The Role of Accelerator Designs in Mitigating Bounded Rationality in New Ventures

Abstract

Using a nested multiple-case study of participating ventures, directors, and mentors of eight of the original U.S. accelerators, we explore how accelerators' program designs influence new ventures' ability to access, interpret, and process the external information needed to survive and grow. Through our inductive process, we illuminate the bounded-rationality challenges that may plague all ventures and entrepreneurs-not just those in accelerators-and identify the particular organizational designs that accelerators use to help address these challenges, which left unabated can result in suboptimal performance or even venture failure. Our analysis revealed three key design choices made by accelerators-(1) whether to space out or concentrate consultations with mentors and customers, (2) whether to foster privacy or transparency between peer ventures participating in the same program, and (3) whether to tailor or standardize the program for each venture-and suggests a particular set of choices is associated with improved venture development. Collectively, our findings provide evidence that bounded rationality challenges new ventures differently than it does established firms. We find that entrepreneurs appear to systematically satisfice prematurely across many decisions and thus broadly benefit from increasing the amount of external information searched, often by reigniting search for problems that they already view as solved. Our study also contributes to research on organizational sponsors by revealing practices that help or hinder new venture development and to emerging research on the lean start-up methodology by suggesting that startups benefit from engaging in deep consultative learning prior to experimentation.

Do differences among accelerators explain differences in the performance of member ventures? Evidence from 117 accelerators in 22 countries

“…Our literature review reported a lack of agreement on whether between accelerator differences explain differences in venture performance (Cohen & Hochberg, 2014). Hallen, Bingham, and Cohen et al (2019) compared accelerated ventures against nonaccelerated ventures and found that top accelerator programs shortened the time for raising capital, accelerating sales, and shortening the time to exit. They did not find evidence that accelerators influenced start‐up development activity, such as the hiring and training of talent.…”

“…Second, while the data are useful for our variance decomposition method, we lack detailed organizational and process information on accelerators or ventures. Though recent studies have showed that accelerators to play an important role in accelerating ventures on the path to commercialization (Cohen et al, 2019; Cohen & Hochberg, 2014; Hallen et al, 2019) and that sorting effects are controlled by “inverse probability of treatment weights calculated at the venture‐level to dampen the influence of any sorting dynamics based on observable attributes” (Hallen et al, 2019, p. 18), our results cannot say anything about whether and how a particular accelerator impacted a particular venture's performance. Instead, our methodology can only explain whether differences between accelerators explained differences in venture performance.…”

“…In a nested‐multiple case study of eight original U.S. accelerators, Cohen et al (2019) found that variations in the design of acceleration programs such as the number of consultations with mentors, interactions with potential customers, and peer networking explained differences in venture performance. In a large‐scale survey of 4,643 ventures from accelerator programs in developed and developing economies, Chowdhury and Audretsch (2019) found significant differences across accelerators in their level of venture support and resources.…”

“…Accelerators through their fail‐fast model also differ in the ways they counter knowledge myopia (Cohen et al, 2019), attenuate institutional illegitimacy (Leblebici & Shah, 2004), leverage stakeholder relationships (Rothschild & Darr, 2005), and correct malformed business models (Hackett & Dilts, 2004). In short, variations in accelerator morphology come from differences in the routines, structures, and resources (such as educational programs, networking opportunities, staff expertise, goal setting style, and access to financing).…”

“…Differences among accelerators, what we call “accelerator morphology,” could include but are not limited to organization structures, bespoke resources, and locally adapted managerial processes. These differences may heighten the between‐accelerator differences in accounting for venture performance (Cohen, Bingham, & Hallen, 2019). We offer a way of assessing these estimates by exploiting variance decomposition techniques.…”