Are startups the game of Millennials?
At the LeadersIn Tech Summit during London Tech Week 2019, a roundtable was held discussing the benefits and drawbacks of partnerships between corporates and startups. At the table, Anna Jones from FieldHouse Associates, Ryan Haynes from Ryan Haynes Marketing, Ben Rudman the CEO of MMT Digital, and Denise Glee from MagnaCarta Communications, lent their personal expertise to the debate.
From a corporate point of view, when looking to work with startups there are three main options; buy, build or partner. All have their own benefits and drawbacks, primarily due to how much or how little control the corporation is able to have over the budding startup. The discussion I was lucky enough to listen to concerned the partnership option - so what does happen in a partnership between a startup and a corporate?
The partnership model between startups and corporations has the potential to offer both organisations considerable positives, but only when done well. When done poorly, instead of mutual benefits and satisfaction, all that is generated is a mutual frustration.
This is why it is so important for both the startup and the corporation to be transparent about what they want from the partnership.
Are you on the same page?
From a startup point of view, organisations need to find their unique selling point; what can they give your startup that no one else can? What can they do for you to scale fast, and is that well suited for your particular startup? Remember that an unsuited partnership is worse than no partnership at all.
Often it is the mismatch of expectations between the startup and the corporation that causes strife in this kind of collaboration. It is down to the corporation to understand that although they are trying to attract startups, it is absolutely imperative that they are open and honest about what they are and are not actually offering.
First and foremost, there must be a ‘reason for being’, which clearly defines why the corporation wants this partnership. When this has been defined, it is then easier to see whether or not this reason for being aligns with the startup’s core values. For example, the primary reason for a corporate to want to partner with a startup could be so that they are seen as a more innovative company, helping them to attract more desirable young talent.
"Some corporates are losing millennial talent at a graduate level."
Jones explained that: “We are hearing from some corporates that they are losing millennial talent at a graduate level. Where they were previously able to go and recruit the best, young talent is now more and more wanting to join startups instead of corporations. So in a way this can combine the two options, allowing young people to have the freedom to explore working with a startup, while also having access to a more corporate path.”
Continuing on from this, Haynes highlighted one of the drawbacks between these partnerships: “Startups are becoming much savvier to the fact that corporates are using them for the opportunity to access young and ambitious talent and they’re often doing projects that will never really be realised, it can be a way to access that talent pool for their own business.”
One of the risks to partnering with a corporate looking solely to access young talent, rather than a real belief in the startup, is that the project may well be going nowhere, and startups can end up spending years developing a contract before even engaging with businesses. Startups can also end up losing a lot of equity if they don’t understand the consequences of signing up to these corporates.
Glee added: “Transparency in the early stages of a partnership is key to success because without it trust can easily disappear. Partnerships that start out without trust and transparency will most certainly fail.”
This reason for being is often fuelled by the fact that corporates are struggling to get the young talent they need, especially in the fields of tech and IT, and part of this seems to be being caused by a cultural gap.
Many of the people in tech are younger than those running corporates, and therefore want different things out of life.
For example, the idea that people should work non-stop until retirement age is becoming less and less popular with young professionals. Many choose to work for a few years, and then travel for a while, before returning to work afterwards. This is a radically different mind-set from people in their forties and above, who are still working within the model of working until retirement age.
Because of this contractual agreements are having to be fundamentally changed in order to retain young talent, and corporations failing to adapt to this fast enough means that they aren’t attracting millennials.
This gap between the old and new models of work can also frequently be seen in the way a startup functions versus the way an older company does, sometimes adding to the miscommunications between the two.
Be realistic and transparent
As with all things, patience is a virtue and realistic expectations are key.
If a very large corporate is looking at a very early stage businesses, then the reality is there is going to be a big jump from a funding perspective between the point at which you’re meeting these businesses for the first time, and the point at which they might scale.
Unless the startup is discovering something that is so knowledge intensive and game changing that it can be done really quickly, then in general there are a lot of funding phases before those businesses can be plugged into a larger organisation.
It also has to be understood by the corporate what the results of the project are going to be, and what the startup can actually achieve. Startups are happy to have their costs covered, but the corporate needs to understand what the startup is actually working towards and make sure that is compatible with what the corporate is expecting of them.
Moreover, corporates need to be realistic about scalability, injecting a large amount of money into a startup does not mean the startup can achieve an instant scale-up.
Haynes explained from personal experience: “I worked for a company and it took us four years to scale up from working with tens of hotels to work with larger groups and then eventually international chains. And there was no way the business would have survived going faster, because the account service and IT infrastructure would not have scaled to cater for thousands of hotel customers worldwide in that time.”
The discussion also touched upon the somewhat sticky issue of ownership within a startup-corporate partnership. Corporates often want to own the product, whatever that might be, rather than allow it to grow and develop organically. A solution that was offered was the corporate and startup agreeing on a percentage of equity stake agreeable to both parties.
Making the issue of ownership explicitly clear can save startups from complicated legal battles down the road.
This then circles back to the primary issue of transparency and trust; what both parties are and are not getting out of the partnership has to be clear from the beginning, so that the relationship doesn’t break down.
Startups and corporates also work a very different speeds, which can lead to hiccups on the road to collaboration.
Everything in the world of startups is fast-paced, whereas life as a corporation is much slower. Often for a corporate, deciding whether or not to partner with a startup can be a very long winded and arduous process due to the sheer number of people the corporate involves.
Getting in touch with someone within the corporate who can actually help you – and proves it with actions rather than just pleasant emails – is the first hurdle. When in touch with the right people, they will often want to involve an even larger pool of people, and need to jump through a number of hoops, considerably slowing down the process.
A fast and decisive ‘no’ might not feel great for a startup, but it is always better than a non-committal and meandering maybe.
Because of all of these difficulties, over the past few years corporates have become noticeably less keen to partner with startups, leading to a surge in building their own startups in-house, rather than partnering externally.
Rudman explained: “In-housing is a much bigger area at the moment. There are a significant number of people being transferred in-house to an internally built startup, because then there is no chance of misunderstanding between the startup and corporate. It’s about ownership, and not so much ownership of the tech, but that owning the business entirely eradicates these potential misunderstandings.”
This reaction by corporates to hold back on partnering with startups due to the many potential pitfalls of those relationships has had the knock-on effect of startups beginning to partner with each other; pooling resources and become very disruptive to these old businesses that are either resisting, or being too slow to change.
But generalising sweeping statements about anything are to be taken with a pinch of salt, and while many corporates are holding back on startup partnerships, there are others that are adapting to the times and building programmes differently as they understand more and more what startups need to flourish.
So what are the positives?
It is not all doom and gloom, there are also many potential positives to startups hitching their wagon to corporates.
The corporates out there who are open and honest about both what they can give a startup, and what they expect in return, can lead to mutually beneficial partnerships, which can help propel the startup forward in a faster and more secure way than going it alone.
For a start, the financial fears are going to be at least somewhat assuaged. Funding is the huge and ever-present question mark looming over startups. Looking back at Issue 6 of Startups Magazine, which focused on funding, many founders told us that one of the biggest problems with funding wasn’t just getting it, but how much valuable time finding it devours.
With a large corporation’s backing, finding that funding can become much easier. Even if the corporation is not willing to completely fund the startup itself, being connected with their name is likely to instil more confidence from other potential backers and thus make finding further investors that much easier.
Depending on the nature of the agreement, corporates can also provide a large amount of support to a budding startup. If an organisation has entered into a partnership with a startup, then it is safe to say that they want that startup to succeed, and having a corporate backing your success can never be a bad thing.
Another positive aspect of partnering with a corporate is the wealth of experience the startup can gain access to. Many of the startups we have spoken to have said that funding is important, but having someone with relevant industry expertise can be equally invaluable. Partnering up with the right corporate can provide a veritable buffet of industry experts.
Furthermore, there are networking and connection benefits that come from a partnership with a corporate. Often, all the time that a startup can say that they are working with a recognised corporate to develop something, more doors are going to be open right off the bat. The contacts that a corporate might be able to offer a partnered startup could well be priceless and neigh-on impossible to obtain outside of the partnership.
Overall it is safe to say that a well handled partnership between a startup and a corporation can be brimming with benefits for both parties, however, when handled poorly, startups may well find the collaboration more damaging than constructive.