StartUps are hotbeds of new and disruptive ideas, unconventional approaches. StartUps can be pioneers for new business models. Whoeever has ever worked in a StartUp can confirm this. A StartUp attracts people with a desire for change.

No wonder that established players want to take advantage of the start-up momentum, not least for the digital transformation of its own business model. How to benefit from such start-up momentum? Companies can create an internal start-up culture (i.e. intrapreneurship). Or companies can set up incubators and select, promote, or buy up start-ups (see Transformative M&A). And companies can also simply start projects with start-ups and benefit from the resulting impulses. Namely, to open up new business areas, create new products or services or to make processes more efficient.

This is not just grey theory, but is also perceived as such in practice. In 2018, the Rationalization and Innovation Center of German Business (“Rationalisierungs- und Innovationszentrum der Deutschen Wirtschaft”) conducted a study among SMEs: 40 percent already have cooperation experience with start-ups. Thereof over 95 percent rated this positive.

Lessons Learned from previous cooperation experience between SMEs and startups

There are some lessons learned that need to be taken into account in such a collaboration. These are lessons not only for the established companies, but also for the startup companies.

First, it is advisable to start very early with a pilot project of a smaller scope: “Even a journey of a thousand miles begins with a single step”. A pilot project is about finding out whether the cooperation partners have the same vision not only on paper, but also when it comes to implement ideas. It then also becomes clear whether both sides can adapt to the respective other corporate culture and work together efficiently.

This lesson learned is about avoiding a worst case scenario, which is: The start-up company and the cooperation partners get lost in planning and coordination processes for a larger project over several months – just to find out finally that their vision and practical approaches don’t match. If the Start-Up has channeled too many resources on such a key project, the discontinuation of the project means the end of the journey for the entire start-up company.

Second, especially with such worst case scenario in mind, the start-up should set (and follow) clearly communicated deadlines. If the cooperation partners don’t meet the schedule, the start-up has to make a stop-loss decision and terminate the cooperation. This is about survival. The startup should make this clear from the very beginning to the established company.

Third, in practice it turns out to be a success factor for such a cooperation to have a “sponsor”. He/She takes on a pilot function for the start-up within the larger company. He/She is a pilot who can also bring about decisions. This sponsor is a board member, in best case. Without such a sponsor the cooperation may fail when such cooperation moves past the ideation phase and requires allocation of substantial financial and time resources from the SME company / the large enterprise.

Fourth, startups are well advised to become clear about what drives the established cooperation partner to cooperate. For example, does a CEO really want to “hack the market” (i.e. introduce disruptive products and services)? Or is it just a matter of meeting (formal) targets for innovation projects or igniting an innovation firework for investors or stock markets that gives the company the nimbus of innovative/disruptive. This is also called “innovation as an insurance”. It is not easy to find out, but it is a good start to ask this question at the beginning of the cooperation.

Fifth: Start-ups possess the innovation momentum and agility not least thanks to an agile corporate culture, short decision-making processes, close cooperation in a small team, a certain willingness to take risks or to experiment. In short: the corporate culture of a start-up is geared towards rapid innovation. If an established company were to impose all its compliance processes and reporting culture on the start-up, this would slow down and hamper the start-up’s corporate culture – whereas the established partner rather hopes to receive impulses from the start-up partner for its own corporate culture.

It has proved to be a good idea for the established company in the cooperaton to have only a single contact person that checks and filters information and compliance requirements from his or her own organisation; this contact person is thus a kind of clearing house that can avoid the scenario of bureaucratic overburdening of the start-up and can take up corresponding signals from the start-up. In this way the StartUp’s own culture is preserved – to the benefit of both partners in the cooperation.

Sebastian Zang
Author

The author is a manager in the software industry with international expertise: Authorized officer at one of the large consulting firms - Responsible for setting up an IT development center at the Bangalore offshore location - Director M&A at a software company in Berlin.