Corporates and startups need each other
The world is changing rapidly. This has always been said, but the pace of change has indeed increased. Just one example: the companies in the S&P500 stock market index were on average over 60 years old in 1960; today they are only 20 years old. Industries are changing rapidly. Storing and analyzing large amounts of data is much cheaper and faster today than it used to be. This enables entirely new business models.
Start-ups move faster than corporates in this adaptation process — often driving this change through new technologies they bring to market. The competitiveness of corporates is at stake. They need to engage with startups — whether to learn from them, to buy and integrate their products or the complete startups, or to cooperate with them, for example in development partnerships.
Startups, in turn, often rely on corporates. This begins with the financing of growth. In the U.S., total corporate venture capital rose to nearly $100 billion in 2018, representing nearly 300% growth since 2013. Corporates can use partnership models to make it easier for startups to access markets and accelerate their growth. The faster and larger startups grow, the more startups will ultimately have to learn from corporates, especially when it comes to stable processes, for example in HR management and quality assurance.
In our work with established companies, we sometimes encounter some frustration and disappointment after initiatives or ventures with startups. Started with big plans, disillusionment sets in when topics don’t take off right away. On the other hand, we work with many startups that are completely frustrated with their interactions with corporates. What’s going on here?
We see challenges in five areas:
1) Target customers and communication: Many startups find it very difficult to select the right corporates as customers or for a partnership. And even if they have found them, they lack access to relevant decision-makers. They get a meeting quickly — but often with the wrong people. Then a perhaps good initiative gets bogged down somewhere in the organization. Corporates, meanwhile, often have a shockingly poor overview of the truly relevant startups in their sector. Both parties often do not make it clear in advance what exactly they expect from a collaboration and how they should measure success — the right KPIs are then lacking in order to also be able to evaluate the success of the initiatives.
2) Processes: While the startup suffers from the fact that decisions and development processes take a long time at the large partner and budgeting remains intransparent, it is often difficult for corporates when startups do not yet have clear process standards and can represent a real risk in the area of compliance and quality assurance — because trial and error no longer works well in a large production line, for example.
3) Value Assurance: If the leadership team in the large company lacks the will to lead the collaboration to a clearly defined success, then startups are in danger of sinking into an eternal and non-goal-oriented test usecase. For the corporate, of course, there is always the additional risk that a startup can only provide limited value assurance due to its still fragile situation — and there is always the risk that the startup with its solutions as a partner will quickly disappear from the market again.
4) Organization and talent: Startups often lack experience in sales, key account management and negotiation — which does not make it easier to interact. To that end, corporate often lacks dedicated departments and talent to deal with external innovation, which can lead to an unplanned and haphazard approach to external innovation.
5) Culture: In the end, a major challenge is the “Clash of Cultures”. While founders and employees of the startup like to work quickly and iteratively in their can-do mentality and also take risks in the process, in corporate you more often encounter employees and decision-makers who prefer a planned approach that primarily avoids risks. This can lead to misunderstandings and great frustration. One should also not underestimate the fear of change or loss of one’s own esteem, up to and including the loss of one’s job in corporate due to external innovation.
As is so often the case, dialogue is crucial. This is precisely where players who mediate centrally in the ecosystem between startups and corporates can help. These include incubators, accelerator programs, but also management consultancies such as McKinsey, which on the one hand have deep industry expertise and global relationships with key corporate decision-makers — and on the other have built their own networks into the startup world. At McKinsey, we’ve been cultivating this dialogue for years with our Fuel Ignition startup program. On the one hand, we help build networks between senior management and young innovators. On the other hand, we can offer independent perspectives, e.g. on problem-solving methods and markets, structure and moderate discussions — and thus create the basis for successful collaboration.