Teaming up with giants is like building a rocket
A startup guide to initiating a successful collaboration with a corporation
Startup-corporate collaboration is not a new phenomenon. Many corporations are now looking at startups to bring innovations into their rusty organizations. Likewise, teaming up with one of the big guys in the industry can help entrepreneurs to build advanced managerial capabilities and secure first revenues early on to decrease the dependence on external financing — to name a just few benefits.
Initiating a Startup-Corporate Collaboration is Like Building a Rocket
Similar to building a rocket and launching it into space, forming such collaborations is high-risk high-reward business. The smallest failure on the ground can result in the rocket exploding after launch. Large corporations and startups are very different in their level of bureaucracy, strategic planning, flexibility and many other areas. Thus, chances are high that any attempt to initiate a collaboration will yield more frustration than actual value. In the worst case, a collaboration failure could even kill your startup. So how can startups make collaboration with large corporations work?
Writing our master thesis at Copenhagen Business School, we have interviewed founders from five tech-startups, which collaborated with large corporations during their early-stage product development. Based on their experiences and (sometimes painful) learnings, we have created an Initiation Model to help entrepreneurs decrease the chance of collaboration failure by gradually reducing uncertainty in the initiation phase.
The 5 Building Blocks of Initiating a Corporate Partnership
From our research, we have identified five steps that founders should go through when they come across a potential corporate partner, to navigate the main cliffs and hurdles:
- Locate the Corporate Champion
“So when I started, I assumed that the problem-solution fit is all we really need, but the truth is, you need a lot more. You need a mascot in upper management or preferably on the C-level, who is going to politically incline the other members of the board on the C-level to try the new technology, and to sort of coerce people to use that technology.”
- founder of AI software startup
It’s a fact. Corporations are bureaucratic — startups can easily get lost and find their collaboration project stuck between departments or in internal political fights. A corporate champion takes responsibility for your project, helps you navigate the corporate landscape, and protects your case against the naysayers.
2. Excite the Corporate Decision Makers
“That’s also the problem for big companies that are very process oriented. You can’t start a project before you have a business case.”
- founder of enterprise SaaS startup
You have to create a compelling value proposition for the corporation. Why should they collaborate with you? What’s in it for the individuals who will get involved? Corporations like numbers, so have a business case ready when they scream “Show me the money!”. At an early stage, do the best you can to quantify the problem you are tackling and show scenarios of how your solution can create value.
3. Validate the Fit by Creating a Collaboration Minimum Viable Product (MVP)
Buying processes in corporations typically take 3–12 month. Is it worth the effort? Many startups are inspired by the principles of Lean Startup or Getting to Plan B. Use the same line of thoughts to test whether this collaboration will maximize value for your startup. If decision maker are excited, make them agree to a short, informal project to test cultural and strategic fit. The MVP should last no more than 2 months and you should focus on the following 3 things:
- Make the corporation spend TIME, MONEY and KNOWLEDGE to probe if they are committed to invest in you
- Find other corporate champions to minimize the dependency on a single person within the corporation — entrepreneurial people are unlikely to stay around forever
- Involve the corporation in your iterations to make them understand startup methodology
4. Decide whether you want to continue or not
“It was our mistake — you should never build a product for a customer in particular. You should build a product for a market or a problem space, not a customer. So in retrospect, this was really dumb, but we let a middle manager dictate our initial product direction.”
- founder of AI software startup
It is important to believe in your startup’s vision and to stand up for the innovation you are creating. Too many startups get overwhelmed by the fact that a large corporation with a big brand wants to collaborate, and enter the collaboration blindly without considering if it really supports their strategy. While it is not a bad idea to explore opportunities broadly, it is absolutely crucial to separate the must do’s from the nice to do’s before dedicating a lot of resources. Therefore, carefully evaluate the chances that the collaboration will boost rather than distract your startup.
5. Formalize the collaboration by specifying clear goals and expectations
“It would have decreased the implementation time, the effectiveness on the collaboration by setting up a more formalized collaboration. Instead of just having this dialogue where everyone didn’t 100% know what was going on and what is actually the goal with our collaboration.”
- Founder of IoT startup
If you decide to move on, then do it right. Align and protect your interests to avoid any misunderstanding. Set up weekly meetings and make the decisions on iterations together. Agree on the difference between fixed and flexible goals — you have to keep your agility as a startup even though you are working with a corporation. Ask: What are the basic features that you can agree on? What shall be figured out on the go? And be clear what project scope is covered by the price specified in the contract. If they want you to build custom stuff they should pay extra!
Collaboration is an Art that You Can Master
There are still a lot of unknowns and each case will require a thorough evaluation of the contextual variables that may inhibit the possibility to turn collaboration into a success story for your startup.
But there are many simple mistakes that first-timers can avoid. Using the Initiation Model that captures the good practices and learnings of other founders can enable you to start one step further up the ladder.
To dive deeper into these experiences download the full 2-page model here. It includes a thorough guide of the 5 steps and a B-side explaining the challenges we have seen in our research.
Download the full model here for free as a PDF
If you have any thoughts, comments, or experience from a previous collaboration please share it as a comment or by sending it to us directly at lasse.k.poulsen@gmail.com