Corporations across the globe are creating initiatives to collaborate with startups as a channel for fostering genuine innovation. One of the main reasons for this is that if you are an established corporation, increasing growth and giving returns to your shareholders is increasingly complex, and a team of entrepreneurs might be the answer to maximizing your growth possibilities.
But what are the advantages and what are the pitfalls to be avoided, as a corporation? Are there proven ways to decrease the problems and issues that may arise from these collaboration attempts?
Startups are usually good at detecting latent demand, creating a proof of concept, and a minimum viable product (MVP). However, scaling business operations requires another kind of team and skills, besides distribution channels – usually not easy for a startup to develop in just a few months. As an everyday activity, established corporations scale their products though their earned strategic advantages in distribution, manufacturing, development, design, and procurement.
The two most common ways that big companies can profit from a startup’s ability to create prototypes, proof of concepts and MVPs is through investing in seed and early-stage rounds, or by pouring money into a later-stage M&A deal, with higher costs.
Although some corporations tend to see the startup as a new department or an innovation nucleus that needs only funding and work space, it is often the case that the successful projects of corporate and startup collaboration thrive through common goals and mission-oriented roadmaps.
Executives whose goal is to profit from growth brought by innovative smaller companies should begin building relationships with entrepreneurs, startup ecosystems, and inventors. Having good connections to executives who successfully created those collaborations in their companies is also a good support for your learning journey. It’s mandatory to read about the new names and know who the growing startups are.
The vast majority of corporations surveyed by top tier management consulting firms in Europe says that they believe collaboration schemes with startups are fundamental for them to keep advancing in innovation.
However creating a long-term win-win situation is not easy for groups with such diverse DNAs. The rewards for those who manage it are: entering new markets, increasing the innovative character of a brand, optimizing assets and increasing competitiveness. If your corporation can follow the seven major I’ve outlined points below, your collaboration project with startups has a considerably higher probability of being successful.
1) Start small so you can grow and scale properly
Considering that corporations are moderately to highly bureaucratic, the more funding the startup needs for its project, the more stakeholders within the corporation should be involved. That said, for any decision to be taken, startups and corporations should consider cost and execution time. The best method to use here is the “pilot/roll-out structure”.
There are two stages in the pilot/roll-out phase. The first one is the pilot phase. In this stage, both parties decide on the first collaboration case. Some good pointers in this stage are: a) it must target a size that minimizes having to use procurement or compliance, b) it should involve the minimum stakeholders and c) it should have the lowest cost possible.
The second stage is called roll-out. Once the pilot phase is over and with the information obtained through it, both parties can now promote pilot projects on a larger scale. This is mandatory to reassure more stakeholders, like the board of directors – the larger the scale, the more expensive and more people involved in the project – and to get the good results and repeatability you need to go to market with the new product.
2) Try to know precisely where you are putting your resources
Many startups may have golden presentations or special effects-enhanced websites, but the majority of these cannot deliver on their promises and vision.
A good due diligence is always useful to find out where the startup is with their technology – which development stage, which features are functional, and which products are ready for beta testing.
3) Involve the directors in the collaboration project
Senior management must commit to give support to the collaboration project, or in most cases such projects will fail. Without their support, it will rarely get the attention and the resources needed to make it happen.
If possible, have the startup set up in a common place where key senior management people will be able to routinely follow up and cooperate with the startup team.
4) Make faster decisions, or it may be harder to work together with the startup
As mentioned in point #1, large corporations tend to be bureaucratic. Startups, on the other hand, decide fast and for the short term. This gap between their capacities to take decisions can be frustrating to the startups and annoying for the corporation in the beginning.
At the end of the day, the corporation must learn and reflect on how to be more agile in their decision-making processes, while the startup must incorporate more process framework steps into their actions, so both sides will win.
5) Clarify what both the corporation and the startup want from the collaboration
A big red flag for a corporation collaboration program is when any of the startups is seeking only funds, rather than distribution channels, legal advice, prototyping facilities and regulatory strategy. When that is the case, the startup should be looking for venture capital funds, and not a corporation startup collaboration program.
6) Don’t pressure the startup as just another supplier
Oftentimes corporations have a procurement-oriented attitude towards the startups in their collaboration projects. This is really damaging for the project overall and for the personal relationships that are being fostered.
The startup team cannot feel like they are just a number or a supplier for the corporation, but rather partners whose ideas are to be discussed and executed in favor of both sides.
Avoid going for deals that are not balanced, or that squeeze the startup’s revenue capability – that is, do not exercise to the fullest your bargain power as a “buyer of their product”. Sometimes this means not going for the minimum cost you wanted, but paying a little bit more to the startup will turn into more productivity and commitment. Or would you prefer to partner with a startup and find out a couple of months later that they are struggling financially and you have done not much to support them? Are they good for your innovation goals if they close doors?
7) Share, share, share
Open source projects are common in startups so that they can save money and resources, but still build great products. The way corporations work, on the other hand, has a lot of intellectual property protection involved. The hard part for the corporation is to find an equilibrium point where their team can share more information with the startup and win their trust.
Basically, startups are increasingly seeking partnerships with corporations. Large corporations can definitely help startups to get funded, reach more clients through their distribution channels and get access to more markets. The challenge remains being able to commit corporate senior management to sponsor the project and fully accept innovation coming from another company.