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"Innovation departments are where startups go to die"

Corporate startup engagement is incredibly hard. It shouldn’t be. In theory, the match between startup agility and corporate firepower should be a recipe for growth — however, this is rarely anyone’s experience. Let’s dive in and have a closer look at this problem.

In recent years, every major brand has invested heavily in startup engagement. Corporate-run accelerator programs, innovation labs, startup event presence, sponsorships — you name it, it’s being done. However, success cases are incredibly hard to find. Startups often waste their time on endless meetings and paperwork, and corporations struggle with the inherent operational risk small companies represent.

Audience at Corporate x startup Summit at Techfestival2019
During the summit, one of the start ups went on stage at TechFestival and said the quote used as this blog's headline. They were refering to how departments rarely have budget or agency to move startup engagements forward internally. 

This September, we co-hosted a day-long session in Copenhagen to discuss this unresolved opportunity. Some 20 brands were in the room, a dozen startup founders, and a number of other ecosystem stakeholders too. It was all part of Techfestival 2019, a large urban event exploring how technology affects various bits of society. Below are our top 7 learnings from 100+ participants throughout the Corporate x Startup Summit sessions: 

  • Don’t invest unless you have to. Much better for big companies to buy products or services from the startup, conduct short-term pilots, license technologies, or co-create new markets or business models. Top startup founders prefer to avoid corporate investment too, at least until the later stages, given the heavy due diligence process and typical limitations on further fundraising.
  • Startups don’t succeed in innovation labs. Contrary to research and tech/startup intelligence activities, vetted startups need to get deep into business units in order to have an impact. Most innovation departments lack the budgets and decision-making power to succeed with the incredibly hard task of changing status quo in a big company. The lab might be successful at highlighting the opportunity, but when it comes to implementation and scaling, most projects die due to misaligned incentives.

  • Working with startups globally is now possible. Platforms and machine learning are rapidly solving the matchmaking problem, and excellent tools are available today for global startup sourcing and engagement. This allows for light-weight startup interaction and exploration, before heavy time/money investments eventually bring everyone together in one place.

  • Both sides can and should learn. Corporates don’t understand startups, but founders don’t understand big companies either. It’s a little too easy to just blame corporate bureaucracy when in fact startup founders often fail to grasp the individual incentives, processes, and chains of command of operationally focused large companies. Learning how to manage expectations — and add value — both ways is the ultimate key to success.

  • Watch out for innovation theater. Most big companies struggle with innovation, and for good reason: It’s incredibly hard to look beyond what made you successful today and bet on the new ventures that will make you succeed in the future. Short-term ROI often dictates the path ahead, and it is tempting to launch some of the quick wins designed to look impressive to stockholders. But don’t be fooled; If you truly want to innovate, you need a clear vision and strategy, sufficient funding, senior leadership ownership and alignment, and the right organizational structure.

  • Explore new engagement models, such as venture studios (partnerships around startup creation) and the “venture client model” pioneered in BMW’s Startup Garage (commercial partnerships/pilots with startups). As the market is rapidly moving away from costly corporate accelerators, creative, versatile, and cost-effective alternatives stand by to help you improve your return on innovation activities.

To the final point, it was interesting to note that the audience (innovation leads from pan-European large companies) was much more familiar with some of the more accessible models, like partnerships, events, and competitions. In fact, we opened the session explaining how Europe’s large companies lag significantly behind their US counterparts in terms of M&A activities. This not only means valuable talent and technology is gravitating towards the US, but also that Europe’s larger companies are (most likely) not reinventing themselves sufficiently for the next 10–20 years to come.

Results from live poll during Corporate x Startup Summit 2019. 

At the Corporate x Startup Summit we particularly set out to explore a new path for European corporations, given cultural and historic differences. One that would go beyond just mimicking Silicon Valley’s venture and accelerator models, and set both startups and large companies up for success. But the conversations throughout the day made us reflect on the mission at hand; perhaps it is more about setting the right expectations both ways, and leading by example inside large organizations, one pilot at a time. After all, successful startup engagement is a marathon, not a sprint.

We would like to thank all of our speakers and panelists for being open and honest about the challenges and opportunities found in corporate startup engagement. Large companies and startups need each other on this journey, and we are truly excited to continue the work and discussion within this space. Stay tuned for more initiatives throughout 2020.

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If you want to know more about corporate ventures and startup engagements, please do not hesitate to reach out to us.