In the hothouse
Is an accelerator or an incubator the best springboard for startup success?
Tuesday, February 07 2012 || Features || BY Matt Philp
James Madelin can see the strengths of that argument. In his case, however, he wasn’t faced with a choice of incubator or accelerator, but incubator or nothing. Madelin, whose business Enlight Photo designs photography accessories, incubated his startup at the Icehouse and he’s pleased he did.
“The reality was that we didn’t have any coalface entrepreneurial experience. We’d never launched a product, never had to assess the risk or polish the validation process or that sort of thing. The benefit was priceless.”
Like Clark-Reynolds, he highlights the difference made by the mentor — “a guy who had been there and done that on several continents and had real frontline experience. Having someone like that looking over your shoulder was phenomenal and it played a large part in our success”.
But Madelin also stresses the benefits for a company such as his of being in incubation for two years. “It allowed me to have that type of support throughout the development and, ultimately, the launch of the product. You’re never going to be able to do that in three months, or at least not with hardware. At the time I thought, ‘Two years? We’ll be on the market in eight months.’ The reality is you’re just not.”
It’s a point reinforced by Ken Erskine, the Icehouse’s director of startups. “I’ve run studies on clients who have been through our incubator and, generally, those who have spent 12 months or more are the ones who have gone on to be successful, rather than those who leave in a shorter period. Why? My view is because they get a more consistent level of help and support to stay on track. The challenge with any young entrepreneur is they don’t know what they don’t know.”
That said, he believes any incubator worth its salt should expedite one part of the process: market validation.
Erskine doesn’t dismiss the value of accelerators. He seconds Clark-Reynolds’s point that the two models can be complementary — and that a business might benefit from being in an accelerator at some stage in its lifecycle, an incubator at another moment. “It’s horses for courses,” he says, nominating anything involving a physical product as potentially more suitable for incubation. He points out, too, that accelerators can appeal because they generally involve some pitch to investors.
“Incubators don’t necessarily have that funding piece — although we have an angel group associated with this incubator [the Icehouse]. So one attraction of accelerators is that people know relatively quickly that if their idea is perceived as good they are likely to raise funding that will allow them to take the business to the next level. One challenge, however, is that the earlier you look for funding, the more of your business you have to give away. Generally you’re not in as strong a position as if you’d spent 12 to 18 months working on your idea and having more proof points in the marketplace.”
In other words, we’re back to boiling eggs. “It’s all about getting your timing right.”
Why do we need to make a choice here? What if there is a good match for incubation for some, a good match for acceleration and a good reason for some to select neither? What if start up weekends are an excellent choice for a segment of the entrepreneurs-to-be market? What if it really depends on the business experience of the founders, on their motivation, on the industry, etc. There are many ways to start and if you hear the successful ones talk about how they did it you will find that there is no universal best way. It is the diversity of options and competing models of how we can support start ups that needs to be protected to enable us innovate how we do it. I believe we should do it the Kiwi way, not the UK way. I believe our incubation system is the leanest in the world and that is why people in the industry come to learn from us. I believe that we should not discontinue incubators just because in some other countries they were unable to run them efficiently and came up with a different way.
Posted by Anonymous at 07:44 on February 7, 2012
I suggest that there are many more successful start-up businesses that never use an incubator or accelerator - something companies should consider. Much of what incubators offer are avaliable outside of that mechanism - perhpas slightly harder to co-ordinate but also companies have the option of getting the best people invovled and not just the ones aligned to a particular incubator.
The growth in the accelerator programmes offshore appear to be heavily linked to access to quality investors and investment - that is certainly worth considering. I caution against thinking that the success of these internationally will be replicated in NZ, we do not have the investment resources (people and $$s) required.
Posted by Anonymous at 01:32 on February 7, 2012
You mention that NZ incubators are lean etc. But what is more relevant is what value they have added and how this compares to international experience. I suggest that the data provided out of the Isreal incubator model would tend to support the premise that the NZ system has not performed that well. Maybe under resourced (too lean to be effective).
It is interesting to see that both the Icehouse and Powerhouse have set some fairly big goals for the next few years - does this reflect that they have just got so much better or is it also a reflection that the past 10 years as actually not been that good relative to offshore experience. Perhpas trying to stay in business by saying they will do so much better next time.
Would be interested to see an independent review of the incubator programme. Certainly my experience is that NZTE are never pro-active in managing the money they invest into programmes so this could drag on for years not delivering before anyone bothered to worry.
Posted by Anonymous at 09:38 on February 8, 2012
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