Corporations and startups
Today, while it’s largely understood that every corporation must somehow become innovative and entrepreneurial, there’s not as much understanding about how to do that.
Part of the problem in partnering stems from very real obstacles in mindset, operating procedures, and resources that corporations and startups have within their DNA.
Startups must learn to dance with the large gorillas.
Corporate-startup partnering has become an integral part of corporate innovation. A key lesson for managers is that partnership with startups is great on paper, but not easy to do.
An important mindset is entrepreneurial, collaborative, and global, respectively.
Microsoft and startups
Microsoft started his journey in a startup partnership with a program called BizSpark One. Walmart’s program was called Omega 8.
Three phases of Microsoft’s Startup Partnering Journey: Getting startup partners off the ground, extending and deepening startup engagements, and mainstreaming startup partnering into the core strategy. The person behind it, Dan’l Lewin.
Microsoft’s partnership with Bangalore-based Skelta was one striking example of the benefits of cooperation. Israel would play an influential role in Microsoft’s startup partnering journey. Beijing-based Grisdum is another example of success between a startup and Microsoft. In 2012, Microsoft launched accelerators in Bangalore, Tel Aviv and Beijing.
From BizSpark One Microsoft moved to more an invitation-only depth program. It became apparent that Microsoft was going to transform its accelerators into “scalerators”. In 2018 Microsoft for Startup was a new programmatic approach to startups. It included also Microsoft Ventures. The Co-Sell program is a key feature of the ScaleUp program.
There are three important facets of Microsoft’s startup partnership journey that are worth paying attention to:
- Co-aligning with strategy – which relates to the why of corporate-startup partnering.
- Co-innovating with startups – which relates to the how of corporate-startup partnering.
- Co-evolving with ecosystem – which relates to the where of corporate-startup partnering.
Why. Large corporations need to be entrepreneurial to cope with disruption and competitive dynamics in an era of digitalization. There is also a challenge in partnering because of the sheer differences between large corporations and startups.
How. It is important to identify a partnering process that is systematic and addresses the asymmetries between large corporations and startups. It is also important to build a partnering capability vis-à-vis startups.
Where. For multinational corporations, there is scope for partnering globally with startups. There is scope for partnering for good with startups.
- Why.
- Imperative for partnering.
- Challenges for partnering.
- How.
- Partnering process.
- Partnering capability.
- Where.
- Partnering globally
- Partnering for good.
Why
Why entrepreneurship matters for large corporations
Corporations are specifically seeking to work with startups possessing some form of digital capability. This is true for both information technology corporations and ones in more traditional sectors.
There are three points for engaging with startups:
- The first is that startups can be perceived as a threat to these organizations.
- Managers in these organizations seek to become entrepreneurial themselves as a reply to disruption.
- One way how they can manifest entrepreneurial spirit is by partnering with external startups.
entrepreneurs differ from managers in that their starting point is an opportunity, not resources. Administrative management of professional managers in corporations is attuned to optimally using resources that are already controlled, entrepreneurial management involves the pursuit of the identified opportunities.
The challenge of disruption does not arise because large corporations aren’t good at what they do – it’s precisely because of it.
James March from Stanford is talking about two types of activity in which companies are engaged:
- Exploitation – leveraging capabilities to do what the company is good at.
- Exploration – developing new capabilities.
Typically, corporations become really good at exploitation.
Entrepreneurship is about: proactiveness, innovativeness, and risk-taking.
There is a long tradition of intrapreneurship, the pursuit of entrepreneurship within established corporations. In the 1940s Lockheed Martin had “skunkworks” division that pursued new product development. 3M was also known for some innovation. Today Samsung’s C-LAB is known.
Corporate startup partnering can be viewed as a “division of entrepreneurial labor” between corporations and startups.
Large corporations are good at exploitation. But success in the present could come at the expense of growth in the future.
Intrapreneurs co-innovate with startups via project-based innovation engagement in the form of pilots or R&D projects without investing in them.
Today, growth is enabled, not so much through joint ventures or acquisitions but through genuine partnerships. Collaborating based on complementary strengths for mutual benefits. Each partner has strengths that the other lacks. This can lead to three interrelated benefits: legitimacy, learning, and leads.
In BMW’s case, the disruption of the automotive industry had prompted a desire to collaborate with innovative startups around areas like cybersecurity, connectivity, autonomous driving, electrification, and the shared economy.
Why partnering with startups isn’t easy
It’s very difficult for a large organization to stimulate the same sort of incentives and flexibility that exist for an entrepreneur. They come from a background of “plan and perfect”.
Differences give rise both to the potential for mutually beneficial relationships and to considerable asymmetries between corporations and startups that impede the prospect of collaborating with each other.
Three asymmetries are especially relevant:
- Goal asymmetry (relating to planning).
- Structure asymmetry (relating to organizing).
- Attention asymmetry (relating to executing).
Large corporations adopt a more formal (and inflexible) approach to planning based on longer decision horizons compared to startups.
Professor Robert Putnam of Harvard University describes two types of ties. Bonding ties are those with people who are similar to us, and bridging ties are with those who are dissimilar. Similarity depends on the context. Bonding and bridging ties are good for different things: bonding ties (which tend to be stronger and have many mutual connections) are conducive to building trust, whereas bridging ties (which tend to be weaker and have few mutual connections) are useful for yielding novelty, in terms of information, ideas, and opportunity. Partnerships between corporations and startups are essentially bridging ties.
For managers, the decision-making tends to be causal. The end is decided first, and the means follow. For entrepreneurs, the decision-making tends to be effectual. The means are the starting point, and the end follows.
The emphasis on control and coordination may encourage a tendency to focus on vertical relationships, which are associated with supply chain operations or acquisitions, rather than the horizontal partnering that helps generate business leads.
Large established companies usually have structures that are inflexible and siloed, with hierarchies ossifying the inclination toward doing more of the same.
The organizational structures of large corporations preclude ready interaction with startups and thus constitute an impediment to building legitimacy in the eyes of startups.
Startups are often frustrated when trying to proactively reach out to a large corporation because it often proves difficult, if not impossible, to find the “right” person within that organization to talk to.
In addition to a lack of commonality and connectivity with startups, corporations may have a lack of confidence in startups. Being able to figure out the “right” startup to talk to is not easy.
Another issue is asymmetry in numbers, which causes the scarce attention that corporate managers devote to startups. Managerial attention is directed toward ensuring reliability.
Organizational characteristics such as size, structure, and power create inter-organizational asymmetries. As a result, connecting with the right people within a large corporation is not easy for startups.
How
How to partner with startups systematically
Common to all companies that have taken startup partnering seriously is a collaborative mindset. Managers with a collaborative mindset do three important things: they leverage networks actively, discerningly, and reflectively.
Leveraging a network actively is about taking the initiative to connect with others. Leveraging networks discerningly comes about through the ability to recognize that different network partners are good for different things. Leveraging networks reflectively comes from the realization that collaborators are an important source of learning.
The solution to dealing with asymmetries. A three-stage process:
- Clarifying synergies, to overcome goal asymmetry.
- Creating interfaces to overcome structure asymmetry.
- Cultivating exemplars to overcome attention asymmetry.
Two types of synergies are worth thinking about:
- Building block-based synergies (startups sell with corporations).
- Pain point-based synergies (startups sell to corporations).
Although there is currently a divide between tech companies (building block-based) and non-tech or more traditional companies (pain point-based), this distinction may well blur over time.
Three considerations in order to specify and fine-tune the specific nature of the synergies:
- How aligned is the synergy with our digital strategy?
- Which strategic horizon is our focus?
- Are there elements of the other synergy?
Cohort-Based Startup Partnering Interface. A cohort involves a time-bound program that brings together a set of startups that jointly follow a set curriculum before they are able to graduate.
A funnel involves startups competing for limited collaboration opportunities that may result in a pilot project to solve a pain point of the company or go-to-market activity for solutions utilizing the corporation’s building blocks.
Each interface is good for different things. Cohorts bring with them the prospect of serendipitous outcomes while funnels have the virtue of promoting greater predictability.
Combining the two types of synergies with these two types of interfaces yields four types of interfaces.
Three aspects of the interface:
- Who is the target audience?
- How long is the engagement?
- Who owns the interface?
The type of exemplars in Corporate-Startup Partnering depends on either the period of engagement or if they are one-off or repeated.
Corporate managers can increase the odds of cultivating exemplars by paying attention to three useful things: prioritizing among startups, recognizing the risks how showcasing startups may backfire, and nurturing an alumni network.
Dancing with gorillas and three steps: forming, consolidating, and extending.
A startup that understands the corporation’s synergy-interface-exemplar approach well will be able to better align its own actions with those of the gorilla.
The other part of the “how” of partnering is making sure that a competent partnering approach becomes institutionalized.
Building the capability to partner with startups
Learn to partner with startups as a repeatable activity. This is a new capability. Building a new capability is challenging and effortful.
Eugene Borukhovich from Bayer consolidated their startup programs under G4A – Grants4Apps program. All existing activities were placed under one of the three categories. Intelligence (where to play – understanding value pools, unmet needs, and strategic imperatives), partnership (who to play with – including commercial deals with and early-stage investments in startups), and ventures (how to win – developing new revenue streams). The Bayer example suggests three sets of important managerial actions: initiation, expansion, and systematization. The three-to-three matrix is: purpose, people, process and initiation, expansion, and systematization.
The inspiration and starting point may well come from middle management.
Hiring entrepreneurs is an obvious way for corporations to find suitable people to handle startup engagement. Exposing managers to startups. Creating entrepreneur-manager duos.
How to get started? Capitalizing on the corporation’s appetite to innovate. Allying with other gorillas to get started (hunt in packs, collaborate in three-way partnerships, feed one company’s funnel with another’s cohort). Selecting suitable startup partners.
Three actions by the managers driving startup partnering: repeating, refining, and routinizing.
A startup partner interface is only as good as its ability to bring relevant high-quality external startups in contact with appropriate internal managers.
Three types of actors are important to wing over:
- Internal champion.
- Opportunity generators.
- Roving ambassadors.
It may well be that for a given company, the initiating is done by a passionate individual and the systematizing by a more task-oriented plodder.
Systematizing may entail crystallizing a portfolio of startup partnering activities under a broader umbrella of corporate innovation.
The philosophy of opening up innovation processes that allow collaborative working with a range of actors – including universities, licensors, and startups – that was advocated by Henry Chesbrough and others has taken root in many corporations.
One of the most important ways to consolidate startup partnering is to mainstream it by connecting the dots between startup partnering and the corporation’s core strategy.
Corporations that are serious about partnering with startups are bound to come across third-party specialists who offer to help with this process. Important things to consider before using third-party specialists. What is its core competence? Some examples are XNode in China. Pilot 44. 27 Pilots. Founders Factory. Techstars.
Where
Partnering with startups around the world
A global mindset – which involves characteristics such as curiosity, connection, and the competence to deal with different cultural contexts – helps managers recognize the value of partnering with startups across multiple settings.
Three perspectives of the international dimension of corporate-startup partnership: think global, act local; think local, act global; think global, act global.
Some types of challenges:
- Country-level challenge: the immaturity of the startup ecosystem.
- Countr-level opportunities: the appetite for entrepreneurship.
- Company-level challenge: the outsider status of multinationals.
- Company-level opportunity: proximity to novel technologies.
Understanding these four factors helps identify four corresponding adjustments to startup partnering strategies and practices in emerging markets.
Companies can benefit from the global adoption of practices originating in geographic locations far from multinational corporations’ home bases by leveraging innovation hotspots around the world.
Some hotspots are Israel, Beijing, and Bangalore. We also have Bayer’s G4A in Berlin, BMW Startup Garage in Munich, Telefonica’s Wayra accelerator, Unilever’s Foundry’s leadership, and Barclay’s cooperation with Techstars in London.
For a think-local-act-global strategy to work, empowered leaders in local subsidiaries must act proactively and global headquarters need to have sufficient humility.
In advanced markets, a facilitative approach to coordination suffices because of the strong institutional conditions, in emerging markets a more directive approach is needed.
Partnering with startups as a force for good
The SDGs have become the world’s shared framework for sustainable development … businesses, science, and civil society must support SDG achievement.
Think about a societal synergy, using an inclusive interface that can generate hybrid exemplars.
The trick is to be able to achieve both economic and social impact.
Catalyst 2030 is a network of social entrepreneurs and innovators from around the world who are committed to the SDGs.
Three mindsets for the SDG decade of action
In the Decade of Action, companies should not only seek to do less harm but also more good, particularly by leveraging digital technologies.
The three enduring mindsets are: entrepreneurial, collaborative, and global. They will lead to corporate innovation, organizational transformation, and social impact.
