Agility, experimentation and culture change: what innovative start-ups teach brands

Much has been written about the drastically shortening lifespan of big companies – the average tenure of a firm in the S&P 500 has shrunk from 61 years in 1958 to now only 18 years! But the most forward thinking corporates know that the best ideas don’t always come from within their own business. Instead they are setting powerful examples of how working with and investing in start-ups can help defend and grow market position. In fact, younger tech companies such as Funding Circle, Spotify, and Uber – all less than ten years old – have reached billion dollar valuations and are increasingly replacing incumbent technologies and existing business models.

Innovative start-ups are eating into traditional sectors with better tech and a compelling customer experience – take AirBNB, which now has more rooms globally than the largest hotel groups in the world, such as Intercontinental Hotels Group, Hilton and Mariott. There are also many examples of aqui-hires, such as a widely reported Silicon Valley Bank acqui-hire of a start-up called Standard Treasury, that was building a bank with software code in its DNA that would work with fintech start-ups, to accelerate the development of its own API banking services to ease collaboration, product development and integration with its clients. And Fossil acquired the San Francisco wearables Misfit Wearables for $260 million. Misfit is bringing Fossil a technology boost that will accelerate its expansion into an array of connected watches and other accessories. And, just recently, MassChallenge alumni Adhesys Medical was acquired by German pharmaceutical company, the Grünenthal Group, in order to expand its pipeline of medical devices for its business with surgeons, allowing Grünenthal to tap into the global $1 billion surgical sealants market.

Partner not threat – start-ups teach brands about innovation

For too long, large firms have viewed start-ups as threats looming in the rear-view mirror . . . the truth is that with the right strategic partnership, carefully forged, both can benefit hugely, while simultaneously creating extraordinary value for their customers. In fact, our report, The State of Startup/Corporate Collaboration 2016, developed by MassChallenge and Imaginatik, shows that start-ups are no longer seeing corporations solely as potential acquirers. Founders are beginning to realise that corporations have the experience and resources that they can leverage, but at the same time, they also realise that they can be selective about the corporations they work with.

Getting from idea to execution:

Companies have a lot of ideas and are pretty good at finding and prioritising them, but the ability to consistently launch successful innovations is still elusive. Converting ideas into innovation is tough. There are a few key reasons for this:

• Resources: Both cash and staff are hard to come by at enough of a quantity to enable scale. According to our report, while 86% of large corps now view innovation as crucial to their future, most of their current attempts to work with start-ups to further that objective are early stage, underfunded and scattershot – such that 25% of corps aren’t even sure how much they’re spending.
• Culture: Corporate culture, fear of failure and bureaucracy are innovation killers. One of the biggest challenges to innovation is the corporate culture itself – corporations just are not currently set up to drive innovation outside of the designated innovation team. What needs to change? Basic internal company processes, such as procurement and payment terms, are a big issue, for example, because a start-up could be out of business if it has to wait 60 or 90 days to get paid. However, smart companies that want to innovate with start-ups are streamlining procurement processes and shortening payment terms for start-ups to 30 days or fewer. Additionally, KPIs and scorecards play a big role in this internally. At large corporations that are matrixed and scorecard-driven, if it’s not on the scorecard, it doesn’t matter. To truly foster innovation, metrics around innovation, experimentation and pilot testing must be baked into individual and departmental KPIs. Lastly, the big innovation killer in corporates is the taboo around ‘failure’. The licence to experiment, pilot and test needs to come from the top and people need to be empowered to test and learn (aka: fail fast) without the fear of backlash if their experiment fails. This is much easier said than done, but once the rhetoric matches the reality – experimentation can become the norm and innovation will more readily flourish inside large corporations.
• Focus: The corporations that really understand what innovation is, have defined it internally and have a strong purpose and objectives emerging as the vanguard – but most do not. This is starting to change. At an overwhelming 82%, corporations now view interactions with start-ups as ‘somewhat important’ to ‘very important’, and 23% indicate that these interactions were ‘mission critical’, according to the MassChallenge report mentioned above. I once read a quote that sums up the issue with focus and definition of innovation: “All too often, the sense of innovation’s mission depends on who you’re talking to that day.”

Today, a growing proportion of start-up/corporate interactions are also taking place at a much earlier stage, with both parties seeing the strategic opportunities and looking to share the risks and rewards of such connections. Our study found that 67% of corporations now prefer working with start-ups at earlier stages, mainly to ‘explore new technologies and business models’.

We see this as highly significant: our team has not only had front row seats to this trend, we’ve been actively driving it through our work with more than 100 partners from top corporates and governmental organisations globally.

The future of start-up/corporate collaboration

Start-ups and corporates are different, but the balance of power between the two is changing. Both sides are seeing the value in working together long-term, in more nuanced partnerships in which both parties are evolving to find that perfect strategic fit for their innovation agenda.

Start-ups and large companies bring each other immense opportunities through collaborations that, if harnessed correctly, create win–win situations for both.

Working with start-ups allows corporates to develop and test new technologies and service solutions with less costs and risk to their core operations. Start-ups are also a source of fresh talent and ideas that can help rejuvenate corporate cultures. Likewise, large firms have numerous advantages for start-ups: market knowledge and experience, economies of scale, established networks and brand power along with other considerable resources. Working with big businesses can be an important route for start-ups to test their products for market fit.

Some tips for start-ups and corporates:

In our report, we summarised three top tips for both start-ups and corporates to maximise their opportunities to work together. The highlights include:

Start-ups should:

• Be thoughtful and deliberate in choosing and targeting which corporate partners to work with. Prioritise corporates that are serious about making deals happen and are set up to make decisions quickly.
• Think strategically – from their point of view. Large corporations are thinking many steps down the road, so understanding where they want to go in the future and solving real pain points can help create far more value for them and make you a good strategic fit.
• Use new channels for engagement – seek out large companies that already have an innovation lab, accelerator or a partnership with an accelerator such as MassChallenge, to find the path in.

Corporates should:

• Recognise that the ‘good ones won’t wait’ – don’t take start-ups for granted, if the corporate is interested in a start-up simply to learn, this can burn unnecessary cycles for a start-up that needs to close a paying deal quickly to survive. Be prepared to make swift decisions and ensure you’ve got budget before engaging.
• Get your house in order – Appoint a start-up champion in the company who isn’t just able to concierge the project through, but also has real influence and decision-making power. Establish start-up friendly internal structures and solidify an innovation strategy that is executed through this start-up champion.
• Streamline processes – Don’t let corporate timescales and requirements kill the start-up. Work quickly and fail fast.

The trend toward earlier stage interactions between start-ups and corporates is real and, while it takes some work, if done right both sides can not only take the risks, but also share in the rewards.

Read also:

Put innovation at the top of your business agenda

Getting your start-up funded – six lessons we learnt