Startups and Corporates – Part 4: Co-development for a successful business relationship
By Early Metrics Team - 26 September 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 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.
The word « development » has a positive connotation: the idea of creating something and iterating it to improve it over time. However, taken in the context of corporate-startup relationships, it can come with its pitfalls. Co-development bears intrinsic complexity due to shared responsibilities and mutual product ownership. So what does this mean for both parties?
Building a win-win strategy
Co-development is « a development approach for people who believe they can learn from each other to improve their practices » (AFCODEV). In other words, co-development is a learning approach, which favours interactions among businesses to create collective intelligence.
In the pressing reality of the business world, corporates have no money – and startups have no time – to lose: learning is not enough, and concrete actions have to emerge from discussions. Co-development facilitates the emergence of a concrete common project. But the business foundations have to be balanced from the very beginning and be based on a win-win approach. Vincent Minier, Corporate Strategy & Development Director at Schneider Electric France, sums it up well:
« When we work with young ventures, we promote cross-fertilisation in our ecosystem. So we increase our differentiation thanks to the associated offers our startups partners 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 ».
Co-development isn’t without risks
Of course, co-development is not a fail-safe innovation strategy. Some startups sign an exclusivity clause and spend 100% of their time developing a product tailored to one corporate. It can happen that such startups forget to diversify their revenue streams and become highly dependent on the one partner.
In this case scenario, it is likely that the two entities failed to clearly define:
- the nature of their relationship,
- their precise deadlines,
- the pricing strategy
- and/or mutual responsibilities.
Co-development may be the most complex form of collaboration between a startup and a corporate. Still, successful co-developmens do exist and we can cite several in the health industry.
The health sector leads the way in this open innovation approach
The potential of co-development is well illustrated by the pharmaceutical company Servier’s innovation arm, WeHealth Digital Medicine. Founded in 2016, WeHealth Digital Medicine handles the launch of several co-development partnerships each year to create « at least 20 products » according to its director Davis Guez. Through these collaborations, the pharmaceutical company aims to meet its target of revenue diversification. Meanwhile, the partnering e-health startups benefit from the laboratory’s technical and commercial powerhouse.
Servier collaborated with BioSerenity, a startup specialised in connected health wearables, to co-develop CardioSkin, a tee-shirt that tracks cardiovascular activity. While BioSerenity brought the idea, “Servier, a European leader in the sector, brought the connections to cardiologists” along with industry expertise, says BioSerenity’s founder Pierre-Yves Frouin.
Another example of successful co-development is between Thuasne, a 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 an orthosis. The success of this collaboration lies in the trust established between the two technical teams, strong communication as well as a clear R&D roadmap defining each party’s responsibility.
Exclusivity clauses: the limit of a constructive co-development?
In some co-development relationships where the R&D is costly, some corporates will want to impose exclusivity clauses to protect their investment. While this understandable, startups need to consider how the conditions may impact their long-term development goals. If the clauses cover all developed functionalities as well as potential product diversification, the startup may well not be able to sell anything nor acquire market shares. Their only possible exit would be to be acquired by its co-development partner.
Increasingly co-development partners like to work under a white or grey label. Others decide to focus on a specific feature, use case and/or market. These best practices enable collective intelligence while providing a win-win outcome.