Driving innovation within a corporation requires an expert pattern matching ability, and sometimes recognizing which paths lead to disaster can help you focus on the best practices that yield results. The team at Mach49 aligns with strategic partnering teams and corporate venture capital funds to make the right start-ups investments to drive growth and impact for their parent companies. From working side-by-side with these teams, we’ve identified key common pitfalls to avoid when partnering with a startup.
1. Don’t Lose Sight of the Big Picture
Any strategic partnership should be purposeful and part of a larger strategy to achieve a specific set of objectives for the mothership. Ask yourself: are we using partnerships as a tool to generate new revenue? Reduce operating costs / improve efficiency? Extract learning from frontier technologies? Improve quality of life for our employees?
A common hazard occurs when strategic partnering and open innovation groups end up becoming mostly reactive, as the inflow of opportunities grows over time and each opportunity is given the same level of time and effort. While the ability to react quickly to rare and time-sensitive opportunities is critical for any good open innovation team, most opportunities in the pipeline should be triaged to focus on what will have the most impact. Another common scenario is the rationalization of sub-optimal partnerships, where disconnected colleagues or executives bring in a personal relationship and pressure the team to construct a rationale and partnership around that specific company, regardless of whether they’re the optimal choice in the market or whether they can help fulfill strategic objectives.
To avoid this, strategic partnering teams must clearly establish objectives and decision making frameworks upfront (e.g. “Build-Buy-Partner”) to be able to prioritize opportunities. Establish your top focus areas and evaluate your pipeline against this framework, which gives your team the grounds and the ability to defend rapid ‘yes’ or ‘no’ decisions that may be required to manage bandwidth.
2. Don’t “Move Fast” to the Impairment of Internal Alignment
A common gripe about corporates is that they often move at a snail’s pace, which some open innovation teams overcompensate for with a ‘fail fast’ mentality. However, behind closed doors, some of the most avoidable failures with strategic partnering have stemmed from an overeager partnerships team that has assumed interest or made promises for reluctant business units that are ultimately responsible for executing on the partnership. Corporates need to find their “Goldilocks Zone” in which they have time to get internal buy-in before running with a partnership, while also not moving so slow that it kills the deal or disappoints the founder.
Open innovation teams need to understand the incentives, bandwidth, and capabilities of the key internal teams that will enable their partnerships. Being aligned assures that you have clearance from business units in advance and verifies you can execute against the strategy you have promised.
3. Don’t Neglect VC-Style Due Diligence
Successful strategic partnerships perform a degree of VC-style due diligence, which helps de-risk the opportunity. Big questions that are often neglected, but should be asked internally, include:
• Is this company the best choice in the market for my needs?
• What plans do the board members have for the startup? Are they willing to let the company grow or are they aiming for a quick exit?
• Does the company have enough runway to last the length of our plans with them?
Digging into these questions and talking to existing investors will help your team understand the business health, future roadmap of the startup, and any potential conflicts of interest. Understand the longevity and stability of the company by unearthing any skeletons early.
4. Don’t Unintentionally Silo Strategic Partnering from Other Innovation Initiatives
Corporates with multiple teams working on various forms of startup engagement often struggle with effective coordination, and efforts can be duplicative. Open innovation and venture teams should be attached at the hip in terms of sharing information and the status of conversations. Save each other time through regular touch points or a unified system that allows you to tap into research or request introductions to targets that may have already been developed by other teams.
This coordination will help on the startup side as well. Drawing clear lines of delineation, understanding internal process dependencies upfront, and communicating handoff points and timelines to startups early on sets expectations and makes for a better relationship in the long-term.
5. Don’t Forget to Put Yourself in the Shoes of the Startup
Be empathetic and always remind yourself that your reality is not the same as a founder’s. The best strategic partners are those who can understand a startup’s priorities, urgencies, and fears, and work adeptly within the mothership to address them.
This starts by setting up specific internal processes that cater to some of the practical points of being a startup. For example, a legacy requirement of needing a certain number of years of audited financials for your legal or procurement team may not be realistic for a young company that may not have even been around for that long. Be the startup’s champion and do the necessary ‘blocking and tackling’ internally, so that they don’t get lost in cumbersome processes that slow timelines and kill deals. Both sides of the negotiating table should make their goals and timelines clear from the beginning to manage expectations.
There is no single formula or path to success, but there are plenty of approaches that have led to disaster. Avoiding these five common pitfalls will hopefully increase the odds that your team can be successful when partnering with startups.Our clients come to Mach49 because we have been in the trenches for decades, helping strategic partnering teams and corporate venture capital funds secure deals that drive growth and impact for their parent companies. Email us at firstname.lastname@example.org to learn more about how we can help you set up and amplify your partnering or investment strategy like we have for TDK Ventures, Schneider Electric, and more.