How “slowcubators” will replace the traditional corporation

February 23rd, 2012 by Alex

As startuppers ourselves, at Keplar we do a lot of thinking about what the future shape of the startup ecosystem looks like in the UK, Europe and beyond. Yesterday Fast Company ran an interesting profile of successful West Coast incubator Y Combinator, entitled “Paul Graham: Why Y Combinator Replaces The Traditional Corporation”. The article broadly set out how Y Combinator is building a sophisticated ecosystem of complimentary, collaborative startups who help each other out on their path to building traction and profitability, in ways which rival the more ossified, hierarchical form of a traditional corporation; the piece has engendered a lively debate on Hacker News.

Pilot fish accompanying an oceanic whitetip shark in the Red Sea

In my response in the thread I agreed with the underlying trend (keiretsu collectives of innovative, smaller companies outcompeting traditional corporations), but argued that Y Combinator is the wrong posterchild for this movement, for a couple of reasons:

  1. Y Combinator’s success criteria for its startups involves a liquidity event – in the Y Combinator literature, there is no mention of a company staying privately owned and profitable as being a successful outcome. This is unsurpising given that Paul Graham (the founder of Y Combinator) himself exited to Yahoo: businesspeople’s success criteria tend to be largely shaped by whatever made them successful in the first place
  2.  To date, Y Combinator startups’ liquidity events have all been sales to medium-to-large companies (see this list). There are likely a couple of big IPOs (Dropbox and Airbnb) on the horizon, but the general trend is for Y Combinator-funded startups to be acquired by traditional corporations, which boosts those large companies’ competitiveness and innovation capability

So, I would certainly say that Y Combinator’s structure is unusual and admirable among its incubator peers – but de facto Y Combinator acts much more like a pilot fish for traditional corporations (creating some kind of new, syncretic innovation model for them), rather than as a replacement for them.

To generalise: the most effective of the current crop of incubators create a co-dependency with the acquiring corporations (a liquidity event exchanged for innovation potential), so it is hardly correct to look to those same incubators to surplant those acquiring corporations. However, at Keplar we do see a potential threat to the traditional medium- to large-sized company from a new breed of incubator – what we might call “slowcubators”. A slowcubator would look like this:

  1. No expectation of a liquidity event in the child companies. It’s expected instead for the child companies to become self-sustaining, profitable businesses a la GitHub, Plenty of Fish or Mixcloud
  2. Significant shared technology IP – this is something a Y Combinator-like incubator cannot do, because shared technology IP makes it impossible for a startup to be acquired. However it makes huge sense for a slowcubator, because a) acquisitions are the exception, not the norm, and b) there are huge cost savings to be made by sharing technology IP across properties (think private PAAS, Chef recipes, AdWords automation tools etc). Joltid is a great example of shared technology IP driving multiple successful startups (if not successful acquisitions)
  3. Staff incentives which are not structured around focusing 100% on one product until it exits or dies, but instead encourage staff to rotate within the slowcubator’s companies to where they are currently needed most. It is great that the Django creator can answer a Y Combinator founder’s questions over some beer and pizza, but in a slowcubator he would be hands-on helping multiple products to be as good as they can be (as David Heinemeier Hansson, the creator of Rails, does at 37signals)

In the same way that the startup acquisitions of the past decade shaped the incubator model that we see today (and is exemplified by Y Combinator), we fully expect the bootstrapped successes that we are seeing today to give rise to a wave of slowcubators – the best of which will indeed rival (if not replace) the traditional corporation.

If you agree or disagree with our prediction – or better yet, if you know of an existing slowcubator – let us know in the Hacker News thread.

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