A Playbook for Corporate-Startup Partnerships
By: Christian Vogt
Tags: Innovation, Startup, Partnerships, Venture Capital, Corporate Venturing

A Playbook for Corporate-Startup Partnerships

Corporate-startup partnerships require preparation, guidance and, done for the first time, some leadership education.

Photo by Ivelin Radkov

There are many reasons why corporate-startup partnerships make sense. Corporates partner with startups to develop differentiating features for the products they sell, to create competitive advantage by being first to adopt new technology internally, say, to enhance the productivity of their employees, or simply to expose their employees to the agile ways of working of great startups in a grassroots approach to cultural change. Vice versa, startups partner with corporates to help validate their value proposition, technology, and market fit, to build a well-rounded solution that can then be sold to other corporates with similar needs, or to create a bridge head into a new geography.

For corporate-startup partnerships to be successful, you need visionaries on both sides of the table. This will hardly be a surprise and hopefully not a limiting factor as far as the startup side of the table is concerned. But for corporates it is a key success criteria that may require some attention: Corporates that want to partner with startups need a visionary willing to try something new that has yet to be validated through broad adoption in the marketplace.

It is my strong conviction that such visionaries exist at any corporate. These are the employees aware of the trends affecting their industry, and with an opinion on how they, or their company, can leverage emerging technologies to beat the competition in light of those trends. Unfortunately, for many visionaries, startup partnerships are not the first tool that comes to mind to accomplish this, and they may not have the experience required to do startup partnerships well. This is an enormous untapped potential. The good news is that there is a playbook corporates can follow to unlock this potential.

This playbook defines two elements — a net-new role and a set of best practices. The net-new role is that of a Startup Partnership Evangelist. Her responsibilities are to help visionaries in leadership positions across the corporate understand the value of startup partnerships and to facilitate startup partnerships end to end. Depending on the size of the corporate, there might be one or a small team of Startup Partnership Evangelists. The best practices refer to how the Startup Partnership Evangelist accomplishes these responsibilities. This includes working with visionary business leaders to identify challenges that can be addressed by startups, finding suitable startups that can help, setting up working teams, and accompanying the partnerships to ensure that roadblocks are removed quickly, and that corporate employees and startup teams work with each other at eye level.

Engage the business leaders. The perhaps most important responsibility of the Startup Partnership Evangelist is to build and grow her “internal network,” a network of visionary business leaders across the corporate willing to work with startups. This network should be as broad as possible, covering all business units and corporate functions — product management, engineering, and manufacturing; marketing, sales, customer success, account management, and customer support; information technology and human resources; finance, legal, tax, and compliance. Furthermore, the network needs to be senior. It needs to consist of leaders who have a budget and can make decisions.

The Startup Partnership Evangelist is also responsible for educating the business leaders in her internal network on how to think about startup partnerships. Business leaders should not think of startup partnerships as low-priority, nice-to-have projects, but as projects addressing key challenges that can move the needle. They should not think of the startups as inferior to traditional suppliers, but as superior within a narrow category. And they should understand that strong, personal commitment on their part is a prerequisite for their startup partnerships to have maximum impact.

Identify opportunities. The Startup Partnership Evangelist should meet with each business leader in her internal network on a regular basis to understand the objectives the leader is trying to accomplish, to discuss the challenges that are keeping him up at night, and to jointly identify areas where startup partnerships can add value. In the beginning, business leaders, as visionary as they might be, may be slow to come up with startup partnership opportunities by themselves. So to get the discussion started, it may be helpful for the Startup Partnership Evangelist to talk about a few startups that the business leader might find interesting. This is helpful in two ways: First, it serves as a thought-starter. Second, it helps identify out-of-the-box opportunities. E.g., Daimler, who owns luxury car brand Mercedes Benz, came across startup What3Words at a Startup Autobahn event and subsequently decided to partner with them. The new functionality that What3Words brought to Mercedes Benz cars was so out-of-the-box that it would have been highly unlikely for any business leader at Daimler to come up with exactly this idea by themselves.

Scout for startups. Once the needs of a business leader have been established, the Startup Partnership Evangelist can go and scout for the right startups. This task should be given to the venturing team if there is one, as the venturing team has the right external contacts and is out scouting for startups much of the time anyway. For each need, the venturing team will likely talk to well over a dozen startups and, in close collaboration with the Startup Partnership Evangelist, create a prioritized shortlist of two to three startups. The startups on this shortlist will later be invited to pitch to the business leader and his team, giving the business division a final say on which startup they want to work with.

The startups on the shortlist should all be top choices of the Startup Partnership Evangelist and the venturing team in terms of technical fit. Their products should be a promising match for the needs of the business leader. Their founding teams should be professional and excited about partnering with the corporate. And there should be strong win-win potential, that is, the envisioned partnership should be of equal value to the startups and the corporate. There must also be a fit in terms of commercial expectations. The startups need to understand the detailed scope, objectives, deliverables, and milestones of the partnership. The startups should understand the implications around intellectual property, especially for co-development projects. And every startup should have provided a quote for what they expect to charge the corporate for the resources committed to the partnership. This information should be outlined on a term sheet that both startup and corporate feel comfortable with. At this stage, therefore, the business leader and his team may pick any startup on the shortlist purely based on chemistry, since strong technical fit and well-aligned commercial details have already been established for all startups on the list.

Pick team and startup. While a startup’s designated working team for the partnership is likely the same that engaged with the corporate during prior negotiations and may change only by a person or two depending on timing and personnel availabilities, there are more degrees of freedom for putting together a corporate working team. It is hence important that the corporate working team is picked early on in the process and before any startup is invited to pitch. There are two reasons for this: First, as discussed above, the purpose of a pitch in this context primarily is to determine personal fit, so it is important that the corporate employees who will end up working with the startup attend the pitch. Second, resources at a corporate take time to commit, especially if they include some of the corporate’s best employees. You don’t want to end up having to pull back from a partnership because you cannot commit the resources required.

Once the corporate working team is set, the startups on the shortlist are invited to pitch to the business leader and this team. In-person meetings are highly preferable for the pitch versus video conferences to help the team decide if there is a personal fit. After the pitches, the business division makes a decision on which startup to move forward with and the contract is signed.

Execute successfully. The day-to-day work in the partnership clearly is with the startup and corporate working teams. But it is important that the Startup Partnership Evangelist keeps being involved to help the teams be most effective. Startup and corporate working teams should be working at eye level and roadblocks, if and when they occur, need to be removed quickly. It is the Startup Partnership Evangelist’s responsibility to spot any hurdles and help resolve them, potentially escalating them to the business leader.

Corporate-startup partnerships work best when the teams are located close to each other. Clearly, this is often not the case. The teams may even reside in different countries, work in different time zones, and speak different languages. It can then help to co-locate the teams for a period of time, be it by inviting the startup working team to the corporate, or by sending the corporate working team to the startup. Besides helping the project make progress faster this way, the time spent together will create stronger bonds between the teams. It will also expose the corporate employees more to the customer-back, output-driven, and learning-oriented ways of working of a great startup, a useful experience they can pass on to their colleagues when they are back home. Many corporates are looking to give their employees this experience as they seek to transform their internal cultures.