Until recently, corporate innovation was just a synonym for research and development. Large, century-old corporations would invest in finding incremental improvements to their products, generally assured in their dominance and market share. That’s no longer the case, as rapid technological improvements mean that even small competitors can go toe-to-toe with the big industry players.
When competitors don’t have high barriers to entry, incumbents must innovate to stay ahead. Luckily, innovation opportunities for large corporations have expanded rapidly: build, buy, partner, hire, co-develop, integrate… the list goes on.
At Forum Ventures, we’ve been working with large corporations for over six years and found that the best way to quickly enable enterprise-level innovation is through working with startups. In this post, we’re digging into the five steps necessary for a successful partnership with startups.
1 - Prepare the company to work with startups
Often, large corporations have entrenched ways of doing business and processes that might be hard to plug a startup partner into. While innovation leaders are ready to go and know how to partner, the rest of the business might not be ready for the change, causing a rift between innovation strategy and overall business strategy.
The challenge of connecting innovation activities to the rest of the business is something we’ve seen with our clients, and we’re not alone. According to PwC’s Innovation Benchmark Survey, 54% of companies struggle to bridge the gap between innovation and business strategy.
Here are two steps to follow as you prepare your company to partner with startups:
1 - Connect with incubators and accelerators
A big part of preparing your company to work with startups is understanding how incubators and accelerators educate their founders on enterprise relationships, and vice versa. Since incubators and accelerators may see thousands of startups in a given year, you can learn how they are taught to approach enterprises, as well as share how your company traditionally partners with outside companies. As an added bonus: when you connect with incubators and accelerators, you get more plugged into the startup ecosystem, which helps the whole process of finding and vetting partners.
2 - Prep internal leaders with action-steps and expected value
As an innovation leader, you are tasked with helping the company create something new. However, current profit and loss (P&L) holders are tasked with increasing profitability. Knowing that, explain how startup partnerships will benefit key stakeholders and their respective P&Ls. From there, explain what role each P&L holder will need to play, sharing specific action items and the expected benefits they will receive.
This step will help you create what entrepreneur Steve Blank calls “an end-to-end process to deliver products and services… [that makes] innovation an integral part of the organization.”
With an end-to-end process, you can also plan for quick wins or milestones along the way to keep everyone engaged, happy, and focused on long-term goals.
2 - Know what success looks like
While innovation in large corporations is about creating something new, you need to understand what the “new” thing is for your organization and what it’s supposed to accomplish. This is especially important when working with external partners and startups, since you can’t rely on company inertia or internal values to push the project along.
As you define success, think about it in three ways:
- What new thing is being created for the organization? This could be a process, technology implementation, capability, or just solving a problem in a new way.
- What anticipated benefit is the new thing bringing? This could be efficiency, cost savings, revenue production, or something else.
- Why does the company care about the anticipated benefit? This is usually tied to overall company values and the direct pain points of P&L holders and other executives.
Once you define success, it becomes easier to plan a proof of concept (POC) that you can guide both the startup and your organization through.
According to Sapphire Venture’s CIO Innovation Index, “POCs are now a standard part of startup evaluation at large enterprises. However, CIOs stated that less than a third of their POCs convert into productive implementations and purchase of the startup’s technology.”
Avoid the low-conversion trap by knowing your KPIs in advance and sharing them with potential partners. Since POCs are a small, controlled environment, you are more likely to have a higher success rate if everyone knows what’s being measured and has clear lines of communication.
3 - Build a rubric
After identifying success for the project or POC, you need to know what an ideal partner looks like and how they will help you in the process. Instead of a spray-and-pray approach where you meet with every cool startup that comes across your desk, define specific problem and opportunity statements.
In an article for Harvard Business Review, InnoCentive CEO Dwayne Spradlin said that, “when developing new products, processes, or even businesses, most companies aren’t sufficiently rigorous in defining the problems they’re attempting to solve and articulating why those issues are important. Without that rigor, organizations miss opportunities, waste resources, and end up pursuing innovation initiatives that aren’t aligned with their strategies.”
Taking Spradlin’s concept of rigor and applying it to startup partnerships, make sure you’re building a rubric that:
- Ties all problem statements to current and upcoming problems faced by key P&L holders.
- Vets startups for values alignment.
- Ensures the startup’s technical capability matches the problems you’re trying to solve.
Another way to think about this is through McKinsey and Company’s Innovation Ambition matrix, which emphasizes what types of innovation should take place in an organization:
- Horizon 1: Defend/Extend the core.
- Horizon 2: Build emerging business/opportunities.
- Horizon 3: Create viable future options.
As you plan your innovation partnerships strategy, consider where each partner fits on the three-horizon line. At the start, the vast majority of partnerships will be Horizon 1. However, as you go through your partnerships keep an eye out for Horizon 2 and 3 potential.
4 - Optimize for speed
Most enterprise processes operate slowly with a focus on security and integration. Most startups can’t afford to wait months for a partnership. Bridge this gap by optimizing your processes for speed whenever you can.
In particular, think about:
- Anything that will help you quickly identify the wrong partners so you can give them a fast “no.”
- Walk through every step in the partnership process - IT review, procurement, compliance, etc. - and see how you can remove duplicative work or speed up the process for startups.
- See which elements of your process don’t apply to startups and either remove or re-scope it. For example, if your partnership process does a team due diligence check, make sure it’s scoped for 5-50 employees, not 500-1,000.
- Clearly outline decision factors and evaluation criteria (via your rubric and problem statements) and make them available for all potential partners. This way startups can self-select out if they are an obvious bad fit.
5 - Experiments, measurements, and iteration
Once you start working with startups, it’s essential to move out of the traditional business process and instead design short experiments to test quickly and understand impact.
This is also something many corporate executives are realizing, in particular Mark Okerstrom, CEO of Expedia Group, who said “in an increasingly digital world, if you don’t do large-scale experimentation, in the long term - and in many industries the short term - you're dead.”
Here’s what you can do:
- Plan for multiple smaller experiments instead of fewer large experiments.
- Ensure you keep target outcomes clearly stated and available to your startup partners.
- Keep a running tally of experiment hypotheses and outcomes tracked to your overall innovation strategy to note when new opportunities arise.
While challenging at first, startup collaboration is one of the most cost effective - and one of the quickest - ways to innovate. It’s a process that requires some pre-work to be successful, but the work you spend preparing for a startup partnership is nothing when you consider the time and money saved compared to building the capabilities in-house.
To find out more about partnering with startups to fast track innovation, check out our enterprise innovation playbook Stories from the Trenches: Sustainable Innovation in the Corporate World.
Time and again, we’ve seen partnerships succeed with our clients at Forum Ventures. Need help accelerating your company's innovation initiatives or working with startups? Reach out to Olivia@forumvc.com