Designing the Successful Corporate

Accelerator. How Startups and Big

Companies can Get with the Program
Jules Miller
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Designing the Successful
Corporate Accelerator
 Designing
the Successful
Corporate
Accelerator

Jules Miller
Jeremy Kagan
Cover Design and Images: Ewelina Olechowska

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Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

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Library of Congress Cataloging-in-Publication Data:

Names: Miller, Jules (Advisor to enterprise startups) author. | Kagan,

Jeremy (Growth and innovation consultant) author.
Title: Designing the successful corporate accelerator : how startups and
big companies can get with the program / Jules Miller, Jeremy Kagan.
Description: First edition. | Hoboken : Wiley, 2021. | Includes index.
Identifiers: LCCN 2020056295 (print) | LCCN 2020056296 (ebook) | ISBN
9781119709060 (cloth) | ISBN 9781119709084 (adobe pdf) | ISBN
9781119709053 (epub)
Subjects: LCSH: New business enterprises. | Corporations. | Technological
innovations—Management.
Classification: LCC HD62.5 .M545 2021 (print) | LCC HD62.5 (ebook) | DDC
658.4/063—dc23
LC record available at https://lccn.loc.gov/2020056295
LC ebook record available at https://lccn.loc.gov/2020056296

10 9 8 7 6 5 4 3 2 1
 This book is dedicated to all the innovators, disruptors, change agents, and
intrapreneurs who are working hard to innovate from within your companies.
It’s often a thankless job as you try to move mountains with only your bare
hands and sheer willpower. We’ve been there and feel your pain. We hope this
book helps you, at minimum, with another supporting hand to move those
mountains. We know you can make it happen!
Contents

Foreword ix
Acknowledgments xiii
About the Authors xv
Introduction xix

SECTION I Corporate Innovation Is Hard 1

CHAPTER 1 Accelerators and Corporate Innovation 3

CHAPTER 2 A Crash Course on Innovation Theory 17

CHAPTER 3 A Complex Machine to a Simple Machine 39

SECTION II Get with the [Accelerator] Program 55

CHAPTER 4 Startup Accelerators 57

CHAPTER 5 Accelerator Archetypes 73

CHAPTER 6 Know Your Why 95

SECTION III Buy In or Walk Away 109

CHAPTER 7 Stakeholder Engagement 111

CHAPTER 8 Resources 129

CHAPTER 9 Outsourcing and Delegating 139

vii
viii Contents

SECTION IV Before the Program 149

CHAPTER 10 Recruiting and Selection 151

CHAPTER 11 Investment 175

CHAPTER 12 Metrics and KPIs 193

SECTION V During the Program 207

CHAPTER 13 Programming 209

CHAPTER 14 Mentors 225

CHAPTER 15 Making Partnerships Work 241

SECTION VI After the Program 263

CHAPTER 16 Post-Program Portfolio Management 265

CHAPTER 17 Planning for Long-Term Success 279

Endnotes287
Index303
Foreword

Finding your way through any unfamiliar jungle is always easier with Google
or (gasp) even paper maps. That’s why this book is so important – it’s the map
big corporations need to uncover a disruptive innovation powerhouse inside
their own companies. Designing the Successful Corporate Accelerator first
challenges whether you have the right pieces in place to set up an accelerator
at all, and if you do, it helps you navigate the road to success along every step
of the way. For the best results, consider sharing this book generously with
your leadership team and everyone involved in the innovation process.
Successful disruptive innovation is a war that big corporations have been
losing for generations. With your determination and the authors’ guidance,
perhaps the next decade can be the turning point where companies actually
get it right. What the heck, it’s only been 75 years since we lost Henry Ford,
and 90 for Thomas Edison, right?
Over the past century, large companies poured billions of dollars into
allegedly disruptive failures with an embarrassing success rate – well below
10%. Remember Edsel, Saturn, Betamax, and New Coke? They’re just a
whisper of the cast of fallen characters. Each is incrementally innovative,
for sure, but all are simply old solutions with a few new bells and whistles.
And, as the authors discuss, many corporations excel at innovation the-
ater: putting young people in cool tech-forward office space with foosball
and ping pong plus a dozen exotic flavors of fresh-ground coffee. Seldom
have these theaters produced any meaningful disruptive innovation, the
kind that changes lives, markets, or the way we do things. You know,
things like self-driving or electric cars, hydrogen fuel cells, iPhones, or
even Amazon.com. It’s fundamentally different, far more intense innova-
tion, writ large.
Most of the time, truly disruptive innovation is the province of
startups – many founded in the proverbial garages like trailblazers Apple and
HP. These smaller, more nimble companies – usually led and nearly always
staffed by T-shirted, scruffy 20- to 30-year-olds – consistently deliver the
lion’s share of disruptive innovations that continuously change our universe.
Startups aren’t shackled by the constraints or bureaucracy of the dinosaur

ix
x Foreword

corporations, which allows them to be creative and try things that bigger
companies can’t (or won’t). And they do it at a blistering speed.
In 1973, when I last worked at a Fortune 1000 company before joining
the entrepreneur and venture capital world, I mostly worked the 2:30–9:30
a.m. shift, editing news for Westinghouse Broadcasting. Apple, Microsoft,
Oracle, and SAP were born at this time. Tesla, Uber, and others followed
in a nonstop recurring pattern readily summarized as “startups innovate,
corporations execute.” And for the past 50 years or so, with a few notable
exceptions, truly disruptive innovation has been seen as antithetical to the
common wisdom practiced by the world’s leading corporations. “No skate-
boards, risk-taking or failures in these hallowed halls, sonny!” is the mantra.
Corporate managers plan, then execute the plan, and the corporation exe-
cutes those who don’t execute. See, it’s simple. But how?
Risk-taking that leads to disruptive innovation is just so much easier in
a startup. Unlike corporations, startups basically have nothing to lose – no
customers to screw up, no reputation to sully, and no rulebook or procedures
manual to follow religiously. Most corporate executives described startup
operations as chaos theory in action . . . there was no formal process, no
roadmap to guide the innovation process. Then in 1999 Steve Blank retired
after the $8 billion IPO of E.piphany, the company he founded three years
prior, and decided to teach and write down what he’d learned in a career
spanning a dozen startups.
Steve spent months developing a “test and iterate, then test again”
business innovation model called Customer Development, later rebranded
as “Lean Startup.” It’s often likened to the scientific method as applied to
business innovation. Since we’d worked closely together launching his
startup, Steve asked me to join him and write the method down in painful
detail. Two years and 1,000 revisions later, we published The Startup Owner’s
Manual (Wiley), a bestseller in 23 languages. It translates Steve’s principles
into a granular, gritty, step-by-step process for turning ideas into repeatable,
scalable, and (ultimately) profitable businesses.

WHY CORPORATE ACCELERATORS?

The demand for corporate innovation increases almost daily. Markets and
customer needs change at an increasing rate, pandemics notwithstanding.
New competitors and innovations emerge, often from startups, intensifying
the big company challenge to deliver consistent new product launches,
topline revenue growth, and steadily increasing profits in the face of
 Foreword xi

unpredictable enemy forces. If you’re even thinking about reading this book,
I need say no more.
As the authors quickly point out, innovation requires an organization wil-
ling to move fast, ignore process, break rules, and take risks – vital ingredients
antithetical to and seldom seen in even the fastest-moving major corporations.
Internal accelerators bring the rocket-fueled, rule-breaking, T-shirt-wearing,
spunky, devil-may-care entrepreneurs inside the corporation, ideally shielded
from many of the processes, rules, and procedures that make big companies
successful. Your authors Jules Miller and Jeremy Kagan have seen the movie,
fought the battles, and will walk you step by step through the complex decision
set that drives a successful corporate accelerator.
Corporate accelerators are hardly a one-size-fits-all proposition, and the
book does a great job outlining the choices, pathways, and operating princi-
ples in getting the right accelerator launched the first time. And it guides you
through the strengths and weaknesses of matching your program with differ-
ent corporate objectives, environments, industries, geographies, and more.
Now you, too, have a roadmap. In fact, it appears you’ve already
bought it! This wonderfully comprehensive how-to guide is from two sea-
soned entrepreneurs who have served as “accelerator accelerants” and corpo-
rate innovation leaders. With this book, Jules and Jeremy have done exactly
the same thing for corporate innovation that Steve Blank and I so proudly
created for startups. They’ve crafted a comprehensive, granular, step-by-step
playbook for the process of considering, planning, funding, and executing a
successful corporate accelerator.
Use it well, travelers!

Bob Dorf
Serial entrepreneur, startup advisor,
educator, best-selling co-author,
The Startup Owner’s Manual.
Acknowledgments

In the preparation of this book, we have been so fortunate to have support

and encouragement from colleagues and peers around the world. We are for-
ever grateful to the people who took time to review this book and make it
better, and to all of the people we interviewed who shared the good, the bad,
and the ugly of running innovation programs.
We’d like to offer particular thanks to our fellow accelerator professionals,
who gave us insight into their own struggles and ways of doing things, from
colleagues at Columbia University like Daniel Goetzel and Dmytro Pokh-
ilko; Murat Aktihanoglu and Jon Axelrod at Entrepreneurs Roundtable
Accelerator; Scott Howard at Share Ventures; Dustin Shay at Village Capital;
KJ Singh and Matt Kozlov at TechStars; David Post and Marie Wieck at IBM;
and many more.
To other friends who may have spoken with us just once but made an
impact: It may have been a short conversation or a simple anecdote to you,
but your guidance and confirmation of your own challenges and successes
made the book much better. While we couldn’t share all of the amazing
stories, they absolutely informed our thinking and contributed to the result.
There were several people who provided crucial assistance in the actual
writing and research process. We’re looking at you, David Golding and
Gabi Silver Wolozin. Your dedication and hustle summarizing interviews,
researching background information, reading drafts, and keeping us all on
track made the writing process smoother and much more enjoyable. Thanks
for the meetings, the musings, and the mental muscle. Also many thanks
go to our fantastic interns and collaborators who helped with interviews,
research, and writing, including Zach Epstein, Austin Chung, Richard Tsay,
and Scott Jenkins.
We absolutely must thank our individual partners and families, who tol-
erated the need for quiet time to write (and write and write) as well as odd
hours for calls and meetings. When one person was writing, the others took
over double duties on the home front, which we are especially appreciative
of in the middle of a global pandemic. We truly thank you and appreciate
your support.

xiii
xiv Acknowledgments

Jules is incredibly grateful for everyone at the Kauffman Fellows

Program. This research started as my final Thought Leadership Project for
the program, and I wouldn’t have jumped down the rabbit hole otherwise.
I must also thank my mother, Rhonda Miller, who has been a journalist for
more than 50 years and helped to refine early drafts of the book and affili-
ated blog posts. Without you I wouldn’t have had the courage to think I could
write a book at all, or the grammar and vocabulary skills to communicate
my ideas. I’d also like to thank my partner Amir Chaudhri, who is the most
loving and supportive human anyone could ever hope to have in their corner.
You’ve always been a rock-solid advocate of my ambitious career plans, and
I’m grateful for your patience and love while writing this book, the second
most important thing I co-created this year.
Jeremy continues to realize how much successful writing has been a
team effort. To my wonderful wife Katherine, so many thanks – every bit of
quiet time for writing I could grab depended on you successfully distract-
ing our three kids. That you accomplished this miracle in lockdown from
coronavirus and made it look effortless is why we have a book. And to the
kids – Alexis, Rose, and Jacob – Daddy loves you, even when he needs some
peace and quiet to get the writing done. Thanks for your patience and support!
Of course, there is our talented team of experts, the people at Wiley, who
believed in this project and provided amazing professional assistance as we
brought the book to life. Special appreciation to Michelle Miller and Ewelina
Olechowska for the stellar graphics. And thank you to the editorial team
for making us sound better and forcing Jules to use an Oxford comma. We
appreciate your patience during the moving target of delivering new chap-
ters as we kept trying to make it perfect.
Last, but certainly not least, we are grateful to the readers of this book
who are called to work in the field of corporate innovation. Getting this right
is a challenging and often unappreciated task, but we appreciate you and
can’t wait to see you succeed. We’ve done the easy part of aggregating the
existing wisdom and case studies, then mapping out a course to follow. The
hard part is doing it, which is up to you.
About the Authors

Jules Miller has alternated between working in the corporate world and the
startup/VC world for nearly two decades in Silicon Valley, New York, and Los
Angeles. She started her career at Ernst & Young in the Venture Capital con-
sulting group, then became an “intrepreneur” before she had any idea what
that was. She would consistently (and annoyingly) suggest new initiatives to
her boss, who thankfully allowed her to work on these projects as long as her
core job was prioritized, then supported the initiatives that gained traction.
This included completing the Big 4 accounting and consulting firm’s first
carbon footprint and also launching new business units around cleantech
and environmental sustainability.
Miller then founded three companies, a consulting firm and two venture-
backed tech companies, one of which is still a thriving, profitable business
and one of which was acquired. She went through the process of applying to
multiple accelerator programs as an entrepreneur and ultimately decided not
to participate when accepted due to a perceived lack of value or long-term
support that made it seem not worth it to give up a big chunk of equity.
More recently, Miller tried to address these issues when she launched two
highly regarded blockchain accelerator programs for IBM and co-founded the
IBM Blockchain Ventures group. She felt the challenges of corporate innova-
tion first hand, and as a result has developed a clear perspective on building
and managing accelerator programs that work for both the big companies
and the participating startups. She now works with several accelerator pro-
grams as a mentor and is an entrepreneur in residence at 500 Startups.
Miller is currently a partner at Mindset Ventures, a venture capital fund
investing in early-stage enterprise software companies. Mindset started as
a partner fund to a global Microsoft Accelerator program, along with sev-
eral other corporates, and eventually spun out to be an independent entity.
They still source many good investments from Y Combinator, the Microsoft
Accelerator, and other accelerator programs, and believe fully in the power
of corporate-startup partnerships. Miller spends much of her time working
with the founders in her portfolio to help them effectively partner with large
enterprises.

xv
xvi About the Authors

Miller is a Kauffman Fellow, a scout for Indie.vc, a venture partner for

Republic, and an advisor to several enterprise startups and corporations that
want to partner with startups. She moved from NYC to Los Angeles in the
middle of the global pandemic (and writing this book!), and she is slowly
learning to appreciate this thing called work/life balance.

***

Jeremy Kagan is a growth and innovation consultant, and advisor to cor-

porations, startups, and digital media companies. He is the former managing
director of the Eugene Lang Center for Entrepreneurship at Columbia
Business School, where he oversaw the entrepreneurial curriculum, student
programs, the Lang venture capital fund, and the Columbia Startup Lab.
While there, he launched the Columbia Alumni Virtual Accelerator (CAVA)
and the corporate innovation program, partnering companies and student
entrepreneurs to start businesses in their areas of interest. Kagan remains on
the board of the Lang Center, and is a mentor in residence at the Columbia
Startup Lab. He is a judge of the Columbia Entrepreneurship annual business
plan competition and the SIPA Dean’s Challenge for Social Impact startups.
As a Columbia Business School professor, Kagan co-teaches, with Steve
Blank, the annual Lean Launchpad class, an intensive one-week boot camp
open to all Columbia University students. He is also a professor of digital
marketing, faculty director of the Digital Marketing Strategy executive edu-
cation program, and teaches both graduate and executive education classes.
His book Digital Marketing: Strategy and Tactics, the first textbook for digital
marketing, was published in 2018 by Wessex Press, and is now in its second
edition, with international editions now available as well.
Kagan previously was the founder and CEO of Pricing Engine, a digital
marketing platform that enabled small businesses to benchmark, optimize,
and expand their search and social advertising campaigns. He was part of the
Entrepreneurs Roundtable Accelerator’s (ERA) first cohort in New York City,
and remains an active alumni mentor with both the regular and global pro-
grams. Kagan is also an award-winning mentor at other accelerators around
the city, and is an entrepreneur in residence for the Founder Institute.
Kagan has been a speaker and corporate trainer in the digital media
industry, where his clients include companies in content, services, and
e-commerce, as well as traditional advertising agencies needing digital media
expertise. Kagan previously worked at Sony Music Entertainment in the
Global Digital Business, where he was the vice president of Global Account
Management, working with large partners such as Nokia and Sony Ericsson.
 About the Authors xvii

Before this, he was vice president/director of Strategy and Customer Insight

for Publicis Modem, a leading digital advertising agency, where he headed
research and innovation out of the New York office.
Kagan lives in New York’s East Village with his wife and children, and
now walks his kids to school around the corner from where he used to pro-
duce indie rock concerts. Life’s funny that way.
Another random document with
no related content on Scribd:
by the treaty of April 15, 1858, as were also the points
relative to the canal, the two governments jointly granted a
concession on May 1 of that same year to Mr. Felix Belly, a
distinguished French writer, to whom the Emperor Napoleon gave
his support to carry forward the undertaking. This failing of
accomplishment, the two governments, in perfect accord,
concluded the contract known as the Ayon-Chevalier, signed by
Nicaragua on October 16, 1868, and by Costa Rica on June 18,
1869, which, it is unnecessary to say, also failed to produce
any results whatever. Some years after the expiration of this
last contract Nicaragua promoted a discussion as to the
validity of the treaty and the meaning of some of its
stipulations, which Costa Rica upheld in its original form,
and the question was submitted to the decision of the
President of the United States, Mr. Cleveland, who in his
award of March 22, 1888, accepted by both parties, declared
the treaty valid and binding upon each Republic and
interpreted the points which in the opinion of Nicaragua were
doubtful. According to the provisions of both of these
documents, the treaty and award, even in the remote event that
the natural rights of Costa Rica should not be injured, Nicaragua
is bound not to make any grants for canal purposes across her
territory without first asking the opinion of the Republic of
Costa Rica. Three years prior, and while this question was
still pending, Nicaragua concluded the treaty known as the
Zavala-Frelinghuysen, signed in Washington on December 1,
1884, whereby the title to the canal was conveyed to the
United States, and Costa Rica adhered to this treaty under
date of February 23, 1885; but the negotiations remained
without effect, because, ratification having been denied in
the Senate, although a reconsideration of the subject had been
agreed to, President Cleveland, on inaugurating his first
administration, withdrew the document from the Senate. Things
then returned to the status they formerly maintained, and
Nicaragua in April, 1887, and Costa Rica in July, 1888,
respectively granted the concessions pursuant to which the
construction of the American waterway has been pending of late
 years. The Congress of the United States has been giving
special attention to this important matter since the year
1892, and commissions have been created charged with the
survey and location of the route, as well as the study of the
influence of the canal in its different aspects. Recently the
investigation is not limited to the route by Nicaragua and
Costa Rica alone, but extends to Panama."

Speech of Señor Calvo, Costa Rican Minister,

at the International Commercial Congress,
Philadelphia, October 24, 1899.

{66}

CANAL, Interoceanic, The Project of the: A. D. 1889-1899.

The Maritime Canal Company.
Investigation of Nicaragua routes.

"The failure of the Frelinghuysen-Zavala treaty [see above]

was a severe disappointment to the friends of the canal
project, but it did not discourage them. A company of private
citizens, capitalists and promoters, was organized, which at
length took the name of the Maritime Canal Company. Fair and
full concessions were secured from the government of
Nicaragua, while similar articles were also signed with the
Republic of Costa Rica on account of imagined ownership of a
portion of the territory through which the canal was to pass,
though it has been shown subsequently, in the settlement of
the boundary dispute between those two governments, that Costa
Rica's rights in the matter were solely riparian. In due time
Congress was called upon to grant a charter to the Maritime
Company, which asked nothing more than this." The chartering
act was passed by Congress in 1889, with an important
amendment proposed by Judge Holman of Indiana, providing that
"nothing in this act contained shall be so construed as to
commit the United States to any pecuniary liability whatever
for any account of said company, nor shall the United States
be held in any wise liable or responsible in any form or by
any implication for any debt or, liability in any form which
said company may incur, nor as guaranteeing any engagement or
contract of said company." But two years afterwards, the
company having failed to enlist the necessary capital for its
undertaking, an attempt was made to set aside the above
provision and to persuade Congress to guarantee $100,000,000
of bonds, taking $70,000,000 of stock and making the
government a partner in the enterprise. The proposal was
rejected. Congress "did not guarantee the company's bonds. The
company, without such guarantee, was unable to raise the
necessary capital, either in the United States or abroad, and
the financial crisis of 1893 so overwhelmed it that all active
operations on the isthmus were suspended, and they have never
been resumed. The same issue, the guaranteeing of bonds, has
come up from time to time in succeeding Congresses, but not
until the second session of the Fifty-fourth [1897] did it
appear to have much chance of being decided in favor of the
company. The opposition in the Senate, where it was first
considered, was strong, and the arguments advanced against the
bill were clear, sound and forceful. The advocates of the
measure were pressing for a vote, but almost at the supreme
moment a note was received from the State Department,
accompanied by a communication from Minister Rodriguez, the
representative of the Greater Republic of Central America,
setting forth several unassailable objections of his
government to the methods of procedure. This final thrust
determined the fate of the bill, and a vote on it was not
taken. … The material points of Minister Rodriguez's
criticism, which caused the Senate bill in 1897 to be
withdrawn, were that some of the vital provisions of the
cessions under which the Maritime Canal Company had the right
to construct the canal were violated."

C. M. Stadden,
Latest Aspects of the Nicaragua Canal Project
(North American Review, December, 1898).
Congress now (June 4, 1897) passed an Act which created a
commission to examine all practicable routes for a canal
through Nicaragua, and report its judgment as to the best,
with an estimate of the cost of the work on such route. The
commissioners appointed were Admiral Walker, Professor Haupt,
and Colonel Hains. Their report, submitted to the President in
May, 1899, unanimously recommended the route described as
follows: "This line, leaving Brito, follows the left bank of
the Rio Grande to near Bueno Retiro, and crosses the western
divide to the valley of the Lajas, which it follows to Lake
Nicaragua. Crossing the lake to the head of the San Juan
river, it follows the upper river to near Boca San Carlos;
thence, in excavation, by the left bank of the river to the
San Juanillo and across the low country to Greytown, passing
to the northward of Lake Silico." But while the commissioners
agreed in finding this route preferable to any others in the
Nicaragua region, they disagreed seriously in their estimates
of cost, Colonel Hains, putting it at nearly $135,000,000,
while Admiral Walker and Professor Haupt placed the cost at
little more than $118,000,000. Before the report of this
Nicaragua Canal Commission was made, however, Congress (March
3, 1899) had directed the appointment of another commission to
examine and report upon all possible routes for an
interoceanic canal, in the Panama region and elsewhere, as
well as through Nicaragua and to determine the cost of
constructing such a canal and "placing it under the control,
management and ownership of the United States." This later
commission, known as the Isthmian Canal Commission, was made
up as follows:
Rear-Admiral John G. Walker, U. S. N.;
Samuel Pasco, of Florida;
Alfred Noble, C. E. of Illinois;
George S. Morrison, C. E., of New York;
Colonel Peter C. Hains, U. S. A.;
Professor William H. Burr, of Connecticut;
Lieutenant-Colonel Oswald H. Ernst, U. S. A.;
 Professor Lewis M. Haupt, C. E., of Pennsylvania;
Professor Emory R. Johnston, of Pennsylvania.

In his Message to Congress the next December, President

McKinley stated: "The contract of the Maritime Canal Company
of Nicaragua was declared forfeited by the Nicaraguan
Government on the 10th of October, on the ground of
nonfulfillment within the ten years' term stipulated in the
contract. The Maritime Canal Company has lodged a protest
against this action, alleging rights in the premises which
appear worthy of consideration. This Government expects that
Nicaragua will afford the protestants a full and fair hearing
upon the merits of the case." But another company had been put
into the place of the Maritime Canal Company, by action of
President Zelaya, of Nicaragua, who, in 1898, granted to
Edward Eyre and E. F. Cragin, who represented an American
Syndicate, the right to construct the canal when the contract
with the Maritime should have lapsed. This transaction,
however, lacked confirmation by Costa Rica and the United
States.

CANAL, Interoceanic, A. D. 1893-1900.

The Panama Canal Concession twice extended.
Formation of new company.

See (in this volume)

COLOMBIA: A. D. 1893-1900.

CANAL, Interoceanic, A. D. 1899 (December).

Transfer of the Panama Canal to an American company.

The transfer of the Panama Canal from the later French company
to an American company, chartered in New Jersey, was
accomplished in December, 1899. The new company received all
the property, rights, and powers of its French predecessor,
the consideration to be paid to the latter being mainly in the
form of shares in the American company.
Map of Central America showing the Isthmian Canal Routes
{67}

CANAL, Interoceanic, A. D. 1900 (November).

Preliminary report of the Isthmian Canal Commission in
favor of the Nicaragua route.

The preliminary report of the Isthmian Canal Commission,

appointed under the Act of March 3, 1899, was presented to the
President on the 30th November, 1900, and communicated to
Congress at the opening of the session. The Commission
reported in favor of the Nicaragua route, essentially on the
lines laid down by the previous Nicaragua Canal Commission, as
defined above. It found that the choice of routes lies between
this and the route of the partly constructed Panama Canal, and
its discussion of the question presented the following views:

"(a) Between New York and San Francisco, the Nicaragua Canal
route would be 377 nautical miles shorter than the Panama
route. Between New Orleans and San Francisco 579 miles would
be saved, and, in general, the distances between the Atlantic
and Pacific ports of the United States are less by way of
Nicaragua. Between our east coast and Yokohama and Shanghai
the Nicaragua route is somewhat shorter, but for the trade of
our eastern ports with the west coast of South America the
Panama route is not so long as the Nicaragua.

(b) A part of the saving in distance effected by using a

Nicaragua canal instead of one at Panama would be offset by
the longer time of transit at Nicaragua. An average steamer
would require twelve hours to make the passage through the
Panama Canal, and thirty-three through one across Nicaragua.
For a 10-knot steamer this difference of twenty-one hours
would be equivalent to 210 knots difference in distance, and
for a 13-knot steamer, the difference in time of transit would
be equivalent to 273 knots.
(c) The Nicaragua route would be the more favorable one for
sailing vessels because of the uncertain winds in the bay of
Panama. It would not be impossible for sailing vessels to use
the Panama Canal, but for average voyages between the two
seaboards of the United States, a sailing vessel would require
about nine days additional time to make the passage by way of
the Panama Canal. However, neither route would be much used by
sailing vessels, because of their inability to compete with
steamers. They would certainly not be able to compete with
steamers, both using the Panama Canal.

(d) For the promotion of the domestic trade of the United

States, the Nicaragua route would possess advantages over the
Panama route, because the distance between our two seaboards
is less. For our trade with Japan, China, the Philippines, and
Australia, the advantages of the two routes are nearly equal,
the distance by way of the Nicaragua route being slightly
less. For our trade with South America the Panama route is
shorter and more direct.

(e) The industrial changes which the Nicaragua Canal would

produce in the countries through which it will pass would be
great. Nicaragua and Costa Rica comprise a region capable of
producing a large amount of tropical products for which there
is a demand in Europe and the United States. A canal across
their territory would give a great impetus to their economic
development.

"A careful examination has been made of all the rights,

privileges, and franchises held and owned by corporations,
associations, and individuals at the different canal routes.
This necessarily included a study of the treaties relating to
the establishment of an interoceanic communication made by the
Republics, whose territory is to be occupied, and by the
United States, with one another, and also with foreign
governments. The treaties heretofore made exclude all idea of
a relinquishment of sovereignty over any of the proposed
routes. In most of them the right of transit and the innocent
use of the communication, whether by railway or canal, is
granted to the other contracting party, its citizens and
subjects, to be enjoyed upon equal terms with other
governments and people; and the leading commercial nations of
the world have committed themselves to the policy of
neutrality at the different routes, and some of them have
obligated themselves to use their influence to induce other
nations to agree to the same policy. No existing treaties
between the United States and the Republics of Nicaragua and
Costa Rica, or of Colombia, give our Government the right to
excavate and operate a maritime canal through any of these
countries. The concessions granted by the different Republics
through whose territory the lines of the projected canals
extend, in terms, exclude the right of the companies holding
them to transfer them to any foreign government, and further
treaty rights must be acquired to enable the United States to
undertake the excavation of a navigable waterway between the
two oceans in a governmental capacity. The only prior
obligations to corporations, associations, or individuals in
the way of a direct agreement between the United States and
Nicaragua authorizing our Government to construct a canal
across the territory of the latter, to be under its control,
management, and ownership, have been eliminated by the
forfeiture and termination of the contracts with the Maritime
Canal Company of Nicaragua and the Interoceanic Canal Company.
In view of this declaration the Commission has not made any
effort to ascertain the cost at which the concessions of these
companies can be purchased, for if these forfeitures are final
the rights formerly granted to these companies are not in the
way of diplomatic negotiations with the Government interested
to acquire the consent and authority necessary for the
construction of a canal by this route. The situation in Costa
Rica is practically the same.

"The situation at Panama is different. The Republic of

Colombia first granted a concession to the Panama Railroad
 Company, giving it exclusive privileges on the Isthmus, which
will continue according to modifications afterwards made for
ninety-nine years from August 16, 1867. A later concession to
the Panama Canal Company required it to enter into some
amicable arrangement with the railroad company under which the
former might occupy the territory along or near its line. The
canal company acquired by purchase a majority of the railroad
stock, and the necessary arrangements were made. This stock is
now under the control of the New Panama Canal Company, which
gives it a directing influence in both organizations. The
canal concession is to continue according to its latest
extension for ninety-nine years from the day on which the
canal shall be wholly or partially opened to public service,
and the date fixed for this in the contract is October 31,
1910. Should it fail and the concession be forfeited the
company will still have exclusive control of the territory
through which its line extends till 1966 under the railroad
concession. The canal company is absolutely prohibited to cede
or mortgage its rights under any consideration whatever to any
nation or foreign government under penalty of forfeiture.
{68}
The contract with the railroad company contains a like
prohibition and declares further that the pain of forfeiture
will be incurred by the mere act of attempting to cede or
transfer its privilege to a foreign government and such an act
is declared absolutely null and of no value or effect. These
concessions, if acquired by the United States, would not give
to the Government the control and ownership evidently
contemplated by the law, that is, an absolute ownership in
perpetuity. The right under the contract with the railroad
company is designated as 'the use and possession' of the
property for ninety-nine years, and it is provided that 'at
the expiration of the term of the privilege' and by the sole
fact of the expiration, the Government of Colombia shall be
substituted in all the rights of the company and shall
immediately enter into the enjoyment of the line of
communication, its fixtures, dependencies and all its
products. The right of the canal company is substantially of
the same character. … An examination of the charter rights of
the New Panama Canal Company under the general incorporation
laws of France and the special legislation in its behalf
resulted in finding an enactment, included in a law passed
June 8, 1888, requiring that all the plant necessary for the
construction of the canal shall be manufactured in France and
that the material must be of French origin. This being the
situation, it was manifest that, even if the privileges of the
companies could be purchased by and transferred to the United
States, they were encumbered with charges and conditions that
would not permit this Government to exercise all the rights of
complete ownership over a canal constructed by it at the
Panama route. A new arrangement is necessary if the United
States is to undertake such a work. The relinquishment by the
canal company, with the consent of Colombia, of the privileges
it has under existing concessions, for a consideration to be
agreed upon with the United States, would leave the way open
for treaty negotiations between the two governments to
ascertain whether Colombia will consent to the occupation of
its territory by the United States for the construction of a
canal to be under Government control, management, and
ownership, and, if so, whether they can agree upon terms
mutually satisfactory. The situation is peculiar, as there are
three parties in interest. The United States can enter into no
agreement with Colombia that does not have the approval of the
company, and the concessions do not permit the company to
transfer or attempt to transfer its rights to a foreign
government.

"The Commission has, however, attempted to ascertain the views

of the New Panama Canal Company with reference to a
disposition and transfer of its rights. Interviews were had
with its president and other officers during the visit to
Paris and on several occasions from time to time since then,
and on the 10th day of April last a formal letter was
addressed to Mr. Maurice Hutin, the president and
director-general, asking whether he was in a position to name
terms upon which the company would dispose of its property and
interests to the United States. At different times since then
the subject has been discussed by the representatives of the
company with the Commission and its committee on rights,
privileges, and franchises, but no formal reply to the letter
was received until this report was being closed. These
conferences and correspondence have resulted in no offer to
dispose of the property and privileges of the company to the
United States upon any terms, even with the consent of the
Colombian Government, nor has the company expressed any desire
or wish to enter into any negotiations with the United States
with reference to such a disposition of its property and
rights. It was proposed by President Hutin that the United
States might obtain control of the canal scheme as a majority
stockholder of a new organization to which the present company
could contribute its concession, plant, unfinished work, and
other property, at a valuation to be determined by
arbitration, and he expressed the opinion that such an
arrangement could be made without violating the concessions.
But this must include some plan for the protection of the
minority stockholders in the financial management, for they
would favor a policy that would realize liberal dividends in
proportion to the commercial value of the canal, while the
policy of this Government might be to reduce tolls and charges
to the cost of maintenance or even below it, if the interests
of the people would be thereby advanced. The plan, however,
which the company prefers is that outlined in its letter of
February 28, 1899, addressed to the President of the United
States, which has been published in Senate Document No. 188,
Fifty-Sixth Congress, first session, pages 41 and 42. This was
to reincorporate under the laws of New York or some other
State, and accord to the United States such representation in
its board of directors and such opportunity to acquire an
interest in its securities as its concessions permitted. And
an assurance was added to the effect that if the United States
should desire to perpetuate or enlarge its existing rights and
privileges acquired under the treaty of 1846, the company
would conform to such supplemental treaty as might be entered
into between the United States and Colombia. The Commission
having no other authority than to make investigations and
obtain information submits this result of its efforts to
ascertain upon what terms the rights and privileges at the
Panama route can be obtained. It is proper to add that the
examination of the title of the present company to the canal
property under the laws of France and Colombia has satisfied
this Commission that the New Panama Canal Company has the
entire control and management of the canal property. …

"The estimated cost of building the Nicaragua Canal is about

$58,000,000 more than that of completing the Panama Canal,
leaving out the cost of acquiring the latter property. This
measures the difference in the magnitude of the obstacles to
be overcome in the actual construction of the two canals, and
covers all physical considerations such as the greater or less
height of dams, the greater or less depth of cuts, the
presence or absence of natural harbors, the presence or
absence of a railroad, the exemption from or liability to
disease, and the amount of work remaining to be done. The New
Panama Canal Company has shown no disposition to sell its
property to the United States. Should that company be able and
willing to sell, there is reason to believe that the price
would not be such as would make the total cost to the United
States less than that of the Nicaragua Canal. … In view of all
the facts, and particularly in view of all the difficulties of
obtaining the necessary rights, privileges, and franchises on
the Panama route, and assuming that Nicaragua and Costa Rica
recognize the value of the canal to themselves and are
prepared to grant concessions on terms which are reasonable
and acceptable to the United States, the Commission is of the
opinion that 'the most practicable and feasible route for' an
isthmian canal to be 'under the control, management, and
ownership of the United States' is that known as the Nicaragua
route."
 United States, 56th Congress,
2d Session, Senate Doc. Number 5.

{69}

CANAL, Interoceanic, A. D. 1900 (December).

The Hay-Pauncefote Treaty between the United States and
Great Britain, to facilitate the construction of the Canal,
as amended by the United States Senate.

In his annual Message to Congress, December 3, 1900, President

McKinley had the following to say on the subject of the
Interoceanic Canal: "The all important matter of an
interoceanic canal has assumed a new phase. Adhering to its
refusal to reopen the question of the forfeiture of the
contract of the Maritime Canal Company, which was terminated
for alleged non-execution in October, 1899, the Government of
Nicaragua has since supplemented that action by declaring the
so-styled Eyre-Cragin option void for non-payment of the
stipulated advance. Protests in relation to these acts have
been filed in the State Department, and are under
consideration. Deeming itself relieved from existing
engagements, the Nicaraguan Government shows a disposition to
deal freely with the canal question either in the way of
negotiations with the United States or by taking measures to
promote the waterway. Overtures for a convention to effect the
building of a canal under the auspices of the United States
are under consideration. In the mean time, the views of the
Congress upon the general subject, in the light of the report
of the Commission appointed to examine the comparative merits
of the various trans-isthmian ship canal projects, may be
awaited. I commend to the early attention of the Senate the
convention with Great Britain to facilitate the construction
of such a canal, and to remove any objection which might arise
out of the convention commonly called the Clayton-Bulwer
Treaty."
On the terms of the Clayton-Bulwer Treaty:

See, in volume 4,
NICARAGUA: A. D. 1850.

The Convention thus referred to was negotiated by the

Secretary of State of the United States. Mr. John Hay, with
the British Ambassador to the United States, Lord Pauncefote.
It was signed at Washington on the 5th of February, 1900, and
communicated by the President to the Senate on the same day.
The action of the Senate on the Convention was not taken until
after the opening of the session of Congress in December. It was
then ratified (December 20), but with three amendments which
seriously changed its character. The following is the text of
the Convention as ratified, with the Senate amendments
indicated:

"ARTICLE I.
It is agreed that the canal may be constructed under the
auspices of the Government of the United States, either
directly at its own cost, or by gift or loan of money to
individuals or corporations or through subscription to or
purchase of stock or shares, and that, subject to the
provisions of the present Convention, the said Government
shall have and enjoy all the rights incident to such
construction, as well as the exclusive right of providing for
the regulation and management of the canal.

"ARTICLE II.
The High Contracting Parties, desiring to preserve and
maintain the 'general principle' of neutralization established
in Article VIII of the Clayton-Bulwer Convention, [Added by
the Senate] which convention is hereby superseded, adopt, as
the basis of such neutralization, the following rules,
substantially as embodied in the convention between Great
Britain and certain other Powers, signed at Constantinople,
October 29, 1888, for the Free Navigation of the Suez Maritime
Canal, that is to say:

1. The canal shall be free and open, in time of war as in time

of peace, to the vessels of commerce and of war of all
nations, on terms of entire equality, so that there shall be
no discrimination against any nation or its citizens or
subjects in respect of the conditions or charges of traffic,
or otherwise.

2. The canal shall never be blockaded, nor shall any right of

war be exercised nor any act of hostility be committed within
it.

3. Vessels of war of a belligerent shall not revictual nor

take any stores in the canal except so far as may be strictly
necessary; and the transit of such vessels through the canal
shall be effected with the least possible delay, in accordance
with the regulations in force, and with only such intermission
as may result from the necessities of the service. Prizes
shall be in all respects subject to the same rules as vessels
of war of the belligerents.

4. No belligerent shall embark or disembark troops, munitions

of war or warlike materials in the canal except in case of
accidental hindrance of the transit, and in such case the
transit shall be resumed with all possible despatch.

5. The provisions of this article shall apply to waters

adjacent to the canal, within three marine miles of either
end. Vessels of war of a belligerent shall not remain in such
waters longer than twenty-four hours at any one time except in
case of distress, and in such case shall depart as soon as
possible; but a vessel of war of one belligerent shall not
depart within twenty-four hours from the departure of a vessel
of war of the other belligerent. [Added by the Senate] It is
agreed, however, that none of the immediately foregoing
conditions and stipulations in sections numbered one, two,
three, four and five of this article shall apply to measures
which the United States may find it necessary to take for
securing by its own forces the defense of the United States
and the maintenance of public order.

6. The plant, establishments, buildings, and all works

necessary to the construction, maintenance and operation of
the canal shall be deemed to be part thereof, for the purposes
of this Convention, and in time of war as in time of peace
shall enjoy complete immunity from attack or injury by
belligerents and from acts calculated to impair their
usefulness as part of the canal.

7. No fortifications shall be erected commanding the canal or

the waters adjacent. The United States, however, shall be at
liberty to maintain such military police along the canal as
may be necessary to protect it against lawlessness and
disorder.

"ARTICLE III.
The High Contracting Parties will, immediately upon the
exchange of the ratifications of this Convention, bring it to
the notice of the other Powers [and invite them to adhere to
it].
[Stricken out by the Senate.]

"ARTICLE: IV.
The present Convention shall be ratified by the President of
the United States, by and with the advice and consent of the
Senate thereof, and by Her Britannic Majesty; and the
ratifications shall be exchanged at Washington or at London
within six months from the date hereof, or earlier if
possible."

United States, 56th Congress, 1st Session,

Senate Document Number 160.
{70}

Anticipating the ratification of the above Treaty with Great

Britain, the President of the United States, in December,
1900, concluded agreements with the governments of Costa Rica
and Nicaragua, both of which were in the following terms:

"It is agreed between the two Governments that when the

President of the United States is authorized by law to acquire
control of such portion of the territory now belonging to [Costa
Rica and Nicaragua] as may be desirable and necessary on which
to construct and protect a canal of depth and capacity
sufficient for the passage of vessels of the greatest tonnage
and draft now in use from a point near San Juan del Norte, on
the Caribbean Sea, via Lake Nicaragua, to Brito, on the
Pacific Ocean, they mutually engage to enter into negotiations
with each other to settle the plan and the agreements, in detail,
found necessary to accomplish the construction and to provide
for the ownership and control of the proposed canal. As
preliminary to such future negotiations it is forthwith agreed
that the course of said canal and the terminals thereof shall
be the same that were stated in a treaty signed by the
plenipotentiaries of the United States and Great Britain on
February 5, 1900, and now pending in the Senate of the United
States for confirmation, and that the provisions of the same
shall be adhered to by the United States and [Costa Rica and
Nicaragua]." No action on these agreements was taken in the
Senate.

CANAL, Interoceanic, A. D. 1901 (March).

Rejection by the British Government of the Hay-Pauncefote
Treaty as amended by the U. S. Senate.

Early in March, soon after the adjournment of Congress, a

communication from Lord Lansdowne, the British Secretary of
State for Foreign Affairs, declining with courtesy and in
friendly terms to accept the Senate amendments to the
Hay-Pauncefote Treaty, was received by Lord Pauncefote, the
British Ambassador at Washington. The objections urged most
strongly are against those amendments which touch the
neutrality of the proposed canal and its unimpeded use in time
of war as well as in time of peace. "The first of them," said
Lord Lansdowne, "which reserves to the United States the right
of taking any measures which they may find necessary to secure by
their own forces the defence of the United States, appears to
His Majesty's government to involve a distinct departure from
the principle which has until now found acceptance with both
governments; the principle, namely, that in time of war, as
well as in time of peace, the passage of the canal is to
remain free and unimpeded, and is to be so maintained by the
power or powers responsible for its control. Were this
amendment added to the convention the United States would, it
is presumed, be within their rights, if, at any moment when it
seemed to them that their safety required it, in view of
warlike preparations not yet commenced, but contemplated or
supposed to be contemplated by another power, they resorted to
warlike acts in or near the canal—acts clearly inconsistent
with the neutral character which it has always been sought to
give it, and which would deny the free use of it to the
commerce and navies of the world. … If the new clause were to
be added, the obligation to respect the neutrality of the
canal in all circumstances would, so far as Great Britain is
concerned, remain in force; the obligation of the United
States, on the other hand, would be essentially modified. The
result would be a onesided arrangement, under which Great
Britain would be debarred from any warlike action in or around
the canal, while the United States would be liable to resort to
such action to whatever extent they might deem necessary to
secure their own safety."

To the contention that there is a specific prohibition in the

Hay-Pauncefote treaty against the erection of fortifications,
and that this would sufficiently insure the free use of the
canal, Lord Lansdowne replies that this "contention is one
which His Majesty's government are quite unable to admit." He
notes the vagueness of language in the amendment, and says:
"Even if it were more precisely worded it would be impossible
to determine what might be the effect if one clause permitting
defensive measures and another forbidding fortifications were
allowed to stand side by side in the convention. To His
Majesty's government it seems, as I have already said, that
the amendment might be construed as leaving it open to the
United States at any moment, not only if war existed, but even
if it were anticipated, to take any measures, however
stringent or far-reaching, which in their own judgment might
be represented as suitable for the purpose of protecting their
national interests. Such an enactment would strike at the very
root of that 'general principle' of neutralization upon which
the Clayton-Bulwer treaty was based, and which was reaffirmed
in the convention as drafted."

As to the third Senate amendment, which struck out the

provision inviting the adherence of other powers, Lord
Lansdowne says: "The amendment not only removes all prospect
of the wider guarantee of the neutrality of the canal, but
places this country in a position of marked disadvantage
compared with other powers which would not be subject to the
self-denying ordinance which Great Britain is desired to
accept. It would follow, were His Majesty's government to
agree to such an arrangement, that while the United States
would have a treaty right to interfere with the canal in time
of war, or apprehended war, and while other powers could with
a clear conscience disregard any of the restrictions imposed
by the convention, Great Britain alone, in spite of her
enormous possessions on the American Continent, in spite of
the extent of her Australasian colonies and her interests in
the East, would be absolutely precluded from resorting to any
such action or from taking measures to secure her interests in
and near the canal."