The science of incubation

Each one of us working with start-ups has a role to play; we need to display the same discipline we demand of our start-ups

India is witnessing an unprecedented growth in entrepreneurship. It has emerged as the third largest entrepreneurial hub in the world for tech start-ups. On LetsVenture, one of the platforms connecting entrepreneurs to investors, there are 18 new start-up registrations every day. Overall, there is tremendous interest, rising awareness and relatively easy access to capital. But the maturity of the system is still nascent. If the promise of this entrepreneurship revolution has to come true, we need to move beyond numbers and build maturity, depth and, finally, impact.

Today, most of the spotlight is on late-stage start-ups, a small minority that manage to survive the vagaries of entrepreneurship. While this is good, we also need to focus on ways to improve the odds of success for entrepreneurs in their early stages. Accelerators and incubators have an important role to play in this. There are more than 110 incubators in India. While one could argue that the number is low, their relevance is a more important question. If the real value of incubators is in improving the odds of success of start-ups, there is little evidence to support that. I would argue that to be relevant to and make an impact for early-stage entrepreneurs, incubators should think beyond passive assistance. At Axilor, our focus is to create the science and intellectual property of incubation.

What does the science of incubation entail? Like any good scientific experiment, we need to learn from the experiments, test new ideas and measure results. The early stages of a start-up are just a series of experiments. Most of these experiments fail and a few succeed. The learnings from the failed ones are as important as the results of the successful ones. A good way to think of an incubator is to see it as a place where these numerous experiments are being run by many start-ups, working next to each other.

The first aspect of this science is in creating a repository of these experiments. An incubator that is able to capture and use the knowledge of these failed experiments to benefit every succeeding cohort can improve the start-ups’ odds of success significantly. Such a repository of successful and, more importantly, failed experiments should allow each start-up to save time on solved problems and spend it on problems that are core to them.

Building the repository of experiments and inventory of smart hacks is in its early days. But even in the short period of nine months and two small batches, there have been several use cases. One of the start-ups in our first batch came up with an idea that required usage data for one of the utilities. However, their first approach to get this from a public sector utility provider met with a lot of challenges. They had to quickly come out with ways to source this directly from users. While this meant a change in approach for the start-up, their experience and learnings are now available for any other start-up working with the same customer segment or a similar idea. Another one cracked a tough packaging problem; the learning can save several days for another start-up with a similar problem. We have also seen that the difference in results for an experiment on customer acquisition, the best experiment can be as much as 10 times more effective than the average.

Measuring outcomes allows new benchmarks to be set for each milestone. It should increase the performance bar for other start-ups and help them learn rapidly from the inventory of solutions. The discipline of experimentation is not just for start-ups, it is applicable equally to Axilor. The mentoring process did not seem to deliver the intended value for the first batch. We have reworked the model to deliver the same value in four different ways — to impart knowledge by experts, to challenge the start-ups on specific outcomes through one-on-one sessions with practitioners, to hold them accountable to their goals, and to just be a sounding board and hear them out. We will know the results soon.

The second aspect of this science is in building a strong understanding of the problem space and curating problems for entrepreneurs to work on. Having spent the past year looking at innovations and entrepreneurial interest in different sectors, there are two clear challenges. In popular sectors like e-commerce, it is to improve the quality of the pipeline, and in sectors like healthcare, in which entrepreneurial interest has been trailing, the primary challenge is in creating the pipeline.

As a clearing house for ideas, incubators can play a direct role in connecting the right entrepreneurs to big problems. At Axilor, we are piloting a new approach to curating ventures. Recently, we brought together doctors, healthcare administrators, public policy experts, medical device professionals, financiers and academics to brainstorm ideas that we can then fund to get started.

The third aspect is in measuring outcomes. The real outcome measure for an incubator’s programme should be that the failure rate of start-ups in its portfolio should be lower than the system average. Start-ups move through three distinct stages — idea to pilot, pilot to launch and launch to scale. In each stage, their needs vary, be it for advice, expertise, customer access, talent or capital. The programme structure should clearly reflect which stage it is helping the start-up with and do what is required to improve the odds of success. Such focus will allow them to build expertise and help entrepreneurs choose the programmes that fit their needs best.

In India, we are at the cusp of something big. Entrepreneurship is seen as a panacea; it can create the much-needed jobs, unleash innovation and channel the energy of our youngsters into highly productive areas. But this is merely a promise at this point in time. Each one of us working with start-ups has a role to play. We need to try new experiments, measure outcomes, learn from failures, seek evidence of what is working well and scale that. In short, we need to display the same discipline we demand of our start-ups.

(part of the anniversary series from Axilor founders sharing their reflections on MINT: