startup-incubators-are-like-puppy-mills

Many Startup Incubators Are Like Puppy Mills

In a way, a startup incubator is sort of like a music label… signing up a bunch of bands with the assumption that out of ten deals, one will recoup the craters left by the other nine. Okay, that seems somewhat reasonable for people with more money than sense. After all, it’s fun to get some PR hype and some earned media placement.

But from the startup entrepreneur perspective — well, it’s like intentionally placing your business concept into the hands of a puppy mill designed to churn out cute little dreams for little girls who want all the cuddle but none of the real responsibility.

Short lived, and usually a bad ending for the puppy.

When I started my career as an entrepreneur, it was waaaaaaay back in the olden days of technology, the early 1990s. There was little to no interest in startup business investing from a capital investment standpoint. As an entrepreneur, you literally had to eat what you killed every day of your meager hunter-gatherer existence.

Now there are over 1,200 startup incubators across the United States, and it seems everyone is interested in spinning up the next Snapchat (although I’m still scratching my head over the revenue model there). In every city, town, and village, there’s a startup incubator or three. There are startup incubators that are focused on vertical industries. There are startup incubators sponsored by government tax dollars (oh dear lord). There are incubators sponsored by giant companies (again, oh dear lord).

While startup incubators might seem like an attractive option for the aspiring entrepreneur, I am of the opinion that an incubator actually INCREASES your chances of failure as opposed to helping you succeed.

WHAT? BLASPHEMY COMING FROM A STARTUP GUY!

No, not at all. Let me explain.

The average startup incubator model is fairly standard… float a term sheet based on some cursory evaluation of an idea. A completely fictitious, theoretical evaluation in a vacuum to quickly arrive at some formula for dividing up the pie based on some future “Hail Mary” bomb. Get some cash for proof of concept along with some office space and infrastructure. Maybe leverage some relationships related to the advisory team for those who get some traction. Maybe have a follow-on round for additional injection.

This is why I included the video clip of the classic South Park episode – wherein the Underpants Gnomes passionately explain their unforgettable business model.

Idea-focused business startups are pits of failure!

When a model is based on some democratic judging process of “coolness” or other “Survivor Island” sort of selection, the entire game is skewed from the beginning. Shiny new objects make for great cocktail party conversations, but some of the best businesses (and consequently richest people I know) are based around mundane, unglamorous solutions to problems most people don’t even give two shits about.

The twin sister issue to “idea-centric” selection is the additional risk of a general lack of vetting out market feasibility. I will spend 60-90 days doing nothing but market research around the potential holes in a market to determine the sweet spot for a solution – and then go talk to potential customers in the space BEFORE I lift a finger to create a damn thing.

Go Pound on Doors!

Just go talk to potential customers to find out what they’ll really buy vs. inventing shit in a lab, praying for a customer after the fact. In fact, nothing helps ensure the success of a startup greater than having a letter of intent from a potential distributor or beta customer around a solution based upon its existence. Get this… you can even go get your OWN financing from angel investors based on that alone.

As if these critical issues aren’t enough, there’s another, bigger reason why startup incubators are churning out dead-on-arrival puppies:

Quite simply, the chasm of doom.

That’s the classic gap where a company actually has produced some minimum viable product; and, the company actually having established the internal systems and framework for a sustainable, scalable value delivery.

The chasm of doom is incidentally the typical spot wherein an incubator-sponsored startup becomes an “alumni”, booted out the door to make room for the next starry-eyed founder. Yes, as a successful incubator alumni, you will almost invariably booted out as a “success story” for their website at the most critical point in your startup development.

Is Your Incubator Really Startup Experienced?

It’s actually really interesting when you take a hard look at a lot of startup incubators and their management/advisory teams. It might be cool chatter in business media, but what the hell does any of the corporate career nameplates on the board of the average startup incubator know about a startup?

If your startup marketing strategy is being designed by some ex-corporate jock with nothing but large corporate brand marketing experience on his or her LinkedIn profile, your startup might experience some reality shock when forging out into the real world of door-to-door sales. This is a much dirtier job than most incubator advisers are even willing to do themselves.

It’s not about the font and color of your logo. A startup founder is a carney barker, door banging salesman. Door-to-door salesman? YEP! Jam your foot in the door as the housewife is slamming it and dump that can of dirt on her carpet so you can demonstrate your vacuum cleaner! BUT WAIT! THERE’S MORE! SHAMWOW!

When you’re talking about people who require a multi-million, or even BILLION, dollar organization beneath them to get anything done, what kind of relevance does that have for a startup? Have any of the advisors on your favorite, local incubator board of directors actually started a business from nothing and taken it through an exit?

The only startup incubators worth a single corn out of a turd are headed by the guys who have actually done it – which means ANY government-sponsored startup activity is immediately deaded. The general concept of “selling” anything escapes government folks across the entire spectrum. Having tax authority and the ability to force the populace to pay for economic shortfall under threat of law might be nice for those folks on the public retirement system, but it’s the antithesis of capitalist entrepreneurship.

Go Hustle

Hustling as a startup entrepreneur is much, much closer to selling vacuum cleaners from the trunk of a car than schmoozing at the Yacht Club over cigars, 60 year Scotch, and fake laughs at shitty jokes. Startups have absolutely nothing in common with corporate America, and cheap, downtown office space doesn’t make a business.

My advice to aspiring entrepreneurs is this – don’t waste your time trying to get noticed by startup incubators. Focus on creating value through your identification of a need by a very specific potential customer. Create a nice presentation around your ideas and then JUST GO TALK TO THE DAMN CUSTOMER!

If the customer says, “Yeah, I like that idea” there’s nothing wrong with asking THEM to help you get it rolling. It’s in their interest to help you help themselves.

Angel Funds are NOT Startup Incubators

All this being said, I want to make a clear distinction between startup incubators and angel investment or early stage venture funds. They’re very different animals. An early stage fund will actually force you to have a minimum viable product with cash producing customers (or at least commitments) before even considering your project. They’ll usually vet your idea before putting cash into the till.

Startups have been happening for a very long time without startup incubators. Just go create and be your own incubator.

So what’s your experience with startup incubators? Shout at me below and tell me your story?

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