Offering startups workspace, mentorship and funding is a good start but not nearly enough for startups that want to sell their products to the enterprise. The traditional accelerator model is changing and for B2B startups that is a good thing.
How many times have you heard the old famous words: "I just don’t feel that way about you"? There is still an abundance of startups developing technology that is not solving any real pain points. Even though the likes of Eric Ries and Steve Blank (founders of the Lean Startup Movement) have taught startups (and even corporates) a great deal on customer validation and starting small to scale fast, I still meet startups that have an interesting piece of technology but focus on the wrong product-market combination.
More and more startups focus their products on large organizations. Selling to a corporate is hard, incredibly hard. I am talking about sales cycles of 9 to 18 months, numerous meetings and in many cases a failed pursuit. Startups that roadshow their product within the corporate domain, find out soon enough that only once they encounter a client that really, really needs the product to solve a problem, they will convert to a sale.
Accelerators (focused programs to accelerate the growth of a startup by a combination of mentoring, housing and funding) play an important role in the ecosystem. They are able to attract international teams and spur the growth for the startups involved. Well-known accelerators are Y Combinator, TechStars and Rockstart. Out of these, Y Combinator is by far the most famous accelerator with over 800 startups that participated in their 90-day program which brought forward companies like Airbnb, Dropbox and Reddit. Amsterdam-based Rockstart, in contrast to Y Combinator and TechStars, has a longer program consisting of 150 days during which startups can fine-tune their business and prepare for scaling. Alumni include Peerby, Owlin and Cupenya.
But what about the demand?
Even though these programs provide a robust foundation for startups, one important thing is missing for enterprise focused startups: a clear demand. In the proof of concept phase, startup founders spend a lot of time to pinpoint a client that has a clear need for their solution and has the risk appetite to actually spend budget on a startup. It is a common situation where the startup has had a great first meeting with a company’s innovation manager, only to find out there is no follow up due to a lack of interest in the business. There is a problem here, the innovation manager, who is responsible for maintaining good relationships with the startup ecosystem, wants to display an open culture and is by nature a startup enthusiast. Meanwhile the business is already overburdened with their own challenges and can only be distracted for a solution that exactly fits their need.
How much easier would it be, if we would start with the corporate challenge beforehand? If we know what these large organizations want, what they really need, it shouldn’t be too much of a problem for the bright startups to come up with a solution that is fit for this purpose. Or even so, we could identify technology is already 80 percent applicable. What if we add scale to this approach, and build an accelerator founded on specific organizational challenges? An accelerator that has a client base even before the startups join the program?
Elements of the challenge-driven accelerator
The challenge driven accelerator works from a challenge that arises at the corporate side. They connect startups and corporates to help them gain mutual benefits as startups gain access to corporate clients while corporates can use open innovation to tap into the innovation capabilities of startups. Using existing tech solutions of startups, corporates can take lower risk against lower costs while it allows for rapid experimentation and a creative mindset. One of the first accelerators that work this way is The Bakery. This accelerator specifically aims to help the advertising industry transform its business model by means of its format.
This new kind of accelerator could be transported to other industries like energy, financial services or health. The challenge-driven accelerator uses a set of elements that are inherent to its success. First, the challenge driven-accelerator focuses on a specific challenge that arises on the corporate side in the case of The Bakery. This ensures the demand for the innovation, the client is already involved and has a clear objective. Secondly, residence in the program is of temporary nature during which the process goes from meeting to innovating in only 10 weeks. Lastly, The Bakery has a value based revenue system, the company takes a part of the (startup – corporate) deal. Instead of taking equity, the accelerator takes a performance-related commission once the solution goes to market.
The future accelerator?
Even though The Bakery has acquired some reputable clients such as BMW, Unilever and Virgin, it was already founded back in 2013. The model seems to be working for companies in the marketing and advertising space, but has not find its way to other industries (yet). It might be interesting for other existing or new accelerators to consider adding elements from the challenge-driven accelerator model into their current model to gain competitive advantage in the congested market for accelerators. Ultimately, this can create a new wave of accelerators in the ecosystem, disrupting the accelerator space. Working for KPMG Innovative startups, we are now in the midst of developing a challenge based program.
KPMG’s experience with accelerators
KPMG bridges the gap between the corporate and startups. One of the activities is to design and run an innovation engine that can generate minimal viable products from successful ventures. The developed products and services can help to future proof or create new business models. KPMG’s experiences include supporting the blueprint of Holland FinTech (the Dutch FinTech community), the setup and management of the largest energy accelerator in Asia-Pacific called Energise, and FinTech Hub Stone & Chalk in Sydney, Australia.
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Daniël founded the Innovative Startup Group in the Netherlands and is responsible for setting up collaborations with technology startups for KPMG. In his work he helps corporate clients around the world identify and work with the right startups. He and his team also help organizations setup an innovation function and drive technological change.