Why Accelerators Are ‘Graduating’ Entrepreneurs Who Fail To Get Funding

There is a notion of ‘graduation’ in incubators and accelerators that I find amusing.

Entrepreneurs are often expected to ‘graduate’ after 3-months.

Let’s explore what this means …

Out of the over 7,500 incubators and accelerators around the world, most consider ‘funding’ as the key success metric.

As I pointed out in my Harvard Business Review article, The Problem With Incubators and How To Solve Them:

Most incubators use funding as a success metric, which is a somewhat flawed criterion. Over 99% of companies should operate as organically grown, self-sustaining businesses — bootstrapped, without external financing. For them the goal is to achieve customer validation, not financing. Yet if the incubator uses financing as its success metric, it will try to force inexperienced entrepreneurs into an unnecessary financing round. And more often than not, they will fail.

So if graduation isn’t funding, what is it?

Indeed, as I investigated why incubators fail, I was astounded to find that many incubators assume that cheap real estate, co-working spaces, used furniture, plus a phone and Internet connection equate with business incubation. Jim Flowers, president of the Virginia Business Incubation Association, says, “They mistake cheap floor space for meaningful program content.”

Well, it isn’t. Neither are discounted legal services, accounting, or other kinds of commodity services.

Two things determine whether a business can get off the ground successfully and sustainably: a validated market opportunity with customers willing to pay for a product or a service; and a product or service that addresses such an opportunity. The only incubators I consider “real” are the ones that help entrepreneurs achieve these two goals.

The only “next level” worth getting to for a start-up is a validated business idea that has the endorsement of reference customers, and a product that caters to their needs. The rest — an office, legal documents, QuickBook files — don’t build valuation or business value. The benchmark incubators should be measuring themselves against is simply their success in helping clients validate businesses, gain reference customers, and complete at least a minimum viable product.

Hence, incubators and accelerators would do themselves a great favor if they clarify to their audience that graduation does not mean getting funded, but rather getting to a validated business idea.

That way, they would not set themselves and their portfolio companies up for failure.

That then brings us to a bigger issue to address: you cannot actually validate a business in three months. It takes 6-, 9-, 12-, 18-months to validate a business.

So graduating startups from accelerators in three months itself is a flawed concept.

Disclosure: 1M/1M, the first and only global virtual incubator/accelerator in the world (HQ’d in Silicon Valley) has no concept of graduation. We have entrepreneurs in the program for as long as they need help in putting one foot before the other, often, many years. It takes several years of consistent hard work to get a business to a sustainable level.

Photo: Thierry Gregorius/Flickr.