Startups and Corporates – Part 4: Co-development for a successful business relationship
By Elia Pradel - 26 September 2017
Over the past six months, Early Metrics has published its Corporate-Startup Relationship Series, casting some light on how two stakeholders with strikingly contrasting DNA can work together successfully.
After focusing on the Necessary Friendship (part 1), the Rules of the Game (Part 2) and Corporate Venturing (Part 3), let’s finally talk about Co-development (Part 4). The word « development » is tainted with positive meaning (the idea of creating something and iterating it to make it better over time). However, taken in the context of corporate-startup relationships, it bears significantly more complexity as it entails shared responsibility and mutual product ownership. What does it mean for both parties?
1 – No co-development without a win-win situation
Co-development is, in corporate lingo, « a development approach for people who believe they can learn from each other in order to improve their practices » (1). In other words, co-development is a learning approach, which favours interactions among professional groups to create collective intelligence.
In the pressing reality of the business world, corporates have no money – and start-ups, no time – to lose: learning is not enough, and concrete actions have to emerge from discussions. Co-development facilitates the emergence of a common project. But the business foundations have to be well balanced from the very beginning, and need to be based on a win-win approach to be successful. Vincent Minier, Corporate Strategy & Development Director at Schneider Electric France, resumes it well: « When we work with young ventures, we promote cross-fertilisation in our ecosystem, and we increase our differentiation thanks to the associated offers the start-ups we collaborate with propose to our end-customer. But it is also important that the startups get something. In our case, the equation is simple: we offer them access to new markets, to our expertise, and if needed to our CVC fund Aster Capital ».
2 – The health sector, a pioneer in this field?
Of course, examples of failed co-development projects exist: when a startup signs an exclusivity clause and spends 100% of its time developing a tailored product for a corporate, it forgets to diversify it revenues streams and becomes highly dependent on its one partner. But should we speak about co-development then? In this case scenario, it is more likely that the two entities never truly defined the nature of their relationship, nor agreed on a detailed contract with precise deadlines, prices and mutual responsibilities.
Co-development may be the most complex form of relationship between a startup and a corporate. Successful co-development does however exist, and many of them can be found in the health industry specifically.
One such case is French pharmaceutical company Servier’s new innovation structure We Health. Started in November 2016, We Health is responsible for the launch of 15 operational co-development partnerships each year to create « at least 20 products » according to Davis Guez, its director. Through these co-development collaborations, the pharmaceutical company aims to meet its target of revenue diversification, while the partner e-health startups benefit from the laboratory’s technical and commercial powerhouse. Servier collaborated with BioSerenity, a startup specialized in connected health clothes, to co-develop CardioSkin, a tee-shirt tracking cardiovascular activities. While BioSerenity brought the idea, « Servier, a European leader in the sector, brought the connections » to powerful cardiologists and the industry expertise says BioSerenity’s founder Pierre-Yves Frouin.
Another example of successful co-development is between Thuasne, a French leading manufacturer and distributor of wearable medical devices, and Texisense, a French start-up specialised in smart textile pressure sensors. The co-developed product is a software able to create a digital clone mimicking the reactions of a patient wearing orthosis. The foundation of this successful collaboration laid in the knowledge and trust established between the two technical teams, strong communication as well as a clear R&D roadmap defining each party’s responsibility.
3 – Exclusivity clauses: the limit of a constructive co-development?
In some co-development relationships were the R&D is costly, some corporates will want to impose exclusive clauses in order to protect their investment. While this understandable, the startups need to decide how the conditions play in their long-term development goals. If the exclusive clauses cover all developed functionalities as well as potential product diversification, the start-up may well not be able to sell anything and acquire market shares, The only possible exit being to be acquired by its co-development partner.
Increasingly co-development partners like to work under a white or grey label, or to focus on a very specific functionality or a very specific user case for a specific market. These best practices allow for collective intelligence to be expressed, and provide a win-win outcome.
- « Le groupe de co-développement professionnel », Adrien Payette, Claude Champagne, PUQ, 1997
- « Servier a son idée pour booster la santé connectée », Challenges, Mars 2017