Corporates need to stop being afraid of working with startups. Really.

A lingering question in almost every corner among giant tech companies is “How can we work startups?”

Obviously in this day and age, one would answer positively that corporates wouldn’t survive without startups. But that would never have been the answer a couple of years ago; the go-to way was to acquire to protect market share.

Given the rise of disruptive technologies in so many spaces (Financial Services, IoT, Insurance, Health, etc.) -along with their respective blend words- corporates are finding it valuable to figure out how to leverage what startups have accomplished through mutually beneficial partnerships. We are witnessing a slow shift towards to what I call “the third form innovation” (the first two being organic and inorganic); corporate-startup partnerships.

Forging meaning partnership attains a win-win scenario for both parties, as Giuseppe Zocco, co–founder and partner at Index Ventures describes on Nesta’s publication of ‘Guide to Successful Corporate-Startup Collaborations’.

According to Zocco, companies can achieve such a success in a number of ways. First, as a customer, by buying in the solution that the startup offers and leverage those new technologies to improve internal efficiency and service level to their own customers. Second, they can establish a ‘channel partnership’ by providing a joint solution to their customers. Alternatively, a large firm can build a long–term relationship, by either becoming an investor in one or more startups, or even by acquiring them.

Collaboration Framework
Collaboration framework, indicating how common types of startup programmes tend to deliver against key objectives to work with startups. Darkness of the field indicates stronger suitability to satisfy key objectives – Nesta (2014)

Another way to look at it is how a small and nimble startup would be able to detect and unlock new demand. Proof of concept to scalability might be an issue at this point, but the skills necessary for creating (something new) is not the same as scaling. In my experience developing startups, around 60% of them are very clear on their target sector and exactly know what their customer want.

As I work with both startups and corporates, another stark feature that only compels me to write more on this topic, is how big companies are so used to launching products that they can make, rather than built something that people actually want.  “INCREASE SCALE” is the name of their game.

But imagine if you have a proof of concept that suits well within your manufacturing, procurement and distribution channels? This is attained by constructively (and systematically) having a process on partnering with the abundance of talent out there available within startups actively working in your industry.

Corporate executives must tap into the explosion of growth in innovation from smaller companies, instead of only thinking about acquiring them. The old mindset of waiting for a new investment memo on whom to buy next is slowly changing into one that values partnership and the coming together of needs and wants of both parties to create success.