Startup 101: How to deal with corporates
As a director of various businesses for nearly 30 years, including as Group Executive for Innovation Strategy at MTN leading the company’s approach to partnering with digital businesses, Herman Singh knows a bit about what a corporate needs and how startups should respond. We asked him what his ten tips are for startups who want to build successful and mutually beneficial relationships with corporates.
“It’s a trial by fire,” says Singh, as a starting point. “In short, a startup’s power lies in three tests: proof of product, proof of market and proof of scale.” But even if a startup passes those tests with flying colours, there are some other important considerations.
1. Be the middleman
Most startups quickly figure out that doing business directly with consumers is too hard. “Trying to get traction in a huge market, with the right product, at the right scale, and the right proportion of market adoption, is very difficult,” says Singh. A startup would have more success providing solutions to corporates, repositioning itself from a business-to-consumer (B2C) angle to a business-to-business-to-consumer (B2B2C) provider.
2. Be clear about your ask
Singh describes a perfect world in which the corporation becomes the startup’s anchor client to help the startup grow. “That’s the nirvana,” he says. But that scenario is rare. In the real world, the startup needs to know who it is and what it is looking for from the corporate. Does it need early-stage incubation? Is it looking for funding? Does it need access to markets or technology? Without that knowledge, the startup could relinquish control over its own destiny, explains Singh: “If a startup doesn’t know what it wants it could end up giving away equity, board positions and money.”
3. Decide which platform is best
One corporate may offer an incubator, which helps to build the startup from scratch. Another could offer an accelerator, or an investment in the startup’s technology. Whatever the need, it’s crucial to do in-depth research into the corporate’s experience in that area. This includes analysing the corporate’s track record in providing platform support in, for example, an incubator; assessing the incubation model; and investigating the corporate’s approach to intellectual property protection. Misaligned expectations can break relationships
4. Build an agnostic product
Many corporates allow external companies to gain access to its application programme interface (API), offering startups access to that corporate’s customer data. In these cases, the startup should design its business rules to suit individual corporate clients, but it should design its products to be used elsewhere. If a proof of concept works with one corporate, the startup should ensure that same product can be used by other corporates in other sectors: the product should be able to plug into a business anywhere.
5. Pick your corporate carefully.
The startup should ensure that the corporate’s values match its own. The startup may find out the hard way that the corporate has ulterior or contradictory motives. Recent media headlines of battles between corporates and small businesses and individuals press home this point. A startup should investigate what others have experienced, and what its network has heard or seen in their dealings with the same corporate.
6. What’s in it for them?
A startup should always understand what the strategic end game is for the corporate. The corporate should demonstrate that it knows, and cares about, what’s at stake for both parties. Singh describes the sweet spot where the relationship between corporate and startup is strategically important for both, and not only operationally expedient.
7. Know thy customer: (hint: it’s the one who pays the invoice)
Singh warns startups against joining a corporate’s corporate social responsibility (CSR) programme. Singh suggests that a CSR programme is unlikely to be the expression of the corporate’s strategic intention or business incentive to support the sustainable growth and development of the business. He explains: “Many startups are what I call grantrepreneurs, fundraising through grants and competitions because they’re serving a market that can’t afford to buy its products.” If the government is paying, the government is the customer — not the end user.
8. Start small, think big
Once the startup has selected a corporate to work with, it’s important to know what victory should look like. The small-scale proof of concept should lead on to bigger and better things, which are made possible when the corporate and startup work together to achieve that victory.
9. When you start to scale, you enter a new phase
As the startup grows and begins to scale, with multiple clients and with greater strategic importance to its industry, it becomes more valuable, not only to the founders, but also to the corporate. It becomes a more mature business. The corporate sees the startup’s clear path to profit and exponential growth — not only year on year, but week by week. The optimum conditions at this point is rapid growth rate and minimum cash flow. It’s at that point when the corporate will seek to join the board and to become more equal partners.
10. Make it easy to exit
There may be times when the relationship breaks down and the startup needs to re-evaluate, and possibly to extract itself from the relationship. This is a frequent scenario, most often driven by a misalignment in values and expectation. This is why Singh warns against giving away equity as part of the deal with the corporate, simply because, as he says: “It’s easier to exit a contractual relationship than an equity relationship.”