Corporate startups: Seven things you need to know

We are in the age of ‘disruption’, where young companies (less than 10 years old) are constantly challenging tried and tested technologies and business models. Some of these nimble, innovative and highly sensitive startups have been so successful that they have achieved billion-dollar valuations in just a few years of operation.

How can we successfully bring together the innovation and entrepreneurial spirit of startups with the wisdom and stability of more established corporations? On one hand, older industries can benefit from the energy of the younger generation; and on the other hand, startups can achieve exponential growth through the funding, economies of scale and market access that established corporates provide.

However, a 2014 survey by KPMG found that while 88 per cent of corporates thought that collaboration with startups was “essential” to their innovation strategy, most actual collaborations were “fairly superficial” relationships such as supply and licensing.

In KPMG’s New Horizons 2015 report, the firm found that collaborations involving equity proved beneficial for most startups but noted that ‘startups find it difficult to find the right people to deal with in large organisations’.

While 88 per cent of corporates thought that collaboration with startups was “essential” to their innovation strategy, most actual collaborations were “fairly superficial” relationships such as supply and licensing.

The stark truth is that for every successful startup, there are hundreds that fail while corporations that continue to emphasise efficiency above innovation face increasing irrelevance in the market. There is a strong case for corporate startup collaboration but what are the risks and benefits to both parties?

1 – Opposites attract
In 2015, Nesta, the European charity that focuses on startup research, found that 80 per cent of European corporate acquisitions in the digital and ICT sectors involved startups. Corporate venture capital investments in 2014 totalled USD48.5 billion, with Germany leading the way. Established corporates cannot afford to be left behind in the race towards innovation while startups face increasing competition for corporate support.

2 – Finding the right partner
Partnerships are more likely to succeed if both parties exist within a similar ecosystem
with similar values and goals. Those goals must also be clearly defined: will the startup contribute to incremental improvements to existing products and services for short- term returns or is the corporate seeking longer-term ‘disruption’, with higher risks but the possibility of greater rewards?

3 – Relationships take time to grow
KPMG reported an average of 9.4 months from the first meeting to the formal establishment of the collaboration. ‘The problem is not getting a foot in the door but finding the right person in the business, the person who is actually looking for the solution offered by that startup to solve a problem, and the individual with the authority to launch a project.’ Corporates should thus reduce their bureaucratic processes while startups must be resilient enough to wait out the early stages.

4 – Managing expected outcomes
What does the partnership seek to achieve? Some aim to create new products or improve existing technologies, others solve specific business problems and yet others are designed to expand into new markets. Both corporates and startups must clearly define the business-end of the partnership: what is the revenue model, how will success be measured and what are the project timelines?

5 – The challenge of diverse cultures
Startup partnerships can help rejuvenate corporates that have become too entrenched in a particular mindset-and that same mindset is often a major obstacle to creativity and innovation within the larger company. Ironically, however, the same mindset often prevents corporates from benefiting from a startup partnership: in its 2015 report, KPMG found that ‘the terms and conditions of large organisations are seldom favourable to startups, and this can be a bitter pill to swallow if the startups want to maintain the relationship.’

6 – Commitment is key
‘The days of unpaid pilot [programmes] are now far behind us’ said one startup in the 2015 KPMG report, which noted that it was only when clients paid for a product that the startup could evaluate if the corporate really needed it and had the budget to follow through: ‘Ideally, the large organisation and the startup should be able to find (and finance) a pilot quickly and judge the minimal viable product on its merits.’

7 – Knowing when to leave
Once the pilot has been evaluated, startups must be prepared to exit the collaboration if it fails to achieve the desired results. Startups invest much more in collaborations relative to corporates, making the exit all the more difficult, but smaller companies are unable to hedge the results of a particular project against several other concurrent projects-so the ability to cut losses is crucial.

Collaborations that work

Maybank Fintech 2016
Now in its second edition, Maybank Bhd’s financial services technology (Fintech) programme identifies tech companies from around the world that can help the bank improve its services (ranging from mobile banking and asset management to distributed databases and big data analysis). Maybank Fintech provides startups with market validation, access to industry experts, technical resources (including developers, testers and designers) as well as temporary working spaces and funding. In late 2015, the bank also partnered with the Malaysian Global Innovation & Creativity Centre (MaGIC) to boost startups in the ASEAN region.

MagLoft
MagLoft is an e-magazine publishing startup based at the Livit startup ecosystem in Bali. Seeking to make the same impact on digital magazine publishing that WordPress has had for bloggers and small website owners, MagLoft simplifies digital magazine publishing by rationalising the user-interface to templates, drag-and-drop content and integrated menus. PricewaterhouseCoopers estimates the digital magazine industry will be worth USD5.7 billion by 2018, and in 2014 Apple acquired MagLoft’s Dutch competitor Press, spelling a bright future for the industry.

Buckham & Duffy
Founded by millennials in 2012, this Australian technology and innovation firm, Buckham & Duffy helps match-make other startups with established businesses and government agencies to innovate and optimise their operations. With staff located around the world, ‘the company works by identifying emerging technologies from startups, student businesses and universities, or even within a big company, and then identifies a big business that wants or needs that specific innovation or new technology,’ reports the Australian Financial Review.