Ah, the lure of fresh tech.
Keeping abreast of—and working with—startups is a powerful way for corporations to stay competitive in an ever-changing and quickly innovating market—that much should be obvious.
Choosing how to work with startups and which collaboration model is right for your business can be tricky though. To oversimplify, there are three ways companies can work with startups—investing, acquiring, and partnering. Here's what to consider when evaluating your options if your company is considering tapping into the creativity and innovation delivered by startups.
Investing in a Startup
Through corporate-backed accelerator programs, startups seek access to advice, insider information, and sometimes investment opportunities. Imagine your business attracting the latest startup innovations, simply by virtue of your reputation, industry contacts, and bigger checkbook.
Startups look for investment partners and accelerator programs that align with their industry-specific goals and can put them into contact with influencers in their market. Nike, for example, offers a $50,000 investment opportunity to startups in the fitness market. The investment comes with three months of mentorship with industry leaders and corporate guidance.
Corporations such as Nike are careful to choose startups that not only offer promising returns, but will also advance their own brand mission. Look for startups that are positioning themselves in your market, or attracting the right kind of attention in markets your company would like to enter and invest in the seed stages. Keep in mind that getting on the ground early on, can form a relationship that might prevent these startups from becoming your competition later.
Acquiring a Startup
Your company may be interested in acquiring startups for a variety of reasons—maybe a startup is causing disruption in your already competitive market, for example. But often it's less a matter of gobbling up the competition and more about diversifying and expanding your company's offerings.
Tech giants like Google, Facebook, and Microsoft often purchase startups to add apps or capabilities to their portfolio. Facebook, for example, isn't primarily a photo sharing network (yet!). They acquired Instagram in 2012, not just to consolidate its position as the social network leader, but also to further its photo data mining capabilities in the future.
When evaluating startups for acquisition, think beyond your product (and their product) in the now, and consider how their tech, team, and community might contribute to future projects and innovations.
Joint Venture or Partnership with a Startup
Depending on your market and goals, and the value you hope to obtain, a joint venture or partnership with an up-and-coming startup might be the ideal strategy for your company.
The differences between the two are subtle and mostly semantic (in California, there is no legal distinction between a joint venture and partnership). Joint ventures are typically thought of as short-term and strategic partnerships that may evolve into a longer-term partnership or may dissolve once you've achieved your desired outcomes. Partnerships also come in varying flavors—usually depending on financial and liability arrangements.
If your company is considering a joint venture or partnership, you need to carefully consider the startup involved—after all, there's more at stake when you start entangling your business with another. That said, partnering with a cutting edge tech can breathe new life into established and entrenched companies.
GM and Toyota found an opportunity with Uber to couple the sharing economy driving app with their latest in auto innovations. In exchange for access Uber's pool of car-owning (and buying!) drivers, the corporations become powerful allies to the startup in the automotive industry.
Be open to opportunities to combine the industry insight your company has collected over the years, with the energy and enthusiasm startups can offer. In a rapidly changing world, these ventures and partnerships can have the power to change the way consumers interact in your markets, without affecting the core of your business.
The Key to Success is Alignment with a Startup
The goals and values of your corporation will strongly influence which collaborative path makes the most sense at the onset. Keep in mind, though, that one kind of relationship can evolve into another. An amazing joint venture may turn into a long-term partnership. You may initially invest in a startup and acquire the business later.
Working with a startup is not without risks, but the potential for a lucrative and mutually beneficial relationship, along with the excitement and energy a startup can infuse into your corporate culture, can trump any potential pitfalls.
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