Many companies in today’s low interest rate environment are making acquisitions to bolster market positioning, the problem is this is very difficult when dealing with seed and early stage companies. In order to take advantage of the learnings from early stage companies, large corporates should look at creating accelerators. Creating accelerators allows large corporates to potentially take solutions and products from their accelerator residents and apply it to their core business for free. Most importantly it lets people with much higher risk tolerances (seeking greater rewards) identify areas to develop these solutions and figure out how to attract end users.
The size and scale of large corporates provides additional value when compared to regular accelerators because their networks can potentially generate great partnerships and contacts for startups while reducing financial risk/exposure. Additionally large corporates offer a good home for accelerator residents because they provide for ample testing ground. The corporations have many physical assets, employees, etc that can be used to develop and carve out pilot programs.
While all of this sounds great getting a corporate accelerator off the ground can be costly, because one of the main difficulties for large enterprises in creating accelerators is the ability to attract, retain and pay accelerator employees. Additionally implementing ideas from an accelerator in large workforces can be difficult because of resistance to change and just general scaling challenges. One way to get around the former is for large corporates to partner with or invest heavily in existing accelerators. Booz Allen Hamilton, for example chose to heavily invest in an already successful tech accelerator, 1776 and other companies like Microsoft are creating their own tech accelerators. These accelerators provide market insight and expertise which if used correctly could help large enterprises better understand the tech environment and make better long term investments.
An important thing to note about accelerators is that the ROI is probably over a 7 to 10 year time frame and the return is extremely varied from a pure investment perspective. For non-corporate accelerators, forty to fifty percent of companies within the accelerator will be failures, while another thirty to forty percent will just about break even, ten to twenty percent will do relatively well, but there is always the chance within that ten to twenty percent that one of the companies is a smash hit. Corporate accelerators have an additional opportunity to extract value from accelerator residents because they have the ability to take processes, solutions, and products from the accelerator that might not work well as a standalone business and figure out how to scale them up into the larger organization to improve profitability.
If done correctly an accelerator presents a great way for large corporates to develop an innovation driven culture, connect to future ceos, and offer differentiated products. Large corporates need to give thought to how they want to structure their accelerator. Do they want joint teams (internal or external), to invest in an independent accelerator, or co-invest with other players to develop an accelerator. They also need to identify key stakeholders that will ensure success of the program. Who are the internal champions? After all of these considerations then it’s time to identify people to run the accelerator and develop clear guidelines on when to exit or shut down an investment. In the best case this could be an extremely profitable investment, similar to Yahoo’s investment in Alibaba, that will deliver tremendous return and dividends to investors. In the worst case, accelerators allow large corporates to sneakily hire extremely talented individuals, understand emerging technologies and ecosystems, and identify solutions that can positively impact bottom line.