The traditional startup funnel is broken.
According to the 2019 Global Entrepreneur Monitor (GEM) report, more than 100 million startups are launched every year all over the world. That equates to about 3 startups per second.
These entrepreneurs come from all walks of life and transcend age, gender, and geography. The stereotype of the entrepreneur is no longer two guys in a garage in Silicon Valley.
We are living through a global entrepreneurial renaissance and this represents an incredible opportunity.
To meet this surge in demand, there has been a corresponding explosion in the number of accelerators, incubators, and university programs that started in just the last ten years. Ten years ago, there were less than 50 startup accelerators. Today, there are over 5,000.
But there is a dark cloud in all of this.
Even though we are creating more startups than ever before, the overall startup success rate has decreased — not increased.
This is because while the seed or early stage of a startup is the easiest to get going, it’s also the most uncertain and riskiest.
The challenge for accelerators today isn’t just attracting investment-ready startups, but rather starting even earlier, and shaping founders into world-class startups.
The massive explosion in startup activity breaks the traditional startup funnel and requires a rethinking of the traditional accelerator model.
What’s wrong with the 12-week accelerator model?
The typical accelerator runs a batch of 10 teams through a 3–4-month cohort leading up to the grand Demo Day where startups get to pitch to investors.
It has become increasingly difficult to get teams to investment-readiness in 12 weeks.
Problem 1: There are a lot more startups than before
As the top of the startup funnel has widened, it’s easy to get lots of applications. What’s difficult is finding and selecting the right teams for the very limited spots.
A typical accelerator starts its application process three months prior to launching a new batch and processes over 600 applications during that time.
The lack of clear metrics-driven heuristics for ranking applications leads to a lot of time spent reviewing applications and injects subjectivity into the selection process. Because a follow-up with every team is not possible, lots of good teams with bad applications get missed in the process.
The stakes for picking the wrong team are high as it takes a direct hit on the overall cohort performance.
Problem 2: Spending more time educating versus accelerating startups
Once a cohort is underway, that’s when the hard work for getting startups pitch-ready begins. Investors today only care about one thing: Traction. The problem is that entrepreneurs care about something else: Product.
Unless you know how to screen for this, it’s not atypical to find your startups with a minimum viable product and maybe some paying customers… But they don’t know where their next 10 customers will come from and they struggle to effectively communicate their traction story.
So you spend time filling that gap with education. You line up a curriculum on business modeling, lean startup, metrics, and pitching skills. Add to that UX, sales, marketing, growth hacking… and whatever else you can cram in.
It’s easy to overwhelm startups as they simultaneously try to juggle their time between learning, pitching, and building their business.
12 weeks is NOT enough time for education AND acceleration.
Problem 3: Nurturing latent entrepreneurs
To overcome the challenges above, many early-stage accelerators simply try to only accept ideas with the most traction. This naturally leads to better results.
When you’re working with great ingredients, even a mediocre cook can achieve good results.
This, however, is more easily said than done — unless you’re a top 5 accelerator. Power laws always kick-in. Further, once a startup has sufficient traction, they usually don’t need an accelerator and can go directly to investors.
The art is catching startups early enough in their lifecycle.
The ideal time to do this is pre-traction — before they even apply to a single accelerator.
That’s exactly what Y-Combinator does with Startup School and Hacker News — and how they establish themselves as the most desirable alternative and make their competition irrelevant.
Because 12 weeks is too little time for taking startups from idea to investment, many accelerators have introduced a front-end pre-accelerator or incubator program.
But these pose challenges of their own…
Traditional pre-accelerators and incubators aren’t the answer either.
A traditional pre-accelerator delivers an education-based curriculum over a longer 6–9 month period with the goal of turning early stage startups (typically with just an idea) into venture back-able businesses ready for acceleration.
While sound in principle, the challenges facing such programs are cost, effectiveness, and scalability.
Simply put, traditional pre-accelerators/incubators break the business model.
Problem 1: Operational costs go up
This one should be obvious. As you delay the window to investment, the costs of running a co-located pre-accelerator program go way up.
Problem 2: Dealing with the even messier ideation stage
To keep costs in check, many of these programs offer a one-size-fits-all curriculum of foundational educational content sprinkled with volunteer-driven mentorship.
But the ideation stage is messy.
Ideation represents the honeymoon period of a startup when anything is possible. It’s also the stage riddled with the most uncertainty — we don’t know what we don’t know.
Speed-advising startups teams during this period through volunteer mentorship typically does more harm than good. It creates the adviser whiplash problem. Ask ten seasoned entrepreneurs for advice, and you’ll get ten different prescriptions. Which one does the startup follow?
High uncertainty + Conflicting/prescriptive advice = A recipe for driving startups around in circles.
Problem 3: Hard to scale
In order to overcome the adviser whiplash problem, you need to invest in coaches that can deliver a personalized curriculum — not advisers and not a one-size-fits-all curriculum.
Advisers focus on providing the right prescriptive solutions. While coaches focus on asking the right questions. Coaches help transform founders into entrepreneurs versus simply trying to brute-force their ideas to success.
The true product of a pre-accelerator isn’t pushing an idea forward but pushing a founder forward.
This, however, is hard to scale without a consistent coaching system.
As might be clear already, there is a funnel in play here. In order to create 10 accelerator-ready teams, you have to start with a much great pool of ideation teams.
To make this model work, you need to reimagine a new startup funnel that can address these three core challenges:
1. Finding the best startups pre-traction in a noisy world.
2. Measuring investment readiness pre-traction.
3. Scaling coaches/mentors vs. advisors.
Doing all this in 3–6 months vs. the traditional 9–12 months.
Is this possible?
The answer is yes. We, at LEANSTACK, have cut our teeth in the messy early stages over the last several years, working alongside entrepreneurs and accelerators, in search of a repeatable and scalable solution to the new startup funnel.
The answer we found is striking the right balance between just-in-time founder education, a high-leverage coaching system, and consistent progress-reporting metrics.
If you’re running an accelerator (or university program) and want to learn more, check out our latest LEANSTACK for Accelerators platform.