Large corporates are increasingly looking to small businesses for partnerships to drive innovation and growth.
I’ve covered a topic over the past few posts about innovation – and how large multinational companies are trying to act like entrepreneurial startups. But what about the big companies who are starting to partner and align with small companies rather than following more traditional, in-house innovation strategies?
In the US, startups have become an essential part of the economy, with venture capitalist funded businesses leading the way for innovation in places like Silicon Valley. If Europe and the UK want to keep up, they need to take note and take steps to engage with startups on a better level.
How startups can help corporations
Startups have increasingly become an essential aspect of the business world, particularly in the tech industry. The freedom from the corporate structure allows for levels of innovation on a scale that is extremely difficult in larger companies, especially since many companies were forced to scale down their R&D departments in the wake of the Global recession of 2008 and cuts meants that innovation just wasn’t a priority for many larger businesses. Therefore startups are becoming one of the main sources for innovation. This phenomenon is becoming more widely recognized in the broader business landscape, as larger companies turn to startups as business partners in order to have access to the innovation they need to remain relevant.
The small scale of startups often allows them to be more “human”, engaging effectively with customers on social media platforms in a way that is difficult for larger “faceless” corporations. This can make startups extremely disruptive and interactive, responding directly to customer feedback and demands in innovative ways. Larger companies are keen to capitalise on this and leverage the customer engagement model that startups enjoy with their customers.
How corporations can help startups
Innovation and creativity can only carry a startup so far. Scaling up can be difficult for startups, as they tend to be staffed by innovators and developers, but are lacking in business acumen. Corporate sponsorship can provide the managerial advice and resources needed for startups to grow. This can take many forms, such as providing equipment, investment capital or even direct mentorship.
The Nordic Standard
While much of Europe has been relatively slow in engaging with startups directly, corporations in Nordic countries are taking steps to fully integrate startups into the business landscape. Rather than being seen as threats to larger corporations, startups are seen as a hotbed for the innovation that simply isn’t feasible in larger corporate structure. Several large corporations run regular “hackathon” events, inviting startups to come in and present their ideas, with the potential to win capital investment, development equipment, or even business partnerships with larger companies. Furthermore there are several corporates who run acceleration programmes that provide startups with access to the resources they need to grow, which in turn fuels innovation in the larger enterprise.
When it comes to the actual partnerships, it is broadly understood that a middle ground must be reached in collaborations between startups and corporations. The corporate structures can be vastly different, while the speed of development and implementation is generally much faster for startups. A few Nordic corporations therefore take a more “hands off” approach to their startup acquisitions, acting more as mentors or resource providers, as they recognise that attempts to force startups to conform to a more rigid structure can stifle the energy and creativity that is the lifeblood of startup culture.
Friends, not foes
Despite the importance of startups to the business world, there are still corporations that see startups as threats. These concerns are valid to some extent, as the creativity of startups can achieve some things that a large corporation couldn’t even dream up. Furthermore there is an unfortunate majority of startups that have failed, making some companies unwilling to take the chance. However by seeing startups as an opportunity, larger corporations gain access to the creative work and innovation that is a driving force for industry, particularly tech. And the potential gains of a successful startup can be huge: it is a high risk, high reward game. Never forget that world dominating companies such as Facebook or Google started life as small startups.
There are several acceleration programs in Europe, about 1/3 of which are corporate sponsored. These programs provide the resources that startups need to grow, while still retaining their creative control. Furthermore, hackathon events and competitions can be an extremely effective way for startups to get noticed, and can be great for corporations, as they can gain access to potentially hundreds of innovations in a single day or weekend, which could have taken years to develop in a corporate environment. The charity Nesta, part of the Europe Startup Partnership, provides these kind of events and resources for startups, particularly those with ethical considerations.
By supporting programmes, big businesses can ensure their access to the startup community’s creativity and innovation; guaranteeing themselves against stagnation or the risk of becoming obsolete. Like it or not, startups are now a staple, and engaging with them is now an essential ingredient of success.