How Big Companies are Using Startup Innovation to Disrupt Themselves

Our Thinking

January 31, 2017

from Founding Partner Ben Yoskovitz

Last week I gave a quick talk at ResolveTO about how big companies are disrupting themselves through startup innovation. The goal of the talk was to walk through why companies should engage with startups, and a few methods they’re employing.

I’ve included the presentation below:

There’s a time and place for big companies to work with startups. The challenge is figuring out which problems/opportunities are better off being solved through a startup (and partnership with them) versus doing something in-house. Not every opportunity is best served through the creation of, or investment in, a startup. At the same time, it’s important to have a repeatable, scalable model for identifying the right opportunities and methods for engaging the startup ecosystem.

One thing is very clear when you begin working at the intersection of big companies and startups: each of them wants what the other has. Big companies have all kinds of assets locked up inside of them that are incredibly valuable for startups, including ideas, customers, distribution, experience and capital. Meanwhile, big companies — when trying to innovate more aggressively — look with longing towards the agility and risk-taking of startups. If big companies and startups both have assets locked up inside of them that the other wants, how do we unlock those in a meaningful way?

In the presentation, I’ve identified four ways that corporates are working with startups and a subsequent challenge around each.

Four Ways Corporates Work with Startups

  1. Corp VC is on the Rise.
    More and more big companies are launching corporate venture arms. There are some well-known ones, like Google Ventures, Salesforce Ventures, Intel Capital, that are very active. But there are a lot of new corporate VCs as well. CB Insights notes that 53 new corporate VCs made their first investments in Q1 2016. That’s a lot. The challenge with corporate venture capital is linking a corporate investment strategy with an overall corporate innovation strategy.
  2. Physical proximity.
    There are a ton of physical spaces dedicated to corporates and startups working together. In Canada, for example, you have MaRS, Volta Labs, DMZ, One Eleven, Communitech, Wavefront and many others. These co-working spaces and innovation outposts are great for creating the opportunity for shared learning and collisions. But the challenge is translating those collisions that happen through proximity into tangible actions and value creation for everyone.
  3. External accelerators.
    There are more and more big companies that are funding, launching, sponsoring or supporting external accelerators. Citibank, Telefonica, Barclays, Disney, Microsoft to name a few. I’m a fan of accelerators and believe they can add significant value (having run one in the past), but the value isn’t always obvious. Access to startups isn’t enough. The challenge is making sure there’s a meaningful way of connecting startups into the core, and not just having the startups exist on the periphery.
  4. Partnerships.
    Corporates have been partnering with startups for a long time. But recently, it’s become mission critical. That’s according to a joint study from Imaginatik and Mass Challenge, which found that 23% of corporates believe working with startups is mission critical. It also found that 67% of corporates prefer working with early-stage startups, mainly to explore new technologies and business models. Exploring new business models is key — because that’s what leads to new ventures. The challenge with partnerships is identifying the right startups and doing so in a repeatable, scalable way. Doing “one-off” partnerships isn’t a strategy.

All of these approaches for big companies and startups to work together can be valuable, but they can also be scattershot and disorganized. A lot of companies dip a toe in the water with these approaches — and that makes complete sense — but eventually, a more holistic strategy is necessary to maximize the value for everyone.

At Highline BETA we believe in a model called startup co-creation. Startup co-creation is about deeply understanding the problems/opportunities from a corporate’s perspective (and its customers), and then figuring out the right solution to those validated problems/opportunities.

Sometimes the right solution is a startup — either through the identification of an early stage startup for partnering and/or investing, or the creation of a new startup to work deeply with the corporate customer. Startup co-creation provides a disciplined, structured, Lean approach to figuring out the right opportunities to go after and how. We’ll share more on the model, in-depth, soon.

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