We’ve got a problem with our accelerators. Too often, we’re trying to accelerate ideas that aren’t ready for it, and the outcome is lower impact that than we hoped for. A couple of years ago, The Startup Genome Project released their first report on the factors that lead to success and failure. The leading cause of startup failure was premature scaling, defined as:
…spending money beyond the essentials on growing the business (e.g., hiring sales personnel, expensive marketing, perfecting the product, leasing offices, etc.) before nailing the product/market fit.
That definition comes from Nathan Furr, who goes on to say:
Oh yes, and by the way, premature scaling also kills innumerable new projects at existing businesses as well, so innovators everywhere, beware. In other words, they are doing things that seem to make sense, like investing to build the product, hiring good people to help them sell it, developing marketing materials, and essentially doing all the kinds of things that big companies with lots of resources do when they are executing on a known opportunity. But most startups are chasing an idea: the founders, no matter how much they believe in their idea, are operating on a guess about an unknown opportunity with a potentially unknown solution. All these unknowns mean we need to manage the process of coming to market differently and number #1 on the list is to avoid spending money scaling the business before you have really nailed what customers want and how to reach them.
This ties in with another piece of data from the Startup Genome Project report – that the successful startups pivot on average just under two times. This is part of nailing what customers want and how to reach them. Their results look like this:
This shows that your best chance of success come when you pivot about two times. You can go overboard with pivots though too, which leads to worse outcomes. If you scale prematurely, you end up with zero pivots, which also leads to worse outcomes. Here’s an idea that might help with this – Innovation Force: Innovation Force = Innovation Mass x Acceleration This has important implications for innovators:
- You can’t accelerate nothing. So, yes, you must move faster than you think you can. The Innovation Mass in our Innovation Force equation comes from finding Product-Market Fit. If you don’t have this, it doesn’t matter how fast you move – you won’t have the impact you seek.
- This is important in established firms too. Greg Satell points out that established firms have a lot of built-in advantages over startups, which they shouldn’t give away by trying to act like startups. This is absolutely true. However, one area in which they should try to act like startups is building business model innovation capability. Just as most startups fail, most new product launches from established firm also fail. For Horizon 2 and Horizon 3 innovations (growth-creating ones), Steve Blank shows how business model innovation and the three horizons model integrate:
The norm in corporations is to push every new idea through the business-as-usual business model. This reduces Innovation Force. We need Product-Market Fit just as much here, in order to have the desired impact.
- Product-Market fit must be the goal for both startups and established firms. This increases Innovation Mass – once you have that, then you can accelerate.
This idea extends to regions as well. Unitus Seed Fund released an interesting report last year, which included an international survey of accelerators. Here is how they map it out:
It follows from this that what they’re calling co-working spaces, incubators, accelerators and hyper-accelerators should all have different programs of work, since they are working with ideas at differing stages of development, which in turn have differing needs. I visited GridAKL and BizDojo – Wellington last week in New Zealand, and they seem to be getting really good results while working across several of these stages. However, this is rare.
Based on my experience, there are two distinct stages in developing innovative ideas. The first is to find Product-Market Fit (this is getting up to IRL5 if you are using the Investment Readiness Levels). This is building Innovation Mass. The second stage is to build the rest of the business model (getting to IRL9), getting customers, getting funding, and starting to get some traction.
This is Acceleration. If you maximise both, then you will have the biggest possible Innovation Force – which is what drives successful impact for our new ideas. These two stages correspond to the Incubator and Accelerator stages in the Unitus model. This shows us how to maximise Innovation Force at an regional level. We need places and programs that help ideas get Product-Market Fit. The number of ideas getting to that level is the Innovation Mass for a region. Then we need places and programs that will help people accelerate these ideas – the Accelerators.
One part of this that Unitus didn’t look at is Corporate Accelerators, which also play a role here. Successful regions need all of this to be happening. However, many of them only focus on the Accelerator part because this is where the glory (and the money!) is – this is the most common mistake I’ve seen. Here is another diagram from Steve Blank illustrating the mix of programs needed, with Silicon Valley examples:
We all want our innovations to change the world. This requires Innovation Force. In turn, Innovation Force is the product of Innovation Mass (Product-Market Fit) and Acceleration (building growth with customers). To maximise Innovation Force, we need both Mass and Acceleration to be big, and this is true for startups, established firms, and regions.
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Tim Kastelle is a student and teacher of innovation, University of Queensland Business School. Links to academic papers, twitter, and so on can be found here.