Avoid Stagnation: Acceleration Trumps Incubation




More posts from Contributor

Editor’s note: Bill Aulet is the managing director of the Martin Trust Center for MIT Entrepreneurship and a senior lecturer at the MIT Sloan School of Management. He is the author of the recently released book, Disciplined Entrepreneurship: 24 Steps to a Successful Startup

Interest in startup accelerators and incubators has exploded in the past several years, but how effective have they been? One thing that has become clear is that “incubator” and “accelerator” refer to two very different models for startup workspaces, and the distinctions may have significant effects on startup success.

The key distinctions between incubators and accelerators are time period and structure. An incubator gives startups workspace and community at an affordable rate for an indefinite time period. Accelerators generally have workspace and a cohort that forms a community. They are run over a fixed time period with some significant degree of structure with regard to education and coaching. Accelerators are also capped by a demo day after which startups have to make it on their own, without further subsidy from the accelerator.

While the business incubator concept has been practiced in the U.S. since 1959, it has only been since 2005 that accelerators have become an alternative, and their rapid ascent in popularity over the past decade has been striking.

Y Combinator and TechStars are the two most well-known and successful examples of the accelerator model. But seemingly every day, they are joined by new industry, regional or corporate implementations of this approach. Universities, like MIT, have taken notice in the strong interest from its students in such programs and while there were strong and varying feelings about the efficacy of each model, there was little concrete data to validate the assertions being made.

So it was with great interest that I got to see the difference firsthand through two programs MIT ran for its student entrepreneurs during the summer of 2012, one using an accelerator model and the other an incubator model. Running proper experiments on startup education is hard, but through a series of accidental but fortuitous events, the teams selected for the programs were similar enough that we can draw conclusions about the programs by comparing their levels of success.

Accelerator Vs. Incubator

The accelerator, called the MIT Founders’ Skills Accelerator, or FSA, (now the MIT Global Founders’ Skills Accelerator, or GFSA), was announced in the spring of 2012 and attracted 129 applications for 10 spots. As a result of the extraordinary demand, the applicant teams were of such a high quality that we had a deep pool of qualified candidates beyond the 10 we could accept for the student accelerator program. As a result, we were able to procure space for a student-led incubator, called the Beehive Cooperative. Since the caliber of the FSA and Beehive teams were very similar, it significantly lessened the “selection bias,” which suggests that FSA teams would have stronger outcomes because they were stronger teams to begin with. In all, some 40 teams participated in the Beehive that summer.

Each program had dedicated workspace in its own location, and participants quickly built strong communities that were fostered by the program leadership. The difference came in the educational structure.

The FSA put teams through twice-weekly seminars, countless individual meetings with mentors, and monthly “board meetings” that held teams accountable to the milestones they set at the beginning of the summer. Teams could earn up to $20,000 by meeting the milestones. By contrast, the Beehive offered occasional guest speakers, but otherwise participants had to take the initiative to schedule meetings with our center’s mentors.

The results proved informative for how we design programs to support student entrepreneurs. We expected to see both groups make good progress because they would receive lots of encouragement from the peers in their community, and the dedicated workspace would allow them to focus better. FSA teams would probably do better with the more high-touch support, but with so many strong Beehive teams, we expected some level of improvement across the board.

However, while some Beehive teams did achieve success, the overall rate was much lower than the accelerator teams. The rate of progress was noticeably lower as was the drive to get their team to achieve “escape velocity” – our term for being a strong enough team to move out of the “MIT bubble” and establish itself as a standalone company.

An unexpected side effect of the Beehive was that teams did not want to leave the community they had built. The very social bonds and support that created such positive effects also had the negative effect of creating an environment that was too comfortable. The image of an incubator as a warm comfortable place to hatch eggs comes to mind and starts to haunt us. Fortunately for us, we had two forcing functions – many of the students were on the verge of graduating, and the extra space we had for the program was temporary due to an impending renovation of the building.

Does that mean that the Beehive experiment was a failure? Absolutely not. But while we would enthusiastically do it again, we would redesign the program. What made the difference between these two programs, and how specifically would we redesign the Beehive program to be more effective? A lot of it boils down to a simple chart:

 Bill Aulet

Teams participating in the Beehive tended to follow line A on the graph, in which they made initial progress but stagnated over time. By contrast, teams participating in the FSA underwent several forcing functions throughout the program. Within the first 30 days, they put their ideas (and teams) to rigorous testing, so that by the end of the month (“t1” on the graph), they either had to show they were on the path to great success (line B), or they had to scrap or significantly revise their idea (line C). The individual components of their business were regularly scrutinized, as well.

Now, you may say, “Of course line B is the goal, but it’s hard to achieve. Isn’t the moderate success of line A better than the failure of line C?”

The answer is an emphatic NO! Companies following the path of line A are the “barely living.” Their rate of progress has slowed to near-zero – significantly less progress than they could make doing something else, both for the entrepreneur’s benefit and society’s benefit. As the rate of progress slows, the entrepreneur’s rate of learning slows, making them less-prepared for tackling the challenges of future startups. The startup will last only as long as the money does, if the entrepreneur doesn’t lose interest first.

By contrast, companies that follow the path of line C don’t waste time and money doing something that doesn’t work. In failing, they learn a lot about how to improve. They are ultimately on a better path to end up on line B with a successful company. Some may even decide, after enough line C failures, that they do not want to pursue entrepreneurship, giving them the opportunity to establish a career years earlier than the stagnant startup stuck on line A.

Therefore, a well-designed accelerator will force its participants onto either line B or line C by default, preventing or at least dramatically reducing the occurrence of line A. And we found in the FSA that teams that followed line C were able to quickly retool and establish strong businesses along line B.

An example is Loci Controls, which started out as an idea involving network-connected solar panels. A few weeks into the FSA, they saw major shortcomings both with the idea and the composition of their team. They added a team member and began exploring turning landfill gas into energy. They have seen a lot of success, and were just funded by CommonAngels. A second example, from our 2013 GFSA class, started with a very specific medical idea, and realized within two weeks under the pressure of the GFSA that they were not on line B. They regrouped and developed a new venture, ImSlide, around power line de-icing that was much more successful for them.

In these two cases in particular, the defined time period, hands-on mentoring, and uncompromising board-meeting sessions resulted in hard decisions being made sooner rather than later, with no option to choose a “comfortable state.”

Our experience with the Beehive is in line with other data about incubators. Dane Stangler, the vice president of research and policy at the Kauffman Foundation, reports that “Multiple studies have shown that incubators don’t work and, worse, they frequently subsidize companies that would otherwise fail. One report suggested that 90 percent of public and private incubators in the U.S. were ineffective. True, there are a handful of successful incubators, but incubators suffer from a design flaw: they are more often about real estate than entrepreneurship.”

As for accelerators, the data is not in yet, but MIT’s experience is encouraging. One key question to consider is whether the success of teams coming out of accelerators is due to the accelerator’s ability to attract and select great teams (sorting or selection value) or to the actual added value created in the program (added value). MIT professor Yael Hochberg pointed me to a study done by Columbia professor Morten Sorensen that showed in venture capital deals that 60 percent of the value created is based on selection value, and only 40 percent is added after the selection.

Our FSA/Beehive experiment reduced the selection bias as much as possible, and we were still able to see a significant improvement from teams in the acceleration model versus teams in the incubator model. It makes sense to me that when a team is forced out of its comfort zone, it will rise to the occasion far more than a comfortable team; it is why I channel Eleanor Roosevelt and tell teams “to do something every day that scares the daylights out of you” if they want to be great.

We will certainly do a program similar to the Beehive in the future, because the number of MIT student entrepreneurs is vastly more than the FSA’s super-high-touch model can support. But we will make it more of an accelerator than an incubator, incorporating lots of time-defined forcing functions and a more hands-on mentorship approach. This has also influenced how we design the accelerator program going forward. An overview of our continually evolving accelerator program is available online.

We hope this insight can also help future programs elsewhere to be better designed and for entrepreneurs to understand the strengths and weaknesses of each. “Incubator” and “co-working” spaces (which, due to the great economies of scale they provide startups, often resemble incubators in function) can have a positive role in a robust entrepreneurial ecosystem, but their limitations should be known and carefully considered.

Programs can and must be thoughtfully designed to avoid stagnation and instead provide a positive impact on entrepreneurial growth. This experience reminds us that “comfort” is a word that negatively correlates with great innovation and entrepreneurship.

Lead image from Shutterstock

More TechCrunch


After Apple loosened its App Store guidelines to permit game emulators, the retro game emulator Delta — an app 10 years in the making — hit the top of the…

Adobe comes after indie game emulator Delta for copying its logo

Meta is once again taking on its competitors by developing a feature that borrows concepts from others — in this case, BeReal and Snapchat. The company is developing a feature…

Meta’s latest experiment borrows from BeReal’s and Snapchat’s core ideas

Welcome to Startups Weekly! We’ve been drowning in AI news this week, with Google’s I/O setting the pace. And Elon Musk rages against the machine.

Startups Weekly: It’s the dawning of the age of AI — plus,  Musk is raging against the machine

IndieBio’s Bay Area incubator is about to debut its 15th cohort of biotech startups. We took special note of a few, which were making some major, bordering on ludicrous, claims…

IndieBio’s SF incubator lineup is making some wild biotech promises

YouTube TV has announced that its multiview feature for watching four streams at once is now available on Android phones and tablets. The Android launch comes two months after YouTube…

YouTube TV’s ‘multiview’ feature is now available on Android phones and tablets

Featured Article

Two Santa Cruz students uncover security bug that could let millions do their laundry for free

CSC ServiceWorks provides laundry machines to thousands of residential homes and universities, but the company ignored requests to fix a security bug.

11 hours ago
Two Santa Cruz students uncover security bug that could let millions do their laundry for free

OpenAI’s Superalignment team, responsible for developing ways to govern and steer “superintelligent” AI systems, was promised 20% of the company’s compute resources, according to a person from that team. But…

OpenAI created a team to control ‘superintelligent’ AI — then let it wither, source says

TechCrunch Disrupt 2024 is just around the corner, and the buzz is palpable. But what if we told you there’s a chance for you to not just attend, but also…

Harness the TechCrunch Effect: Host a Side Event at Disrupt 2024

Decks are all about telling a compelling story and Goodcarbon does a good job on that front. But there’s important information missing too.

Pitch Deck Teardown: Goodcarbon’s $5.5M seed deck

Slack is making it difficult for its customers if they want the company to stop using its data for model training.

Slack under attack over sneaky AI training policy

A Texas-based company that provides health insurance and benefit plans disclosed a data breach affecting almost 2.5 million people, some of whom had their Social Security number stolen. WebTPA said…

Healthcare company WebTPA discloses breach affecting 2.5 million people

Featured Article

Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Microsoft won’t be facing antitrust scrutiny in the U.K. over its recent investment into French AI startup Mistral AI.

12 hours ago
Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Ember has partnered with HSBC in the U.K. so that the bank’s business customers can access Ember’s services from their online accounts.

Embedded finance is still trendy as accounting automation startup Ember partners with HSBC UK

Kudos uses AI to figure out consumer spending habits so it can then provide more personalized financial advice, like maximizing rewards and utilizing credit effectively.

Kudos lands $10M for an AI smart wallet that picks the best credit card for purchases

The EU’s warning comes after Microsoft failed to respond to a legally binding request for information that focused on its generative AI tools.

EU warns Microsoft it could be fined billions over missing GenAI risk info

The prospects for troubled banking-as-a-service startup Synapse have gone from bad to worse this week after a United States Trustee filed an emergency motion on Wednesday.  The trustee is asking…

A US Trustee wants troubled fintech Synapse to be liquidated via Chapter 7 bankruptcy, cites ‘gross mismanagement’

U.K.-based Seraphim Space is spinning up its 13th accelerator program, with nine participating companies working on a range of tech from propulsion to in-space manufacturing and space situational awareness. The…

Seraphim’s latest space accelerator welcomes nine companies

OpenAI has reached a deal with Reddit to use the social news site’s data for training AI models. In a blog post on OpenAI’s press relations site, the company said…

OpenAI inks deal to train AI on Reddit data

X users will now be able to discover posts from new Communities that are trending directly from an Explore tab within the section.

X pushes more users to Communities

For Mark Zuckerberg’s 40th birthday, his wife got him a photoshoot. Zuckerberg gives the camera a sly smile as he sits amid a carefully crafted re-creation of his childhood bedroom.…

Mark Zuckerberg’s makeover: Midlife crisis or carefully crafted rebrand?

Strava announced a slew of features, including AI to weed out leaderboard cheats, a new ‘family’ subscription plan, dark mode and more.

Strava taps AI to weed out leaderboard cheats, unveils ‘family’ plan, dark mode and more

We all fall down sometimes. Astronauts are no exception. You need to be in peak physical condition for space travel, but bulky space suits and lower gravity levels can be…

Astronauts fall over. Robotic limbs can help them back up.

Microsoft will launch its custom Cobalt 100 chips to customers as a public preview at its Build conference next week, TechCrunch has learned. In an analyst briefing ahead of Build,…

Microsoft’s custom Cobalt chips will come to Azure next week

What a wild week for transportation news! It was a smorgasbord of news that seemed to touch every sector and theme in transportation.

Tesla keeps cutting jobs and the feds probe Waymo

Sony Music Group has sent letters to more than 700 tech companies and music streaming services to warn them not to use its music to train AI without explicit permission.…

Sony Music warns tech companies over ‘unauthorized’ use of its content to train AI

Winston Chi, Butter’s founder and CEO, told TechCrunch that “most parties, including our investors and us, are making money” from the exit.

GrubMarket buys Butter to give its food distribution tech an AI boost

The investor lawsuit is related to Bolt securing a $30 million personal loan to Ryan Breslow, which was later defaulted on.

Bolt founder Ryan Breslow wants to settle an investor lawsuit by returning $37 million worth of shares

Meta, the parent company of Facebook, launched an enterprise version of the prominent social network in 2015. It always seemed like a stretch for a company built on a consumer…

With the end of Workplace, it’s fair to wonder if Meta was ever serious about the enterprise

X, formerly Twitter, turned TweetDeck into X Pro and pushed it behind a paywall. But there is a new column-based social media tool in town, and it’s from Instagram Threads.…

Meta Threads is testing pinned columns on the web, similar to the old TweetDeck

As part of 2024’s Accessibility Awareness Day, Google is showing off some updates to Android that should be useful to folks with mobility or vision impairments. Project Gameface allows gamers…

Google expands hands-free and eyes-free interfaces on Android