Why Startups and Corporates Collaborate

What Brings Startups and Corporates Together?

When corporates and startups collaborate, they ideally create a win-win. Corporates create and enter new markets and startups achieve product development and scalability in the partnership. The shared strategic aim of such collaboration remains to secure growth, improve competitive standing and generate revenue.

Corporations even benefit from partnering with potential market disruptors, as disruption in large organizations is hard to come from within. No matter how fruitful it is for startups and corporates to join forces, it’s also extremely challenging given differences in culture, work ethic and appetite for risk.

Successful collaboration requires expectation setting besides being open to understanding each other’s interests, incentives, culture and work ethic.

This detailed guide can serve as a roadmap and informational tool for startups and corporations to plan collaborations so that the sailing is smooth and the outcome a true win-win.

This report by the World Economic Forum and this interview by McKinsey were researched for this piece.

Why Corporate Partnerships Make Sense for Startups

Collaborating with corporates brings a host of benefits to startups-

Access to investment and resources – Big corporates have the potential to make huge investments in startups and provide them with the right connections, eliminating the need for other investors. Corporates often have long-term interests in helping a startup grow, enabling the latter to achieve success sooner and more sustainably.
Scalability – Large organizations can put startups in touch with their first customers and support scalability with their abundance of people, budget, resources and opportunities. Access to a diverse and large customer base can open up new markets for a startup and help them refine their product with customer feedback.
Access to data assets – Partnering with a corporate can help a startup access proprietary data that’s otherwise out of their reach and thus help create new business potential.
Market knowledge and mentorship – An established corporate player can ease the entry of a startup into new markets and enrich their journey with succinct mentorship from those who have been there and done it.
Reputation and credibility – Associating a startup with a known market leader can put the former on the map and trigger a networking effect for the future. Startups can use their corporate collaboration as a reference to earn credibility with decision makers down the line.

Why Startup Partnerships Make Sense for Corporates

Here’s what corporates stand to earn from collaborating with startups-

External disruption – Every industry warrants digital disruption in this stiff competitive environment for a business’ sustenance. Corporates can rarely ignite disruption from the inside. Collaborating with startups enables large organizations to bring disruptive innovations to increase revenues, sharpen their competitive edge and expand into emerging technologies.
Renewed customer-centricity – Startups often fine-tune their products for the customer, as they aren’t restricted by standard processes, unlike large companies. Startups can even personalize and adapt their products for a specific customer segment, allowing a large organization to leverage it for better customer-centricity.
Revived entrepreneurial spirit – No business can afford to do what it’s always done and still stay ahead of the curve today. Large organizations benefit from a startup’s entrepreneurial spirit as it creates a culture of openness and agility.
Fresh revenue and business – Collaborating with startups allows established organizations to offer new and innovative services to their clients, build new revenue streams and leverage new business opportunities.

What are the Risks for Startups in Collaborating with Corporates?

An arrangement between a corporate body and a startup can lead to different risks for startups, including-

One customer-specific product – Focusing on building a custom solution for one large client can remove a startup from creating a product that’s scalable, accessible and potentially sellable beyond the scope of the corporate.
Time delays – There often is a tug of war between different departments in a corporate which get challenging and expensive for startups to navigate.
Resource drain – Startups may receive the short end of the bargain if the corporate doesn’t commit fully to a collaboration and only uses the startup for free consultancy.
Loss of the entrepreneurial spirit – If a startup depends too much on corporate decision-making and the collaboration is tight-knit, a startup may get entangled in the corporate processes and lose its innovative and disruptive edge.

What are the Risks for Corporates in Collaborating with Startups?

Corporates also put a lot on the line in collaborating with startups, such as-

Reputation – If a customer or corporate data is involved in the startup’s development process, a failure can hamper the organization’s brand and reputation.
Investment – The investment risk is high in partnering with startups as failure probability is high when compared to other investment avenues for large organizations.
Employee sentiment – Corporate employees are habitual of processes and systems. An unfamiliar and often open culture of a startup might threaten them and create resistance to change.
Outcome – The outcome of a collaboration with a startup can’t be predicted as startup teams often lack experience. Sometimes, startups propose a business model or technology that an organization isn’t ready to experiment with, which blurs the outcome of the collaboration.

The Challenges Startups Face in Corporate Collaborations

Here are some organizational challenges startups must deal with as part of a corporate collaboration-

Navigating the org maze – Startups often feel out of the loop as business units are shielded by managers who refuse to include them. Startups must learn to navigate the organizational maze and find the right people to execute a collaborative effort. There is also the challenging middle management that feels threatened by a startup’s disruption.
Insufficient resources – A startup might hit its limits in several ways when trying to collaborate with a corporate. For instance, a corporation has access to a legal department, while a startup relies on a relatively costly lawyer or handles the legalities internally.
Balancing specificity and standardization – Startups find it challenging to balance creating a custom product for a corporate client and building a standard product they can sell multiple times.
Gaining trust – Key corporate departments often resist working with startups with no previous corporate collaborations, which leads to a classic chicken-and-egg issue.
Equality in reputation – Startups often feel like a subsidiary of a large corporation instead of standing at eye level. They struggle to be perceived as an equally serious business by corporates.

The Challenges Corporates Face in Startup Collaborations

Here are a few challenges corporations brush up against continually in collaborating with startups-

Competition with internal innovation departments – Large organizations can often spark internal competition between their own innovation department and a startup partner. Corporates may also face internal resistance to adopting products the startup developed.
Shareholder & managerial support – Corporates must manage shareholder expectations and juxtapose the short-term interests with the long-term investment strategy of collaborating with a startup. Gaining support from senior management can be challenging.
Conflicting requirements – Corporates may face conflicting requirements for a product from different business units, which can create delays and confusion regarding the outcome of the collaboration.
Cultural change – Partnering with a startup not only means innovation, but also change. Senior managers in a corporate must ready their teams to change the status quo and part with the tested ways of thinking to make way for innovation.
Fear of failure – The fear of failure is real in corporate culture, which needs to be massaged away by C-suite executives by encouraging teams to support projects and collaborative efforts.

Top Issues that Derail Corporate-Startup Partnerships

The results of corporate-startup collaborations are mixed at best. Here are the top reasons why these partnerships get derailed-

Lack of internal buy-in – The success of startup-corporate partnerships depends on internal sponsorship and strategic buy-in from the organization. Often, a part of the C-suite kickstarts the collaboration, which fails to get support across the board and is treated as a pet project. Lack of support and resourcing is challenging for startups and sets up the arrangement for failure.
Lack of strategic clarity – Often, large organizations recognize the importance of innovation and emerging technologies. However, they lack clarity on what steps they want to take and how they want to utilize the external ecosystem. This confusion hampers unified progress toward a mutual goal.
Slow corporate processes – Corporations have slow processes and require startups to think ahead of time, for instance, about resources they might need so that they can be signed off in time. Startups don’t think and work that way, which creates a rift between the two sides.
Lack of impact tracking – Corporations are often unclear on the outcome they want from the collaboration or haven’t translated it into trackable metrics. Startups want to achieve quick growth with the availability of resources from the corporate. This creates a lack of impact tracking, which could help bring a strayed collaboration back on track.
Getting stuck in pilots – As a result of the first four hindrances, companies get stuck in the pilot phase with no plans to scale. Corporates stick to their patterns, and startups get frustrated.

To achieve success from a collaborative effort, both corporates and startups must be mindful of the challenges and take proactive steps toward eliminating friction.

When are Startups Ready to Collaborate with Corporates?

To identify if your startup is ready to enter a corporate partnership, identify your strategic objectives for doing so. Here are a few factors to consider-

Budget – Does the startup have enough resources to successfully and professionally deliver the expected product to the corporate?
Buyer – Who signs the deal and protects the collaboration against pitfalls of the corporate environment? Is the pain of the corporate intense enough to get their holistic buy-in?
Success metrics – What would signal a successful collaboration? Can you, as the startup, promise and commit to those KPIs?
Corporate intention – What is the intention of the corporate in working with you? What are they looking for?

If startups can answer all of the above questions and have a clear strategic goal backed by KPIs, they might be ready to enter a corporate relationship.

Best Practices to Approach Startup-Corporate Collaboration

Several moving pieces need to fit to create a successful partnership between a startup and a corporation. One of those is fully committing to the deal. Satisfaction and the potential for success can rise drastically once both parties are fully committed and invested in the collaboration.

Second, addressing and acknowledging cultural gaps can go a long way in making everyone feel included and understood. Even if culture gaps can’t be resolved, aiming to work through differences in methodologies, philosophies and working styles can improve satisfaction.

Finally, knowing where you want to reach can prevent gaps in expectations. Setting metrics of success can help bring both parties to the same page and work toward a shared goal.

What Should Startups Track to Measure Partnership Success?

The success of collaborating with a corporate partner means different things to different startups. Broadly, it provides a positive impact on both sides. The measurement of success can vary depending on the scope of a partnership. However, milestones and expectations ensure a streamlined process to evaluate effort on both ends.

A startup-corporate collaboration can be measured against-

How technically feasible the project is.
Whether its successful completion creates a profitable business model for the corporate and the startup.
Whether it creates a competitive advantage on both sides.
Does the collaboration have partnership potential for the long term? This also requires mutual commitment and trust on both sides to be true.
How does the collaboration benefit both parties financially?
Corporations often look at revenue and EBITDA and strategic metrics tied to value creation.
For R&D collaboration, parties can look at the number of projects in the pipeline and the addressable market.
For a pilot project, the customer base and success rate can signal success.

Tracking and measuring these quantitative and qualitative measures can help define the success of a collaborative effort.

Every startup-corporate collaboration is unique and cannot be seen from a generic lens. However, this piece lays down the foundational components required to create a successful partnership.

To consult an expert about a specific collaboration opportunity for your startup, write to us at info@kiwitech.com.