In 2000, Blockbuster passed on the option to acquire Netflix for $50 million. Ten years later, Blockbuster filed for bankruptcy protection, and Netflix's market cap surpassed $35 billion. In 2001, Borders outsourced its online book-selling to Amazon. Similarly, 10 years later, Borders filed for bankruptcy protection.
So what went wrong? Blockbuster and Borders, two companies that dominated their respective industries, underestimated the ability of startups to disrupt and unbundle multi-million-dollar, billion-dollar and even trillion-dollar industries.
So how do corporations know when a startup is the right long-term partner? It's an inevitable question, especially when profits, brand loyalty and even careers are at stake. We delved into our own experiences here at RocketSpace and have compiled a list of the telltale signs of a partnership with long-term potential.
The Relationship Significantly Benefits Both Parties
As a corporation, you probably understand how startups can help you. They can rejuvenate corporate culture and increase internal learning, and help you position your brand as innovative to attract customers, partners and employees. They can also help you adapt faster to market changes, solve core business problems more effectively and expand into new markets.
But the benefits aren't just one way. As a large company, you can also help startups by increasing their credibility and validating their business model, which can help them get press coverage, raise funds and gain access to additional resources and relationships. Because of your expansive reach, you can also help them expand into new markets.
The real magic happens when both your company and a startup stand to benefit significantly from the partnership. For instance, when Coca-Cola, which sells its products via more than 50 million retailers in 200+ countries, struggled with out-of-stocks, the corporation joined forces with co-founders Yong Kim and AJ Brustein to launch Wonolo, an on-demand stocking platform to help instantly restock shelves and conduct RED (Right Execution Daily) surveys. Since using Wonolo, Coca-Cola has increased its coverage 25-fold and reduced costs by 75 percent per outlet. The partnership also helped Wonolo raise $5.7 million.
You're Able to Deal With the Elephant in the Room
Do you trust the startup? If not, fine, but make sure it's not simply because you're weary of — or unaccustomed to — startup culture.
Generally speaking, corporate culture and startup culture are noticeably different, especially in terms of size, mindset and even dress code. The biggest differentiator? Startups embrace failure. Here's what some of the most prominent voices in Silicon Valley tell aspiring startup founders:
“Don't worry about failure. You only have to be right once." –Drew Houston, Co-Founder and CEO at Dropbox.
“As an entrepreneur, you have to be OK with failure. If you're not failing, you're likely not pushing yourself hard enough." –Alexa von Tobel, Founder and CEO at LearnVest
“Failure comes part and parcel with invention. It's not optional. We understand that and believe in failing early and iterating until we get it right." –Jeff Bezos, Founder and CEO at Amazon
Of course, success is desired no matter the company. Whether you have 10,000 employees or only three, you still need to answer to the bottom line. That's why we recommend practicing intelligent failure.
So, yes, culture shock is real (and entirely understandable), but don't let it be the reason why your team misses out on an otherwise lucrative corporate-startup partnership.
The Pilot Was a Success
Before deploying a significant amount of capital, mitigate your risks by setting up a pilot or test case. This entails investigating key business areas that may be at risk for disruption, defining how you'll measure success, developing a budget using input from your leadership team, and seeking out startups that align with your organization on values, product direction and company goals.
Budgeting for corporate innovation initiatives can be difficult, so we recommend starting with $5K to $10K in order to avoid potential losses. When it comes to finding startups that meet these requirements, consider attending or hosting hackathons, demo days, conferences and meetups. Also, don't feel confined to your own vertical. For instance, a few years ago, Coca-Cola invested millions in Spotify.
Furthermore, look for entrepreneurs that maintain a primarily missionary mindset as opposed to a mercenary one. The difference? According to Randy Komisar, Partner at Kleiner, Perkins, Caufield & Byers, one of Silicon Valley's top venture capital firms, “Mercenary entrepreneurs...are young, aggressive and ambitious people, which are all good qualities, but they have no broad picture or purpose, “ explains Komisar. “They are getting lots of 'eyeballs' and 'users' but aren't delivering any significant value."
Missionary entrepreneurs, on the other hand, “have a bigger goal beyond just making money. For missionaries, it is not about buying low and selling high or getting out quickly. It's about building something sustainable so that you can have the kind of impact you want and accomplish your greater purpose."
After the pilot is over, it's time to assess the results, reflect on the experience and decide whether or not you want to transition into a long-term relationship.
Selecting the right startup partners can be intimidating, and there's no reason to do it alone. Here at RocketSpace, we can help you navigate the corporate-startup introduction process, set up effective pilots and test cases, and get your entire innovation team onboard. To date, we've helped more than 150 brands partner with startups to achieve measurable outcomes.