Leading enterprise organizations invest as much as 10 percent of their revenue in R&D predominantly aimed at improving their core business. Unfortunately, the incremental innovation often produced by core R&D won’t meet the demands of your industry. This is because even though internal innovation leverages deep industry expertise and proven go-to-market efficiencies, it often limits future growth to existing verticals and known customers.
Meanwhile, the acceleration of new technologies and solutions across adjacent industries often feels threatening. However, pairing internal expertise with external innovation to unlock new opportunities for growth beyond the core provides new opportunities.
Identifying the Opportunities
Enterprise organizations and startups can rapidly fuel growth through partnership. Enterprise organizations can tap full-time employees in adjacent industries and creators of early-stage technologies without having to hire them. Free from processes, pressures, and restraints of the core, startups are in the trenches of the evolving marketplace with new customers, and they are rapidly iterating for their own survival. Founders can tap into industry experts who have scaled the strategic landscape they are speeding into. This will free experts to open doors with suppliers, resources, and commercial partnerships.
For example, let’s say startup A and Startup B have similar ideas and teams, but one works with Coca-Cola and the other doesn’t. Who raises more money and wins more customers in the future? Company A and Company B compete as top players in a scaled legacy industry, but one partners with 10 startups in adjacent and emerging industries. Who better serves their customers and wins the future?
Facing the Challenges
Partnerships are hard, requiring both sides to overcome fundamental differences from culture to speed to risk to resources. A few of the common challenges I see include the fact that big companies need big wins, delivered quickly. Business markets are moving and changing faster than ever, and it’s hard to keep up. For the same reason, these enterprise organizations can’t afford to compromise their core businesses and they need strategies to stave off their well-financed competition that has eerily similar domain expertise, processes, and people.
Another major challenge is that long-standing industry expertise often creates “Not Invented Here Syndrome”: legacy blind spots, which mean external innovations are met with anything ranging from skepticism to outright hostility. Company decision makers may feel like opportunities beyond core seem like a waste of time. Maybe they’re too small or don’t fit with the regulations, legalities, or sales channels that the larger company is optimized for.
The final challenge has to do with the startup founders. These founders are often dreamers not doers, and they don’t always understand the timelines and risk mitigation required by a larger organization.
How to Do It Right
These challenges are the building blocks of what makes these partnerships so compelling by allowing you to focus on speed, collaboration, and commercialization. I recommend four paths, depending upon your desired outcomes.
First of all, learn. Identify trends in technological innovation happening at the perimeter of your industry by analyzing the landscape for novel entrepreneurial activity. Who is investing in what? What new tech is being applied to solve current industry pain points or customer dilemmas?
Next, test. Identify important business problems and hire startups as suppliers to run pilot (test) programs. This short-term rapid proof-of-concept allows you to work with future solutions today and is a secret weapon of some of the most successful enterprise organizations. The small scale minimizes the risk, but the willingness of the startup to customize their solution in the early stages may result in first-to-market scalable new solutions to put you well ahead of your competitors.
The third path is to build. Co-develop a new solution to an existing problem, together with startups in the space. Take the best of your “R&” (minus the “D,” for now), evaluate gaps and opportunities currently and for the future—then collaborate with founders to leverage your knowledge base and their unique superpowers to jointly develop and commercialize a new-to-world solution in a fraction of the time of traditional innovation methods.
Finally, invest. A custom-built corporate accelerator is basically a mentorship program that allows you to make several small bets on early-stage, high-growth startups in adjacent fields. Worst case, you learn from the brightest founders in the space, and best case, you are an investor in the next-generation solution. Accelerators are a pipeline to corporate venture capital and M&A opportunities. It de-risks both at a much lower price point while allowing you to pull strategic insights that benefit the core along the way.
The Bottom Line
Achieving tangible results with innovation requires constantly balancing the pull of markets to deliver short-term results, with the push of new technology to explore new opportunities. Startup partnerships allow you to do both.
So, the question remains: should you build, buy or partner? Build at the core, partner in adjacent and new, buy what works. As the world continues to be upended by revolutionary new technologies, the pace of change will only accelerate, and this approach to innovation that is faster, lower-risk and with greater proximity to the marketplace will become more necessary than ever before.
Fred Schonenberg is Founder & CEO at VentureFuel.