Joining a corporate accelerator or partnering with a corporation may be the direction you want to go. But it's important to understand the behind-the-scenes, expectations and perspectives of the corporate partner before you jump in.
In this article, Dave Drach, VP Corporate Strategy at Techstars and Niko Pipaloff, Emerging Tech and Startup Engagement at PwC a global professional services firm, share their experiences on the most effective ways to approach startup/corporate engagement.
How can corporations and startups best collaborate to prepare for the digital age?
Dave Drach: Startups must be very tactical when engaging with a corporation and be willing to be open during mentor interaction, but then specific in what goals they would like to achieve. Corporations have deep domain experience from years in a particular industry, as well as an extensive network of connections. Both can help founders understand business markets and how ecosystems currently work.
Through partnerships, startups can leverage PR and marketing, as well as channel and distribution access, especially in heavily regulated industries. For example, DoPay, who completed the Barclays Accelerator, Powered by Techstars, was able to leverage a Barclays bank in Egypt to create merchant accounts for their easy payroll platform. These kind of partnerships and strategic relationships are the result of open and collaborative communications that are fostered through the mentoring process.
Niko Pipaloff: Corporations should consider the startup ecosystem as a critical component of their innovation/R&D function. Surprisingly, we found that just 7 percent of companies rank “working with the startup ecosystem” as one of their top sources for innovation in PwC’s Global Digital IQ Survey. In order to get the most from their investments, corporations should look to engage across the startup lifecycle, tailoring their strategy for each stage.
Early-stage engagement (pre-revenue) can focus on establishing broad relationships and awareness building. Sponsorship of coworking spaces or incubators are a great way to get a pulse into the ecosystem. Corporations can also offer pro bono services to build a positive reputation in the community. For example, PwC has offered workshops in data analytics, corporate structuring, tax law, and sales tactics.
As startups mature and grow, more direct business relationships become more likely. Focus on providing funding, domain expertise and relationships but be careful not to overwhelm the startup with your demands. Realize that the startup will need to serve a market beyond the single corporate partner and give it the space to make the best product and market decisions.
What are the most productive outcomes of a collaboration between a corporation and startup founders?
Dave Drach: The most productive for founders, and I would say the corporations as well, are some form of cross licensing and promotion. When both parties stand to benefit from the deal, then both parties will invest in making it successful. The collaboration usually focused on a new, innovative technology, perhaps a technology that the corporation has not been successful with or has been challenged in engaging.
A great example is the collaboration between Disney and Sphero where the two companies were deeply engaged in the Disney Accelerator, powered by Techstars and then the two partnered to create the BB-8 connected toy. The collaboration included content and media promotion, content licensing and even investment from the corporation in the startup. The results were outstanding and the two entities have since collaborated on many additional connected toys.
Niko Pipaloff: The most productive collaborations allow each party to focus on their strengths. For startups, I think that strength is effective “exploration.” That means testing new ideas and markets, customer discovery, finding product/market fit and setting the direction. For corporates, their strength is in effective “exploitation.” That means bringing massive resources to bear and scaling an idea through funding, domain expertise and relationships. It means taking a model that was proven out in small scale and putting behind it the power of global salesforce, manufacturing or distribution capabilities.
As one of the largest professional services firms, PwC has the capacity to provide a startup unprecedented access to customers and partners. The real challenge is to identify complimentary go to market strategies and identify startups that are at the right stage of maturity.
What are the differences in how a corporation handles disruption and how a startup handles disruption?
Dave Drach: For a startup, there really is no such thing as disruption. A founder sees a problem, harnesses the resources to solve the problem and delivers a monetizable solution. The focus of the founder is solving the customer’s problem and likely ignoring the existing business ecosystem in the process. That is what the Techstars company Everledger has done with diamonds and blockchain.
Everledger records the provenance of diamonds from mine to ring leveraging a digital registry built on blockchain. It completely changes how you insure a diamond. And obsoletes most of the legacy criminal behavior around stealing and fencing diamonds.
Founders just do their thing and if it makes the existing infrastructure obsolete, the disruption, that is a side effect of their solution and their effective execution.
Niko Pipaloff: For a startup disruption in the market is almost always an opportunity. A changing landscape makes established players more vulnerable and gives nimble new entrants a fighting chance to provide something better fit to the new paradigm. An established corporation could also view disruption as an opportunity but it’s often saddled with the “Innovator’s Dilemma” – change often threatens established corporate functions who resist the loss of their eroding position. This is why large corporations are rarely the instigators of disruption but so often the victims of it.
To counter this, corporations need to develop a mindset of constant change where it is normal and expected to reinvent oneself every few years. Part of that is cultural (changing the norms and expectations so that employees feel safe and encouraged to try new things) and part of it is operational (providing the tools to facilitate a free flow of ideas and the environments to effectively prototype them). In my experience, neither of these is possible without a visionary leader in the c-suite willing to champion the cause.
What emerging tech from the startup world have impacted large corporations?
Dave Drach: I work every day in helping connect our portfolio of early stage companies with corporations to help both parties. I pay attention to deals that close fast between corporations and startups because it demonstrates technology areas that are being adopted rapidly.
First would be drones and drone deployments. Skyward, a Techstars investment which was acquired by Verizon, was the right solution at the right time. Skyward focuses on systems that simplify drone operations into task oriented solutions. Hensel Phelps, a 3,000 employee construction firm, moved from experimentation with drones to offering an operating infrastructure for drones by becoming a Skyward customer.
AI is being embedded into task specific solutions, mostly with improved development platforms that are emerging, like Seldon. Adoption is not moving as fast in the area of blockchain, but the demonstrated solutions are truly breakthrough.
One example is the blockchain startup Wave, who completed the first global trade transaction leveraging blockchain between Ornua (the Irish Dairy Board) and Seychelles Trading Company. This was a global trade transaction for butter and cheese between Ireland and the East African Country of Seychelles, completed digitally, in blockchain.
Niko Pipaloff: Based on our research, PwC has identified 8 essential technologies that are having the greatest impact on our clients, and all of them are heavily driven by innovations coming out of the startup ecosystem.
For example, in the IoT domain, we are partnering with Sigfox to bring low cost, high bandwidth sensor solutions to many of our industrial and utilities clients. In the drone domain, we are partnering with Hangar to support hardware and flight planning for our mining and infrastructure clients. And in the Machine Learning domain we are experimenting with platforms such as Datarobot to bring advanced machine learning capabilities to the masses. PwC works with these and many other startups to provide deep technical expertise and push the limit of what is possible. Ultimately, we are stronger together.
How does the incentive structure for innovation differ between corporations and startups?
Dave Drach: The primary incentive structure for a startup is survival. If you do not find product-market fit, then you die. If you do not find a scalable monetization model, then you die. Time is your enemy. Innovation is your friend. You have no infrastructure, few to no customers, and no legacy, so you can focus purely on the potential of the future. And if you survive, the payoff can be significant. You are able to control your own destiny within the opportunity which you are pursuing.
Every conversation, every meeting, every transaction has tremendous urgency. You must #domorefaster, to use one of the key training points we leverage here at Techstars.
Niko Pipaloff: A startup is a high risk, high reward venture where the incentives for the founders are directly mapped to the market success of the company. It’s a “succeed or die” environment which forces a clarity of purpose and an efficiency of action. Startup founders are constantly pushed to work on the most important aspects of the business and their decisions are pressure tested at each step.
Traditionally, corporations have been less effective in innovation because their internal structures rarely allow for such single minded clarity of purpose. Employees are ultimately incentivized with bonuses and titles, but because of the diffusion of responsibilities it can sometimes be easier to obtain these rewards by effectively managing perceptions rather than solving hard problems.
Ultimately, corporations should look to map internal incentives more directly to innovations and their success in the market. That means giving intrepreneurs the time and space for dedicated work and a bigger piece of the upside when innovation efforts are successful.
Are there structures that help corporations and startups innovate together?
Dave Drach: The collaboration between startups and corporations has grown significantly over the last 10 years and is replacing elements of the R&D infrastructure of many corporations. The original approach was primarily focused around acquisitions. One of the most effective approaches I have seen recently is support for startup partnership integration, either through a third party, or an internal “black ops” team that is given executive support to quickly drive through integrations and partnerships.
Both the startup and the corporation benefit from rapid deployment and integration. We call this “Startup Speed” and it’s a game changer for our partners who get there.
Niko Pipaloff: In many ways, corporations and startups inhabit two different worlds and speak two different languages. Incubators like Techstars are vital in bringing the two parties together, but it can still be hard to bridge the gap and work together effectively. Ultimately, a corporation needs an integration point with the startup ecosystem, teams within the company that speak the same language and work in similar ways. PwC has several.
Our Emerging Tech and Analytics Labs provides a sandboxed environment for the testing and prototyping of new technologies and tools. Our New Ventures group, provides the financial backing for the development of new products and businesses. And our Digital Services team provide expertise in human centered design and customer engagement. These teams are familiar with PwC’s core businesses and operations but also bring a wealth of experience from tech, startups, venture capital and digital agencies.
Ultimately, it is through these functions, that PwC is able to effectively collaborate with the startup ecosystem.