The rate of technological disruption has increased exponentially in recent years, shaking the foundations of countless industries. Insurgent organizations, agile young startups with nothing to lose, have entered markets with lower priced offerings that offer greater convenience, and left established giants previously thought untouchable in ruins.
Incumbents have adopted a range of tactics to deal with this threat. Some have focused on promoting innovation internally. Such companies often seek to emulate the startup environment, whether it be merely by mimicking superficial cultural aspects of life in a startup office like bean bags and pingpong tables, or setting up entire internal innovation labs. Others have simply bought startup rivals out. In the financial services industry, for example, where large organizations are high on capital but low on the technical nous and agility necessary for innovation, a recent report by PricewaterhouseCoopers LLP found that 50% of global financial services firms intend to purchase FinTech startups in the next three to five years.
Another strategy being increasingly adopted by large corporates is collaboration with startups. In the recent ‘Collaborate to Innovate’ report by Startup Bootcamp, 70% of startups said they believe it’s very relevant to partner with corporates, while 45% of startups wish to collaborate in order to sell their business. This enthusiasm is seemingly reciprocated, with 23% of corporates surveyed by MassChallenge and Imaginatik saying that working with startups is ‘mission critical,’ and 82% that it’s at least ‘somewhat important.’
The relationships between startups and the incumbents they intend to disrupt is complex. Each need other. Startups can use incumbents’ resources to help them scale up, while incumbents can harness the startup’s energy and agility to innovate. However, there are many differences between the two that make partnering a difficult process. There is often mistrust, and learning new ways of working does not come easily. In Startup Bootcamp’s survey, 70% of the startups surveyed said they had experienced a long and complicated internal process when working with corporates. It is important to find the right fit if it is going to work, and there is no guarantee that this will necessarily happen.
We asked nine innovation leaders from both large corporations and some of the most exciting startups whether they believe startups and incumbents should work together.
Liz Wessel, the CEO and Co-Founder of WayUp
When a startup is truly in a startup mode, partnering with a big corporation can often distract from hitting the company's goals. After all, corporations have lots of bureaucracy, and you are way less important to them than they are to you. However, as a corporation, trying to find companies to invest in - both as a customer or as a partner - can help you to stay on top of trends, while also associating yourself with cutting-edge technology.
Zachary Hill, Chief Innovation Officer at The Future Project
I'm certainly biased as not just a startup executive, but a nonprofit startup executive, to say 'yes it's important,' and I'll acknowledge that. But I think it's a myth that startups are innovative and big companies are ponderous, and so by looking at startups you can learn how to innovate (or, conversely, that major companies have nothing to offer to startups). The truth is that both exist within climates and incentive structures that reward different kinds of behavior, and you can't just pick up a practice here or a concept there, plug it in and expect to see results.
Talking from my experience with startups - they have great product-driven reinterpretation-innovation, but atrocious process innovation, and often, venture cycles create habits of metric-chasing rather than allowing startups to step back, take a deep breath, and assess what's really going on. By contrast, many corporations are far too reluctant to tear the whole ship down. In some cases, in fact, it wouldn't even be possible to do so. The way we can help one another is to take an honest look at the problems each of us is trying to solve and ask ourselves - 'Are those really the right problems?' If the answer is yes, we find the overlap between what we're both trying to do, and understand what resources and accountabilities are causing us to frame the issue the way we're choosing to frame it. It's far more than taking a given technique or trendy approach, and saying, 'see, we're innovating!', this allows both sides to examine whether they actually understand what is really true, what properties and principles are really shaping the environment, and synchronize accordingly.
Evgeni Rehfuss, Head of Innovation at BSH
I don’t want to sound like a legal counsel, but it depends on the project. From my experience, it is very hard to collaborate with startups as a global player company. Areas of frequent issues are contracts, moving goals, timelines budgets, and many others.
Annalisa Gigante, Board member at ZIS, former SVP Innovation and R&D at LafargeHolcim
It's always engaging to be in touch with developments in the startup community. I am particularly interested in the way business models are tried, changed, and improved upon.
On one hand, large companies can help startups reach significant scale, although their different speeds and systems sometimes make collaboration a challenge. I believe external incubators guarantee space and the ability for startups to perfect their business idea and growth. Typically, these startups would need to reach a critical mass in order to benefit from collaborations with large global companies.
On the other hand, sharing office space with lean and exciting startups can be a great source of energy for corporate teams.
Whether you choose one model or the other depends on your wider goals which can include culture, teamwork, broader organisation and development goals, beyond, just business investment or strategy choices.
Simon Horner, Head of Policy and Innovation, City of London
Start-ups can sell and incumbents can buy. It is the collaboration of customer and vendor. However, government has a vital role to play in ensuring that incumbents are not also economic rent seekers. Those with better ways of doing things through technology must not have their way blocked by incumbents who may be harmed by these developments. Permissive innovation is a key approach for regulators. Technology will always outpace regulators so it’s important that the latter play an appropriate role in facilitating the former. Project Innovate at the FCA is the gold standard in allowing technological improvements in delivering financial services.
Julian Harris, Head of Innovation, Department for Work & Pensions (UK Government)
It is incredibly important. They (startups) offer great value for money, agility, passion, and pace (VAPP). They bring energy and inspiration into a larger organization. However you need to accept that they are often not as polished or focused, perhaps naive at times, and generally need a much faster on-ramp to commercial engagement than otherwise (they can’t spend hundreds of hours on proposals and negotiations).
James Millar, Director of Partnerships at MassChallenge UK
It is mission critical. With innovation being the key driver of long-term success, working with startups allows corporates to develop and test their new technologies, and service solutions with fewer costs and risk to their core operations.
Internal and external incubator or accelerator programs are effective in optimizing early stage interactions between corporates and startups. This offers corporates opportunities to explore new technologies and business models at an earlier stage. With startups, it offers more scope and engagement for an earlier understanding of the strategic fit, the most important factor in success or failure of a given startup relationship.
Whereas corporates and startups have collaborated in informal ways for many years, internal and external incubator formalized programs have distinct benefits:
- They make collaborations more efficient and cost-effective for corporations, in assisting corporations to find and attract the best startups to work with.
- Formalized programs are also more visible to the startup community, and, are, therefore, easier to engage with.
- Incubator programs also are a public commitment to supporting new innovators and sending strong signals to internal staff, as well as external customers, partners, and future employees.
- There is also a wider importance to strengthening the European innovation ecosystem. The stronger collaboration will support the stronger European tech ecosystem, where startups can transform into scale-ups, large and sustainable businesses, who become future customers or draw more resources into the ecosystem for all.
Tim Sharpe, Head Of Design & Innovation At Speedo
The advantage startups have over established companies is that they have nothing to lose and everything to gain. This is a significant driving force behind both pace and willingness to fail fast on the route to success. I think incubator programs within established companies is an interesting way of tapping into the mindset of a startup. However, it can’t be lip-service. The company has to be prepared to follow through hand support this program from start to finish and from the top down.
Alp Basol, Chief Technology Officer, Global Enterprise Telstra
Innovation cannot take place in isolation and requires input from all stakeholders. Every idea must begin with a user story. The most important of these is the outward-looking engagement with customers and end users. Innovation must be relevant and meaningful, or the idea will never make it out in the wild, having no impact to the end user. A successful strategy must include structured meaningful engagement, providing continuous learning and improvement, ensuring deep and consistent conversations, contributing to the core capability of your company and corporate mission. One of the keystones in bringing an idea to life is around decision trees, where you choose to build, acquire or license, or partner certain capabilities. Other incubators provide a wealth of resources and can provide substantial speed to market gains.