It's no secret that large companies hungry for innovative technology are looking for startups to collaborate with, invest in or acquire. This can work out well both for corporate management and for entrepreneurs who need funding, guidance and the power of a major, global business.
Finding the right startup-corporate relationships, however, can be elusive, especially when big-fish suitors don't know how to woo small-fish entrepreneurs. Misaligned needs and visions can lead to frustration rather than fulfillment.
Visionary corporate leaders tend to be the ones making good deals with young firms, suggests serial entrepreneur Carey Ransom, who has been involved in selling businesses and worked with several startups.
"When the discussions have been productive, corporations have had entrepreneurial leadership who see the value in working with smaller, more nimble and innovative companies, and appreciate the fresh perspective outsiders can bring," Ransom says. These kinds of corporate leaders, once they find a suitable startup partner," have been open to pilots or lightweight integration as a path to a more strategic relationship, such as investment or acquisition, after learning more," he adds.
Respect the Entrepreneur's Passion
To ease startups' uneasiness about working with large corporations, big companies need to establish trust with the entrepreneur early in the process and demonstrate a track record of finding mutually beneficial partnerships, according to Ransom.
Showing that the partnership works for both parties is important, especially given entrepreneurs' concerns that bigger companies may be planning to squash them or make too many changes to the startup.
Sam Malik, founder and CEO of Scottish healthcare website Dr Felix, has been approached by two prospective suitors — a large pharmaceutical group and an angel investor with success in the technology and healthcare sectors — but says he turned down both of them.
"The main reason was, they did not appreciate our business vision and wanted to steer the business in a different direction. As a small startup business, all our employees are passionate about the work we do, and if we agreed to the investment it would have meant compromising on our values and business vision which was not acceptable to us," Malik says.
While a big budget injection can be welcome to accelerate a startup's growth, a sizable investment isn't the only thing on the entrepreneur's mind.
"Although it is important to be a profitable business, this is not necessarily the main driver for the entrepreneur. It is important for investors to understand the business they wish to join, value their vision and try to find common ground to find success together," Malik says. "For major investors, the business may be another statistic and another value on the balance sheet, but for the entrepreneur it may be their lifelong passion and biggest achievement of their life."
Seek Mutually Beneficial Relationships
If you aim to be among the more approachable, startup-friendly big corporations, you might follow the lead of those already in that category.
They are "actively investing in startups, putting their money where their mouths are; they are getting involved in the startup ecosystems and trying to provide feedback, coaching, support and partnerships; and they're being much more transparent about their strategic road maps and where they need help and where they believe startups could help them," Ransom says.
These types of companies host innovation jams and hackathons and invite interesting startups and professional investors to participate, Ransom explains. They "present their biggest opportunities and challenges, and look for ways to co-create solutions."
It's also good to think about how corporates can add value. Startups typically lack resources such as salespeople and customers, for instance, and that's one area where major corporations can help startups grow, Ransom notes. Companies that understand and have close ties to customers "should be able to introduce innovative ideas more quickly and get a pulse from them that few startups can easily do," he says.
Forward-thinking corporate leaders realize the best ideas don't always come from their own organizations and are partnering with startups to keep up and get ahead in their markets, entrepreneur Brent Hoberman, co-founder of lastminute.com and made.com, says in Winning Together: A Guide To Successful Corporate-Startup Collaborations, a guide to successful corporate-startup partnerships by U.K. innovation charity Nesta.
The right collaborations can be difficult to achieve, he writes, adding that "corporates need to think hard about how to approach these innovation partnerships systematically, rather than relying on individuals to take the initiative."
The Nesta report advises corporate leaders to remember these 10 lessons in engaging with startups:
- Consider your objectives.
- Select programs — hackathons, incubators, investments, partnerships, acquisitions, sharing workspaces or tools — that will best help you achieve those objectives.
- Obtain support from your board.
- Establish performance metrics.
- Collect data and feedback to refine your model.
- Choose entrepreneurial people who understand startups, and who will treat them as partners rather than employees, to manage your startup efforts.
- Designate an in-house high-level "champion" with decision-making authority.
- Form one, visible access point for startups.
- Scout globally.
- Make it easy for entrepreneurs to work with your company.
To get started, talk to those who already work with startups, identify your objectives and try a small pilot program.
Ready to take the next step but don't know where to start? Let us help you! We know how to work with startups. We sit right next to them. Learn more about our work with Corporates.
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So when working with startups, what shouldn't you do? Check out Avoiding the Corporate-Startup Dating Disaster from the Corporate Innovation blog.