by Jason Jones,
The tech business cycle seems to follow some version of this model, especially within the last few years:
- Find idea for app solution
- Build basic prototype
- Identify desirable incubator or accelerator
- Join incubator accelerator
- ????
- Profit!
Now the last part may be a popular meme, but the model holds true. It seems that in the tech industry, once someone comes up with a new idea, the next order of business seems to be to join an accelerator or incubator.
This is not to say that accelerators or incubators are unnecessary. They serve a purpose in the tech industry, which is to help often first-time founders navigate the beginnings of building their business, which can be anything from providing office space to offering mentorship, and in the case of accelerators, financing startups. There are many companies that have found success through their participation in accelerators and incubators. As technology has made it easier for people to transform their business ideas to startup companies, there is room for organizations that can offer the above services to novice entrepreneurs.
The problem, however, lies in how the success of a few accelerators and incubators made for a wave of other similar organizations, which have ended up creating competitions within themselves. The tech business landscape has now been inundated with these organizations.
Startup founders now think that if there are a lot of accelerators and incubators around, then that must be the best path to rapidly grow and scale their companies. Instead of concentrating on their business plans for the sake of their companies, founders are tailoring their company trajectories to attract investors in the hopes of even simply being accepted to their chosen accelerators and incubators. Companies are making plans that may not be sustainable for their businesses in the long run. They are promising impossible timelines, unrealistic sales goals and making steep promises. The very design of accelerators and incubators rely on tight timelines and exponential growth. Because the startups that are eligible for accelerator and incubator programs are early stage, the burnout rate is very high. This quote from Francisco Dao of 50 Kings from a recent Wall Street Journal article:
Accelerators tend to encourage entrepreneurs to chase “the elusive pot at the end of the rainbow”, says Francisco Dao, the Los Angeles founder of 50 Kings, a private community of technology professionals. The accelerators leave founders with “a false hope” of success, he adds.
The way that accelerators and incubators rate success is how much their portfolio companies have raised, and their valuations. Although their measure of ‘failure’ is quite low – only companies that have ceased to exist, or those with an ROI less than 1x are considered ‘failures’ – the message to startup founders has become “Go big or go home.” This singular measure of success has greatly contributed to the startup scaling hype that has made even the most seasoned VCs like Marc Andreessen sounding the alarm on an imminent burst of the tech bubble. Since accelerators and incubators earn their money from their equity stakes when a portfolio company makes an exit, the cycle continues.
There is now a call for accelerators and incubators to teach “The Lean Startup” program as another option for their portfolio companies. If they are dedicated to helping founders build and grow their companies, offering this training is a great way for them to provide value to startup founders.
The Young Entrepreneur Council shared a list of questions founders should ask before they join an accelerator program. Among them is, “Does the Accelerator’s Goal Align with Mine?” When you are starting out as an entrepreneur, you can sub ‘Accelerator’ in the above sentence with anyone you encounter in your business dealings and always make sure that you are doing what is in the best interest of your company. Don’t get caught up in the current startup model if it doesn’t work for you. You might be better off on your own and working on other aspects of your business as opposed to attending the numerous meetings and checkins that come with accelerator and incubator programs. As Chris Lynch, a VC from Boston said, “There is no shortcut to anything worthwhile.”