The future of startup and big corporate relationships by Alan Costello

Delighted to have Alan Costello guest post for us. He is a man of  many interests including entrepreneurship, innovation, strategy, and VC.

Large corporates are struggling to innovate. They are driven by corporate protectionism, the law of big numbers, roi (return on investment) driven innovation. There is a lack of foresight, and an inertia to move with current digital age and to cope with the age of entrepreneurship.

Corporates aim to fix this by setting up accelerators/incubators. In the US alone it is estimated to have risen from 12 in 1980 to over 7000 today. Figures which are beginning to be replicated in Ireland, or innovation by acquisition (Google/Facebook/Salesforce/Life sciences sector etc).  The last in-house developed major products from Google could well be Gmail, similarly from Pfizer Viagra (1998) and from the airline industry arguably a business model innovation from the early 90s with the emergence Ryanair/Southwest Airlines.

Startups can treat this in one of two ways. They can partner up and be the innovation golden goose or compete and eat the big guys breakfast lunch and dinner.  Admittedly, the constraint of resources (cash and bodies) are there, but cost of building a startup these days is down by orders of magnitudes at least to the point of prototype and demonstration of an appropriate customer/user conversion ratio that allows you to raise resource and then scale

If you are going to sell to, or otherwise partner, don’t forget that companies are not acquired, they are bought.  This apparent oxymoron implies that even if you think you support or partner with large corporates and that this might fuel an exit, the company will only acquire you if you have independently built a strong scaling company in your own right first.  Remember, while your partner might be >80% of your income (100%?), you are only a fraction of 1% of theirs……

If you are going to compete and disrupt the large corporate in your sights, think carefully.  This is exhibited by the US steel mills acceptance and then defeat by the next generation of waste iron smelters (check out disruptive innovation, Christensen) or watch the next generation of pseudo-unicorns crash and burn for lack of cash when the next credit crunch lands in the Valley.

The future is tricky to predict, but if I were to stake a bet on it, I wouldn’t bet against big corporate learning painfully how to interact with startup community. Those who are in faster equilibrium with the users and stakeholders of new product will have an advantage. Cash and a route to market tare still needed by startups, who may not achieve this without massive late stage funding deals.  We will see corporate casualties on the way to follow Kodak and Nokia (by the way, Tinder will swipe left on itself and I wouldn’t have my pension in banks anymore).

I suspect we always end up in a state of equilibrium in most ecosystems. This is reasonably clear to see in the current life sciences sector with licensing and partnering deals the current M.O. of large corporates.  When will tech hear the call?  When the startup community delivers on its own promise of collaboration, open communication and mutual support to build that bridge to corporates using accelerators/partnerships, a faster and better approach to solving user and customer problems and leverage the scale afforded by the corporate marketing partner.

Alan Costello

Alan.costello@ruby-consulting.ie, strategy and innovation for scaling ambitious companies and corporates seeking a little reinvention

@alanjcostello

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