Corporates and Startups: A Match Made in Heaven?

Theoretically speaking, an alliance between a corporate and a startup is the ideal combination, in a world where continuous innovation is so high on our agendas. After all, the corporate has the resources, scale and power to get stuff done, whereas the startup possesses the novel ideas, the agility and the willingness to make it happen. Each has what the other lacks, so joining forces would be a win-win, one could argue. Practically speaking, however, it is not all that rosy. A recent study by Harvard Business Review, conducted among corporate Chief Innovation Officers in the US, Asia and Europa, revealed that nearly 75% of innovation initiatives failed to deliver the desired results. Differences in management style, daily routines and company culture often translate into conflicts that stand in the way of blossoming partnerships. Let’s reflect on the different corporate/startup mechanisms out there and what it takes to successfully employ them.

“Establishing mutual trust is key.”

Equity Models
The most straightforward way for a corporate to engage in entrepreneurial activity, is to simply finance it. As such, corporate venturing and corporate incubation are among the classical methods of corporates trying to innovate, finding their origins in the 1960s. In return for a little equity, the startup gets a chance to aim for the moon and actually set foot on it. The corporate, on the other hand, automatically gets to keep an eye on interesting technological and market developments out there, allowing the corporate to get a taste of radical innovation. What is tricky for the startup, though, is that such constructions can present themselves as a double-edged sword. At the end of the day, it is very difficult for the startup to find out whether the corporate has some sort of hidden agenda. Therefore, establishing mutual trust is key here, which is characterized by each party fulfilling its obligations and behaving as expected and agreed. 

Non-equity Models
Recent developments have shown that nowadays corporates are adopting more lightweight models, in an attempt to engage with startups. These models are often referred to as “startup programs”, and differ from traditional models in the sense that the corporate does not hold any equity in the startup. As such, a lot less due diligence is necessary at the corporate end, and for the startup it might feel more comfortable not to have a large enterprise as an investor. In addition, the corporate gets to engage with a rather large number of startups and creates a certain startup support ecosystem. In this ecosystem, the startups are also encouraged to work together. 

Consequently, a certain fear of getting ideas stolen might be an issue for entrepreneurs. Again, the corporate must ensure a trusted environment, in which all startups feel comfortable to fully commit to opening up whilst capitalizing on each other’s knowledge and expertise.

Making Partnerships Work
The HBR study mentioned earlier, demonstrates that a common reason for failure can be found in the corporate boardroom. More often than not, the big bosses do not dedicate enough time to understanding the value that startups could bring to the table. As such, it is of crucial importance that the whole company is as enthusiastic about the startup partnerships as the corporate venturing unit. 

1. According to a study by Lavie et al., the relationship between the corporate and startup will suffer when internal task routines differ too much. Now, if you think logically about how corporates and startups behave, those differences are very likely to occur. But, not to worry. According to Lavie and his academic friends, this problem can be overcome if the differences are being recognized upfront. As such, new and concrete routines should be established, that do not undermine either party. 

2. Although the wealthy corporate might often seem superior in the partnership, it is important that this is actually not the case. A certain fit must be ensured by partnering goals. Therefore, it is important that the goals of both the corporate as well as the startup are crystal clear from the beginning. 

About Amstel Lab
Amstel Lab partners with start-ups and scale-ups to commercialize your business. On the back of our experience, we have developed the unique Amstel Lab method: a tailor-made approach to maximize success. We test your markets, refine your product, innovate your commercial approach and execute your strategies. Any good idea is worth seeing through.

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