Startups and corporates – they don’t need to be David and Goliath

Think startups and corporates always need to be rivals? Think again! Here's how to create commercial symbiosis, rather than commercial competition

By Angela Bradbury on 5th September 2017

Commercial competition - what image springs to mind?  Most of us think in terms of the big vs the small, the old vs the new, the fast vs the slow.  Startups view large corporates as the Goliath that needs to be brought down by resourcefulness, skill and luck.  Corporates view startups as the small, annoying David that must not be underestimated.

But this ‘survival of the fittest’ mentality ignores the potential of working together for the benefit of both. This isn’t a utopian dream, but reality in nature, as lots of symbiotic relationships show.  Even Charles Darwin once said, “It is the long history of humankind (and animal kind, too) those who learned to collaborate and improvise most effectively have prevailed.”

At McKinsey, I advised corporates on guarding against disruption from startups.  At Homejoy, we were competing with incumbent cleaning companies.  Now at Chime, we’re a startup that is a service provider to corporates.  Our clients include companies on both sides of that fight.  And they also include corporates looking to partner with, invest in or acquire startups, with good reason: some of the biggest, most successful brands have become even more so by working with startups, from Coca Cola streamlining their supply chain to Telefónica revolutionising their in-store interactions.

But how do you figure out who to approach, what to look for, how to set it all up?  It can all seem so overwhelming that you end up never getting started.

Corporate-startup symbiosis isn’t out of reach - here’s how.

The spectrum of possibility

Let’s start by considering the landscape of potential collaboration.

At one end of the spectrum, simply connecting with companies of a significantly different size and stage in the same space as you is generally beneficial.  A slightly deeper relationship might look like a startup being a supplier to a corporate, or otherwise being endorsed by them.

Incubators and accelerators introduce equity exchange, and corporate VC takes this even further.  At an extreme, the corporate acquires a startup, which then becomes fully owned and controlled by the corporate.

Let’s dive into each segment of this spectrum to understand the benefits for both sides, and some examples of how this is being done:

But before you dive in - startups, beware!

Particularly where equity changes hands, there are definite risks involved, and each corporate will have its own idiosyncrasies in the way they operate.  For example, banks have acknowledged that they need to make changes in order to enable collaborating with startups more productively.  The best way to do this is to speak to other founders who’ve had contact with the corporate in question, and ask a few questions such as:

  • What’s the quality of mentors like?
  • Are there genuine follow-on opportunities (e.g. connections to other investors)?
  • How much time were you asked to spend doing PR (e.g. photoshoots) and internal meetings?  Did you think that was appropriate?
  • (If you’re hoping to use the program as a way in to selling your product to the company:) Is procurement set up to make this possible?

Then, there are legal technicalities that you’ll need to do your due diligence on - you’re unlikely to be able to afford to go head-to-head with their legal team further down the line!  Watch out for terms around:

  • Ownership or use of IP generated
  • First-mover rights to do partnerships
  • Follow-on investment (e.g. opt-in rights for all future investment rounds, which may deter some potential investors)

Basically, read the contract, and don’t be afraid to negotiate if you’re not happy.

And corporates - be mindful too

Your biggest risk is reputational - be careful not to get a bad name for poor startup selection or treatment.  Start by satisfying yourselves on the following:

  • How are you going to attract, assess and select startups to ensure cohort quality?
  • Do you have buy-in from the senior levels of your company?  For example, the CEO of Disney is a mentor on their accelerator - and that shouldn’t be a crazy idea
  • Do you have people with the skills and time to run the program (and run it well!), to ensure everyone gets the most out of it and nobody’s time is wasted?
  • What’s the alumni program going to look like - will you continue to make introductions, get old cohorts to meet new ones, and so on?
  • How are you going to ensure all of the above without incurring too much of a strain on organizational resources?  Or, is the investment of organizational resource you’re making going to be worth it?

There is no one-size-fits-all

Every startup, every corporate, every potential startup-corporate pairing is different.

There is always a chance of moving from collaboration to acquisition (e.g. between Walmart and Jet and the almost-deal between Lyft and General Motors) - while it’s much harder (or impossible!) to go the other way.

Approach opportunistically, or with a laser sight on exactly what you need. Whichever path you take – boldly go, keep your wits about you and good luck!

With thanks to Robert Barham for research and insights.

Angela Bradbury is the CEO and Co-Founder of Chime, supplying you with experts in any sector and geography on demand. Whether you’re looking to set up a corporate program, understand the competitive landscape in your space or launch in a new market, we’ll connect you with experienced operators and thought leaders, just a phone call away.