I rather rephrase that question by asking will an accelerator program provide a start-up company with all the skill needed for a young, start-up manager? I doubt that it can. I have visited various accelerator programs and I noted certain commonalities: all offer a discounted share office space and claim to provide advisers who are willing to provide consulting advice in law, business, etc. The question is whether these advisers have the right subject expertise and such advisers can help cover all the subject matters to run a successful business.
Let me use a real life example of a software start-up company in Texas attempting to raise capital for its healthcare software. As part of the due diligence, the Texan company sent me a spreadsheet, some claims that there were 2 hospital networks interested in the platform. First thing I notice is that the management team is only populated by software engineers. Then, when I reviewed the spreadsheet, it dawned upon me that the founder has never built a financial spreadsheet. And this notable mistake tells me something about the difference between accelerator programs and business school.
In business school, the first year covers the following topics: accounting, marketing, macro-economics, micro-economics, operations, IT, and finance. Basically, these courses cover the basic ingredients in running an ongoing corporate business. Now the Texan company’s founder had no clue to accounting – creating a spreadsheet that covers the operating monthly costs and sales of a company. He just showed salaries and rent. In his business, I would assume there are legal, administrative, and every other G&A expenses from insurance to car leases to magazines. But somehow or another, this entrepreneur omitted what commonly costs to run a company. That is why I didn’t want to be involved.
The other essential course that matters is marketing. Healthcare purchasing has very specific characteristics and limitations in the industry. In order to reduce overall costs, a single procurement officer is in charge of hospital network purchases that impacts the overall operations. There are few very specific, experienced salespersons in this industry. I have met several and I observed that the role does demand experience in this field. And these marketing managers are well compensated. Nowhere did I see how this Texan company had secured a meeting with a very busy procurement officer. And nowhere in the management team or the financial demonstrated that the company has a marketing person in its staff. IT people have little or no marketing experience. So I doubted that this company would be capable of generating sales – a recipe for disaster.
My observation about accelerators is that they claim to help a company get off the ground. That is possible if the advisers have direct experience in the industry in which the start-up company has placed its future. However, in this specific example, does the program have an expert healthcare marketing person? I doubt it.
From my personal experience, I find that there are many business sectors that takes me a while to understand. Many accelerator programs might have about 6-10 people handling their program. And let’s us use Wall Street as a contrasting example. I had a meeting with a Goldman Sachs team related to a Latin American telecoms project. In that meeting, they brought in a subject matter telecoms expert, a regional sector expert in Latin America, a Ivy League PhD Finance expert, a fixed yield expert, and an equities expert. Yes, GS has tens of thousands employees. But GS is not stupid enough to flaunt an expertise it does not have. I doubt that an accelerator program can draw upon such resources in-house.
Now, to revert back to the Texan company, I indicated no interest in continuing forward. Just as I related in earlier blogs, many start-ups do fail. Many failed to take into account what needs to be done for the company. They fail to take into account legal and regulatory factors that must be taken into account. One recent failure is the sharable economy company, Homejoy, and it failed because it failed to take into account its regulatory requirements – treating contractors as employees. Someone forgot to do the homework for that specific industry.
Now do I state that someone needs to go to business school? I don’t think it is a necessary prerequisite to run a business. However, the topics in a first year business school program are critical in running a profitable company. And they can be learned independently. The fatal mistake is to believe that an accelerator program will provide you with all of the tools needed for the business. They don’t. In fact, I always ask myself why do many of these start-ups fail – over 90%. Maybe it is because they bit more than they could chew – many assumed to have in-house skills that they did not, shown unwillingness to share equity to those who can help, as many of my blogs discuss. A lot of what business school discusses demonstrates the many factors required to run a company. I question that a simple accelerator program, with a small number of advisers, can offer that.