Working with Major Corporations
This blog is a translation of Plug and Play Japan’s Executive Advisor Zak Murase’s blog「Startup School #1 | 事業会社との付き合い方」published on March 8th, 2021. Check out the original here (JP).
There are many necessary factors for startups to grow with one of the most important and essential being customer acquisition. For B2B businesses, in particular, working with major corporations can not only result in significant sales but can also build credibility and awareness. Increasingly, many major corporations are actively seeking opportunities with startups. Some startups even find themselves inundated by the amount of inquiries and interest.
Even then, It’s still rare to see a successful partnership between the two. I’ve seen countless attempts at collaboration across a wide variety of industries and at various stages — but most of them fail due to differences in expectations. It is important to set clear expectations on both ends from the start to envision and realize the partnership.
In this article, I will be sharing some points that startups should consider to build a win-win relationship with corporations and ultimately grow their business.
Know yourself
For startups, having the right level of self-awareness is critical for survival and subsequent growth. Clearly acknowledging what position your company is in and considering the best ways to engage with the corporation are the first steps toward success. Having a false sense of self-awareness and getting distracted by the name value of the partnership could be fatal for the startup.
・Business Stage
The purpose of the partnership and its structure could depend on what stage your business is at. You could ask questions such as; Is the product still in the MVP*1 stage? Has PMF*2 been achieved? Is it in the stage where we want to increase the number of channels for accelerated growth?
Judging whether PMF has been achieved or not is difficult. However, It’s important to gauge your current situation and communicate in order to set the right expectation for the partnership. If PMF is not yet achieved, in some cases, your current product may go in a completely different direction. So it’s important to keep in mind that you should avoid getting into a project that would require you to have a long-term commitment with a certain product.
On the other hand, it does not mean that you should not work with major corporations if you haven’t yet achieved PMF. If the corporates are ready to have conversations, they should be interested in your business to some extent, Corporations reach out because they are interested. In these initial interactions, it is important to be open, and share your current status, ask for feedback in order to achieve PMF down the line.
・Working Capital and Human Resources
As a business owner, you are always aware of how many months worth of capital you have left, but the amount of time it takes for the next round of fundraising is often misjudged. Financing time is generally inversely proportional to the competitiveness of the business. If your startup has a very competitive business and is growing fast, it won’t take long to raise money. But there are only a handful of such startups. If you are a startup that is considering procuring Series A, you should allow about 3 months.
During these 3 months, CEOs will be spending a considerable amount of time with fundraising. CEOs must deal with a variety of matters, such as interviews with investors, follow-ups, due diligence, and investment contract negotiations, making it difficult to focus on product development and business. Before you even start the partnership with a major corporation, it’s important to be frank about the company’s fundraising period. You can set the right expectations for the project by communicating the timeline and the likelihood that the CEO will be tied up during this period.
It is important to pay attention to how much human resources such as engineers can be allocated to projects with the corporation. If you have a project that requires engineering resources, such as co-development, you should be careful and conservative in estimating the resources that will be required. The larger the partner company is, the better it is to foresee that transactions might take a long period of time. It is also important to control the expected value of what and how much you can promise to your partner after carefully examining how much it will affect other projects that are being developed in the same timeline.
Get to Know Your Partner
It is not easy to fully grasp what a major corporation is looking to gain by the partnership. The story changes depending on the department and the position of the person who reached out to you, or the person you are connected to through directly approaching or being introduced to.
Let’s look at 3 main cases.
- New Business Development / Innovation Promotion Division
The exact names of departments vary from company to company, but the purpose of these departments is to seek new ideas from startups that are not in-house and to incorporate them into their existing businesses. In this case, the person in charge does not have the authority to do business within the division, so the thoughts of this person often do not match the division’s where the business is actually conducted. These challenges almost certainly occur in companies that are engaged in innovation activities, so if the person in charge is well-experienced, he/she would communicate closely with the division and bring you together. On the other hand, if the person in charge is not capable of communicating and coordinating well here, things will not move forward so easily. Search and hear out regarding the connection with he/she and the division in as much detail as possible, and decide if it is worth spending your resources on it. - Business Division
If someone from a business unit approaches you, it’s easy to proceed as it’s almost certain that the division basically has a need for the product you offer. What you should confirm in advance here is whether the division has worked with startups before.
Large entities and startups operate differently. From the form of the organization to the process, large companies basically eliminate risks as much as possible in advancing existing businesses and seek predictable results, which naturally slows down the speed of decision making and communication tends to be rather formal. If you are working with an experienced division, you may not be so surprised while working together, but otherwise, I’ve seen many cases where discussions won’t go as far and have difficulty in reading each other’s minds. If you want to work with such a division, you need to be prepared. - Investment Department
Today, more companies are either establishing CVCs and actively investing in startups, or investing in the form of direct investment without a CVC department. In most cases, investments by major corporations are mostly based on expectations in business synergies with startups, but some are based on future possibilities or purely for capital gains, even if there is not much to expect immediately.
First of all, you should have a clear understanding of the intent in their investment. On top of that, consider what you can do with the business division in the short term, what can be expected, and the advantages and disadvantages of receiving investment in the medium to long term. If you can create a good framework here, they will become a reliable partner in growing your business that commits as a member of the shareholders.
Final tips — I advise startups to have the courage to say “No.” I get that you’ll probably want to jump in when you get approached by a major corporation. Getting customers is never easy, and it’s common to get no response when you’re trying to sell. But think twice, time is the most valuable resource for startups. For large companies, successful collaboration with startups is not a matter of life and death. The seriousness of sharing time is incomparable to that of startups.
Some say that you shouldn’t turn down opportunities just because you do not know if it will work or not, but this is a theory for large companies if anything. For startups fighting to live or die, it’s a good idea to politely decline if there are any signs that you’re wasting your time before you even start talking. How should you spend this precious time now for your company’s growth? Being prepared to make the best decision after knowing yourself and the other person is one of the keys to successful collaborations.
*1 MVP Minimum Viable Product = prototype that incorporates minimum necessary functions
*2 PMF Product Market Fit = the value provided by the product that matches the market needs
