SHOULD A CORPORATE COLLABORATE WITH START-UPS?
Many firms have no collaborative programmes at all with start-ups, whilst others are struggling to implement their own initiatives. One problem for corporates is the type of innovation which start-ups bring. Large corporates are often better than new entrants at incremental innovation with incumbent technology, but highly resistant to disruptive technology which renders their existing competencies and standards obsolete.
It is therefore very common for corporates to prefer incremental improvement to the radical, disruptive change which start-ups may represent. Incremental innovations constitute 85-90% of firms’ innovation activity.
Another reason is the mechanism of innovation which is required. For some firms, the risk of opening up their company to external innovation may be perceived to be too high. This is a reasonable concern: internal R&D may sometimes be adequate for a firm’s needs, and over-reliance on external sources of innovation can potentially decrease profitability (if the costs of external collaborations exceed the additional value created).
Moreover, partnering with start-ups changes the risk profile of a firm – replacing the technical risks of internal R&D with partnership risks, for instance – as well as introducing new ones.
In addition, the upside is often unclear: measuring return on investment for start-up collaboration (and much innovation in general) is very difficult. There is currently too little economic data to quantify the benefits of working with start-ups, and some impact is inherently difficult to measure, making it difficult for executives to justify programmes to their managers or to shareholders.
In other cases, however, it may simply be a lack of awareness that is holding back potentially fruitful collaboration – either in terms of what competitors are doing in this regard, or in terms of the potential advantages arising from win-win collaborations with start-ups.
This leads to the Corporate CEO’s Dilemma:
|SHORT TERM||New technology, services or products from start-ups may help firms to,stay competitive and/or expand into new markets.
Collaboration can bring,brand innovation that is attractive to potential customers, business, partners and future employees.
Start-ups may bring fresh thinking to help,solve core business problems.
|Introduces new forms of risk; changes existing risk problem.
Possible,disruption to existing teams and processes Rate of failure usually high, for start-ups, which may affect business continuity.
Potentially high,short-term costs and low immediate returns (in time and resources).
|LONG TERM||Increased market share and/or possibility of entry into new markets.
Rejuvenated,corporate culture and increased internal learning/ Increase in, shareholder value.
Reinforced leadership position in industry/vertical.
Agility to adapt more quickly to market changes.
Possible reputational damage arising from soured start-up deals or, failure to supply.
Possibility of considerable resources spent with, minimal return on investment.
HOW SERIOUS IS THE NEED FOR INTRAPRENEURS?
Almost every industry is being or will soon be disrupted by exponentially evolving technologies such as artificial intelligence, machine learning, genetics, nanotechnology, 3D printing, robotics, online learning, online marketing and social networking. According to Deloitte, “In the next ten years 50% of the S&P 500 will be replaced by digital disrupters.” The new game is disrupting your industry or be disrupted. Don’t be roadkill.
Acquisition has proved to be no substitute for internal innovation. Unless you can maintain an intrapreneurial culture in the businesses you buy, their value declines rapidly.
Big companies now innovate in partnership with start-ups and other entrepreneur-led firms. To co-innovate with entrepreneurial firms, you need to come close to matching their ability to experiment, learn and change at warp speed.
You can only be an effective partner to entrepreneurial firms if the relationships are managed on your side by intrapreneurs who are free to act rapidly without being second guessed by bureaucrats.
Many corporate R&D results have no direct impact to short term business. As a result, a lot of IP is dormant and often maintained “just in case” or abandoned due to a lack of long-term vision. Exploiting this know-how via an entrepreneurship action is a nice way to challenge the market fit without seeing it moving away from the company and disrupting the mainstream business. It can eventually be easily reintegrated within the corporate strategy.
How deep corporates can collaborate with start-ups coming from outside the group? It is indeed important to understand respective strategies and see how they fit together. What are the intentions of the corporates? How far start-ups are ready to go in the relationship? Is financial support the only avenue? A number of questions have to be answered.
The collaboration between corporates and start-ups, as well as early-stage scaling businesses, has never been so crucial.
Much has occurred in the past few years in the creation of a greater number of partnerships, incubators and hubs by larger companies to foster closer working relationships between the start-up and early-stage, high-growth business community.
This has led to innovation, new products and new services within the larger corporate alongside engendering better sales and supply chain opportunities to the smaller business.
It is clear that there is a strong correlation between a small company attaining an anchor customer of a well-known ‘high street’ brand name and how that can generate further opportunities. Indeed, the most important help identified by high growth businesses is the ability to access corporate buyers in a timely, consistent and efficient manner.
Innovation is key to sustained corporate success. Innovative firms grow twice as fast as non-innovators, both in employment and sales. Yet large firms often struggle to innovate because there are many barriers that are deeply entrenched within the organisation. More corporates are therefore choosing to collaborate with start-ups as part of their innovation strategy, precisely because they realise that their own corporate nature makes internal innovation difficult.
Collaboration and interdependence are part of business. From customer-supplier relationships, through complementary partnerships (such as Intel’s processors and Microsoft’s operating systems), to joint ventures (such as Sony-Ericsson), companies have long formed partnerships with one another to create value. However, collaboration with start-ups has historically been less common and hence is less well understood.
THE DIFFERENT TYPES OF PARTNERSHIPS
Based on their strategic objectives, corporates may use different structures to enter into strategic alliances with start-ups through various partnership types of increasingly intense integration.
Procurement contracts are at one end of the partnership spectrum. Whilst the qualification process may be arduous (as discussed above), procurement is usually relatively transactional in nature, requiring little formal integration.
Marketing or distribution agreements – wherein firms embark on a joint marketing campaign, or else the corporate uses its own (typically well-established) distribution channels to distribute the start-up’s offering – can also be quite transactional, though they require a degree of strategic alignment and agreement over messaging.
Licence agreements, whereby one partner (typically the corporate) licenses IP for exploitation, may require further integration. Particularly for new technology, such a partnership will also require a period of collaboration in which the development team helps the licensee to integrate the technology into their systems. Licence fees may sometimes involve equity as well as, or instead of, cash payments.
Joint development or co-development is a deeper form of partnership where the corporate and start-up share resources – usually including labour, capital and IP – in order to jointly develop a product or service. Joint ventures take co-development a step further, in terms of pooling resources into a new legal entity, with its own governance structures and business processes.
WHY DONT’T FIRMS COLLABORATE MORE EFFECTIVELY?
Even when firms want to collaborate with start-ups, there are often barriers which inhibit effective collaboration. Some of the factors which affect collaboration in general – such as trust and mutual interest – are well known.
In addition, there are other factors – like an imbalance of power – which are particularly frequent in ‘asymmetric’ partnerships such as those with start-ups.
By far the greatest challenge reported by start-ups is the mismatch in speed: problems with long cycle times and slow decision-making on the corporate side. The next biggest challenges related to coordination leading to difficulties arising from poor communication, changing contact points, or unclear processes. This is followed by various cultural problems and contractual issues (including protracted negotiation of terms and conditions).
By contrast, external barriers are factors which are – at least partly – outside the corporates control. These include possible environmental or extrinsic factors (such as legislation, which might be affected by policymakers) and – more significantly – relational factors (such as trust, which depends upon the individual relationship between start-up and corporate, and search problems).
INITIATING THE RELATIONSHIP
The first challenges to forming new relationships are search problems. For start-ups, the difficulty is often in identifying the right corporate representative to speak with in order to initiate a relationship. Large firms also face search problems, both in terms of finding start-ups (who often have a very low profile), and then in terms of screening for suitability (there are usually many suitors, but only a handful who fit the bill for technical fit, organisational capacity and other requirements).
Within a corporate, the ideal contact is typically a person or team who understands the corporates technical needs whilst also having enough budgetary and decision-making power to champion the start-up inside the company. To do this effectively for a large organisation, this usually needs to be a dedicated role, responsible for early-stage technology scouting worldwide. These person splits their time between inward-facing networking to understand the needs of the organisation, and external-facing networking to identify potential technical solutions among start-ups and research organisations; when they encounter a promising technology, they are then very well placed to broker a rapid connection
|Initiating the relationship – good practise for corporates|
PROGRESSING THE RELATIONSHIP
After the potential partners have established that there is mutual interest, the collaboration typically moves into a deeper, more formal phase. This often involves various internal legal and technical assessments of the start-up.
This phase is often the most laborious for start-ups, especially since they are generally used to lean working and quick turnaround times. The appraisal criteria and processes required by corporates (to be registered as a supplier, for example) may mean that the start-up is required to produce substantial documentation in order to pass a financial stability test or legal assessment. Subsequently, the corporate often needs time to review the submitted information and perform their due diligence before they can express a final judgment on the feasibility of collaboration with the start-up. M&A due diligence, in particular, is exacting and time-consuming.
By this stage, it is likely that one party may request a non-disclosure agreement (NDA). A couple of problems may be encountered here. Some firms may request an NDA before even the first meeting, consuming legal resources even before possible fit has been established. On the opposite end, many large firms may be reluctant to sign if they already own much IP in the area, since it may require significant effort to side-step any conflict of interest and may potentially exacerbate the risk of being sued.
NDAs are often a prelude to more detailed Intellectual Property discussions. IP is a common sticking point and, without agreement on the matter, frequently makes it impossible to progress a collaboration (although, as others have noted, “IP is sometimes used as shorthand to describe a whole host of issues relating to contract development, such as indemnities, warranties, exclusivity or publishing”).
|Progressing the relationship – good practise for corporates|
SUSTAINING THE RELATIONSHIP
Once the agreement is signed, the collaboration can begin in earnest! Ensuring a healthy, long-term relationship takes concerted effort, requiring clear and effective communication, maintenance of trust, and an ongoing perception of mutual benefit. Monitoring and measuring success (or failure, as the case may be), is vital to keep track of the progression of the collaboration(s) and should feed back into the company’s periodic strategic reviews.
Problems frequently arise when the relationship manager on one side (usually the corporate, often as a consequence of an internal reorganisation inside the large firm), is replaced by someone new. This person hasn’t the personal relationship with the start-up, nor a detailed understanding of the purpose of the collaboration, making life difficult for all involved.
Another common problem is for one side to lose interest in the relationship, perhaps due to changing strategic priorities in the firm. Whilst changing priorities cannot always be avoided, damage can be minimised if there is a clear exit strategy – that is, clearly-defined conditions under which partners will withdraw from the collaboration. Many organisations are unwilling to discuss this up-front, fearing that it conveys negative intent. However, by being clearer and more open about the relationship at the start, partners are more likely to have an honest discussion about problems when they arise.
|Sustaining the relationship – good practise for corporates|
HOW TO IMPLEMENT THIS WITHIN A CORPORATE?
Collaboration with start-ups and scale-ups is an increasingly important mechanism for corporate innovation.
In a world where technology and business models are rapidly changing, firms with the ability to collaborate and co-create effectively are much more likely to survive the disruption of their industry and sustain competitive advantage. In other words, collaborating with start-ups gives to the corporate the opportunity to play in the space of the disruptors without actually being disrupted.
|Recommendations for Corporates|
|Recommendations for Start-ups and Scale-ups|
How to transform corporate R&D results into business activities? This is indeed a prominent problem arising in the corporate R&D environment having to deal with a growing number of dormant IPR.
THE NINJAS AND THE SAMOURAIS
Building an intrapreneurial culture is not about ‘creating’ intrapreneurs – they already exist within organizations; they just need to be discovered and encouraged.
Intrapreneurs are employees who do for corporate innovation what an entrepreneur does for his or her start-up. Intrapreneurs are the yeast that makes the bread rise. If you want more innovation the only way to get it done is to identify, develop, trust and empower your intrapreneurs. An organization must know how to select, manage and create the environment for intrapreneurs for them to thrive.
Intrapreneurs are the dreamers that do. Intrapreneurs don’t just come up with ideas, their core role is turning ideas into success business realities. Intrapreneurs sometimes are not the inventor, but they are always the implementer of new ideas.
Intrapreneurs are self-appointed general managers of a new idea. Being an intrapreneur means doing something to move it forward. They don’t wait for someone to put them in charge. They build a team of volunteers. Find cheap ways to test the idea in the marketplace. They build rapid prototypes to visualize what they are talking about. To get management support, they show potential sponsors and customers responding enthusiastically to an idea.
Intrapreneurs are drivers of change to make business a force for good. An intrapreneur is focusing on innovations that make the world better may be known as a “social intrapreneur.” Social intrapreneuring is not just doing good. It often leads to disruptive innovations and highly profitable new businesses. Supporting social intrapreneurs is the highway to millennial engagement. Stay tuned to learn how to engage your intrapreneurial talent with the challenges that matter to your business as well as to the larger world.
An intrapreneur’s skill set and intrinsic motivations strongly differ from the average employee, and consequently they require a different management approach.
Current research reveals the seven most important steps that need to be followed in order to create healthy intrapreneurial environment:
|It is important to show employees that their entrepreneurial behaviour is supported and fostered, which includes an open culture in which they are not afraid of sharing their ideas. Each employee should be encouraged to come up with suggestions for incremental improvements, as well as radical concepts. Later on, managers need to provide implementation support in the form of resources and advice to reduce time-to-market and increase the chances for success.|
|(2) Autonomy and Responsibility|
|Managers need to offer autonomy, encouraging employees to create independent solutions to challenges instead of adhering to established command lines. Furthermore, control mechanisms and bureaucracy have to be reduced to allow for new processes that make good business sense.|
|(3) Motivation and Incentives|
|The motivation of employees is of crucial importance. Since they are strongly intrinsically motivated, financial rewards based on their entrepreneurial performance are important, but not sufficient. Managers have to acknowledge and cherish ideas while tolerating mistakes and failures, in order to further encourage employees in their entrepreneurial endeavours and bind them to the organization.|
|Employees need time and resources in order to come up with innovations. The most famous example of this is Google’s “20 % Rule”, in which employees are allowed to spend one day per week on a project that is unrelated to their work. In addition, managers should grant quick access to resources (e.g., capital, machinery, experts), enabling intrapreneurs to validate their ideas quickly.|
|The design of a compensation package should encourage all steps of intrapreneurship, including a combination of short and long-term goals that are aligned with a company’s strategy. It should encourage risk-taking (e.g., profit-sharing), but reflect the reality that due to the corporate boundaries the intrapreneurs play in, they have limited influence on the outcome of the venture.|
|Managers should make sure of fostering an open exchange of ideas within the corporation, as well as with external experts, and implement efficient tools such as idea exchange platforms. Additionally, innovation challenges can be created to generate more new ideas quickly.|
|(7) Structure and Processes|
|Entrepreneurial companies have a decentralized structure, where managers delegate decisions to the lowest possible level to ensure that they are made by those with the most knowledge. In order to increase the amount of knowledge deployed even further, these companies also foster collaboration and cross-discipline projects, improving problem-solving quality and speed through combined experiences.|
INTRAPRENEURS CONTRIBUTE TO BUSINESS SUCCESS
Intrapreneurs help entrepreneurs: Intrapreneurs are almost like-minded to entrepreneurs in that they are driven to increase the growth of the company. It is important to realise the value of intrapreneurship to initiate new programmes and advancement in your business. Intrapreneurs work extremely well with entrepreneurs in that they help them increase production within a company. The difference between an intrapreneur and entrepreneur is that an intrapreneur focuses on the operations of the company whereas an entrepreneur focuses on the vision and overall goals of the business. Intrapreneurs are a necessary part of business as they motivate company growth through ideas and implementation of strategies. Let us explore the benefits of hiring intrapreneurs in a company.
They increase the productivity of the business: An intrapreneur is someone who will focus mainly on the operations of the company. They ensure effective productivity from the team. They come up with solutions to problems that cause glitches in the workflow. Intrapreneurs are described as skilled problem solvers. They are focused on meeting work goals in order to reach milestones. Intrapreneurs will motivate teams within an organisation to become driven and goal orientated. They will keep track of workflow and consistently come up with ways to improve the overall production of a company.
They are problem solvers: Intrapreneurs are tasked with improving processes and systems of the company. They are to challenge every interference that slows down the business’s output. They do this by investigating the issues and suggesting creative ways to fix the issue. Intrapreneurs will see the gaps in the business and try to fill them. They will identify methods that need to be improved and evaluate how this can be achieved. Intrapreneurs will rise to the occasion and suggest brave business changes that will bring success.
They are innovators: Intrapreneurs are innovative and create effective change in the company. An intrapreneur will recognise what moves the company needs to make in order to reach a new level of growth. They are always imagining solutions that would make operations of a company better than it was before.
They take risks and are not afraid to fail: Intrapreneurs are passionate about achieving success. They are brave risk takers who are not afraid to revolutionise the companies that they work for. They are willing to challenge every excuse in order to find the perfect resolution. Intrapreneurs will take risks that may not be favourable in the eyes of other employees, but their overall goal is to see the company thrive. They are eager to explore options that may take the business to new horizons. Intrapreneurs are not afraid to fail. Intrapreneurs know that failure is sometimes inevitable, and they are not easily discouraged. They will learn quickly from their mistakes, do better and keep on going forward.
They take your business to another level: Intrapreneurs are valuable employees that cause business soar and become prosperous. It is vital for business owners to have a trained eye to recognise these intrapreneurs and allow them to lead. When you have identified these individuals, they should be promoted and tasked with managing the operations of your company. As leaders, intrapreneurs become gems to the company that fuels the purpose of the business. They should be groomed and given guidance while they ensure the smooth running of your business.
INTRAPRENEURS ARE HELPING ENTREPRENEURS
Intrapreneurs value accountability: This set of people has P&L responsibility for the development of a product or business unit, so they very well understand each and every little perspective required for the initiation of a start-up venture. Apart from the design, they will focus on reducing costs and churn rate and increasing profitability. It becomes their KPI. Since start-ups usually work with limited resources, intrapreneurs can ensure that every resource is effectively utilised.
Intrapreneurs are innovative: Only start-ups that innovate will survive. However, innovation
requires allowing employees to wear their thinking hats. Intrapreneurs possess
an innovative streak and a creative thought process to convert the seed of an
idea into a full-fledged plan,
and even execute it suitably. They are the drivers of innovation and adopt a unique problem-solving approach. They think and act differently, creating a pool of ideas.
Intrapreneurs are leaders: One of the top reasons for the failure of start-ups is not having the right team on board. Building a business takes team effort, but if all members are not on the same tangent and don’t share a common goal, it is a recipe for disaster. As start-ups climb the growth curve, team building becomes crucial. Team dynamics may become volatile, creative and ideological differences may arise, and competitive pressure may make them vulnerable. The founder/owner is busy growing the business; he may not have sufficient time to work on these components. Intrapreneurs can easily slip into this role. Intrapreneurs have the confidence and attitude to lead. They know what the top management expects, but at the same time, being one of the employees, they share a good rapport with their peers. Their team experience coupled with the ability to rise to the occasion can build a strong team in the organisation.Intrapreneurs are business-savvy: Like entrepreneurs, intrapreneurs are passionate about their ideas. Every time they have a unique idea to discuss, they put in their heart and soul to present their business case to the management. Over a period of time, they build their pitching capabilities. They come to understand the importance of a strong business pitch, and when the situation arises, they can represent their start-up to the stakeholders with the same passion and self-belief with which the founder would.
What are the preliminary steps in order to deploy a mutually beneficial relationship framework between start-ups and large corporates? The objective is to make sure that every actor of the process is well aware of its right and duties and to avoid over expectations.
MAKE SURE THAT THE COMPANY IS READY FOR OPEN INNOVATION
There are many factors that combine to make a company ready for, and receptive to, open innovation.
Does it have the right policies, processes and partners? How about its people, platforms or purpose?
Completing the Open Innovation Readiness questionnaire enables companies to see how they measure up and develop their Open Innovation capabilities in a focused manner.
DEFINE THE START-UPS ECOSYSTEM TO GET THE BEST DEAL FLOW
A good start-up ecosystem should be articulated around the following axis:
- Research bodies developing ideas and inventions
- Entrepreneurs and start-ups at various stages
- Start-up team members
- Angel investors
- Start-up mentors and advisors
- Other entrepreneurial minded people
- Third-party people from other organizations with start-up activities
The key connections to develop between the actors of the ecosystem are:
- Level 1: Connections Between Entrepreneurs
- Level 2: Connections Between Support Organizations
- Level 3: Connections Between Entrepreneurs and Key Support Organizations
- Level 4: Miscellaneous Support Connections
DEFINE THE INNOVATION FUNNEL SELECTION RULES
By integrating four key management processes, corporates can produce innovation:
- With the right fit—Market planning allows manufacturers to conceptualize products that take advantage of market opportunities and appeal to selected market segments.
- At the right pace—Platform management establishes an architectural base that firms can use to deliver new products more quickly and at a lower cost.
- At the right cost—Pipeline management encourages efficient use of people, processes and technology across the product lifecycle, lowering the overall cost of innovation by halting bad projects early before they waste inordinate amounts of resources.
- For sustained returns—Portfolio management optimizes the overall spread of investment, across all new projects and existing products, based on risk, return and degree of strategic alignment, helping to create a steady stream of returns on innovation.
GENERAL STRATEGY TO GO FROM IDEA TO BUSINESS
Finally, at the end of the day, the methodology shall go along the six following steps:
1) Ideating: Entrepreneurial ambition and/or potential scalable product or service idea for a big enough target market. Initial idea on how it would create value. One person or a vague team; no confirmed commitment or no right balance of skills in the team structure yet.
2) Concepting: Defining mission and vision with initial strategy and key milestones for next few years on how to get there. Two or three entrepreneurial core co-founders with complementary skills and ownership plan. Maybe additional team members for specific roles also with ownership.
3) Committing: Committed, skills balanced co-founding team with shared vision, values and attitude. Able to develop the initial product or service version, with committed resources, or already have initial product or service in place. Co-founders shareholder agreement (SHA) signed, including milestones, with shareholders time & money commitments, for next three years with proper vesting terms.
4) Validating: Iterating and testing assumptions for validated solution to demonstrate initial user growth and/or revenue. Initial Key Performance Indicators (KPI’s) identified. Can start to attract additional resources (money or work equity) via investments or loans for equity, interest or revenue share from future revenues.
5) Scaling: Focus on KPI based measurable growth in users, customers and revenues and/or market traction & market share in a big or fast-growing target market. Can and want to grow fast. Consider or have attracted significant funding or would be able to do so if wanted. Hiring, improving quality and implementing processes
6) Establishing: Achieved great growth, that can be expected to continue. Easily attract financial and people resources. Depending on vision, mission and commitments, will continue to grow and often tries to culturally continue “like a start-up”. Founders and/or investors may exit or continue with the company.