Enrica Sighinolfi, the co-founder of Opportunity Network, said that partnership between incumbent players and startups is the way the Fourth Industrial Revolution will be sustainable in the long term. Startup business models could add value to existing players without necessarily disrupting them, while big companies could benefit in terms of helping corporates to enter and create new markets.
However, according to the Digital Europe project, when working together, there might also be various potential pitfalls. Startup’s CEOS often find themselves talking not to the corporates’ CEOs, but to employees with much further down the hierarchy. Complications also commonly arise from a clash of cultures, agile versus static work processes, different work ethics and different levels of appetite for risk.
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But does working together with established big companies will give more benefit and challenge or more problems for startups? Here is the sum up.
Benefits – Why does collaborating with big companies make sense for a startup?
#1 Revenues and independence from external capital
Revenue often is a key incentive for an early-stage company. As big corporates can invest considerable amounts of money for products, corporates can free startups from the need to seek outside investments. Corporates can also have a long-term interest, which might stabilize a startup and help it to reach break-even points or even profits very early. Such an approach allows the startup to achieve sustainable growth, independently from scarce venture capital.
#2 Success story for future sales
Large corporate customers substantially enhance the reputation of startups and serve as reference cases for future sales. As corporate decision-makers look for references before engaging in collaboration, this also triggers a network effect. In this context, the transformation of the sales process from an innovation pitch into reference selling might become a key success factor for a startup.
#3 Scalable customer base
Large corporates can be an ideal target customer as they have enough people, budget and opportunity to scale. This is helpful for startups and providers of emerging technologies that are looking for their first customers.
#4 Riskless internationalization
Working with corporate headquarters offers the possibility to expand into other countries by partnering with the corporate’s local subsidiaries. Moreover, large user bases might also help startups to refine and optimize their products.
#5 Attractive retail sales channel
The infrastructure of an established corporation, including its existing clients, allows faster scaling of startup business model than startup could achieve on its own.
#6 Access to proprietary assets
Partnering with a corporation can enable a startup to exploit underutilized corporate assets such as data that would otherwise not be accessible, and thus create new business opportunities.
#7 Market knowledge and mentoring
Established business players can help startups enter the market with their resources. Startups can also tap into the knowledge and long-term experience of the corporate in the form of mentoring.
Risks – What is so challenging about collaborating with an established corporate?
#1 Need for revenue
Both bootstrapped and venture capital-financed startups have only limited time to find customers or funding to continue their operations. This time factor weighs on any type of collaboration, which could otherwise break or create stronger relationships.
#2 Getting engulfed by one customer
Focusing on a custom solution for a single large corporate client might distract a startup from developing a universal, scalable product and strategy, and limit growth prospects.
#3 Delayed projects and waste of resources
As several corporate departments tend to formulate different requirements for the relationship between a startup and a business, this often leads to delays, which are financially hard to handle for a startup. In addition, corporations might not pursue a strong collaboration, and rather consider startups as a source of free consultancy. This tends to take up a lot of the startup’s resources.
#4 Premature scaling
Startup might scale too early after a successful proof of concept or signing of the first deal. Successful sales to innovation departments or first clients do not mean that the market is ready for scale.
#5 Loosing the start-up spirit
In case the collaboration is getting too close and the dependency on corporate decision-making too strong, there is a high risk of losing the agile spirit of a startup and with this also its attraction to the best minds involved.
Read also: 9 Main Characteristics of Successful Startup Businesses