The topic is hot. Corporates and startups are looking to team up in their constant chase for innovation. Most of them fail.
Still, there‘ s an increasing number of initiatives looking at bringing “the Davids and the Goliaths” together. Corporate venture capitals (CVCs), incubators, innovation programs… You name it.
Shame on the large company that doesn’t engage with startups and innovation.
Nonetheless, there are plenty of obstacles on the way of building a successful relationship between a startup and a corporate.
Different methods, codes and communication styles… different speed of execution and level of agility above all.
Why do corporates and startups need each other?
Let’s define a corporate a company that has entered the stage #3 of the business life cycle: maturity. A startup would sit anywhere on the curve in the previous stages.
This graph is a common representation of a natural product life cycle. Once maturity has been reached, we consider that the addressed market is saturated. As a matter of fact, consumers eventually get bored and end up setting their mind on other products and services. We, consumers, tend to be attracted to novelty.
So if we assume that companies are meant to last forever, the decline stage can only be push further away by:
- Finding new markets and uses to generate new forms of revenues,
- Diversifying the portfolio with offers addressing fast growing markets or high yield investment opportunities.
The first point sounds like the core mission of any startup.
The second one also sounds familiar in the tech startup world. Spotting unicorns at early stages being a good example of a high yield opportunity.
Bottom line, corporates have to look at what’s going on in the startup world, at the very minimum.
On the startup side, the end game is straightforward. Sealing a partnership with a corporate:
- Brings access to larger deals,
- Can lower customer acquisition costs,
- Allows building reputation and a track record,
- Accelerates market penetration.
And still, sealing a B2B deal with a corporate can be tricky for a startup.
Additionally, all partnerships are not worth pursuing just like not all customers are worth having.
In our fast paced startup world, how do you identify the relevance of a partnership?
Has that ever happened to you?
You focus on that one bigger fish. You feel like signing a contract with that corporate will accelerate your development. That company knows it and uses it to put pressure on your margins and conditions. If you don’t watch for it, the business relationship starts to become unbalanced. The smaller and more fragile guy (you) gets more and more exposed to financial and operational risks.
But you want this deal soooo bad that you consider “investing in research” to catch that fish.
The big fish ends up asking you to work for free and you end up financing their pilot projects because that guy’s logo would look good on a pitch deck.
It’s not fair, but it’s a bet you can choose to make (cautiously). The point there would be to attract bigger customers. Or, you could look for a middle ground to satisfy each other’s needs and constraints… That’s what partnerships are about.
The biggest risk in situations like these is to end up working for the 20% of your counterparts that will take 80% of your time and energy for 0$.
Hence the importance of quickly identifying the likelihood of a partnership being a worthy (time) investment or not.
Let’s point out how corporates and startups differ and see why collaboration fails so often.
Then, we will explore a simple framework built to address that challenge on the startup side so that this partner can be a good customer.
Highlight on the differences between corporates and startups
- Bigger means and longer history,
- Larger influence in the ecosystem,
- They have less to prove. If they still exist, we assume their business model is currently viable and keeps them alive.
- Different horizons and bigger weight in the economy. The bigger the corporate, the more ties they have with regulators and other behemoths.
- Their reputation and brands are already established. Though, they are afraid to make mistakes as it could entail their reputations. Startups don’t have that problem since they are still building their history.
- Less threat to “die if they don’t deliver”.
- Difficulties to be Agile,
- High sense of hierarchy,
- Information is shared less directly,
- A lot more political games, moving pieces and hidden forces,
- Employees’ average age is older than in startups with less chances to have been trained on the latest technologies,
- Tends to be scared to share ideas and know-how,
- More high level approach, lots of meetings and processes.
- Freer to move and looking for disruption,
- Less process, exchanges are quick and informal,
- Tendency to be more open minded and flexible,
- Still in the process of refining and finding their business models. That’s what makes them startups. (Could be a weakness too).
- Attracts young and dynamic talents,
- Share knowledge and experience more easily. Knowledge and ideas are one thing, execution is another one.
- Practices trial and failure to validate what works best.
- Higher risk,
- Bigger stakes to work with a corporate,
- Less financial history,
- Monthly horizons,
- In the process of building reputation and credentials.
Why does collaboration between them fail so often?
- Misunderstandings and misalignment of interests,
- Lack of commitment from one part,
- Loss of information along the way,
- Problems identifying actionable plans,
- Problems to navigate large organization to reach a consensus and unlock budgets,
- Economies of scales: because of lower volumes and initial investment costs, there’s often a mismatch between the expected cost per unit a corporate has in mind and the one the startup can actually offer.
- Riskiness and aversion to bring change in large organizations,
- Lack of understanding of how each other works and makes decisions,
- Failure to build trust.
That being said, some partnerships happen to be successful. They are the ones you will hear the most about.
While both sides have to do their own due diligence, I will tell you about a methodology that worked for me on the startup side.
A simple framework
Here’s a framework to prepare for a meeting with a corporate and get all the relevant information you need to close a deal and/or partnership. The idea is to define a scope to be able to only focus on relevant information. The outcome is to turn your expectations into actionable plans.
Your focus is rapid and sustainable growth.
The objectives of the framework
- Increase your chances to make the partnership come true.
- Develop a better sales strategy with a feasible and timed plan.
- Better prepare negotiations and be more convincing, so that your counterpart can easily convey information internally to convince his board.
- Come up with a relevant commercial/partnership proposal. Optimize your chances to get a fair deal.
- Avoid wasting your time and money on trying to get a big guy that is not well suited for you.
- Differentiate from competition: not enough companies focus on wholy understanding their counterparts. It increases your chances to wins a deal.
The important is that you deploy this framework focusing on your potential business partners and their needs. Not spotlight is not on you and “your baby”.
- Who are the decision makers?
- Who are your customers’s customers? If they don’t know, help them find out.
- Who are your customer’s suppliers? What’s the associated risk?
- Who are their competitors? How do you position yourself compared to them.
- What problems do your customers have and what causes them?
- What problem do they currently solve for their customer?
- What problems do their customers need to be solved?
- What does the regulatory environment look like?
- What is their decision making process?
- What alternatives do they have to your offer?
- What can you currently offer now?
- What could you offer in the future?
- What other hidden forces could there be behind their decisions and appreciation of your offer?
- What are your counterpart’s timelines?
- What does their sales process look like and how long is the sales cycle?
- When do you have to deliver? (The answer is often “yesterday” but a realistic answer is better).
- When could you deliver (for real)?
- How much budget does your counterpart have to solve their problem?
- How much money do they lose if they don’t solve X problem?
- How much money can they make if they do?
- What’s their targeted ROI?
Incentives they have
- What are the motivations of each decision maker and how much do they need you?
- How fast is their market going?
- How fragmented is their market?
- How large is their market?
- Are you going to help them acquire a new market? How?
- How else can you help the decision makers reach a consensus?
- How personally important is the partnership for each decision maker?
- Will there be a dedicated sponsor/advocate of your solution on their side?
- Can you trust them?
- How can you build/win their trust?
- What are their past successes?
- What’s their reputation?
- Are they reliable?
- Are they responsive?
- How big of an internal turnover is their? (high employee turnover +long sales cycles = NOGO!)
- What’s the potential outcome of a long term partnership?
- How strong are they in their area? Do they have a potential to make an outbreak thanks to you?
- How fragmented is their ecosystem?
- How relevant is your solution to their problem? How much work should be done to adapt your solution for them? Are they worth getting a higher level of customization?
- What deliverables are expected?
- What will be the criteria to measure success and what will be their KPIs?
- How will the tasks be shared between you and your counterpart?
Now get it on!
Find a buddy who needs the same information but who is not a competitor. More intel is definitely a nice to have.
Check on the annual reports, look at their financial statements (if available) and make your research on the internet.
In other words, do your due diligence to tackle the problem with the best strategy and efficiently.
You don’t want to ask them questions for which the answers can be found online.
Make your research online and try to answer as many questions as you can before the meeting. Keep the remaining questions for the face-to-face interviews. Validate some of your assumptions. This method helped me build a clearer strategy. You can then come up with a proposal and refine it with the counterpart later one.
Once this is done, identify 3 options to explore. Break down each option into an actionable plan. It has to be timed with well-defined objectives.
Determine each other’s next step and what the deliverable should look like. Set deadlines. Get back to the customer with proposals for each option and iterate until you succeed.
Now good luck to you and thank you for reading! Let me know how that worked out for you or if you see something else 🙂