Corporates partnering startups – how to choose?

During the earlier days, corporates (most, not all) used to flinch at the response – “I work at a startup” during networking sessions. Somehow, the idea of a structure-less venture, with little rules on what time to arrive, and clothes to wear was in their own words “chaotic”.

Fast forward to today, many corporates not only embrace the idea of a startup, but even run some business units in their conglomerate as a startup. This is leading to the rise in corporate venture capital. They even pay top dollar to poach experienced startup executives.

The question we want to put forward today – how to choose the right startup(s) to partner with?

1. Proprietary technology or core competency of its own

Startups that make good partners are most of the times, companies that dominate a certain space. They do so by having proprietary technology (or data) or core competency of its own. Take Lazada for example. Being the biggest ecommerce operator in Southeast Asia, with each of its operations in various countries also dominating the local market (or running close to its competitors), made it an attractive partner to Alibaba.

Its team of experienced managers with market know-how, and the tonnes of data it possessed was something that was unique and not easily built or replicated – thus it was bought. We are not saying to every corporate to buy the startups they would like to work with – it doesn’t have to end that way.

2. Capable team (and founder)

Picking right team is as important as picking the startup. Do not only pick the startup for the potential it represents. Take for example 11street (Malaysia and Thailand) or Elevenia in Indonesia. It was backed and invested by non other than SK Telecom from Korea (a lot of money).

However, it failed to setup a good, experienced team to run the show, thus accelerating their demise. In our opinion, they could have been so much better off if they just bought a locally ran ecommerce, and scaled it up. It’s finally down the to the captain of the ship, not the ship. Just look at Travis Kalanick and Uber. They were in separable, and truth be told, without Travis there wouldn’t have been Uber in the first place.

3. Good track record

In the end, startups are (unfortunately) typically young. This does not inspire trust for any corporates out there seeking a partnership. In addition, startups often burn obscene amounts of money, immediately presenting itself as a poison pill (if any corporate would want to consider to buy it).

What’s left would be the startup’s track record. How many customers has it served? How much market share does it have? A startup with a good track record (and clear route to profitability) could be a worthwhile partner.

Collaboration breakdowns do happen – why?

Having advised many collaborative efforts and participated (as shareholder or advisor) a number of joint-ventures, we can say for sure, there are tonnes of untapped potential in this area. Both sides need each other, but many times, a handful of factors turn away either side.

For one, money is a huge issue hurdle. Startups are known to be money black holes (more often than not), and corporates are well aware of this. Huge capital investments are usually needed to get head start in any joint-venture effort.

Corporates are often very careful, and sometimes downright suspicious (especially when they don’t understand) when they observe a mismatch in expected cost (in marketing, production etc) versus what they had in mind. The general mindset of many corporate managers are not to lose money from day one.

When the partnership has moved beyond the money, now it involves decision making functions. Corporates and startups have completely opposite ethos when it comes to communication. While it could be quite normal for the decision to be made on the spot for a startup, a corporate may have to run a seemingly simple decision through multiple channels.

While corporates are starting to become comfortable to invest money, they may think twice (or wouldn’t budge) when it comes to investing in their organization’s change in mindset.

Silver lining

As a company that bridges both sides (startups and corporates), Momentum Works contends that both sides do indeed benefit from each other’s plus points. While the apparent benefits of such partnerships may take time, most partnerships simply do not live that long – and mostly due to the problems mentioned above (or simply because the startup went bust).

It is not to say partnerships between corporate and startup are doomed to fail. It just requires a careful and closer study to synergize the advantages that both sides bring to the table.

There is no reason why any side should be concerned about risks of such partnership if it is carefully guided and mediated.