startups and corporate partners

Odd Couples Part I: What Startups Should Understand about Corporate Partners

Mike Sobol Corporate Innovation, Startup Strategy 0 Comments

Large enterprise businesses are slow, risk-averse and married to the status quo. Few of their employees are tasked with anything resembling innovation; certainly no one is encouraged to “fail faster.” For those reasons (and many others), startup teams tend to look down their noses at their corporate counterparts. According to Ted Reed, VP of Corporate Development at Unum, that would be a mistake, because both have a lot of potential value to share with the other.

Recently, I sat down with Ted for a long talk about what he calls “venture partnering” between startups and enterprises, and how this symbiotic approach to business development is important to both types of companies, albeit for very different reasons. Ted has helped dozens of startups partner with Unum, so let’s start by reframing some of the perceptions many startup founders have about big companies:

“Enterprises are So Slow”

The section heading begs the question that enterprises are indeed “slow.” But what’s slow about efficiently and flawlessly conducting thousands of transactions per day? Of servicing the needs of tens of thousands of customers? Of bringing in $10 billion per year in revenue, as in the case of Unum?

You don’t become an industry juggernaut by accident. Somewhere along the way, the enterprise created significant value for customers, then kept on doing it for more and more people. In many respects, lots of what happens inside big companies happens very very quickly, which is how they operate at scale. It’s the rate of change that seems slow because, say, 2% revenue growth isn’t exciting to a startup. If Unum’s revenue grows a mere 2% however, that’s $200 million. (Can you say, “exit?”) Suppose Unum needed to hire 2% more employees in a few weeks. That would be about 180 people to add to their 9,000 or so. Imagine hiring 180 people in a few weeks. As a startup, you couldn’t do it, because you couldn’t move as quickly as Unum.

Funny paradox: Get huge, operate at scale, look slow. Let’s agree, then, that speed is relative, that change is one kind of speed, and that it may be useful for startups to work with folks who really do know what “scale” means. One intro to the right channel could hockey stick a startup’s growth without being a blip to an enterprise. That’d be speedy.

“Their Products are Boring”

Everything seems boring once it’s known– that doesn’t mean it isn’t a big deal. Not only do large company’s products work for large numbers of customers, but so do their operational systems, their sales channels and their supply channels. Unlike startups for whom experimentation is necessary to reach product-market-fit, enterprises already have it. Their job is not to find something that works, but to optimize it. People depend on them.

This is why few enterprise business line managers are provided time or budget to explore. Instead, they are given the same budget they had last year to manage their several hundred employees and asked to find a 2% improvement. While efficiency-finding doesn’t seem as sexy to a startup founder as user discovery, rapid prototyping and growth hacks, efficient execution is where corporate skills tend to focus, because that’s the nature of the beast. Once your stuff works, you don’t break it, you improve it.

What is it like to support tens of thousands of customers reliably? To sell to them and meet their needs? To successfully navigate supply chain, regulatory and competitive landscapes? Enterprises have these answers, and they’re usually far outside the knowledge base and skill set of a startup founder. That’s not¬†boring.

“Enterprises Don’t Take Risks”

A startup of three people can afford to go out of business at any moment. That’s not a pleasant thought, but it’s true. Startups are usually so lean, funded by unsecured high-risk equity financing and sweat equity by the founders that in the worst case scenario, the team could close up shop and find something else to do. No so with a big company. Enterprises are responsible for thousands of livelihoods, critical services for customers, and investor returns, which means they have a legal and moral responsibility to stay in business, and stay profitable.

Even if the enterprise isn’t “betting the farm” on a new idea, small iterations are subjected to rigorous approval, vetting and testing, lest a very expensive disruption occur. Innovation doesn’t happen in that environment, because it’s not meant to. The potential costs are too high.

And forget about losses– even the potential gains are weighed against “boring” alternatives. In the enterprise world, they’re trying to make a 3x return on any improvements. In other words, if they spend $10,000 to make a small change, it needs to yield $30,000 in order to be worth it, otherwise, they could simply buy back stock with that money and do the company more good. Working with a startup requires a better return than that– a 10x equivalent, just like a seed investor.

Why does this matter? Because it helps startups to think more clearly about the true impact of their innovations. You can’t argue for your new product or service simply on the grounds that it’s “better.” That doesn’t really mean anything. Is it 10x better than the alternative? Can you get a big company to try it? To experiment with it? If so, you may be on to something.

“Enterprises Only Play the Long Game”

Like a tanker ship on the ocean, enterprises don’t turn on a dime. They are moving so much “freight,” they have too much momentum to turn. They are also delivering huge value to so many people, there’s no good reason why they would divert from their charted course. What they can do, is partner with tiny speedboat startups to explore new possibilities.

These partnerships, if handled with care, can yield long term benefits for startups, even including significant and lasting revenue. You may be thinking about week-long experiment cycles, while an enterprise is thinking in six-month blocks. That’s good news for a startup’s longevity. Maybe talking with 10 users would be great for you, while an enterprise can offer 100. Instead of one experiment, you can line up 10. Working with a partner who plays the long game means you can have more time and space to work your plan.

Venture Partnering is worth more than a look– it should be a top strategic consideration for any startup.

In future posts we’ll talk in more detail about what enterprises can gain from startups, the risks in partnering with enterprises and how to keep your partnership “balance sheet” in order.

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