“Collaboration can no longer be viewed as an optional extra, it’s a strategic imperative. Startups are now widely recognised as invaluable sources of innovation, fueling growth and providing pioneering business solutions”.
– Aline Santos, Unilever EVP for Global Marketing
- The collaboration between large corporations and startups is more important today than ever, and the trend will continue. But the issues involved are also more complex and difficult to manage.
- New software technologies and tools will make it possible to create Startup Collaboration Platforms that enable the relationships to become more automated, structured and efficient.
- These platforms will provide a distinct set of startup collaboration services, and the interfaces to access them, to both large companies and startups. A future scenario envisions how this could work.
In 2017, the corporate innovation group of a large, multi-national, materials company was evaluating over twenty opportunities that had been submitted as the result of an internal challenge to get people to identify transformational ideas for incubation funding. Three (out of dozens) were selected as having significant potential for the company and were funded. They continue to look significant and promising.
If a Venture Capitalist (VC) were to be pitched the three opportunities selected, however, it is almost certain that they would have rejected them. Indeed, the VC community would probably reject almost all of the opportunities a large company would fund as a part of its internal innovation efforts. Flip it around and a large company would likely reject nearly all the seed stage and A round opportunities that a venture fund would invest in.
The large corporation has evolved to be efficient in delivering at scale. The small startup has evolved to rapidly test new ideas and die or grow quickly. Each type of entity has evolved to be ‘fit’ within their own very distinct ecosystem and has their own characteristic behaviors and mindset. Their ‘reasons for being’ are very different and this creates a large ‘impedance mismatch’ that makes collaboration difficult. But each entity increasingly needs the other. Both realize the advantages that can come from collaborating with their counterpart despite the difficulties. Today, these difficulties are overcome using very ad hoc and people-intensive efforts. That will change.
State of the Corporate-Startup Environment
Today’s corporations have fallen in love with the concept of collaborating with startups. They set up outposts in Silicon Valley, get involved in local incubators and accelerators, send tech scouts worldwide to scour the startup landscape and rub shoulders with researchers, entrepreneurs and VCs. Much is written about this state of affairs. But are these efforts effective? The answer is – it’s complicated.
The term collaboration covers a wide range of behaviors. In today’s world corporations and startups are both seeking a relationship that is more than merely transactional, they are seeking new ways of ‘coupling’ (as in tightly or loosely coupled). Coupling implies multiple degrees of potential intimacy between corporations and startups that go beyond mere exchange. Coupling implies the sharing of assets, resources, knowledge, activities, and learning that span the spectrum from the transactional to the fully integrated.
Collaboration between Corporates and Startups is the process of how to manage coupling/decoupling in all its potential complexity. Viewed as a process of coupling/decoupling, the Corporate-Startup collaboration is seen as an active process whose parameters change, sometimes dramatically, over time. It can proceed from loosely to tightly coupled in the case of a startup being increasingly brought into a corporation from the outside. Or it can involve the opposite in the case of an independent startup emerging from within a corporation.
The future of the Corporate-Startup ecosystem will evolve from the ad hoc, manually driven process it is today to a future that relies on two-sided markets, digital platforms and AI assistants to achieve the relationship between corporations and startups that both parties seek. In this complex and evolving dynamic, the private venture capital ecosystem must also be accomodated. Its role in sustaining the startup ecosystem is essential and must therefore be considered in any framework for advancing Corporate-Startup collaboration.
Evolution of the Corporate-Startup Environment
The current state of the Corporate-Startup environment is very dynamic. Like other business processes, it is being transformed by technologies that will cause it to look very different in a few years. Developments in this area are resulting in new platforms and tools that will make the Corporate-Startup coupling/decoupling process more structured, automated and reliable. The drivers and trends that are transforming the Corporate-Startup environment are worth examining.
Technology Drivers and Nascent Solutions
The following technologies have the potential to radically transform the future of Corporate-Startup collaboration.
- Big Data and Machine Learning are enabling automated technology and business scouting and matchmaking between startups and corporations. Companies like SwitchPitch11 and Kite11are building early versions of Startup Platforms to do this.
- Smart Contracts based on blockchain technology. These can be used by both corporations, startups, and VC firms to codify their commitments to each other. Many companies such as Etherparty11 or LeewayHertz develop smart contract systems for a variety of applications.
- Robotic Process Automation (RPA) to manage the business processes of each side of the relationship and improve collaboration activities. Companies like BluePrism11 are making rapid advances in RPA.
- Social collaboration platforms that expand networking and communication effectiveness between disparate parties. Slack and Humanyze are companies that have nascent social collaboration capabilities.
- AI-augmented creativity and discovery that enables ‘Planned Serendipity’ inherent in the Corporate-Startup relationship. Companies like Qlik or Inno360 are providing systems to augment human creativity and discovery.
- Machine learning, deep learning and predictive analytics to determine the probability of success of a startup or a new opportunity. Growth Science and Preseries are two companies that are using AI, big-data and predictive analytics to predict which companies and opportunities will succeed or fail. The VC community is well out in front of the corporate community in the development and deployment of these tools.
Looking at this level of activity, it’s hard to miss the signs of rapid transformation happening within the Corporate-Startup ecosystem.
Trends Affecting Corporate-Startup Ecosystem Evolution
This startup growth, in numbers, in infrastructure and in sophistication, is affecting how large companies are interacting with the startup world and, even more significantly, how they are organizing internally, especially the role of internal R&D resources and efforts. The following trends are visible today and will affect the future evolution of the Corporate-Startup environment.
- Permeability of Corporate ‘Boundaries’: The corporate boundary is getting more porous with outside-in and inside-out movement of people, knowledge and other assets.
- One-on-one to N-to-M relationships: Corporate-Startup relationships are moving from a transactional, one-on-one interaction to a many-to-many relationship. A corporation is dealing with many startups and a startup is dealing with many corporations.
- Digitalization: Digital transformation and activation is occurring across all aspects of corporate operation and its offerings. Corporations need startups to obtain the digital competencies they lack.
- Increase in organizational uncertainty: Startups are a means that large corporations are using to resolve organizational uncertainty. A startup can do what would never be accepted if it came from within the corporation itself.
- Scouting becoming automated and commoditized: Technology and business scouts are the primary means of discovery and connection between corporations and startups today. This function is being automated and commoditized.
- Increased transparency: A new level of transparency in the Corporate-Startup relationship will become normal. The types and volume of knowledge being shared will increase dramatically using new collaboration tools that promote sharing and ownership and value extraction rights.
- Increasing capital specialization and sophistication in funding dynamics: Capital flows will continue to get more specialized in both timing and focus. The methods VCs use will continue to improve, and corporations will adopt the same methods.
- Growing influence of Corporate-Startup intermediaries: Accelerators and Incubators and their derivative forms will grow and evolve. New ways of aggregating and marshalling assets will emerge that benefit both startups and corporations.
- Transforming role of R&D: Corporate R&D will continue to be very good in its core focus and will continue to shed its responsibility for transformational efforts. There will be increasing competency in corporate internal incubation efforts.
These trends, among others, will affect how the Corporate-Startup environment changes over the next decades. The processes, methods and tools the corporations and startups use will also change. Some of these changes can be anticipated by imagining what a future Startup Collaboration Platform (SCP) would look like.
A Startup Collaboration Platform
Managing a Corporate-Startup relationship that is sometimes close (tightly coupled), and sometimes farther away (loosely coupled), is always complex. The infinite number of permutations a relationship can take means that the outcome is never presupposed, and the path is never linear.
Defining a plausible Startup Collaboration Platform (SCP) is a means of distilling the essential elements of the Corporate-Startup relationship into a set of services and interfaces that could be implemented in a variety of ways. The following is a list of the essential types of services that need to be provided by an SCP.
- Relationship: The collection of services that support the many to many matchings between corporations and startups. Identifying and verifying the degree of fit between demands and designs. Making the match and then staking and managing the uni, bi and multi-lateral commitments of the parties in the relationship.
- Asset: The collection of services that supports recruiting, attracting, incentivizing, and provisioning both human, and economic capital from the corporation, the startups, the VCs and other external sources. Balancing levels of commitment, risk and return.
- Project: The collection of services that supports managing high-uncertainty projects involving multiple parties. Support for accommodating milestones, iteration, experimentation, pivoting, etc.
- Knowledge: The collection of services that supports rapid and deep mutual learning involving disparate teams. Managing the gathering, analysis, synthesis and sharing of valued insights based on relationship stakes.
- Opportunity: The collection of services that supports the development, production and delivery of the intended offering, from idea to scale. Managing all the dimensions and stages of uncertainty to assure appropriate value realization among the parties.
The SCP is analogous to a software platform and can be implemented in large part with advanced software technologies and tools that augment the humans involved. The SCP supports the capability for both the corporation and the startup to enter into any mode of collaboration at any point in their lifecycle. The various permutations of collaboration are built into the SCP business system and become the “APIs” of collaboration.
Startup Collaboration Platform Operation
Given current technologies, new offerings that are available today and the trends outlined above, one can imagine how a future SCP could operate. The SCP would manage the impedance mismatch between corporations and startups by providing the above listed services to both sides of the relationship. A unit of the corporation would most likely be dedicated to interacting with the SCP and the startups involved. This unit would be able to work with the rules imposed by the SCP that are very different than the way the rest of the corporate organization runs.
The SCP is powered by the various AI, blockchain and related technologies that are listed above. It will intelligently discover what corporations want and what startups can do and help make the match. The specific Corporate-Startup relationships can be codified with smart contracts which are the means of managing the relationship. The SCP, and the smart contracts executed within it, provide the following functions:
- Define the rules of the relationship that allow each party to specify the level of coupling they are willing to commit to and the conditions for increased (or decreased) coupling based on value creation results, allocation of assets, and the overall situation as it evolves over time.
- Insure that the potential benefits are being realized by all parties and the inevitable challenges are addressed by each party.
- Provide dual-party transparency that lets individuals in all parties see the status of the relationship as required and desired.
- Define how existing knowledge and new learning will be resourced and owned.
- Allow corporations, startups and VC firms to commit assets (people, $, knowledge, operations) based on milestones – both technology and market.
- Insure that all parties are being treated fairly and are meeting their objectives or, if not, executing the prescribed remedies.
Both corporations and startups will have many smart contracts that are simultaneously being managed.
This scenario may seem far-fetched, but the beginnings can already be seen in the various technologies and companies that are introducing nascent offerings today. We are usually surprised when we look back in ten years at all the change that has taken place. This scenario may not be so far-fetched after all.
[i] Venture Pulse, Q2’18. Global Analysis of Venture Funding, KPMG Enterprise. Data provided by PitchBook, July 12, 2018
[ii] The State of Startup/Corporate Collaboration, 2016; joint research study by Imaginatik and MaStartupChallenge; 2016
[iii] Scaling Together: Overcoming Barriers in Corporate-Startup Collaboration; research paper; Bannerjee, Bielli and Haley; March 2016
[vi] Why Corporations Need to Collaborate With Startups?; IESE BusineStartup School Entrepreneurship Network Blog; March 23, 2017
[vii] Engaging with Startups to Enhance Corporate Innovation; Tobias Weiblen and Henry Chesbrough; California Management Review; Vol. 57, No. 2; Winter 2015