Working with startups is something many organizations strive to do in order to tap into the innovation and ingenuity such partnerships can bring. For instance, an Accenture study from a few years ago found that large companies are keener on collaborating than their smaller peers. Even with this enthusiasm however, few big firms do it well and struggle with integrating any “skunk works” they have into their core business.
What’s more, when entrepreneurs were recruited into large companies, the vast majority left because of the way their entrepreneurial instincts were stifled.
From the entrepreneurs perspective, there is little incentive therefore to share their ideas and expertise with the large companies, with many believing that any benefits to doing so were heavily weighted in favor of the big company.
Research from INSEAD suggests that the most common way of currently working with a startup is via a corporate venture fund. Whilst this is no doubt a valid way of working with a startup, there are other, less expensive avenues you can explore.
The report outlines the virtues of simply rubbing shoulders with startups and engaging in their ecosystem. This kind of open-ended interaction helps to build the bridge between large and small that may encourage ideas and expertise to cross-over.
The report discovered a number of core strategies used by large companies thus far:
- Challenges, competitions and hackathons – these kind of events have become a staple of open innovation, and a growing number of large companies have held competitions in recent years
- Launching an accelerator – this is obviously much more involved and requires a lot more involvement, but 64 companies currently in the Forbes Global 500 are offering such a service to startups
Even these are no guarantee of success, however, as illustrated by a recent paper from IESE Business School. The researchers conducted interviews with nearly 100 chief innovation officers from around the world to try and understand what corporates have in mind when they’re working with startups, either directly or via an intermediary.
The paper suggests that many corporates use proximity to their core business as the primary criteria in assessing whether to work directly with a startup, with internal capability and access to curated opportunities also important. In other words, they’re looking at whether the engagement will improve their core business, and whether they have the skills and resources internally to cultivate an effective relationship.
The research found that intermediaries are increasingly being used to help with startup engagement, whether they’re private accelerators or research centers.
If an enabler is used to act as an intermediary, the capabilities of that intermediary are the primary concern, alongside the existing ecosystem of curated stakeholders. In other words, will the intermediary have the team to cultivate effective relationships with the entrepreneurs?
“Every day, corporates are less unique,” the researchers say. “Therefore, they should complement their efforts with more than just consulting firms. Since corporations are to a greater extent working with start-ups and offering similar benefits to entrepreneurs teaming up with enablers can improve their value proposition, thereby aggregating value.”
Of course, not all intermediaries are effective. Indeed, one study of incubators and accelerators Britain, Germany and the United States found that the environments were not motivating at all for startups, and almost did more harm than good for their growth prospects.
Not only do sponsors often regard the incubator as proof of their innovation prowess, but startups often regard acceptance into the incubator as job done. It’s a conflation of being busy as being productive when the two are certainly not the same thing.
A second paper from IESE, which was published last year, provides some guidance on how to overcome these challenges. The researchers interviewed over 120 chief innovation officers to understand how they engage with startups in their organization, together with some of the challenges they face. When the data was crunched, it emerged that three problems consistently emerged.
Firstly, the interviews revealed how important it was to have buy-in from across the business. If business unit heads are bought into the importance of working with startups, then it’s much more likely to integrate their technology into the workflow of their unit.
A second challenge is to find the right startups to partner with, especially if you’re operating in an environment where there aren’t a ready supply of high profile startups beating a path to your door. The authors highlight how a number of the companies they interviewed expanded their search in new areas, such as those startups associated with universities and research institutions.
Last, but not least, the authors propose thinking ahead of time about any potential conflicts of interest between the interests of the startup and the corporate venturing unit. These differences often emerge because of fundamentally different ways of measuring performance at both entities, so it’s important to understand these as early as possible so they can be addressed.
The researchers believe that their findings can help corporate venturing units maximize both their return and impact in a variety of ways, and they make six recommendations to achieve the best results:
- Design metrics and incentives oriented towards value integration
- Keep an eye on agility metrics within your innovation process
- Involve a sponsor from the parent company’s executive committee in decision making
- Consider increasing the time span of reporting cycles
- Ensure there is an independent cost center
- Evaluate your autonomy and integration capabilities before choosing the location
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