In recent years, AT&T, Converse, and State Farm have partnered with startups to achieve accelerated growth. Since launching our Corporate Innovation Program, some of the world's most recognizable brands have trusted us to match them with the world's most innovative tech startups.
In fact, according to the State of Startup-Corporate Collaboration 2016, 82 percent of corporates view startup partnership as a critical component of success. Additionally, 94 percent of startup founders said they would participate in a corporate partnership program again.
As a tech startup founder, you're probably familiar with the benefits of the startup-corporate partnership. However, have you thought about how a large corporation might benefit from partnering with you? Read on to learn more about the major reasons that corporates partner with tech startups.
From Auto to Aviation: Why Corporates Seek Tech Startup Partnerships
Enhanced Product Development
It's no secret that startups are more adept at product development than larger corporations. With no bureaucratic red tape in place, startups can quickly identify consumer challenges, conceptualize possible solutions, and test their assumptions with more innovative prototypes.
Curiously, large companies end up launching what they think consumers want, as opposed to what the market truly desires. Look no further than the U.S. food and beverage industry. As reported by the Harvard Business Review, the entire category grew 2.3 percent a year from 2012 to 2015. The 25 largest food and beverage companies contributed a mere 0.1 percent of that annual growth rate. The majority of growth came from the other 20,000 small companies, which together achieved revenue growth by $17 billion. Does that mean the largest companies didn't release any new products during that time frame? Not necessarily. Instead, they simply didn't release any products that "wowed" consumers.
Companies that rest on their laurels risk getting left behind. For this reason, an increasing number of corporate executives have come to a surprising realization: Tech startups can actually drive innovation. Businesses like Uber, Airbnb, and Snapchat have proven they can reach huge numbers without going public. As pointed out by Fortune, such companies are now worth more than the majority of their Fortune 500 counterparts and are showing no signs of slowing down.
Facebook can afford to spend $18 billion on WhatsApp, but non-tech corporates representing shareholders don't have that luxury. For this reason, we expect them to continue partnering with early-stage startups that can provide affordable access to emerging technologies, reduce costs of experimentation, and decrease the fear of missing out on the next big thing.
Joint Venture Opportunities
Finally, corporates are motivated by the same outcome as startup founders: the possibility of mutually-beneficial joint venture opportunities and acquisitions. Smart acquisitions provide corporations with intellectual property that would have otherwise cost them a fortune to develop on their own. Record numbers of joint ventures in recent years suggest corporations are now more open to joining forces with young tech companies.
Here are the 2017 acquisitions we found most interesting:
- Intel acquired Israel-based Mobileye, a computer vision and machine learning technology provider, for $15.3 billion. The company is expected to utilize Mobileye's technology as it enters the self-driving car industry.
- United Technologies bought Rockwell Collins for roughly $23 billion in what has been called "one of the biggest moves in aviation history." The aerospace giant is expected to focus on manufacturing aircraft parts like touchscreen cockpit displays and jet engines, among many other things.
- Apple bought London-based music company Shazam for $400 million. The tech giant is expected to improve the Apple Music platform with Shazam's visual recognition and augmented reality toolset.
According to Mergers, Acquisition, and Other Restructuring Activities, mergers and acquisitions tend to happen in "waves." The first wave began during the late 1890s, with acquisitions between oil and steel manufacturers. The most recent wave is happening right now, with surges in the acquisition of tech startups. The United States has experienced six of these multi-year periods since the beginning of the 20th century.
Ideal Partnership Criteria
The advantages provided by corporate-startup partnerships — easy access to large client networks, validation of product ideas, greater perceived legitimacy, and joint venture opportunities — have the potential to help founders reach their goals significantly faster. However, entering into the wrong corporate partnership can do more harm than good.
Collaborations between tech startups and corporates require more than overlapping target audiences to succeed. Ideal partnerships must also be:
1. Mission-oriented: Do both companies share the same values, goals and overall vision for impacting the world? Is there overlap between the startup's ability to disrupt and the corporate's need for innovation?
2. Organized Around Clear Goals: Instead of focusing on top-line business outcomes, outline what constitutes a successful working relationship for both parties. Is it the speed of new product development? Is it uncovering important customer feedback on an idea that has been marinating for a while now? The best pilots test drive technology implementation around specific datasets and clear benchmarks.
3. Customer-focused: Customers commonly say they value one thing while exhibiting behavior that suggests otherwise. The best partnerships focus around creating prototypes before gathering actual customer behavioral data both parties can leverage for future innovations.
Startup-corporate Partnership Spotlight: Mizuho and KeenCorp
The Mizuho Information & Research Institute (MHIR) — a strategic innovation, IT, and technology arm of the Mizuho Financial Group, one of Japan’s largest banks and most innovative companies — was looking for solutions to a serious problem within Japan’s workforce: intense employee overwork and stress. Japanese companies need to take steps to improve working conditions and address employee wellbeing to improve productivity. A RocketSpace partner since 2016, Mizuho engaged with our Corporate Innovation Services to discover startups that could help improve the workplace and make employees more motivated and happy, with the goal of ultimately deploying this within Mizuho and other Japanese companies.
We identified and introduced them to Netherlands-based KeenCorp. KeenCorp’s software integrates with a company’s email systems and, for the first time, can accurately measure how employees are feeling from moment to moment. After anonymizing emails and names, the technology uses language analysis and tension detection to gauge the organization’s engagement and attitude, providing insight into the collective feelings of employees based on the language patterns they use when writing.
This partnership is ideal and beneficial for both parties as KeenCorp brings to the table a fresh new approach plus technical expertise while MHIR provides an opportunity for product validation and large-scale implementation. Nobuhiro Yamaguchi, Senior Technology Manager for MHIR, expressed, “We hope that our work with KeenCorp will give Japanese companies more insight into employee motivation levels and unhappiness so that we can ultimately provide a better working environment.”
Mizuho is currently engaged in a Proof of Concept with KeenCorp and is working with the team to deploy the technology. After this, the companies hope to partner to launch an internal capability within Mizuho as well as offer this technology as a service to other Japanese companies.
Viktor Mirovic, Chief Financial Officer for KeenCorp, sees this as a promising partnership: “We are so excited to be engaged with Mizuho through RocketSpace and are proud to be bringing this technology to Japan. The work that Mizuho is doing to improve employee happiness is admirable, and we are happy to be part of it.”
Scale Faster With RocketSpace
Are you a Seed to Series-C funded tech startup with a minimum viable product in place? If so, we encourage you to check out the RocketSpace Corporate Innovation Program.
The program facilitates mutually-beneficial partnership experiences between the world's top brands and the world's most innovative startups. We accomplish this by partnering compatible participants in pilot programs organized with achievable milestones, organized production plans, and agreed-upon budgets. With pilots in a diverse array of tech verticals, from agriculture to automobiles, the likelihood of finding an ideal match is high.