Updated: Apr 7
Having realized the world is changing fast and inaction risks disruption, a growing number of large companies are pursuing new sources of growth by launching, partnering with and/or acquiring startups. It’s a great strategy for rapidly exploring new frontiers as well as bringing new capabilities and revenue streams into the core of the business. When done right, it can lead to an expanding PE ratio (or higher multiple if private) and a much more adaptable and resilient company. When done wrong, it can be a frustrating, costly distraction. However, there’s no reason any company cannot successfully craft and execute a program that suits their ambitions. It just requires a realistic commitment, a plan aligned with strategy, and a mindset that prioritizes startup success over process and control. At its foundation, however, a company must understand that bringing startups into your ecosystem means embracing a very different culture than likely exists today.
In this post, I’ll dive into some cultural aspects that play a key role in setting the foundation for a successful program. In future posts, I’ll share more lessons learned to help navigate the complexities of this cross-organization collaboration.
The three culture-related elements any innovation program should understand are:
Startup talent is different that what you have in your organization
Innovation program staff are the bridge between two worlds
Corporate antibodies are real and must be aggressively managed
The first thing to understand is that the entrepreneurial talent that you need is completely different from what you typically see in large established companies. Founding startup teams want to work hard and are willing to sacrifice deeply to bring solutions to market with hopes that lots of people will like what they created and will pay money to use it. They understand the road can be long and bumpy and that the odds of success are daunting. Still, they work for below-market salaries only asking that they are fairly rewarded IF the company is successful. It’s that simple. They’re not bucking for a promotion. They don’t want to develop themselves by taking stretch assignments. They’re not looking to prove themselves to upper management. They want to do the job they signed up for with the least distractions that allows them to work hard for the thing about which they are passionate. And, this is exactly who you want taking risks, learning rapidly, adapting and ultimately finding breakthrough solutions. If you are launching startups, these are the people you want. If you are partnering or acquiring, these are the people you will get.
Protect startup talent from corporate processes: establish clear yet minimal guidelines around which corporate processes they must follow. For example, it’s perfectly reasonable for them to adhere to export compliance rules. It’s not reasonable to ask them to follow all of your procurement guidelines. Your goal should be to allow them to be as free as possible to execute their plan. Having them adhere to funding milestones will provide the level of control and risk mitigation you need.
Establish an incentive program that mirrors typical venture-backed startups: remember, your team has a different DNA. They want the big payoff. You want them to want the big payoff. Salaries should be lower and upside should be higher than equivalent roles within the company. There are many ways to do that both within existing bonus programs or with novel equity or phantom equity plans.
Second, your innovation program staff are the face of the company to your startup teams and the face of the startups to the company. They’re the ones working every
day to make this difficult, cross-cultural collaboration work for the benefit of both organizations. They must be fluent in both “startup” and “corporate” language and culture but will likely never be seen as mainstream in either environment. Corporate leadership will see them as renegades and entrepreneurs will see them as bureaucratic pogues. Ok, that may be an extreme view but it’s not completely wrong. The point is, your innovation staff must be credible to both groups and each group has a role to play in helping them remain credible and successful.
Empower the innovation team to make your innovation program “founder friendly” and, if wanting to seek outside funding, “investor friendly”; this means prioritizing startup success over process, control and ownership at a minimum.
Empower the innovation team to manage the startup relationship - do NOT execute decisions without their involvement.
Finally, large corporations work because they have structure, process and controls. The entire employee base works within those or is in charge of managing them. This allows for a certain pace of operation and level of risk tolerance that is much different than the needs of a startup. The startup has a finite number of months of cash and has to be able to convince others to give them more money before that runs out. They have to make rapid-fire decisions to get to market validation on a shoestring and ever dwindling budget. Having to go through a three-month approval process with procurement to contract with a marketing agency that isn’t on the approved vendor list is death. These processes and controls are antibodies to the startup and will kill them if not managed. Of course there are non-negotiables like export compliance but the corporation needs to exercise a high degree of common sense to allow the startup team to operate.
Engage the corporate functions in helping to create a smooth operating environment for the startups. Establish a committee and regular cadence of meetings with the innovation staff and corporate functions. Keep the startup leaders out of the meetings - the innovation staff will represent them. Ensure executive leadership understands that their corporate functions are involved and acting as problem solvers.
Wrapping up, inception-stage startups are incredibly fragile things. So much has to go right for them to find product/market fit and build a scalable business. Understanding what makes them special and providing the conditions within which they can be successful is the only way for your innovation program to succeed. The priority must be on allowing them to do what they do best.