Established enterprises and startups can seem like a match made in heaven.
Startups need money, visibility or access to customers, and they bring creativity, speed and an ability to execute. Enterprises need innovation and speed, and can offer funding, endorsements, a sales force and established processes.
A Gartner innovation study showed that working with startups is popular: 95% of large organizations with a structural innovation program invest in tech incubators; 90% of such organizations work with small niche vendors or startups directly; and 84% use the acquisition of startups or small vendors to advance innovation.
How do you deal with startups when 90% fail within 10 years?
Still, working with startups is not easy. Their cultures and ways of working differ greatly from what traditional organizations are used to.
“Startups are strategic bets,” said Erik Van Ommeren, Gartner Senior Director Analyst, at Gartner IT Symposium/Xpo™ on the Gold Coast, Australia. “When done well, they accelerate market results. CIOs are interested in the promise of innovation and speed, but daunted by the risks. How do you deal with startups when 90% fail within 10 years?”
Build a corporate-startup partnership
It’s common for tech giants to innovate using startups, for example, Google acquired Looker to add analytics to its cloud offering. But there are many ways to work with startups. Some organizations partner with accelerators, matchmakers or city startup communities. Others look to venture capitalists to fund and develop startups. And, some companies create their own startup. Gartner offers offer five steps to help you get started.
Define your starting point
The first question to ask is where and why a startup is needed. What can your organization not do itself that startups can provide? Once you know which organizational capabilities need strengthening, you can choose different types of engagement.
Some organizations are looking for innovative ideas, hard-to-find skills or strategic insight into growth markets. Others need to grow their market or learn how to bring innovation to market quickly. Some have purely financial motives.
Prepare your sponsors for the risks
Startups come with elevated, hard-to-assess risks; there is inherent uncertainty in their long-term direction, independence and viability. For any engagement that goes beyond gathering information, be prepared for the fact that they might fail or change course. Your internal stakeholders should be made aware of these risks.
Be clear on timelines and the need for ongoing support. Some startups take many years to develop. Famous giants of today, such as Google and Twitter, spent years in beta mode. Even Uber, heralded for disrupting transportation, is not breaking even yet.
Appoint a startup liaison
The startup ecosystem is large and diverse: accelerators, incubators, investors, venture capitalists, and government entities. There are also lots of experts and consultants offering services to startups or organizations working with startups.
Don’t just ask what you can get — also ask what you can give
Organizations need a startup liaison. Research shows that having an effective liaison is a critical success factor to any startup initiative. Appoint someone who is a pragmatic fixer, has a strong network in the organization and is a good storyteller. Having a designated point person will allow both sides to navigate complexity and build relationships with ecosystem partners.
Create a reverse pitch deck
Don’t just ask what you can get — also ask what you can give. Often, organizations new to working with startups expect them to be ready and eager to work together, but find startups can be picky too.
Create a presentation that shows why they should work with you. It’s called a “reverse pitch deck” because, traditionally, a startup pitches its solutions to the larger enterprise, and here, the enterprise pitches to the startup. If the partnership is built on a shared understanding of the opportunities, differences of opinion are less likely.
Prepare for the risks
The easiest way to reduce risk is to have a bulletproof legal contract. However, the legal contract might stifle innovation or become a major bottleneck. Work with your legal and sourcing teams to prepare the legal groundwork ahead of time. Create template contracts for the types of engagements and companies you want to work with.
Defining processes is another way to reduce risk. Startups have very different processes — they will iterate, put value creation before risk and seek to nail the concept before scaling. CIOs will need to let startups lead, agree on success measures and create a process to disengage if the partnership isn’t working.