By Mohan Sawhney
In theory, big companies and nimble startups are a match made in innovation heaven. The strengths of the former — access to capital, established brands, distribution channels, a sales force and the like — are near-perfect complements to the creativity, agility and passion of the latter. It harkens back to the literary fable of the blind man and the lame man: Startups have the eyes to find new ideas, while big companies have the legs to scale them.
Indeed, many companies have launched corporate venture arms or startup-in-residence programs. But to reap the full potential of startup partnerships, there must be a method to the madness. Specifically, I advise business leaders at the Kellogg School of Management to take two actions: One, they must create an ecosystem that encompasses partnerships with different types of entities. Two, they must build a portfolio of engagements that represents the different stages of innovation, from generating ideas to buying a technology to acquiring a company.
Illustration by Michael Morgenstern
Put the horse before the cart.
Before you try to source innovation, pinpoint what you need to buy. Analyze the trends and disruptions taking place in your market and use that to develop a clear understanding of your company’s capability gaps and innovation needs.
Caterpillar, for instance, recognized the need to improve the ROI of its construction equipment that was expensive and underutilized. So it invested in Yard Club Inc., a San Francisco-based startup that bills itself as the “Airbnb of heavy equipment” by creating a rental market for construction equipment. Similarly, Allstate invested in telematics after recognizing that monitoring the driving habits of its clients would help inform the pricing of their insurance policies.
It’s not about the money.
While corporate venture capitalists invest in startups purely for financial returns, your investments should be focused on generating strategic returns. As a corporate investor, your real payoff comes when you source creative ideas and technologies from startups that can transform your core business.
For instance, Salesforce Ventures, the corporate venturing arm of Salesforce.com, is the only strategic venture fund that’s 100 percent focused on enterprise cloud companies, with about 175 investments to date. Its explicit goal is to build the largest ecosystem of enterprise cloud companies in the world — and, in turn, cement its place as the top enterprise cloud software company in the world.
Think about it this way: If you can find a technology or process that enhances your core business — even if only by moving the revenue needle by 2 percent — imagine what that would mean for your company’s top line.
Hang out at the startup water-cooler.
Incubators, like Chicago’s 1871, are the water coolers of the startup world. Spend time there. Look for impromptu opportunities to bounce ideas around with entrepreneurs or just shoot the breeze. Ask them to join your boards or offer to join theirs. Or think of creative ways to create a symbiotic exchange of people and resources, such as an executive-in-residence program to balance a startup-in-residence program.
Scout for ideas.
Instead of waiting for ideas to come to you, you need to actively scout for ideas — both directly and indirectly. For direct access to entrepreneurs, inventors, innovators and startups, build portals like the General Mills Worldwide Innovation Network (G-WIN), which finds inventors to bring innovative ideas to General Mills’ specific domains, such as Ingredients, Packaging Processing and Technologies. At the same time, establish connections with the innovation community through middlemen who can expand your reach. Crowdsourcing companies like Innocentive, for example, maintain a marketplace where “seekers” who have scientific problems are connected with “solvers” who like to engineer solutions to those problems.
Make yourself startup-friendly.
To a startup, your company looks like a Byzantine Maze. Make it easy for them to navigate the corporate terrain. Put yourself in their shoes and show that you’re transparent, fair and responsive. You want to prove that you can be a trusted partner for startups, not a behemoth who might steal their ideas. When AT&T sought to acquire Xanboo as a foundation for their Digital Life home automation offering, Glenn Lurie’s Emerging Devices Organization (EDO) team acted as a single point of contact with the startup — allowing them to cut through the bureaucracy and move fast.
Park it all under one umbrella.
Your company needs to develop a multi-pronged and multifaceted strategy that allows you to engage with different types of startups and entrepreneurs at different stages of innovation. But to steer the ship, you need to appoint a senior executive — commonly called a “chief innovation officer” — to orchestrate all of these initiatives and report directly to the CEO. At Caterpillar, it’s Greg Folley who runs the Analytics & Innovation division; at Allstate, it’s Suren Gupta who oversees technology and strategic ventures.
So why go to all this trouble? Because startups have disruptive potential. You have to know how to move with them — instead of against them — to harness disruption.
It’s like a tidal wave: If you wait for it to come, it will swallow you. But if you learn how to surf it, you’ll catch the ride of your life.
Learn more about Corporate Innovation at the Kellogg School of Management.
Professor Mohan Sawhney is a globally recognized scholar, teacher, consultant and speaker in innovation, strategic marketing and new media. He has written six management books and dozens of influential managerial and academic articles. He has won several awards for his teaching and scholarship, including the Outstanding Professor of the Year Award at Kellogg and the Distinguished Alumnus Award from the Indian Institute of Management, Calcutta. Professor Sawhney serves on the boards of EXLService, Reliance Jio Infocomm and Bahwan Cybertek as well as on advisory boards of several technology startups. Professor Sawhney holds a Ph.D. from the Wharton School of the University of Pennsylvania; an MBA from IIM Calcutta; and a B.Tech from IIT Delhi.
