Why Should Top Companies Collaborate with Startups?

Why Should Top Companies Collaborate with Startups

Because, if done right, this dream team could achieve extraordinary success.

Collaboration is integral to business success. Startups collaborate with investors, employees, customers and various internal departments. Some kick it up a notch by collaborating with the big guns—billion-dollar corporations. Critics of this collaboration might label startups as “sell-outs”, but why should they pass on the opportunity to tap bigger resources? And why should corporations deprive themselves of unbridled innovation? Well, they shouldn’t. Here’s why.

The startup-corporation collaboration boom in 2020

By August 2020, big tech companies had increased their startup investment from US$7.6 billion in 2019 to US$16.7 billion. Since then, various startup-corporation partnerships have displayed their strength. For instance, pharmaceutical giant Pfizer and its startup partner BioNTech produced the Pfizer COVID vaccine technology. The development and distribution capacity of Pfizer combined with the technical expertise of BioNTech made the collaboration a cut above the rest. 

A partner with Leap by McKinsey, Tawanda Sibanda, noted, “It’s easy to see why corporate partnerships with start-ups make sense: start-ups can benefit from corporate funding, resources, and customer access, while corporations need to innovate to stay ahead of competitors and disruption, and also access new technology.” She mentioned that between 2013 and 2019, corporate venture capital (CVC) investments grew by 32 percent. Plus, nearly 70 percent of Fortune 100 companies have “active venture units”. Indeed, the collaboration environment is thriving. 

The challenges of this partnership

Startups fear being bought out by corporations, thus losing their unique identity. Corporations, on the other hand, worry about risks relating to getting another company on board to build a product or service for them. That might rub their investors in the wrong direction, urging them to question the company’s capabilities. 

Along with that, getting accustomed to each other’s structure is a challenge. The Founder of IoT Tribe, Tanya Suarez, expounds, “Corporations have their own internal structure. So startups never really talk to the corporation as such but always to one of its components, and the success of the interaction may very well depend on the choice of the corporate component that is most appropriate for a given startup.” This top-down approach can be detrimental to a startup’s success, as they wouldn’t feel respected in the organization. 

The Associate Partner at McKinsey, Tobias Henz, shared, “In our survey, startups’ satisfaction rose by 93 percent when they felt their corporate partner was highly committed and by 86 percent if top management was involved in the partnership.” In return, startups must also show commitment by limiting the number of companies they partner with to sincerely devote your strengths. 

So, what do corporations get out of this collaboration?

While corporations fear a startup’s risk-taking culture, it’s exactly what they need to meet their innovation goals. To beat the competition, corporations need to churn out new products and services constantly. However, big companies have long approval processes, slowing down their pace of innovation. Startups present a solution to that problem. They are fast, goal-oriented and uninhibited. Additionally, with CVC investments, companies need not bear the risk of buying a startup for its perceived success. 

As per an EY report, CVC investments have plenty on offer for corporations. Companies get access to new technologies and concepts early on. They can decide whether they want it on board or not. They are not tethered to the startup and its results.  

How can startups benefit from collaborating with large corporations?

For one, they get access to money and resources. Startups have big goals but often little money to see them through. By collaborating with large companies, they fill the financial void and create advanced products and services. In addition to that, they get publicity, visibility and credibility as well as access to new customers and clients. Owing to that, Sibanda feels, “Having a corporate partner can send a positive signal to investors.”

The President of SAP Hybris, Carsten Thoma, concludes, “The key success factor for a start-up is most importantly money but also access to a distribution network. For enterprises, it’s important to make sure they are easy to do business with and to secure a constant flow of innovation.” Their unique abilities to achieve what the other cannot make startups and corporations the dream teams.

Header Image by Freepik

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