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With the state legislature’s recent passage of HB2319 in early May, which provides $2 million for a Venture Accelerator Funding Program, Hawaii’s growing community of startup entrepreneurs has two million more reasons to be excited. However, it’s important to educate and include Hawaii’s broader business community, educational institutions, and supporting organizations in the conversation if this money is to truly promote economic development.
It also brings up a lot of unanswered questions, like how many startup accelerator programs can Hawaii support? Are there enough startups to go around? Do we have the expertise locally to run and staff them? Will we need to bring in a portion of the entrepreneurs from the mainland (which is a great idea, in my opinion)? And how does this exacerbate (or help?) the “brain drain” that so many local companies lament?
For background, it’s important to understand how an accelerator works. In essence, it’s a crash course in how to start, build, and run a small business, with a focus on building a product and a business plan that will help the startup succeed on its own or find investors. Most accelerators are focused on technology companies, although others are starting to target manufacturing, art, and even food.
Accelerator programs almost always come with some sort of cash-for-equity investment, plus connections to other businesses and investors, a free workspace, and valuable mentoring, guidance, and education. The companies are usually put into a three- or four-month program, and then “graduate.” In the technology world, Y Combinator, 500 Startups, and TechStars are a few the more well-known startup accelerators.
Accelerators work with dozens of startups each year, investing a relatively small amount, around $15,000 to $25,000. The hope is that a very, very small number of the companies go on to grow, build revenue, and eventually get acquired by much larger companies for much, much larger amounts of money, thereby creating a profitable return for the accelerator and the startup’s founders, employees, and other equity owners.
Incubator is another term that’s frequently mentioned, and is similar in concept to an accelerator but focuses on very early stage business ideas that are not yet ready for an accelerator. Incubators provide much less money (usually around $5,000), and tend to be supported by governments and/or universities.
It’s important to note that accelerators and incubators fully expect that most of their startups will ultimately fail. Startups are a risky investment, and success rates are very low. However, the experienced gained while trying to build a startup is incredibly valuable, and the tiny number of successful companies is expected to make up for the large number of failures.
The key components of a startup accelerator are the structured opportunities for networking, education, and mentoring. Free workspace is also a component, but isn’t much help if it lacks access to experts, entrepreneurs with experience (in both success and failure), back office support, sources of investment, potential partners, and just plain advice.
The whole purpose of a shared space for startups is to foster relationships that benefit the entrepreneurs. Without providing connections, experience, and networks that the entrepreneurs can’t get at a coffee shop, it’s really nothing more than a Starbucks. And, without creating some sort of application process to accept only those entrepreneurs who are serious and capable, it’s a co-working space.
Ultimately, it’s the quality of these connections and experts that will make or break an accelerator. In Hawaii, there isn’t a big tech industry, so a tech accelerator would probably need to import most of those experts, spending a lot of money shuttling entrepreneurs back-and-forth to the mainland.
Many accelerators outside of Silicon Valley have focused on tech and failed because their region lacks a strong tech industry. However, many have then repositioned to focus on local industrial and workforce strengths and have seen their success rates soar.
Silicon Valley’s Y Combinator accelerator program offers great programs to their startups, and if you drill down to their list of speakers, it has names like Marc Andreessen (who co-created the very first internet browser), Marc Benioff (founder of Salesforce.com), Jack Dorsey (co-founder of Twitter and Square), Reid Hoffman (founder of LinkedIn), and, well, you get the idea. These people are heavy-hitters in the tech industry.
The link is that most of those tech celebrities live and work within a few miles of Silicon Valley’s accelerators, because that’s the key industry in that region. But, it shows that success requires developing the right programs featuring the right people and leveraging the available resources.
Should Hawaii’s accelerators be expected to use all local expertise, or bring it in from the mainland? Should they focus on tech, or areas where Hawaii already has vast talent, expertise, and a large workforce? What should the entrepreneurs expect of their mentors and of the curriculum? Should they expect to meet with Instagram and Google founders, or local execs from Hawaiian Airlines and non-tech successes like Sig Zane?
There’s also a lot to be said for creating a “destination accelerator,” where startups and mentors could be housed in Hawaii for a few months, work on their startup while also teaching local entrepreneurs, then return to the mainland upon graduation. It wouldn’t have as big of an immediate impact on local startups, but it might help grow our local talent pool and create some economic activity.
While there are many opinions on how to structure Hawaii’s startup accelerators, the advice that I’ve heard again and again is to not mimic a Silicon Valley (or Boston or New York) accelerator. Instead, we should look to those that have created accelerators that take advantage of their regional strengths. Here are a few examples of existing accelerators that recognized their local strengths and weaknesses, then developed plans around them.
The Brandery, in Cincinnati, which is home to huge consumer companies like Macy’s, Procter & Gamble, and Krogers, plus large marketing and advertising firms, built an accelerator focused on consumer marketing. It’s ranked as one of the top ten accelerators in the country.
Co.Lab, in Chattanooga, started by providing basic business education to artists, artisans, and other hands-on business people, then grew into a business accelerator helping all types of startups.
AlphaLabs, in Pittsburgh, leveraged their local bounty of universities to provide access to researchers. While they are tech-focused, they also take advantage of the area’s manufacturing expertise by partially focusing on technology hardware, which is fairly unique in the accelerator world.
Start Garden, in Grand Rapids, Michigan, began as a typical tech startup accelerator, but quickly discovered that they didn’t have the local talent, investors, or expertise to support their startups. Realizing that they had to create the talent that would later fill an accelerator, they restructured as an incubator which provides support, guidance, and $5,000 to two business ideas every week.
There are many more examples, but the point is that these teams understood that, to be successful, they had to play to their region’s strengths. With Hawaii’s strengths in tourism, military, hospitality, oceanography, and other domains, doesn’t it make sense to leverage these industries?
Most of the top startup accelerators—tech or other—have rigorous application processes. TechStars claims “selection rates lower than the Ivy League,” has 25 questions on their application page, and requires videos and details of a startup’s business plans. To even be considered for a legitimate accelerator program, you need the skills to pull it off and some sort of plan to show that you’ve thought it through.
In reality, many “wantrepreneurs” will quickly see that their great idea is just that and nothing more. It’s disappointing to hear early entrepreneurs discount advice to create a go-to-market strategy or rough sales projections. Sure, everyone knows that they are guesses, but you need to have an educated guess to be taken seriously.
Many new entrepreneurs also lack basic business skills. They should expect to learn some of that in an accelerator program, but there also needs to be a high bar for incoming startups. Furthermore, the teams running the accelerators need to be experienced enough to know what makes for a promising startup. A great idea isn’t enough. In fact, a bad idea from a sharp team is much better than a good idea from a weak team.
For most tech incubators and accelerators, the graduation day is a “demo day,” where the startups give a quick demonstration of their software or service. It usually comes complete with press coverage, top-tier judges or feedback, and access to additional funding. That last bit is key, especially in tech.
In Hawaii, there’s a clear lack of investors and investment. So should Hawaii’s accelerators focus on different types of non-tech companies and shoot for different outcomes?
With our absence of venture capital, where will local tech companies turn for investment? And, if they go to the mainland to find investors, will they ever come back to Hawaii? Furthermore, should success here be measured with venture capital investment (which is how it’s defined for tech accelerators), or should it be measured with job creation, revenue, and economic impact?
How about incubating a non-tech company whose goal is a great product that drives profit? Would that take considerably more resources from the accelerator? Or, is tech the only sector sexy enough to get interest?
It’s an exciting time to be an entrepreneur in Hawaii. From Wetware Wednesdays to Startup Hawaii, and Startup Weekend to accelerators and incubators, the opportunities for local entrepreneurs to connect, grow, and succeed are becoming bigger and brighter. We’re seeing more and more startups grow beyond the idea stage, more entrepreneurs getting the connections and experience that they need, and more reason for talent to stay in Hawaii and help grow the ecosystem.
Regardless of how these first incubators and accelerators perform or how long they last, it’s all pushing us in the right direction. Being a startup entrepreneur is a gamble, and most fail. But, failure is and should be viewed as a positive learning experience.
For our incubators and accelerators, it’s the same. There might be a few that win and a few that fade away, but it’s critical for Hawaii that they continue to try.
What do you think? There are a lot of unanswered questions in this post, so add your thoughts to the comments below…
About the author: Jason Rushin has over 15 years of experience in technology marketing, consulting, and engineering. In addition to launching Startup Hawaii, a Startup America region, Jason is the founder of HulaCopter, a mobile marketing platform for the travel and tourism industry. He previously helped drive marketing at several Silicon Valley software startups, and holds a BS in Mechanical Engineering from University of Pittsburgh at Johnstown and an MBA from Carnegie Mellon University.