June 7, 2018
Today, innovation is led by startups. The most forward-thinking corporates know that the best ideas don’t always come from within their own business, and have recognized the value in investing in and collaborating with startups. But because of early challenges, there is a common misconception that corporations and startups can’t form mutually beneficial relationships without one ultimately buying out the other.
Over the years, we've seen both successful and disastrous collaborations – so much so that we started betahausX as a way to leverage our expertise in corporate innovation. We chatted with our team running these startup programs to get their lessons on how to prevent mistakes and get the best outcome for both parties. Here's what they had to say!
It is within startups nature to be flexible, action-oriented, quick to change and to have high-risk tolerance. On the other hand, corporates have already established a brand and credibility, which they have to protect. They're generally slower in decision-making and have a strong sense of hierarchy. The challenge in collaboration between corporates and start-ups is finding shared mindsets on both sides. Following the aim to keep their identity and build their own reputation, startups are often unwilling to team up with larger, more established companies. They don't want to feel like they're “selling out’’. At the same time, corporate employees are trained to follow standardized processes and are often challenged by the creative and loose behavior of entrepreneurs. Besides, in many cases, corporates lack the know-how for how to work with startups.
In order to create a win-win situation for both sides, we should first discuss the possible benefits for both parties involved in the collaboration. It will only make sense for startups to jump in if they know they know for sure that after the collaboration they will bring revenue, notoriety, or greater independence. Another benefit for startups is that they gain access to greater market expertise and mentoring from experts in the field. Partnering with a larger firm can boost the startup's reputation and help them with future sales. They benefit from a greater possibility to expand and can go for a low-risk internationalization.
On the other hand, partnering with startups brings corporates external innovation, new ideas and helps them to ‘’think outside of the box’’ and stay on top of market developments. Corporate firms fall behind trends and innovations in their market. In the face of the startups, they get access to an innovative team that can inform them about new business models and emerging technologies faster. Another common benefit for corporates is that they get more customer focused which often has a positive outcome on their brand and revenue.
Certainly, there are also a lot of pitfalls both sides should be aware of when collaborating. One of the first things startups should have in mind is that working directly with a corporate closes a lot of doors for them in terms of further opportunities and often means doom if the partnership doesn’t work out. In order to avoid getting absorbed by one customer and feeling ''used' after the collaboration, startups have to clarify the budget and the success metrics from the start of the deal. Another common problem that might appear is losing the startup spirit or having delayed projects (mostly caused by the slow process of the corporates).
When collaborating with startups, larger companies are taking a huge risk and should be aware of the uncertain outcome of the project caused by a misunderstanding between both parties or different interests. Startups are inherently risky, so they should be aware that not all investments will yield return, and which can cause them damage to an otherwise reliable reputation.
For a healthy and successful relationship between startup and corporates, there are few questions that have to be addressed before shaking hands.
Startups estimate their time precisely, so they should be aware of the exact duration of the sales cycle. Besides, key corporate departments may not want to work with start-ups and their unproven products if they cannot provide references from previous corporate clients. That's why startups should be informed from the start about the resources needed to handle the necessary processes.
Relevant questions for corporates are concerning the balance between investment and return. What are the benefits and long-term competitive advantage of this collaboration? Why is this different than what they could build initially? Or why is the startup interested in working with them in the first place? The sooner corporates answer these questions, the smoother the collaboration will work.
Thanks to betahausX for sharing their expertise on this topic! Not only do they run our signature events like Investors Day, BETAPITCH, and Hardware.co, but they also facilitate training workshops, startup immersions, and accelerator programs that support the collaboration between startup and corporates.