Corporate Startups: Boosting Startups & Fostering Innovation

When an entrepreneur starts his own business, his main concern is to do everything possible not to fail. It is generally thought that a startup has an advantage; because there are no bosses to report to or convince of the ideas. Instead, everything is focused on moving forward with your vision and getting to grow enough to cope with large corporations.

But very few people think that to grow to the size of large corporations, it is sometimes necessary to have the support of one of these corporate behemoths. On the road to innovation success, great benefits are also achieved within the context of a large company.

An entrepreneur can start working with any idea without approval from anyone and without having to face resistance. Still, when the business starts to grow and new ideas are to be launched, important challenges start such as finding customers or developing scalable products, especially when manufacturing capabilities and financial resources are required.

This is when it is necessary to approach a large company looking to become a corporate startup. The beginning can be complicated if you do not have the company's top management support or because the startup does not reach the revenues you expected when you started working together. But if you survive this stage, you will gain access to really good resources when it comes to scaling your new ideas. It is then that the benefits of a corporate startup begin to appear.

Some of these benefits are a recognized brand that the startup can capitalize on to attract attention; a well-positioned brand is given the benefit of the doubt when it comes to a new product. Other benefits include the marketing power of the large company to significantly support the launch of a new product, and having an established customer base on which new ideas can be tested.

Most companies have a treasure trove of intellectual property that can be leveraged as part of new product development. This is another advantage since many startups do not have that asset; likewise, when it comes to creating physical products, large companies have manufacturing capabilities that most startups can only dream of.

Of the last four advantages to mention (there are still others that we will not pay attention to for the moment), three refer to people and one to infrastructure. On the one hand, there is the possibility that if a corporate startup is in the same field in which the large company operates, it can scale quickly by having people with the right skills due to the number of experts available to the company. In addition, the venture can make presentations to potential partners within the company's large network of contacts.  f the product to be launched requires legislative changes or government contacts, the large company can usually have more influence than the startup. On the other hand, on the infrastructure side, the advantage translates into support from key areas within the corporation that represent a certain expense, such as finance and legal.

To achieve these benefits and advantages it is necessary to establish collaborative relationships with management and colleagues in key functions in order not to lose freedom so, beyond working on their product or service, corporate-startup teams have to bridge the gap with the core of the company.

Companies are Looking for Startups

Growing is the desire of every business, but it has to be done with planning because pushing a company to an accelerated development does not always have the best results. Growth must be organic to evolve healthily. This implies looking to the future with a defined vision and direction and with strategies to protect the life of a business. The path of organic growth seeks to make results profitable by finding the best possibilities to sustain them.

Most existing companies recognize that organic business growth and success do not necessarily come from within their walls and therefore seek the possibility of external support as a corporate strategy.

A 2017 survey conducted by McKinsey reports that 93% of respondents agreed on three parameters to generate organic growth: Research and invest (detect which strategy will yield the best results); create and recreate (get out of the comfort zone and generate new ideas); and, get to work.

And it is precisely the issue of generating new ideas that lead large companies to seek this satisfactorily through entrepreneurship. Entrepreneurship or die is the maxim already followed by several business giants worldwide, who, to survive the digital era, are seeking to collaborate with the entrepreneurial ecosystem.

Anyone would think that there is no real reason for a large global company to need a small entrepreneur. Yet, according to a recent Accenture report, only a limited fraction of companies generate a large portion of their sales from startups. Disruption requires new and diverse ways of thinking, but many companies are stuck in the past and lack the necessary organizational resilience.

When looking for innovative ideas and a new market to enter, companies often turn to a collaboration with startups because startups are often market disruptors and have advantages for the future business landscape, among them:

1. Startups are betting on new and better ways of thinking to innovate products.

2. Startups learn by mistakes and overcome them in an agile way;

3. Thanks to scalability, they can contribute a lot to the growth and innovation of large corporations;

4. Startups know and identify better with their environment and understand what consumption is like.

Large companies see entrepreneur support programs as an opportunity to find new ideas at an early stage and perhaps partner with, invest in, or learn from today's innovators. They are eager to tap into the expertise of innovative entrepreneurs and many have already created incubators or funds aimed at entrepreneurs: Nike partnered with TechStars (Investors that provide capital, mentoring, and support to entrepreneurs) to create a mentoring program for 10 startups creating physical activity monitoring technology; Microsoft also teamed up with TechStars to create an incubator for companies designing products for Microsoft Kinect and Windows Azure.

Some Examples

Partnerships between startups and existing companies are critical to advancing technological innovation, so business collaboration is increasingly important for the long-term growth of companies of all sizes and levels. According to KPMG, nearly 90% of companies agree that business collaboration is critical to fostering innovation. And while many companies see fast-growing startups as a threat, those with a broader perspective view them as a new market opportunity. Here are some examples:

Though it might seem invincible, Mondelez International, formerly known as Kraft Foods, has multiple reasons to support technology startups in Latin America.

The company sent more than two dozen brand managers to spend a week inside selected mobile technology startups as part of Mobile Futures, Mondelez's three-month accelerator program.

The goal was to impart an entrepreneurial mindset to executives and, at the same time, meet promising technology companies that could boost Mondelez's efforts to scale its mobile marketing campaigns. To achieve this, the company created the Digital Accelerator initiative in 2014, a project - in conjunction with accelerator Wyra - to bring Mondelez's marketing teams together with startups in the region and their digital products to apply in areas such as crowdsourcing, e-commerce, social media, and geolocation.

The hallmark of the project, in addition to the funding, is scalability, that is, the ability to have the project resized and applied in other latitudes. "Why do we do this? We feel that startups can contribute and that they have platforms that we want to accelerate our brands. There is no small print," says María Mujica, regional director of Strategic Marketing and Communications in Latin America at Mondelez.

For its part, Pepsi has two initiatives designed to tap interesting startups: PepsiCo10 is a digital incubator program that selects 10 tech startups in the entertainment, mobile, retail, and sustainability sectors. In addition, they have an incubator program that invests in 10 promising startups each year. Pepsi Digital Labs in turn takes a less formal approach to startups, focusing on mentoring, networking, and partnerships. As part of Digital Labs, Andrea Harrison, PepsiCo's director of digital engagement, works two days a week among tech entrepreneurs in a New York co-working space called WeWork Labs.

For their part, Johnson & Johnson and GlaxoSmithKline each invested $50 million last year in a $200 million venture fund to support early-stage biotech companies. In addition, J&J is creating four innovation centers to fund early-stage life sciences research and help advance products more quickly. About 70 J&J scientists and R&D executives at the centers mentor entrepreneurs and provide introductions to the industry.

The company also created a biotech incubator at its Janssen Laboratories in San Diego, where early-stage companies can rent offices and labs without having to commit their research to J&J. One of its tenants is Amplyx Pharmaceuticals, a startup that is developing ways to fight deadly fungal infections and now has access to expensive lab equipment and machines that have helped it attract top scientists and accelerate the company's productivity.

How To Achieve It

Transforming a company towards innovation through collaboration with a startup may represent a difficulty in terms of management since it implies doing things differently and working in a different way than usual. It also requires new talents and competencies, less isolation, and more collaboration with other business ecosystems, exposing the risk of introducing a management model oriented to business transformation.

Therefore, before entering into a business collaboration agreement, companies must decide whether emerging technologies are suitable for their projects. In doing so, they need both internal and external advice and support. Internally they rely on the most important business divisions and the company's management to synchronize with the entrepreneurs' times and ways of working and help the startup not to get "bogged down" with the companies' processes, regulations, and bureaucracy.

Externally, they require the experience of others to identify startups in the ecosystem that have the potential to adapt to the business and scale. It requires professionals who contribute to developing innovative solutions and facilitate the sharing of skills, as is currently being done by a hybrid program whose objective is to help thousands of innovators around the world to design, validate and develop scalable business models in global markets. Converting the intellectual property into meaningful technological applications.

Known as HackX, this program, integrated by a broad global network of more than 600 certified consultants from 130 countries, has created entrepreneurial-scientific-entrepreneurial networks through the consultancy of recognized experts from universities, research centers, entrepreneurial networks, and scientific foundations.

With this type of support, it is easier to develop efficient collaboration between companies and ventures to foster the necessary disruption of the business model itself, something that is difficult to do from within, as internal creativity is often hindered by the defense of the main money generators.

HackX takes into account some considerations that the company must take into account to ensure that the relationship with the startup is beneficial for both parties: On the one hand, be careful that the company, because of its size, does not overwhelm or run over the startup generating undue risks; this implies that the large company should be cautious with the attitude of its managers and employees. Also, keep in mind that startups tend to see the world with a rosy view where a "maybe" can sound like a "yes", generating expectations that are difficult to achieve; hence the importance for the company to be clear about any request that the startup may make. A "Yes" or "No" is preferable to a "maybe".

Another aspect to consider on the part of the company is that startups work with minimal budgets and usually have not reached a point of profitability; therefore, any service requested by the company must be adequately compensated in economic terms. Linked to that, the best way for a company to have a fair share in a startup would be through a financing round since, the equity stake is the only aspect that a startup will strongly protect when it has the ambition to be a large company. In this regard, Thompson Reuters believes that asking for a 5 or 10% coupon on the valuation of a future investment round in exchange for data or services is fair game.

It also helps to find ventures with positive sales trajectories or that are being well received by the market, which is what dictates success, within the industry in which the company has a presence. Finally, it is sought that the company understands the importance of being operationally friendly with the startup, specifically in terms of purchasing processes, IT reviews, and future contracts.

Conclusion

Although the details of the alliances between companies and startups vary, the concepts remain the same: companies benefit from the organizational agility of startups, while startups gain access to a wider network and possibly to the financial capital held by large companies and multinationals.

There is a lot to consider when a mature company and a startup decide to work together. It is usually an exciting time: Both are interested in exchanging knowledge, accessing new resources, and, of course, having the opportunity to explore new ideas. It also often involves a certain degree of uncertainty.

What is a fact is that large corporations have learned from the success stories of companies and entrepreneurs such as Airbnb and Shopify that small innovations can transform the world and that they must adapt quickly to innovative technologies or products from startups to remain competitive and avoid gradually losing market share. From this perspective, business collaboration with startups is no longer an optional extra but a competitive imperative and a modern business solution.

Startups need strong support from the entire corporation to carry out a viable pilot that is beneficial to all parties involved. There will be a successful business partnership if the startup fits the corporate culture. Achieving this requires each party to think about the other's goals, priorities, rewards, history, and work ethic.

New ideas, technologies, and industries can create the jobs of the future. For this it is important for companies to commit to acquiring more goods and services from local startups or creating larger collaborations. This would give startups much-needed credibility and revenue. And it need not be seen as a form of corporate altruism but as a window to new ideas and thinking that contributes to improving the innovation ecosystem.

Do you have a company and are thinking of supporting or partnering with a startup? Then you should think about it:

How big should the capital raised by the startup be at the time of the operation?

Are there enough people in the startup and in your company to face a new scaling opportunity?

How profitable is the company and how big are its losses?

Does the entrepreneur have a proven track record of execution?

Remember: To get ahead in today's overloaded corporate world, you have to be able to stay competitive in the marketplace. The desire to remain relevant in the entrepreneurial ecosystem means maintaining a comparative advantage in areas that have a significant impact on the market in which you compete. The hardest part is not getting to the top, but maintaining that position.