Startups and Corporates – Part 2: The rules of a winning collaboration
By Early Metrics Team - 08 June 2017
The big idea: Having rated thousands of startups on behalf of some of the largest corporations in Europe, Early Metrics shares some key learnings on collaboration between corporates and startups.
After an introduction that looked into the new forms of corporate innovation, and before we focus on Corporate Venturing (Part 3), let’s see what are the must-dos for a corporate-startup collaboration to be successful.
Rule n°1: Define success and align expectations
When startups and corporates ignite a collaboration, the question of their underlying motivations is absolutely central. It should be the case in any business interaction but the difference in size and the variety of possible collaborations makes it even more important when startups and corporates are starting to work together.
When interviewing startup CEOs about their collaborations with corporates, the fear of the « Intellectual Propriety hold up » gets raised frequently. When discussing with Heads of Innovation of large corporates, one of the most recurring pain points they express is that « startups see us as the guys with deep pockets and direct access to the market, but they don’t understand how we are organised and how our decision-making process actually works ».
There can be misconceptions on both sides. Clearly defining the objectives of a collaboration is, and will always be, the main solution to overcome initial miscommunication.
The best practice? After 2/3 meetings – yes, this is what it usually takes before getting into the heart of the matter – both parties need to have clearly identified their expectations and expressed them to one another.
For the startup, some mid-term objectives when it comes to working with a corporate could be:
– having said corporate as a client or…
– …as a key client, with a targeted revenue of X
– … as a technological partner
– … as a technological enabler
– … as a distribution partner
– … as a data source
– … as a compliance partner, etc.
It is important to note that having the corporate as a shareholder (minority or majority) is not on the list. Just like marriage is the consequence of a successful dating and engagement period, investment or acquisition is typically the consequence of a great partnership involving one (usually more) of the points cited above.
For the corporates, some key reasons to work with a startup may include:
– having said startup as a traditional tech provider or…
– …as a demo for a potential new service
– …as a demo for a potential new market segment
– …as a distribution partner for a specific segment/product
– …as a communication argument
– …as a research partner, etc.
You see where this is going: no objective is right or wrong per se, what is important is transparency from both parties on their objectives and their alignment.
All parties must be able to formalise their targets and know the ones of their counterpart. On the corporate side, as many stakeholders are usually involved, the project leader also needs to ensure internal alignment.
Rule n°2: Find a way to measure success
When it comes to measuring the success of a social media campaign or the launch of a new product, both parties are in their comfort zone. When it’s about measuring the success of a POC, say between a young fintech and a large bank, for example, things become trickier. So how should a startup-corporate collaboration be assessed?
Step 1 – Ask if the success of the collaboration can be easily quantifiable, or solely based on a win/lose model
Step 2 – If success can be quantified, then decide which are the KPIs to track. It should not only be vanity metrics (number of likes…) but also include qualitative metrics such as conversion, retention, etc.
Step 3 – If success can be quantified, carefully define the targets for the chosen KPIs without forgetting alignment in terms of order of magnitude and challenges to the overall feasibility.
Step 4 – If success cannot be easily quantified, define the characteristics of the output that will allow a clear and objective judgment on the success or failure of the collaboration. This could mean simply deciding after a pilot whether the deployment at scale is feasible and can address real pain points within a corporate group.
And last but not least, remember that, for both parties, failure must be an option because this is what it takes to succeed in innovation.
Rule n°3: It’s still about the handshake
Entrepreneurs should familiarise themselves with the split between decision-maker, budget owner and user. Indeed, in any large organisation, this magic triptych of roles is split between three or more people. Getting the final YES is very much dependent on having these profiles on board.
To ease the collaboration, it is key to identify an internal Champion that covers the roles mentioned above or at least has direct access to most of them. It is preferable for the Champion to be the user of the service as it is harder to be sponsored by someone who is unfamiliar with what challenges the solution/service eases.
If startups can identify and convince this internal sponsor, it is also true the other way round, as the internal Champion can reach out to the startup proactively. Maximising transparency during conversations between the Champion and the entrepreneur is key, including on hard topics such as technical development or payment delays.
Rule n°4: Start small and grow progressively
From the startup’s perspective, seeing the corporate partner as a deep-pocketed parent that will pay for anything with some kind of wow factor is both a huge and fairly common mistake. Large corporates are extremely rational when it comes to expenses and usually look for cost cuts at all levels, including digital and innovation.
The higher the figure, the greater the number of stakeholders involved in the decision-making process. The more stakeholders involved, the lower the chances of making the collaboration happen. This is why the pilot/roll out structure is the best way to go:
Phase 1: Using a pilot to generating the first success case
The objective is for both parties to define the first use case of collaboration.
Key points to consider when discussing the use case:
– It has to be as small as possible in size to limit the number of decision-makers involved. It’s best to target a size (funding needed) that allows avoiding procurement/compliance and management validation.
– It has to have the highest chances of success. For a pilot, avoiding redesigning, integration or rebranding is recommended.
Phase 2, Roll out progressively using the experience of one or several pilots.
Thanks to the data and information gathered during pilots, sceptical colleagues can be convinced and procurement reassured. Reaching this phase is highly rewarding for both parties, and maybe it’s the point in the collaboration between a corporate and a startup where they can really excel.
To conclude, one of the main success factors lies in establishing a relationship that is normalised, being mindful not to play too much on each party’s bargaining power and having a frank conversation when needed.