Entrepreneurial accelerators play an increasing role in the launch of new businesses. But do they expedite the development and success of early stage startups?
Do accelerators actually accelerate?
The better ones do, indeed, according to new research by Benjamin Hallen, an assistant professor of management at the University of Washington Foster School of Business.
By comparing the fortunes of similar business startups that develop inside and outside of leading accelerators, Hallen and his co-authors demonstrate that the accelerator ventures reach key milestones—of funding, customer traction and employee growth—more quickly and perform better over time.
The study also indicates that this accelerator effect is most likely a product of learning rather than the prestige or networking that a startup might derive by being selected by a top accelerator.
Ben Hallen is faculty director of the UW Foster School’s new Master of Science in Entrepreneurship (MS Entre), which launches in fall 2017. The 12-month program, offered by the Buerk Center for Entrepreneurship, will develop students’ skills and passion to found and grow new ventures. It’s a fusion of an entrepreneurial MBA curriculum and a state-of-the-art business accelerator—complete with an all-access pass to the region’s entrepreneurial ecosystem—that is designed to the specifications of Hallen’s research.
“The better accelerators work for new ventures by changing the way that entrepreneurs think about their business models, how they’re going to go to market, how they’re going to compete,” Hallen says. “This indirect learning from the experience of mentors and expert speakers helps entrepreneurs correct known and unknown flaws and gaps in their initial business plans and identify unexpected possibilities for improvements.”
Accelerators began appearing about a decade ago with venturesome names like Y Combinator, TechStars, AngelPad, Elevator, Reactor and Fledge.
To date, nearly 6,000 startups have participated in hundreds of accelerator programs worldwide, and collectively raised $13 billion in venture capital funding.
These programs deliver an intensive learning experience for cohorts of early stage entrepreneurs during a brief, intensive period of mentoring, education and networking.
This experience isn’t free. An accelerator typically takes 6 percent equity in the startups it enrolls. And, perhaps more costly, it takes time away from the race to get a new business to market.
Many have wondered whether accelerators are worth the costs. “Are they an opportunity to sharpen the business plan and learn valuable lessons from others’ successes and failures?” asks Hallen, the co-founder of a profitable online newsletter company before embarking on his academic career. “Or do they slow progress, delay experiential learning and overwhelm entrepreneurs with too much information?”
To find out, Hallen teamed with Christopher Bingham of the University of North Carolina and Susan Cohen of University of Richmond. The researchers explored the question with three studies.
The first compared startups accepted by the most prominent accelerators versus startups that were nearly accepted by those the same accelerators—their founders sharing nearly identical qualities and profiles of education, work experience, and prior entrepreneurial experience.
The researchers noted a greater survival rate, faster employee growth, increased venture capital funding and a big bump in web traffic among the businesses that had previously participated in some of the accelerators versus their independent peers.
A second study delved deeper, examining a rich store of public data on a larger sample of established firms that participated in an accelerator versus businesses of a similar profile that developed outside of the accelerator model.
This study confirmed that the businesses in top accelerators forged an expedited path to a variety of key entrepreneurial milestones. It also revealed that accelerator participation can substitute for founder education, but it acts as a complement to many forms of prior founder experience, such as having previously started a company or worked for a firm that produces a lot of startups.
A final study, based on interviews with participants, program directors and mentors of 13 accelerators on four continents, revealed the dos and don’ts of successful accelerators.
By triangulating the three studies, Hallen, Bingham and Cohen found strong evidence that learning from others is the key feature that makes an accelerator work for an early stage venture.
The importance of external advice
Hallen says this conclusion suggests that all entrepreneurs—even those with prior startup experience or deep expertise in their industry—can benefit from the kind of advice offered in the better accelerators. It helps identify flaws in their plans and opportunities they didn’t know existed.
“Even when entrepreneurial ventures pursue novel opportunities,” he adds, “there is still much to be learned from the experiences of others who have pursued different opportunities.”
So, does the world need more accelerators? More good ones, maybe. All accelerators are not created equal. Those positive effects that follow participation in the best accelerators were diminished with less-effective programs.
In a follow-on paper, Cohen, Bingham and Hallen identify several key shared characteristics of the most successful accelerators. These “best practices” include:
- Concentrating consultation – by compressing the mentoring and advising element, accelerators encourage entrepreneurs to synthesize multiple perspectives into lessons they can implement immediately.
- Demanding transparency – this allows a cohort of entrepreneurs to realize they are not in direct competition and facilitates learning from each other.
- Requiring activities – this concept of a comprehensive program of requisites ensures that entrepreneurs don’t miss out on some critical piece of advice or education that they might think they don’t need.
“The best accelerators have a positive effect on a startup, and they’re probably worth the cost—but you really want to find the best ones,” Hallen concludes. “For policy makers and investors, accelerators can have a big, positive impact, but only if they are done right.”
“Do Accelerators Accelerate? The Role of Indirect Learning in New Venture Development” is currently under review.