Hitting the right notes — How startups and corporates can collaborate
In order to make a collaboration work, traditional companies and start-ups need to go through an arduous process that’s spiked with pitfalls and filled with misconceptions. But a lot of trouble down the road can be avoided if you get the communication right from the start.
When startups and incumbents partner, both the opportunity for growth as the potential for conflict is great. Problems can be plentiful as these cultures appear diametrically opposed to each other. For instance, corporates tend to have very long drawn-out processes and often achieve success through careful planning and long-term decision-making. That couldn’t be truer for the insurance market. Startup processes are much shorter and subject to changes or don’t even exist, yet. When larger companies work with startups, some of those same habits may suddenly cause friction.
A small company may not see much value in the processes that are part of a larger company’s way of doing business, while startups may be willing to take risks that their more-established partners find irresponsible or even reckless. So let’s take a look at some of the more common mistakes both sides tend to make and how to avoid them.
Dear Corporates,
Startups can help you shortcut the internal innovation process but only if you work with the right ones in the right way. The benefits of collaborating with startups include not only cost savings, unrestricted thinking and access to talent, but also access to services and products outside your organisation. For this to succeed you need to be ‘startup ready’. All too often companies and startups assume they are and then fail. So, what can larger companies do to ensure smooth sailing?
First and foremost, you should identify pilots and proof of concepts. At the same time, try to build an atmosphere where creative ideas can truly flourish. That doesn’t mean you shouldn’t apply any pressure at all. Quite the contrary.
Establish some ground rules and define the criteria for a successful proof of concept or pilot. Focus on leading performance indicators such (sign-ups, conversion, retention, revenue per customer, cost savings per user, growth rate etc.) instead of trailing indicators (e.g. no of customers/users, revenue, profit, ROI) as measurements of success. Why? New ideas and services take time to grow, simply because they are usually not exposed to your entire customer base, thus absolute numbers are low. Relying on these same measures used for large scale efficiency measures to judge “new services” provided from a startup collaboration will result in you shutting down potential ideas before they have time to blossom.
Set a clear goal for the startup to work towards, include which tasks you need done (complete with instructions if it’s the first time). Also stipulate a clear deadline, what kind of results you are looking for and how you are measuring results. Be sure you’re both on the same page from the very start. A purely success-based remuneration tends to be unfavourable for the startup as they are usually low on cash and success has as much to do with their delivery as with the adoption rate within the corporate itself and will be further in the future.
Try to be patient, fair and humble. During the business negotiations, you’ll always be in the more desirable position. After all, it’s you that has direct access to the customers/users. However, you appreciated that focus is key and startups can indeed bring value to your customers faster and more cost-effectively because of their immense focus on their product/service. Every meaningful collaboration is based on trust and hard work. Think of yourself as an investor. If the startup succeeds, so do you. Because the startup will continue to deliver value to your customers.
Mix fixed and variable remuneration for the startup. Make sure that the work the startup puts in to adapt or build its propositions to fit your use-case at least breaks even so the startup won’t run out of cash during your engagement. Also, include some form of variable (e.g. per customer, transaction, premium) component into the mix so your interests are aligned in moving from pilot to scale.
Expect the pilot to succeed and plan accordingly. While people praise the startup culture and its acceptance, or even encouragement of making mistakes, sometimes things work out pretty well early on. It can’t be stressed enough how disheartening and demotivating it would be for a startup if their pilot shows clear signs of initial success, but you just let the proposition linger because you haven’t figured out what steps two and three are. An easy mistake to make is not believing in the pilot and having no clear strategy in case the leading indicators are positive.
Create a fast-track procurement process for startup collaborations. Define pre-approved pilot hurdle-rates in which you have lower legal, operational and compliance rules. Usual suspects include max. number of customers, premiums, total loss etc.
Appoint a senior champion, someone who can be directly approached by anyone with an interesting pitch and who has strong budgetary and decision-making power/influence. Preferably he or she will have the diplomatic ability to navigate the corporate’s organisational structure and sell the project within different departments.
Talk differently. Another topic that may cause friction between you and the startup is language. Focus on words that foster openness to entrepreneurialism. For example, instead of ‘cannibalisation’ why not say ‘identifying customer value and willingness to pay’?
Dear Startups,
Truth is, as harsh as it may sound, no one is waiting for you. No need to sell yourself short though. You help corporates to innovate and drive cultural change, including attracting new customers, partners and talent.
Keep a curious mindset all the way through. You operate in very different ways than corporates do. Even if you’re completely convinced of your startup’s worth and usefulness, bear in mind corporates are sitting at the longer table (for quite a while to come). Make sure you listen and phrase your proposition in terms your corporate counter-part can understand and sell internally.
The business process will require a long breath, and you might experience ambiguous communication, changing contact points, or unclear decision processes. Expect fluctuating selling cycles from 3 to up to 18 months.
Focus on providing continuous service. Obviously, time is of the essence for you. Trying to contractually login your costumers as soon as possible is understandable, yet the wrong thing to do. It’s better to focus on remaining “useful” instead to create a soft pull.
Listen to your costumers — they might just surprise you! What if you could use your product to solve problems you never intended it even could? Customer feedback can open the door to a whole range of new opportunities. So don’t specialise on this one thing too early and give your product some leeway.
Build things that don’t scale (at first) Assuming you are a B2B startup, focus on curiosity, identifying and understanding value for your corporate customers and their respective willingness to pay. If this means using POCs, service, consulting and projects, so be it. And trust in your product and business acumen. Those investors who told you that you don’t have a scalable product right now or a “project business” will still be there when you do. Or build it and hope they will come. You’re call.
Run-way is of the essence for startups: a single delayed payment may well cause your demise and getting X% of a cake not baked, yet might help the business plan but not your bank account. A well-balanced financial plan is key to keep your operation afloat. Identify potential added value and insure your downsides.
Stay away from exclusive deals and IP-transfers: A major red flag is an offer for an exclusive deal. Don’t agree to that, unless you wish for your startup to disappear or in case the larger corporation is already heavily invested in your IP. Exclusivity would only be a logical step if investments have to be protected on both sides. The same applies for your IT: don’t give away all your technical knowledge just like that.
Figure out where you would fit in the enterprise and what you have to offer exactly. Certainly, understanding how procurement and legal works in a large firm will increase your chances of selling into that organisation. Moreover, find and court your senior champion within the organisation early on. They can provide you valuable insights into the competing initiatives and priorities within the corporate.
