Is Joining a Business Incubator or Accelerator Always a Good Thing?

Business Incubator

Subtitled: Many Concepts  of Incubators  and  Accelerators  

The  research  methodology  section  describes  the  research steps,  the  sources  of empirical  data and  the  type  of data  analysis  to  be  performed.  The  Results  section summarizes some of the negative experiences of entre-preneurs  who  have  been  part  of  business  incubation programs and provides some reflections about the dif-ferences in these experiences  in incubator-like and ac-celerator-like  environments.  

Finally,  the  Conclusion provides  some final  reflections and  summarizes some of  the most  typical  downsides of  being  part of  an  in-cubator or accelerator. Key Insights from the LiteratureAccording  to  Gunter  (2012),  startups  tend  to  be  the most  rapid  job  creators.  Either  startups  move  up  by rapidly expanding their innovation to become economically successful, or  they  rapidly  go  out  of  business. 

Very  often,  startups  develop  radically  innovative products  and,  eventually,  disrupt  existing  markets. However,  startups  who  seek  to  do  things  differently face  several  challenges  and  uncertainties  associated with  the  shaping of  a viable  business model,  reaching out  to  early  buyers,  setting  up  durable  partnerships and  sustainable  operations,  etc.  

To  deal  with  these challenges  and  uncertainties,  startups  usually  benefit from all available resources including  existing  regional and national business incubation programs. Incubation vs accelerators In order  to establish  a successful  business, entrepren-eurs  are  often  looking  for  business  programs  that could help the growth  of their business. In fact, incubators and accelerators are meant to  boost  the success-ful  development  of  newly  created  firms by  increasing the likelihood  of their  survival and growth.  Incubators and accelerators should  enable a  smooth start  and fu-ture  growth  for  startups. 

 However, many  concepts  of incubators  and  accelerators  have  been  put  forward, which  sometimes  confuses  both  scholars  and  practi-tioners. The  original  concept  of  an  incubator  has  changed since the first private incubator was established in New York  in  1959  (Hausberg  &  Korreck, 2018).  Since  then, many  different  forms  of  entrepreneurship  support have emerged, one of which is the accelerator. The first seed accelerator was  Y Combinator in 2005, which  was followed  by TechStars  in  2006. Many  others  have fol-lowed  their  lead, but  Y Combinator  and  TechStars re-main two of the top accelerators in the world today. Such programs are now commonplace, but there  is  still confusion regarding  the  terms incubator  and accelerat-or.  

For  example,  many  startup  programs  that  describe themselves using  the same  term do not  share common characteristics. Thus, in order to make  a  distinction between  these  two terms, it is necessary to answer the following questions:• What does an incubator or accelerator offer?• Who is an incubator or accelerator targeting? Characteristics of an incubatorThe goal of incubators can differ depending on the type. 

There  is,  therefore,  a  distinction  between  the  classic business incubator and a typical accelerator. “Accelerat-ors  usually  are  fixed-term,  cohort-based  programs providing  education,  monitoring,  and  mentoring  to start-up  teams  (usually  not  single  entrepreneurs)  and connecting them with  experienced entrepreneurs,  ven-ture  capitalists,  angel  investors  and  corporate  execut-ives  and  preparing  them  for  public  pitch  events  in which  graduates  pitch  to  potential  investors”  (Haus-berg & Korreck, 2018).

The risks associated with selecting and joining an incub-ator or acceleratorA critical assessment of  the effectiveness of an incubat-or  or accelerator can  guide entrepreneurs  to make  the right  decisions  about  engaging  with  specific  business support  programs.  Many  entrepreneurs  are  novices who  lack competencies, working  capital, and  potential for  funding.  Entrepreneurs  make  decisions  based  on what  they  perceive,  and  startups  often want  to  be ac-cepted into a well-established program without consid-ering  if  it  is  the  right  program  to  be  in.  According  to Bliemel  and  co-authors  (2016),  entrepreneurs  usually apply  to  join  an  accelerator  because  they  need  seed funding,  incubation  services,  and  partnership  net-works. 

They emphasized that, for example, when entre-preneurs  are  only  seeking  mentorship,  an  accelerator program  could be  detrimental to  them since  there are many  risks  associated  with  an  accelerator.  Miller  & Bound (2011) articulated several criticisms of accelerat-or models:•  After graduating  an accelerator,  startups are  still  fra-gile and in need of support.• The equity taken  by accelerators becomes problemat-ic for further funding. Startups fear “Rich guys launch-ing  ‘startup  accelerators’  so  they  can  rip  off  new start-up founders” (Miller & Bound, 2011).• Because of the increasing number of  accelerators and their  tendency to  invest  in  early-stage  firms,  B-grade companies will not receive investment.• “If  accelerators  continue to  grow and start producing thousands of small  companies, we can expect to  see a bottleneck  developing and  in  the  event  of  a  crash in confidence in the sector” (Miller & Bound, 2011).

•  Accelerators  will  become  “startup  schools”  who  will encourage  learning  through  educational  returns rather than building real businesses.

 •  Accelerators build small  companies that  do not  have quite global  ambitions. These  are  companies that  are building something that will become a feature of a lar-ger service, rather than aiming to become a large com-pany in its own right.

•  Accelerators are  making  entrepreneurship so  access-ible that they start draining talent from larger techno-logy firms. Yu  (2015)  argues  that  founders  with  promising  ideas avoid joining  accelerators and instead  choose different ways  of progressing.  For  most of  them,  an accelerator without  a  well-established  value  ecosystem  and  net-work  is worthless. On  the other  hand, the  best startup exit  for  an  accelerator  or  for-profit  incubator  comes when the startup is acquired. In this sense, an accelerat-or is just another type of incubator, whose goal is to in-crease  the  startups’  survival  chances  (Hausberg  & Korreck,  2018).  

But  there remains  a  lot  of  definitional uncertainty.  As  Mian  and  co-authors  (2016)  emphas-ized,  the  definition  of  accelerators  cannot  be  general-ized due to idiosyncrasies  in their  relations  to political, economic, social, and geographic conditions. The summary of the risks associated with the possibility of  startups  joining  business  incubation  programs demonstrates the  need for  more  systematic studies  fo-cusing  on  the potential  downsides of business  incuba-tion  practices.  The  next  section  describes  the methodology  adopted  to  answer  our  initial  research question,  starting with  the hypothesis  that it  is not  al-ways beneficial for new ventures to join business incub-ation programs. Research MethodologyFor this study, we adopted an explorative qualitative re-search  approach  using  multiple  semi-structured  inter-views  with  startup  founders,  complemented  by informal  discussions  with serial  entrepreneurs. 

We  de-signed  the questions  around  issues  related  to some  of the  negative  experiences  of going  through  specific  in-cubation/acceleration  programs and  how  such experi-ences  affected  the  future  of  specific  ventures. 

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