Relationships between startups and large firms – Bridging the gap between theory and reality

The startup industry has become a vibrating ecosystem for the large companies operating in France in the recent years.

Station F, showcase of the French innovating culture, embodies in a perfect way the increasing enthusiasm surrounding the startup industry: a place dedicated to innovation, full of talents and opportunities. Corporations are now wooing it, they all want to be part of this new digital era. The most innovative among them have already settled there: Facebook, Amazon, Google, Microsoft…

Those companies share similar features which differentiate them from more traditional ones – young, powerful, among the most disruptive on the market and heavily investing time and money into startups.

Other corporations have now taken over innovation which used to be the GAFA’s trademark and collaboration between large firms and startups have never been stronger than today. Among the key indicators, we can note the expansion of the French Tech and the growing number of French companies creating and/or working with startup accelerators…

However, even though corporations are getting more interested by startups, those relationships are not always healthy nor productive. Through this article, we will explain why and how startups and big companies work together, and you will get some advice on how to build this type of fair and fruitful relationship.

From a corporation point of view

Driven by the digital revolution, startups were first seen as fierce competitors that corporations have long found hard to face.

Nowadays, this vision has changed, and some major groups have managed to turn this challenge into an asset. Risk has been transformed into opportunity, and innovation has been set as a goal for each company: It is now firmly integrated into corporate strategies as a major goal for the large firms.

Former French Tech director, David Monteau, has confirmed this tendency stating that “[…] for about 4 to 5 years, big French groups have communicated and invested a lot into startups.” Many corporations are now chasing after startups, hoping to accelerate or even save their activities.

Indeed, S&P 500 companies’ lifespan has decreased from 67 years a century ago to 15 years today. According to a study conducted by the John M. Olin School of Business at the University of Washington, 40% of the Fortune 500 companies will no longer exist in a decade as they desperately need new ideas and solutions to remain competitive.

These numbers show the importance of partnering with a startup. It is a strategic choice for corporations as it is a way to change their internal processes and disrupt their market to avoid the decline of their activities.

From a startup point of view

As they confront numerous challenges in their early life, startups need to work with large groups if they want to increase their chances of survival. The large companies in the CAC40 seem to be the ideal partners to tackle some of the issues that the startups might face: the lack of financing, the lack of accompaniment, the poor market knowledge…

Moreover, most entrepreneurs see partnerships as the cornerstone for the adaptation and the evolution of their business. It is a way to challenge their ideas with a real client that offers a leverage over their ongoing development without a heavy financial compensation. Additionally, having a big firm that shows a strong interest in your solution can prove useful when it comes to reaching out to new clients and investors.

Partnership benefits

• Advantages for a corporation

• Advantages for a startup

Collaboration between startups and large firms – A catalyst for performance that not always proves to be automatic

According to the « Innovation & Open Innovation » study conducted in October 2016 by Gfi Informatique and EBG, innovation is the first concern for 81% of company directors, but only a third of the respondents apply it, and only 17% believe their business is considered as mature on this subject.

There is a significant offset between the appeal for innovation and the proactivity of companies to implement it in their activities. Of course, risk aversion plays a big part, but one cannot ignore the difficulty of establishing a stable relationship.

There are two main obstacles to the collaboration between startups and corporations:

#1 – A poor awareness level on the added value of a startup – As detailed in Salim Ismail’s book, Exponential Organizations, corporations would rather foster innovation internally or focus on existing profitable products/services than calling a startup for help

The author listed the following reasons behind this trend:

• Large firms often insist on technologies with an existing expertise while disruption is not accepted or even banned from the firms’ activity
• When innovation is accepted, they often focus on internal rather than external innovation, which narrows down the ideation process solely on the people inside the company

In his organizational studies, John Seely Brown goes further and states that companies might theoretically promote the creation of new innovative ideas but, at the end, they will try and limit risks even though it goes against the entrepreneurial spirit.

#2 – The inability to collaborate – When the company is aware of the added value of a collaboration with a startup, the partnership often proves to be difficult to implement as the relationship is not as smooth as expected.

The study about the value creation between startups and large groups, conducted in 2018 by Bluenove and the Village by CA, reflects those challenges. They sent a questionnaire to both parties in order to tackle some fundamental themes (rapidity, simplicity, goodwill during the process…). The results highlight the time it takes to link both startups and large firms.

The figures above show that a high turnaround time and a slow pace of communication is common in those collaborations. These results can be explained by the difficulty to start a complex project, which can lead to a lack of implication and information and, at the end, trigger the abortion of a project.

More specifically, this inability to work together quickly can be explained by a few factors:

• The difficulty of obtaining a ROI and identifying clear objectives
• The short-term vision often associated to a collaboration
• The cultural differences
• The difficulty to prioritize (sell the solution or solve a problem)
• The lack of investment (human and financial) from the company

At the end, it seems essential for both structures to establish a framework in order to evolve and maintain sustainable relationships. It can be implemented by integrating experts used to lead innovative projects or by partnering with a specialized structure like an incubator or an accelerator.

Transaction Connect‘s experience feedback

Based on the previous observations, we met Didier Gasté, founder of Transaction Connect, a startup accelerated by Shake’Up, (Wavestone’s accelerator), to give us some feedback and share his insights. The Parisian startup offers a marketing solution for malls with a fidelity program based on the consumers’ credit card expenses.

From an early stage, Transaction Connect has had the opportunity to work with major real estate firms. These collaborations has enabled the startup to quickly move into a test phase and accelerate the development of their solution.

With the benefit of hindsight, Didier states “there is a double-sided effect for the first clients”. The large firms can be key to the development of a startup but he also mentions the “poor risk appeal coming from big firms”, the “financial and roadmap dependence” coming with the first client, or the “lengthened decision-making time” which can go up to several months if you do not have the appropriate contact.

According to Didier, an accelerator or an incubator enables a startup to work on those issues by multiplying the number of links with potential new clients (reducing the dependence and speeding up the development) and by enabling the innovative structure to be in touch with the right contact within companies (reducing the deployment time).

However, to succeed, Didier draws the attention on the importance of working with an accelerator fully knowledgeable of your market.

Conclusion

To conclude, startups bring innovation and dynamism to corporations while major groups help them to adapt and evolve by giving them resources and a test area with adapted use cases. There is no doubt that a successful collaboration between the two structures can be a real added value in a constantly evolving world.

However, there is no predefined procedure and no miracle cure. What matters the most is to discover and adapt both needs before starting any collaboration. To ensure a massive success, you should work with innovation experts and people aware of your market to help you frame and scale your project.