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A new kind of fairytale – The Elephant and the Gazelle

Startup-corporate relationships are mutually beneficial but commonly complex. Read about what startup founders pursuing this type of relationship should keep in mind to increase their chances of success.

40% of Fortune 500 companies will become irrelevant in 10 years” - John Chambers, CEO of Fortune 500 company Cisco.

Instead of wondering: how concerned should corporations be? Let’s focus on how corporations & startups (their presumed threat) can work together to benefit society.

Huge, powerful corporations, with decades of market experience and consistent revenue, are like elephants, while lightweight startups who leverage their agility and closeness to the market to create innovative solutions are like gazelles. It’s easy to peg them as competition, but it’s more strategic to view them as what they can be – potential partners.

Corporate-startup partnerships are on the rise through mechanisms like Venture Building and Corporate Venture Capital Funds. According to Wayra Hispam’s latest report of Corporate Venturing in Peru 2020, 31 corporates were involved in 112 innovation initiatives with startups from scouting to strategic alliances, a great starting point for the Peruvian ecosystem.

However, collaboration is easier said than done. A McKinsey report shows that more than 72% of startups are unsatisfied with their partnerships with larger corporates.

In July 2021, UTEC Ventures worked with Swiss EP Entrepreneur-in-Residence Michael MacHarg to help founders understand the nuances of a corporate alliance and develop meaningful Pilot Proposals as part of the Corporate Program run by the accelerator.

Michael is an entrepreneur who founded a solar energy business in India which was later sold to a corporate. In his masterclass, he shared why startups-corporate partnerships should work:

“Startups want to leverage the corporate to get access to the market, address a financing need, or access scaled support functions, while the Corporates are interested in leveraging the startup to explore new technologies, shorten their innovation cycle, position themselves as innovative or enhance their existing model. They both have something the other party needs and wants but often they are not successful in going forward with a project.”

This misalignment is often tied to two main things. First, an uneven power dynamic. Despite aligning interests, corporations have significantly more resources, siloed expertise, and time than a startup has, tipping the scale in their favor. Second, both sides lack deep experience in how the partner works – how things operate, on what timelines, through which processes (or lack thereof). This mismatch of knowledge and expectations can easily lead to distress and abandonment of the initiative.

Here are some of Michael’s best practice tips for startup founders pursuing corporate collaboration:

  1. Find a champion (but not just one). Consider how you can engage and keep engagement with the right (and multiple) stakeholders.
  2. Think carefully about exclusivity. If it is something you offer, make smart calls about the scope of those agreements.
  3. Breakup fast! Corporate engagements can be draining for a startup so it’s important to know when to step back if you need to.

Oftentimes, the key lies in transparency and a little bit of faith, the latter being a difficult sell to a well-oiled revenue machine. However, the elements for a win-win situation are clearly there. When companies consider putting the entrepreneur first and leveling the power balance, the results speak for themselves. Diageo and Coca-cola are two great examples where Open Innovation and Venture Building resulted in adopting solutions to sizeable problems in a quicker and cheaper fashion than internal R&D.

The elephant and the gazelle will continue to be an impactful story that, if done right, can change the course not only for the companies involved but also for society.

To learn more tips and considerations for a successful Startup-Corporate partnership, check out Michael’s Masterclass Deck.