Large organisations are engaging startups in growing numbers, due in part to a realisation that companies have not been built to respond to the accelerating pace of change in a timely manner, and that short of restructuring the entire organisation from the ground up, partnering with startups who are unencumbered by bureaucracy, short-term shareholder demands and employee incentives, is an easier way to tap into emerging technologies, business models and talent.
This makes sense for most large organisations given that startups tend to explore disruptive innovations - usually low margin, small market and high risk to begin with - don’t support short term and often large company growth targets, but if left unchecked, may be the source of dwindling market share a few years down the track (here’s looking at you Blockbuster for passing up the opportunity to buy Netflix for US$50M - the company is today worth 140 times that).
Below are eight ways that corporates can connect with startup ecosystems and engage startups to work collaboratively towards their mutual goals - some light touch and others that require a more serious commitment of time and money.
- Corporate Startup Accelerator Program
A corporate accelerator program pairs the domain expertise, resources, brand, distribution channels and networks of a large organisation together with the talent, speed and unencumbered nature of a startup, in order to leverage their respective strengths to take startups from zero to one.
Programs generally run for about 6 months while the startup incubation periods tend to run for 8-13 weeks.
- Gain financial exposure to disruptive startups (often corporate partners will take equity in the startups at the start of the program or may nominate to invest at the end of a program)
- Diversify across a number of startups and concepts (generally 8-10 startups go through an accelerator program)
- Identify opportunities to integrate new technologies into the core business
- Get across emerging trends
- Build relationships with talent in the startup ecosystem
- Provide employees with educational opportunities as part of the accelerator
- Improve brand
- Support talent acquisition and retention
- Give employees an opportunity to mentor startups on their domain
Requires a considerable amount of effort to source quality entrepreneurs and nurture them throughout a 13-week program which necessitates legals, branding, funding, workspace, mentors, event management, workshops and diligent guidance throughout (a growing number of organisations with domain expertise have been established to run accelerator programs on behalf of large corporates).
Recommended Reading: Corporate accelerator programs
- Reverse Pitching Event
You’ve heard of startups pitching their ideas right? Reverse pitching essentially turns the table on startups and asks corporates to pitch the problems they want startup teams to solve and offer a pathway to funding and partnering.
Cost and Effort: 5/10
- Tap into lots of potential solution to defined problem
- Build relationships with the startup ecosystem
- Improve brand
- Limited pool of applicants - you might be limited to startups in your geographic area which may not cast a wide enough net to find quality startups
- Limited diversification - corporates usually elect one or two teams to work with so while an idea might be good on the surface, it’s all in the execution - this is why venture capitalists invest in ten startups expecting that one will deliver a significant return
- Poor problem definition - in more cases than not large organisations (and startups) define the problem they’re solving incorrectly and if it’s defined incorrectly then what do you expect from the solution?
- Incremental focus - by focusing on problems we can see, chances are they’re problems that our competitors have too, and that any solution will only amount to incremental innovation which is where large organisations excel. Use startups to explore disruptive innovation.
Recommended Reading: Why Your Startup Needs to Reverse Pitch
- Open Innovation Program
An open innovation program poses a simple request of startups, entrepreneurs (and employees, customers, partners, academia and the general public) - “give us your ideas on topic X”.
These programs tend to be run online, supported by an idea platform like Spigit, and can often elicit hundreds of ideas which then lend themselves to subsequently engaging with the people behind the top ideas.
Cost and Effort: 7/10
- Access a very vast pool of ideas from people and organisations all around the world
- Paralysis analysis - too many ideas makes it difficult to evaluate and select those worth pursuing (for more on how to combat this read this article on how to run an effective idea submission program)
- Usually there is limited to no pathway to take ideas further after an idea challenge
- Teams aren’t committed to their ideas and fall apart after the challenge
- Winning ideas are the result of countless iterations and all about execution - the first idea, those submitted to the program, rarely look the same when they break through so you need to be prepared and flexible on how the ideas evolve
- Building on the previous point, there’s usually no mechanism to build upon ideas other than simple commenting
Recommended Reading: 4 Ways to Win at Open Innovationand Inside Procter & Gamble’s New Model for Innovation
- Corporate Venture Capital
Many large corporates are setting up corporate venture capital (CVC) arms simply to invest in emerging talent and gain financial exposure to companies that are treading an upwards trajectory.
Companies can either set up their own funds or take a more hands off approach by investing in existing funds (and perhaps taking a Board seat in the process) that deal with early stage startups or scale-ups.
- Have deal-making authority
- Diversify across a number of startups in your industry
- Build relationships with the ecosystem and gain exposure to emerging tech and talent
- Costly to set up and manage (a company in its own right)
- Costly to invest
- High risk asset class
Recommended Reading: Corporate VC is on the Rise - Here’s What to Know
Hackathons bring teams together for 2-3 day bootcamps, the purpose of which is to define problems, solutions and business models, build prototypes to test key assumptions underpinning those business models with actual customers and present solutions and pitch learnings at the culmination of the program.
Corporates can engage the startup ecosystem to participate in corporate hackathons around a particular theme and put the call out for startup strategists, developers, designers, marketers and more.
- Low set up and delivery cost
- Engage employees and senior executives as part of hackathons to help to shift mindset and culture (demonstrate the value of moving quickly and experimentation)
- Build relationships with startups and emerging talent
- Brand development
- Usually there is limited to no pathway to take ideas further after a hackathon
- Teams aren’t committed to their ideas and fall apart after the event
- Not enough time to seriously hone in on problem and solution fit
Recommended Reading: How to Run an Effective Hackathon
One of the more light touch ways to engage the startup ecosystem is simply to sponsor an industry event or coworking space. It’s questionable how much benefit is derived from doing something like this and while it might give you access to coworking space residents or startups at the event, it’s not something you couldn’t have tapped into by, you know, renting a desk or buying a ticket.
Some organisations may flaunt the benefits of being able to provide services to the startups, but most startups don’t need overpriced tax, accounting and legal services delivered by a big four firm for example, they need to find product market fit.
- Brand development
- Exposure to startup ecosystem
- Give employees access to work from the sponsored coworking space or gain access to said event(s)
- Difficult to track tangible benefit
- Small pool - at the mercy of startups in the coworking space or at the event (which may not necessarily be of a high caliber)
- Theatre - no clear pathway to developing new lines of revenue for the corporate sponsor
- Every entrepreneurship event, everywhere.
- Mentorship and Distribution
If your organisation is serious about helping startups but is not yet in a position to invest in say a CVC or a startup accelerator, then making some resources available to identify and work with promising startups by way of domain mentorship and providing access to distribution channels and/or customers for testing purposes, can go a long way towards building credible, sustainable relationships with startups, keeping up with change and eyeing off potential investment opportunities.
- Exposure to the startup ecosystem
- Exposure to emerging tech and talent
- Identify investment opportunities
- Little tangible benefit or outcome in the early stages
- Considerable effort versus projected reward
- Become a Customer
Easy enough and one of the best ways to support a burgeoning company. Be one of the first customers of a startup on its way up.
- Build relationships
- Gain early access to emerging tech that might give you a competitive advantage
- Help to guide the conversation on the startup’s and product’s evolution
- May be considerably cheaper in the initial stages
- The product might not be good enough initially on a number of levels to satisfy your needs and will require that you engage with startups to help them towards product market fit
A word of caution on working with startups can be found in the following article, Corporates are from Venus, Startups are from Mars.
If your organisation is looking to or is assessing the way it goes about engaging with startups, feel free to schedule a quick introductory all with me at calendly.com/steveglaveski to discuss your objectives and provide some guidance on what your best next steps might be.