Andrew Humphries, co-founder at The Bakery, discusses why he thinks tech accelerators may become a thing of the past.
Corporate startup accelerators are, along with co-working spaces, increasingly visible in our tech-centric cities. In the past five or so years, we have seen the likes of Barclays Rise, and John Lewis’ JLAB – incubating nascent startups in the worlds of finance or retail – usually culminating in them raising capital from the corporates and other investors. They represent a modern marriage of corporate and startup.
But many seem to be playing at the casino, and losing. Lots of them launched with fanfare, and great intentions, but the true value of these accelerator programmes is perhaps yet to be seen. They may get one or two stellar successes, but it’s a high risk strategy. In many ways, the corporate accelerator is dead as we know it, and this next period is about finding a way of releasing real value, and supporting the start-ups through their lifecycle.
For every Barclays Rise, receiving new investment, there has been a death. We recently heard of the closure of yet another startup incubator/accelerator – this time the 10-year-old, pioneering Pollenizer in Australia, who will officially pull up stumps in June. And it was only the end of last year that Coca Cola announced, after opening to much fanfare three years ago, that it would be shutting down its Founders programme.
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In light of these announcements, here are some thoughts on why ‘traditional’ and corporate investment-based accelerators (with the possible exception of Y Combinator and TechStars), might struggle to succeed going forward. And some nuggets of advice on how corporates and budding startups might work together more successfully in future.
Firstly, it’s key to look at why accelerators exist in the first place. Investing in startups is extremely risky. Statistics vary and are difficult to assess, but according to a long-term study and report by Small Business Trends, of all small businesses opened in a single year – 2011, only 4% made it to the following year, and only 9% of those made it to year four. The most common reason given for failure? Incompetence (46%) and ‘unbalanced or lack of managerial experience’ (30%).
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Accelerators like Y-Combinator were originally started to provide more of this crucial competence and balanced experience to the founders, by having a strict initial and ongoing selection process and, above all, surrounding the founders with experienced mentors. These mentors are invaluable, however, with so many accelerators and incubators nowadays – are there enough truly dedicated mentors to go round? For many mentors, the truth is, providing support at an accelerator is simply a tick-box exercise, providing no real value for any stakeholder. Accelerators are also struggling to get significant follow-on investments and, as a result, are often failing to raise funds for year three and beyond.
When it comes to corporate accelerators, in our experience, companies seem to go on a journey rather like this:
- Think about innovation: Realise that traditional R&D methods and external engagement with the usual suppliers aren’t in the 21st century. Visit Silicon Valley, meet with Facebook and Google, send execs on coding courses to learn about apps and tell staff to ‘become more innovative’.
- Gather innovative ideas: Create a web page that encourages staff and external innovators to ‘Send in your best innovative ideas.’ Sponsor a hackathon. Then realise that there is no way to execute any of the ideas.
- Appoint a ‘head of innovation’: Typically someone who knows the company – seen as intelligent and too valuable to lose, but who doesn’t really fit properly into an existing role. Abdicate responsibility to them and give them just enough budget to fail.
- Create a ‘Lab’: A ‘funky, creative space’, often slightly separated from the HQ in the trendy, creative part of town, with sofas and beanbags, artificial grass, virtual reality headsets etc. Most senior staff and maybe some clients visit once – nobody goes back.
- Partner with or create an accelerator: Pay someone a $1m to invest another $1m into 20 startups. Make a big press announcement. Each is a ‘super-cool’ idea created by a couple of really enthusiastic and clearly intelligent young people with real insight into your business. Two years later, the majority have spent the money and are now trying to raise more to finish building their prototype, or working on developing a new and very different idea. Close it down as quietly as they can.
- Realise that innovation is hard, but needn’t cost the earth: Identify partners that can help their innovation team deliver a pervasive innovation strategy across the whole enterprise. Start creating a culture of innovation that ripples down from the top, is seen as central to the future of the business and part of every senior manager’s remit. Implement a methodology that enables rapid testing of ideas, with technology that already exists, quickly and at low cost against real business issues. Increase the rate and decrease the cost of innovation; learning from, rewarding and yet killing failure early, while doubling down and scaling successes quickly.
And so it’s not until the sixth crucial step that businesses realise the real key to successful innovation: driving this from within the business, and making it the heart and the soul of that business. Step six is when businesses start to uncover truly transformational innovation that will drive the company forward, keep them ahead of competition and defend against external disruption.
Innovation programmes are most successful when they begin with a business objective or problem area from within the core of the business. It’s essential to involve any stakeholders right from the beginning of the project.
The focus should be on getting any potential innovation to trial as quickly as possible – killing what fails and scaling what works. This avoids the risk of “innovation theatre” where plenty of ideas are generated but a company never explores in full how they and an entrepreneur partner could actually work together in practice. Another key learning is that corporates should try and highlight any potential barriers to innovation as quickly as possible, for example data security, procurement or resource – so that these can be overcome quickly.
2018 should see a number of them closing their doors, simply because getting cash into a business to invest in startups that don’t see meteoric success is undeniably difficult!