Three Reasons Why Corporate-Startup Partnerships Fail
Failing to pick a topic that matters, choosing the wrong partner, or lacking commitment at senior-leadership level are bound to derail your corporate-startup partnership.
Corporate-startup partnerships are, in theory, the perfect win-win. For corporates, partnering with startups can be a powerful new innovation lever. Great startups are category leaders that, if the fit is right, can bring technology significantly more advanced that what established suppliers have to offer. For startups, partnering with corporates can create a new source of revenue, provide access to deep domain expertise, add a widely recognized logo to their marketing collateral, and even establish a bridgehead into a new market.
Yet, corporate-startup partnerships are not easy to do well, and many fall short of expectations. Slow speed and bureaucratic processes on the side of the corporate are among the most frequently cited reasons for failure. At some point, startup teams decide to cut their losses, stop wasting time, and walk away. This said, the true cause for failure is often rooted one level deeper — failing to pick a topic that matters, choosing the wrong partner, or lacking commitment at senior-leadership level. Here is why:
- Failing to pick a topic that matters. The most common misconception the corporate world has about startup partnerships is that they are good for low-priority, nice-to-have projects only, and that any topic even remotely business-critical should be left to established suppliers. This mindset is bound to cause trouble. Low-priority projects will inevitably yield to more important projects, leading to a long time to get started, team members getting pulled in different directions, and insufficient leadership backing when the project hits its first obstacle. Doing something with startups just for the purpose of doing it might give corporates a temporary feeling of being progressive and innovative, but will quickly lead to disillusioning when resources get realigned with impact. Corporates should partner with startups to create impact, so pick a task that has people’s attention, ideally one that keeps executives up at night.
- Partnering with startups too early-stage. Most corporate leaders think of startup partnerships as high-risk across the board. This perspective is oversimplified. While it is true that working with a startup is generally riskier than working with an established supplier, the risk can be reduced materially by choosing mature-enough startups to work with. If you partner with a seed-stage startup, chances that this startup will neither exit nor make it to the next funding round are 38% according to CB Insights. If you partner with a series-A startup, the odds go down to 11%. Unfortunately, if you do not pay attention to maturity, you are about twice as likely to pick a seed-stage startup as you are to pick a series-A startup. In partnering with more mature startups, you limit your risk exposure, effectively letting venture capitalists and accelerators filter out the least risky startups on your behalf.
- Lacking senior-leadership commitment. Every startup partnership must be championed by a senior business leader for three reasons. First, the business leader is key to get the partnership started. She will be the one who owns the budget, she will have the clout to convince her peers and upper management that the startup partnership is the right thing to do, and she will have the authority to give the partnership the “go-ahead.” Second, the business leader is critical to help the partnership navigate corporate processes. Corporate processes are built not for working with startups, but for business as usual with established suppliers. So any startup partnership will, inevitably and often more than once, get stuck and require leadership intervention. Unless there is a senior business leader committed to the partnership, it is hard to keep the partnership afloat in these situations. Third, sponsorship by a senior business leader is essential before the project even starts: The best startups are likely to engage with a corporate about a partnership only if they see a commitment by a senior business leader, so securing this commitment early on will go a long way.
By picking a topic that is business-critical, corporates raise the upside of their startup partnerships. By choosing startup partners that are sufficiently mature, they mitigate the downside. By securing strong commitment at senior-leadership level, they provide the support the partnership needs to stay on track in the face of impediments. Corporates who heed these three pieces of advice will create greater impact partnering with startups. And the startups will thank them.