Corporates are increasingly looking to accelerate innovation by forming strategic partnerships and alliances with start-ups. Small, agile innovators allow larger organisations to experiment rapidly with changing customer demands, but how can both parties get the best from their union?
In financial services, banks and insurance companies have benefited enormously by partnering with fintech start-ups
. They have invested in − and supported − their young competitors, rather than working against them. It’s a strategy that other industries can learn from.
“Of course, it’s beneficial to both. The start-up gets the investment, support and customers it needs, while the corporate is able to offer cutting-edge services and products. Yet both parties must enter with their eyes open to any possible discord.”
We spoke to corporate investors, start-ups and legal advisors, to uncover what each side needs to know.
Agree the start-up’s investment plan early on
Ali Ramadan is a Partner in Bird & Bird's International Corporate Group. He’s a member of the firm's Tech & Comms and Media sector groups and has a focus on digital business.
There is an interesting shift from corporates who are now co-operating with innovative start-ups − they realise they have to engage with them as part of the future.
Hackathons and informal idea generation are more popular now; there are lots of networking events and self-promoters, but the real growth in Europe has been in capital-funded incubators and corporate venture capital funds. We’ve seen a lot of this over the last few years.
However, as a legal firm we’ve found that the standard documents used by a corporate for doing business with other corporates isn’t necessarily right for working with start-ups. I always caution that while they may trust the person they’re working with now, that person may have disappeared in two years’ time − so your contract must be sound.
Both parties need to understand from the outset how the relationship is going to work and what each want to achieve from it, otherwise there’s a huge potential for dispute.
A key issue to consider is that consent matters, in particular regarding the start-up’s access to further funds; both sides need to agree the funding and exit strategy for the business. The start-up will need investment to develop the business, so will the corporate provide that? If not, how would it feel if a competitor or another investor offered those funds, or indeed, bought the business?
Use partnerships to upskill your team
David Plumb is Chief Digital Officer at Telefonica Digital UK (O2) where he has a track record of launching new businesses, growing P&Ls and winning large contracts. He also serves as a NED on the board of major growth businesses such as Tesco Mobile and giffgaff.
My job is to manage the exciting world of partnerships, new product development and start-ups at Telefonica Digital UK (O2). I try to be the person who sits in the middle, developing fresh thinking and new possibilities, plus allowing people to cross-pollinate ideas while protecting those taking risks.
I’ve been running our digital and wholesale businesses for four years now and also work with Telefonica Open Future where we incubate new businesses.
Globally, Telefonica has worked with over 700 businesses in various ways. In many cases we send O2 mentors into those start-ups to help them grow and develop their thinking. After a few months our managers often come back inspired by the energy and creativity they have seen, and with a whole array of new digital skills from entrepreneurs who would never work for a large multi-national.
As with all innovation we have to be prepared to disrupt ourselves, divorce ourselves from industry thinking and leverage new technologies.
I try to celebrate our failures as well as our successes, and if we do fail, I want it to be fast. For me, that’s within 100 days and for less than £10,000!
Finalise a proof of concept before the legal details
Emily Forbes is the founder of the start-up, Seenit, which enables businesses to tell stories through video that is sourced directly through its staff, customers and community.
There are now many start-ups out there and we’re all determined and focused on our own solution, so it's useful if corporates clearly communicate the biggest challenges they need help with. Going out with the message ‘we need to innovate’ is just not enough to find the right partnerships and can waste precious time.
The most rewarding relationships are always two way so the start-up also needs to be clear on exactly what support they're looking for. This must be communicated from the very beginning and have clear goals.
We’re now over three years old and for the first year or two we wasted far too much time negotiating tiny details in partnership agreements before we'd spent any time actually working together. After months and pages of legal documents, we would run a test and realise the product we had didn’t quite fit the corporate or its customers’ need. Now we’re a lot tougher on saying ‘no’ and don’t go into any long legal partnership until there is an initial proof of concept.
As a start-up you move at a very different pace compared to a corporate and it's easy to get frustrated. A big lesson we’ve learnt is how important it is to also recognise the risk and leap of faith the corporate is taking to support a start-up or new technology. Conversely, the smaller business will absorb all the risks of development. The best relationships we’ve formed are when both parties understand and communicate the pressures from each side.
Pick long-term relationships, not IP squabbles
Thomas Boesen is the SVP Business Development at IMImobile, which helps organisations harness mobile and digital communications to improve engagement and streamline customer processes.
Many innovators are worried about losing their IP to larger partners but we’re finding that most of those big businesses have learnt their lesson and prefer to work together.
As a well-established cloud software company, we’ve been investing and innovating for many years. In the past, some of our very large clients, customers or partners have told us they can develop the solutions in-house − but few of them are able to innovate and deliver fast enough, and never do. They take about two years to develop what you had at the start, by which point you’re well ahead of them. We can help them innovate twice as fast.
Their main problems are that they have numerous, disparate IT systems running throughout the business, which don’t talk to each other. We can connect all of those systems and deliver the information in a much smoother way.
Partnering with quicker and more agile start-ups gives corporates the freedom to test and learn in the digital era. Most of them know they’re dead in the water unless they improve their ability to respond to changing customers’ demands by quickly adopting new approaches.