Innovation in the modern world
In the face of economic downturn, innovation has a rather central role to play in order to developknowledge societies, which are essential for technological advancements as well as the economic growth of a nation. Established businesses and state-operated enterprises can only do so much in terms of promoting innovation so usually they don’t sway from their business model a lot. This is why it shouldn’t come as a surprise that most forward-thinking state administrations today promote ‘business incubators’ as the harbingers of innovation and technology.
But what are these ‘business incubators’, you may ask. Typically, they are programs designed to support development of entrepreneurial companies – a rather tricky concept to communicate if you aren’t familiar with the world of startups. The defining quality of incubators is that they provide startup companies with a working space – all their other features fall over a broad spectrum of resources and services they provide to support emerging businesses. On one end of the spectrum you may have high-tech incubators that are merely office spaces provided by a government body. On the other, you have startup idea hubs that hire people to work on new business ideas.
In 2005, Y Combinator developed a new model of business incubation by deliberating all their efforts on startup seed funding. This is the earliest stage of venture funding that pays expenses for a startup business in the making to help them get through this first, initial phase. Their goal is to help selected startups become impressive enough to raise money on a larger scale, be it from angel investors or venture capitalists. Twice every year, Y Combinator invests a small amount of money in a large number of startups for small stakes in them that usually range from 2-10% of the company’s equity.
However, this business incubator offers more than just money to the startups it supports. To illustrate their role using an example, let us consider the idea Mecenato has submitted to Y Combinator for consideration in its Summer 2014 session: an enterprise software for the creative services industry that we’re calling ‘Hand Shaker’ for now. As an automated collaboration tool, it sits in the cloud and enhances every stage of a typical creative project. (You may read more on the Hand Shaker app on Medium.)
If Y Combinator takes on Hand Shaker under its wing, the first (and most important) thing they will do is work on the idea itself. Since they’re hackers who think outside the box, they will try to figure out what people in the creative industry want in order to understand the direction in which Hand Shaker could be expanded in the future. They will work on everything from minor things such as the name to bigger issues such as the revenue model being used or visualizing how users might adapt to the application.
Once they’ve helped us figure out answers to these important questions, Y Combinator will help Hand Shaker deal with investors and acquirers. This is the segment where they provide mentorship in the pitching process with not just advice but also protection under their reputation, which is widespread in the world of venture capitalists and angel investors.
In the end, if all goes well, they will help Hand Shaker get incorporated by ensuring all the paperwork is in place – often going the extra mile by introducing us to lawyers who are open to deferring payment, for instance, or giving advice on what might need to be patented. In the later stages they also help mediate disputes between founders and investors, and advise on matters such as IPO or selling out.
Perhaps because today’s digital age promotes disruption of existing models, the folks at Y Combinator truly believe that the balance of power is shifting from investors to hackers – and as their past record indicates, they’re great at hacking. This is the reason why they’re so flexible with what they offer the fresh startup founder, and this is the kind of thinking agencies and marketers need today.
Mecenato isn’t the only company out there hoping to disrupt the status quo through an innovative use of technology. Unilever’s Incubator is another great example of a corporate stepping into the world of entrepreneurship and it is only a matter of time before others follow suit. But a leading organization wants to establish its presence in this era of innovation before others begin incubating great ideas internally, otherwise what is the point?