(The Series: Startups and Corporates) – Part 2: Key rules of the game
By Soline Kauffmann-Tourkestansky - 08 June 2017
The big idea: After 3 years and nearly 1 000 startups rated for more than an hundred corporate clients, it is time for Early Metrics to share some key learnings about the collaboration between large corporates and startups, arguably one the most important economical relationships in the 21st century.
After an introduction, which looked into the new forms of innovation, and before we focus on Corporate Venturing (Part 3), and Co-development (Part 4), 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 collaboration, the question of the underlying motivations for both parties is absolutely central. It should be the case in any business interaction but the differences in sizes 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 after a few minutes. When discussing with Heads of Innovation of large corporates, one of the most recurring pain point 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 organized and how our decision-making process actually works ».
They may still be some misconceptions on both sides; therefore, precisely defining the objectives of 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 gist of the matter – both parties need to have clearly identified their expectations and expressed it 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 datasource
– … as a compliance partner, etc.
It is important to note that having the corporate as a shareholder (minority or majority) is not in the list. When it comes to equity stakes, it is key to understand that, like marriage is the consequence of a successful dating and engagement period, investment or acquisition is 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 demonstrator for a potential new service
– …as a demonstrator for a potential new market segment
– …as a distribution partner for a specific segment / product
– …as a communication argument
– …as a technological partner, etc.
You see where this is going: no objective is right or wrong per se, what is important is the transparency of both parties on what their objectives really are and the alignment of these.
Both parties have to be able to formalize their targets and to know the ones of their counterpart. On the corporates side, as many stakeholders are usually involved, the project leader also needs to ensure internal alignment.
Rule n°2: Measure success – the hard thing about innovation
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 between a young fintech and a Tiers 1 bank, things become a little harder. How to proceed then, and what to think about?
Step 1 – Ask is the success of the collaboration can be easily quantifiable, or solely based on a “it works, it doesn’t” model?
Step 2 – If success can be quantified, then decide which are the KPIs to track! It should not only be vanity metrics such as the number of page views or number of likes, but more importantly 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 magnitudes and challenge of 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 about success or failure of the collaboration.
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 – the one person rule
DM, BO and US. Not familiar with these terms? As a startup, one better get used to understanding the split between Decision Maker, Budget Owner and User. Indeed, in any large organization this magic triptych of roles is split between 3 to more people…and 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 has the maximum of the roles mentioned above or at least a direct access to most of them. It is easier when the Champion is at least 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 have the responsibility to identify and convince this internal sponsor, it is also true (but usually more natural) the other way round, and having the internal Champion reach out to the startup. Maximizing transparency during conversations between the Champion and the Entrepreneur is key, including on hard topics such as tech or payment delays, etc.
Rule n°4: Start small and grow big
From the startup perspective, considering the large corporate as the deep-pocketed guy that will pay for anything that has some kind of wahoo effect is both a huge and a 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 more stakeholders involved in the decision-making process; the more stakeholders involved, the lower the chances to make it happen. This is why the pilot / roll-out structure is the best way to go:
Phase 1, pilot – 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. Targeting a size (understand amount of €, $, £) that allows to avoid procurement / compliance and management validation is usually a good idea.
– It has to have the highest chances of success. For a pilot, avoiding redesigning, integration, or rebranding, is usually another good idea.
Phase 2, roll out – Progressively deploying on a larger scale, using the experience of one or several pilots. Thanks to the data and information gathered during pilots, skeptic colleagues can be convinced and procurement reassured. Reaching this phase is highly rewarding for both parties, and maybe when the collaboration between a corporate and a startup can really excel.
To conclude, one of the main success factor is to establish a relationship that is as normalized as possible, being mindful not to play too much on each party’s bargaining power and having a frank conversation when needs be.