How corporations and start-ups can work together in the new economy

In the age where companies like Airbnb and Uber are achieving ever-increasing revenues and valuations, it can be easy to assume that start-ups with a good idea are destined for runaway success.

But idealising the concept of the start-up may prevent people from considering the symbiotic relationship between corporations and start-ups.

Recent research has shown how the role of corporations in helping start-ups on their way is changing. A MassChallenge report, which surveyed 233 startups and 112 corporate respondents (including Microsoft, Pfizer, KLM, Cisco, Xerox, and IBM) from 30 March to 24 April 2016 found that 99 percent of start-ups wish to work with corporates in some way, while 67 percent say that it is mission-critical to work together.

Luckily for the start-ups, the feeling is mutual. Corporations also view working with start-ups as somewhat important, with 82 percent corporations viewing interactions with start-ups as “somewhat important” and 23 percent viewed it as “mission-critical”.

Alison Say, head of ecosystems & innovation for IBM Cloud and MassChallenge, says that working with start-ups is, in fact, mission-critical to IBM.

Say says that the new relationship is all about partnership.

“There is no David and Goliath anymore. It is a level playing field,” she says.

Another changing fact of the relationship between start-ups and corporations is the move away from acquisitions to longer term cooperation.

Being acquired is of course a comfortable route out for founders, but it does prevent start-ups from achieving higher valuations.

Say says that the aim is to “industrialise innovation”.

So what are IBM getting from working with their smaller counterparts?

“It’s not what we can’t do but about thinking of the problem differently,” says Say.

She says that start-ups look at a smaller piece of the problem.  

“It’s not about who can innovate but looking at the problem differently.”

For example, for many industries the disruption comes from outside. Start-ups are able to bring different expertise from a different background that can bring this disruption.

Diane Perlman, CMO, MassChallenge, the accelerator which works with IBM Cloud on its start-up initiatives, says that corporate personnel who don’t necessarily view themselves as entrepreneurs can absorb that mindset from working in a start-up environment.

On the other side of the symbiosis, the start-up can benefit, according to Say, from go-to-market expertise such as in the fields of marketing.

She also says that larger companies bring operational expertise, access to clients and industry expertise.

IBM provides, for example, office hours for start-ups to come in and talk to their staff and ask for advice.

According to Perlman, there has been a mindset shift amongst start-ups.

“Both were sceptical of each other,” she says.

“Start-ups are now seeing corporations as customers or mentors, or someone who already has market reach.”

Despite these mutual benefits, the MassChallenge research shows that many companies are not taking advantage of the possibilities.

According to the MassChallenge report, most budgets for working with start-ups are still “small and uncertain”, with 25 percent of respondents to the survey unsure of what the innovation budget is or whether one actually exists.

The report found that 14 percent of companies had allocated no budget for this, while 24 percent had allocated up to $500000. 8 percent had allocated between $500000 and $1 million while 25 percent allocated above $1 million.

There are many ways to try and ensure success. The report says that the most important criterion for working with a start-up is strategic fit.

44 percent of corporate respondents cited this as the most important factor, while 65 percent of start-ups said the same.

Concrete steps recommended in the report included appointing a start-up champion, meaning an individual or team that owns the start-up relationship and guides it through the corporate world.

The report also suggested that companies establish internal structures and delineate a specific strategy for working with start-ups.

In terms of mentality, though, according to Say, corporations must treat start-ups as equal partners.

“Companies need to understand that they can’t push corporate culture onto the start-up,” she says.

We are just seeing the beginnings of the potential of this symbiosis, but it could be an increasingly potent factor in reshaping the technology world.