How can Goliath Dance with David? Should He?

"What is the best way to leverage the startups?" is the question that has been posed in all possible permutations at networking events or knowledge sharing sessions by the Innovation or Strategy folks of various corporates.

When I ask them why do you want to do that, the synopsis of the answer is, we want to be at the front, riding the wave of innovation rather than being washed over.

Fair enough, yet what surprises me the most is, why in the name of God and love of God the folks are fascinated by startups. May be I should give them the benefit of doubt, that maybe in the jigsaw of corporate innovation, startups are the piece of puzzle that puzzles them the most! 

If you ask me , why am I surprised, let me ask you something. If you are in corporate finance and you want to raise capital, how would you go about it? Probably consider selling equity to retail investors, selling equity to institutional investors, borrowing from various possible sources and sometimes a mix of it. If you want to think of personal investment strategy, you would consider investing in gold, stock market, may be real estate and so on.Basically a holistic and balanced approach to the problem rather than giving too much emphasis to one particular aspect of the solution.

It is not that the smart folks who handle strategy or innovation are not aware of this. Yet, why are they fascinated? For them it is more than the classic case of red pill vs blue pill. They are curious to see where will the rabbit hole lead them to!

Let me give you a hypothetical scenario. Let's say you are a global fast food chain who is impressed by the  latest cab hailing app startup who is entering into hyper local food service. Possibly you start thinking, engaging them could be a good idea, write a proposal, (may be even hire a management consulting firm to help you on that) get the necessary approval, put your business development, legal, marketing and the lot of corporate machinery in action. Guess what, they shutdown the service in an year or so and you have created negative shareholder value.

Alternatively, It is possible that the food delivery service picks up and the car hailing app focuses only on food delivery. In due course, they start taking the competitors too as clients and there is no competitive advantage to any of the global fast food chains. Other scenario is the cab hailing app does not do well but their technology developed to optimize the travel routes and time is good for the delivery department and you buy the technology  only which could have taken lot of time and effort to develop that in house.  Or the happy ending where the cab hailing app as food delivery has one of the major revenue streams and the global fast food chain saves a lot on the delivery charges with more happy food ordering customers. 

The story can play out itself in all possible paths.

So how do you handle the innovation challenge?

1. Create a laundry list. Define all your priorities; obviously you are focusing and driving the major part of organization hard enough to work on your top 5 or 10 priorities. Yet working on those alone cannot be enough to keep succeeding or may be even to survive.  So it is highly possible that there are other priorities that are important and urgent yet you cannot work on them with dedication and commitment you want to. To make things worse, there are lot of stuff happening in near and far away horizon that need your attention. Add them all to the list
2. From the list, again look for very critical things and do a build vs buy, build internally, build externally, buy exclusively, buy non-exclusive. This is the most crucial exercise and how you categorize could define the moments of history (Remember IBM deciding to partner with the startup Microsoft to build them the OS and not buying it exclusively) (Or Steve Jobs partnering with another startup Microsoft to write applications for the Mac)
3. Figure out a way to build the crucial things, the secret sauce, that one which would help you to build and retain your competitive advantage, in-house;  Pick and choose a method that would fit your corporate culture. 20 percent rule, dedicated innovation council or intrapreneur programs could be the possible options. That would fit your culture is the key operating word to remember
4. For not so critical yet important things, again one has multiple options. Outsourcing to a vendor, buy from a supplier, set up a dedicated supplier and so on
5. One may ask how do you decide and differentiate the above two. If you are a marketing company, will you outsource your marketing campaign to another marketing agency? If you are a car manufacturing company, will you do your ad campaign on your own or hire an agency? To give specific example, think why Apple is developing its very own chips rather than buying from Intel

If you had come this far, I know what you are thinking! Goddammit, temme how do I engage with startups? Remember the fourth point above. This is where the startups come in. They are one among the several options!

• Well, first ask yourself, should you really deal with them? Remember the startups are called as startups for a reason
• If the answer is emphatic yes, either scout for the startups that would help you to achieve things in your laundry list or scan the entire ecosystem, keep your eyes and ears open and go after the ones that seem interesting and promising though it may not be in your laundry list. Ideally one should do both
• Depending on what they do and how they do and what you want, either fund them exclusively at a very early stage, make strategic investments at a later stage or do a exclusive/nonexclusive small pilots or prototypes or proof of concepts

The above discourse is completely based on the premise that though innovation may not necessarily be top-down driven, the top management sets the direction to develop the innovation capabilities and supports it wholeheartedly irrespective of the time horizon on the investments in the search for the holy grail of innovation.

Despite all of the above remember the following

• You cannot always catch them all young in their garages; at least catch them when you can. Think of Yahoo having an opportunity to buy Google or Yahoo having an opportunity to sell itself to Microsoft
• Corporates too are living organisms. They too have their birth and death. Live and prosper well when you are alive. Have a graceful death!

"No one wants to die. Even people who want to go to heaven don't want to die to get there. And yet death is the destination we all share. No one has ever escaped it. And that is as it should be, because death is very likely the single best invention of life. It is life's change agent. It clears out the old to make way for the new. Right now the new is you, but someday not too long from now, you will gradually become the old and be cleared away. Sorry to be so dramatic, but it is quite true." - Steve Jobs