When Bill Gross founded business incubator experiment, Idealab, in 1996, he intended it to run for a 12-month period. It hasn’t closed its doors since. In fact, the project has been such a success that there are now over 2,000 duplicate ‘idea factories’ around the world.
These ‘idea factories’ (or ‘incubators’, as they are more commonly known) are in many ways behind the rapid evolution of the start-up ecosystem we see today. They have been referred to as bottom-up R&D units, while accelerators have been dubbed ‘the business schools of the future’. Whatever we call them (yes, there are different models and the semantics can get confusing), the idea’s many variants are churning out an assembly line of new businesses at a scale never seen before.
Gross's Idealab success stories include Cars Direct, the first company to sell vehicles online directly to consumers, and web traffic analysis service Compete.com – sold to London-based market research company TNS for $150m. The Idealab incubator (and many more like it) nurtures 'eggs' in the hope they will grow into multi-million pound businesses. Many of these eggs never hatch and flourish, but the learning curve these programs instill within participants are priceless. Those whose incubated eggs failed to hatch are often the founders of the next wave of successful business start-ups.
Why they are great
‘Idea factories’ have tapped into something new: the idea that innovative problem solving and business creation can be manufactured. It does not have to rely on inspired moments from gifted people who go on to create global billion dollar businesses seemingly effortlessly (a la Mark Zuckerberg).
As someone who looks at and creates businesses in volumes, I've come to understand that one can break down the business creation process into its component parts and 'productise' it. Ideation, customer insight analysis, product building, pilot testing, iterating, business development and marketing, hiring and mentoring, finance and administration - these are some of the building blocks of a start-up venture. Like Lego, if the parts are robust, smart entrepreneurs can put them together in different combinations and permutations and pull them apart again far more rapidly than if the parts weren't provided.
This has led to a fascinating paradigm within the modern business world: as soon as one disruptive model is launched, rest assured there will be another one in development looking to take its place. This is the cause and effect that arises from supercharging innovation through ‘idea factories’. Now that idea generation has reached overdrive - an innovation is an innovation until the next ‘Lego building entrepreneur’ comes along and builds (and importantly, goes to market with) something better.
The world is filled with wonderful creative ideas. What's been lacking for decades has been that rare ability to turn a great idea into a viable business. Now - I believe our creative ideas have a much higher likelihood of crossing that chasm. With sound commercial and strategic support, functional expertise, networks, and leadership training, ideas going through an assembly line can be transformed into job creating businesses.
From a personal point of view, if I didn't apply a regimented process to entrepreneurship I wouldn't have been able to launch six new ventures in two years. Although a structured approach does not suit everybody, it helped me rapidly build a portfolio of successful early stage businesses. Incubator type models offer structure and discipline in these hectic early days of start-up businesses, during periods when the risk of failure and the need for guidance is at its highest. These platforms offer the direction and guidance I would have loved when I first entered the start-up world as a 25-year-old first-time entrepreneur.
Imagine an education system in which the brightest graduates in the world assemble through an incubator and team up according to their chemistry and skills sets and create profitable, problem solving businesses under the guidance of older entrepreneurs who have a wealth of experience and powerful networks for them to tap into. Such a system could diversify economies, feed the pipeline of future business creation, and even solve world problems if bolstered by the right amount of investment. The incubators, accelerators and idea factories, as they evolve and become more efficient, could create a steady stream of profitable, problem solving businesses to market.
While numerous variants of idea factories exist globally, I'd like to highlight two models of particular interest to me:
Y Combinator is probably the best example of the incubator model. The most notable business to come out of this California-based incubator is Dropbox - which has recently been valued at $4bn (£2.34bn). Drew Houston, the founder of Dropbox, arrived in Silicon Valley with nothing more than an idea.
Houston was initially rejected from Y Combinator as he didn’t have a co-founder. His application was rejected with these simple instructions: ’Find a co-founder and re-apply’. He found a co-founder within two weeks and successfully re-applied.
The foundations and the connections he learned were invaluable. Before long he had raised $1.2 million from Sequoia Capital – the company remains Y Combinator’s greatest success story. Although often heralded for their approach, incubators do not ensure success. Entrepreneurship is still an unforgiving career path. Y Combinator recently revealed that 93% of the companies it accepted have failed.
Other notable companies with roots in Y Combinator are Reddit and AirBnb, today valued at approximately $400 million and $10 billion respectively.
An incubator model I particularly like is Monkey Inferno launched by Bebo founder Michael Birch. It’s an interesting concept. You have one platform that has designers, engineers and commercial people. They collectively generate ideas and the programmers code the software. They turn the best ideas into companies which are incubated and funded by Birch, an entrepreneur who has already had his ‘life changing moment’ and wants to give something back.
What I like about Monkey Inferno is it’s a true ‘idea factory’ – each project is an egg fertilised and incubated from embryo to foetus to new-born, and cared for until it can stand on its own two feet. To watch these companies grow into world-changing businesses must be extremely satisfying for both the entrepreneur and the mentor. People typically look at a start-up and think they’re the result of an entrepreneur having a ‘light bulb’ moment, but when an incubator is involved we’re talking about connecting the dots between brainstorming ideas and developing those ideas into a fully functional business. These structures provide a bubble that captures ideas so they’re not left to evaporate; they siphon the best ones and then they pilot them to see which work commercially.
In the past, success in business often meant you had the right idea at the right time. Now these moments of serendipity are not the only route to building a great business. Thanks to idea factories, the business start-up processcan be partly commoditised – and the innovators and creators of our society now have the platforms from which to create category-defining new business models. These factories have delivered to us services we never knew we needed and now can't do without like Dropbox and Airbnb - I eagerly await what they'll give us next.
Steve Jobs, in his signature 'binary' style, separated leadership into two camps: those who innovate and those who don't. I believe there is a third, powerful camp emerging: those who curate innovation in volume. This new breed of leaders – those who connect the dots and harness the building blocks of entrepreneurship – might be the most prolific leaders the start-up ecosystem has seen yet. Watch this space.