The Two Ways for Startups and Corporations to Partner
When a large corporation partners with a start-up the result should, in theory, be a win-win. Corporations possess resources and legitimacy that startups aspire for, while startups have agility and novel ideas that corporations value. But vast interorganizational asymmetries mean it is often not straightforward for such different firms to collaborate. Disparities in size, structure and power make it difficult for startups to connect with the right department and individuals within a large corporation. It is therefore imperative for corporations to provide startups with viable interfaces. In my research I have discovered two such approaches: cohorts and funnels. In a cohort, a set of startups participate in a programmatic initiative, such as an accelerator, over a pre-specified period, usually a few months. Peer engagement among the startups is often a key part of the process. While gaining entry into a cohort may be competitive, once in, participating startups generally complete the process. By contrast, in a funnel, many fewer startups complete the process than begin it. Startups get screened out as the process unfolds, often not being aware of other startups that are participating. A funnel essentially has a built-in contest for a limited set of collaborative opportunities.
Although some large corporations invest in or acquire startups, a growing approach to corporate innovation involves partnering with small, high-growth companies. When a large corporation partners with a start-up the result should, in theory, be a win-win. Corporations possess resources and legitimacy that startups aspire for, while startups have agility and novel ideas that corporations value. For information technology (IT) corporations, the motive may partly be the adoption of their technology platforms as building blocks; for non-IT corporations a driver could be pain points resulting from disruptive digitalization.
But vast interorganizational asymmetries mean it is often not straightforward for such different firms to collaborate. Disparities in size, structure and power make it difficult for startups to connect with the right department and individuals within a large corporation. It is therefore imperative for corporations to provide startups with viable interfaces. In my research I have discovered two such approaches: cohorts and funnels.
In a cohort, a set of startups participate in a programmatic initiative, such as an accelerator, over a pre-specified period, usually a few months. Peer engagement among the startups is often a key part of the process. While gaining entry into a cohort may be competitive, once in, participating startups generally complete the process. To illustrate, Microsoft established accelerators that provide cohorts of startups with four months of access to technological and business infrastructure, mentoring, and network-building opportunities, culminating in a demo day attended by Microsoft managers and partners, as well as external investors. Also, Bayer’s Grants4Apps (G4A) program offers a 100-day accelerator program for digital health startups based in its premises in Berlin. SwissRe’s insuretech accelerator, launched first in Bangalore, is yet another example.
By contrast, in a funnel, many fewer startups complete the process than begin it. Startups get screened out as the process unfolds, often not being aware of other startups that are participating. A funnel essentially has a built-in contest for a limited set of collaborative opportunities. To illustrate, SAP Startup Focus was established to work with promising startups developing new applications on the corporation’s database platform (SAP HANA) and help accelerate their market traction with its enterprise customers. Around 15% of startups are then provided technical assistance to build enterprise-centric solutions, with a further subset that successfully validated their solutions then receiving go-to-market support. Another example is BMW’s Startup Garage which offers startups the opportunity to work with it as a “venture client” on an innovation project after screening them for technical quality, strategic fit and the potential to become a market leader through a stage-gate process. Also operating as a funnel is Unilever Foundry which puts forward challenges, frequently relating to digital marketing, that start-ups are invited to pitch solutions for.
While the mere existence of a cohort or funnel does not guarantee partnering success, creating an effective interface gives startups a first port of call that overcomes the difficulty of establishing a connection in the first place and increases the odds of meaningful relationships ensuing by giving both parties a shared understanding of the nature of collaboration that might be feasible. Executing an effective startup partner interface calls for genuine and thoughtful effort – not mere lip service – from corporations. Here are three lessons.
Ensure fit with partnering goals. Although neither interface is inherently superior, they are qualitatively distinctive. Cohorts have the advantage of being able to, potentially, give rise to previously unconsidered opportunities through brainstorming and experimentation. Funnels can be especially effective at delivering tangible outcomes based on perceived pain points because of the process of elimination leading to joint activity with a startup that is tightly aligned with the corporation’s agenda. Thus one factor in choosing between a cohort and funnel might be how diffuse or specific the underlying partnering goals are. As the sophistication of startup partner interfaces grows, corporations may also seek to balance the benefits of cohorts and funnels. For instance, a funnel-based interface might selectively add a cohort dimension, such as Unilever Foundry’s Level 3 co-working space in Singapore.
Span boundaries externally and within. A corporation’s partner interface, be it a funnel or cohort, is only as good as its ability to connect high-quality external startups with relevant internal line managers. Once an interface is created, the team running that unit must be skilled at building bridges with entrepreneurs, whose decision-making styles and strategic orientations may differ considerably from those of managers in large corporations. They must also be able to connect startups with their own corporation’s business unit leaders who have the ability to realize the prospect of collaborating with startups, yet may view this as a distraction. Co-locating an internal innovation team with external startups in a corporate accelerator, as Infiniti Lab has done in Hong Kong, may help in spanning boundaries.
Make adjustments to the interface. Ongoing tweaking can continuously improve the interface. In the second year of Bayer’s G4A program, the cohort’s scope was broadened to include global startups and internal employees’ startup ideas. The following year, a more concerted effort was made to link the expertise of the startups with Bayer’s areas of interest. In other cases, more fundamental changes may ensue. Microsoft switched from accelerators to scaleups, no longer welcoming early-stage startups but rather seeking to nurture more mature ones. And some interfaces may run their course. SAP has recently retired the Startup Focus program, merging it with SAP PartnerEdge, its flagship partner engagement program for partners of all types.
Following these lessons can yield effective interfaces that are more likely to produce successful corporation-startup partnering outcomes, like the recent collaboration around a proof of concept in the area of B2B online transactions between Silicon Valley-based startup Crowdz and Barclays Bank. This was the result of that startup’s stint in the Barclays London accelerator, part of an ongoing multi-location program that reflects all three lessons above, run by the corporate accelerator specialist Techstars.
Corporations are increasingly battling for the hearts and minds of the best startup partners – and building an effective interface is vital to a winning strategy.
Shameen Prashantham is an associate professor of international business and strategy at China Europe International Business School (CEIBS). His research primarily focuses on what he calls “dancing with gorillas” — partnering between large corporations and startups — and on international entrepreneurship. He is author of Born Globals, Networks and the Large Multinational Enterprise (Routledge, 2015).
The Two Ways for Startups and Corporations to Partner
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