Incubators are a Ghetto

https://stochasticresonance.wordpress.com/2012/01/03/incubators-are-a-ghetto/

by shanley • 15 years ago

104 39 15 years ago

stochasticresonance.wordpress.com

jsavimbi3• 15 years ago

So am I to understand that the new easy way to success in blog writing is to a) steal someone else's once-popular catchphrase b) avoid doing any real research or "naming names" c) asskiss those names whom you've actually become acquainted with d) offer unsolicited, unobjective and unhelpful advice and e) profit?

Only travel writers are lazier.

littleidea8• 15 years ago

a) once popular catch phrase? because of Zed? granted it's hyperbolic and cliche, but most titles are, by design b) If you want to discuss in private, I can give names and numbers. There are real people with real feelings and real money involved. c) you have no idea what you are talking about d) love to see a critique or counterpoints with any substance e) share and share alike

I'm many things, but lazy isn't one.

jsavimbi3• 15 years ago

I'm not that interested in your names and number if you cannot provide them publicly. Obviously, you seem to be somewhat upset at a person or group of persons related to one or more incubators and would rather champion your three favorites over others. I don't have a problem with that, but I think you have to reword the premise of your argument and maybe provide helpful data points without being facetious about the subjects, nature or provenance of your information.

You know, appear to be knowledgable regarding the subject matter at hand; otherwise it's just some fan-boy rant.

prayag• 15 years ago

I think you are missing two crucial pieces of the puzzle. The 3 months sprint and peer support. Those are the biggest outcome of an incubator. You work your ass off for 3 months to sprint towards a product while helping your peers with their sprints. This can be done without an incubator of course but incubator atmosphere keeps you going.

littleidea8• 15 years ago

I agree that is very valuable, and there are other valuable aspects of the incubator experience that are omitted as well.

This schedule pressure and the support of colleagues can contribute to successfully creating a fundable opportunity.

I'm just saying that results should be the measure. Fundable and funded, and if that's not happening, the incubator is not working. Further, I put that result more on the program than the participants.

rokhayakebe• 15 years ago

I doubt the real value of an incubator is in helping you with the product, or helping you build some people want and other people will fund. I do not even think they can.

The value, today, is in the cachet. Being funded by YC, for example, will probably get you more press, funding, and maybe even a larger exit.

dlevine• 15 years ago

I'm not sure which incubators you are talking about. This post seems like more of a rant than a productive analysis. I have seen some indications that there are too many seed-stage companies right now, but I'm not sure if any one incubator can be blamed for this.

karmajunkie• 15 years ago

The entrepreneurial world is small. Its not the kind of thing where you (should) name names. That said, he raises some good issues that I think most of us have definitely seen.

herval• 15 years ago

Why shouldn't you name names?

ryanwaggoner2• 15 years ago

As someone who just finished an incubator program (http://piepdx.com) and thoroughly enjoyed it, I tend to agree. As AngelList explodes and traditional venture capital contracts (or the bubble bursts entirely), I would love to see more "incubator" programs that take very little or no equity and essentially function more as filtered coworking spaces. I think we're already seeing that with places like Dogpatch and General Assembly in NYC.

thesethings• 15 years ago

Cool to hear about your positive incubator experience. I'm a little confused though. The main vibe of the blog post was generally critical of the value of most incubators and you said you "tend to agree." Not that these opinions are technically mutually exclusive, but i did go "wait. what?" and reread your comment over a few times.

Can you go a bit more into your incubator experiences (positive) and the parts of the post you agree with (negative?)?

(Not asking you to rant/heap praise/ do anything you're not comfortable with.)

ryanwaggoner2• 15 years ago

We got good value, but I don't think the average startup would be best served by an incubator approach. The amount of cash is too little, the mentors are generally accessible in our industry, and you can get the camaraderie of being around other startups via a coworking space. For us, our program being sponsorsed by the largest indy ad agency in the world (W+K), as well as Google, Target, and Coke, was a huge factor in why it's been good for us. But I don't think most incubators have that kind of approach. And in particular, as more and more generic startup incubators spring up, the value of being part of one probably drops.

crcsmnky• 15 years ago

Funding doesn't equal success, it's simply a longer runway to failure. That said, what would be more telling is data about how many companies last and are able to build something compelling or sustain any kind of growth, compared to how much money they raised (if any).

Just because a program doesn't have successful entrepreneurs running it doesn't mean they're companies are doomed to fail. It all comes down to picking the right companies and the right markets to chase. If I were building an enterprise-oriented SaaS product, it may make sense to join an incubator/accelerator where the mentors have deep enterprise sales experience from an enterprise company.

j452• 15 years ago

>Funding doesn't equal success, it's simply a longer runway to failure.

In those cases (too many), funding is also a distraction and putting off todays problems (profit for sustainability) until the future.

VC funding has often struck me as a wonderful way for those who have been successful (many vc's are entrepreneurs) to give others a chance, and from a financial standpoint, likely a reasonable way to have some tax write-offs while doing good in the world to help give something a chance.

In that way, I like funding. At the same time, funding is about founders more than the idea.

hluska2• 15 years ago

Question for everyone....

Do you agree with the assertion (that most incubators are ghettoes) or is the problem simply one of supply and demand? In other words, are there too many incubators?

When you look at the economics of incubators, successful incubators rely on successful startups. If there are too many incubators, companies that don't normally deserve funding (or incubation) will end up getting shepherded through the process....

littleidea8• 15 years ago

These things are not mutually exclusive.

Most incubators can be ghettos AND there can be too many.

While I partially support the algae bloom theory, I am asserting there are companies that deserve incubation and believe they are, but are in fact not getting good advice nor real opportunity through the program.

hluska2• 15 years ago

Good points - thanks very much for taking the time to answer this. I enjoyed the article a whole lot!!

nirvana• 15 years ago

There is an emphasis on hacker news and in the startup scene on VC funding. But I think this is a mistake. The mission of a startup is not to get VC funding. The mission of a startup is to get product-market fit. Angel funding or some other solution is necessary to sustain you until you get that product-market fit.

But until you do, I think you're going be in a worse position for getting VC funding. You might not be able to get it at all, or if you're in a hot area, you might get it but at terms that aren't' really great. Certainly, when you can show traction, or massive growth, or profits, or massive growth in profits, at each level the terms you'll get for outside investment get better.

We're about to enter an incubator program (Startup Chile) and I have no idea what their funding rate is. I'm guessing that less than %50 of the startups get funded, certainly by VCs, within 6 months, mainly because Startup Chile supports very early stage companies.

Here's our goals in startup chile:

1. Have 6 months to not worry about our burn rate because its covered while we try to get product market fit.

2. Have 6 months in close association with others doing startups to exchange ideas around technology, business, marketing, etc, that will help us get to product market fit.

3. Test our product in latin america as we try to get product market fit.

4. Expand our relationships with developers in latin america.

For our product and market, a successful product market fit should make us immediately ramen profitable, and probably "we don't have to take money on bad terms ever" profitable. If at that point we want to pursue money, or pursue the go-big-really-fast california venture capital style startup, we'll be in an excellent position to do so because we'll have traction.

If we fail to find product market fit, or we get close but things don't take off, maybe we'll be well set up to apply to Tech Stars or YC, or start offering Dave McClure rides to the airport.

One things for sure, after those 6 months funding or no, we'll be a lot more incubated than we are now.

-----

Wanted to clarify:

The goal of Startup Chile is to incubate a startup culture in Chile. Thus they're bringing around 300 companies to Chile each year (3 overlapping groups of 100 that stay for 6 months). In exchange you get $40k, and they take zero equity, but you also "have" to network with chileans to help jumpstart their startup culture. For us this networking is a feature.

We're not solving a small problem, we're solving a large one, and we're addressing the global market. Chile gives us an opportunity to test in a small market, if we choose to (haven't decided) but in no way will we be restricted to the Chilean market for our product.

I removed the term "lifestyle business" because it isn't really what I meant to say, and I just hate hate hate it anyway.

Scaling a startup these days doesn't take the money it used to. This makes VC terms even less attractive. Thus the goal of a startup going thru an incubator should be less focused on getting VC money. If you've got an internet based business model, and you've got a way to cost-effectively address your market, you can scale up by keeping headcount growth below the rate of revenue growth.

littleidea8• 15 years ago

Sounds like a great opportunity. Rock out.

If the incubator is specifically trying to develop lifestyle business in Chile, win and win.

With the possible reservation that if you truly get to product-market fit and it's a lifestyle business, then maybe you should consider a bigger market, as it is almost always as much work to solve a small problem as it would be to solve a bigger one.

Good luck, and I'd love to hear your story as you make progress

beambot• 15 years ago

As far as I can tell, "lifestyle businesses" were not implied in the parent's comment... just "bootstrapping." There is plenty of room in between "lifestyle business" and "swing for the fences" -- your comment seems to imply that those are the only options.

nl• 15 years ago

I think the number funded is much, much less than that, and not just because they are funding early stage companies: http://hervalicio.us/post/14915671294/on-startup-chile

Good luck - I hope your experience is better than that.

j452• 15 years ago

Chasing funding can be a major distraction from finding a product-market fit.

Good advisors, be it in an incubator or a mentor, help you make sure you can make money with your business before adding money to make it grow.

There are lots of problems out there to solve and for those looking for their first hit it's quite reasonable to find one that can provide enough value early on that customers will pay for it.

OTOH if you really only want to entirely invent a new paradigm with the help of funding, great. Personally I'd rather do the same forever, not having to worry about my day to day thanks to some simple but profitable problems I've solved.

I guess that makes me pro-profit and not so much anti-funding. Businesses need to make money, now, later. The more we avoid and distract ourselves from that the further out we are from reality and sustainability. Both ways have their benefits. :)

littleidea8• 15 years ago

That is sort of the point, chasing funding can be a huge distraction. If an incubator can't provide significant advantages to doing so, what are they helping with? In some circumstances, maybe something else significant.

I disagree with your second point. There are many opportunities that will not be profitable initially. Google, Amazon, Facebook, Twitter, these are the easy examples to point out, but there is a spectrum. A good advisor will understand the landscape and consider your options and leverage.

I agree there are a lot of problems. Every inefficiency is an opportunity. Insurmountable Opportunity...

I'm pro-profit and pro using every appropriate tool. I'm also pro thinking big and long term.

yesimahuman• 15 years ago

One thing I've heard about other incubators is that they demand a large amount of your attention, in a way that is more like working for them rather than as your own boss. This is interesting because it would seem to challenge the entrepreneurs' drive for independence, which could be harmful to their success. Contrast this with YC which gives you more independence and simply offers "office hours" and weekly meals, where it's up to you to make the most of them.

Has anyone else experienced this?

bbaker• 15 years ago

Yes. This is a great point. I've been involved in a startup and advisory capacity with a handful. The good ones are clearly working for their startups. They gain success through their startups. In the bad ones, it feels like the reverse - the startups are working for the accelerator. The difference was clear to me.

A secondary question is whether those interactions bring value. It's okay to be busy with engagements if those engagements are truly helping.

peregrine• 15 years ago

I have an experience with one of those "Bad Incubators" the analysis is spot on.

- We all met weekly for presentations, half the advisors knew what was going on the other half did not. Right before demo day the other half of the advisors were shocked that we had pivoted and planned on selling our OLD idea. Those same people then pitched our OLD idea to the few investors as a possible pivot, which was a huge WTF.

- They brought more politicians then investors to the demo day presentation.

- The investors they did bring focused on healthcare companies and companies further along(profitable, paying customers, large user bases etc)

- The entire operation was paid for by a single guy, who subsequently was the only investor in most of the companies in their "Accelerator" round.

- Most of the companies accepted had non-technical founders/co-founders. Most of the companies could not even launch a product, yet alone MPV, in 3 months because of this, and some had trouble launching a product after 1 year.

Overall we turned down money from their "Accelerator" which ended up being a great decision. If you are going to use an incubator make sure to heed the advice this article gives.

wiradikusuma• 15 years ago

tl;dr blind people mentoring blind people?

EDIT: the second "blind" means lack of technical skill

lucisferre• 15 years ago

Any chance you'd name the culprit?

dpe82• 15 years ago

Sounds a lot like 94 Labs... if I'm right, I feel bad for you guys. I was at the "demo day" this fall. So terrible.

GC1• 15 years ago

Before accepting money from an incubator ask the program directors for 3 to 4 references of founders that have gone through the program and 3 to 4 references of advisors to the program.

Then call the references the program directors didn't give you. Do due diligence! Find out where the money comes from which founders, VCs, and Angels support the program and the reason for their support.

As someone who's gone through a "Ghetto Incubator" I'd suggest you do as much Due Diligence as possible before accepting money from a program because you're accepting their terms too!

esalazar• 15 years ago

Totally agree! I think it is also very important to get a real feel for the people that you will be working with. I think that a lot of people forget that these will be your "partners" for the life of the company. A poorly run incubator will have incompetent people running it. Ask yourself if you think these people could potentially be a pain in the ass in the future. As GCI mentioned: DO YOUR DUE DILIGENCE!!!!

michaelochurch• 15 years ago

Here comes one of the most depressing posts I've ever written.

It seems that startup incubators are doomed to follow the same distribution as business and law schools or non-STEM PhD programs: unless you get into a top one (and by "top", I mean top 3 or 4) you should just go home. The connections that will turn your time and effort into something are not uniformly distributed, but clustered around a small (single-digit) number of hubs. The non-hub alternatives exist to take your money (or, for incubators, equity) and are unlikely to return on the investment.

This distribution isn't inevitable, but it's common. For counterexamples: from an economic perspective, there are two classes of post-graduate educational programs where it actually makes sense to go to a middling (i.e. respectable but not top-5) program. 1. Medical school, because the AMA puts a cap on the number of students the schools can take, limiting the number of doctors and keeping the pay high, so that those skills are in demand regardless of geography and connections. 2. PhD programs in STEM disciplines, where students gain marketable skills and therefore, even though the academic job market has been a cesspool for over 30 years, their graduates can get decent private-sector jobs.

Option 1 is not a credible model for incubators, so that leaves the second: some sort of objective and salable value-add. Unfortunately, this is hard to achieve in 3 months in the context of a no-name incubator. The only way to learn business is to do it (opportunity) and that requires serious capital and powerful connections, not a short runway and "mentoring" from someone of dubious credentials.

People learn best when they are in moderate power. Actually, that's the only time when most people learn. Being at the pinnacle or having infinite resources just spoils them, and no one tells the truth to monarchs or billionaires; but being at the base of the pyramid discourages and enervates them. What the connections and cachet conferred by YC acceptance perform is an elevation into this region of moderate power and high opportunity.

I don't think there's room for more than 5 general-focus Y combinators in the US. It would be nice if there were, but the truth is that opportunity and connections are not that abundant... or at least not in that way.

lsc2• 15 years ago

do people with masters or PhD STEM degrees make much more than people that only have bachelors in similar fields? I thought that the gain was fairly small. Even in the same area, I know a literal rocket scientist working as a rocket scientist with a masters degrees from MIT who makes less than your average programmer/sysadmin.

As far as I can tell, once you make programmer, having a bachelors vs. a masters doesn't seem to make much difference. (Once you have the job, lacking even the bachelors doesn't seem to make much difference; but those of us who have the job with out the degree are relatively rare, which to me points at the degree helping you to get the job, even if it doesn't change your pay all that much once you have it.)

cdeonier• 15 years ago

I think the degrees have an impact at large companies-- at the large company I worked at, developers with bachelors started at 10k less than developers with masters.

Incubators are a Ghetto

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