Corporates and start-ups: where is the love?

Large businesses are increasingly backing London’s growing start-up community to gain access to new technology, talent, and ways of working – from Tesco to Microsoft Ventures and the Canary Wharf Group. Start-ups are fast moving, agile and increasingly technology-focused companies. Thanks to the rise of The Lean Start-up movement, they are becoming increasingly skilled at learning and understanding what customers want. As technology and the pace of change continues to increase, these abilities become required to innovate. "Learn fast, fail fast" is the start-up mantra. 

Conversely, big companies excel in the execution of repeatable and successful business models. Established businesses also have advantages in terms of existing brand value, customer loyalty, distribution networks, and resources. However, these assets can easily become barriers to innovation if not managed carefully. Technology is evolving at an accelerated pace and barriers between industry sectors are breaking down. A recent Technology Review by the MIT predicts that by 2027, 75% of the S&P 500 will be replaced. The pressure for large businesses to continue to innovate is more pressing than ever.

What can large companies learn from lean start-ups? Tim Kay, head a KPMG's High Growth Technology Group recently spoke at Imperial College Business School on the potential for big businesses and start-ups to work together, and the advantages and challenges in doing so. So can start-ups help big businesses in doing things better, quicker, faster and help them find "the next big thing"? There is opportunity for significant mutual benefit, but there are four areas companies must understand to be able to nurture relationships with start-ups successfully:
 

1. Language: corporate management language and technical co-founder language are worlds apart. In my experience, it's a case of Discounted Cash Flow and Internal Rate of Return versus Minimum Viable Product and Ruby on Rails. This gap can quickly cause confusion, misunderstanding and frustration if not managed carefully.

2. Spectrum: for corporates, the spectrum for potential interaction is wide and varying.  From exposure to new companies and buying services, through partnerships and investment to equity stakes and corporate venture funds. Understanding this spectrum, where the corporate wants to operate and its objectives will help it find the right start-ups at the right maturity for the business.

3. The start-up: as a big company it is your job to understand what the other party is selling. Is it just an idea, a commercially ready product, or something in the middle? As Tim says "entrepreneurs by their nature are optimists" hence the need for thorough due diligence. Avoid discovering a key feature is actually just a roadmap item when it’s too late.

4. Process: The complexity of process within large corporates needs to be understood. The corporate needs to assess the relevance and adequacy of its processes when applied to start-ups and, as Tim describes it, "build a box" in order to make the most of any start-up investment or partnership.

Whilst accelerating innovation within a large business isn’t easy, the ability to remain agile and to try new things is perhaps more prevalent today than at any time in history.