Why should MNCs partner with startups?

“If you want to go quickly, go alone. If you want to go far, go together.”

This apt African proverb holds great significance in today’s fast-paced industry landscape where technology has moved from being evolutionary to revolutionary.

As exponential technologies like 3D printing, sensors, DNA sequencing, image and speech recognition, machine learning, blockchain, and Internet-of-Things become more affordable and accessible – markets will continue to be reinvented again and again. Improved accessibility to capital and relative affordability of technology are allowing start-ups to build solutions previously possible only for an industry incumbent. Old economy conglomerates in media, automotive, financial services, and healthcare are finding their businesses being unbundled as a result of new competition from start-ups and also blurring of industry boundaries.

In an era where it’s either disrupt or be disrupted, the reality is that it is becoming increasingly challenging for corporates to retain the status quo let alone grow.

Research has shown that corporations encounter difficulties when they try to make disruptive innovation flourish internally. Corporates, by design, are focused on reducing risk and uncertainty. Teams trained in delivering better products are not equipped to discover what to create in the first place. By contrast, start-ups are extremely effective in disruptive innovation across industries and geographies. They are better at shortening innovation cycles, exploiting technology, defining newer business models and enhancing existing ones, than big corporations.

However, startups have their own set of challenges. There is nothing worse for any startup than stagnation or a down-round. In an ecosystem measured by growth, month-on-month or even week-on-week – a growth rate is critical to ensure continued financing at increasingly valuations Although there are start-up success stories, these are few and far between.

A much better alternative to improve the odds of success, is collaboration – between corporations and start-ups as it holds remarkable incentives for both parties.

Why ‘Collaboration’ is the Writing on the Wall

Corporates benefit from collaborating with startups as partnerships enable them to source new technologies, business models and/or new markets while navigating internal constraints and process overloads. Through collaborations, corporates are better positioned to create an edge in existing business lines and to expand into adjacent or new markets. Startups can benefit from the corporation’s valuable resources such as global infrastructure, business and technology mentorship, strong brand reputation, strategic business relationships, experience with regulatory compliances, process excellence, and access to data and markets. These resources allow startups to scale more efficiently and rapidly, and therefore have continued access to external capital to retain momentum.

Lay of the Land

Globally, corporates have increasingly been collaborating with start-ups. More than 50% of Fortune Global 500 corporates have developed high-intensity innovation strategies in the form of corporate venture capital, incubators, accelerators or innovation labs. In India, 110+ MNCs are actively engaged with the startup ecosystem through a variety of models. 20+ corporate accelerator programs (33% y-o-y growth in 2017) and 37+ corporate venture arms are active in the country today. An INSEAD study revealed, the first 100 corporates in Fortune Global 500 engage twice as intensely as the last 100 on the list. We are witnessing similar trend in India where 80% of high-intensity models (accelerators, incubator or venture capital) are operated by Fortune Global 500.

“Why should corporates collaborate with start-ups?”– is no longer the question. The question being asked today is, “How should corporates collaborate with start-ups?”

In our experience at Zinnov, having worked with over 150 corporates in defining their ecosystem partnerships, there is no one best solution, and copy + paste models do not work. A corporate – startup collaboration exercise must be undertaken carefully to achieve desired results through feasible and viable models. And as with any collaboration, the key to success is to engage in a win-win partnership that benefits both parties – corporate(s) and startup(s). To succeed, corporates must define the core objectives they seek to achieve through a startup collaboration, map their internal resources, and the value they can provide to startups, and then identify, design and deploy an appropriate engagement model that works for both stakeholders.

We are in an age where disruption is no longer just a mantra, but a strategy. The ability to protect existing markets and find new growth markets are equally important and urgent today. Collaboration will become key to determining success or failure in a world where talent and time are the scarcest of resources.

(The author is the Engagement Lead at Zinnov Management Consulting)