Saturday, April 19, 2014

The Not-so-New Accelerators

Have you read much written lately about business incubation?  My head spins trying to decipher all the different names for what is essentially the same set of services. It seems every time I think I have a good idea of what another business incubation organization does, I find out their intention is really to be something else. Incubate, accelerate, something in between…what do they really do and what do they offer their clients?

The new "accelerator" often refers to a program of 90-120 days of intensive mentoring with a small amount of cash (usually $15-20,000) and the opportunity to do some proof-of-concept testing while learning how to be an entrepreneur. If the sponsors/investors deem the project successful, additional funding may be in the offing.  This new use of the term accelerator is an appropriation of an incubation concept that has traditionally described the delivery of services to speed the development of an established company. I find it hard to consider acceleration to be a new idea. And, I find it even harder to apply the term accelerator to entrepreneurs who may not even have solid business model yet. The confusion becomes even greater when I try to apply this accelerator concept in businesses other than the development of mobile phone apps and other Internet-related software.

Here's my take on what happened. Several years ago, some new ways to deliver mentoring came into being with the development of start-up programs such as Y Combinator, TechStars, Launchpad LA, and several others. Entrepreneurs with innovative ideas could apply to these organizations for a shot of intensive assistance and a relatively small amount of money to develop a business model or do proof-of-concept development.  The great benefit of this new accelerator concept is that it helps entrepreneurs take an idea far enough to see if there's a business idea with legs without investing a lot of money in salaries and rents. I see it as an inexpensive way for investors (both angels and early stage funds) with more money than time, to work with interesting, but usually inexperienced entrepreneurs and determine if further investment is worth the effort. It tests the entrepreneur, (at least partially) vets the technology, and develops the business concept with a minimum amount of effort. At the end there's at least the beginnings of a business model.  It's nice PR for the investors, and sure beats having to read business plans all day.  

Here's my problem with it: it's so early in the development of the company that the chances are good there's no IP protection in place, the management team (if there is one) are put under intense pressure at such an early stage that it's sink or swim before there's much of a concept to test. It could easily break up a good team with very little real testing of their skills other than what may be introduced by the short timeline adding drama to the process. One question being asked lately is “How many IPOs result from these high profile, highly touted programs?” It’s a good question, because the numbers aren’t very impressive (in one study the mean was 4%).

These things have become so prolific that in some places anyone with some spare office space now has an accelerator. Sorry, but I just don't believe every law firm in Southern California and the Bay Area should be running an accelerator. In late 2012, we did a count in the Los Angeles region -- there were 12 in Santa Monica alone. Some exceptional entrepreneurs and very good ideas just don't come of age in ten to twelve weeks. How many good ideas are lost because the investor grew bored, or the gestation period of this new product took fifteen weeks instead of twelve?  Give me good old business incubation where you take the time to develop a relationship with the client, help them think about how to overcome their challenges even if it takes a year instead of a few months, and watch the entrepreneur gain maturity as a business owner with each sale.

Sure, there are companies that benefit from this type of acceleration, but how many are just “one-app” wonders?   

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