The world’s leading corporations will be determined by the quality and quantity of their engagement with startups.
As large enterprises, including Fortune 500 companies, have grown in their desire to partner with early-stage companies, corporate innovation teams at these organizations have focused on the volume of startup relationships via functions such as external innovation scouts, CVC, and venture builders like us.
But many corporations that have engaged in startup partnerships still struggle to extract value from those relationships.
So, how can these businesses better execute on startup partnerships? The answer: With a dedicated corporate innovation team comprised of five key roles — and placing a greater emphasis on the quality of those partnerships.
The value of startup partnerships for corporations
Many corporations worldwide are looking to unlock transformative growth through startup partnerships.
It's a trend we’ve seen for a while, and it shows no signs of stopping.
In a recent survey by InnoLead, nearly 70% of corporate respondents said they expect their organizations' level of startup engagement to rise in the coming years.
Because of this, corporate innovation teams have been focused on increasing the number of startup relationships by creating internal functions with the explicit goals to:
- Partner. Have external innovation scouts identify partnership opportunities with existing startups that could be directly impact the core business through opportunities like channel partnerships, co-branding, or co-selling.
- Invest. Corporate venture capitalists invest in existing startups hoping to build strategic relationships that could lead to new channel partnerships, future acquisitions, or venture-scale financial outcomes.
- Build. Increasingly, corporate venture builders are designing and launching their own startups for similar strategic reasons as CVCs but with the explicit intent of building to address market gaps.
These approaches can be worthwhile. But the number of startups a corporation engages with does not directly correlate with the quality of those relationships. Case in point:
Boston Consulting Group research found that, in Europe, roughly half of corporations and startups were “very dissatisfied” or “somewhat dissatisfied” with their partnerships.
Failed startup partnerships signal to the market that a corporation is not ready to engage with startups — and startups take notice and stay away. This makes it crucial for innovation teams to focus on quality as much as quantity.
And that means ensuring two-way value in the relationship. Like all relationships, value must flow in both directions.
Startups enter into corporate partnerships in the hopes of being conferred some degree of advantage, like product development support, access to pilot-program data, and customer introductions.
Likewise, corporations engage with startups for strategic and financial benefits. Many want access to new customer groups, technologies, and revenue streams.
Quality, then, can be defined by the degree to which the corporate-startup relationship unlocks desired advantages, addresses near-term business needs and challenges, and generates meaningful learnings for both parties.
Corporate innovation teams are responsible for the quantity of startup relationships they enter into on behalf of their organizations. It only follows, then, that they must also be responsible for their quality as well.
In order to improve in that respect, they must establish the corporation's startup strategy.
What's more, they need to work cross-functionally with startups to align on learnings, business priorities, and advantages the corporation can provide.
Once established, it falls on corporations to provide the blocking and tackling required to meet these business goals.
How to ensure corporate-startup partnership success: A proven framework
Based on our experience working with dozens of startups and corporations, there are five key stakeholders that should exist on every corporate innovation team to ensure the success of their partnerships with early-stage companies.
1) The portfolio manager
Before seeking out any startup collaborations, carefully identify your main objectives and reflect upon your internal capacity and process for working with startups.
Taking a portfolio approach to startup engagement increases the chances that a corporation is able to capture transformative business opportunities.
The portfolio manager is responsible for overseeing this effort, by viewing the portfolio of startup relationships in context with the corporation’s total innovation activities (including R&D and M&A).
This senior innovation leader gauges portfolio health through metrics like total portfolio value growth, new rounds of funding closed, startup ARR growth, and total financial and strategic contributions.
By using this zoomed-out lens, the portfolio manager is able to identify patterns and generate learnings for continual improvement. If the portfolio is struggling, they look for systems-level fixes. And if individual startups struggle, they activate senior business leaders and innovation team members to remove roadblocks.
2) The board member
Getting advice, connections, and industry-specific help from a major corporation is a way to differentiate and attract the best and brightest talent. (500 Startups)
When investing in a startup, it is common to request a board director or observer seat so that the corporation may have a “voice in the room” for critical governance and fundraising discussions.
This individual should be a seasoned operator, ideally with startup experience, who understands startup governance and can be a help to early-stage CEOs through market access, subject-matter expertise, and/or talent recruiting.
This leader’s job is to ensure the corporation is aware of material changes in the business and prepared to respond as needed.
While they never discuss the needs of “corporation as customer” in the boardroom, they do monitor to ensure that the startup is getting what it needs from the corporation — and intervene with the Portfolio Manager and Customer Advocate when roadblocks arise.
3) The executive sponsor and customer advocate
Aside from revenue, startups identify marketing exposure or connection to a corporation’s clients as the most compelling reason to work with a corporation. (500 Startups) A mid-to-senior level business leader, the executive sponsor is the individual whose line-of-business directly benefits from the startup relationship.
Unlocking the corporate advantage of scale and experience is their way of making good on the promise of two-way value creation.
The executive sponsor provides a budget for a proof-of-concept and metrics of success for signing an ongoing customer agreement. They create buy-in from the organization to use the product and provide regular feedback, empower sales teams in co-selling efforts, and engage marketing with the ROI metrics for effective case studies.
By enabling the startup to succeed and promoting a culture of innovation, they also create opportunities for transformational growth in their own line of business.
4) The co-pilot
To keep startup engagements on track, corporations need to align stakeholders, goals, and resources early and often.
In the fast-paced world of technologies, startups must leverage their strengths to outpace the competition. Corporate partners have unique assets to contribute to startups, which can provide competitive advantage.
The key is finding a way to identify and package those advantages and offer them as a service to portfolio startups, in as smooth and seamless a way as possible.
The co-pilot is a mid-level corporate innovation employee who has board experience and relationships across the company which they can leverage on a moment’s notice to support the portfolio of startups.
Acting as a sherpa and a translator, this person builds and manages the startup’s “support team” of users, buyers, and integrators tailored to the unique needs of the startup. By bridging the gap between the corporation and startup, they have the power to unlock the various opportunities and advantages that come with the relationship.
5) The implementation specialist
In a survey of 500 Startups accelerator alumni, many startup founders said the most common barrier to working with corporations was slow procurement and contracting process.
The corporation’s core business has been optimized for stability and incremental growth, so it is disrupted — and pushes back — when a startup partnership is offered.
This is because:
- Legal and Procurement teams lack “fast track” processes to engage on startup timelines
- Cybersecurity and IT teams lack “sandboxes'' where startups can safely deploy an MVP for testing without having to be SOC-2 compliant or have greater than $10M in cybersecurity insurance
- Sales and Marketing teams lack the bandwidth and mindset to consider how running a single experiment with a startup could benefit both organizations.
The implementation specialist serves as the point of contact for each department’s enablement of a startup relationship, clearing the way for startups to efficiently proceed through these crucial stages.
By focusing on the goal of establishing the startup as a vendor as quickly as possible, they work to ensure value is able to be achieved by both parties in a timely manner.
Exploring new-startup creation with a partner
Of course, these kinds of mutually beneficial partnerships with early-stage startups amount to just one innovation avenue for your organization today. Another, increasingly popular approach large enterprises are exploring is net-new company creation with the aid of an external venture builder.
Determining your readiness to create new companies from scratch requires a careful audit of your internal resources.
If this review of your corporation innovation team's budget, personnel, and historical results with attempting to develop new, offshoot businesses reveals you're engaging in the Illusion of Innovation, it's time to turn to outside assistance to help get your venture-building efforts off the ground.
