How To Succeed When Working With Startups?

Blog: Following my latest article, where I argued why it’s a great idea for corporates to work with startups, this article serves as a to-the-point check list of how to work with startups and better your chances of success. It is mainly aimed at corporate decision makers planning to engage in Corporate-Startup-Engagement activity - or wondering why their partnering efforts keep failing.

The article will start out by telling you

A) why your efforts more than often fails, then take you through the process of B) finding out which activities to go for, before explaining how you can C) better your chances of success.

#1 reason why you fail

Because you jump the gun. Because you start interacting with startups with the wrong activities and expectations, and before your organisation is ready for it. And because you haven’t really sat down and made a plan for why you do it, what you want out of it, how fast, and what capabilities you have available to make it a success.

As I argued in my latest article, corporate entities are large vessels that handle change really really slowly and with great difficulty.That’s why it takes some planning and a team that understands what you are about to do. In more ways than one.

Innovation as a portfolio strategy

Working with startups and the activities you engage in should be part of an overall innovation strategy for your company, and be subject to the same rationales, targets, measure points and drivers as the rest of this work. Like any innovation activity, this is not R&D and should not be confused with these activities; but done right it can be a very powerful addition.

In general, it is highly recommended to go about your innovation strategy and underlying activities from a portfolio perspective. If you invest the right amount of resources in the appropriate activity to fit your level of maturity and the desired outcome, you have a much larger chance of success.

“How do we do it?”

Hold on a bit. It is imperative that you start out by asking yourself the question: “What do we want to get out of engaging with startups?”

This question is extremely crucial in finding the right operating model for your startup engagement. To structure the process, I suggest going through these three different key decision points:

Q1: Is our rationale driven by revenue or learning?

Obviously there is a huge difference between the two. Neither is wrong and neither is right, they are not mutually exclusive and they are both very legit when working with startups; but they represent two very different key drivers that has a huge impact when choosing which activities to spend resources on.

If your activities need to spawn quick financial returns, it would be advisable to spend resources towards traditional M&A activities, or to find companies who’s products could more or less directly fit with your existing product line, and thus fit your line of sales and distribution.

I will not dedicate much time to these two examples here; except just mention, that in the latter example you need to remember to build a standard framework for partnerships, and incentivize your sales force to actually sell the new and ‘unknown’ products for this to make sense short term.

The possibility of long term financial gain as well as learning and new insights on the other hand is what I will be spending most time on moving forward. Here there are quite a few options, where different experiments and collaboration can lead to tranformation, new insights and product development as well as eventually new revenue streams.

Q2: Do we want to improve on existing business or create new drivers for growth?

This is essentially a question of incremental versus more disruptive innovation, or optimisation versus transformation. How close to core are we looking to explore? This also has tremendous impact on which operating model should be set in motion when engaging with startups. And which startups.

Very often this question is related to the specific market you are in, competitive landscape and customer trends. To investigate further what startups to eventually engage with you should start engaging strategically within each business unit to understand the above trends and projections. Are you looking for startups with compatible technologies or business models? Or the more challenging ones?

Not all programmes or activities support actual radical innovation, and if the rest of your organisation is only ready to implement optimisations or automisation, then choosing those programmes would be alienating and unsuccessful at best.

Q3: Are we looking to upskill resources or acquire new skills?

As above, there are again more underlying elements of this question. Training employees versus recruitment. Investigation of new technology/IP/business models versus investing in new technology or enter into a co-development partnership. Culture change or acquihire.

The options are many; and again the two opposites are not mutually exclusive, and if executed correctly, companies – on both sides of the table – can benefit greatly from collaborating.

Some programmes/activities are made to facilitate learning environments and others are made to quickly outsource as we will see below.

… and then two additional key questions:

Q4: How fast do we want it?

Part of building the right strategy is to think realistically about time frame and impact. Do you – or your leadership team – expect short term results perhaps because of a burning platform, then make sure you engage in activities where impact is closer and more certain. Or alternatively break your milestones in smaller chunks to communicate quick wins and focus on low hanging fruits until the bigger impact starts kicking in.

Q5: How much are we willing to invest?

Again another one of those key decisions with great importance. It can come to no surprise that these initiatives require sometimes big investments, especially if you want great impact fast; but not always. Too much funding towards the wrong activities with very likely tricker the faulty conclusion, that working with startups doesn’t work, or create that unwanted alienating effect throughout the rest of the organisation. So think long and hard on this and invest wisely.

There are many other relevant questions; but these I find to be the most important.

Which activity to choose?

Well, if you have answered all the above questions in full, have strategized with your relevant business units and have firm commitment from your leadership – then it is a pretty straight forward task to start planning which activities would be a best fit for your organisation, in accordance with ‘the stage’ you are in.

In the below graphic, I have plotted the most common of the many corporate-startup-engagement activities, and illustrated their positives and negatives in relation to what I have covered so far. The bigger the dot, the more potential the dynamics of the activity has in supporting the underlying rationale.

Each activity could easily have it’s own article, but that will be for another day.

I trust, that if you have opened this articles and have reached this far, that you will also be vaguely familiar with most of these terms; but I have also included a brief ‘activity explanation’ to jug your memory.

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The most difficult part is therefore matching your needs and ambitions with the level of maturity of your organisation. And this entails being completely open and honest about where you are today and where you need to be.

Are you just starting out, it might be beneficial to engage with others as part of an accelerator or initiate idea generating activities. And go all in on learning and training from these activities. If you are more mature, perhaps consider co-development projects or investing to focus on creating possible new revenue drivers going forward.

How to make it successful

As mentioned a few times, firstly you have to make sure you choose a structured approach. Not in a way so you have too many concrete milestones and targets, and have the next 5 year planned out in detail; but rather a structured experimentation approach.

It is important to know where your organisation are today, and which direction you want to start out. Then you start appropriate activities as seen above, and adjust them along the way as you learn. New opportunities are bound to arise – this is after all why you are doing it. Just make sure you are ready to adjust to fit.

As well, look at your team. Do we have the right understanding of the different processes and activities in the team? Do we have the right knowledge about how startups operate, and do we have the credibility to start working with them?

Remember, the best startups have multiple options too. Corporates who want to work with them have to be attractive as partners as well, and have the right setup in place. Therefore you need these competencies in your team that can communicate with, and help you attract the right startup partners, possibly by engaging with or building ecosystems as well.

It is important to understand, that the different types of activities might require interaction with larger parts of the company, and not just a specific external innovation unit.

Therefore, as quickly as possible you also need to find someone who knows the ins and out of your organisation, and who can rally people, and find allies internally. One who can communicate and showcase progress. One who can work with and massage (preferably) legal, compliance, procurement, IT and all the other departments, that can sometimes feel like they’ve been placed there solely to stop anything out of the ordinary. But also pull rank if necessary. I’m thinking of a Kevin Spacey, first-season-of-House-of-Cards type of person. A ‘whip’ in lack of a better word.

Make sure you know how to take things forward internally. People tend to joke in startup circles, that the hardest thing to get from a corporate is a piece of paper. So, start to find out how to get things moving quicker from A to B. Have your partnership terms in place and cleared before early meetings with potential partners. Help startups, if they don’t have the right documentation or SLA in place automatically. If you like their product and you trust them, work with them to get through procurement and approved by compliance.

And in the end, just make sure you see and trust each others as equal partners. Remember there was a reason why you started looking towards startups. And that mutual gain is not just a possibility; but a necessity when building long lasting profitable relationships.

“So what about the startups? Is this all on us to make it work?”

No, of course not. Trust me, startups have a LOT to learn about working with corporates too. My next article will be focusing on the other side of the coin, and will include an overview of the collaboration process as seen from the startup side. And subsequently good advice to avoid spending resources on the wrong partnerships.