Hussam Ayyad, our Chief Accelerator Officer explains why accelerators fail and shares insights that might help save you a misstep.
Everyone talks about accelerators like they’re unicorn farms, yet unicorns produced by accelerators remain nearly as rare as actual horned horses. Research by CB Insights shows that “60% of corporate accelerators fail within two years, and partnerships result less than 1% of the time”, usually due to misaligned goals, founders lacking the help they need, and corporates going in with misleading expectations.
Accelerators should literally accelerate entrepreneurs to their goals. For such to happen within a corporate accelerator, the corporate partner involved should have a mutual interest in such acceleration. In other words, a deal that creates value for the entrepreneurs should create value for the corporate partner. Otherwise, it’s no longer a deal, and more like a sponsorship. Muddled objectives and poor alignments between stakeholders just create drag. And “beautiful ‘corporate giving back’ stories” don’t last as long as we’d like them to… That is among the reasons why most corporate accelerators fail.
The definition of success from both the startup and corporate perspectives can be fundamentally different. For example, in some cases, a corporate partner’s leadership might want to focus on lagging indicators such as EBITDA or EBITDA contribution when considering a new partnership. On the other hand, startups focus on leading metrics such as customer acquisition cost, customer retention rate, and lifetime value -among many other leading metrics. Both sides are focused on fundamentally different objectives in the near term. However, neither is “wrong” and having different focus does not rule-out the potential to collaborate. Yet, for collaboration –whether through an accelerator or not– to be successful, there should be common points of interest and mutual value creation.
Startups want that credible corporate partner’s logo on their “wall” to establish market credibility. On the other hand, corporate partners realize the critical need for innovation. In fact, according to a survey by McKinsey and Co, 84% of corporate executives ranked innovation as critical to their growth strategy. However, they do realize that jumping into innovation blind by jumping into a “feel good” Accelerator with startups that necessarily don’t solve their innovation challenges is simply not going to fulfill their need. They also realize that no matter how good their internal innovation efforts are, and how generous their budgets are, they cannot build and iterate at the speed a startup can, and they do appreciate that they don’t have a monopoly on the brightest brains in the world and that many of those brains are building new innovations outside of their walls. And that is why, despite all the differences between startups and corporates, the benefits are substantial enough to bring startup-corporate partnerships together.
However, the question remains: How?
How do successful accelerators avoid such pitfalls?
Using Highline Beta as an example, corporate accelerators are built and operated to fill a corporate partners’ needs, and offer the credibility that appeals to founders. Here are some of the key learnings we’ve acquired over the years in evolving our accelerators to create true mutual value:
Dilution can be a key difference.
Many interesting startups don’t want to give up equity just to get into an accelerator, especially those that have been well-established and funded (and such startups, more likely than not, tend to have a stronger ability to partner with corporates). Once a program-for-equity (and little cash) conversation comes up, you lose the interest of such startups; as you should. Otherwise, they’re generous with the equity, and that’s not a promising sign for you as a potential investor. So, to attract partnership-ready startups that can both benefit from and add value to a corporate partnership, don’t take equity from startups upfront. Instead, use the accelerator to perform your working due diligence on the companies and invest for equity where potential lies the most at terms that are mutually favorable. This test-to-invest approach not only offers some derisking to the opportunities considered, but further encourages efforts from both sides to test the viability of a longer term relationship and how strategic it can be.
Focus on executing a tangible deliverable.
Conversations, mentorship, coaching and office hours where you/corporate partners share expertise, are all great avenues that founders and startups appreciate and value. However, they’re not necessarily conducive to solutions to current challenges startups have, nor help startups accelerate from one key milestone to the other. Even if such activities happen to be “the right solution” among other solutions that can support solving some of the startups’ challenges, offering such activities still has to happen within an appropriate and well-defined context. And that is where agreeing on executing some form of a deliverable between startups and corporates becomes crucial, as it helps define clear parameters of an engagement that can be used to ‘test’ the potential of a relationship/partnership, and also clearly defines, how, what, and who will mentor, guide and support the startups. At Highline Beta Pilot Accelerators for example, we focus on executing pilots. In doing so we saw a very high success rate compared to that in the industry. To be concrete in my claim, we have seen over 75% success rate in pilot’s we’ve run vs. the 1% in the industry according to the same study quoted above by CB insights and Kauffman fellows.
Meet the startups halfway by showing that you value their time and work.
What all ambitious startups should have in common in such highly competitive times is the aim to survive, first and foremost. Which means, more importantly they must have the shorter (or longer) term goal of monetization and revenue growth. To that end, and as time is the most scarce resource they have, to increase the likelihood of your accelerator’s success, make sure that their time and work with the corporate partner is compensated in some form.
In the case of Pilots run within Highline Beta Pilot Accelerators, Corporates pay for Pilots executed by startups. Again that will create another avenue to attract startups that are centered and focussed around value creation and who are sensitive about their own resources and best use of time.
Avoid unnecessary hype and innovation theatre.
More than anything, avoid the unnecessary hype. Many accelerators fail because they’re more show than go. Over-hyping expectations without having a concrete plan to execute, or great historical examples to showcase will simply create more harm than good. Having startup founders attracted because of all the bells and whistles and hype, but end up with an ill-suited partnership and no practical resources or support will only harm your reputation in the startup ecosystem. Accelerators should leverage the unique abilities and expertise of their corporate partners to maximize their usefulness to the startups it attracts and maximize the collaboration potential. That in turn maximizes the value created by the startup in return.
To the corporate Innovator: to attract potential “unicorns” to join your accelerator; there’s only one way to do it: Make it a no-brainer for founders to have interest in your program. That can start by building and operating accelerators that take different and bold approaches such as those mentioned above.
To the startup founder/operator: to appeal to a corporate program –of any form, accelerator or other– seeking to partner with startups; there’s only one way to do it, show how your product and offering solves a problem for a corporate partner.
Connect with us anytime to chat about accelerators and how to avoid missteps.