“Differences Between Accelerators and Incubators”

There is great interest in venture creation these days and many are wondering about the opportunities and differences between accelerators and incubators.  Let me share some recent history and some specific comparisons from my direct experience.

The new generation of accelerators was spurred on by the USA President’s “Start Up America” initiative a few years ago when he called upon Michael Dell, the Kaufman Foundation, TechStars and others, and asked them to replicating their efforts across the country. The goal was to stimulate start-ups to help the economy based on the understanding that two-thirds of all new jobs in the USA are created by small businesses.

Other players, the Angels and Venture Capitalists (VCs), who earn money from financing successful novel and risky technologies and business models, view accelerator programs as an answer to addressing the constant challenge of the VC system – which is how to find and effectively evaluate the most innovative and promising teams and technologies.

In places like New York City, Mayor Bloomberg and the Angel and VC communities support the accelerator concept as one method to ramp up innovation across NYC’s fashion, media, finance and other sectors and to position the City to compete head to head with the long standing venture creation ecosystems of Silicon Valley, CA and Boston, MA.

In the past 18 months the buzz and momentum for accelerator programs in NYC and across the country has exploded – with some franchises expanding globally.  It is an extremely exciting era – again!

So now, here is my view of the key differences between Accelerators and Incubators:

ACCELERATORS:

  • Mostly private, profit-driven, and private equity/venture capital owned
  • Offer short term programs of about 90 days
  • Each program has few participants (typically 10 to 12 teams/companies)
  • A few participants may have funding before they start the program, but most participants do not have funding when they start
  • Offer cash (equity) for ownership in amounts of between US$6,000 to US$30,000 for equity ownership of between 4% to 10%
  • Most suitable for IT, web, mobile businesses; emphasis is on building an app  or prototype during the program; not necessarily to build a full business model
  • Programs end with a demo day (the big test)
  • After demo day – participants are out in the street (since only temporary space provided) but some programs continue to support alumni by introductions and with an accelerator alumni network – though activity levels and value vary by organization
  • Most accelerators have a few lead service providers (sponsors) along with the sponsoring angels/VCS who have first pick of the talent and ventures
  • Most have a list of mentors prepared by the Accelerator– who may or may not be investors, and who are matched up and then accepted, or not, by each participating venture based on fit, etc.
  • Mentors are usually not compensated during the accelerator program
  • Accelerators are criticized by some entrepreneurs for low valuation (example: $20,000 for 10% share = $200, 000 valuation – post money)

INCUBATORS:

  • Most are university or government agency run* (though some private sector models exist)
  • Driver is economic development by Economic Development Agencies (for job creation benefit) or else technology transfer driven by Universities (for licensing revenue benefit) and the federal government agencies (about 700 in the US Federal Lab Consortium for Tech Transfer)
  • Allow “slow development” incubation, and multi-year approach for technology commercialization
  • EDA and University models usually offer a three (3) year tenancy/lease – though some tenants stay longer, if vacancy at the location,  progress or other factors
  • Usually suitable for highly engineered product or technology that requires long term R&D (5 to 20 years) and are capital intensive (i.e. life sciences, medical devices, engineered product or system, energy solution, etc.)
  • Services and programs are typically provided by outside service providers on behalf of the incubator– some on paid basis, and some on pro bono basis
  • Offer some introductions and guidance for transition from incubator to new location
  • Criticized for being real estate driven

In my opinion the verdict is out about which model is the most successful for creating venture value. I predict a new model will emerge soon to displace both incubators and accelerators as they now exist. Until then I encourage entrepreneurs and investors to continue the beneficial community building through networking, meetups, incubator activities and accelerator programs. Through such cross-pollination we will inevitably create the next iteration.

I would love to hear your observations in the comments section.

Onward and upward!

© Strategy Dynamix, LLC All Rights Reserved

About the Author
Sylvester (Syl) Di Diego, Managing Partner, Strategy Dynamix, LLC is a  venture consultant  He has assisted hundreds of entrepreneurs and investors to successfully navigate the venture growth lifecycle. Syl also provides services through Incubators and Accelerators to their tenants and participants, managed an incubator fund, worked in an accelerator and is active forming new accelerators. Learn more about Syl and connect with him at http://www.strategydynamix.com/aboutus/executives.php.

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12 Ways to Avoid ‘Dead Weight’ Founders and Partners

For various reasons start up ventures often end up with ‘Dead Weight’ Founders and Partners. These are people with misaligned expectations from yours who often become an energy zapper and in the worst cases become an obstacle to technology development, capital raising, strategic alliance formation, etc. In my last article I advised you to “Dump Dead Weight’ Founders and Partners Overboard”. In this article I offer my recommendations about how to avoid taking on ‘dead weight’ founders and partners. Here we go.

1,  Recruit people to help with your venture in an intentional manner.

2. Address expectations about contributions, compensation, etc. from the initial point of involvement.

3. Hold discussions with each person in a scheduled and formal manner – not just at the bar or in the car.

4. Start documenting discussions and mutual understandings early on. And continue this practice.

5. Clarify roles and compensation understandings according to each area of contribution by a person.  It is ok to have one person serve in several roles, but you should delineate different compensation schemes for each distinct role – for example, programming (fee based) and sales (fee plus commission).

6. Establish goals and performance metrics for each person and each role as soon as practical.

7. Consider offering consulting roles or deferred compensation in lieu of offering equity shares or expectations of employment early on.  When long-term involvement becomes mutually desirable, then, and only then, move on to consider other compensation arrangements with each person– such as salary, profit sharing, stock options or equity share.

8. Describe the conceptual business understanding of functional roles, responsibilities and associated compensation in a general non-binding memorandum before meeting with attorneys. This saves time and money with attorneys.

9. Clarify ownership and equity expectations carefully (and from a long term perspective) and then formalize the understanding with legal documentation and mutual sign off.

10. Revisit roles and compensation arrangements with each person whenever appropriate, as the venture evolves, and document any changes.

11. As you add people to your team you need to balance the overall scheme of roles, responsibilities and compensation on a relative basis by considering the entire team as well as future roles to be filled at the company.

12. Engage a venture consultant or HR consultant who deals with start-ups and ramp-ups and who can guide you with workforce planning, role definitions, expectations setting, compensation approaches and other issues.

By following the above best practices you will be able to avoid many situations which might otherwise result in “Dead Weight” founders and partners. Instead, you will be able to focus your energy and mindshare on technology and product development, gaining customers, etc. – all in a more positive working environment. And there will be clarity for all stakeholders to more smoothly move through transition stages and grow your venture.

© Strategy Dynamix, LLC All Rights Reserved

About the Author
Sylvester (Syl) Di Diego, Managing Partner, Strategy Dynamix, LLC is a venture accelerator and venture consultant who has assisted hundreds of entrepreneurs and investors to successfully navigate the venture growth lifecycle and to ReDesign, RePosition, ReLaunch and to Scale technologies, products, services and businesses. Learn more about Syl and connect with him at http://www.strategydynamix.com/aboutus/executives.php

Dump “Dead Weight” Founders and Partners Overboard

Too many ventures are burdened by ‘dead weight’ founders and partners. This can seriously sap momentum and even kill a deal for a strategic alliance or for venture capital. If this is happening to your venture then take control today to clean up any tangled messes among partners, no matter what the cost, or else pay the price.

Often a VC or strategic partner is interested in moving forward, but a range of unresolved issues among people involved with the venture are now stumbling blocks to doing a deal – or even to finishing due diligence. These might be misunderstandings, misaligned expectations, or outright disputes about roles, contributions, equity shares or technology ownership.

How Does One Find Themselves in a Founder/Partner Quagmire?
Typically a start up venture has a champion who enrolls their friends, family or other associates to help at the early stage of a venture when the entrepreneur has no resources. Associates offer to help out for various reasons – perhaps out of friendship, or they may have keen interest in the app, technology, product or service. Others have hopes to snag an official role in the venture as it grows and hope to win a big payout if things go well.

The entrepreneur’s motives are usually much simpler and short term. Struggling to develop a product or launch a company, the entrepreneur looks around to pull in any breathing person who can relieve some of the stress to help get 100 things done at once. With little or no money, entrepreneurs respond openly to friends’ and associates’ offers to help with a bit of code, prepare some branding materials or to make a few sales introductions. But all this is often done in a vague manner with very little clarification of expectations or responsibilities and most often with no documentation. This is especially becoming harder to manage as entrepreneurs work at incubators, accelerators and co-working spaces where the thrill of cross-pollination is enjoyed on a personal level, but which may launch the venture into perilous waters in terms of the entity’s corporate interests.

Take Control of Your Venture’s Destiny
As the venture champion, you are the captain of the ship. You must intentionally chart the course, design the team and draw upon experienced start up advisors in order to define and navigate your venture to a desirable destination. Bring clarity to the ownership and management of the venture as soon as possible. By addressing partner confusion you will set the stage for renewed energy and momentum for developing the technology and business. And you will also be able to meet new strategic partners and potential investors with confidence. Finally, you will have smoother exits when the time comes, while still maintaining friendships. So if you find you are now in such a quagmire, by all means, don’t be afraid to throw overboard any dead weight players in order to keep the venture moving onward and upward.

© Strategy Dynamix, LLC All Rights Reserved

About the Author
Sylvester (Syl) Di Diego, Managing Partner, Strategy Dynamix, LLC is a venture accelerator and venture consultant who has assisted hundreds of entrepreneurs and investors to successfully navigate the venture growth lifecycle and to ReDesign, RePosition, ReLaunch and to Scale technologies, products, services and businesses. Learn more about Syl and connect with him at http://www.strategydynamix.com/aboutus/executives.php

Business Plan FAQs and Answers

What is a business plan?

A business plan is a communication tool to align understanding and influence stakeholders to make decisions, affirm commitments and to take action.

A business plan is the summary of a business model and total viability of a business opportunity.

A business plan is the summary of the purpose, objectives, strategies, activities, and financial profile of a business entity or other organization.

A business plan is a living document that reflects current status and directs to future state.

Why do I need a business plan?

A business plan is needed whenever you intend to start up, lead, operate, finance, grow, reposition, turnaround, merge, acquire, exit or close a business.

Who is the key audience of a business plan?

The key audience includes all stakeholders of a business such as investors, bankers, board members, management, employees, certain alliance partners, and certain customers. 

What are the major elements in a business plan?

The major elements of a business plan are: executive summary, business description, pricing, technology, patents, market, R&D, product development plan, go to market plan, operating plan, personnel plan, financing plan, financial statements and related information, and exit plan.

What are the common pitfalls of a business plan?

Most business plans are too long, incomplete, unconvincing, not compelling and/or out of date.

What is the recommended length of a business plan?

A business plan should be ten (10) pages including a one (1) page executive summary. Significant supporting data should be selectively included as addenda to the business plan.

How long does it take to prepare a professional business plan?

The time to prepare a professional business plan varies depending on the status  of business model design, prior strategic thinking, availability of various elements of the business plan including understanding of customers and markets, availability of key data, status of the financial model,  availability of key executives involved in the process, and experience of the business plan writer/facilitator.

An experienced business plan consultant can provide an accurate estimate of time required to prepare a revised professional business plan based on a brief look at your current information or business plan draft.

How often do I need to update my business plan?

A business plan should be updated whenever there are significant changes to your strategy, products, customers, competitors, alliance partners, profits, or valuation; significant changes to government regulations or industry structure; or when you are trying to convince a stakeholder to make a decision on partnership, financing, investment or any other material strategic change.

What are resources for creating a business plan?   

Get started with general information at Small Business Administration 

Obtain advanced assistance to access and gain deals with investors with professional management consultants like Strategy Dynamix, LLC.

© Strategy Dynamix, LLC All Rights Reserved

Strategy Dynamix, LLC empowers people to ReDesign, RePosition and ReLaunch technologies, products, services and businesses – from concept to execution, since 2001.

The 5Ps for Successful Venture Start Up and Development

Entrepreneurs and business owners of any age or business stage will benefit by considering Sylvester’s 5Ps for Successful Venture Start Up and Development.

1. Potential

First things first. Let’s discover the potential of your new idea for your offering – whether it is a product, service or solution.  Take a look at who would use the offering and why. Are you fulfilling an established need, but doing it better? Have you identified a pain point that has yet to be addressed? Or do you have something people would love to buy if it were made – the Steve Jobs approach. Finding specific applications that are valued by specific potential users will give your venture a focus. You have a starting point to estimate potential sales volume, consider segments of users and define customer characteristics that will evolve into important understandings to define both your offering and your market positioning.

2. Prototype

Next, stop thinking and start making. Build a prototype – a rough working model of what the product, service or online community will do or look like.  Do not be afraid to try and fail with many iterations. After all, that is the creative, invention process. What is important is this – to test your idea with a prototype that will allow you and your potential users to see, feel, and touch the offering.  When you build, either physically or conceptually, you will become aware of requirements, cool features as well as constraints and bottlenecks. More, as you better understand product challenges, you will be at the right viewpoint to generate relevant solution ideas and product innovations. Be sure to test with sample target users to receive feedback on the usability and customer experience with your offering – and do this continuously throughout the product design phase.

3. People

As the saying goes – “People make the world go round”. Many successful entrepreneurs and industrialists have said that putting the right people together was equal or  more important for success than the business concept or product itself. Beware, though, of setting the right expectations.  Specifically, clarify from the start – the initial and long term roles, compensation and duration of the relationship. From first hand experience as a strategic business advisor, many ventures become derailed, or at least seriously delayed at critical investor or stakeholder negotiations due to lingering confusion or conflict among people involved with a start up venture. Vague promises and expectations – both spoken and unspoken, lead to massive problems. But have hope. Make a real effort to define stakeholder roles, expectations and compensation formulas. Begin yourself to document these understandings and also summarize your venture governance approach from a business viewpoint. Then formalize these in legal agreements. It is important to be clear and fair from the start for the benefit of the venture as well as for individual stakeholders. In many cases thing are already underway and a tangled mess. In these situations – stop everything and reset expectations. If necessary, make use of a business advisor or other professional to establish a new foundation. This can be addressed as a key goal of a strategic review or corporate offsite.

4. Priorities

As everyone knows, building a new venture requires executing an extensive list of activities and tasks. These may overwhelm many people and can lead to paralysis. Lack of priorities is a root cause for many venture team bottlenecks and burn out. Importantly, a lack of focus due to lack of priorities is expensive and demoralizing. It leads to inefficiency and higher than necessary cash burn rates.  The starting point for a solution is to clearly establish venture direction and goals; next set priorities and align them among the team. These are the essential outputs of your strategic planning. Be sure to socialize the prioritized roadmap among key stakeholders and across the organization to promote common understanding and commitment to execute your technology development and go-to-market plans.

5. Pace

A fifth lever for your start up is to decide the pace, or speed, for your venture commercialization.  Pace shapes your activity levels, drives your resource needs, and sizes your cash burn rate. Thus pace influences your finance needs and options. For most ventures a fast pace is a necessity. This may be due to an expiring patent, a desire for first mover advantage or taking advantage of an IPO window.  At other times patience is an asset.  In all cases, defining and guiding the required pace of your venture is an advantage for navigating your venture commercialization.

In conclusion, intentionally addressing the 5Ps of potential, prototype, people, priorities and pace, will allow you to better drive and shape your new venture for successful commercialization.

About Sylvester Di Diego

Sylvester empowers people to ReThink, ReCreate and ReLaunch technologies and businesses for successful commercialization, strategic market positioning and business development.

© Strategy Dynamix, LLC All Rights Reserved

About the Author, Sylvester Di Diego

Sylvester Di Diego is founder and Managing Partner of Strategy Dynamix, LLC, a boutique strategy, innovation and implementation  consultancy involved in business creation, development and transformation.

Learn more about Sylvester Di Diego at http://strategydynamix.com/aboutus/executives.php.

Learn more about Strategy Dynamix, LLC at http://www.strategydynamix.com/.

The 5 Reasons VCs Invest in Ventures

Entrepreneurs are challenged to find and convince serious investors to evaluate and actually finance their new ventures. There are common characteristics that attract venture capitalists (VCs) as well as other investors – whether family, friends, angels, or strategic investors. Designing your business model with these five key components will contribute to success in financing your new business.

First, there has to be a big market opportunity. The total market itself has to be substantial – well over US$1 billion or more depending on the sector, and there must be a large ‘available market’ for the company’s product or service. Of course, one also must convince potential investors you have a realistic go-to-market plan and scale up plan to access and play in the market.

Second, the offering, whether technology, product or service, has to be new, novel and competitive. The new or novel features, benefits and performance characteristics have to be at least several magnitudes of improvement over alternative available solutions. And these advantages have to be well protected in order to provide a sustainable leading competitive advantage over a significant period of time.

Like all competitive endeavors, a team of stars is a must. Individuals have to be outrageously excellent leaders in their field with relevant accomplishments to propel the venture forward and upward. More, the combination of talents of the team has to be significantly complementary and the cooperation among members has to be evident and robust.

Fourth, an extraordinary financial opportunity has to be clear. Projections must demonstrate top line revenue growth potential with attractive cost and profit structure that drive great cash flow generation. Most importantly these measures need to be rooted in specific go-to-market plan and scale-up plan that are convincing and defendable.

Finally, the investment opportunity must fit with investor’s criteria. Not only must target financial metrics be available – including meeting the hurdle rate for Return on Investment (ROI), but just as critical is the fit with the investor’s preference for certain sectors and geographic locations.

To conclude, entrepreneurs and leaders with a business design for a new venture that is composed of these five critical components are well positioned to attract investor interest in a viable business. It is your job to articulate these characteristics in a compelling manner in your business plan and in person to close the deal!

Best, Sylvester Di Diego

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A Thanksgiving Tribute to Mayflower Entrepreneurs

Thanksgiving is paying tribute to the most successful entrepreneurs in American history. Let us take note, reaffirm and recommit to the power of entrepreneurship and the opportunity for prosperity when brave men, women and children pursue big goals in uncertain times with high risk, deep self confidence and open faith in Providence.

Like many successful entrepreneurs, the Pilgrims sought in 1620 to leave behind old organizations and countries in order to invent “the new”. This venture to the new world had investors (two stock-holding companies), a large ambition for a huge untapped market and everyone took great risks. The Pilgrims themselves invested seven years of their labor to the venture – real ‘sweat equity’. Their initial goal was Virginia, but when thrown off course they adapted or pivoted, (like many entrepreneurs must), and set a new course for what is now Massachusetts – landing in and naming Plymouth.

As everyone knows, there was great hardship and 46 of the original 102 persons on the voyage did not survive the first winter. Folks, this is ‘all-in’ entrepreneurship and risk taking. Today’s entrepreneurs are likewise risking hearth and family and often feel oceans away from established governments and organizations.

In the following spring, the Pilgrims’ captain pleaded with them to gather remaining provisions and return to England from whence they embarked. But these hearty and steadfast entrepreneurs were resolute on moving forward. With persistence, determination and hard work, plus a key strategic alliance with the Wampanoag Indians, they prayed and planted and reached a bountiful harvest. These first fruits were a prototype and proof point of what could be accomplished! From small successes they evolved – milestone after milestone. We are thankful for their perseverance.

Of course, there was dissension among the members and a veering of interests from original investors – as they took over control of the venture and wrote the Mayflower Compact – a social contract and mission statement. Nevertheless, confident in themselves and with faith in Providence these entrepreneurs designed their business and social model, then by blood,  sweat and, surely, many tears they moved ever forward. Truly, “what did not kill them made them stronger”1.

Today we especially honor those first of America’s entrepreneurs and also intentionally tip our hats and offer our sincere appreciation to all you hearty souls who are today pursuing new ventures and businesses in attics, garages, coffee shops, co-working spaces, incubators and accelerator throughout the Americas and around the globe. Though you may feel alone, desperate and forgotten by most, please do hold firm that we are many who sincerely salute you. For it is the combination of the unbridled human spirit, kindred fellowship, inventiveness, and the grace filled hand of the Creator that has and will forever spur our economies and the development of our human race onward and upward. Thank you for your sacrifices.

Best,  Sylvester Di Diego, Strategy Dynamix, LLC

For those interested, a replica Mayflower ship and ‘Plimoth Plantation’ with historical reenactors is an educational and thought expanding experience in Plymouth, MA. More at http://www.plimoth.org/features/mayflower-2/)

Note 1:  Paraphrase of“What does not kill me, makes me stronger” Friedrich Nietzsche, Twilight of the Idols, 1888

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