Scaling Up Startups in Corporate Settings

This ‘opinion’ on the question “What can startups and incumbents learn from each other and what are the biggest threats?” was originally published at innoboard.de.

 

In recent years, an increasing intensity in collaboration between incumbent companies and startups has been observed. Meanwhile, close to 80% of corporations and startups have already been or are collaborating. The mutual – actually complementary – benefits seem pretty obvious:

Benefits for startups include

  • availability of office space, hardware, networks, support and potential funding
  • access to market and customer base for rapid scaling
  • leverage of corporate capabilities, brands, sales channels and resources
  • increasing likelihood of survival and success, given that corporate-backed startups tend to be more successful than startups under the umbrella of independent VC firms.

Benefits for corporations include

  • tapping into novel, occasionally disruptive, technologies or business models – most of which are not created inside the company walls
  • access to wider future growth opportunities and entrepreneurial talent
  • ‘outsourcing’ uncertainty, particularly in early phases of radical/disruptive innovation activities
  • ‘early pick’ option in case of startup takeoff.

 

How is startup engagement organized in corporate settings?

Drawing on a variety of vehicles and third-party support in order to leverage early-stage startup engagement, depending on the rationale for collaboration, corporations have recently been using mainly three of them (see chart below): corporate venturing (CVC), incubators and accelerators – an overview of operating Corporate Startup Programs in Germany can e.g. be found here (as per July, 2016). Those tools are often organized as independent units or activities within the corporation or are ideally embedded in a single unit dedicated to explorative innovation altogether along with internal ventures. The primary purpose for their employment is to help existing core businesses extend their growth options by serving defined search fields. However, startup engagement is also increasingly used for tapping into entirely new markets or technologies as well as spotting disruptive innovation opportunities.

 

What turns out to be the main challenge for startups in corporate settings?

It may already be ambitious to set up and align startup engagement vehicles properly, gain sustainable senior leadership support and overcome the most critical relational barriers to going about corporate-startup collaboration, such as difference in speeds (e.g. decision-making), lacking coordination and cultural mismatch. The primary challenge for increasing ‘return on exploration’ in corporate settings, however, appears to manifest somewhere else: along the Scaling-Up. As we have recently pointed out, corporations and startups are required to jointly manage a variety of areas and inherent tensions in the process of transitioning validated ventures into impactful businesses, such as:

  • Organizational scaling of the startup and finding a ’home’
  • Workforce development (entrepreneurial vs. corporate talent)
  • Business model / technology readiness and connection to core processes
  • Strategic and operational alignment with core business
  • Changing leadership and management style

This transition phase features very distinct characteristics due to its objective to bridge the – in most respects opposing – environments of startup and core business. In fact, upon collaborating with an incumbent, a startup’s game changes significantly. In contrast to an external startup, that ‘solely’ needs to win in the market, a scaling startup within a corporation has to succeed at the same time at a second front internally to become integrated as an upcoming growth business. Therefore, both face rather different contexts and can therefore be compared to each other only to a limited extent.

An essential prerequisite to prosper in this Scaling-Up phase is a mindset shift on the part of the corporate partner. Traditionally, corporations have been heavily focused on gaining equity of new ventures as well as maximizing their valuation and financial impact. This seems to have been changing recently in favor of taking a more strategic and business impact perspective. Selected collaboration types including degree of ownership by and integration in the incumbent are to be tailored according to the collaborative purpose at hand. A careful balance seems also backed by the finding that up to 90% of startups, acting on their own, fail – while the failure rate for M&A, at least when it comes to meeting expectations, seems just as high.

 

What is the major implication for startup engagement in corporate settings?          

Startup engagement is a vital part of modern corporate innovation management and digital transformation processes. While setting up adequate, protected yet aligned collaboration vehicles is necessary, it is not sufficient to driving radical and disruptive innovation in corporate settings. The complex Scaling-Up transition, seeking to translate startups into business impact, seems the hardest part for successful collaboration between incumbents and startups. Both are ultimately forced to jointly develop Scaling-Up capabilities in order to cope with the apparently biggest challenge in corporate innovation and build future growth businesses.

 

This connection between the front end of the innovation process and the back end […] is an area that really needs a lot of attention. – Henry Chesbrough on being asked where he sees the biggest innovation challenge for established corporations.

About Ralph-Christian Ohr

Experienced innovation management and corporate development professional. Consulting on organizational and personal capabilities for high innovation performance. Integrative thinker. T-shaped.

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