Ten reasons your startup-corporate collaboration won’t get off the ground

Photo by Jonathan E Shaw

We’ve seen it all before. Startup has a great first meeting with a large corporate. The corporate guys are really excited about the startup’s innovation, and the potential for a sale or other collaboration is exciting. Terrific!

Twelve months, and eighteen meetings, later, nothing has happened. Why?

Startups have limited resources to pursue collaborations — they typically don’t have the bandwidth to go guns blazing on a large number of relationships at the same time. How should startup founders triage their pipeline of potential collaborations? What may cause one that initially seems promising to go nowhere (probably painfully slowly)?

It’s really hard for a corporate to collaborate effectively with a startup. For it to work, the corporate needs to behave in ways that are not natural for large, complex, procedure-bound organizations.

Indeed, many corporates can’t collaborate successfully with other large corporates, much less with a startup that has a very different culture, timeline, needs, expectations and resources.

Additionally, corporates frequently lack an innovation culture, confusing process improvements with innovation. A corporate that lacks the ability to pursue internal innovation cannot collaborate successfully with others to innovate.

Corporates that are serious about collaborating with startups understand that startup capacities and needs are different from those of their large corporate counterparties. Those corporates with the most successful startup collaborations have put special procedures in place for startups, addressing such areas as procurement, legal, compliance and payments on startup-appropriate bases.

So, are you going to be your corporate counterparty’s first successful startup collaboration? Don’t count on it.

Corporation innovation groups like cutting edge innovation. Scouting is a key reason for their existence. Your tech may be really cool, and your innovation group contacts are likely to have the best of intentions in engaging with you. Additionally, their senior corporate leadership may use the corporate innovation group to stay on top of developments. While some senior corporate leadership is serious about innovation, others simply need to appear focused on the future and not just the next quarter’s earnings.

There is frequently a large gap between what interests an innovation group and what a corporate ultimately is willing or able to implement. Consequently, it’s important for the startup to distinguish between a true corporate interest and “innovation theatre”.

Don’t misunderstand — corporate innovation groups can be great for startups. In particular, innovation group members may become passionate internal advocates for the startup, and can help the startup navigate the complex and sometimes byzantine pathways in the corporate.

Thus, it’s fine to have an initial meeting with the innovation group. However, if the business isn’t already engaged by the second meeting, startup beware.

Startup founders need to have a clear understanding of the pain point they would solve for the business, and its relevance to the corporate. Founders also need to have a realistic view of their startup’s present ability to address that pain point. If the startup’s solution is only a partial solution, what would be required from both sides to make it work? Does the startup have the capacity? Does the corporate have the ability and focus to do what it needs to do?

It may seem counterintuitive, but a startup’s efforts to address too central a corporate pain point, or address it too comprehensively, can be as problematic as offering a “nice to have.” Corporates are not likely to trust a startup with an issue that is core to their business — it’s just too risky. A modular approach by the startup may help — if the startup can offer a module of its solution that addresses a particular aspect of the problem, the corporate may be willing to give it a shot. If the module operates successfully, the corporate may be motivated to try additional modules.

Also, challengers in a market may be more willing than lead incumbents to work with the startup on the issue — they have more to gain, and less to lose.

OK, so you’ve met with a lead operational person in the business, you understand their pain point, the lead is really keen, and you are confident that your startup solves their problem. Now is the time to find out who in the business is going to need to sign off, whether those individuals are engaged, whether there is budget, and what would be the process and timeline going forward. This is appropriate due diligence, and you should not be put off by a concern that you might offend your counterparty by asking these questions and seeking senior meetings. Both parties need to have a clear understanding of what is required to make this work. If a senior person in the business is not excited about the opportunity and prepared to go the extra mile, your chances are pretty low.

While the support of the business is critical, it isn’t sufficient. A corporate’s successful collaboration with a startup will require active involvement from IT, compliance, legal, procurement and other key central functions. They may need to handle matters in a way that may be different from business as usual. They will only be motivated to do so with senior authorization (or indeed, mandate).

Corporate innovations, whether collaborative or internal, need to jump through a complex set of hoops. The IT infrastructure needs to be protected. Client data needs to be secured, and can only be used in certain ways. Client relationships need to be safeguarded. The corporate needs to comply with legal and regulatory requirements. All of these may require the startup to comply with certain protocols, industry standards, certifications and regulations.

Too often, startups fail to diligence these requirements at an early stage. In many cases, these requirements may operate in similar ways across the industry. There is really no excuse if the startup fails to address these points in advance.

In any case, the startup should seek to engage with the relevant functions of the corporate at the same time as it is pursuing the commercial arrangements with the business.

You and your corporate counterparties agree a proof of concept trial, and what will constitute success. The trial works. What happens next? Ideally, you would have a binding agreement that automatically converts your trial into a binding contract if the trial is successful. That isn’t always possible. However, there should at least be a clear business understanding between the parties, setting out in writing their expectations as to future steps.

Corporate people change jobs — a lot. They move within the corporate, or they move on to another corporate. You spend months working with a particular individual to agree a collaboration, only to hear one day that the person has moved on. At that point, you need to start all over again, or abandon the effort.

There is no fool-proof way to avoid this. However, you can mitigate this risk if you are able to form multiple relationships with relevant individuals, at different levels, in the corporate. Then, keep your ear to the ground. If you learn that your lead counterparty is moving on, try to get them to help you engage with their successor or other key persons. Also, make sure that you are treating the more junior people on the team with appropriate respect — roles change, and in any case they may become your saving grace if your senior contact leaves.

Corporate priorities can change for a lot of reasons. The CEO changes. The business is restructured (sometimes multiple times). The business is sold. Crises arise. Demand for the corporate’s products or services declines. There is little that the startup can do to protect against these developments, other than to avoid putting all of its eggs in a single basket. Startup founders don’t have the bandwidth to pursue a large number of potential pipeline opportunities. Conversely, however, pursuing too few is deadly.

I’ve previously written several blogs on the challenges of managing corporate-startup collaborations. For the startup, however, the starting point is pipeline triage. Startup founders can reduce the risk of wasting time on ephemeral corporate sales and other collaboration opportunities if they rigorously analyze their pipeline, and allocate resources appropriately.

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This discussion is not intended to provide legal advice, and no legal or business decision should be based on its contents. If you have any questions or comments, feel free to contact robert.mollen@mollen.uk or via LinkedIn here.

Bob is a member of Tech London Advocates, a volunteer organization whose corporate innovation working group is focused on corporate innovation and corporate-startup collaborations. https://bit.ly/TLAcorporateinnovation Conversations with many corporate and startup executives and alumni have contributed to this blog.

You will find some of Bob’s other weekly blogs for emerging and growth companies indexed here on Medium: http://bit.ly/StartupGuides

Mentoring tech startups on corp-startup collaboration, US establishment/internationalization and funding. All views are my own.