There are plenty of ways to find or attract startups to engage with your company. The engagement relationship between corporates and startups is markedly different to a standard supplier relationship or partnership, so there are some key considerations to take into account if you are to get the most from the collaboration.
These can be summarised in a set of guiding principles for engaging startups:
Understand that time is the most valuable commodity for startups - Treat it (and them) accordingly.
Speed of progress is paramount - Startups have different timescales and velocity—find the right balance.
Be clear about what you want from the outset - Clarity in communicating your objectives will help you filter, finding engagements that complement your strategy.
Avoid making assumptions - There are many differences between corporates and startups, so ask many questions, even if they seem obvious.
Think of a startup like open source software - Open source software is often immature, requiring communication, collaboration and patience. A startup can suffer from the same growing pains. Helping the startup (whilst still achieving your goals) helps them to improve their service to you.
To engage with startups, corporates need to open doors: empower your employees to go out and discover startups, and be prepared to welcome startups in. In practical terms, this means granting innovation teams the time and resources to attend conferences, events and to keep up to date with developments in the relevant areas.
Consider how your outward-facing engagement strategies are signposted and how you communicate your goals to startups. What’s your organisation’s capacity to deal with the traffic your engagement strategy creates? Once you’re clear on that, you can decide just how big your sign is, what it says and how wide you open the door.
“4 weeks for a large corporate is nothing, but for a startup it might be a third of all the money they have left.”
Hugo Pinto, Innovation Services Leader EMEA, IBM (Source: Touchpaper research)
Execution speed is key to innovation: the longer it takes to deliver a project, the less innovative it will be. With every passing day, competitors can catch up and similar innovations may be produced elsewhere.
Startups are known for their agility and can execute at speed, while corporate organisations follow a more considered approach and pursue longer-ranging projects. Touchpaper aims to help both parties engage in an informed and effective way. For example, we recommend that startups gain an understanding of the processes and procedures they will need to comply with in order to work with large organisations. But much can be done on the corporate side to tailor these processes to make sure collaborations move as fast as possible.
Understand what constitutes normal timelines for both parties. Unexpected delays in the onboarding processes might be business-as-usual for a corporate, whereas the foregone revenue could put a startup within months of running out of funds. A typical runway (i.e. funding) for a startup can be anywhere between 6-18 months, so delays have significant direct impact as well as frustrating the overall process.
Startups keen to win new business may offer a free trial or proof of concept (POC), sometimes without a full understanding of the lead time and complexity involved in moving from a trial to a full contract. This can take up to 6 months, sometimes longer.
Corporates, on the other hand, require certainty that the collaboration will produce the desired results before unlocking budget. A free trial may seem like the easiest way to prove value, but this is not always best practice in our view as it can put undue financial pressures on the startup. There are exceptions: where the product or service is a simple plug-and-play product or a standalone SaaS platform needing no integration or additional work, this can be a good route as the trial requires little or no overhead on either side.
But where integration or development work is needed for a trial or POC, the startup should be paid for it, in addition to use of the product. A paid trial demonstrates to both parties that the trial is being taken seriously. By securing budget approval and authority to go ahead, you are committing to the trial as an organisation; by charging to provide a service, startups are equally committing their part. In free trials, this commitment is nowhere near as strong.
As well as reducing risk in the long-term for both the startup and the corporate, a paid trial also means the startup is already registered as a supplier and set up with procurement. If the trial is successful, the lead time to a full contract will be shortened.
When working with a startup brings a competitive advantage, corporate organisations may ask for a period of exclusivity. But both parties should be mindful of the impact of exclusivity on the startup’s business. In early stages, limiting the market can contribute to the failure of the business entirely or create sufficient stress that they are unable to fulfil their contract with you. By shutting out competition, the startups reduce their addressable market significantly; therefore some compensatory measure or alternative deal structure should be put in place.
There are further alternatives, such as limited exclusivity (by time period, specific industry vertical or specific competitors), increased consideration for the product or service (to compensate for exclusivity) or exclusive access to a specific feature set only (new or existing). If exclusivity is the only way forward for the collaboration and the impact on the startup’s business looks considerable, consider whether it would be more appropriate to purchase the startup or its technology outright.
Negotiations with startups are unlike the negotiations that a corporate organisation usually has, where they can leverage their size and position to get the best deal. Applying undue pressure on a startup negotiation will very likely result in failure, either of the contract or of the startup itself.
A more collaborative approach to the negotiation—throughout the entire engagement—is needed, finding solutions that do not apply undue pressure on the startup from a financial or resourcing point of view. Of course, negotiations should still fulfil your corporate objectives, but the ultimate aim should be an appropriate value exchange that offers the best outcome for both sides.