It is no exaggeration to say that today’s consumer has hit the jackpot. A seismic shift in the corporate landscape, in response to the ubiquitous startup culture, has accelerated the pace of innovation. Conglomerates are partnering with startups across the globe—creating new, innovative products and solutions for consumers. Large multinationals are solving consumer problems through a collaborative approach that helps organisations innovate faster and better. Across industries, established corporations are being disrupted by nimble startups on the fast-track to innovation, using technology. According to a recent INSEAD and 500 Startups’ report, 68 per cent of the top 100 companies from the Forbes Global 500, are actively engaging with startups.
The winning game
Leading FMCG player Proctor & Gamble India (P&G) is one such corporate that works with entrepreneurs to create new brands that offer better solutions to existing problems. It has launched a multi-million-dollar fund to invest in Indian startups and leverage opportunities in the country’s dynamic ecosystem. It is therefore a win-win outcome for both. While the FMCG major provides legitimacy to startups, the latter offer agility that delivers cutting-edge solutions. P&G’s strategic approach helps startups streamline supply chain management and improve sales and marketing efforts.
Besides using the conventional venture capital route or mergers and acquisitions, large firms are finding novel engagement channels to collaborate with startups. This newfound synergetic relationship helps corporates stay close to innovation. Let us examine the new ways in which corporate-startup alliances are serving the market.
Creating an ecosystem of collaborative engagement
Accelerators/Incubators drive disruption: According to a recent NASSCOM-Zinnov report, there are over 210 active accelerators and incubators in India. While global incubators such as Y Combinator and Techstar are betting heavily on India, homegrown SaaS-based accelerator Uppekha helps startups grow organically. In a new trend, multinationals are also building such enablers to explore the disruptive potential of startups. For example, British automaker Rolls-Royce is in the process of setting up R2 Data Labs, its accelerator program in India to aid the development of tech-based solutions by leveraging artificial intelligence (AI), blockchain and the Internet of Things (IoT). Tech startups enrolled in the program will receive benefits such as mentoring, networking and technical support. In exchange, the company will engage with startups for in-house innovation that will enhance its design and operational efficiency. Accelerators have become commonplace in the Indian startup ecosystem, and corporates such as Google, Microsoft and Biocon, among others, are using this model for validating products.
Cohorts build a competitive edge: The accelerator model has given rise to cohorts—a new approach to collaborative innovation. A cohort is a batch of startups that participate in programs such as incubators and accelerators over a specific period of time. The emergence of cohorts in the startup ecosystem helps corporates maintain a competitive edge. The startups that qualify for a cohort undergo a rigorous application process to ensure the high quality of the program. Cohorts facilitate engagement between corporates and startups and offer key benefits to both parties. To illustrate, Philips set-up its accelerator hub in Bengaluru to provide a group of 19 budding healthcare startups with coaching and mentoring from industry experts. The intensive 12-week cohort added value to the startups and also enabled the conglomerate to develop breakthrough solutions for the market. The Shell E4 six-month cohort engages with Indian startups in the energy sector to find innovative solutions to local needs.
Funnels enable selection and collaboration: A viable approach adopted by corporates to collaborate with startups, funnels work like an inverted pyramid. There are fewer startups at the end of the accelerator program than there were at the beginning. A highly competitive process, startups are pitted against one another to compete for limited collaborative opportunities with corporates. For example, at BMW’s Startup Garage, startups undergo a rigorous selection process that determines whether these enterprises are a strategic fit for the company’s ‘venture-client’ model. The selected startups are assigned a real innovation project in collaboration with a BMW business unit, making this partnering interface a meaningful corporate-startup engagement.
Intrapreneurship creates opportunities: Corporate leaders have woken up to the power of unlocking intrapreneurship opportunities within their organisations. Employees are encouraged to ideate, create and attempt disruptive innovation at the workplace—akin to real entrepreneurs. Intrapreneurship creates a collaborative environment and impacts an organisation’s entrepreneurial mindset. For instance, Airbus Bizlab is Airbnb’s initiative to bring together startups and Airbus intrapreneurs to transform innovative ideas into profitable businesses. Google has set the bar high when it comes to employee-led innovation. Gmail, Google News and AdSense are products of this culture of innovation at Google that allows employees to pursue side projects. It is an example of how empowered employees can impact a company’s bottom line.
Events facilitate innovation: Hackathons, sponsorships, conferences and startup competitions are informal, exciting corporate-startup engagement channels. For example, Infosys is the principal sponsor of GE’s Brilliant Hacks online hackathon. Such events accelerate corporate innovation, motivate startups and employees to be creative, identify talent, and enable organisations to discover new revenue streams. Besides, these are also a cost-effective way for corporates to engage with startups under one roof.
Roadblocks to innovation
The need to co-create innovative solutions with startup partners has made corporates adopt a flexible approach, develop out-of-the-box ideas and demonstrate agility. However, the ecosystem is not without its challenges. The common obstacles to innovation in large corporations include a hostile corporate culture that doesn’t support innovation, bureaucratic hurdles, limited budgets, the absence of R&D departments, and complicated processes that delay projects.
Faced with these issues, if innovation-hungry corporates wish to grow faster, they need to spare time to nurture startups. Only then will organisations gain insight into new ideas and technologies—especially where disruption is expected. Further, corporates need a broader innovation program that attracts entrepreneurs to align with them. Thus, the need of the hour is to create a symbiotic relationship with startups that will require farsighted vision and gumption. Only those corporates that have both in good measure will truly know how to shape the future of innovation.
-Ravi Narayan, CEO, T-Hub
The article was originally published in Entrepreneur India Magazine with the title, “When Corporates Join Hands With Startups”.