Incubator, accelerator innovation unit or co-creation: there are various ways for a corporate and a start-up to enter a co-operation. The question though is what would be the best way for a co-operation for both entities?
As for the general decision for entering a co-operation also the decision for the right co-operation form, each of the partners should visualise the aims they like to reach. Depending on the aims, there are several different forms of co-operation and designs you can choose. The orientation between the co-operation partners though varies.
Decisive factors for corporates
According to the World Economic Forum corporates orient more on the factors time and financing. Time is here not only defined by the simple duration but also by the frequency of the co-operation. This implies that a corporate assesses exactly if a co-operation is meant for a specific project only, an in-depth partnership but with set times or with an open time frame or investing directly in shares of the start-up and thereby start an open end co-operation.
The time frame therefore also decides about the type of financing due to the close interaction of both factors. If a co-operation is limited to one project only there is a clear time frame one can count with. Project co-operations are therefore good to plan and also the risk in case of failure is rather low. A more close and frequent co-operation on the other side is much more time-intense and can easily lead to a cost escalation.
It thereby highly matters if the co-operation will be far-reaching or interactions rather held on low level basis. For example should the innovation power get transferred back to the corporation or should it get sourced through a B2B relationship only? For an overview we listed here according to the World Economic Forum 5 forms of a co-operation, which are most suitable for corporates:
Here the corporate assigns a specific project to the start-up and thereafter buys the developed product – for its own use or to resell it.
✔ Pro: The co-operation is limited to specific area and there is a direct exchange. In addition there is a clear time frame and also the cost can be kept under control.
✘ Cons: No direct influence on product development.
Internal Innovation Unit
The corporate here set up a new innovation unit or R&D department to collaborate with start-ups in the same branch or with private or public incubators. The department is also responsible to coordinate the communication not only with extern but also with intern entities and ensures a smooth running of the co-operation.
✔ Pro: Bringing in new ideas into the corporate from outside and develop them further towards a market-ready product – inside the corporate or through a constant exchange. Through an own innovation unit market innovations are kept in view and also several co-operations can be coordinated at a time.
✘ Cons: This form of co-operation has not direct time limit or is even unlimited. In addition the funding is also more demanding.
With an own incubator a corporate can directly attract start-ups from the relevant branch, which can develop their ideas further in the incubator. The incubator can be set up and funded as an own company or entity.
✔ Pro:With an incubator a corporate can support several innovations in its field and not only one project or subfield. As an own company or entity the incubator furthermore has to economise with its budget – the costs are under control.
✘ Cons: Eventhough the focus of the incubator is on branch relevant start-ups there is much more diffusion. The collaboration is not that close and the autonomy of the start-ups is more important. Additionally, the support includes not only the funding, but also the provision of office spaces, mentoring and access to other resources.
Here the corporate founds a subsidiary company and endow it with financial resources. The subsidiaries task is to find partners for specific projects e.g. to develop a new product. If the collaboration successfully develops a product, it gets integrated again into the corporate.
✔ Pro: The subsidiary focusses on the specifications from the corporate and searches for suitable partners. Also the funding is fixed and there is a clear cut between core business and development activities – or in other words: a transfer of risk.
✘ Cons: High costs to set up and finance a subsidiary – more practical for corporate groups.
Entrepreneurial Co-creation Modell
The corporate founds a co-creation board, consisting of intern developers, executives and external entrepreneurs. This co-creation board then analyses the potentials or backlogs the corporate has and develop fitting strategies. Thereafter new companies can be founded (alone or with other investors) to unfold innovation potential in the branch. If the new companies are successful they can get integrated in the corporate.
✔ Pro: The corporate can with this model expand its business and enter new market segments without endangering its brand and can deal with innovations in a more precise way.
✘ Cons: This model is quite expensive – more practical for corporate groups – due to the several companies one has to found and fund.
Decisive factors for start-ups
For start-ups the current phase of the business life cycle, meaning in which phase of their business development there are in, is the decisive factor. Here it is important whether they are in developing their business idea, founding and setting up the company or already expanding their business. Depending on each phase of the business life cycle different forms of co-operation are suitable.
As a matter of fact, this implies that a start-up should ask itself first the following two questions before it decides for a co-operation: In which phase of the business cycle are we at the moment? And what is the overall aim of my company? Depending on the single phases there can be different aims attached to a co-operation and also the status of the start-up itself decides whether a further business development or even an exit would be the right strategy. The business development of a start-up can be parted according to the World Economic Forum into the following 3 phases:
In this phase the start-up develops its idea or product and therefor develops itself. Here the first steps towards an own business are taken or already a market entry is tested. The further development of the start-up is unknown and can get supported by the following programs with duration from 3 up to 12 months:
Direct Sales or Proof of Concept. Here the start-ups have the opportunity to sell its product directly to a corporate and thereby already check out the B2B or B2C market demand.
Incubator provides assistance to young start-ups through granting office spaces, sharing experience in the business and offering financial support. For the assistance the co-operation partner gets in return 5-15 percent of shares of the start-up.
Accelerator: Functions in quite similar way like the incubator but rather addresses start-ups with a market-ready product which only need a bit of market or business know-how to make the final leap.
This phase the product development is finished and finally the company enters the market. In this consolidation phase of the business here it is useful to look for a partnership which supports also the further development of the start-up. Here the co-operation lasts from around 6 to 12 months.
Partnership Co-Innovation: Here the start-up works together with the R&D department of a corporate. It thereby gets access to the corporates resources and network.
Corporate Venture: Financial support and access to internal structures of the corporate as well as contact to clients. But here it is more risky to get bought up.
Partner Model: Start-up uses either the technology or sales platform of the co-operation partner and thereby gets its first references for future sales.
In the expansion phase the young company has to grow with the increasing demand for the product. Developing company structures which allow for consistency in the business is the very essence of this phase. Duration depends on partnership.
B2B Sales: The focus here lies in the set-up of a functioning sales pipeline to sell the product on a solid basis. A sales partnership with a settled company is therefore good to gain references and contacts to clients.
Partnership with Original Equipment Manufacturer (OEM) oder White Label Partner: Here the corporate buys the product of the start-up and sells it under its brand or as a key element of its own product. Within this co-operation there is no direct B2C market and the start-up depends highly on the decisions of its co-operation partner.
Finally, the current phase of the business development of a start-up has to match with the engagement of the corporate. But there is an easy solution for this problem: As a start-up one seeks for a co-operation fitting to the current business cycle and as a corporate one only provides co-operations supporting the aims one like to achieve. Also, the already existing co-operation forms in the relevant branch can give a good hint towards functioning and suitable kinds of collaboration. As an example an in-depth R&D co-operation is more useful in some branches as in others.
There is of course not THE right co-operation form. There can be a follow-up or a mix of several co-operation forms suitable. Initial assistance like an incubator can be combined with a partner model. Or an entrepreneurial co-creation program can lead to the setup of an incubator or accelerator in the aftermath. Especially the corporate has to consider precisely what form of engagement – in view of time and financial commitment – one favours and which aim the co-operation should have. Also the start-up should reflect on the several co-operation form not only would make sense in their current phase but also which aims it like to target in the next phase.
Clear aims and good team
Through our working relation as Executive Search Boutique with many start-ups we from Talent Tree know that a co-operation needs the cultural fit between the two co-operation partners but the start-up also requires a clear aim and a good team. A clear aim to describe precisely what you like to achieve and a good team to reach also your aims. Not only for a co-operation but also for general funding these factors are highly important.
Although a co-operation is completely useful and you also found the right form of co-operation, there can be problems within the co-operation. To avoid a failure of the co-operation the next article concentrates on best practice examples to avoid the most common mistakes in a co-operation.