When companies say they want to create an innovation culture, Fred Schonenberg starts the process with a simple question: Why?
“Why are you even doing this? Why are you even thinking about it? What is the value to look outside of the four walls?” says Schonenberg, founder of VentureFuel old the CVC Unplugged podcast this week.
Once define why you want to innovate, Schonenberg says corporates can start on third base by finding a good startup collaboration, rather than by going through a lengthy research and development process or looking for an acquisition. VentureFuel is one of those advisory firms that can help corporates find that right startup partner, says Schonenberg — and make that relationship work.
“When the corporate employees start meeting founders, this thing takes off. There is an energy about founders that is so contagious. They’re optimistic, there’s a problem they care so deeply about. It’s usually one sliver of all the problems the big corporate is looking at, but it’s infectious,” he says.
“The other piece of the recipe I would say is, when you’re baking something, you’ve got to measure it. Got to know what you’re putting in, what you get out and why that matters. What you get out has to be scalable.”
Barriers: time and incentives, more than dollars
Large organisations tend to have built-in resistance to big change. Once you get big and get your product to market at scale, processes get entrenched to achieve maximum efficiency. Innovation goes against that grain.
“Everybody’s bonused on KPIs that are very specific and aggressive. So there’s also a resource issue – not necessarily dollars, but bandwidth of internal time. Very few people are compensated based on helping a startup come into the organisation.”
VentureFuel usually gets brought into the mix by the CVC or the R&D side of the business, who tend to be excited about getting an early pilot off the ground with a startup. However, without direct buy-in from the C-suite or the core business the pilot is likely to run into blockers that prevent it from scaling.
“A lot of times we have to get over the not-invented-here syndrome – ‘we’re the engineers’ or ‘we’re the R&D team, we can do this all ourselves. Look at what we’ve built’,” he says.
There comes a point where for companies to grow that step further, they need to look at adjacent technologies that may not be quite online yet – that’s where there’s less experience in most in-house R&D teams.
“You’re the world’s best R&D person in this specific area, but how much do you know about generative AI? How do you know how that plugs into what you’re doing? Or are you studying the new material science in industries that aren’t your own?” says Schonenbrg. For example, adhesive made for submarines can be used for dental work – but this is not something a typical dentist would for.
Cultural fit: keep your ego in check
Finding the right cultural fit between the corporate and the startup is crucial. Getting on the same page early and setting expectations transparently sets the stage for the rest of the collaboration, especially when the two organisations tend to move at very different speeds.
For a startup, a partnership with a corporate can come after months of looking for a partner with the resources to do something real with the startup’s technology – naturally they want to move quickly. The corporate tends to be much more deliberative, more cautious and has a lower tolerance for surprises.
“There’s obviously a big discrepancy on a founder’s side. They want to go really fast, and on the corporate side there’s no incentive to go fast,” says Shonenberg.
There are also times when the technology would fit perfectly into the corporate, but the cultural misalignment is such that a collaboration is not possible – there can be several reasons for that.
“Ego is a big one,” says Schonenberg. That same confidence factor that lets founders take the leap of faith and quit their job to go into the unknown can sometimes have a downside. “That can go too far on the spectrum, where they expect everything.”
It’s not just founders — corporates can also tower over startups and throw their weight around in counterproductive ways, or tip the balance of obligation too far to the startup’s side.
“There are corporates that say, “I want this, the founders ought to fly to our headquarters and they need to spend two days with us and maybe we’ll have a pilot.”
Advice for startups: stop fundraising, start monetising with corporates
Being constantly fundraising is not the only way to grow your startup, says Schonenberg.
“Go make money. Go work with corporates, figure out somebody that will pay you for what you’re building. That changes the power dynamic when you’re talking to VCs later on.”
“Go make money. Go work with corporates. That changes the power dynamic when you’re talking to VCs later on.”
Having partnerships with corporates gives you a lot more leverage when looking for an investor.
Schonenberg also says startups should make it as easy as possible for the corporates to work with them. The pilot or proof of concept may be a huge deal for the startup, it may be the thing that they’re hoping will open up every other door, but for a big corporate it’s just one project among many.
“How do you make it easy for them where they don’t have to get buy-in from five different business units? Can you sandbox the data? Can you do something that doesn’t require all sorts of things on the backend?”
And finally, don’t make the mistake that some make when they don’t measure everything. After all, you want to make sure that the pilot actually worked.
