Gorillas can dance: partnering effectively with innovative small firms in ecosystems
Over a decade ago, I wrote an article titled “Dancing with gorillas” with Julian Birkinshaw about how small firms, in particular startups, could partner effectively with large corporations. We recognized that this
required a combination of optimism and realism – after all, small firms can get trampled by gorillas. In the years since then, it would appear that more and more large corporations are taking seriously the prospect of incorporating small companies as participants in their ecosystems. Gorillas – some of them at least – appear to have been learning to dance.
However, despite the rise of corporation-start-up partnering, there are many, on both sides, that continue to find this difficult to pull off. There is dissatisfaction with the process and outcomes of partnering with each other. On the face of it, the combination of large corporations’ resources, legitimacy and scale, and startups’ agility, creativity and novel ideas, should be a match made in heaven. However, there is a paradox that makes it desirable yet difficult for large corporations and small startups to work together: the very differences that make it attractive for these companies to work together also result in barriers to collaboration.
The crux of the problem is the sheer asymmetry between large corporations and startups. First, there is goal asymmetry. Large corporations and startups typically have differing planning horizons; large corporations are typically slower in decision-making and build on capabilities that gave them their past successes whereas startups make rapid decisions in order to survive and develop new capabilities. Second, there is structure asymmetry. Corporations are normally rigid and organized in silos whereas startups tend to be flat and more multifunctional. Third, large corporations and startups face an attention asymmetry in that corporate managers are not sure how to allocate their scarce managerial attention to startups – which ones are reliable enough to work with and which aren’t? For their part, start-up entrepreneurs struggle to attract the attention of the relevant managers within a large corporation.
Having studied a range of initiatives, my research suggests that there are three critically important partnering practices – which are common elements across multiple initiatives I have studied – in the partnering process, which lead to mutually beneficial outcomes for both parties.
Clarifying synergies is about specifying the nature of the win-win. The term “win-win” is bandied about all the time – but upon closer scrutiny, it oftentimes turns out to be a vague notion. Having clarity about what can be (potentially) accomplished between corporations and startups helps to crystallize what a “win-win” collaboration might look like in practice. Synergy stems from complementarity between the partners. There are two types of synergy, broadly speaking: building block- and pain point-based synergies.
Building block-based synergy. The rationale of the building block is relatively straightforward: when other companies build their technological products on its building blocks, the company providing the building blocks gains revenue every time the other company’s product is sold. Large IT corporations that started engaging seriously with software-related startups had a straightforward agenda – to “evangelize” the adoption of their platform technologies. In the past decade, there has been a growing focus on startups as a distinct constituent of that community – to be wooed to become users of the corporation’s building blocks. That is, every time a software product license of the partner company is sold, a license for the underlying technology is bundled with it. While this has been a well-worn strategy for companies like Microsoft – now updated for cloud-based technologies like Azure – who have long developed relationships with independent software vendors (ISVs) that build technology offerings on top of its own technological building blocks, for some others it’s more recent. When SAP launched its HANA platform technology, this represented a considerable departure in strategy for the company that was famed for serving Fortune 500 companies with its ERP technology. The HANA platform made it imperative for SAP to attract ISVs to work with it – and this included startups. Other technology companies, such as Intel, have also promoted building blocks such as the so-called Ninja Developer Platform based on the Intel Xeon Phi Processor that other companies, including startups, could utilize in developing their own solutions in areas such as the Internet of Things.
Pain point-based synergy. By contrast, another form of synergy could be that the start-up essentially solves the pain points of the large corporation, notably in the digital realm. These pain points might pertain to the here and now – for instance, when Unilever works with a digital start-up to develop a solution that gives customers recipe ideas that use its Knorr brand of food products. Or, these may relate to the next horizon of offerings that a company is working on – as in the case of BMW working with startups that have expertise in cybersecurity or autonomous driving technologies. What is common to both examples is the impact of digital disruption.
Automotive companies are seeing massive disruption in their industry with the rise of connectivity, autonomy, sharing behaviours, and electrification. Fast-moving consumer goods (FMCG) companies have identified several opportunities to engage with consumers in more direct ways than was possible before, through the use of digital technologies. Banking is another industry experiencing serious digital disruption. A whole range of pain points have emerged including how to deal with online payments in the face of disruption from fintech startups. Healthcare is yet another industry that is recognizing considerable opportunities and challenges as people increasingly rely on the Internet and their mobile phones to access goods and services. Healthcare companies see an opportunity to diagnose, monitor, and treat patients using digital technologies.
While currently there is a noticeable industry-based distinction in terms of the synergy sought – building blocks for IT corporations and pain points for traditional (non-IT) ones – it is likely that this distinction will blur over time as all firms become software companies – as Microsoft CEO Satya Nadella puts it – in a world marked by digital transformation, and IT companies also work increasingly with startups to solve their own pain points in emergent niche areas of expertise.
Establishing a synergy is only the starting point. There also has to be greater accessibility to the corporation. In the past, it was not uncommon to come across startups running from pillar to post in a bid to find the right unit within a corporation to engage with and, within it, the right individual. Part of the reason was that even managers within large corporations often don’t know a great deal about what is happening in other parts of the corporation it’s just the way things (I have lost count of the number of times I have ended up educating corporate managers, during field interviews, about initiatives in other parts of their own organization.)
To their credit, however, many corporations have by now put in place various types of interfaces. Broadly, they fall into two categories:
- Cohorts in which startups are typically colocated and have peer interactions
- Funnels in which startups are progressively screened out in a series of stage-gates; typically, the startups have no awareness of or interaction with other startups taking part in the same
Cohort-based interface. In a cohort, a set of startups participates in a programmatic initiative, such as an accelerator, over a prespecified period, usually a few months. In the accelerator format, around 8–12 startups are brought together as a colocated batch for a 3–6 month period and receive inputs based on a curriculum, and internal and external networking and mentoring opportunities, culminating with a demo day when startups pitch to prospective investors/partners and “graduate.” 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. Cohorts may help corporations pursue either synergy. As an example of a building block cohort, Microsoft Accelerators – now subsumed within the broader Microsoft for Startups programme, and informally referred to as “Scalerators” – have been introduced in multiple locations such as Bangalore, Beijing, Berlin, London, Paris, Seattle, Shanghai, and Tel Aviv. Cohorts of about a dozen or so startups enter the accelerators for four-month periods during which time they work through a curriculum of entrepreneurship input, discuss their plans with mentors, and interact with the corporation’s managers. An example of a pain point cohort, is Bayer’s Grants4Apps – now simply the G4A – programme to engage with digital startups developing healthcare-related technologies. Every year a small cohort of startups is invited to Berlin to spend 100 days at the G4A team’s facilities. Over the past three years this has included startups from South Korea, Russia, and Ghana. SwissRe’s InsurTech accelerator, launched first in Bangalore, is another example.
Funnel-based interface. 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 between startups and a corporation with little or no co-mingling among the contestants, often culminating in a pilot project or go-to- market activity. An example of a building block funnel is SAP’s Startup Focus, which was established to work with promising startups developing new applications on the corporation’s HANA platform and to help accelerate their market traction with its enterprise customers. It was led by a SAP Vice President in Palo Alto, California. Selected startups (15 percent) would be provided with technical assistance to build enterprise-centric solutions, with a further subset that successfully validated their solutions then receiving go-to-market support. The BMW Startup Garage is an example of a pain point funnel. This programme 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. A small set of startups then ends up working as a supplier to BMW on a specified project. Also operating as a pain point funnel is Unilever’s Foundry programme, which provides a way for that company’s brand managers to post requests that digital startups can then pitch for. For instance, a pain point was experienced by Knorr’s South Africa brand manager who sought a mobile digital solution that would give customers recipe ideas for using Knorr products – a pain point that was eventually solved by the start-up that successfully pitched its solution through Unilever Foundry.
Although neither interface is inherently superior, they are qualitatively distinctive. While both interfaces can be beneficial they have differing strengths: funnels help increase the predictability of achieving desirable outcomes whereas cohorts create the possibility of serendipity or unanticipated outcomes. That is, 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 start-up that is tightly aligned with the corporation’s agenda. By contrast, while cohorts have the advantage of being able to, potentially, give rise to previously unconsidered opportunities through brainstorming, peer learning, and experimentation, the odds of serendipity may be increased. Thus one factor in choosing between a cohort and funnel might be how diffuse or specific the underlying partnering goals are. Also, hybrid interfaces may evolve – for instance, an accelerator programme (cohort) may add a grand channel competition for participants in parallel (funnel) or a competitive process (funnel) may incorporate elements of a cohort, such as a weekend bootcamp.
By providing startups with a clearly identifiable first port of call – for instance, programmatic initiatives such as Unilever Foundry or BMW Startup Garage that are run by a designated team – corporations help save both parties a lot of time and energy in establishing initial contact.
One of the consistent features I have noticed during my research is how corporations that take start-up partnering seriously have nurtured – and then talked about at great length – success stories. What is the rationale for corporations showcasing (early) success stories vis-à-vis start-up partnering? There are at least two important aspects to this: cultivating success stories shows that the partnering process works, and can help win over both external and internal audiences. Corporates get a better idea of what type of start-up to be allocating their scarce managerial attention to, while startups get a better idea of which gorillas are looking for what they are best-placed to offer and, with respect to those corporations, how to gain corporate managers’ attention better by positioning themselves as potential partners in line with previous exemplars.
External validation. Showcasing success stories can be beneficial in attracting more high-quality startups – it is the equivalent of a business school showcasing its successful alumni in a bid to attract (new) high-quality applicants. The ability to show a clear success story is useful in that corporations are competing with each other to attract startups to work with them – seeing what others have achieved can motivate startups to gravitate towards a particular corporation. A prominent example of a start-up that benefited tremendously from a corporate accelerator is Sphero, which worked closely with Disney. Sphero wanted to learn how to build a portfolio of products while Disney was interested in the start-up’s spherical robotics expertise – and the speed with which it could operate. The result: the now iconic BB-8 droid featured in the blockbuster, Star Wars: The Force Awakens. BB-8 merchandising was sold out within two weeks, and 14 factories were needed to cope with the demand. The value of showcasing exemplars to the start-up ecosystem is especially useful for corporations that are new to the game, and are still seeking to establish their “street cred” as a partner to startups. Some corporations – especially very traditional ones not associated with entrepreneurship – may have to work hard, initially, to impress upon startups their genuine intent to foster collaboration.
Internal validation. Also, perhaps more importantly, it can help persuade internal audiences that are sceptical about the benefits of engaging with external startups. Indeed, at present, the imperative for showcasing exemplars has probably more to do with impressing internal audiences in a large corporation, in particular persuading sceptical BU managers of the utility of partnering with startups. When BU leaders witness what’s possible through corporation-start-up collaboration they are more likely to be open to this possibility. An exemplar can be useful fodder for managers operating within designated start-up interfaces to persuade their colleagues with P&L responsibilities – and thus the budgets to work with startups on an area of mutual interest – to give this a try. Moreover, a major pressure that managers at the interface between startups and the wider corporation face is to show a reasonable return on investment (ROI) on the start-up partnering activities. Achieving this is inherently tricky. One way to deal with this challenge is to be able showcase big success stories.
In either case – signaling interest in external startups or convincing internal managers – showcasing successful start-up partners is something that corporations need to become skilled at. Successful case studies may be featured in media reports, corporate newsletters, YouTube channels, industry event keynotes, and presentations to top executives of the corporation. As it becomes increasingly apparent that win-win partnerships are genuinely plausible, scepticism on both sides will begin to fade away.
The bigger picture: need for a collaborative mindset in ecosystems
The broader lesson here is about developing a collaborative mindset within ecosystems. Common to all of the companies I’ve studied that have taken start-up partnering seriously is a collaborative mindset. When a company is oriented towards collaboration then it is likely to seek ways to overcome asymmetries with startups rather than walk away from the exciting but challenging prospect of partnering with these very different organizations.
Managers with a collaborative mindset do three important things: they leverage networks actively, discerningly, and reflectively.
Leveraging networks actively means that they take the initiative to get connected with others. Managers who are proactive with respect to the network relationships are unlikely to be frightened away from engaging with startups on account of the asymmetries. Furthermore, leveraging networks discerningly indicates the ability to distinguish between the distinctive benefits that can be derived from different network partners. Notably, other entities that are different from us can potentially be a source of novel information, ideas and opportunities – but building trust can be hard work. Managers with a collaborative mindset recognize that it cannot be business as usual with startups and understand the need for a distinctive partnering process with startups. Finally, leveraging networks reflectively is the recognition that learning through collaborators is incredibly important. As already noted, startups’ novel innovations and business models can be a valuable source of learning for large corporations. Conversely, the small companies can learn how to standardize and professionalize their operations from large firms.
Of course, in the end, partnering with startups and small companies isn’t necessarily for everyone, and it isn’t a panacea for all of the innovation needs of large corporations. However, what is becoming equally clear is that in a world of digital disruption, corporate executives ignore the prospect of engaging with startups at their peril. Doing so requires a lot of hard work to avoid the trap of accomplishing little other than theatre innovation – and for those who can pull it off, a rewarding journey awaits.
Shameen Prashantham is an Associate Professor of International Business and Strategy at CEIBS. He is the author of Born Globals, Networks and the Large Multinational Enterprise: Insights from Bangalore and Beyond (Routledge, 2015).
This chapter is based on case-based research spanning over a decade across a range of geographic locations, both advanced and emerging economies, including China, Germany, India, Israel, Kenya, South Africa, UK, and the US. An important company that I have studied in terms of start-up partnering since 2004 across multiple locations is Microsoft. Other companies that have been studied over the years include Bayer, BMW, IBM, Intel, Infiniti (Nissan), SAP, SwissRe, Unilever, and Walmart. Furthermore, I have interviewed key people in leading organizations that help to bridge corporations and startups such as Plug and Play and Techstars, as well as boutique consultancies in corporate innovation founded by individuals who had previously headed up start-up engagement in leading corporations. In total, I have conducted over 250 interviews.