Over the last couple of years we have seen an increasing interest among corporate companies to work with startups. There has been a rise in corporate accelerators, where big corporations are sponsoring accelerator programs that attract startups in their field of interest.
To me this development makes completely sense. I really believe that corporate companies can actually boost their long-term competitiveness by working with startups. I am also confident that this model can be extremely cost efficient and even when it comes to non-core innovations be 6 to 10 times more efficient than investing in an internal R&D or innovation department.
However, there is an upper limit to everything. Even though the corporate accelerator model seems to have great potential, the actual results are still yet to be seen. I haven’t heard of a corporate company, which by running an accelerator program struck gold in the form of a startup that became part of the corporate business and boosted revenue with high numbers.
And why is that? I think there are at least 5 major reasons to why corporate companies are not getting the expected results.
Deal flow is everything. Running a successful accelerator is a lot about numbers. From venture cases we know that only one out of 1,000 succeed. In order to run a successful accelerator you therefore need thousands of applicants to be able to select a small number of qualified participants and out of those only a few will succeed. It is about gaining market share on the scene of talented entrepreneurs in a specific technology field. And market shares below 10-20 percent will not bring you any success. Corporate companies seem to be missing this point by thinking that entrepreneurs will line up in numbers as long as the companies participate.
Strategic fit is rare. When corporate companies are working with startups they have an idea of the type of innovation they are looking for i.e. the type of business model that matches their business strategy. Finding a startup with that exactly fit is rare – it has to be developed. So my advice is that you should never look for the perfect match, but for the innovation with the right potential that can be developed over time. This is a process that demands a lot of work both from the startups and the corporate Company.
No long term perspective. Corporate companies usually fund an accelerator for three years and then leave the scene if the results do not match their expectations. However, it takes time to build successful accelerators and to build trust and relations in the startup world. Building a successful venture takes 8 to 10 years and the same applies to accelerators. Corporate companies rarely have this long-term perspective but instead they are looking for short-term success.
Spending too much or too little. Corporate companies are often willing to invest quite a bit in startups and accelerators. However, money does not cut it alone. What startups need is not just money but the insight and market access that the companies can provide. Especially in the initial stage with rapid testing and assumptions it’s essential that startups have easy and affordable access to skills and the market. Unfortunately corporate companies in many cases rather provide money than time and resources.
Uclear KPI’s. A lot of corporate companies do not have a clear picture of what they want to achieve by engaging with startups and how they will measure success. This leads to a lot of misunderstandings and a hard time evaluating the investment in the startup engagement compared to other investments.
In Accelerace, we have taken a different approach to corporate entrepreneurship, in order to deal with the above-mentioned challenges.
Right now, we are collaborating with an energy utility company on a project called “Next Step Challenge”. They are looking for new innovation in the smart energy area and are investing 400,000 Euro a year, attracting 10 startups to Esbjerg a year with an average team size of 3-4 peeople. In other words the energy company is getting 30 to 40 development resources for 400.000 Euros. The cost of recruiting 30-40 people to an internal innovation department is probably 3 to 4 mill Euro in salary alone. If we expect that the likelihood of these startups succeeding is the same as the internal innovation department, the efficiency is nearly 10 times as high.
Moreover, pairing up with an accelerator like Accelerace who have many years of experience in working with startups, makes very good sense. Accelerace is thus providing skills, knowledge and resources while the utility company is providing free market access to272,000 households and office space. Together with investments and prize-money the startups should have a very good chance to succeed. Maybe the likelihood of success is not the same for startups as for the internal innovation department, but it leaves plenty of room for many experiments and thereby building portfolios of innovation opportunities.
In conclusion, my point is that corporate companies can definitely play a role in the startup scene, however we still need to figure out the various and right engagement models that will benefit both the startups and the larger companies. My hope is that we are getting closer to this model with Next Step Challenge…