Thinking of collaborating with savvy startups? Best bet it will do you good

STRATEGIC partnerships between legacy businesses and startups are becoming increasingly popular, with traditional businesses investing more than US$100 million in startups last year.

From these partnerships, a marriage of experience and resourcefulness is formed. Traditional businesses seek to gain new ideas and emerging technologies from growth companies, while these startups can harness the experience and wisdom of large corporations.

“In today’s age of disruption, businesses are being challenged by new technologies and quantum leaps in product and service innovation. To scout and invest in new businesses is no longer a matter of choice but to be future-ready for the next few decades,” says Harsh Goenka, Chairman of RPG Enterprises, an Indian industrial conglomerate.

In the past, many have been skeptical of the true intentions of large traditional businesses who partner with startups. A Fortune article describes it as the “corporation innovation theater”. The idea is that corporate sponsors only seek to work with startup companies to give themselves a halo of innovation and good PR. They have often been accused of extrapolating fresh, innovative ideas from startups and delivering very little in terms of mentorship or actual meaningful partnerships.

But now there seems to be a shift in the once questionable relationships between large companies and startups. Today, startups are being taken far more seriously by the big dogs.

In fact, one study found that not only are corporations more eager to work with startups, but 23 percent see it as critical and 82 percent said it is at least somewhat important.

Most notably, 67 percent of respondents said they wanted to work with earlier stage startups.

An example of a large company leveraging the business potential of startups is Murugappa group’s Cholamandalam Investment and Finance Company. The unit has picked up a majority stake in White Data Systems, a tech aggregation platform that brings together load providers and transporters.

“These startups find newer ways to do the same business, sometimes better. We may not be able to think the way they do and implement. So the best for us was to identify a startup, see if an alignment was possible, and pick a stake and grow together,” the Managing Director of Cholamandalam, Natesan Srinivasan, told  Economic Times

As well as the big corporations taking a leaf out of the playbook of startups for their benefit, working with corporations is, of course, advantageous for new businesses wishing to grow.

A study on the state of startup/corporate collaborations, from startup accelerator MassChallenge and innovation firm Imaginatik, explored what partnerships with corporations meant for small startups.

For B2B startups, it was found that an important objective is a possibility of the corporation becoming a customer. For B2C startups, a major objective is leveraging the power of corporations as marketing channels, in order to gain a presence in new markets.

But perhaps the main goal for startups looking to work with corporations is the pursuit of strategic partnerships, mentioned as important by 65 percent of startup respondents.

According to CEO Sandro Kunz at startup Pingen GmbH, “A strategic partnership is where you, as a startup, can leverage resources from the corporation, like having access to their marketing, research, and managers who can support you”.

In the study, startup respondents also consistently stressed the role of large corporations as an informal mentor. Corporations are viewed as partners who can offer access, advice, and strategic opportunities for mutual gain.

“Interacting with[corporations] helps us to share ideas because they are [more] experienced than we are. Also, they act as role models to us, giving advice on how we can grow or overcome challenges,” said one startup respondent in the study.

It is clear that a startup/corporation collaborations can bring bountiful benefits for both parties. Startups can add an entirely new, fresh perspective for regimented companies who are perhaps set in their ways. And for startups, the invaluable knowledge and experience of a large corporation can bring large opportunities for growth.

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