Five Reasons You Shouldn’t Launch a Startup Accelerator

February 19, 2014

It’s hard not to notice the sudden explosion of accelerator programs, which aim to bring big companies closer to the most disruptive startups in their industry by offering a place to work, some early funding, market insight, and mentorship. At least fifteen companies are now involved in running or supporting accelerator programs, from Deutsche Bank to Volkswagen to Walgreens. (Here’s our comprehensive list.) The most recent program, announced earlier this month, is the Disney Accelerator, designed to attract sorcerer’s apprentices in the media and entertainment space.

Many of the programs are run with support from Boulder-based Techstars. So we were suprised when Techstars vice president Dave Drach — a former Microsoft exec who is responsible for launching these corporate accelerators — told us that there are lots of bad reasons for starting one. We asked him to explain…

I get scads of phone calls and e-mails every week from executives at big companies interested in getting closer to the entrepreneurial world, and considering the possibility of starting an accelerator program. Here is what I tell them: You should probably not do it. And I mean by yourself, with anybody, with Techstars, or with any other organization.

Committing to running an accelerator is a big commitment. It’s a big commitment for your corporation, a big commitment for the entrepreneurs you select, a big commitment for the mentors, and a big commitment for the investors.

These are the five major reasons why your corporation should NOT run a startup accelerator.

  1. I want to understand how startups work and why they are so successful. First of all, startups, typically, are NOT successful. We’ve been extremely focused on supporting startups in every way we can. But even though the failure rate for TechStars ventures is below 12 percent, the industry average is closer to 80 percent. Failure is a key part of the entrepreneurial ethos, so if you aren’t ready to embrace failure, then you shouldn’t be dabbling in the world of accelerators. You need to focus on changing your culture first.
  2. I want my company to be viewed as innovative. You don’t need to commit to running a startup accelerator — a huge investment of resources, money, and time — to achieve this goal. Engaging in your local startup ecosystem will help you understand what disruptive things are happening outside your walls. You can run marketing and branding campaigns that can highlight innovative things happening within your organization, or showcase ways you are working with startups. Starting an accelerator is not the solution here. Also consider the image hit you’ll take if you run one for a year or two and then shut it down.
  3. We want to be a venture capitalist, and put money into promising new ventures. No you don’t. Be very clear on your strategy and how your company intends to grow, whether it’s through acquisitions, OEM deals, distribution partnerships, open innovation programs, crowdsourcing, etc. Get those strategies nailed down first, and then figure out if making strategic investments ought to be a key part of that. It can be hard to attract the right people and start seeing the best deals, and there are many professional investment firms that have been doing it for a very long time. We certainly encourage strategic investing, and we support it with many of our “powered by Techstars” partners like Disney and Kaplan. But figure out the strategy first; don’t dabble as a VC. Even without putting a dollar of capital into startups, you can engage and collaborate with them, and help them pioneer new markets and product categories. In return, they will help you.
  4. We are thinking about our new API platform, or a new product line, and we want entrepreneurs to build things that connect to what we are doing. The challenge with this reason is the word “new.” Leveraging a startup accelerator, an incubator, or just traditional partnering within the startup ecosystem is a good way to get people excited about an API or developer platform — if that platform is fully fleshed-out, has strong support, a committed development team, is agile, and is ready to evolve as fast as the startups will drive them. Startups are high-frequency, high-horsepower, market-driven machines. They won’t wait six months for you to fix something that is not working. A good analogy would be, ‘Let’s try out those new tires we just designed at the Monaco Grand Prix.’ People will get hurt. Don’t do it.
  5. We need the technical innovations that startups can bring us. Some of the most talented technical people I have ever met call large corporate R&D organizations home. So if you are looking for the very best technologists, they may not come from startups. Technologists, hackers, and coders who work for startups are scrappy, innovative, and agile. If you have not already adopted agile techniques and lean startup methodologies, engage a team like the Lean Startup Machine and get trained. That is much better than running your own accelerator — and more scalable throughout your organization as well.

These days I often get into conversations with corporate executives and with founders that leave me with the feeling that the two groups are totally fascinated with each other right now. Startup founders are fascinated by the reach and resources that the corporates have. Corporate executives are fascinated with the passion and speed of the startups.

But before you decide to move in together — and actually house startups in your offices with an accelerator program — why not spend some time dating and introducing the families first? There are no barriers to engaging with the startup world. There are Startup Weekends, hackathons, meetups, Founder Institute, Techstars, demo days run by other accelerator programs and universities, etc. Walk out your door and see what’s happening and get a feel for the scene. Do some mentoring at an existing program for entrepreneurs. Invite startups to your company’s Innovation Day to showcase what they’re working on. See whether there are business unit executives or others in your organization who will join you, and see if the interactions start to spark ideas and create momentum.

When you have determined the culture is ready, the commitment level is there, and you understand how both your organization and the startups can benefit — that’s when to seriously consider running your own accelerator.