Four months after leaving American Express, I got a distressed call from a startup I brought into the company to build an innovative new service. Even though I was already deep into my book tour, I did exactly what Batman would have done – put on a flowy cape and agreed to meet. They needed advice – or an intervention. Like a sliced strawberry, they got suspended in corporate Jell-O. It’s a form of purgatory where there’s lots of jiggle, but nothing moves forward.
Competing priorities, politics, fear of change, and tech issues can threaten any partnership. But it can be especially brutal for startups. They don’t have the resources to endure endless brainstorming sessions, re-orgs, or meetings with consultants. Having pushed the limits of intrapreneurship, I’ve become hyper-aware of what works and what doesn’t. I tried to bake those principles into building IdeaFaktory, which accelerates corporate innovation through partnerships. At a recent enterprise tech event, I got so many questions from startups that I created this list of 10 “rules” or conditions for a successful deal to happen – before osteoporosis sets in.
Understanding the Corporate Enigma
There’s plenty corporations do well – distribution, branding, and customer service. But true innovation can feel as rare as discovering the new CFO is a Minotaur.
A big part of the problem is structural. It has to do with scale and risk.
A new, successful product or business line might barely register on the P&L. But for each one that works, many more will fail at various stages. Hundreds of ideas will never know life beyond their Post-It note graves. These fledgling opportunities must compete with multi-billion dollar budgets that dwarf the potential revenues of these untested innovations. This galvanizes the status quo, leading to months (or years) of research, analysis, and alignment meetings – before anything can claw its way to market.
One way of de-risking this model is to let others prove there’s a market, then acquire them. That works best when there are lots of obvious overlaps and a clear integration strategy. Most others end up as vendors – and are subject to the same rigorous, sometimes back-breaking, scrutiny that a giant provider like IBM might go through. That’s no place for a young company to be.
I prefer finding less obvious opportunities. That means trying to commercialize a great concept as quickly as possible – before it gets stuck in the dreaded “idea zone”. Instead of spending months nursing slides and spreadsheets, large companies can find small player already doing 60-70% of what they need to start talking about execution. It shaves months off launch times. It also changes the startup’s relationship from vendor to partner, but only if certain conditions exist.
10 Rules for a Successful Startup-Corporate Partnership
Here’s how to know when a small-large partnership is a good idea. (You can also contact IdeaFaktory for more details or sign up for updates.)
1. Maturity – Many startups don’t have the resources for a long courtship. I use several measures to see if they’re ready. One is customer diversity. They should have a mix of revenue sources. All their eggs should not be in the basket of one new partnership – no matter how transformative it could be. A second sign of readiness is having enough people to handle a tsunami of integration questions and strategy meetings. Access to funding is the third, especially if a new deal will bring tons of new business. That means investing in platform upgrades, manpower and Snickers for the cafeteria.
2. Validation in the marketplace – No corporate executive is going to gamble their 401K on some cockamamie idea. It has to have some traction in the marketplace with the right kinds of customers. The startup doesn’t have to be the hottest date in town, but growth is a good sign. So is having satisfied customers. There is already so much disparity in small-large relationships that a valid market case makes it a lot easier to show numbers to management.
3. Have an Asset – Typically, this means having an excellent, proprietary product or technology. (A pool of desirable customers is another. Groupon is a low tech, high adoption example.) Having an asset gives small companies leverage in what might otherwise be a very imbalanced relationship. It can keep smaller companies out of the dreaded vendor zone, where long procurement forms and calls from lawyers loom. The other reason I look for companies with great products is it’s a tangible indicator of team quality and ability to execute. In corporate, hundreds of great contributions are buried or intertwined. Startups typically run lean and have one or two products. So the quality of each function’s contribution is clear – from tech to marketing to design.
4. Focus – While the solution won’t always be clear, the problem that needs solving should be – as well as the group’s commitment and authority to solve it. It’s the minimum level of clarity needed to get started. I prefer need-driven innovation to opportunity-driven. The latter works for startups; corporations need a fire in conference room C.
5. Hunger – A good sign of whether you’re a priority is how quickly people return your calls or emails. Another is paying someone (like me) to help them. Even more important is understanding the psychology and motivations of the executives. Why are they doing this project? Is it just to check off a year-end objective or is there something real at stake? Did a competitor do a deal that threatens them? Is the department underperforming and at risk? Is there a new CEO demanding change? No substitute for doing the homework. Plenty of secondary research exists, but getting insight from junior level employees or other insiders is the best way to prep. A lot of it will eventually be revealed in conversations with executives. The topics they spend the most time on are often ones that reveal which issues they deem most important.
6. History – As every mutual fund prospectus says, “past performance is not an indicator of future results.” In this case, it can be. Corporate culture is a powerful force. Some try to defy it, but it has a gravity of its own. If a company has never done anything as wild or innovative as what you’re proposing, chances are you won’t be first. Of course, situational desperation can trump cultural passiveness. A major move by a competitor often kicks desperation into overdrive.
7. Does the combined “it” solve the problem? – I call it innovation, but it doesn’t have to be. It’s far more important that the partner-powered solution solves the problem. It also needs 2-3 metrics that can be tracked as indicators of success.
8. Technical feasibility – Whatever it is, it must work. That means getting a deep understanding of how the joint platform will work. The single most important part is devising a bite-sized launch before doing a massive integration. Sometimes it sacrifices things like real-time data, but it gets something tangible in market months sooner. That produces actual feedback for an infinitely better 2.0 product.
9. Will it blend? – Both companies’ cultures and assets must complement each other. If they don’t, it won’t take long for tensions to surface. If a startup is in a growth at any cost mode, they might cut corners or overlook things that can be damaging to an established brand – and vice versa. Brand incompatibility is a deal-breaker. A mass-market deal startup might not be the right fit for a brand built for people who own boats. Different philosophies on which markets or segments to pursue need to be worked out early.
10. Defensibility – Partnerships like this should create competitive advantage. I look for 1+1=3 opportunities where the joint effort creates a product-brand-service mix that competitors can’t easily copy – even if they mimicked the technology.
One last thing – how a startup gets introduced can define their relationship. A warm introduction at a relatively senior level is usually best. It’s the difference between dating someone you have mutual friends with or a stranger you met at a bar… or gulp, Craigslist. It keeps both parties accountable, responsive, and from doing anything weird.
Of course, this is just the front-end. I’ll save the messy back end for a later piece. (That could have been a better sentence…)
In the meantime, please share your experiences in the comments below and sign up at IdeaFaktory to get my future articles and reports on innovation and entrepreneurship.