How To Know When An Accelerator Is Not Right For Your Startup

A few weeks ago we ran an article on the benefits of accelerator programs. While I agreed with almost everything in it, the article still bothered me, and I wanted to start a discussion about when an accelerator is not appropriate. So many startups are regularly asked “have you thought about Kickstarter? Shark Tank? Are you raising money? YCombinator?” These questions are constantly ingrained into people’s brains and they come to think those are the only options.

The reality is that there are lots of ways to build a company, and Kickstarter, Shark Tank, angel investors, and accelerators are all new within the last few years, and they aren’t right for many people. So let’s look at when an accelerator is right for you.

The absolute first decision is based on where you see the company going. If you want a mom-and-pop business making your own products in your basement and making a comfortable and sustainable living for you and your family, then an accelerator is a poor choice. Accelerators take a cut of equity in the company, which means they expect two things: that the company will grow big, and that they will have an opportunity to recoup their money (called an exit event, and it usually means either an acquisition by a larger company, or an IPO). If you don’t see both of those in your future, don’t bother applying.

accelerator-is-a-fast-trackCommitment to the cause is another important factor. An accelerator is a fast track but still dumps you out on a very long journey. Is this a project that you want to dedicate not just the next three months but easily the next three years? Growing a company is hard and takes a long time, and an accelerator makes certain assumptions about the rate at which you will grow and the amount of passion and dedication that must go into this venture. You hacked together a bike lock and want to take it to market; are you ready to make bike locks your thing for the next three years?

Quality of a particular accelerator is a huge consideration as well. A lot of them just aren’t that great. This is an age where investors collect startups like sports cars and an accelerator is a chance for them to fill their garage with ease. So when they make promises of access to resources and investors and mentors, it would be wise to investigate their ability to follow through with those promises, including contacting participants from previous classes. This is such an important piece of advice that it merits repeating: previous classes will be more than willing to tell you about their experience and what went well or not and how one can prepare to take full advantage of the accelerator. Besides being weak, sometimes they are focused on a specific type of startup. Some only accept hardware startups, others only medical startups, et cetera. If your company doesn’t fit, don’t pivot or lie just so you can get accepted. It’s disingenuous to the accelerator, but it’s possibly more harmful for your company if you end up following a path you only halfheartedly believe in.

Realistic growth should be evaluated. An accelerator will get you to think about production in the thousands or millions, but that’s not always wise for a startup, and very rarely works out well. Consider the trajectory of every major kickstarter project, and you’ll see a trend. First they develop a prototype and test it, they go through a few revisions, they make a few dozen devices, talk to a manufacturer or two about their Bill of Materials and assembly cost, then use those numbers to run a campaign and are on the hook for a few thousand or more units. That’s when the battle begins as they discover that their design isn’t holding up and component sourcing, molds, assembly line issues, certifications, even shipping issues, and all sorts of other problems are delaying them. Then when (if) they ship, the products usually have defects, and in some cases require firmware upgrades immediately out of the box.

don't-go-to-chinaBy this point the Kickstarter campaign has exhausted its cash and has tried raising investor money to keep the company going. So how do you get around this, save the company, and please customers enough that they’ll give V2 a shot? Don’t plan to go to China with the first version of your product. Figure out how you can manufacture it yourself or locally, in small-ish batches. It will cost more to make, but you’ll be able to quickly refine your product to make it easier to manufacture and assemble, develop the tracking and support and testing tools, and work through the issues in small volumes that would eventually kill you in large volumes. Big launches usually result in big failures; if you can develop a product that is flexible enough to be built cheaply and locally, even at the cost of aesthetics, your company will have a higher chance of success.

If all you have is an idea, you’re not ready for an accelerator. If you have a design that’s completely ready for manufacture and all you need is partners and money, then you’re probably ready for an accelerator. If you have been manufacturing for a while, have sales and customers and are just looking to grow, an accelerator probably isn’t right for you. If you’ve gone through an accelerator before, even if it was with a different idea and a different startup. you probably don’t need an accelerator anymore.

An accelerator is like a bootcamp for building a business and getting a product ready to manufacture, so if you don’t have a product, you’re not going to be able to take advantage of the opportunity to get it ready for manufacture. And if you already have a business and manufacturing, the accelerator won’t have much to offer. While some people may need to go through a bootcamp twice to refresh their memory, for most once is enough and they will be perfectly capable of repeating the formulas and tapping on the network of people and manufacturers they established the first time through.

Part of Bob's China Experience.
Part of Bob’s China Experience.

All these slices leave us with a pretty narrow definition of when an accelerator is appropriate for someone. Naturally it’s important to research an accelerator carefully to see if your needs align with their offering. Some may be better at just the capital acquisition and networking with little focus on design for manufacture, others on finding customers or potential acquirers. Certain characteristics are essential, though, for you to feel good about the decision to go through an accelerator. If you’re dedicated to the project, you really believe that it will have explosive growth and eventually an exit, you have a product that has been tested and works well and just needs some tweaks and preparation for mass production, and you need a network of resources that can help you get all the other things, then maybe you should give it a shot.

My personal experience in this topic may have biased my position quite a bit, but I think it’s relevant, so I’ll briefly disclose. As a sole founder, I was in the first class of HAXLR8R with my company Portable Scores. We spent three months in China before launching with a pitch event in San Francisco. My company failed for a variety of reasons but partly because I had a design that could really only be produced in large quantities but I couldn’t bridge the gap and get those sales. In its first year, HAXLR8R had over promised and under delivered, but subsequent years have reported significant improvements, so my experience is more a statement about an accelerator’s first year and not so much about HAX specifically.

My second startup attempt was BlueTipz, and for that one we were able to bootstrap it ourselves with a minimum viable product that we could manufacture cheaply and locally using high school students. We were able to get the product developed and on shelves in only a few months, and sold a few thousand units in the first season of sales. After that we had a proven market and a proven product (with a plan for upgrades and new features based on feedback from paying customers), and finding investment to grow the business and fund larger purchase orders was a lot easier.

23 thoughts on “How To Know When An Accelerator Is Not Right For Your Startup

  1. You don’t need to justify. Your italics is doing just that. Failure is a better thing to have first so that you know the ways things don’t work, rather than things working out the very first time itself. Because of their failure, you were able to write this post, and I could glean such useful information out of it.

  2. I build and sell AVR-powered RGB LED jewelry. At several shows I’ve sold at, I’ve had people ask me when the Kickstarter would run. Not IF, but WHEN. It’s simply expected. When I tell them that I have no intention of doing that, they visibly lose interest, like I’m doing “it” wrong.

    Now, I enjoy hand-soldering each board, so production is slow and prices are a bit high. That’s OK, because it’s just a hobby side-project. Could I run a kickstarter, raise a few grand, and send production off to China? Probably! But my hobby is electronics, not business management.

    It’s just a bit frustrating in my chosen field of jewelry. No one is asking the people selling “regular” jewelry at the craft fair about their crowdfunding campaign. Somehow, because my crafts use electricity, I’m obligated to play by startup rules. Bleh.

      1. I’ve considered doing that, but at that point the Kickstarter would just be a glorified ordering system. I’ve already got the design, the tools, and the workflow set up, so there’s no need for a large pile of cash all at once. It would just be “Give me X dollars, get thing in return”, and I already have an online store for that.

        1. I hear your pain, but at the same time I have this voice in my head saying “these people want to give you money for your product. If they want to give it to you through kickstarter, then let them”

          1. ignore that voice. why give a third party extra money? if you have customers already giving you money for your product use a referral system. for example if someone brings in a new customer that spends more than $50 then they get a 10% discount. word of mouth is the best form of marketing

          1. Not necessarily – as much as project owners may go there to get funded, most people giving them that money don’t seem to go there only so they can find someone to donate their money to – no, they go there to find something they would be interested in buying. As far as they’re concerned, it’s just a store for things you’ll probably never be able to buy unless enough people each buy one now.

          2. @Max, I disagree. I browse Kikstarter from time to time to see if there’s anything that looks interesting, not like a scam, and is run by a group that I would like to help fund.

            @Haddad Perhaps you could make a small set of specific designs just for Kikstarter, and then find a business manager who will run that campaign for a commission and send those off to China? If you’re mostly hands-off except for the initial design and check-ins here and there, it could just bring you more money and satisfy those weird customers at the same time.

  3. I remember Portable Scores, I was always curious about the rest of the story. Nice to hear it.

    I can second that having at least a working prototype and a list of people waiting to actually buy it (or better yet, a first version and sales already happened/happening with other customers waiting) is a good position to be in for starting. If all you have is an idea… then turn it into a working prototype and get people lined up to buy it.

    I do product development and for most people with little or no experience, it’s a surprise to them to hear that if all you have is an idea then you probably don’t actually really have much of anything yet. Not anything that investors or accelerators would be interested in, anyway (yet).

  4. “…using high school students.”
    There ya go. There just isn’t enough of that going on. It’s an underutilized source of excess energy and free time.
    Somebody ought to leverage an accelerator to tap that to the max. It could work if you cashed out before the labor laws kicked in, hehe.

  5. I enjoy the technical side of business, and choose a few business people to invite into projects….
    We could hand you a small $500k project, and you will still unlikely understand why your start-up fails.

    Your “lots of ways to build a company” advice…. Um No… you may feel that why, but feelings aren’t really useful for fiscal decisions…

    “Kickstarter” = public exposure to competition with more resources, fiscal inability to scale up production on success (or why did you seek funding), and a public relations nightmare even if you get the pricing structure to fly. Most “successful” campaigns are rarely more than repacked surplus e-waste off a container from elsewhere, or getting the public to naively buy into high-risk fantasy physics.

    “Shark Tank” = Predatory debt financing, share dilution, and ultimately you own removal prior to product release. They often “win” >17% share of small companies for less than what I pay my engineering staff in one month. These people usually are helping themselves to the company equity, and offer nothing more than what a simple bank loan could also provide. I despise people who compare actual investors to these bottom feeders.

    “angel investors” = A bigger problem if the company actually begins to grow, as they may have other priorities than a profitable company. See above for details, but usually take >40% .

    “accelerators” = Like a small hedge-fund made of many start-ups, and often are somewhat less risky for the initial “investors”. This scam is getting old, but usually involves pump-and-dump stock strategies for popular start-ups that have no growth potential. Kids, the investor board really doesn’t care about your rehashed ___book, Internet of ____ , or better version of ____ App. Note how the principles will silently be dumping the stock opening week…

    Here is an idea on how to make money:
    1.) Get off the Internet
    2.) Physically go where people buy the stuff you like to build
    3.) Build small runs to mature a supply chain that start to exclude clowns/crack-heads
    4.) Sell your stuff, make money, and allocate 50% to cash supply (you will need it later)
    5.) Talk about what you sell/sold to people, and never talk about what you are currently doing (some people’s ego may make this impossible)
    6.) When the sociopaths start to pop-up to steal your money (and they certainly will)…
    Make sure your legal guys and accountants are ready for them… google war chest… and buy legal insurance…
    7.) When the bottom-feeders show up to undermine the profit margin, than take it as a sign you are due for a product change. Be aware, that desperate people (i.e. poor people) will do things to undermine their own well-being (like debt financing high risk ventures), and will try to do things that devalue what you do as well (like an India based developer that charges $4.50/hour)…. Don’t compete to be the biggest attention whore.
    8.) Don’t compete… innovate… and you will always be competitive as a side effect. see google…

    Rules for success:
    #1: The only people you want to talk with are customers with money.
    Success will often mean actively avoiding the countless bums on keyboards.

    #2: Verify everything…
    People are generally ignorant, and anecdotal opinions biased by their own life experience are rarely helpful.
    An MBA / Phd / pile-of-cash / sack-of-shit should not convince you to accept their input as more meaningful than the burden of risk you chose.

    #3: Know when you’ve been beat… and fire failing personnel quickly.
    In India/China, the rule of business “IP law” simply doesn’t apply. Even if you live in China, you will never see your money back if you successfully win a lawsuit for money owing in deals. Outsourcing only partially works if you make over 10k units a month, have patents, sustain a high labour cost, and partner with established manufacturers.

    #4: Small steps
    Often simple unique designs have a higher success rate, and pragmatic management can easily grow a company that can burn down every 2 months and still be profitable.

    #5: Who has your back in case of a “Zombie Apocalypse”
    Not mine, but good advice for choosing reliable partners prior to signing legal paperwork…

    1. +1 on Shark Tank. I cant stand to watch that. Those slimy jerks are not investors – they’re well-dressed loan sharks that should lurk in the back alley behind a pawn shop.

  6. Very interesting article. I recently ran a Kickstarter for a little project that ended up much more successful than I expected. I intended it as a practice for a larger, more complicated project, but now I’m not sure if I want to go that route. The huge audience on Kickstarter is a big plus, but at the end of the campaign, I’m still a very small company unless the thing goes huge, and then I have a totally different set of problems.

  7. Take everything for what it’s worth. Nothing more and nothing less. The right way is the way that works for you. Companies that go broke fail to spend wisely. A start-up should not spend one penny without a clear understanding of how it will return two.

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