Most companies are struggling to keep up with the innovation cycles perpetuated by a few “winner take all” tech companies. Others are getting disrupted by startups. With an abundance of resources, these organizations try to innovate to stay ahead of the curve, but typically they fail. Why do these companies so often face growing competition from small startups with a fraction of their budget and personnel? It is because there is a growing problem in the way large companies innovate within. Among other troubles, intrapreneurship has very few incentives, and which are greatly misaligned.
Firstly, a big part of what makes entrepreneurship so successful is the ability for smaller organizations to be nimble and flexible, something larger organizations just simply can not do. And, there is a substantial economic risk that it could destabilize the company’s stock price. Moreover, unlike entrepreneurs, most intrapreneurs in larger organizations have no founder’s equity. There won’t be a big payout if and when that product launches or “exits.” Finally, the timeline for internal projects is inherently flawed. The heart and soul behind the idea gets lost when innovators switch between projects. These and many other reasons are why larger companies should invest more time and effort into entrepreneurs.
Great, now how do we do that?
“Real value creation happens at the lowest levels of innovation: the entrepreneurs and startups,” said Seventh’s CEO Alexander Polyansky. “It is about finding and investing in meaningful, strategic partnerships at universities, incubators, co-working spaces, and other centers of innovation. Open the channels of creativity and sharing. Look beyond the litigation and defensibility. This is about forward thinking and progress.”
Few companies are doing exactly that. Recently, big brand names have been increasing their innovation budgets for R&D and collaboration projects. In the food industry, there are a few great examples of big brands working with startups. Some call it the “Food Revolution” because the big players in this market are turning to smaller companies in order to stay competitive and relevant.
Case in point- nine of the biggest food players including Danone, General Mills, Campbell Soup, and Kellogg have engaged in VC investing as a way of engaging with smaller startups who have challenged the status quo by introducing healthy, creative alternatives to brand-name items. While investing in these startups does score financial payback, these large companies are primarily using their VC divisions as a form of research and development. Here, we see movement away from internal innovation toward external investments and acquisition.
Reaching out to startups is not a “feel-good” act of charity that big companies do to gain karma points. Collaboration with smaller companies is key to a big company’s longevity and growth. Without acquiring the innovation happening at these entrepreneurial levels, megabrands will be pushed out of their niche. Startups are their lifeline.
This works both ways. Startups heavily rely on the pull from larger companies in order to gain traction for their hard earned ideas. Startups should get access to the manpower, financial resources, and social influence that these companies can provide to help push new ideas over the hump. The end goal for any innovator is to eventually win financial payback for their work, a feat that can be very hard to achieve without a strategic partner. This is where companies like Coca-Cola are stepping in to create mutually beneficial relationships between startups and big industry players.
Coca-Cola’s “Bridge” project invests in promising startups and “grooms” them for commercialization. While the end goal is to eventually grow these companies into useful partners of Coca-Cola, many of the startups in the program have found success through acquisition. Last year, Cimagine, a graduate of the “Bridge” program, was acquired by the social media starlet Snap for over $30 million.
Unlike R&D type investing that many food brands are turning to, Coca-Cola’s program focuses on commercialization and financial payback for the mother company. This relationship allows big corporations to boost startups and earn back investments without taking big economic risks. For startups, the support of a big company, especially one as influential as Coca-Cola, means significant boosts in resources, connections, and visibility.
From the food industry to Coca-Cola’s investment projects, some companies are finding that investing in startups not only supports creators and innovators, but ensures their survival. “There are still too few companies who get it right. And of those who do, their engagement is limited, and there are too many layers of bureaucracy,” said Polyansky. “Also, and this is common, large companies tend to lose focus of what it is they are actually good at. This makes it hard to find the startups and entrepreneurs having the technology to fit the customer’s needs.”
Take the next three steps to help improve the viability of your company:
To streamline this process, we at Seventh.ai are developing fully automated software tools to help you with that research thus ensuring your company’s survival. “I ask big companies,” said Polyansky, “to take bolder risks and active steps towards collaboration, partnering with and acquisitions of startups, and hiring of entrepreneurs to ensure long term success of your company.”