Startup Support Program Fail (except accelerators)
The number of startup support institutions has grown large (it’s the fad); growing into a multi billion dollar business with virtually no accountability or assessment of effectiveness until recently. “Where have all the entrepreneurs gone?” remains the mantra. At a meeting recently, the owner of a startup accelerator stated that his biggest problem was finding entrepreneurs! This blog provides an overview of six previous blogs regarding startup support institution effectiveness in developing entrepreneurs — providing a comprehensive snapshot.
- WHERE HAVE ALL THE ENTREPRENEURS GONE?
- ENTREPRENEUR TRAINING: MINIMAL STARTUP IMPACT!
- ENTREPRENEURSHIP TRAINING IS FAILING — AN OPINION PIECE!
- DO STARTUP SUPPORT INSTITUTIONS WORK?
- INCUBATORS OVERSELL AND UNDER DELIVER!
- STARTUP ACCELERATORS DELIVER RESULTS!
There is great confusion about what is a startup support institution. Ian Hathaway in his March 2016 Harvard Business Review article “What Startup Accelerators Really Do’” has laid out clear characteristics of each. The innovation charity, Nesta, frames startup support institutions differently; dividing them into three broad approaches:
- Growth-driven: (200 – 3,200 programs) dependent on growing the startup as it generates revenue from equity;
- Fee-driven: (4,200+ programs) charge clients member and service fees as well as rent; and
- Independent: (8,300 + programs) supported by sponsors, public funds, and events.
INDEPENDENT PROGRAMS: UNDER DELIVER (click here for reference sources). After noticing how startups have fallen and all the hype surrounding entrepreneurship training, I asked a few simple questions: How many entrepreneurship courses are there? How many students take these courses? And How many companies do they create? To my surprise this data was not readily available. The best data I found was The Princeton Review’s “Top 25 Entrepreneurship: Ugrad”. From this analysis, I was able to GUESS the answers to my questions after I found a list of 243 Colleges and Universities with entrepreneurship courses. I ratioed the Princeton Review data across all universities and colleges to obtain a university/college system-wide number. Of course, these results are on the high side since if the Top 25 list is the best of the best, then the other 219 cannot be equal. However, this process yielded indicative insight to the question: Are these courses making a difference? The answer is “NOT MUCH.”
The average number of company births for the five-year period 2012 through 2016 was approximately 909,000 per year. During that same five-year period the most optimistic number of companies born from University/College entrepreneurship training was approximately 50,000 (10,000/year) or 1.1% of the total companies formed. At this rate entrepreneurship training cannot make a significant impact on new company births.
FEE DRIVEN PROGRAMS OVERSELL AND UNDER DELIVER! (click here for reference sources). This section illustrates that Fee-Driven Programs made up of incubators and co-work spaces also under deliver not based on my opinion but upon the opinion and study of entrepreneurial experts.
- Serial entrepreneur Faisal Hoque in a 2016 article wrote “While most entrepreneurial support programs try to provide tangible benefits – from funding and mentorship to access to investors – they often miss some basics.”
- Cliff Oxford in a 2014 article in Forbes echoes Faisal Hoque’s observations. Cliff wrote …entrepreneur incubators [are] popping up in every alley, valley and country corner in the United States. … Good ideas and good intentions, but here is the deal: folks, they don’t work.”
- An article by Street Entourage The Secret Entourage, Surround Yourself With Success – You Are Who You Hang Out With, drives home why incubators fail. Incubators fail to understand that perceived value was just as important as real value and you should always surround yourself with individuals who have achieved everything you want to eventually achieve. Being surrounded by people who have ‘made it’ is a continuous reminder of how others have done it and it leaves no excuse for you to not do it either.”
Incubators fail in the words of Cliff Oxford “I think the incubators have an implied message that it is OK to be a startup for a good while because you are kind of cool if you are there. In other words, no pressure.”
GROWTH DRIVEN PROGRAMS DELIVER RESULTS (click here for reference sources). This section illustrates that, based on expert assessments, unlike the other two types of institutions, Growth Driven Programs deliver results. Cohen and Hochberg define a startup accelerator as “a fixed-term, cohort-based program, including mentorship and educational components, that culminates in a public pitch event or demo day.” Accelerators provide investors a service through structures and processes that allow investors to make funding decisions, and push “investor-ready” startups further down the pipeline. In so doing, accelerators provide information investors need for diversifying their portfolios of high-potential companies. Graduates from accelerator programs have earned a seal of pre-approval when they present themselves to seed- and early- stage investors.
- According to the Kauffmann Foundation, from 2005 to 2015, 172 U.S. based accelerators invested in more than 5,000 U.S. based startups with a median investment of $100,000. These startups went on to raise $19.5 billion in funding during the same period. Along these lines, Brad Feld Brad Feld, a co-founder of TechStars, a global accelerator program, suggests in an Ian Hathaway article characteristics of strong and problem accelerators.
- GALI working in association with the Global Entrepreneurship Research Network produced a report entitled What’s Working in Startup Acceleration in March 2016 assessed of a number of a priori accepted features of successful accelerators and validated three key widely assumed attributes though others were not validated:
- PARTNER QUALITY IMPROVES PROGRAM PERFORMANCE;
- TIME SPENT ON PROGRAM-RELATED ACTIVITIES LOWERS PROGRAM PERFORMANCE; and
- QUALITY OF THE APPLICANT POOL IMPROVES PROGRAM PERFORMANCE.
In the words of Ian Hathaway of Brookings Institution: “Considering the growth of accelerators in recent years, …evidence is encouraging. By and large, accelerators seem a positive addition to startup ecosystems across the country and the world.”