Startups are driving disruptive innovation across major industries. In a recent survey of 250 executives by BPI, a network of executives from various industries, 40% of execs stated that they felt their industry was being disrupted by startups. With this becoming a norm, collaboration between startups and corporates remains key in fostering innovation. Whereas there are pitfalls such as difference in culture, appetite for risk, hierarchy and work ethic, alignment with the right partners can go a long way in benefiting either party. Startups can add value to existing players (corporates) without necessarily disrupting them.
Strengths and weaknesses of these two entities can complement each other making it easier for collaboration. Startups are able to create new products or services under conditions of extreme uncertainty something that most corporates lack. This is mostly because startups focus on learning whereas corporate focus on earning. When startups ask, “is this the right thing to build?” corporates will be asking, “are we building this thing right?” This makes corporates less tolerant of failure. In fact even the slightest appearance of failure has a heavy cost for those involved in the innovation unlike startups where failure is openly acknowledged when it happens.
Corporates go for big bets, which means that all innovation efforts are put behind ideas that are scalable. All business cases must therefore show the commercial value to the business. Remember the Jerry Maguire movie? You have got to show them the money. Startups on the other hand adopt temporary business models whose key objective is to search for scalable business models that can be tried and tested before adoption. In these two scenarios both entities can leverage on their strengths and weaknesses through collaboration.
Startups are external innovators who enjoy the freedom of developing disruptive solutions. Corporates have their own internal innovation teams or intrapreneurs in charge of implementing their innovation strategies. Whereas both may be aware of market shifts caused by new ideas or technologies, startups have the agility to move faster. Internal innovation teams may be hampered by the need for the business to protect the core cash cows. With collaboration the corporates can leverage on the agility of startups in order to innovate at a faster rate.
Another area of collaboration can be through understanding the target consumer. One of the major strengths for corporates is market knowledge. They have the resources that enable them do research. Through these researches, corporates are able to gather insights about consumers’ likes and preferences. They not only learn about what the consumer but are able to establish what the consumers need. The end result is that the consumer gets what they want. Startups also have the strength of understanding the consumers at a deeper level compared to corporates. Since they are less bogged with systems and processes, startups are better at customizing solutions or products for the consumers. This makes them masters at learning what the consumers really want, not what corporates believe the consumer wants.
Corporate organizations have strengths such as capital muscle, access to markets, knowledge of those markets, human resources and economies of scale but weaknesses such as risk aversion, and limited or slow paced growth in mature markets. Standardized processes also slows down the decision making process and sometimes inhibits creativity. Startups strengths include a high appetite for risk, agility, creativity, versatility, highly motivated teams and potential for rapid growth but they struggle with getting access to new markets, they lack resources & partners and the financial muscle to quickly scale up. Through collaboration both corporates and startups can mutually benefit. If harnessed properly, these differences and risks can create a win – win situation for both.