progress to scaled-up businesses or products and make key investment decisions.

They should be tasked with approving the transition across each of the 7 key stages of incubation - for every project currently green lit. Including creativity, ideation, proof of concept, market entry, market development, market dominance and exit-or-fully-integrate.

Leading newly incubated businesses should be the ultimate reward for top management talent. The goal should be to internally develop next generation $billion businesses - not just supporting a few interesting, yet peripheral, startup ideas generated largely from external inputs.

Nurturing new business ideas should become a constant initiative for all functional and business unit managers. After all, if the incubator organisation and methodology is operating efficiently it should seek numerous inputs for new idea generation. The right process will filter the ideas worth developing.

The incubator organisation should cost tens of $millions a year. Not a few $million. It should be the future of the organisation, not an interesting aside. Helping to define future culture rather than attempting to fit in with the old way of doing things.

Corporate leaders and boards could even strive to operate the sectors most successful corporate incubator - measured by the number of new $billion businesses created internally.

Orange, one of the largest operators of mobile and Internet services in Europe and Africa, has used their next generation approach to build a new type of cloud-native operator for the enterprise market that would become the blueprint for the future Orange digital offering and operating model. A far more ambitious approach to new venture development.

Some companies, such as LettsGroup, have made their corporate incubator the future of the business and a core business process. They have built state of the art, proprietary methodologies, virtual incubator studios, supporting technology, teams, financial structures and partners to make sure that their incubator powers the group’s future growth.

It looks like incubators are here to stay. Corporate incubator 2.0 will likely become more important to the enterprise’s future strategy, its development and growth. Top managers will become increasingly focused on driving performance from new ideas all the way to new scaled-up ventures. Inspiring creativity and driving ideation across the business a vital new mission.

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How the corporate incubator benchmarks versus other such incubators could become a critical new measurement of success - which could increasingly drive executive remuneration. Future performance might become more focused on next generation growth, rather than constantly restructuring old businesses. Digitizing the enterprise, driving flexibility and obsessing about customer data will become more important than ever.

The biggest prize will likely fall to those who figure out how to drive next generation growth faster than their competitors might imagine. Making innovation central to operation. Because where there’s growth, there’s hope.

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Corporate Incubator 2.0