What Happens When Enterprises Partner With Startups?
Sometimes, everyone wins.
Farrer and Co. is a London based law firm founded in 1701 which counts Charles Dickens and a number of members of the UK royal family as clients.
However, unlike most legal firms it displays a remarkably modern attitude as far as technology is concerned. Mimicking forward thinking and innovative enterprises like GE and PepsiCo the firm partnered with a startup to develop solutions for filing and archiving.
The solution that emerged was reliable and met the firm’s needs. Farrer found so much business value in the product that when the startup ran into financial issues and was in the process of being acquired it hired one of the failing startup’s best engineers and now maintain the product in-house.
Farrer and Co’s experience with startups aptly illustrate the risks and rewards of enterprise-startup collaboration.
On the plus side startups inject a much needed dose of innovation into relatively staid enterprise environments. According to Don Dodge, Developer Advocate at Google:
“Startups are where the innovation happens. Startups will do things big companies will not. Big companies tend not to take big risks or go after small markets that are emerging. Startups do. That’s one of the reasons we work with startups. A second reason is we acquire a lot of companies. Most of them are startups.”
Across the board there is a lot of interest in enterprises about working with startups. According to an Accenture Report which surveyed more than 1000 entrepreneurs and 1000 large companies across the G20 companies:
• 82% large companies felt they could learn from startups or entrepreneurs on how to become a digital business.
• 50% large companies feel that they can be innovative if they work with startups.
• Enterprises feel that collaborating with startups will more than double their revenues over the next 5 years.
Startups also gain tremendously when they collaborate with enterprises. After Microsoft released their Kinect SDK to the public startups have been freely using the technology to create applications, for example, which help physical therapy patients with their exercise regimens.
But the same Accenture report also highlighted a sticking point: startups are not as enthusiastic about working with bigger enterprises. 29% entrepreneurs think that corporates lack commitment of working with them, as opposed to only 7% large companies who see a lack of commitment in entrepreneurs.
But more worrying is that while 75% large companies claim they are entrepreneurial 75% of entrepreneurs say that they quit their jobs at corporate because the environment was not entrepreneurial enough.
According to Accenture if startups and enterprises don’t get on the same page there can be potential loss of global business opportunities worth $1.5 trillion.
The way out is for both sides to establish common ground so that it’s a win-win for everyone.
It’s here that the enterprise CIO can lead and achieve disproportionate impact by:
• Encouraging an internal culture of innovation: Sometimes employees, rather than an outside party can spot opportunities for
innovation. For example, CIOs can encourage Agile Development internally or find SaaS tools that employees already use, and then
partner with the startups to officially adopt them into the enterprise IT stack.
• Convincing the top management: For true collaboration with innovative startups to happen there has to be buy-in from the senior
management including the C-suite and the board. Instead of maintaining the status quo, mid level employees should be encouraged
to take risks which would then open up more opportunities for working with startups.
• Making rules startup friendly: The traditional way in which corporate do business or take decisions can hamstring an agile
startup. For example, buying processes in big business are byzantine and payments are cleared after 90 days, a gap that could
seriously affect a lean startup’s cash flow situation. These rules have to be suitably modified.
For some enterprises, collaboration with a startup takes the form of joint development of a product. For example, Enterprise Rent-A-Car worked with a small company to build a telematics product which generates data on usage of rental cars.
Sometimes though, enterprises are more hands-off, letting startups develop innovative products that might not have an immediate competitive advantage for the bigger company but could still be marketed for profit.
Once the decision has been made to work with a startup the CIO will also have to manage risks associated with startups like understaffing or funds crunch so severe that it might go out of business in a couple of years.
That’s why experienced CIOs recommend having a corporate risk board and running monthly risk sessions through which partners can be managed and rated for performance. Experienced CIOs will also put in place SLAs and service contracts while working with startups, and have a plan B in case their partner goes belly up.
At the end, though, a successful collaboration boils down to an alignment of interests and transparency on both sides. This, then, is no different from a traditional vendor relationship that enterprises have with their existing suppliers.
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