Success Not a Sure Thing for Startups in Business Incubators or Accelerators

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I am aware that this may be seem like an unusual topic for somebody who works for a business incubator, but it actually fits very much in line with our philosophy at CEI of trying to elevate our industry in any way that we can. The fact is incubators and accelerators must evolve as fast as the entrepreneurs they serve in order to maintain relevance, and it is something that many fail to do. And I won’t be repeating the 87% stat - the number of companies still in operation after 5 years removed from an incubation program - from a study that was conducted nearly two decades ago but continues to be cited as a leading indicator of success. Indeed, the real value of these startup support organizations has yet to be definitively proven.

You may now be asking: What does the research suggest? Let me answer that with specifics.

Personal, professional agendas mar already-inconclusive findings

In addition to the lack of comprehensive studies overall, many have been done by organizations with a vested interest in the industry, e.g. the International Business Innovation Association (inBIA) and the Economic Development Administration (EDA). Similarly, there have been numerous high-profile articles that argue against these programs, but frequently use inconsistent and/or out-of-context data to justify personal beliefs. That is not to say that any of these findings are incorrect or manipulated, but it makes for a hard sell not matter which side you defend. And one cannot deny the fact that there is dearth of scholarly sources on the subject, a point confirmed by the Kauffman Foundation

Some programs have become “glorified office space”

There is no one model for business incubators: some have physical space, while others are completely virtual; some offer investment or capital funds, others take zero equity; some have unique amenities, others are pretty basic in their offerings. Combine that with the increase in overall resources available to entrepreneurs - accelerators have increased to more than 450 by 2015 (Why the Number of Accelerators is Accelerating) and incubators have grown to an estimated 7,500 worldwide (inbia.org) - and the differentiators become very muddy from program to program. And that does not even include the growth of startup competitions (e.g. Startup Weekend), executive mentorship programs, and free business development services - all of which add to the resource confusion faced by most entrepreneurs. Therefore, it is harder for these organizations to compete solely on traditional services such as mentorship and advisement, which makes other auxiliary factors - specifically location - a primary consideration for potential members. With that in mind, they are searching first for startup-capable space and then for additional business resources, and many incubators have thus turned into real-estate plays. In fact, this seems to be supported by numerous researchers.

However, this also poses an opportunity for the dedicated to emerge and enhance the depth to which they service their startups. For example, we have expanded our services to include tactical deliverables, such as basic web development and other auxiliary marketing services. We are also deepening our advisement across our industry verticals in an effort to better prepare our clients for the challenges they will face within their market niche. All of these efforts have helped us establish a better track record with our existing startups and better position them for long term growth and, ultimately, success.

Startups do have improved odds at funding

Across the board, it appears that startups do have a better shot at acquiring capital upon going through an incubator or accelerator, whether it is early stage or VC-level funding. In fact, PitchBook recently noted that ⅓ of US startups that earned venture capital in 2015 went through an accelerator program. Other studies have put the total number at more than $1.5 billion dollars across 2,000 accelerator-enrolled companies. However, it is important to mention that one of the primary characteristics of an accelerator versus an incubator is the equity investment many put into its members upon acceptance and/or after achieving certain milestones. Arizona incubators further reported that their members had raised more than $110 million in private capital to date, which translates to an average of $250,000 per the more-than 400 startups they had cumulatively enrolled. Clearly, most programs realize the importance of business funding and have thus spent enormous time cultivating sustainable networks of investors and investment groups that their members can access.

Incubators and accelerators are not entirely to blame

There are plenty of factors that impact the success of a business, many of which are inherited by the business development team within an incubator or accelerator. The market timing, leadership team, and current fundability of the company all can play a role in its survival. Now some may argue that it is up to the programs themselves to help identify and alter a doomed path, but I contend that none of these resources are miracle workers. For example, we spend a lot of time working on all those areas with our entrepreneurs to make sure they are solid, and it still does not change the fact that a major disruption could arrive at any given time and blow the whole thing up. One of the better studies out there was conducted by Alejandro Amezcua, which explored incubated companies and found a higher failure rate among those who participated in those types of programs versus ones who had not. Although often linked to the incubator itself, he goes on to suggest the possibility that many entrepreneurs had flawed ideas upon entrance and actually learned of the near impossible commercialization and growth path - in other words, failed - through the support of incubators. All of this experiential learning saved them time and money as a result.

Every startup experience is unique; determine your own path

About the only obvious conclusion to draw from the research is that there is nothing clear about starting a business. Every path is going to be unique to the company and the men and women leading it. For some it may be a completely linear path of least resistance from idea to exit; for others, it may require a multitude of external resources and internal pivots. That makes it imperative for the entrepreneurs to set out their own way by gaining an intimate understanding of the availabilities and specifics of regional resources, selecting the right program(s) based on the best information and business need, and maximizing the hell out of their experience once they enroll.

Download our Startup Lifecycle Resource Kit, culled from leading experts, and enhance your odds no matter what stage of development!

Greg Bullock1 Comment