Goliath, meet David — or when corporates and startups cross paths.
This isn’t your usual David versus Goliath story exactly. It’s more: Goliath finds David’s ideas cool and sexy, and so they hook up and start working together. In fact, in recent years many established corporations have actively been looking for startups to buy. Tim Cook, for instance, has declared that Apple buys a company every three weeks on average. And Amazon is planning to spend USD 2.2 billion acquiring private companies this year, compared to USD 550 million in 2019. So, what are the main reasons behind such acquisitions, and are there alternative avenues that big business and startups can explore? Let’s take a look.
Keep up with the trends
Big, established corporations have an interest in staying informed about emerging trends. Why? Simply because they need to stay competitive in the market or risk losing their share. Yet, by their very nature, corporations are less agile and flexible when it comes to adapting to or adopting new technologies. Even the smallest internal decisions can take months and require many interminable meetings and multiple sign offs. So, you can imagine how long it would take to implement new technology. Many corporates are now recognising this and are taking measures to ensure they are not left stranded by the ebb and flow of the fast-moving tide of technology.
The obvious move is to buy a startup. This would mean having the technology and an operational team ready to “plug and play”. And there are many corporations that have decided to opt for this solution, like PwC Switzerland. The company recently acquired ChainSecurity, a market leader in smart contract and blockchain audit and a spin-off from ETH Zurich. Before it was purchased ChainSecurity was already establishing a name for itself in the market, with more than 75 collaborations underway with blockchain companies in America, Asia and Europe. Nevertheless, by joining PwC the advantages for the company are multiple. And the advantages for PwC are clear too since a company of its size would normally be slow to implement and adopt blockchain technology on its own. A good deal? Definitely, as PwC is now the world’s foremost provider of blockchain smart contract assurance.
But what happens if acquisition isn’t an option? Well, there are matchmaking platforms out there that connect startups to corporations for short- or long-term projects. An example is Plug and Play, which has twenty locations around the world and has connected hundreds of startups to big corporations like Microsoft, Oracle and Apple. And thanks to Plug and Play, Swiss insurance company Baloise has gained easier access to innovative startups outside the insurance world, “enabling Baloise to build promising relationships with non-insurance startups, learn from other sectors and target specific interest groups”, says Sibylle Fischer, Manager of Strategic Venturing & Startup Scouting at Baloise.
Also in Switzerland, Kickstart, which supports and follows the journey of many brilliant startups until they connect with big companies for a partnership, is meeting with a lot of success. The synergies created benefit both sides, as companies are slow to change but need to keep being competitive in the market, and young startups need all the help they can get from more established entities. It’s a win-win situation, unless…
Keep your friends close and your enemies closer
For every corporation that collaborates or acquires a startup to keep up with innovation, there’s one that aims to ultimately kill what they have got their hands on. It’s the cold, hard reality of business. It’s a reality and not just something you see on TV shows like Silicon Valley. There are cases like Wunderlist, acquired by Microsoft in 2015, and later cloned to create Microsoft “To Do”. The sad death of Wunderlist was announced earlier this year. The whole process shows how some corporations are looking to expand their products at the expense of small startups.
And it’s generally agreed that this kind of behaviour isn’t beneficial in the long run. A lack of healthy competition hinders innovation and creates monopolies that limit consumer choice. To understand better, let’s take the eyewear market as an example. Luxottica is the company behind the majority of glasses in circulation (prescription and sunglasses as well as insurance). It owns 80% of the major brands out there. Having a monopoly means the company is also a so-called price maker. Why should you care? Well, if you wear glasses you might like to know that the CHF 700 you pay for a pair of glasses reflects a massive markup on an item that probably cost a fraction of that to manufacture.
Get the dream team!
Of course, another reason why corporations acquire startups could be that they want to get access to a talented team. Every entrepreneur worth his salt knows how difficult it is to build a well-functioning team. It takes years and a lot of energy to combine different skills and personalities that work in harmony. Some companies may try to buy the best individual talent, but chances are that this will disrupt the equilibrium and they won’t be as efficient as before. The answer? Buy the company and get the whole team nicely gift wrapped.
These are just some of the reasons why corporations and startups find themselves in bed together. In an age where flexibility and speed are a must, startups are often the answer for big companies looking to stay competitive. At THE RELEVANCE HOUSE, we encourage these synergies, which can result in something greater than the sum of its parts. Such situations can help foster innovation. And they can create opportunities for both parties to work towards the same goal, rather than wasting valuable time and energy battling each other. And neither David or Goliath want that.
THE RELEVANCE HOUSE is a full-service marketing consulting agency for firms in the blockchain and emerging technology sector. We don’t operate like a regular agency. Think of us more as an outsourced marketing department. We become part of the team. We focus on helping technology start-ups and projects to build and communicate a relevant brand and story. Why? Because only relevance has impact.