Over the past few years China has seen the rise of entrepreneurship. Many ambitious students and young entrepreneurs have been taking the risk of starting their own companies and developing their ideas. These startups have boosted the creativity and innovation within the Chinese economy and have pushed companies to improve their products and its sustainability. Nonetheless, more than 87 percent of these newly established companies have failed, so how to reduce this failure? How to help entrepreneurs improve, grow bigger and build a well-structured company for the years to come?
To answer these questions, I will share with you a conversation I had with Eric, an old friend of mine who wanted to help entrepreneurs build their business yet, didn’t know which channel to guide them through.
Eric, is a well-connected business man and an MBA professor at one of the top reputable universities in Tianjin. About a week ago we met for coffee, during our discussion he looked at me and said: “Marwan, many of my students have amazing business ideas that they care to turn into a profitable business, some of them already opened their own companies, yet lack proper guidance, connection and capital to move forward with their business”, he kept silent for few minutes then continued: “I am highly considering putting them in contact with the incubators that I know, …or do you think it is better to help them join an accelerator program?”
It was a sunny day, I asked Eric to finish his coffee and take a walk with me in the park. While walking I told Eric: “there is a lot of similarities yet many important elements that differentiate a business accelerator with a business incubator, before I share any of these things, let me remind you of what you already know.”
Here I reminded Eric of the current situation in China, where the Chinese government as well as many private and public institutions established incubators to support entrepreneurs and encourage young talented people to open their companies.
I told Eric: “The number of incubators has doubled over the past 5 years, with more than 80,000 incubated companies in their facilities as of this year. However, despite this rapid growth many incubators faced massive failure, primarily because of weak internal structure and management performance.”
I proceeded: “unfortunately, most incubators in China rely primarily on renting their facilities, and pay less attention to the important criteria, like: attracting talented people, developing their ideas and helping them get funded.”
At the end of my conversation, Eric shook his head and said: “Yes! You are right, but I know some incubators do provide technical and management know-how, is it the same for accelerator?”
I replied: “As similarities, both incubators and accelerators help firms grow by providing guidance and mentorship, but in slightly different ways and more importantly at different stages in the life of the business. To explain this process in a simpler way, let’s draw an analogy and say that the life of a business is like the life of a human being. There are roughly three major stages of life: childhood, adolescence and adulthood.
Like a father to a child, an incubator provides shelter where the child can feel safe and learn how to walk and talk by offering office space, business skills training, and access to financing and professional networks. The incubator nurtures the business throughout the startup phase and provides all the necessary tools and advice for the business to stand on its own feet.
However, while learning to stand on its own is a great entrepreneurial achievement, the walk through adolescence is often difficult and filled with challenges, and the need for guidance is far from over. As any parent knows, guiding a teenager through adolescence is perhaps the most trying period in that person’s life, as the adolescent gains a sense of self and identity. One major challenge facing most companies who operate on the verge between childhood and adolescence is that sooner or later, they get stuck in the trenches of day-to-day operations, and more often fail to incorporate long-term strategic planning in the development of the business. In such scenario and during this phase, the company may lose track of its unique identity.”
I moved forward with my conversation. “Eric, it is at this critical point in the business life cycle that most incubator programs end, as the firm is technically ready to spread its wings. Nonetheless, the journey towards sustained growth is not nearly finished. Often it becomes necessary to receive advice and guidance from a business accelerator. By means of acceleration services, usually in the form of “acceleration programs”, business accelerators help companies get through adolescence and prepare them to enter adulthood, providing them with strong arms and legs, sound values and a clear mindset for the future. In other words, while incubators help companies stand and walk, accelerators teach companies to run.”
Eric stopped me and said: “okay but what is the process of the accelerator”.
I explained to him saying: “you know incubator programs last for varying durations and include several forms of mentorship and support, and nurture the business for the time it takes for it to get on its feet, sometimes for many years. On the other hand, a business acceleration program usually lasts between 3-6 months. The emphasis of the business accelerator is on rapid growth, and to sort out all organizational, operational, and strategic difficulties that might be facing the business. It can be understood as a holistic business advisory service, often bearing strong resemblance to traditional management consulting practices, but adjusted to fit small and medium sized organizations.”
I went back to an old question Eric mentioned and told him: “In China many incubators do provide office space, the basic knowledge to start a business and sometimes access to technology. However, most incubators lack essential criteria that a business accelerator handles, they lack the capacity to foster rapid growth, to help companies become better and stronger in a shorter period of time, which will in turn attract strong investors and increase the chance of a positive return on investment. Moreover, the accelerator program provide an enormous network effect by connecting you and your students with the right people and by building an innovative community.”
Before I reached my conclusion on this topic I said: “a successful accelerator program, should have the proper program, proper connection to investors and most importantly the proper mentors. Mentors that have years of experience under their belt and mentors who are entrepreneurs. The accelerator program is a new concept especially in China, therefore you need to identify the proper program to work with” I gave him the example of Y Combinator, the top accelerator program in the US, I even told him how they work, what are their mentors and how they were able to turn a small company into a multinational business just like Drophox, and Airbnb”
In conclusion, I told Eric that the choice of incubator and accelerator depends on the business his students are aiming to establish as well as the stage they are into. Personally I consider it is always a good idea to establish a company within an incubator yet in parallel to take part in an accelerator program.