Introduction

Now more than ever, big companies realize they must continuously innovate to survive. It's famously been said that software is eating the world, and we see technology-native startups licking their lips, preparing to make a meal of enterprises that are slow to adopt new technologies and business models. From automotive to insurance to retail and everywhere in between, innovative startups are attacking slower-moving incumbents - and the stakes are nothing less than survival. To arm themselves in this competition, it's no surprise that big companies are fighting fire with fire. And the hottest weapon du jour in corporate innovation is the corporate accelerator.

Accelerators are on the rise, with now thousands of programs established around the world since Y Combinator started as the first modern accelerator in 2005, and more are popping up every day. In the past few years, the surge in accelerators run by large corporations is astounding. It seems that every corporate innovation team feels the need to have an accelerator as part of its innovation program.

However, while intentions are good, most corporate accelerators are not achieving the intended results. Sixty percent of corporate accelerators fail within two years, and partnerships with the participating companies are achieved less than 1% of the time.1 Corporate accelerators are often seen as "innovation theater," one of several cliché and ineffective innovation initiatives that do not produce results and are a last resort for companies that are falling behind the curve.

The reasons for this are complicated. In the modern era, the pace of innovation has dramatically increased, resulting in traditional R&D programs being augmented by more nimble internal innovation initiatives such as venture studios, corporate venture capital (CVC), accelerators, and startup partnership programs. This is a critical development, as big companies no longer have time to wait for R&D labs to perfect and commercialize technology. They need to go to market earlier, move faster, and allow for quick failures. This is not easy for large, complex organizations to do. Big companies need a way to translate startup energy and speed into the established processes and assets of the corporation.

In an effort to adapt to these new market conditions, corporate accelerators have become a favorite tool for big corporations. The current version of these programs simply mimic successful independent accelerators that are effective in the startup and venture capital industry.

The intention is to give big companies an early view into emerging technologies and business models that could threaten their future, and to develop partnerships that form powerful alliances to turn this threat into opportunity while positively impacting corporate culture. On the flip side, for startups that participate, the potential partnerships with big companies are appealing because they allow for quick learning, an increase in credibility, and massive distribution channels.

This should be a win-win, but most of the time corporate accelerators do not live up to their potential. So why aren't they working? Let's look at a specific example.

A CASE STUDY ON CORPORATE INNOVATION

A didactic case study to demonstrate the complex dynamics of corporate innovation is that of Fabricated Company, Incorporated - or FabCo for short - a typical multinational public company that has stagnated and started down the path of corporate innovation. FabCo is starting to invest in a variety of innovation initiatives to breathe life back into the aging organization and keep it competitive by partnering with emerging technology-native up and comers. Through its 100-plus-year history, it has experienced both meteoric successes and near-company-killing failures based on its ability (or inability) to innovate and adapt.

It's worth summarizing the corporate story as a benchmark to guide us throughout this book.

From humble, entrepreneurial beginnings, FabCo started in 1912 as a manufacturer of components for the electric telegraph. When 21-year-old founder Federico "Freddie" Giovanni - an electrician and Italian immigrant living in Newark, New Jersey - lost his cousin Vincenzo during the sinking of the Titanic in April of that year, he was inspired to start a company that would have saved more lives in that disaster. At the time, wireless telegraphy was critical to enable effective communication between ships, and although it was extremely valuable in the rescue efforts of the Titanic, Freddie knew there was room for improvement that could have saved his precious cousin Vincenzo's life.

Based on his experience fixing electrical systems throughout New Jersey that expanded and contracted throughout the year in the cold winters and hot summers, Freddie patented a special polymer for electric telegraph wiring that dramatically increased transmission speeds and was more durable in harsh conditions. He quickly became a go-to component provider for the major telegraph, then telex, then typewriter companies around the world.

Over the years, with slow and methodical growth, Freddie led FabCo to become a major market player. At that time, the Roaring Twenties were in full swing and public markets were expanding faster than anyone had ever seen before. Freddie successfully took FabCo public on the New York Stock Exchange (NYSE) ringing the bell in March of 1929. Thirty-eight-year-old Freddie was at the top of the world, and this immigrant from working-class beginnings was now a very wealthy man with a thriving business. Coincidentally this month was also when his first and only son, Freddie Jr., was born. "Junior" was Freddie's pride and joy, and also his heir apparent to the business.

Then, only a few months later on Thursday, October 24, 1929 - now known as Black Thursday - the stock market started plummeting in a record crash, culminating a few days later on Black Tuesday, the worst day in stock market history. A tidal wave of panic consumed Wall Street, and the share price of many companies, including Freddie's, plummeted while consumer confidence was obliterated. This led to the Great Depression, the worst economic downturn in the history of the industrialized world, which lasted for nearly 10 years.

FabCo was one of the lucky ones that was able to salvage the business from the brink of destruction. Freddie slowly built the company back up from near ruin with a steady hand and reversion to fundamentals, reinvesting in his core products and services. During these dark times, Freddie was hesitant to take risks and invest in newer technologies. Throughout the 1940s FabCo slowly clawed its way back to stability, and in the 1950s even started growing revenues by single-digit percentages each year. During that time, Freddie had been grooming his son Freddie Jr., affectionately known as Junior, to take over the business. In 1964, at the age of 73, Freddie Sr. retired and Freddie Jr. became the new CEO.

Junior had worked at FabCo since graduating from Yale at 20 years old, with the exception of the 2 years he took off to attend Harvard Business School and a short stint working with his HBS professor Georges Doriot at American Research and Development Corporation (ARDC). He had big ideas and wasn't a fan of his father's old-school business traditions; he wanted to make his own name in the business world by transforming the stodgy telegraphy components business into an innovative company of the future.

By the time Junior took over the business at the age of 35, he was particularly excited about the nascent field of computing as the path forward for FabCo. He was an early follower of Alan Turing once he presented the idea of a universal machine capable of computing anything in 1936. He met with David Packard and Bill Hewlett in their Palo Alto garage in the 1940s and wanted to invest in their business with a new form of financing called "venture capital" that he learned from Professor Doriot at ARDC, the first-ever VC firm. But his father did not allow it. Junior followed closely when William Shockley and his research team at AT&T's R&D arm Bell Labs invented the transistor in 1947. The year he took over as CEO, he watched intently as Douglas Engelbart at Stanford Research Institute (SRI) presented a prototype for the graphical user interface (GUI), which made computing more accessible to the mass market.

Junior believed this was the future and wanted to reinvent FabCo as a modern computing company. He heavily invested in new products related to computing, built up expensive R&D labs and started slashing and burning the existing business related to telegraphy. He set up experimental secret divisions to create new products, which caused intense tension among the executive ranks.

While arguably ahead of his time, Junior struggled to make these initiatives work. Through a series of overambitious plans, huge R&D budgets, internal politics, executive attrition, slower than expected adoption of personal computing, and the depletion of necessary resources from the core "cash cow" businesses, Junior rapidly drove FabCo into the ground. The company was performing so poorly that they were about to be delisted from the NYSE and investors were lobbying intense pressure to break up the company. In 1971, on the same day as Alan Shugart and IBM announced the invention of the "memory disk" (better known today as the floppy disk), the board of directors forced Junior out. In a bold move, the board hired Louis Garrison, a senior partner...