Let us be honest. Most entrepreneurs and start ups would rather not interact with large corporations unless it is an absolute requirement for success – for example, to close sales deals. In some cases, these entrepreneurs are out to disrupt the industries these large corporations control. It is not that entrepreneurs dislike large corporations, rather they simply do not have the time, resources, patience or money to spend on engaging companies simply to explore the possibilities or try to structure a strategic partnership. Many entrepreneurs believe the only value in such a relationship is financial, and are interested only in partnering corporations if they are assured significant revenue or a sizeable exit. Add to this the fact that most venture capital firms (VCs) and incubators typically promise to deliver the industry knowledge and introductions that corporations can and should provide.
Despite this, large corporations are uniquely advantaged in attracting and engaging the external entrepreneur. In fact, if they want new transformational growth as opposed to incremental growth, they have no choice but to engage outside sources of innovation. The question is how can large corporations create a model that both attracts external entrepreneurs and enables the corporation to tap into external innovation?
As I discussed in a previous issue of Global Corporate Venturing, a successful corporate venturing function requires a well-designed enterprise venturing architecture (EVA). An EVA is an approach to venturing that uniquely describes a corporation’sstrategic goals and operating model as it enters the venturing space (see graphic). It could include establishing an incubator, accelerator, corporate venture fund or all of the above. With any of these approaches, success requires that large corporations embrace and capitalise on both internal ideas and ideas developed by external entrepreneurs.
A critical component of the EVA is creating the right engagement model for attracting and engaging external entrepreneurs and start ups. To do this, corporations should:
- Become relevant and known in the entrepreneur community: Corporations need to build a reputation with the start up network in their industry. This should not be an episodic activity, but rather a process. In many ways it is a marketing exercise. Corporations should define what it is that they bring to the relationship as a collaboration partner, innovator and financial partner. Why is the corporation a better partner for a start up than another company or a VC? What is the commitment it is willing to make and what assets does it bring to the partnership? Corporations should also develop working relationships with VC firms whose interests and focus align with theirs.
- Establish an agenda: A corporation needs to articulate why it is investing in external innovation. Corporations have varying intents when they seek external participation in innovation. This could involve investing in new adjacent markets or businesses, getting external collaboration and input on an internal idea, or needing help to address a particular product challenge or customer need. By being as clear as possible about the particular issues a corporation is trying to solve, it can be sure to target the right audience.
- Align commercial intent: Corporations need to be clear about their commercial intent and align that with the short and long-term goals of the start ups they are seeking to engage. Start ups have markets – and investors – and are focused on addressing industry challenges, not solving one company’s problems. Therefore a commercial partnership must allow for clear alignment of value for both parties.
- Demonstrate long-term commitment: Corporations must communicate their commitment level to the relationship. This can be done by taking minority stakes in the start up or by creating real and frequent collaboration, such as easy access to the corporation’s business units or executing pilots with the corporation’s customers. Corporations are notorious for starting venturing programmes and shutting them down when they have a bad quarter – highly disruptive to start ups.
- Define how success will be measured: Once the corporation has defined its objectives in external partnering, the next step is to determine how these objectives will be measured. Success is not always defined financially. While any commercial relationships should be designed to be mutually beneficial, learning objectives are often as important.
Whatever route a corporation chooses, entrepreneurs expect speed and decisiveness. In order to attract the best partner, the corporation must be clear on its objectives, how it can add value to the start up and be willing to demonstrate a strong commitment to long-term success. Internal sponsors, business units and executive teams must be willing to participate and make quick decisions, and support the level of independent decision-making needed to secure the best start up relationships.