3 Strategies for Effective Corporate Startup Cooperation

April 1, 2017
Innovation Practice

XNode Blog

3 Strategies for Effective Corporate Startup Cooperation

Now that it’s 2017, the secret to success is finally out and corporate-startup collaboration is becoming hotter by the day. With more and more corporate giants tying partnerships with startups, rising business leaders like yourself cannot help but wonder how they too can get in on the game.

The answer, unfortunately, isn’t immediately obvious. Corporations are highly institutionalized, whereas startups feed on innovation and creative liberty. If the very foundations of these two business models directly oppose one another, then what’s the best way for them to work together in harmony?

In this article, I’ll be discussing 3 effective corporate-startup cooperation strategies you can implement today, as introduced by business experts like Michael Docherty, author of the bestseller, Collective Disruption: How Companies and Startups Can Co-create Transformative New Businesses.

1. Networking Early On for Possible Future Collaboration

In order to get a head start in the startup ecosystem and foster lasting relationships, corporations should try to actively network with startups as soon as possible, rather than waiting for startups to come to them, or just focusing on acquiring or licensing later. Michael refers to this first step in the collaboration process as “discovery,” or “engag[ing] the innovation ecosystem to identify new business opportunities and assess them in support of your goals”. Not only does early interaction give corporations an insider’s view on new technologies and trends that may disrupt their industries, but it also allows them to build connections with growing startups that may be able to help their company in the future.

One of the best ways for corporations to engage with startups is to hold public innovation challenges or "hackathons” that draw startups in. Two successful events Michael highlights, in particular, are Cisco, Intel Unite, and Deutsche Telekom’s joint accelerator program, “Challenge Up!”, and Cisco’s Internet of Everything incubation program. Through these programs, corporations can identify startups that potentially align with the company’s interests, and establish friendly corporate-startup relationships.

Even though there’s no commitment involved in early engagement, simply creating trust and adding startups into your friend circle can pay off in the long run. By keeping promising startups on your radar, you can always reconnect with them later if new opportunities for partnership arise. Additionally, disclosing internal problems to your startup connections can lead to startups offering new solutions, and researching and innovating on your behalf. Because startups are also searching for new opportunities to collaborate with corporations, creating a mutual relationship from early on is beneficial for both sides.

2. Identifying and Focusing on Long-term Goals and Solutions

Although networking with startups is important to prepare for potential collaboration opportunities in the future, Michael also warns how both corporations and startups should have a long-term vision when going into partnerships. A common phenomenon Michael has observed in corporations is the tendency to have “pilot burnout,” where they constantly ask startups to run pilots even though the company isn’t very involved in those given industries. The result of this tendency is a vicious cycle where the company keeps spending money on more and more studies but never achieves any meaningful results.

Rather than blindly partnering with companies just to get into the corporate-startup trend, both sides of the partnership should instead have a clear, shared focus on specific issues and long-term objectives. Though public challenges are a good way to attract startups to your company, Michael emphasizes how just hosting these events isn’t enough. On top of hosting these events, corporations also need to proactively pinpoint startups at these events that will be able to provide concrete solutions and directly cater to the company’s needs. Upon identifying these startups, Michael explains, you can then “reverse-engineer” them to “influenc[e] their direction and align them toward [your company’s] strategic goals and growth aspirations”.

Jitendra Kavathekar, Managing Director at Accenture Open Innovation, similarly supports this idea through his experiences of working with startups. From the corporate’s perspective, he explains, you should only consider and partner with startups for their single strongest field of expertise. Because it can be confident that the startup is especially skilled in that given area, the corporate can then test the startup in the market to see whether that model that can function effectively. On the flipside, he also describes how the majority of startups fail due to spreading themselves too thin without focusing on a specific market. With the guidance of a corporation, startups can centralize their efforts on a single goal without having to worry about business risk or the lack of a market for their product. Therefore, having clearly defined goals and focuses not only helps corporations fully utilize startups to gain real market data and advance their agenda, but also helps startups develop and establish themselves in the industry

3. Adopting an Appropriate Corporate-Startup Cooperation Model

While determining what goals and long-term plans you wish to pursue through corporate-startup cooperation, you also need to consider what type of incubation model would be the most appropriate for your company. In his book, Michael introduces three main models that successful corporations are using today: inside-in, inside-out, and outside-in1.

The inside-in model focuses on an internally managed team of entrepreneurs that are given the freedom and resources to innovate new solutions and businesses. Despite being this model being difficult to implement, IBM’s Emerging Business Opportunities group is an example of its potential success. The inside-out model takes an opposite approach by instead reaching outwards and making corporate resources available to a group of hired entrepreneurs. A successful example of this method is Coca-Cola’s Founders Program, and its effective collaboration with startups like Wonolo. Lastly, the outside-in model takes external partners and entrepreneurs, and imbeds them within the corporation. This approach can be helpful when the corporation lacks expertise in a new market, and needs the guidance of an entrepreneur fluent in both the given industry and the corporate setting.

Regardless of what model you choose, above all, it’s extremely vital to maintain a balance between separation and integration. If the startup is too integrated with the parent company, management regulations and tedious processes will overrun the innovative process—completely ruining the whole point of partnering with a startup in the first place. Conversely, if the startup is too separate from the corporation, it will prevent creative insights and engagement with the innovation ecosystem from flowing back into the company.

Although the contradictory natures of corporations and startups presents multiple challenges for collaboration, following the above strategies can help your corporation foster a healthy, symbiotic relationship with up and coming startup companies.