Collaborate to Innovate - How can startups and corporates partner for success

Corporates, have you considered shaking hands with startups yet? Startups & scaleups have become a valuable source for corporates to foster their innovation and growth. Furthermore, startups can be your allies in bringing the company culture on a higher level and guarantee long-term success.

"Successful collaborations can unlock game-changing mutual benefits, but getting to that point is not without its challenges," the Startupbootcamp Survey among alumni base from a large mix of industries and regions across the world shows.

This insightful article with guidelines, hints and statistics will tell you why and how corporates and startups can partner up for success and what can they do to make it right.

WHY?

Collaboration creates a perfect storm

Startupbootcamp in its vision report claims that oil tanker analogy for big business is very much a truism. "Even for the most innovative of corporates, the sheer volume of people, geographies and processes that can slow down their world makes work with agile, enthusiastic startups hugely appealing."

And continues: "Likewise, startups are determined to tap into the resources, customer base, experience and finances of the corporate world. It’s a rare entrepreneur, who thinks they can do it alone. Collaboration is at the forefront of everyone’s minds, and most startups know that collaboration is critical when it comes to helping with the sale of their product or bring it to market."

This creates a perfect storm. Corporates need startups and startups need corporates. That’s also the premise behind the PODIM Conference.

It used to be that corporations and startups only interacted at the negotiation table. Corporations had few incentives to pay attention to scrappy young firms. Startups were left alone to fend for themselves until they ripened into acquisition targets, at which point they were deemed lucky to be granted access to corporate-scale operational levers.

Engaging a startup into a traditional corporate frame brings numerous benefits, but it is noteworthy what to consider when scouting for a startup or scaleups to collaborate with, therefore we have prepared this insightful article with guidelines, hints and some statistics.

The source of information has been valuable data that we at PODIM team and colleagues at WhatAVenture, MassChallenge, Startupbootcamp, ABC Accelerator, as well as other startup ecosystem experts gained through countless experiences working with startups, scaleups and corporations.

From a competitor or an acquisition target to business partner

The sooner you realize, as Henry Chesbrough said, "Not all of the smart people in the world work for us", the better, as this will drive you to innovate within your company. Over the past decade, we've seen a seismic shift in the way large businesses and startups work together.

Scott Bailey finds out: "From viewing a startup as a competitor or potential acquisition target to the emergence of corporate incubators and year-over-year growth in investments backed by corporate budgets, more and more industry-leading organizations are looking to partner up with startups to take their businesses to the next level."

But unfortunately, we can’t say this for all companies. Aljo?a Domijan, an avid entrepreneur, talks for Finance.si about Slovenian companies: "The fact that foreign investors invest about 100 million euros into Slovenian startups each year says a lot. But it surprises all of us, who follow the startup ecosystem, that Slovenian companies are not interested in them, neither want to collaborate with them nor invest into them," 

Ale? Pustovrh, partner at Fil Rouge Capital, goes even further, when claiming that syndrome "Not invented here" (NIH) is killing the innovativeness. But adds that more and more companies name their chief innovation officers (CINO), some of the companies even whole departments: "Many big corporations have lately accepted startups and scaleups as one of possibilities for their own digital transformation and have shown interest in them."

Fresh viewpoint, innovative approach, and their own reality

The main benefits of engaging with startups for corporates is a fresh viewpoint they bring and innovative approach, which they develop through creation of their own reality rather than just responding to outside factors. These discoveries were made in a joint research study by Imaginatik and MassChallenge, which also states: "Some of the craziest stuff ends up working really well."

"The digital disruption and acceleration of markets, customers and companies accordingly calls for new approaches when creating future technologies and business models," says Thomas R. Werner, director at Cisco EIR.

He adds: "One party alone will find it more and more difficult to address all of the challenges. This is why co-innovation programs with strong focus on co-creation and ‘joint value propositions’ are so valuable. They will bring together collective actors and thinkers with attention to broaden the innovation-value-chain and address these fast moving collective challenges."

Startup ecosystem experts are passionate about all these new concepts, that cumulate co-innovation, co-creation and joint value propositions, a part of which is also a brand new PODIM Genesis.

Startups can be very useful for improving core business (e.g., cutting costs, boosting margins, expanding market share), because they often:

• take novel approaches,
• work faster,
• and are more cost effective than more established providers or partners.

Startup ecosystem is well known for:

• shortening the cycles of innovation,
• exploiting technology,
• enhancing existing business models,
• entrepreneurial company culture as an DNA,
• and inventing new ones more quickly and effectively than big corporations.

Therefore corporations can benefit from collaborating with startups by sourcing the latest technologies or novel business models, avoiding the inflexibility that firms commonly face when trying to do things internally. Moreover and what is worth to mention, startups also take company culture to another level.

"Young companies or new businesses are the future job growth engine. It’s about time corporations take notice of the value entrepreneurs or startups can bring to larger companies. Entrepreneurs hold the key to spark the innovation that corporations lack," dr. Thomas Funke, head of the entrepreneurship and innovation department of RKW, think tank of the German Federal Ministry for Economics, says.

The collaboration helps corporates stay competitive

PODIM partner WhatAVenture in this white paper publishes an extensive list of reasons, why your company should collaborate with startups. Some of those reasons are improving internal processes, building new products, broadening your product range etc. and by doing that, you should also:

• Develop new, innovative products or services for existing or new markets
• Improve internal processes
• Adopt solutions from startups instead of building them on your own
• Find new technologies and identify trends 
• Position yourself as an innovative company 
• Find and invest in promising ventures
• Fully take advantage of your assets (e.g. infrastructure, customer database, know-how, ...)  Example: up- and cross-selling; you probably have an existing customer base to which you can offer a new product or service from your startup partners. You can extend your value chain or increase revenue with up- or cross-selling.

"The corporates and startups colaboration has a great potential to help corporates stay competitive and help startups to grow and flourish. However, the success of such initiatives is highly dependent on the commitment of the top management and excellence in execution by the innovation functions. Clear and transparent goals and a thought through methodology are imperative for success," Heinrich Schmid-Schmidsfelden from Innovationsmanagement at Kapsch says in the WhatAVenture white paper.

WHAT?

Number of offerings allow startups and scaleups to be picky 

Always ask yourself - what can you offer to startups or scaleups? Competition is increasing, and top startups really know where to invest their time and resources. And with the huge number of offerings out there right now, they can allow themselves to be picky.

The stage of the startups really defines which benefits they are looking for. Early-stage startups are often looking for guidance and know-how, whereas later stage startups are primarily looking for proof-of-concept money to adapt their existing solution and scale their business together with a strong partner.

A very illustrative example of a great collaboration between an established corporation and a startup, which has its roots on Insurtech Innovation Weekend at Venture Factory, is an intense collaboration between Slovenian startup Movalyse and the second-biggest insurance company Zavarovalnica Sava regarding the theft insurance for motorcycles. This is just one example of such good practices.

The team behind the Smart Turn System, a safety feature for all motorcyclists, has joined forces with the Zavarovalnica Sava team and another prosperous startup Chipolo to offer theft insurance Vigo.

"My motorcycle is worth approximately 4,500 euros, and the yearly insurance for it costs around 1,000 euros," Rok Upelj, co-founder of Movalyse says. They equipped the system with an emergency call, "and now the monthly premium motorcycle theft insurance, which is worth 3,000 euros, shouldn’t cost more than a full tank of fuel," Rok Upelj claims in this Dnevnik article.

Although it will take some time to evaluate all the benefits of this collaboration, Rok Upelj says the partnership brings Movalyse the capability of doing things at a larger scale. And, on the other hand, Movalyse brings agility to the large corporation processes.

Collaboration dramatically changes relationships between companies and startups

"Creating a culture of entrepreneurship in their company is the biggest innovation challenge corporates face, according to 20 percent of the corporate visitors of Lean Startup Nights," Thijs Sprangers, head of Wework Labs Northern Europe claims, adding: "By comparison, only 5 percent of startup visitors stated this as a challenge."

At their core, corporations and startups are very different, and always will be, but the balance of power between startups and corporations is changing and so is their relationship. It is no longer simply antagonistic or acquisitive.

Imaginatik and MassChallenge research study reveals that startups consistently stressed the corporation’s role as an informal mentor. And adds: "They also see corporations as partners who can offer access, advice, and strategic opportunities for mutual gain in the short- and medium-term."

The global startup community is arguably more cohesive and more confident than ever before, and corporations that are open to and experienced in working with startups and scaleups are far more likely to attract the best entrepreneurs.

Strategic fit is crucial for success 

Startups are often the preferred partner because they are ready to enter new partnerships, they are more open to thinking outside the box, they bring more flexibility when it comes to adjusting their technology and core offering and lastly, they work on state-of-the art technology.

According to the Imaginatik and MassChallenge’s research study, it is strategic fit that is crucial for success. Nearly 45 % of respondents cited strategic fit as the most important factor in success or failure of a given startup relationship." In fact, strategic intent determines not only which startups a corporation chooses to interact with, but also how they build the relationship, as well as which vehicles, processes, and people are involved," the report says.

Are you aware of how significantly startups differ from corporates?

The number of large companies that now have dedicated programs to proactively create, and then manage relationships with startups is growing rapidly. These programs are variously referred to as innovation labs, incubators, accelerators or any of myriad other names, WhatAVenture calls it Startup Factory.

But - to successfully collaborate with startups and scaleups, there are some things to keep in mind. WhatAVenture reveals in its white paper that startups significantly differ from corporates in these areas:

• They follow a new innovative approach: They tend to think outside of industry norms, thereby displaying a high potential to disrupt existing industries, or invent new ones.
• They are fully dedicated to their idea and follow their passion: startup teams invest all their time and resources in the project and are fully dedicated to making their idea successful. This differs from corporate setups where employees often work on multiple projects and therefore do not fully identify themselves with any single one. This makes corporate teams less prepared to weather rough times.
• They often have no legacy: Startups are typically newbies in the market and have no legacy of customers, partners, etc. This means that they can act more freely and make more radical decisions.
• They have a small but complete team: Startups operate in heterogeneous teams and heavily invest their time in build-ing up a strong network of outside partners. Corporate teams often rely on their own network and tend to miss outside opportunities.
• They fully believe in what they do: Startups fully breathe their strategy and are quick in adapting when facing outside challenges. Corporate employees often do not fully invest in the strategies implemented, as they are often developed by top management, and are discouraged more easily by negative market feedback.
• They learn quickly: In contrast to corporates, information is usually shared transparently within a startup. The whole team is focused on creating value in the market. In corporates' case not all information is shared openly and iterations are seen as failures.
• They have very few resources: Bootstrapped startups require quick cash flows and struggle with lengthy, cumbersome processes, convoluted confidentiality agreements or complex contracts. It also means that startups have to focus to be successful and when looking for collaborations, there needs to be a strong connection with what they do.
• They lack know-how and power in scaling: Startups are usually quite good in developing first prototypes but lack skills in scaling their products and services. This is in contrast to corporates, which are very good at scaling and incremental innovation, while they are not so good at disruptive innovation (Christensen, 2013).
• They often lack goals, monetization strategies, metrics and a clear vision of the business value of their innovation: Startups are like explorers: they have a vision of a great thing, but they might only find the goals, value proposition and success criteria on their way.

HOW?

The other side of the coin

But PODIM partner WhatAVenture has simply offered a reality check - after experimenting with different corporate startup collaboration formats, scouting a couple of thousand startups and trying to connect them with each other is clear, you have to do things right to be successful.

WhatAVenture has put all experiences together to form a best-practice format, which they call the Startup Factory.

Among some of the major identified challenges are:

• How to identify the best startup companies?
• How to select the most promising partners?
• How to be quick in the decision-making process?
• How to provide a sound legal framework for both parties – the startup and the established company
• How to form in-depth relationships between the startup and the established company?
• Finally, how to achieve a positive ROI from the activities?

Startup scouting is crucial in corporation-startup collaboration, and key to success in finding the right partner is to generate a high number of applications. Therefore the number of applications obviously depend on the search field. The application rate is ideally above 100 applications in order to be able to apply a tough selection process, WhatAVenture advises.

Source: Startupbootcamp vision report Collaborate to innovate

What is worth mentioning is that PODIM will bring together more than 150 of the most promising startups from the region, hand-picked from more than 700 applications. PODIM has proven to be an amazing networking platform, so use PODIM as a first step for sourcing startups, which is a relatively low cost option for your company. Let’s look at it as a side or a first step to get a test of such collaboration before diving in.

An additional benefit of a high number of applications is that the screening exercise gives your management and experts a comprehensive overview of emerging trends and technologies on the market. But PODIM, again, is a great opportunity to overview all the emerging trends.

"PODIM is a great entrepreneurial melting pot, which connects corporations, who want a rapid digital transformation through startup ecosystem, which can be a huge support. PODIM especially brings a quality interaction between people and corporations," Mateja Panjan, front end and innovation manager at Danfoss Trata says.

WhatAVenture says there are two major sourcing methods - either a manual one (push), where you manually search the web for startups, get access to startup databases or buy a startup list from various providers; or a pull method, where you let them apply. With latter, you present your program on the most important startup portals/databases and get applications or use your network, social media channels and multipliers, such as universities, to get the message to the right startups.

You can also use a managed startup service that will help you to set up your startup program from the very beginning, build an attractive program and a high-converting landing page.

After that, remember to separate the wheat from the chaff. "Selecting the best startups is really important, since you will at least invest time and money to work with them and promote them internally," WhatAVenture advises.

Many ways to collaborate

After you have chosen the right startups, there are many ways to collaborate. An approach that has proven to be very successful forWhatAVenture, is to host an innovation camp, where the corporates and startups come together for 2 - 3 days.

During this period, they already work on first prototypes and evaluate how they can work together on a proof-of-concept. Of course, the journey doesn’t end there, because now the exciting innovation rollercoaster with validating hypotheses and getting things done starts.

There are numerous exciting cooperation models:

• to develop new, innovative products or services for existing or new markets,
• to position yourself as an innovative company,
• to improve internal innovation processes,
• to improve general processes or
• to co-innovate with customers and partners.

The challenge is to find the right model for your organization. You need to be clear about your needs and the challenges you think can be addressed by collaborating with startups.

Some insiders gave valuable advice on collaboration between corporations and startups. "It’s very important to pick your partners based on product fit, company, and culture. Don’t pick your relationships based on your exit plan," says Moshe Shlisel, CEO at GuardKnox Cyber.

And Gerald Vanderpuye, founder and CEO at BuyerDeck sends this message to corporations: "I would recommend they focus on the process rather than a complete vision. Too often they want a perfect picture of the end goal when innovation rarely happens that way."

Don’t take startup and scaleup interest for granted!

Imaginatik and MassChallenge also warn, that it’s easy for large corporations to take startup and scaleup interest for granted, but doing so is a mistake: "Startups will keep calling - but not the best ones. Know that startups talk to each other, and corporates have different reputations for ‘startup-friendliness’."

Time is our most precious resource, so we always have to prioritize. What this means is that we will avoid companies that we’ve heard will only waste our time. If a corporate wants to innovate with startups, they need to establish themselves as a good actor in the startup ecosystem," Suelin Chen explains.

At PODIM we always do our best for you to effectively use your time, therefore last year we’ve organised more than 500 personalized meetings between startups, investors and corporates.

Corporates, participation at PODIM as a corporate will give you an opportunity to find innovation on the global market, gain brand exposure by sharing knowledge with other attendees and learn best practices regarding the implementation of innovation and a startup - corporation cooperation.

HR Managers, there’s no better place to find the most impressive, experienced, open-minded and hard-working talents than at PODIM.

And, investors, note that more than 75 % of startups rely on VCs, angel / micro VC / individual investors as their future source of funding. And those 150 most-promising startups and scaleups you’ll meet during PODIM have been carefully selected from more than 700, based on the investors’ needs and preferences.

As our focus lays in offering the best matchmaking experience, we enable investors to meet 1:1 with startups, corporates and other investors fitting their business needs in the most time-efficient way.

At PODIM, there will also be new ideas and concepts brought to life with the help of amazing brand new PODIM Genesis. This will be results-oriented conversation among startups, corporates and domain experts, centered around predefined industry related topic.

We want to empower startups and corporates with a new tool for identifying and prioritizing industry trends, challenging key assumptions, aligning viewpoints and identifying clear opportunities and interests for cooperation.

At the end - keep in mind: Successful startup and scaleup partnerships depend on being loose, fast, and generous early - allowing both sides to uncover potential and/or fail fast.

Matej Rus

Mitja Sagaj

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• Sources:WhatAVenture white paper 5 Step to successfully collaborate with startups
• WhatAVenture white paper The startup factory
• WhatAVenture white paper Startup Scouting: Cheat Sheet
• MassChallenge & Imaginatik report The State of startup/corporate collaboration 2016
• Startupbootcamp vision report Collaborate to innovate
• Finance.si articles