July 31, 2017
Successful collaboration between corporations and entrepreneurs requires of companies specific organisational capabilities and managerial skills
In our previous post about corporate venturing, we explained how established companies look for innovation – both internally and externally – to grow continuously and profitably.
The speed of innovation has increased exponentially in many fields of technology during the past few years. Entrepreneurs from all over the world have exploited many opportunities that were unimaginable a short time ago. New services, new products and revolutionary business models based on blockchain technology, cloud computing, artificial intelligence, big data, the Internet of Things, virtual reality and ultraspeed networks such as 5G are some of the technological fields that are transforming the economy.
With the emergence of all these innovations, corporations have found that, if they remain closed and fail to be in communication with what is going on around them, they risk being left behind.
There is no doubt that the approach of open innovation has become strategically key for some sectors and corporations. As new formulas for seeking external innovation have flourished, collaboration between corporations and entrepreneurs is increasing under the umbrella of what is known as “corporate venturing.”
But what are the key factors that have made these collaborations successful?
Moreover, what managerial skills are needed to reach the desired goal of the not-so-easy relationship between these very different organizations?
After conducting interviews and analyzing the innovation strategies of many corporations, we have identified the following as common success factors when corporations collaborate with startups:
1_ A clear corporate innovation strategy must be set, with well-defined goals from the start.
2_ The corporation’s top management must be totally committed to and supportive of venturing programs and must grant the resources needed to achieve the goals.
3_ Venturing programs must be autonomous and be run autonomously in accordance with their own needs, timing and procedures.
4_ However, autonomy should not be at the expense of a high degree of interaction with the rest of the business units and the corporation’s overall innovation strategy.
5_ The corporation must put in place mechanisms to incentivize collaboration with start-ups if it wishes to maximize the effects of that collaboration.
To this end, established companies must simplify processes to make collaboration easier for start-ups and help satisfy start-ups’ needs in order to sustain a mutually beneficial relationship. If we focus on the different ways of innovating or collaborating with start-ups, we find that managers in large corporations need different skills and success factors depending on the tool chosen.
Established companies must simplify processes to make collaboration easier for start-ups
The following is a selection of skills and key success factors according to tool:
Challenge prizes and hackathons
a) Skills necessary: The ability to identify and define the key problem to be solved and the ability to filter opportunities.
b) Key success factors: For challenge prizes, what is required is the promotion of all of the contest’s requirements and procedures, giving the right incentives, and involving innovation experts to filter ideas. For hackathons, setting clear expectations, fostering a collaborative environment of functional working teams, group building sessions, and offering engagement to participants are key.
a) Skills necessary: Industry expertise, market research, analytical skills and a relevant network.
b) Key success factors: Targeting preferred industries and locations and establishing a list. Sending experts with an objective and a deadline.
a) Skills necessary: At the beginning of the process, requirements include industry expertise, analytical skills, and the ability to manage the process of transforming an idea into a minimum viable product (MVP). When the start-up is formed, understand how to integrate it.
b) Key success factors: Close cooperation, a quality network for scouting solutions, getting to the stage of a quality MVP and minimal marketable product (MMP) in the shortest time. Taking precautions to handle intellectual property (IP) issues relating to jointly developed innovations. Handling the integration.
a) Skills necessary: The ability to build relationships, trust and effective negotiation skills.
b) Key success factors: A dedicated and talented team, including a champion. Early identification of complementary capabilities with the start-up, with a pilot budget and an agreed time frame. Negotiation beforehand of the rights, profits and expenses relating to emerging business opportunities. Simplified procedures (shorter payment terms, etc.).
Incubators, accelerators and other models such as venture clients
a) Skills necessary: The ability to deal with the needs of entrepreneurs. Professionals with experience of entrepreneurial financing instruments. Industry expertise, business talent, connections with strategic partners, access to mentors, management and Board members, regulatory compliance help and intellectual property management skills.
b) Key success factors: Selecting the best start-ups. Compressing the innovation cycle, the provision of relevant training and the establishment of standard simplified procedures. Offering quality services that enable scaling and growth (talent, education, facilities, and networking).
Note that the key success factors for venture clients are the same as for strategic partnerships, as the requirement is that the start-up must have been accelerated and already have a viable product on the market.
Corporate venture capital (CVC)
a) Skills necessary: Excellent investment track record, deal-making experience, operational experience of start-ups, great networks of customers and investors.
b) Key success factors: Designing the right incentives for the investment manager. Clear investment strategy (independent or parent-bound). Establishing extremely flat structures and short decision-making processes.
a) Skills necessary: Networking skills, informed judgment, due diligence experience and financial expertise.
b) Key success factors: Having a structured integration process and considering both the human and the operational aspects during the process.
In today’s fast-changing industries, collaborating with start-ups has become not only an option for corporations to adapt to disruption and lead the market through partnership for innovation but, in many cases, is the only path to compete efficiently.
Image: Franklin Heijnen under a Creative Commons license
Julia Prats is Professor of Entrepreneurship at IESE Business School and member of the Scientific Council of Future for Work Institute