It is undisputed that corporate-startup relationships are nowadays inevitable, if not a match made in “business heaven”.

It is undisputed that corporate-startup relationships are nowadays inevitable, if not a match made in “business heaven”. With success stories such as Diageo and Thinfilm, Coca-Cola and Wonolo, as well as Dell and DocuSign, it is hard to ignore that the corporate-startup relationship is the key to fostering innovation and ensuring mutual success. 

However, regardless of their inevitably, there is a relatively low success rate for partnerships between large companies and startups. In fact, 45% of large companies and 55% of startups in Europe are “very dissatisfied” or “somewhat dissatisfied” with their partnerships according to BCG. This begs the question, if they are so unavoidable, why is the corporate-startup relationship so hard to crack? 

Before jumping into why they fail, let’s take a minute to remind ourselves why they exist in the first place. 

  • Aligning themselves with a large corporation allows them to secure the necessary revenue needed to survive and achieve sustainable growth. 
  • It grants them independence from external capital sources, buying them time to build a reputation while collecting success stories for future sales. 
  • Accessing proprietary assets (data) and mentoring from large corporations allows startups to further develop their product while understanding the complexities of the market. 
  • Tapping into existing internal infrastructure and partnering with a large company’s subsidiaries allows a startup to scale faster and internationally.

Why Corporations Work With Startups: If You Can’t Beat Them, Join Them

  • It allows them to innovate externally while protecting their strategic positions. They are able to secure a competitive advantage within their industry and increase revenue without having to completely uproot their own internal structure or business model.
  • Given a startup’s agile working methods, large companies are often provided with a product that is easily adapted and customised to their needs and market trends. 
  • It is a smart investment. As David Fowler from Microsoft puts it, “In the same way that startups are the developers of tomorrow, so startups are the large-scale enterprises of tomorrow.” What may start out as an investment, if successful, may become that corporations next flagship client or customer.
  • Because at the end of the day, a corporation’s only option is to disrupt or be disrupted. In other words, if you can’t beat them, join them.

Why the Startup-Corporate Relationship Stumbles

Unfortunately, regardless of the benefits outlined above, about half of these collaborations are unsuccessful. In fact, there is a laundry list of possible risks for failure, but the key recurring themes are as follows:

  • Startups have a very limited window to find revenue in order to fund their operations and ensure the survival of their company. This can be problematic as a corporation’s rigid internal processes can lead to long sales cycles that jeopardize a startup’s financial success. 
  • What guarantees the long term success of collaboration between a startup and a corporation is senior management support from the corporation. However, for a startup, navigating the maze of internal corporate structures and their siloed organisations to secure senior management support can prove difficult. In addition, differing expectations from key decision-makers within the large company can cause delays when attempting to launch a partnership or project. 
  • Although startups are known for their agile working methods, some large companies view this as an opportunity to dictate the future product roadmap. As such, a startup may find its product development being dictated by the client who makes the biggest fuss, rather than intentional UX research. A startup may become too influenced by an individual customers needs, limiting their ability to create a scalable product that responds to the global market.
  • Lastly, a clash of cultures surrounding the following: agile vs. static work processes, conflicting work ethics, and varying appetites for risk. These all add complexities for a successful relationship. 

How to Avoid The Stumbling Blocks

Fortunately, recent research has revealed that there is a possible solution to circumvent these stumbling blocks. Overall, the goal should be to simplify the collaboration process, while ensuring a win-win scenario for both parties. Therefore the process is two-fold: 

  1. Large companies should adapt internal processes to shorten sales cycles and simplify rigid decision-making processes. The easiest way of implementing this is for corporations to initially move away from long-term contracts and opt for experiments and pilot projects (POCs). This means putting in place a short term project that allows immediate cash flow for the startup while providing sufficient time for the large corporation to evaluate the potential solution prior to industrialisation.
  2. Although possibly evident, the second part of the process is to prioritise a robust flow of communication between the startup and corporation. Both parties need to have a mutual understanding of each other’s culture, incentives, risks, and differences. Large corporations need defined innovation goals in order to best choose a cooperation/partnership model that reflects their innovation strategy. They need to identify which departments and key decision-makers will be involved in piloting projects with startups and equip them with the necessary resources to make those initiatives successful. Expectations and limitations between the startup and the large corporation need to be transparent and fully aligned to ensure overall success.