Why big business is eyeing the prize of working with start-ups
From lumbering predators to collaborative partner, Nesta’s Chris Haley looks at the growing relationship between corporates and innovative start-ups.
What creatures come to mind when start-ups think about large firms – Sharks? Dinosaurs?
Many of the common terms are not hugely complementary. However, corporates are, more than ever, trying to be seen as collaborative partners rather than lumbering predators. Many are going out of their way to court young start-ups and prove their virtue as suitors.
Some give away free tools and computers; others offer free training and advice; still others provide free accelerator services – in contrast to the usual VC-backed models which take equity – often in hip, brick-walled warehouses decked with beanbags and air-hockey tables.
Why are big companies supporting start-ups?
The fact is that start-up-corporate collaboration has become core to the innovation strategy of many large businesses. In part, this has been driven by the realisation that, given rapid changes in technology and business models, firms with the ability to collaborate and co-create effectively are much more likely to survive the disruption of their industry and sustain competitive advantage. As one corporate representative told me: “Collaborating with start-ups allows us to play in the space of the disruptor without actually being disrupted”.
In addition, I suspect the trend has deeper roots in the financial crisis of 2008, during which many internal research and development departments were early casualties. In the years since then, large firms not only found it more difficult to rebuild what was cut, but have also wanted to preserve flexibility; models of open innovation are therefore attractive options.
As a result, numbers of corporate venturing units have increased significantly in the past few years, as has the volume of deals. Around 80% of corporate acquisitions in the digital / ICT sector are of start-ups rather than established companies. And corporates now sponsor more than a third of European accelerator programmes, compared to virtually none five years ago, according to Nesta’s own research.
What are the challenges and benefits of start-up and corporate partnerships?
That is not to say that partnering is easy. There remain significant hurdles which can make relationships difficult to initiate and manage successfully. Mismatched cultures, divergent expectations, confusing contact points and glacially-slow processes are common complaints from start-ups. Within corporates themselves, rigid internal procedures, strategic misalignment between divisions and unhelpful incentive structures often confound those trying to work with start-ups.
Yet, when they work, such collaborations can indeed bring numerous benefits to both partners. Corporates gain exposure to new ideas, technology and talent, revitalising their internal culture and existing brands, or else offering routes into completely new markets. Start-ups can benefit not only from direct corporate investment, but also from the validation, experience and routes to market that a corporate often brings, helping them scale faster.
For these reasons, Nesta – as part of the Startup Europe Partnership – has been trying to promote more partnering of this kind. Our recent report, Scaling Together, with The Scaleup Institute aims to understand the barriers to collaboration and proposes practical tips, for both start-ups and corporates, on how these hurdles may be overcome.
For instance, introducing a single contact point for start-ups, entrepreneurial performance indicators for staff, and simply saying ‘no’ to start-ups more quickly, rather than dragging out negotiations, can make a big difference.
On the start-up side, making a genuine effort to understand the needs and motivations of the corporate, rather than focussing on the technical benefits of your own idea, getting on their procurement radar early and building confidence that you can deliver, invariably help.
You can nominate the best big businesses to work with as a start-up as part of Nesta and the Startup Europe Partnerships search for 25 Corporate Startup Stars, working in conjunction with Startups.co.uk.
Chris Haley is head of start-ups and new technology research at Nesta. Scaling Together: overcoming barriers in corporate-startup collaborations is available at www.nesta.org.uk