The startup incubator: economic policy panacea or money-pit
Does Y Combinator’s unquestionable success justify using ‘startup incubators’ as the basis for strategic innovation policy?
The world is saying to itself: “Innovation will solve our financial problems. Silicon Valley knows how to do innovation. We need our own Silicon Valley. Silicon Valley does incubators. Look at how successful YCombinator is at incubating successful startups. Let’s do incubators”.
Ironically, if they took a closer look at YCombinator, they would see that it is not a typical incubator. Look closely enough, and you might wonder whether it should rightly be called an incubator at all.
Incubation is for life-forms too vulnerable and weak to survive without life-support. Give a startup a place near a university, little or no rent to pay, free laptops, Wi-fi, phones and electricity, put a bunch of other startups in the same building, offer a bit of investment advice and hey presto! you’ve got yourself your very own YCombinator, with (you hope) a steady stream of exciting new businesses to crow about.
However, rather than take startups who need to be coddled and protected in order to improve their chances, YCombinator instead takes a more Darwinian approach.
It naturally selects startups that have already shown serious ‘survivability prospects’. If anything, it puts them through an even tougher obstacle course than ‘the real world’ to see if they are worth putting more money into. ‘Incubation as we know it’ is not YCombinator’s recipe for success.
Startup industry veteran Vivek Wadhwa has been observing “tech clusters” (the other big idea in ‘innovation facilitation’). His skeptical take on developments in this field shows that governments attempting to copy Silicon Valley (without understanding how to do this effectively) is questionable. My view is that using YCombinator’s success as an argument for ‘conventional startup incubation’ is equally suspect.
“My view is that using YCombinator’s success as an argument for ‘conventional startup incubation’ is equally suspect.”
While I see where you’re going here, care to explain exactly what your argument is exactly?
Good question, Deanos, I think the argument is as follows:
Conventional startup incubation, as a strategy for fostering innovation, has produced disappointing results.
It is a model based upon providing a cosy, relaxed, comfortable and safe environment for startups, in order to protect them from the harsh realities of the commercial world in their early stages.
Whatever the merits of this ‘cotton wool’ approach may be for certain types of startups, it has, up until now, been applied to all those startups ‘fortunate enough’ to be ‘incubated’, whatever kind of product or service they were developing.
The success rates of incubated startups, as revealed by VC investment fund results, are between five and ten percent of startups, but this may be hopelessly optimistic, because many incubated startups are supported by research grant schemes, which neither expect or report ‘returns’ and the survival of the startup is essentially maintained indefinitely as it is propped up by a succession of grants.
This state of affairs is by no means necessarily a bad thing, because it sustains countless small research-based science and engineering projects, but because ‘commercial startups’ are also ‘lumped in together’ with such projects under the banner of ‘incubation’, the ‘life support’ aspect, which is potentially entirely justifiable in the case of scientific research, may be the underlying cause of failure in commercial startups, where this kind of ‘feather-bedding’ may be inappropriate, unhelpful and misguided.
The article seeks to distinguish between the successful application of ‘business model exploration’ and ‘startup founder development’ disciplines at ‘startup accelerators’ and the less than stellar performance of startup incubators, in their role of ‘general purpose innovation facilitators’.
In a purely semantic sense, both terms imply similar things, but in practice, incubators are best for long term scientific research (that perhaps in most cases cannot be ‘accelerated’ at all and does indeed need to be ‘protected’) and accelerators, where the commercial startup can benefit by being ‘sped-up’ (towards being in a condition which would attract the larger scale investment it would need in order to reach its true potential) by the introduction of experience from experts in business, acting as mentors.