Due to trends like digital transformation, corporate innovators in every industry started to look at and partner with much earlier stage startups. But, these early-stage startups often need to go through many pivots before they can find product/market fit.
These pivots expose corporates to risks of losing strategic alignment with their innovation objectives; and, ultimately, the corporates end up with “zombie projects”.
Over $2 trillion is parked on corporate balance sheets. Because of this excess capital and assets, the expectations are that the global Fortune 500 corporations would dominate the next evolution of global growth and innovation unlike the previous epoch which was dominated by 20-something entrepreneurs.
Trends like Digital Transformation, AI, Blockchain, Industrial Internet, and IoT have made the large corporates in almost every other industry realize that they need to innovate at much faster speeds in order to stay relevant. As a result, corporates started to partner up with much earlier stage startups using internal/external accelerators, incubators, centers of excellence, university partnerships, startup funds, corporate VC arms, and venture builders in order to fill their innovation gaps and facilitate growth.
As corporates started to experiment with these innovation methods and partner up with much earlier stage startups, a few problems surfaced:
1. In terms of having a meaningful impact on the corporates’ strategy or revenue targets, only a very small percentage of these efforts and partnerships delivered results that “moved the needle” in line with these giant corporates’ revenue and strategic expectations. The rest ended up being “zombie projects” sucking up precious resources.
2. These new innovation efforts and partnerships with early-stage startups delivered products and services that are most of the time in a pre-product/market fit stage, and sometimes even pre-problem/solution fit. Most of the corporates lack the necessary skills to work and shape these pre-product/market fit, young startups to align with their strategies.
3. In industries like healthcare, finance, energy, food & agriculture, and transportation, the innovation challenges are much more complex to tackle for a startup with two guys in a garage, eating ramen noodles. The challenges and regulatory aspects of these industries requires a lot of cross-industry collaboration. Hence, building these startups and achieving product/market fit takes on average much longer than a traditional B2C company.
Andrew Chen wrote this popular piece back in 2013 where he defined the term TTPMF – the “Time to Product/Market Fit” and did the math to demonstrate what TTPMF has to be to successfully raise a Series A for B2C startup.
But today, a lot of startups trying to innovate and disrupt these more complex and regulated industries like healthcare, energy, finance, food & agriculture, and transportation finding out that they need much longer TTPMFs, and product/market fit do not necessarily happen at Series A.
Hence, if your corporate is investing in or partnering with this kind of startup, two important questions that an ROI-conscious corporate innovation practitioner should be asking are:
1. “Where is this startup in terms of P/M fit and TTPMF given your corporate innovation strategy and goals?”
2. “How can you secure strategic alignment given the fact that the startup might need to pivot several times during this TTPMF?”
When a corporate partners up with an early-stage startup, these risks are much more evident and significant, but still might be the least discussed elephant in the room. Make sure you are prepared and make time to address these details or you risk inviting investment-sucking zombie projects into your corporation.
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