Your startup can benefit from corporate innovation. If you have the right corporate partners, one large company can serve as a partner for many small private companies like venture capital firms, private equity firms, and startups. If mutual benefit is your goal, it’s crucial to understand each corporation’s structure, scale and role. These are the details of navigating through horizontal and vertical relationships with the white knights of corporate America.
Management Structure
Management structures are very different from startups. Instead of being able to move quickly through the system with a handful of key people, you will likely be referred through several departments. You will need more infrastructure to ensure operations are running the more extensive your company smoothly. Smaller companies can pivot more quickly and without pushing operations through multiple departments.
The large company is the enabler, while the small company is the orchestrator. A well-negotiated revenue sharing agreement between large and smaller companies can increase margins while the orchestrating business drives growth. Smaller companies have many integration options that aren’t possible with larger companies because of the infrastructure.
Inverting the traditional management hierarchy within large corporations is also possible with startups. Taking something and having it moved between different departments is unnecessary. This creates a new management dynamic in Fortune 500 companies, as agile companies can now be partnered with large departments within an organization. Combining a company that is used to lean operations with a large corporation can lead to true hypergrowth. This is something traditional private investors cannot imagine.
Risk and Scale
Private investors cannot do all that corporate gods can. It’s more complicated. Startup investors prefer to finish their journey with acquisitions, mergers, and divestitures. Scaling laws show diminishing growth at larger companies but favor small businesses, so partnering with large corporations can be both a new beginning and a sign that you are on the right track to success. Larger public companies tend to experience steady growth over a longer timeframe. Combining this with the rapid growth of startups creates mutually beneficial partnerships.
Venture partnerships offer a competitive alternative to private equity but are less risky for more giant corporations that don’t depend on limited partnership agreements. If your company achieves a seven-figure valuation, this partnership offers you and your team a great opportunity. Startup teams are highly sought after, and more giant corporations are less familiar with scaling up.
Companies hire specialists to work in specific departments within a hierarchy. Startup founders often have a strong background in several overlapping areas but prefer to work within one area of expertise during the initial stages. This can significantly impact the C-suite management of large corporations with traditional hierarchies, as younger companies have lower hierarchies. Onboarding founders who can weave between domains can help spark innovation across multiple departments.
Timeline Variety
Corporate innovation is a way to foster a partnership between startups and existing resources. Startups have adapted to working on shorter timelines, usually bi-yearly or yearly. Large corporations are more flexible because they have a market and a budget. The combination of the high-risk profile associated with a startup and that of larger, more conservative companies balances the scale and allows both to move in tandem. Blockchain was used in small tech startups long before the corporate world adopted it. Alternative data is also beginning to emerge.
The startup lifecycle can be compared to large corporations in the same way humans compare to dogs: fifteen human years to one dog-year for the first year and nine for the second. Each human year is equal to five dog years from the following year. While both are mammals, the maturity rate for startups growing at scale is much faster than that for large corporations. Your startup should not become a pet of the corporate gods, despite a dog being man’s best friend.
Your Part
Your understanding of your customer will impact your sales cycle and your corporate innovation. This is important to remember when you reach out to large corporations to learn about their organizational structure. It is a best idea to look for vertically aligned corporate relationships that your startup can use to do something different within its operations. This is beneficial to both of you since neither company will benefit. M&As, joint ventures, and corporate Venture Capital have different cost-benefit ratios. However, each benefit will not be communicated to the target companies.
Corporate partnerships should be mindful of what type of engagement they are looking for. Simple distribution and revenue sharing agreements differ from M&A, corporate Venture Capital, or joint ventures. Founders of startups can use capital-raising platforms such as Foundersuite for screening for venture arms to increase their chances of being suitable. Joint ventures and corporate venture capital are a form of partnership. On the other hand, negotiations for liquidity events in M&A are meant to make the founders part of the company.
To encourage optimal growth, you need a positive-sum environment. Understanding each player’s role in the game is essential for your success. These pieces can be used to set them in motion.
