Is this the startup you’re looking for?

Corporates and Startups. They should be a match made in heaven, right?

Startups have what corporates want — breakthrough products and technology, inspirational entrepreneurs and faster ways of working.

Corporates have what startups want — well-known brands, heaps of customers, wide-ranging experience, great contacts and, from the startup’s perspective, “loadsamoney”.

But the tricky question is ‘Which startups are right for which business?’.

The startup community is HUGE and growing every day. So where do you even begin to uncover startups who:

a) Would be a good strategic fit with your business,

b) Will value working with you, and

c) Are actually any good?

Well, here are a few questions you should be asking yourself before you commit to dating a startup.

1. Why should a startup want to work with you?

There are thousands of accelerators, incubators and investors competing to work with the best startups, so it’s critical to figure out what you have that is unique.

Equally as important is why you want to work with startups — to quote Simon Sinek (cringe), people don’t buy WHAT you do, they buy WHY you do it.

So, there are two key questions that need answering before you should start searching:

1. What unique qualities do you have that startups could find attractive?
2. Why do you want to work with startups, and what do you hope to achieve?

When creating startup labs, we work with businesses to define their purpose and objectives, and what we like to call their ‘menu of services’ to identify what we believe will be of most value.

It’s important to note here that having loadsamoney is not a unique quality (European startups raised $18 billion in 2017, up from $14 billion in 2016). Yes, startups are always on the hunt for investment, but be wary of those that are only after you for cash. Giving up equity is the most important decision a startup has to make, and the smartest will be looking for investors who can add the most value to their business alongside investment.

2. What problem are you trying to solve?

It’s easy to get excited about bringing in a range of startups from different sectors. But focus is your friend here. Without a clear articulation of a problem you’re trying to solve, chances are you won’t achieve anything. Instead you’ll find yourself trying a whole load of cool new things that your business doesn’t want or isn’t quite ready for.

A short and simple problem statement written from the point of view of the customer as well as the business will enable you to target relevant startups that your business can get excited about.

When we ran the latest round of the News UK Startup Lab, this is how the Managing Director of The Sun articulated the challenge on the Startup Lab website:

“We’ve rewarded over half a million people through our Sun Savers programme — but we know we can do more. We want to help our readers’ money go further, helping them save and spend their money on the things they want most. We’re keen to talk to businesses who really understand our customers’ motivations, delivering value in the easiest, frictionless way possible.”

It’s important not to come up with the answer here (e.g. I want to work with a savings app or I like tall brunettes), but to be open to a number of potential matches that might surprise you…

3. What are the unexpected sectors or businesses that could help solve your problem?

Once you’ve decided on the challenge, it’s time to map out the experience, product, service or process concerned. This helps you to identify a variety of problems and obstacles that startups might be able to help with.

Here’s one of the early drafts Nic Gray from Fluxx created when mapping the needs and hassles of saving and spending money (and a sneaky peek into what Part 2 of ‘Is this the startup you’re looking for?’ will be delving deeper into).

By doing this simple exercise you can open your mind beyond the obvious (e.g. just ‘fintech’ startups for saving money) and widen the number of potential matches available to you.

4. What stage is the startup (really) at?

If the startup says they have a live product or prototype, TRY IT OUT. I know this sounds obvious, but it is so often assumed.

It’s easy to make shiny powerpoint decks showcasing a working app on an iPhone. But what we find is you need to be careful in checking the tense a startup is using i.e. have they ‘built’ or are they ‘building’, or even ‘planning to build’ that feature or service?

Of course, when trying out the product you need to be looking through the lens of what it ‘could be’, rather than what it is now.

As Ed Ralph, CEO of startup Laundrapp says,

“If you’re not embarrassed by the first version of your product, you’re not moving fast enough”.

So try to be kind, but be clear on what functionality they claim to already have is actually working, and working well.

Of course this isn’t always as simple as downloading an app, especially in B2B businesses, however there is usually a creative way of uncovering these things, such as posing as a new customer, contacting existing users or attending events run by the startup.

5. How much of the tech do they own?

A critical thing for any product is understanding how much they have built themselves and they own, and how much they outsource, or licence.

We’ve met credible founders who definitely have the product build know-how, but for some reason have out-sourced the user experience aspects to an agency. This raises a number of red flags for us. To start with, it inhibits their ability to iterate, because they will have to pay an agency every time they want to make a change to the user journey— something they should be doing weekly, daily or even hourly. Secondly, it tells us they’re not investing or prioritising this element of their product — and as any designer will tell you, the user experience IS the product.

You want your startups to be customer obsessed, and to preferably own as much of their technology as possible — especially the front-end if it’s a consumer-facing product. These products live and die by their user experience, and the simplest and easiest apps will win over the most sophisticated product features.

This is also important from a back-end perspective. We’ve met startups with incredible branding and user experience, but their back-end was delivered by an established bank. Now, this IS a good option to get up and running quickly and gain valuable learnings and evidence that your product has traction. However, this startup was paying a hefty fee to the bank for a simple current account mechanism, they were tied in for a number of years, and most worryingly they didn’t have a strategy in place to move away from this expensive set-up.

At Fluxx, we’re all for moving fast and faking it as much as possible, but once you’ve validated your product in the market, it’s time to grow up and prove the economics are scalable and sustainable.

6. Can you work together?

We’ve seen hundreds of pitch decks, and although they are useful to succinctly explain the proposition and highlight key data points, they are no substitute for getting to know the founders.

There are a number of criteria startups need to meet before we introduce them to our clients, but once these are met and we feel they pass the ‘not a psychopath test’ (yes, we’ve met plenty of those), then we get them into the business quick-sharp.

Why? Well, in all honesty, matchmaking large businesses with startups can be more of an art than a science (although our goal is to make it as scientific as possible) and it’s critical to test out the partnership before committing to a long-term relationship or investment.

To figure out how to test the partnership, we like to run what we call ‘Discovery Days’ with our favourite startups. These usually last about 3–4 hours, where we ask both parties (the startup and the business) to talk about their respective strengths and challenges, and what ideas they have about working together. By the end of the session we have them working as a single team to prioritise the opportunities and risks we need to validate to see if there is value in a partnership.

The output from these workshops are co-designed experiments that we’ll run together in a time-boxed period (e.g. in a lab environment, residency or another method — more about these in my next post). But equally as important is we define up front what both both parties want from the relationship, what the key measures of success are and, vitally, can the two businesses work well together.

Your checklist for approaching startups:

• Define what unique, attractive qualities you have (beyond money) and be clear on why you want to work with startups
• Create a clear, focused problem statement that you can easily communicate to startups
• Map out the domain or customer experience in which your problem statement exists to help identify unexpected sectors and businesses
• Try out the product/service for yourself
• Find out how much of the tech they own themselves
• Get to know the founders as soon as possible and define what you both want from the relationship
• Ask Fluxx to help you accelerate all of this because we’ve learned a lot about how to give yourself the best chance of success and create great outcomes for startups too 😉

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Charlotte is a consultant at Fluxx who loves helping startups and big businesses build beautiful relationships. If you’re dallying with the idea of working with startups and want some help, or have any questions drop her a line at charlotte.schofield@fluxx.uk.com.