While many corporates have been content to pursue internal, incremental change in response to global competition and disruptive technologies, others have boosted their innovation engines by collaborating with startups. These relationships give corporates access to startups’ creativity, new ways of working and proficiency with new technologies. In return, startups gain access to corporates’ markets, customers, and industry expertise—and the reputational boost of working with major industry players.
Such relationships often start out very positively, with a heady honeymoon period during which both sides enjoy some early successes. Over time, however, frustration can set in as one or both partners wake up to the reality that they are not achieving all of their hopes and expectations. According to BCG research conducted in Europe, 45% of corporates and 55% of startups are “very dissatisfied” or “somewhat dissatisfied” with their partnerships.
To gather data for this report, we surveyed 187 corporates and 86 startups and conducted a bottom-up analysis of 570 companies in Germany, Austria, and Switzerland. We also interviewed more than 30 leaders in the startup ecosystem, including venture capital and private equity investors, startup founders and executives at public and privately owned companies. They described a complex collaboration landscape in which a company can choose from among various types of innovation vehicles, depending on the company’s size, goals, and expertise. We also identified a number of steps that companies can take to improve their likelihood of achieving long-term success.
Increasingly, corporates and startups are linking up
Companies in our sample use five types of innovation vehicles in their collaboration efforts with startups: innovation or digital labs, accelerators, corporate venture capital (CVC), partnership units, and incubators. Some types of innovation vehicles are more common than others, however.
Company size and industry sector influence the innovation approach
The number of innovation vehicles that companies use varies widely depending on company size and industry sector. Not surprisingly, large public companies are more likely than others to deploy innovation vehicles. Different industries show huge variations in how extensively the companies in the category use innovation vehicles. Companies in the media and publishing, automotive and mobility, and financial institutions and insurance industries are among the most likely to strike up partnerships with startups. About 70% of surveyed media and publishing companies use at least one type of innovation vehicle. In the automotive and mobility industry, 50% use at least one type. Among financial institutions (FI) and insurance companies, 56% use at least one type.
Most collaborations don’t meet expectations
But many participants in these corporate-startup collaborations eventually realise that their relationship is not yielding the returns they expected and is not delivering on its full potential. In our survey, 45% of corporates and 55% of startups rated themselves as either “somewhat dissatisfied” or “very dissatisfied” with the relationship.
Three factors for success
Every collaboration presents its own unique challenges and opportunities. But we have identified three approaches that can help partners in any collaboration get more out of the relationship. Although our survey focused on Germany, Austria and Switzerland, we have observed similar relationship patterns around the globe in our work with clients. Moreover, all three approaches apply to both the corporate side of the partnership and the startup side.
- Have a clear, shared rationale for the collaboration
Before entering into any agreement, both sides need to ensure that they share a rationale and a consistent set of expectations for the deal, agree on the resources and expertise that each will bring to the table, and align on the rules that they will follow to deliver on those expectations.
We have identified four basic rationales that corporates often have for choosing to partner with startups: protect the core business; optimise the business in areas such as R&D, marketing and sales, and operations; transform and move away from its core business; and grow into areas adjacent to their core businesses.
- Adopt an investor mindset
Thanks to the work being done by their CVC units, many corporates are developing a more critical investor approach. Even so, most still lack the investor mindset of a private equity or venture capital firm on such points such as managing startup portfolios, setting milestones, and establishing risk management guidelines.
Among the steps that corporates can take to develop an investor mindset, five stand out: define clear investment guidelines; sign a letter of intent establishing responsibilities and decision rights; install active governance and fast course correction capabilities; grant the startup access to required resources; and accept that some partnerships will fail.
- Create links to the core business
Startups prefer to collaborate with corporates rather than venture capitalists for one primary reason: they want to secure the “unfair advantage” that corporates give them over other startups. To deliver, corporates should grant startups access to sales channels, difficult-to-acquire customers, facilities, data and IP, industry and business expertise, deep technology understanding, corporate networks and much more – benefits that no purely financial investor can match.
The future of collaboration
We have identified several trends we believe will drive future partnerships:
More radical innovation. Few corporates can radically innovate on their own, which makes external innovation their best option.
Accelerated speed of change. As change occurs faster, corporates need more innovations in a shorter time period. It is not possible to accomplish this alone.
Shrinking barriers to entry. Digitisation is opening up new markets around the globe, and corporates are increasingly eager to enter those markets.
Need to scale fast. Corporate partners can help startups scale faster than financial investors can, by providing them with an “unfair advantage.”
Growing experience with collaborations. Corporates have gained valuable experience in recent years to make corporate-startup collaborations work.
Willingness to cooperate. Corporates are increasingly willing to set aside their rivalries and combine efforts in corporate venturing and other innovation vehicles.
Combining the assets of large corporates with the speed and creativity of startups has tremendous productive potential. This will take some hard work, but companies that succeed will be strongly positioned to withstand competitive pressures and market disruptions.
Authors
Michael Brigl is a partner and managing director in the Munich office of Boston Consulting Group. Stefan Gross-Selbeck is a managing director and global managing partner of BCG Digital Ventures. Nico Dehnert is a project leader in BCG’s Munich office. Steffen Simon and Florian Schmieg are principals in the firm’s Munich office.