New insights on what makes emerging market entrepreneurship accelerators work (Posted on DEVEX)
Accelerators work, but the best ways to help entrepreneurs may surprise many startup veterans, according to a report released Monday that, for the first time, examines the effectiveness of accelerators and incubators working in development.
Choosing quality ideas, giving entrepreneurs more free time, focusing on communication and networking, and starting early are among the most effective ways to help startups get off the ground, the report, published by the Global Accelerator Learning Initiative, found. Another conclusion may also sound familiar to humanitarians: there is no one-size-fits-all approach, and understanding local context is key.
The report comes amid a rise in the number of accelerators and incubators geared toward companies hoping to provide answers to what would traditionally be questions of aid and development.
The authors studied the accelerators run by Village Capital, an organization that helps train and fund entrepreneurs “solving global problems.” Because Village Capital’s accelerators share much in common with other similar programs, the study’s authors believe their findings may have broader implications.
“On average, acceleration does seem to be working,” said Saurabh Lall, the research director for the Aspen Network of Development Entrepreneurs, which helped co-author the report. According to the report data, businesses that went through an accelerator raised almost eight times the investment money than nonaccelerated businesses. Still, the success of businesses in the accelerators varied.
The most successful of Village Capital’s programs were in the United States and Mexico, whereas the lowest performing were in developing countries. And while the study didn’t go into great detail about those differences, the findings highlight the need for tailored programs that approach each context differently.
Adopting a copy paste mentality of exporting U.S.-style accelerators doesn’t work, said Ross Baird, the executive director of Village Capital.
“The results have definitely made us, particularly in emerging markets, throw out a lot of the original programming,” he said. “It made us rethink the ways that we help entrepreneurs communicate and have opportunities.”
Curriculum and content
The GALI report is aimed at finding strategies that work — and don’t work — in structuring these programs.
For example, many programs today pack the curriculum agenda for entrepreneurs in an effort to help them get the most out of the experience. But GALI’s research shows that top performing programs actually gave entrepreneurs the most time on their own to work individually on their business or network.
“It kind of goes against the notion of value added,” said report co-author Peter Roberts, a professor and the academic director of social enterprise at Emory University’s Goizueta Business School. He said it may be a challenge for accelerators to accept that they are still doing their jobs even if they are not filling every minute with programming.
Accelerators in the developing world also tend to focus their curriculum heavily on business plans and financial skills. But the report showed that the most effective programs spent less time on those hard skills and more time on softer skills like communication, presentation and networking.
“Time-bound, curriculum-based, mentor-driven programs do not work as well in emerging markets as they do in the U.S.,” Baird said, adding that it’s a clear indication that emerging markets entrepreneurship support programs need to be structured differently.
Especially where English is a second language, teaching communication skills to mitigate the barriers between entrepreneurs and investors has proven to be important, he said.
The quality of partners – investment companies or initiatives Village Capital brought on – or their willingness to “roll up their sleeves and work on content” rather than just bringing their brand, were also shown to be an important factor, Lall said.
The same rings true with mentors. Strong and committed mentors are important, but not all mentors make a significant difference, the report found. Having famous names was less important than having mentors who could spend time with the entrepreneurs and help with the challenges unique to them.
Similarly, well-known brands may not always be good fits as partners companies. Those companies’ employees may be used to having abundant resources, whereas the entrepreneurs they are advising are operating in a resource scarce environment, Baird said.
Some of the lessons about content may seem like common sense to some educators. Throwing a lot of information at someone over a short period of time can create cognitive overload, for example.
In light of the GALI findings, Village Capital will pivot to teach more hard skills remotely, including online, while focusing on networking and other soft skills in person.
Admissions and selection
The GALI report also aimed to study how accelerators can select companies to maximize success.
While some accelerators may be inclined to boast a high number of applications and low acceptance rate, the study found that the most successful programs had fewer applicants. Many such programs were more targeted by sector, and the preparation of those applicants was generally better.
“The quality of the applicant pool is clearly superior in programs that are doing better,” Roberts said, adding that the trick is understanding a particular sector or location’s ecosystem and getting the right people to apply.
That’s another lesson Village Capital will try to now apply, focusing on the quality of applicants rather than using quantity as a key performance indicator. This “is definitely a shift,” Baird said.
The organization will also think differently about how it selects participants based on the findings in the data that showed that early stage entrepreneurs tended to benefit the most from acceleration.
Selecting the right companies at this early stage is a challenge, and financial figures may not be the best indicators, the report also finds. Good entrepreneurs with fewer resources — who might be prime candidates — are sometimes eliminated from the process when revenue is the main selector. That’s a particular issue in emerging markets, where it can be difficult to gain traction with seed investors if you can’t self fund or lack the networks to raise money.
“I think one of the things pretty much everybody gets wrong is entrepreneur evaluation and the capability of the founding team,” Baird said. “We do not have a sophisticated way to evaluate how good the team or jockey is.”
Village Capital will try to take a wider lens in how it evaluates entrepreneurs, including possibly through psychometric tests, Baird said.
The GALI report is just the first in what authors hope will be a quarterly research series on accelerators, particularly in developing countries. They have already gathered data from other programs and will continue to do so as they build the database.
This first report “stimulates the need to take a deliberate and structured look at developing countries,” Roberts said.
Up next will likely be an analysis of accelerators in Latin America run by nonprofit TechnoServe, looking at how factors across different countries impact the success of the program. GALI will also be doing some mapping of accelerators across the globe and will work to publish data as they go.
“This design is more actionable,” Roberts said, so that programs and donors can adjust their strategies as they go.