Corporate CEOs Have Failed To Engage With Startups
The time has come for corporate boards to add "startup engagement" to their CEO's job descriptions.
By now, CEO's have started to understand how important it is to engage with the startup community, but remarkably, few seem to do it themselves.
Through pride of launching their own ideas, fear of uncertainty or an inability to engage, many have started to see death by a thousand cuts or guillotine-esque chops from the once up-and-coming disruptors.
Too often this critical function is shrugged off to the other company departments, including innovation, business development, marketing, and PR.
This is not enough.
Due to the bureaucratic gauntlet of legal, finance, budgeting, branding and strategy, the champions that see the potential often can't expedite the speed at which would be required to be most effective.
Why Corporates Need to Collaborate With Startups
Engaging with early-stage tech startups is no longer an optional good-will for corporations -- if it ever has been.
It is now a case of work with tech startups or perish.
And I know how doom and gloom that sounds.
But unfortunately, we don't have the time machine needed to ask the too smart for their own good executives at Blockbuster who passed on a $50M acquisition price for NetFlix in 2000 to get a better perspective of understanding the future.
That doesn't happen at our company, you might be saying, and perhaps you're right.
Many CEOs will say they are already engaging, and the figures, at first blush, bear this out.
The number of non-tech corporates buying up tech companies is rising fast.
The total value of transactions of non-tech companies acquiring tech companies more than doubled from $54 billion in 2016 to $108 billion in 2017, according to EY.
Also, according to a survey by MassChallenge, four out ten corporates say they use resources for accelerator or incubator space for startup interactions.
1 in 2 respondents says they employ staff to interact with startups.
But, look a little closer, and you’ll see that much of this is PR makeup.
The statistics show that, shockingly, only 1 in 10 corporations say their senior executive team has any specific responsibility for startup interactions.
ONE IN TEN.
Based on this statistic alone, what we're seeing is nothing more than talent scouts who likely bang their heads against the wall when it comes time to make things happen at the executive level.
And the acquisition figures above?
Couldn't we assume that the price would be significantly lower if they did engage sooner and more directly?
*Cough* Netflix in 2000 *Cough*.
Even still, for the four out of ten listed above, engaging with accelerators and incubators isn't always the best strategy for core-alignment.
Take a look at the 6 or so startups in the current spring or summer cohort at your local accelerator and, chances are, they don't offer anything to your business.
So what is happening instead?
More often than not the responsibility for talking and engaging with startups is farmed out to innovation, R&D, technology, strategy, business development, and marketing departments.
It is, of course, critically important that these departments also play a role in startup engagement, especially at the tactical level – but this cannot be to the exception of the company’s leadership.
For executive behind every core function of your business, startup engagement needs to be a priority.
Why It Needs to Come From The Top
It is not enough for startup engagement to remain siloed in technology departments for many reasons.
First, we know that tech, innovation, and R&D departments themselves do not have enough exposure to the top team. In fact, only 34 percent of CIOs report directly to the CEO, according to the latest survey from Harvey Nash/KPMG.
Besides, a study of Fortune 500s found that "innovation" is listed as a core function of 24 different departments.
Secondly, the real value of startup engagement is that it gives the leadership team of an organization, and specifically, department heads some insights into what the future holds for their industry.
It provides them a snapshot of the challenges and competition they may face, as well as hands-on guidance on how their organizations will need to change in response.
This type of information is best absorbed first-hand and by exploring these issues directly with the startups themselves – unpacking their creativity, motivations, and missions.
Finally, savvy corporations also know that to survive, at some point they will have to invest and align with players in the ecosystem.
For example, with Ford’s recent investments and acquisitions of technology companies including NuTonomy and Argo AI. Monsanto's engagement with PairWise.
These strategic investments in tech companies help corporates get a hand on potentially significant technology, or on a team, and allow them to steal a march on competitors.
This is why we see an uptick in M&A activity.
But to be successful, corporates must remember that most startups will only want to be acquired by companies that can demonstrate a genuine interest in the value, and possibilities, presented by their business, team, and technology.
The question is -- but how? Easy.
(Above: "Stoplight Technique". Copyright Gearbox Academy)
Well before an acquisition should be a small investment.
Well before an investment should be a de-risked innovation pilot.
Well before an innovation pilot should be a warm reception, if not a sincere red-carpet treatment from senior leadership.
This is where the failure is happening.
This is where startup founders see the disconnect.
What's more, there is a substantial benefit to the slow roll outlined here.
An innovation pilot frees up the CEO from time-consuming handholding, it de-risks opportunities, begins integration and provides the most insights.
The best then make it to the next round, which would be an investment. Success then shifts to the corporate venturing team.
Finally, M&A does their due-diligence and they are picked up.
To use an analogy, you would then have a "farm team" as in the case of major league baseball.
A Simple Change
Consider it a yearly pyramid.
Thousands of startups may be within a corporations reach or access.
In a given year, ten to twenty might make it to the next step are innovation pilots.
From there, five might be successful enough to have an investment.
One might eventually be an acquisition target.
It's as simple as that.
The Current Situation Is Hurting Many Companies
Most CEOs pay lip service to innovation but don’t take any personal responsibility for it, or aren’t seen talking to startups at all and it's hurting their companies.
In addition, these corporates risk sending the wrong signal to the startups they’re courting.
They risk giving the impression that they don’t take innovation seriously enough; that it’s a “nice to have”; that company transformation can wait; or, even worse, that all their talk about tech is nothing more than a PR smokescreen.
And these corporates shouldn’t fool themselves that writing a big check will make a massive difference when it comes to acquisitions either.
If integration hasn't already happened, why should you expect it to be any different later?
You've added a billion dollar liability disguised as a ten billion dollar opportunity.
Many young tech startups left secure corporate jobs because they were passionate about their new business and their ideas.
They wanted to change the world.
It’s almost never about the money – and, in fact, the best startups have their pick of funding sources.
The funding landscape is competitive, and corporates need to set themselves apart. Startups want to change the world – they want to partner with investors and companies who can add value and who share the same vision as them.
Startups want to surround themselves believers, not just partners.
Boards Need to Hold Their CEOs Accountable
If corporates want to have their pick – or at least a better pick – of the best startups for partnerships, investment or acquisition, they need to lead their engagement activity from the very top.
CEOs need to be seen engaging with startups themselves.
And they need to be seen doing it sincerely.
Ford is one of the companies taking the lead in this area.
In fact, its CEO, Mark Fields, recently told Business Insider, he is clearly getting himself out talking to, and about, startups.
“To me it was really important to be part of the ecosystem there — for our people to be rubbing elbows with somebody in line at the Starbucks and striking up a conversation and saying, ‘Hey, I’m working on this,’ and ‘I’m working on that.'”
Leading this engagement from the top will not only give these corporates a better view of the opportunities out in the market, but it will also provide them with the credibility – and relationships – they need to approach and negotiate investments and acquisitions with startup targets.
And why not? As opposed to the daily norms of CEO-dom, doesn't chumming around with the builders of tomorrow seem like a lot more fun and exciting anyway?
Corporate boards and shareholders need to make sure that their CEOs are taking this seriously.
The best way to do that is to add “Corporate Startup Engagement” to your CEO’s job description.
Or perhaps Chief Engagement Officer?
And then make sure that they do it. It doesn't matter if it is under the umbrella of defensibility, insights, opportunities or innovation -- it needs to get done.
Startups are exponential, ground level companies, intimately engaged with potential consumers of their product or service, and are looking to pilot, partner or raise capital based on the desire and enthusiasm of these initial connections with their company.
You may also enjoy:
The 10 Ways Corporations Can Engage With Startups
About the Author: Anthony W. Richardson is Founder and CEO at Gearbox.AI. In his prior life, he was a hired gun for venture capitalists, an author, a speaker, an entrepreneur and an advisor to global accelerators with a focus on growth, finance, and scale.
About Gearbox: Gearbox.AI provides the leading corporate-startup engagement solutions designed to help innovation leaders, corporate development professionals, and strategic partnership executives master the art and science identifying and aligning with what's next. Through a unique combination of a corporate membership community, AI-driven software, and cutting-edge expertise, Gearbox is focused on helping corporations keep pace in an ever-changing digital world and providing startups with new avenues for growth. The result for modern innovators is unprecedented agility, risk management, and superior results.
Headquartered in St. Louis, MO with offices in Denver, Chicago, and Los Angeles, Gearbox serves as a pivotal partner to Fortune 500 corporations and a champion to innovative startups.
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