Every few weeks we hear about another decades-old corporation shelling out billions for startups that were barely a blip on radar screens a year or two earlier. Notably, Walmart recently paid $3.3 billion for Jet.com and Unilever snapped up Dollar Shave Club for $1 billion. Rather, their shareholders paid.
Could these corporations have internally developed the same customer-focused solutions that led customers to embrace the respective startups? Absolutely—and for much less than ten figures. But, they didn't. Even worse, while they may have monitored the landscape, it wasn't until they had to pay a VERY high prices. They lost, and so they had to pay top-dollar prices to acquire the competitors they failed to take seriously from the onset. But is there a better way to set up partnerships with these emerging players. You betcha.
Not every company has $1 billion in cash sitting on their books to acquire any new player that poses a threat. And even the ones who do can't throw that kind of cash at every company with a good idea and a compelling customer strategy.
The past few years have shown that new startups can capture meaningful market share faster than innovation pipelines within established corporations can operate. This reality isn't going away. Increased access to affordable and powerful technology will continue to level the playing field for both sides in the years ahead. Plus, the proliferation of social media means that, unlike decades ago where expensive advertising was a prerequisite for consumer awareness, a startup can quickly capture tens of millions of free impressions. While brand loyalty used to offer an edge for established companies, consumers are more open to trying new things than ever before.
Surveillance of the partnership ecosystem to detect potential partners
To avoid being behind the 8-ball, corporations must implement a continuous process of evaluating all the players in their space, large and small. It's important to remember that the end route of every relationship does not have to be an acquisition. Oftentimes, it's far more effective—and much faster—for a corporation to partner with a startup rather than acquiring it. In my opinion, up to 80% of all corporate innovation pipelines could be immediately fulfilled by the outside world if corporations would only implement processes to evaluate and partner with startups in meaningful ways. Therefore, outreach from a corporation to a startup should not start as a conversation about acquisition; it should be focused on potential partnerships.
Partnerships vary by sector and industry, but should be mutually beneficial for both parties. Oftentimes this means the corporation becomes a customer of the startup without any equity stake or investment. That's because being the biggest customer of a startup provides a much more direct influence in a more meaningful way. Providing consistent cash to the bottom line creates a need for the startup to keep the corporation happy, which becomes a much more compelling motivating factor than a board seat.
Cultivating corporate-startup relationships in four steps
At RocketSpace, we help corporations and startups forge symbiotic relationships. For each potential partnership, we take our clients through the four-step process described below. This process can help every corporation evaluate and implement opportunities with startups in its space.
Step #1: Learning
First, we help corporations learn about the startup community. We help them understand their white space, their roadmap, and the areas they need to focus on. Often, these are non-obvious areas that executives working within the corporation may have missed.
Step #2: Discovering
When we meet with corporate executives, we find that a lot of times they don't know what they don't know. This stage is about helping corporations discover startups. We remind corporations that, in order for startups to have a path forward, they need to have the right people and the right need available to them. Oftentimes, the people or the need can come from an existing corporation.
Step #3: Experimenting
Experimentation is all about helping a corporation and a startup evaluate potential meaningful outcomes together. Sometimes the outcome is that a test doesn't work, and other times the experiment leads to a scalable product that finds its way into the world. RocketSpace, by working in the middle between the two parties, helps keep both sides accountable to tracking towards milestones. Accountability is the keystone of a strong partnership.
Step #4: Partnering
RocketSpace helps forge partnerships for startups and corporations that never even thought they could have the opportunity to work together. Because we know both sides on an intimate level, we can find potential that others might dismiss as not “on-strategy."
Having tons of cash on the books isn't a prerequisite to success: instead, creativity, surveillance, and systems are. I'm not advocating for an end to startup acquisition; I'm saying that it should be a last resort, not the status quo.
When executed correctly, relationships between corporations and startups can be meaningful, profitable, and mutually beneficial —without breaking the bank.
Want to learn how you can tap into the global ecosystem? Learn more about our Startup Engagement Program and how we help corporations establish best-in-class startup partnerships.
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