15 pitfalls for startup <> corporation collaboration

More and more corporations are drawn to the startup world. Along side internal innovation, internal acceleration program, training programs and M&A, corporations see startup partnerships as a good source for innovation.

Be it visits to startup hubs (e.g.: Israel, Berlin, SF etc.), setting up startup scouting units or investing in startup accelerators — the goal is the same: become more innovative.

But a collaboration between a company with more than 50,000 employees and a company made up of 3 people working remotely can easily go wrong.

The list of these 15 pitfalls started after being involved with some multi-corporate backed accelerators, but it was crystallized after conversation I had with Joe Scarboro about his company Touchpaper.

[1] contact with one representatives from the corporation’s side

For the startup: in case you are in contact with just one person from the corporation and this person changes jobs or leaves the company the collaboration is in jeopardy. At the very best, the collaboration might still happen, but you are going to spend countless hours figuring out who the new person in-charge of deal is. This will impact your ‘runway’. This risk is greater at the beginning of the collaboration before any agreement is signed.

For the corporation: same thing goes for the corporations — if the initial person in-charge of the collaboration leaves, she’s taking the progress with her, unless there’s two people working on the deal from the beginning.

[2] contact with one department

This one is similar to the previous point. But also be aware that getting in contact with multiple departments early on can slow the collaboration down.

[3] unclear readiness of technology

This one refers mainly to the degree of maturity a certain technology needs to have in order for a corporation to request a pilot. It often happens that startups want to collaborate with corporations when their technology only works on paper — this is disaster waiting to happen.

The corporations need to be clear on how mature they expect the technology to be before signing the collaboration papers. And the startups need to be transparent in transmitting their technology readiness to the corporation.

[4] unclear level of validation

The corporation need to be very clear when it comes to their appetite for risk. A collaboration with an early stage startup differs from the one with a more advance one.

Startups need to be transparent when it comes to their business’ knowledge-to-assumption ratio. The level of validation in a business model can impact the type of collaboration. A more mature startup can aim for a purchase order while an early stage will be better off with a free trial.

[5] lack of a clear mandate

This one refers mainly to the corporation. The corporation needs to have a clear innovation and investment thesis before kicking off a collaboration with a startup. The thesis will provide the frame in which the startups needs to fit. For example: should the startups, the corporation seeks to collaborate with provide services adjacent to the corporation’s core offering or something transformational?

[6] lack of clear reason to collaborate

Too many times the corporations want to collaborate with startups without a clear reason, other than the fact that the startup’s technology is cool or trending (e.g.: drones, bitcoin, VR etc.). Without a clear reason for the collaboration the chances of it succeeding are quite slim.

[7] lack of clear type of collaboration (payed trial vs. free trail vs. purchase order)

It is not rare that some collaborations start without a clearly defined type set. The disappointment will be greater later on if the type of collaboration is not discussed and agreed upon from the get go. A payed trial is different from purchase order and both parties need to be on same page when it comes to the type of collaboration.

[8] lack of clear scope of collaboration

There’s a big difference between: the corporation expecting new customer insight from a startup and, the corporation expecting the startup to become segment leader in 18 months. The scope of the collaboration needs to be clearly defined from the beginning, as this will dictate the strategy moving forward.

[9] unclear communication channels and procedures

Is the corporation expecting only written communication or a simple phone call will be enough to get things moving? This is just one question both parties need to answer before they jump on collaboration train.

[10] lack of a standard operating procedure (s.o.p.) for problems

Problems will come up. It is in everyone’s best interest to have a clear procedure when problems appear. A collaboration with a corporation is complex — so a clear procedure when problems appear will prove useful.

[11] unclear technology integration criteria

It’s better to have a technical conversation early in the collaboration. This will give both parties a sense for how complex the collaboration is going to be from a technical perspective. Manuals and phone calls between technical leads help.

[12] unclear legal constrains (e.g.: data privacy)

If the collaboration happens in a highly regulated environment (e.g.: healthcare), both parties need to be clear from the get go on the legal constrains they are facing.

[13] unclear procurement and payment s.o.p. (on corporation side)

Cash flow is a constant issue for smaller companies. Before jumping in the collaboration, the startups need to have a clear picture of when should they expect to be payed. This will help in planning next steps.

[14] unclear decisions making process s.o.p. (on corporation side)

Similar to the problem solving s.o.p., there needs to be a clear decision making process communicated at the beginning to of the partnership. The partners need to know what to expect in terms of time — how long does a decision take, who has the last word etc.

For example, in automotive the decision making varies from company to company. There are OEMs where the final word on integrating a new piece of software in the infotainment system is taken by the product owner. And, at the same time, there are OEMs where the similar decision is take by a VP.

[15] unclear access to branding, customer base and channels

This has to do with expectations management. From the beginning, the partners need to be clear about access to branding, access to customer base and access to distribution/marketing channels.

Did I miss any other pitfall?

Partnering between two different size companies will never be easy, regardless of how much they need each other. The first step in prevention is being aware of how things might go wrong. The next step is for corporation to offer an collaboration API (same can be said about multi-coproate accelerators).