How Large Companies Can Work With Startups

Date: 14/03

by: Yong Kim

I recently had the opportunity to present to a group of senior HR executives at a Fortune 500 company about the emergence of on-demand services and its impact on the future of work. Somehow, our discussion switched over to a different topic: what large companies could learn from startups and how they could collaborate with them. They wanted to understand how to make decisions quickly, stay nimble, and continue innovating.   

Leaders from large corporations frequently visit Silicon Valley and meet with startups to learn exactly this – how to move like startups. This is fascinating because these companies were startups themselves at one point. If that is the case, deep down, there has to still be startup DNA somewhere in there. On top of that, they have thousands of intelligent, capable, talented individuals with entrepreneurial mindsets in their organization. Clearly, lack of talent is not the issue. Yet, leaders from these companies feel that there is something missing. Perhaps, the missing piece stems from the complexity of their organization, hierarchical decision-making structure or perhaps just office politics. 

Regardless, they want to find that missing piece, and one way is to visit the innovation epicenter in Silicon Valley to spend time observing what startups do. From this observation, they can form relationships and collaborate on potential projects. These observations can be enlightening for teams from large corporations. They go back to HQ revved up and motivated, eagerly sharing with their teams how eye opening their trip was and how they need to start thinking outside the box. They stay in touch with startups they visited and continue exploring potential opportunities for a few weeks.

However, there is one fundamental problem. After a few weeks, things go back to the regular routine, and then, nothing happens. Startup founders continue reaching out to them about updates, but eventually, their calls and emails are not returned. Everything halts and vanishes as if it never happened. I have seen this happen a few too many times, both from my first-hand experiences and also from hearing other founders’ experiences. It’s not anyone’s fault. It’s just that other business matters start to fill up time, and the energy starts to dissipate.

How can this be prevented?

One of the key issues is that many large enterprises do not have a built-in framework that allows them to work maximally with startups. This is hardly surprising. Startups work in uncertainties. Large companies have built an extensive network of processes to remove uncertainties. Startups have to assume unforeseen risks and make business bets to keep moving. Large companies have set up hundreds of rules and boundaries to minimize and prevent risks. Because of these barriers, many leaders in these companies get stuck even though they have the desire to work with innovative startups. The perceived risk of failure is just too high. 

To make this work, large corporations must create a framework and a process that will increase the comfort level in taking risks and making decisions, across the many different departments that are stakeholders in those decisions. To address this huge, complex task, the first step is to break the complexity down to its components. This can be done through asking the following questions:

  • How can we design a small pilot that is well defined and isolated, with low perceived risk but real potential results?
  • What is the minimum number of decision makers who can sign off on the pilot?
  • What are the minimum required contractual terms for the pilot?
  • What are some of the internal red tape or hurdles that can be minimized to launch the pilot?
  • How do we set aside a separate pool of funding to allocate for pilots with startups?
  • How do we define the success of the pilot such that all participants are aligned on key metrics?
  • If the pilot is successful, what does the larger rollout or expansion roadmap look like?

Once the framework is established, there needs to be:

  • A liaison who manages various constituents within the organization – they are the bridge, translator, and diplomat between the startup team and the enterprise.
  • Strong buy-in from senior executives who must empower their direct reports to test and learn.
  • An incentive system where every participant in the pilot is rewarded (or not punished), even if the outcome of the pilot is not successful, as long as there is a tremendous amount of learning opportunities for the company.

Utilizing the above metrics, a large company can increase likelihood of success in translating startup observations into a cohesive, symbiotic relationship with a startup.

One of the few large enterprises that has done an exceptional job in this area isUnum. Despite being part of one of the most highly regulated industries, their organization breathes innovation and agility. It starts from the top. Their most senior executives constantly repeat the mantra, “if you do not try, you will never learn.” With their strong buy-in, their direct reports are empowered to move things forward, try new things, and not be frozen by fear of making mistakes. 

For Unum, their senior business development executive plays a critical role as liaison between the company and startups. He is well versed in various challenges that are pertinent to them and that they want to solve. At the same time, he has a keen understanding of the startup ecosystem and is kept abreast of ideas that can potentially bring innovative solutions to address their problems. In turn, he helps startups navigate through the myriad of internal rules and regulations, and connects them to the appropriate point person or team focused on actually executing the idea. Together, they define the scope of the pilot, timeline, cost, and key success metrics. Simultaneously, key decision makers in finance, legal, and procurement work on streamlining the contract process which is designed specifically for the series of small pilots. 

Once small pilots are proven to be successful, senior executives get involved again and decide what the rollout strategy would entail. The entire process moves as if a startup is working with another startup carved out of the larger company. This process has been so effective that Unum has already created several wins and emerged as the one of key enterprise partners to work with in the startup community. 

Unum is a prime example of how nimble a large company can be, and how a large company can have the best of both worlds: be large and small at the same time. There are other examples, including Coca Cola and their Founders Program, which embraces this same concept (disclosure: the startup my team and I are building, Wonolo, was born out of this program and benefited immensely from this strong partnership). 

In the near future, I imagine that many large companies will create dedicated teams able to interface adeptly with startups and apply the principals outlined above. This idea has led me to now end my presentations with executive members from large corporations differently. Instead of a summary, I now present questions: “What will you do differently when you go back to your HQ?”, “What will be your pilot?”, and finally, “What mistake are you unafraid of making this year?”