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3 questions to smart minds

Corporates and startups need each other

For this 3 questions to Max Flötotto

McKin­sey & Company, Inc.
Photo: Max Flötotto
11. June 2019

Like a refrain, the colla­bo­ra­tion between star­tups and corpo­ra­tes is repeatedly propa­ga­ted in the scene. There are many ways to get invol­ved in the start-up scene — through coope­ra­ti­ons with young compa­nies, invest­ments in start-ups, a dedi­ca­ted acce­le­ra­tor program, a sepa­rate venture capi­tal unit or by inves­ting in exis­ting fund­ers. Often, howe­ver, the best stra­tegy is no good if the company is not a reli­able part­ner with a long-term strategy. 


For this 3 ques­ti­ons to Max Flötotto, Part­ner at McKin­sey & Company, Inc.

1. Why do star­tups and corpo­ra­tes 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.

2. What are the key chal­len­ges between corpo­ra­tes and startups?

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.

3. How to solve these chal­len­ges? What does it take for the two play­ers to find each other?

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.

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