Corporates are increasingly using startups as tech suppliers. So, how can business units and startups best work together?

Relationships between large groups and startups have now become part and parcel of most corporate innovation strategies. In fact, a survey showed 82% of corporations view interactions with startups as “somewhat important” to “very important”. Moreover, 1 in 5 indicated that these interactions were “mission-critical”.

Major corporations are increasing their initiatives to bring together startups with their business units as part of open innovation strategies. Indeed, corporate operations leaders are more and more open to new technologies that can optimise their processes and empower their employees. 

Besides being potential tech development partners, startups are now seen as suppliers that can address the innovation needs of various business units. This begs the question: what can startups bring to business units? And how can business units best participate in corporate-startup relations?

An inevitable and indispensable relationship

Today, 61% of successful startups have a corporate group in their capital and 53% of the world’s 500 largest companies work with startups.

Most commonly, the relationship between startup and business unit begins here: the startup of interest to the large group is identified by the innovation department, which offers it to the business units concerned, i.e. the professions that will be able to operationally benefit from the startup’s services or products. Then comes the testing or proof of concept (PoC) stage, always in close collaboration with the innovation department.

At this phase, an initial concern can be raised. The open innovation team generally checks the robustness of the startup. However, this department often doesn’t know enough about the specificities of the business unit’s needs to assess the quality of the startup’s service or product from an operational standpoint. Collaboration between startups and large groups therefore needs business expertise and the involvement of business units in the construction of the collaboration. It is then a question of making the business units more autonomous in their daily relations with the startups.

How can the innovation department pass the torch to the business unit 

In a startup-corporate partnership, issues can arise from the get-go. For instance, who should be the main point of contact for startups within the group? The organisational complexity of large groups makes it difficult for a business unit or startup to identify the right contact persons for a successful relationship. Furthermore, the differences in size and weight on the market make the relationship asymmetrical and give the large group greater negotiating power. In order to build strong bridges between startups and business units, efforts are expected from the innovation departments to ensure a balance in the relationship and to know how to withdraw after passing the torch to the business units. 

To illustrate this type of cross-department collaboration, we can take the example of a large transport group that needs to digitalise its customer service unit. The innovation department will look into chatbot options and identify relevant startups. The customer relations department will then have to take up the subject again to install this chatbot, carry out tests and deploy this service to its users. The level of involvement of the customer service team in the chatbot selection could be a determining factor in the success of the implementation, as it could allow for the early detection of discrepancies between the corporate’s existing protocols and the startup solutions.

Startups: not your typical suppliers

Today, many collaborations between large groups and startups are handled like traditional provider-customer relationships. However, a startup is not a typical supplier and business units are not calibrated to deal directly with startups on a provider-customer framework. Indeed, the operational departments concerned by the startup’s service do not know how to manage the entire business relationship themselves (definition of the contract, purchasing due diligence, strategic vision for the group…). Hence, the involvement of the innovation and purchasing departments remains important in the upstream process of working with a startup.

The innovation department can take the initial lead on the subject without dealing with it in an operational way. There is therefore a balance to be found between the innovation department and the business unit in order to share this governance in an efficient manner. The corporate group is generally looking for long-term profitability and this is a point that the innovation department will keep in mind. Moreover, they take the responsibility of measuring the risks to take into account in their decision making. On the other hand, the business unit will measure the potential for value creation within its department. Meanwhile, it’s the purchasing department that will define the contractual aspect of the collaboration and simplify the issuing of legal documents to protect both parties in a relationship of equals.

So, while their early involvement is beneficial, giving total independence to the business units in regard to startups (without the intermediary of an innovation department) is not an end in itself. The key is finding a balance between corporate departments in dealing with startups.

 

Finding the right balance of governance

Corporates need to consider how business units can gain autonomy on certain aspects of startup collaboration traditionally handled by the innovation department. The answer to the business units’ lack of autonomy may just lie in the intelligent split of tasks between departments. Innovation departments are familiar with the ecosystem of startups, enabling them to identify relevant players with proven growth potential. By keeping their fingers on the ecosystem’s pulse (which business units cannot do) they are able to prepare the company as well as possible for the profound social and technological transformations their environment is undergoing.

However, one question has been left open from the outset: what to do if the corporate group does not have an innovation department? So far, we have explored this issue with the assumption that the corporate would have an innovation department, but this is not always the case. It may therefore be relevant to call on an external expert in the startup ecosystem, capable of sourcing innovative solutions that are relevant to the group before leaving them in the hands of the business units.

It is true that introducing a third party can complicate a relationship and cause the business unit to loose governance.  But a fully operational business unit, such as an IT department for example, does not have the same strategic approach as an innovation department. It does not necessarily have the required sourcing, benchmarking and analysis tools that an innovation team would, to identify and qualify relevant startups.

In this case, it may be less expensive and more efficient to use external providers such as Early Metrics to qualify startups, assess the innovation of a service and serve as a trusted third party between the startup ecosystem and corporate business units.

A long-lasting relationship

We have learned that although desired, the relationship between large groups and startups can be complicated. Issues can arise at every stage of the collaboration for various structural and operational reasons. As we explained above, it can be particularly tricky to find the right balance of involvement between the innovation, purchasing and operational departments. Nevertheless, the aim of all parties is the same: to build a lasting relationship that can benefit both the corporate and their innovation suppliers. The startup brings its tool or service to the table, but not only. It can allow business units to be confronted with new professions, new working methods, new ways of thinking. Working with innovative actors can enable corporate professionals to review the way they do their job and learn to do new things by themselves. The large group can give the startup opportunities and visibility, while the startup will bring its vision, its technology and its agility. In the face of current economic uncertainty and changing customer expectations, we believe startups will prove to be vital partners for corporates to future-proof their business units.