Featured image with Deutsche Bank Innovation Labs Engagement Lead, Martina Koehler

In the Summer of 2020, my INSEAD friend, Tingting, and I joined the Summer Start-Up Tour (SSUP) by digital@INSEAD and investigated on how corporates and start-ups collaborate. This article covers the corporate side, and the previous one covered the start-up side. We interviewed firms across France, Germany, the Netherlands, the UK, and Austria, and we ask them a few key questions:

1. Why do you need start-up innovation?
2. How do you access start-up innovation?
3. What kind of start-up do you work with?
4. What are the key challenges and learnings?

The consensus from the corporates is that the companies are excited to work with start-ups and are willing to help start-up go through each milestone of the collaboration, from initial assessment, on-boarding to product development, and post-implementation support.

Here are our 5 key learnings!

Lesson 1. Business needs drive innovation

Technology is a means to an end. Initiatives that are purely driven by technology are proven to be less successful in creating long-lasting business value. The successful innovation initiatives are guided by the business needs or a clearly defined business problem. With a clear need for solutions, business managers will take the lead and ownership of the initiative, fostering product development with active engagement and result-driven metrics.

Lesson 2. Start-ups with strong financials and established product offerings are preferred

One critical risk that the corporates worry about is the risk that the start-up may go bust before the implementation completes or the start-up cannot support the corporates when the product launches. The start-ups need to demonstrate a healthy financial situation and a solid business model to assure the corporates that they are ready for a long-term relationship.

A clear trend we hear from our discussions is that the corporates typically assess the start-ups based on the funding situation. Start-up investment series announcements are a source of signal for the start-ups’ financial position. Moreover, if the start-up has more than one client other than the corporate, it is also generally preferred. It shows the business model of the start-up has been verified, and there is sustainable cash flow.

The other reason for the financial strength requirement is the long lead time for a corporate to purchase the product or service. The process could take on average of 6 to 12 months based on our discussion with the start-ups.

Lesson 3. Internal innovation culture boosts collaboration and problem solving

Business leaders should assess their organisation’s culture. An example of how to do it is the Innovation Culture Assessment by SAP. A positive innovation culture will motivate employees to solve problems and make the company more resilient towards the future.

An innovation culture could also boost the organisation’s openness towards utilising new technologies and partnering with start-ups. When an organisation’s employees are highly conservative, it is hard to start new initiatives to innovate and call for change in the operation process. This could spell trouble in the long run when the firm lags behind the competition and market trend, with innovations becoming “must-have”s for customers.

Lesson 4. Recognise the business’ core competencies and what is lacking in the innovation capabilities

As start-ups are more agile in decision making, they could launch an innovative product and solution that didn’t exist before much faster than big corporates. Business leaders from the corporates should adequately assess the business’ existing strengths and decide on how to respond to disruptions appropriately. If the innovation is deemed critical in solving the customer’s pain points, the leaders should determine if they could build the capability themselves or purchase(or partner) with the start-ups. The decision factors should be the internal core competencies and capabilities. The leaders need to know when to acknowledge the lack of innovation capabilities in-house to make a purchase decision of ready solutions from the start-up players. Doing so could spare the corporate from spending considerable resources by building such expertise or product from scratch. From our interview with the corporate innovation team, recognizing the missing puzzle in the business capabilities and its product offerings would help the corporate select start-up with the right focus.

Lesson 5. Companies need to standardise the process of working with start-ups

The usual corporate on-boarding process may be time-consuming and could take 6 to 12 months, which is costly with the level of commercial due diligence and legal process. To add to the complexity, different departments may approach the start-up procurement differently, creating a siloed view for internal managers and start-up sales teams.

As a result, start-ups, especially those who have a small team at the early stage, will find it difficult to cope with the on-boarding process because the process is long and unclear to them.

For corporates to better work with start-ups, a standardised policy to purchase start-up services with a clear step-by-step guide could expedite the partnership and allow the start-ups to put their focus in creating business value for the corporate rather than in the procurement process.