The innovation potential does not stop at the boundaries of established corporates. Among the options of open innovation collaborating with startups developed to one of the main options. This became common understanding since startups like Uber, Airbnb and Facebook disrupted traditional markets. Open innovation has become a widely-accepted approach and we have seen many different ways in which companies try to harness innovation by tapping outside potential. A study by KPMG revealed that 88% of corporate respondents believe that it is necssary to collaborate with startups in order to stay innovative. Although many see the potential, very few succeed in fostering a long-term win-win situation.
What’s important to know is that there are many different ways of collaboration with startups. Key for a successful collaborative relationship between startups and corporates is that it is mutually beneficial. Many initiatives fail due to a lack of understanding of the very different DNA of startups and corporates.
If you succeed in fostering a long-term win-win situation, your company will benefit in many ways e.g. testing and learning about new technologies, having leaner and faster innovation cycles and making better use of your assets. And what’s even more important: You are improving your brand recognition in the market, you are entering new markets and therefore your company is staying competitive.
From our learnings by setting-up numerous corporate startup initiatives we suggest to consider following five steps to successfully collaborate with startups (please see our Whitepaper for more details):
Step 1: Understand startups and how they differ
“A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty.” (Ries, 2014)
Startups significantly differ from established corporates on many dimensions. Some of the dimensions are listed here.
- Startups are fully dedicated to their idea and follow their passion
- Startups often have no legacy
- Startups follow a new innovative approach
- Startups have a small but complete team
- Startups fully believe in what they do
- Startups learn quickly
- Startups have very few resources
- Startups lack know-how and power in scaling
- Startups often lack goals, monetization strategies, metrics and a clear
vision of the business value of their innovation
As an established company, you have to be aware of the unique strengths and weaknesses of startups. Finally, and most importantly, you must find ways to cope with these differences to fully leverage the startup’s potential.
Step 2: Define your goals
There are numerous exciting cooperation models. 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. There are many different drivers on way collaborating with startups. The five major categories we see are the need to develop new, innovative products and services, to position yourself as an innovative company, to improve internal innovation or general processes and to co-innovate with customers and partners. The better you know what you want to achieve, the more successful your initiatives will be. You will be better-able to sell the proposal internally as well as finding the right startup partners.
Step 3: Set the right framework
Once you’ve decided which goals you aim to achieve, it’s important to define the framework within which you will pursue these goals. The framework is very much defined by your company; its history, resources, strategy and management. Some collaboration forms requires you as company to openly share knowledge while others don’t.
The clearer you are about your framework, the better you will be at making decisions on which collaboration forms fit your company. Notably, a long-term commitment is necessary in most cases to achieve respective return on investments.
Step 4: Choose the right collaboration for you
There are a number of different forms of collaboration. Here we give you an overview of some of the main models we see in the market.
- Startup pitch events
The startup topic is booming and there are an increasing number of startup events happening every year. You can support external events or organize your own.
- Innovation Camps & Hackathons
These formats are about creating new business ideas or solving technological challenges.
- Startup support
Sharing resources with startups is quite a cheap and effective way to build up a brand in the startup scene.
- Startup methods
In recent years we have seen various new startup methodologies that massively changed the way we think about innovating products and services. Those methods help to boost internal innovation processes. Some of the most influential concepts have been the Business Model Canvas by Alexander Osterwalder, Lean Startup by Eric Ries and the build-measure-learn approach by Steve Blank.
Partnerships with startups can have many different forms. They can range from one-time partnerships with single startups to systematic startup programs such as corporate incubators or accelerators.
- Investments and acquisitions
Investing in startups is a very direct way of getting access to the team, the technology or the customer base. The next step of corporate venturing is to acquire startups.
The main forms of collaboration can be categorized along two dimensions: integration and resources. Integration refers to how much information and knowledge you need to share to profit from this type of collaboration form, while resources refers to the relative amount of resources you need to invest (see Whitepaper for further details).
Step 5: Get started by creating a win-win situation
No matter what collaboration strategy you choose, make sure that it creates a win-win situation for both you and the startup or talents.
As a recent study by NESTA shows, the biggest pain reported by startups in collaborating with established companies are problems with long cycle times and slow decision-making on the corporate side. This is followed by challenges related to coordination, such as difficulties arising from poor communication, changing contact points and unclear processes. Additionally, various cultural problems and contractual issues were cited.
To avoid these pitfalls you should consider to simplify processes, to have a clear entry process, Relaxed KPIs and involve top management to reduce career risk for employees.
There are various benefits of collaborations between startups and cooperates. Your power and the agility of startups can put your company to a whole new level. These five steps will guide you the way.
If you are convinced to start a collaboration or if you are just interested in this topic feel free to contact us to learn more.