This blog was written by Tom Goerke and Kate Brooks, who are both Directors of StartupWA and are driving innovation and startup engagement within their respective corporates.
“Don’t ask what the corporate can do for you, rather ask what you can do for the corporate”
Established corporates and emerging startups are important pillars in an innovation eco-system. In a recent publication by the World Bank the key drivers of fast growth include investing in new products, improving financial access, establishing global linkages and having high-quality staff with diverse experiences. Startups know they can engage with corporates to help hit these drivers. Corporates are now realising they can work with startups to hit these drivers faster.
“In the new world, it is not the big fish which eats the small fish, it’s the fast fish which eats the slow fish.”
Klaus Schwab, co-founder and executive chairman of the World Economic Forum.
Corporates are shifting away from only viewing startups as threats and instead want to utilise them to help meet their business targets. This is in response to the globalisation of markets and the fast pace at which technology is developing. A good example of this is the recent move from Cisco to launch their first Venture Capital Firm, Decibel focused exclusively on early stage investing of startups.
In 2019 a new startup-corporate channel is gaining popularity – a procurement one built around co-innovation and collaboration to solve business challenges.
When a corporate has a business need that is not met by an off-the-shelf solution then the standard approach has been for the corporate to build the solutions themselves (in-house) or engage with an external consultancy firm. However, increasingly corporates are finding they don’t have the skills for building in-house solutions from scratch and traditional procurement channels (via request for tenders and competitive evaluation) are too inflexible.
This leaves corporates looking more and more to startups for a new approach. Based on research interviews with 30 global corporates, the brief report titled “Open Innovation Outlook 2019” forecasts a new type of procurement(e.g. via funded proof of concepts and co-development) to become the predominate channel of the start-up corporate engagement.
How might startups take advantage of this emerging new co-innovation and collaboration engagement opportunity?
Below are five key insights into the corporate’s mindset to help.
1. It’s all about driving the corporate’s growth
It is well recognised that a thriving startup community drives economic growth for the region. However, put bluntly, corporates are mandated by their shareholders to drive their own growth objective. Startups should always consider how they can best deliver on a corporate’s growth objective and use this to help inform pitching and product development. Even under the guise of “innovation” and experimentation, a corporate is still driven by Return on Investment.
2. Collaboration partner or vendor customer?
Startups must differentiate themselves from being labelled a vendor and avoid the corporate’s procurement assessment criteria, which are based principally on price, track record and capacity to deliver at scale.
These criteria don’t always bode well for a startup. Instead of delivering a quote for work, startups should consider offering a collaboration agreement, which delivers benefits to both parties. Under this agreement, startups may offer the corporate additional benefits other than potentially solving their challenge, including: priority support, exclusivity and IP licensing. In return corporates may offer up their trial site, customer base and marketing channels.
3. Solve a core business challenge
Corporates will regularly spend ($10-50k) on non-core activities, such as event sponsorship, prizes and accelerator programs, in order to build the corporate’s brand and meet corporate citizen obligations. For this the startup must be prepared to be a Brand Ambassador for the corporate. However, the option that offers the most opportunity in terms of scale and future revenue (for the startup) is in driving the corporate’s business model. Corporate’s will spend what they need to in order to solve a core business challenge. This type of procurement is driven by the operational managers embedded within the business (not Communications, Marketing and HR Teams, which drive the non-core activities).
4. Don’t know what we don’t know
A successful trial of a new technology or business model with the corporate will very likely lead to future contracts.
Startups should consider working with the operational managers within a corporate to set up a proof of concept at minimal expense to the manager’s budget (remove the barrier to entry). Startups must balance the cost of this “loss leader” vs the probability of success. To maximise the success of the trial the startup should clearly define a set time limit (e.g. 3 months), rather than a set of deliverables - focus on what can be achieved in 3 months rather than an unknown time-based deliverable.
5. It’s all about mindset
Technology and budget are not always the primary barriers to procurement for a corporate (especially when new technology and skills are involved). An operational manager’s mindset can play a part too. Fear of failure from choosing the wrong tech option or vendor can make it impossible for any procurement decision to progress.
Startups can help corporates with overcoming this mindset by embarking on a journey with them – to help the corporate take a leap and to co-innovate and share learnings together. Third party co-innovation labs and growth centres that work with the local innovation ecosystem can help with getting this startup-corporate journey started.
Written by Tom Goerke and Kate Brooks
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of their employers.