In 2006, Becker and Gassmann defined corporate incubators as “specialized corporate units that hatch new businesses by providing physical resources and support.” Since then, corporations have invested heavily in incubators as a means of generating or accessing innovation, especially in technology. Some have succeeded, while others have failed, despite the resources made available to entrepreneurs. The lesson learned is that it takes a fine balance of encouraging and supporting innovation while avoiding placing too much corporate pressure for rapid value generation on the incubator, stifling startup thinking and risk taking. Successful corporate incubators do not experience excessive organizational control, have access to corporate resources without excessive burdensome requirements, and have reasonable corporate expectations for progress.

LEARNING FROM INCUBATOR FAILURES AND SUCCESSES

International consulting firm Arthur D. Little researched corporate-funded incubators and found that out of 70 active programs in a coporate-accelerators.net database in 2016, almost half had closed down by 2019. Companies such as Intel, Qantas, Citrix and Qualcomm shut down or downsized their incubators. There were several reasons why the incubators failed. The main reason was corporate dissatisfaction with progress, and the inability to make it beyond scale-up, so they were unable to contribute significant growth to the corporation. The second set of reasons were unclear corporate objectives, lack of strong top management support, and misaligned objectives between the incubator and the corporation. The third primary reason was that the startups needed to achieve scale, and the corporations got impatient with the length of time it was taking. Fourth, startups often do not get adequate management attention and resources to nurture the incubated business. Other reasons listed include lack of a systematic approach to ensure de-risking, cultural mismatch, and lack of a pathway for scaling up and getting absorbed into the existing corporate brands.

Examples of successful corporate incubators offer important lessons on what it takes to become a successful contributor to corporate business. P&G Ventures is an early-stage startup studio that partners with entrepreneurs, and one of its many successes is its partnership with Envance Technologies. P&G had acquired a company that developed a plug-in bug catcher, but soon realized it needed a bug spray. Envance Technologies had knowledge and experience in essential-oil based products, so a partnership was formed. In less than 12 months, the new product (Zevo spray) was on shelves because P&G shared its brand, messaging, and packaging capabilities, while also leveraging its relationship with the same manufacturer that Febreze used. P&G offered capabilities a Venture Capitalist could not bring, including “consumer insights, brand building, manufacturing scale, sales and distribution networks, product development, regulatory, legal, and more.”

LEVERAGING MUTUAL BENEFITS

Samsung NEXT partners with innovators who can bring ideas to products and grow products into businesses. The company invests in transformative early-stage startups. Founded in 2012, NEXT serves as a good example of an enduring corporate incubator model. A recent investment was in Canela Media, a leading content provider for the Hispanic market. The startup had already developed a platform to make streaming, culturally-relevant content available to Hispanic consumers, whether or not they could afford to pay a subscription fee. Canela Media’s founder had developed deep connections with brand advertisers, assembled a staff of knowledgeable and skilled media professionals, and moved into mobile advertising. Samsung NEXT sees this partnership as a way to scale throughout Latin America. This is a good example of a corporate-startup partnership in which the corporation was focused on helping the startup scale up, based on its own strategic plan for growth.

David Eun is the Chief Innovation Officer at Samsung Electronics and President of Samsung NEXT. Best practices include a dedicated investment fund for investing in early-stage AI startups, identifying consumer and tech trends and looking for startups that take a hybrid hardware-software development approach. Finding the right opportunities, talent, and technology is a crucial best practice for a successful corporate incubator.

WHAT IT TAKES FOR A SUCCESSFUL CORPORATE-STARTUP RELATIONSHIP

McKinsey & Company research found the same principles Eun mentions apply to all corporate-incubator startup relationships, but research also found some issues stifling incubators. One is corporate internal policies and silos slowing new business development, hampering the ability of the start-up to operate. Another was the failure of the corporation to provide the start-up with adequate support, with 25% of incubator respondents saying they failed to capture the benefits of corporate scale. Scott Cook, Intuit’s cofounder and executive-committee chairman told McKinsey, “Normally, companies put up a phalanx of barriers and hurdles and mountains to climb that may not seem hard for the boss or the CEO but are intensely hard, impossibly hard, for our young innovator to conquer.” An example is a corporate incubator that develops a new cloud-based technology stack, but is unable to build it because the corporation’s chief information officer insists the start-up operate in the company’s IT environment.

The various corporate leaders McKinsey talked to pointed to suggestions for a successful corporate-startup relationship. These include startups having freedom from corporate pressure to deliver short-term results; freedom from corporate bureaucracy that creates innovation-blocking red tape; and freedom to source the best talent without being required to hire staff from the parent company. The corporation should position the start-up’s product and services as a complement to its own. The corporation can share the distribution system and intellectual property, give brand strength to the startup, and leverage resources and connections to benefit the startup.

FINDING BALANCE

Achieving the right balance between incubator innovation generation and corporate support is not always easy. Corporate leaders are prone to be possessive of their policies and procedures, developed to achieve conformity in operations and decision-making and to meet legal requirements. People are also reluctant to let go of their control over processes enough to allow innovators to pursue the very thing the corporation wants – innovation. Some corporate control must be maintained, including utilizing metrics to evaluate incubator progress and ensuring legal compliance is maintained. It is all about balance, and there are thousands of corporate incubators that have found the balance, proving it is possible.