Corporate Incubators: The Expert Guide

Over the years, corporate incubators have emerged as a proven way to leverage corporate assets, explore new growth areas, fuel innovation, and foster an entrepreneurial mindset. Multinationals like AstraZeneca, LEGO, and Volvo have already set up their own incubators with stellar results.

Their ultimate goal? To future-proof their businesses, boost innovation from within and create essential new revenue streams.

To give you a better idea of how incubators work, we’ve created this comprehensive guide illustrating what an incubator is, the benefits of having one, and how they’re positioned in the broader corporate venturing landscape (along with some other handy resources and examples).

So, whether you’re thinking about building your own incubator, already mid-way through the process, or simply looking to update your current setup, the insights in this article are sure to help you through your journey.

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A corporate incubator is an independent business unit within a corporation that supports new ventures from concept development to a fully functioning business. They leverage a company’s corporate assets to provide young startups with mentoring, networks, infrastructure, funding and other resources they need to become thriving businesses.

Many corporations choose to start their corporate venturing journey by building their own corporate incubator. Each new startup that gets developed provides the parent company with a slew of benefits, including:

• Access to innovative new technologies, products and services
• Insights to improve their offerings or create new ones
• The chance to expand beyond their core business
• The opportunity to test new technologies or business models
• The ability to reach new audiences and tap into new markets  
  

These newly minted startups can go on to become important revenue streams for their parent companies, enabling them to grow, compete with new market entrants and find disruptive solutions to traditional problems.

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When executed skillfully, corporate incubators are a great way to innovate and develop disruptive new ideas that might otherwise get scrapped in favour of everyday corporate demands.

They’re especially useful for companies that are having trouble competing due to rapidly changing technologies, an outdated business model or the arrival of newer players in the market. We’ve outlined our top seven benefits of having a corporate incubator below:

1. Corporate incubators help involve employees in the innovation process.

Incubators often rely on internal staff and intrapreneurs to provide mentoring, expertise and pitch concepts. The approach creates a sense of involvement among employees prompting them to bring game-changing ideas forward, test them and learn fast, unrestrained by corporate boundaries.

Example:

Capital One’s The Lab builds ventures that are paving the way for its future. Part of its goal is to accelerate the bank’s digital transformation by exploring cutting edge technologies.

It operates as a fully integrated part of Capital One, and most of its venture ideas come from employees, partners or hackathons, and have practical applications in the business. This means that employees get to create the ventures that will make their work more effective in many cases.

2. Corporate incubators lead to the discovery of new value propositions.

Each new venture developed within an incubator holds the promise of reaching a new market segment, turning into a new revenue stream or creating a value proposition that will pave the way for the future.  

Example:

RBC Ventures is a subsidiary of the Royal Bank of Canada, built with the goal of attracting new clients through meaningful solutions. They think, act and operate like a startup while exploring new ideas that cater to unmet consumer needs.

Part of their mission is to attract 5 million users in the space of 5 years through various new digital offerings. The ultimate goal is to convert 10% of those users into RBC banking clients.

3. Corporate incubators use existing assets to increase profits.

Corporate incubators encourage the exploration of new opportunities and help companies leverage their expertise and know-how.

Example:

Whirlpool’s W-Labs was built to identify unique consumer pain points and turn them into new products and services. In this incubator, products are developed on a small scale, tested quickly, and gradually improved to meet customer demand – all with existing corporate resources.

Their Vessi home beer fermentation system is an excellent example of how existing corporate assets and know-how can be leveraged to bring in new profits.

‍4. Corporate incubators help companies acquire new insights and gain a competitive edge.

Experimenting with new concepts, ideas and business models often leads to insights that help companies solve problems faster, streamline their operations and increase cost-effectiveness.

Example:

Daimler’s innovation unit, Lab1886 (now 1886Ventures), built Car2go, a startup that enabled users to rent a car via a free smartphone app anytime and at a low cost. In this way, they were able to launch the new offering at a fraction of the time and before many independent startups.

5. Corporate incubators foster a culture of innovation.

Incubators facilitate innovation by encouraging creativity, experimentation and learning by failing. They reward out-of-the-box thinking and enable an entrepreneurial spirit to resonate throughout the organisation.  

Example:

Google’s Area 120 highlights this value by developing core business concepts from internal staff instead of external sources. The approach enables them to leverage the talent and know-how from within the company to create disruptive new products and services.

6. Corporate incubators provide access to new ideas, skill sets, and technologies.

When developing new ventures from scratch, companies often pick up many game-changing insights, skills and know-how.

Example:

Lufthansa Innovation Hub, for example, works to spearhead its parent company’s digital transformation. Each new venture they develop and test adds to their skills and expertise, enabling them to learn more about their target audience and how to use technology to heighten customer experience.

7. Corporate incubators help expand a company’s strategic vision.

Incubators enable companies to step outside their core business (and comfort zone) to explore new concepts that might have otherwise gone undiscovered.

Example:

Samsung’s C-Lab is a great example of how an incubator can encourage out-of-the-box thinking and leverage its talent to create exciting new products and services. The idea is to encourage employees to use their talent to come up with innovative value propositions.

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The greater corporate venturing landscape features 16 innovation tools designed to help companies fuel new growth. Some of these tools include (but are not limited to):

Corporate Venture Capital (CVC)

When corporations use direct equity investments to target startups of strategic interest.

Example:

In 2019, Lufthansa’s Innovation Hub made a multi-million dollar investment in Hopper, an AI-powered app that predicts travel prices and provides personalised recommendations for optimal booking times.

Since then, Lufthansa Group has entered into a strategic research partnership with the startup to make the travel experience smoother for customers.

Mergers & Acquisitions (M&A)

When established firms purchase startups and their commercial-ready products in order to access new technologies or markets.

Example:

In 2018, Amazon acquired online pharmaceutical company PillPack as part of its effort to break into the healthcare industry.

The move provided Amazon with a built-in customer base, a proven business model and the technology to compete with the likes of Walgreens and CVS.

Venture development studios

A venture development studio, startup studio, company builder, or venture builder is a structure that creates startups based on shared resources and a multidisciplinary team. It provides what is known as “Startup as a Service”.

Example:

Bundl is an excellent example of how a venture development studio works, teaming up with corporates to create new ventures and discover new markets.

Check out our cases page to learn more about how we build corporate ventures.

Corporate Accelerators

Corporate accelerators offer highly structured programs that typically last about three months.

These programs provide startups with the facilities, resources, and expertise needed to speed up their product development and prove themselves on the market.

Example:

Wells Fargo Startup Accelerator has a six-month program to help young startups test, prove, and grow their concept.

Financial services startups that make it into the program gain access to the bank’s industry expertise, networks and mentors - not to mention a possible investment of up to $1,000,000.

To give you a better idea of how corporate incubators fit into this greater landscape, we’ve created an overview detailing their position:

Although some people use these terms interchangeably, incubators operate quite differently than accelerators:

Corporate Incubator

Incubators nurture disruptive ideas to help them transform into an independent company with a solid business model.

Corporate accelerator

Accelerators are the next step in the process, helping young companies expedite their growth and scale their existing business models.

Here are a few other key differences:

Programming

• Incubator programs tend to be flexible and on-demand.
• Accelerator programs are fixed and highly structured.

Duration

• The incubation process lasts 1 to 3 years.
• The acceleration process lasts only 3 to 6 months.

Return

• Incubators usually have full ownership of the venture.
• Accelerators tend to establish partnerships or arrange for equity.

Now that you know a bit more about corporate incubation, you’re probably wondering what your own corporate incubator would look like, what its goals would be and how you can get started.

The first thing you need to do is map out a solid framework you can use to:

• Shape your corporate incubator
• Use as a basis for strategic decisions later on
  

To help you do that, we’ve designed this corporate incubator canvas, designed to guide you through the process of:

• Finding the strategic value of your incubator and setting the right scope for the future.
• Making crucial decisions for its development and success.
• Developing a clear framework, you can use as the basis of your stakeholder pitch.
  

The exercise will help solidify your incubator’s long term mission, goals and positioning. 

As a venture development firm, we often have the privilege of speaking to some of the world’s leading corporate innovators about the work they do and what it takes to succeed in that space. Some of our most recent interviews included Richard Faas, CIO of the Legal Tech Studio (currently CCO of Appjection) and Lisa Besserman, Head of Program at Indeed’s Global Incubator (currently Managing Director at Expa VC). Here are some of the insights they shared with us:

Alignment with corporate leadership is crucial.

Corporate leaders and stakeholders play a huge role in determining the incubator’s greater mission, its growth goals, and they serve as key advisors and influencers. Their involvement and support are critical to the success of your incubator.

Use the talent that’s available to you.

Collaborate with different areas in the company to create a multidisciplinary approach to your projects.

Democratise your key learnings for real impact.

Make a conscious effort to share your learnings through events like Lisa’s Learning Initiative. An event created to share Global Incubator’s knowledge throughout the company.

Build stakeholder trust with short-term projects.

Adding short-term projects to the agenda enables you to produce results quickly and gain the support you need for bigger projects.

When executed skillfully, incubators are a great way to innovate and develop disruptive new ideas. They’re especially useful for companies that are having trouble competing due to rapidly changing technologies, outdated business models or the arrival of new players in the market.  

If you recognise any of these traits in your company, it might be a good idea to take a closer look at investing in your own corporate incubator.

For more inspiring corporate incubator examples, check out the 50 corporate incubators report.

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Want to know more about how to set up your own corporate incubator? We can help you create an incubation strategy that meets your unique needs.