Partnering in a time of disruption: what corporates and start-ups need from each other
With high stakes and a growing prize, start-ups and corporations find common cause. Jeff Dachis of One Drop, Tina Sharkey of Brandless and Prith Banerjee of Schneider Electric offer some key considerations for your corporate / start-up partnering strategy
Generated by EYQ, an EY think tank that explores leading and emerging trends, focusing on “what’s after what’s next?”
Whether start-ups or global corporations, companies that disrupt the market realize radical growth.
Right now, the balance of power is tipping away from large corporations toward agile start-ups. The start-ups often deploy new digital technologies to level the playing field with industry incumbents who are weighed down with massive investments in infrastructure, processes and customers. “As technology costs drops dramatically, and the tools of self-expression and communication are democratized, the opportunities for small companies to run hard and capture market share become even greater,” observes Jeff Dachis, founder and CEO of the blood glucose monitoring and community start-up One Drop.
Corporates also face the challenge of generating their own disruption—whether disrupting their core business or expanding into a new business—to drive their next phase of growth. Becoming disruptive requires a robust set of leadership and cultural attributes, innovation practices and external sensing capabilities. While the innovation toolkit has not changed dramatically over the past decade, the current context of disruption requires that the tools be utilized in new ways.
Big businesses either figure out how to acquire, retain, and deploy the kind of talent that can develop new markets or cannibalize existing markets, or they get replaced.
Acquiring the talent for disruption
Talent is the commodity in highest demand. “Whatever technology or embedded lead in the race a corporate might have, foremost it needs talent that can both operate at scale and be nimble enough to be intrapreneurial,” says Tina Sharkey, CEO and co-Founder of Brandless. “The intrapreneurs who can run scaled operating companies and figure out to how to disrupt themselves are the most sought-after talent in the world,” she continues.
Dachis agrees, noting that “big businesses either figure out how to acquire, retain, and deploy the kind of talent that can develop new markets or cannibalize existing markets, or they get replaced.”
Bringing the outside in
Still, large corporations are awake to this threat and are taking steps to tap into the agility of start-up innovators. “The pace of innovation has completely changed. You need to innovate faster and there are all kinds of new players in your ecosystem," notes Prith Banerjee, the chief technology officer of Schneider Electric. “A company can come out of left field and cause a huge disruption.”
Banerjee leads an open innovation program at Schneider Electric that includes ties with universities around the world for basic research, strategic investments in Silicon Valley venture funds to scout for promising technologies, relationships with tech incubators and the company’s own direct investment vehicle, Aster Capital.
Even companies set on disrupting the way an industry works can find good reasons to partner with industry incumbents — they have a lot to offer.
“It’s for the channels,” says Banerjee, “start-ups are great at identifying technologies but they don’t have the channels to scale,” adding that big companies often have a better perspective on the business problem at hand.
For Sharkey, the reasons to engage with a corporate partner center on “access to knowledge, experts, distribution channels, pricing or data. It could also be access to interesting projects or hard problems to solve.”
“You have to partner, coordinate, and collaborate so that you can deliver a better experience for the user,” says Dachis.
On the corporate side, the partnering imperative is to “bring solutions to customers much faster and much more efficiently and cost effectively than trying to do it all yourself,” according to Banerjee.
New approaches to partnering: industrial mash-ups
While traditionally structured relationships remain a key part of the toolkit, industrial mash-ups that can be completed more quickly with fewer resources and less risk are gaining favor. Partnering is also moving beyond the bounds of corporate development and innovation units.
For example, innovation networks that join broader internal and external expertise provide fluid, resource-light sources of insight.
“Ensure that corporate leaders and top talent are well represented in communities of practice so they’re having great conversations and building relationships," recommends Sharkey. “Then extend those relationships through business-building advisory boards where you can leverage the talent in the founder and entrepreneur community through information-sharing and network-swapping, all without doing a deal.”
Sharkey observes that one way to quickly test a relationship while generating buzz is by working directly with corporate marketing and PR teams—the people who are going to make the most of the association of the two brands or businesses.
The wrong thing to do is to just litter your start-up with a lot of corporate logos and become distracted from execution. You’re looking for the corporate to accelerate execution, not decelerate it.
She gives the example of the start-up Shyp, which offered pop-up free shipping in the stores of a major retailer during the last holiday season. The stores got to experience working with Shyp, while the start-up got visibility and the opportunity to meet many potential customers. “It’s try before you buy, have fun and keep the stakes low rather than spending months negotiating a deal,” says Sharkey.
Lessons learned by the little guys
Partnering takes focus, discipline and commitment from both sides to succeed. However, the asymmetry in the start-up/corporate relationship means that the start-up has more at risk, whether in time, focus or opportunity cost.
“As a little company, the partnership is one of the most important things you do and takes up a lot of your time. If it fails, you might have wasted months of time, but literally no one notices at the big company,” says Dachis.
“The wrong thing to do is to just litter your start-up with a lot of corporate logos and become distracted from execution. You’re looking for the corporate to accelerate execution, not decelerate it,” Sharkey observes.
Another common mistake that Sharkey sees is start-up founders trying to build a partnering relationship with the CEO of the corporate. Better to use the CEO as a channel to finding the right person in the organization and then cultivate that relationship closely, says Sharkey.
Ultimately, success depends on creating a win-win scenario with equal commitment on both sides. Too often big companies only “think win, not win-win,” cautions Dachis.
Banerjee recommends that start-ups keep a clear-eyed focus on measurable progress. “Don’t be too excited about the first meeting. This large company is potentially talking to a thousand start-ups. Make sure that after the meeting, the next steps, the actions, are very well defined. You need to say to the corporate, we expect these things to happen or we walk away.”
The executive sponsorship of the corporate business line that wants to work with the start-up is critical, notes Banerjee. “The first time the thing fails, you can’t say, ‘this isn’t a good idea, end the contract.’ That’s not how start-ups work. Start-ups work by persistence; this thing doesn’t work, no problem, we’ll fix it another way. You have to be willing to try agile and lighter ways of engaging with start-ups.”
What to consider in your partnering strategy
- Corporates are under pressure to generate their own disruption rather than be disrupted and offer access to a variety of resources that can accelerate a start-up’s business plan in return for an opportunity to tap into its agility and innovation.
- While the traditional partnering structures remain an essential part of the toolkit, there is growing emphasis on quicker relationships that don’t require months of negotiation.
- Partnering takes focus, discipline and commitment from both sides to succeed along with a clear win-win value proposition.
- To reduce the risk of distraction and lost time, start-ups should demand clear definitions of progress and next steps from corporate partners.
- With start-ups, corporates must deploy more agile, lighter forms of engagement that incorporate a tolerance of failure.