accelerators

Corporate Accelerators Are An Oxymoron

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Building a corporate accelerator is certainly in vogue these days. Wells Fargo launched a new accelerator program last week targeting financial services startups and has already unveiled its first class of three participants. The program follows the general recipe these days for corporate accelerators, providing some cash, mentoring, and networking to young startups interested in the industry.

Wells Fargo is hardly the only company building programs for startups. The top-tier accelerator TechStars has helped several corporations develop their own accelerator programs, including Disney, Microsoft, Barclays, and Sprint. Other companies like Citrix, Pearson, Samsung, and Volkswagen have also joined this movement in recent years with their own programs.

It’s certainly a positive sign that corporations are becoming more interested in startups and seem willing to provide capital and time to new ventures. Help should always be welcomed in the startup ecosystem, and these corporations have an opportunity to bring a lot of resources to startups grappling with complex product and business issues.

But I think we also need to be cautious about the growing prevalence of these types of corporate welfare programs and how they can affect the development of startups as a whole. Unlike traditional accelerators, these programs have to meet the needs of corporate objectives, and thus, they have the potential to deeply influence what innovations succeed — and which ones do not.

Perhaps nowhere is this conflict more pronounced than in the development of “design customers” early in a startup’s life. One of the most important functions of early-stage investors and advisers is to help make customer introductions for startups once they have built a minimum-viable product. Since many founders begin with engineering and product backgrounds, they often lack the key network contacts needed to get early sales traction and critical product feedback. Corporate accelerators ostensibly help close that gap by providing early guidance and networking.

While that may give startups an early “in” at one company, it creates significant signaling problems for startups. What happens if a startup’s corporate sponsor doesn’t end up becoming an early customer? Much like an early-stage investor that doesn’t follow-on to further rounds of financing, if a corporate accelerator doesn’t buy the products of its startups, other customers are going to perceive this negatively.

Furthermore, since these accelerators are not neutral, there is a real risk that competitors won’t even engage with startups that come out of rival programs. That may not be much of a risk today when one or two accelerators exist in an industry and there is a well of goodwill to draw from. But when these accelerators spread throughout the Fortune 500 in the coming years, it is inevitable that companies will favor startups from their own accelerators.

Beyond the challenges of signaling though, there is a more fundamental issue of mindset. The guidance from these programs comes predominantly (or in some cases, entirely) from one source: the corporation sponsoring the program. As TechCrunch’s Cat Zakrzewski wrote last week, “Through the accelerator program, Wells Fargo will help the companies develop the infrastructure they need to accommodate hurdles that might arise across the bank.”

I am sure some of those lessons are generalizable across the industry, but there is also going to be a heavy amount of company-specific knowledge that is transferred. Despite their best intentions, when a group of advisers come from a single place, it limits the ability of founders to get the broadest product feedback needed for success.

That particularism deeply undermines the fundamental value of building a new business in the first place. The goal of a startup is to build a scalable solution to a general problem facing an industry, not a fitted solution to one company’s challenges. Indeed, one of the toughest jobs of an entrepreneur early on is maintaining focus on evolving a product rather than turning into a services business that offers specific features for certain customers.

That pernicious influence also changes the way that founders perceive their space. There is a value to the initial naivety of starting a new business, since it is often their ignorance about a problem that allows founders to experiment with solutions that others have already written off. Being mentored by experts may liberate a founder from the fear of the unknown, but at the cost of a process of discovery and feedback that may well be the road to success.

All this might be ok if the incentives between corporations and startups were aligned. But they are not. I have always believed that if you are going to do an accelerator program, you want that program to operate off returns to equity. The calculation is simple — the point of an accelerator is to learn how to massively grow your business (hence the name). If the accelerator’s profits come from its startups performing well, then there is a clear alignment of goals.

While most corporate-sponsored accelerators provide capital to their participants, they rarely take actual equity stakes, and in fact often advertise that as a feature of the accelerator. For the company, the value of these programs lies in connecting their workforce to new ideas, while also convincing the next generation of startups to build their products for their use cases. That’s not what startups need.

Obviously, these corporate programs are young, and their influence on the startup ecosystem today is relatively minimal. But what happens when they expand from a handful of startups per batch to a dozen or more? Will acquiring your first customers one day require a stint at that company’s accelerator?

For corporations eager to engage with startups and play a positive role in the ecosystem, I think there are two directions to consider. The first is to develop more neutral, industry-wide accelerators that allow startups to connect with multiple potential customers and points-of-view. New innovation should not be locked down in a single corporate office (whether contractually or intellectually), but should be allowed time to germinate and mature without the dictates of a single corporation’s politics. Some examples of these models include Rock Health for the health industry and Imagine K12 in the education technology market.

The other direction for corporations to consider would be to spend less time on particulars of a specific product, and more on a generalizable skill set. This is the model of The Brandery, an accelerator based in Cincinnati that focuses on building highly engaging consumer brands. While deeply connected to Procter & Gamble (whose headquarters is in the city and where many of the program’s mentors comes from), the accelerator is focused on marketing skills useful outside of the specific P&G relationship.

Ultimately, the goal of startups is to be a little subversive, and improve the world in ways not previously foreseen. Corporate accelerator programs have the ability to connect founders to interesting networks of customers, but they also have the potential to deeply harm the early product thinking of entrepreneurs. Care is needed to ensure that these programs are accelerating startups, and not the corporations themselves.

Image by Tristan Schmurr used under a Creative Commons 2.0 license.