A co-operation between start-ups and corporates can have many advantages for both entities. Nevertheless, a co-operation can also pose risks to both co-operation partners.
The World Economic Forum thereby not only examined the various co-operation forms in view of their advantages but also evaluated the possible problems and risks in such a co-operation between these two different business models. The problems, which can arise during a partnership, can easily transform to risks. There are in addition several pitfalls, which can pop up even without any incidents in the cooperation, but nevertheless develop themselves easily into dangerous risks.
“soft factors much more risky then direct investment”
When hearing about risks brought with a co-operation the most people will think of financial risks only. And yes, there are high financial risks attached to a working relationship between start-ups and corporates. More often though it is not the financial aspect which poses a risk but rather the so called soft factors inside a co-operation. The brand, the employees and also the business culture are here much more risky then direct investments. But also the soft factors have of course indirect monetary after-effects.
Endangering the brand promise is maybe the most dangerous risk for a corporate when collaborating with a start-up due to its uncountable implications for the corporate. Other risks like an unsure outcome or losing investment are already calculated long before a co-operation is even an issue. Other factors like good co-operating employees or a smooth integration of innovations though are much more difficult to take into account or estimate their financial consequences. In the following we listed all risks a corporate is faced with to give you a hint what challenges one should keep in mind:
Risks for corporates working with start-ups
- reputational damage: if client or corporate data is involved, a failure of the co-operation may endanger the brand reputation.
- lost investment: many start-ups fail so that the investment risk is higher in compare to other investments.
- misaligned employees: the employees of the corporate might feel threatened by the business culture of the start-ups and get overly protective. This behaviour can delay the project and even lead to the failure of the co-operation.
- unsure outcome: when projects include unfinished products or working with inexperienced entrepreneurs, the results are difficult to predict.
- maturity misalignment: if corporates are not ready for the innovation it will be difficult to adopt new processes or a business model. In that case the corporation will be fruitless.
Maybe some of you might think now, that start-ups are confronted with less risk in a co-operation than corporates would be. On one side, that is true, if one looks on the potential gains a start-up can win through co-operation. On the other side, the risk for the start-up should not be underestimated either. A start-up might need a jump start granted by the co-operation but it is apart from that an independent company driving its own course to be successful. It therefore needs no unnecessary risks like its co-operation partner would.
Unnecessary risks for start-ups comprise also financial as well as soft aspects. A start-up is of course in need for reliable revenues and avoids risks which would endanger its business model. One of these risks is focussing only on one major costumer instead of developing an universal approach for the market. Also a too early scale up and needless delays in a project due to an uncoordinated communication can be prompt costly.
Another indirect implication is that a start-up could lose its culture through the co-operation. With its culture also its innovation drive or attractiveness for young creatives can get lost. The co-operation can not only destroy the company culture but can soon endanger the whole company model. For a better overview we listed in the following the risks start-ups are confronted with:
Risks for start-ups working with corporates
- Need for revenue: limited time to find costumers or funding to continue with the operations
- Focussing only on one customer: concentrating on a tailored solution for only one costumer may distract from developing a universal and thereby easy scalable product or strategy. This limits the growth potential.
- Delayed projects: the more departments of the corporate are involved in the project, the more changes of the requirements during the co-operation. This leads to delays and is financially difficult to handle for the start-up.
- Waste of resources: if a corporate sees a start-up more as a source for “free” consultancy, it will take a lot of resources the start-up cannot use for further development.
- Premature scaling: after a successful proof of concept or signing the first deal a start-up might already like to scale. But the winning the first client do not mean that the whole market is yet ready for scale.
- Loosing start-up spirit: through a too close relationship and the dependency on corporate decision-making a start-up can risk losing the agile spirit and its attraction for the best minds.
Finally, one can note: A co-operation has many advantages, if one clear, calculate or even avoid already at the beginning the risks. It needs though the commitment of both co-operation partners to succeed. Also one should keep in mind that a problem not turns into a risk overnight. More often potential pitfalls for your company evolve slowly out of underestimated challenges. If one ignores these challenges one expose itself consciously to risks and not only endangers the own company but at the same time also the one of your partner.
“good communciation as key success factor”
The last article about co-operation between corporates and start-ups showed explicitly that the small challenges like guaranteeing a good communication are at the end the factors a co-operation stands and falls with. That implies also that risks for the own company can be already fought off quite early with this simple but important element. The right communication is therefore the crucial factor one should keep an eye on.
We at Talent Tree know through our experience in co-operations and our good contacts to young as settled companies, what communication means for a business – not only during the executive search. With our “72-hours-rule” we make the exchange between candidate and client more transparent and faster. And thereby also avoid frictional losses for our clients or the jump off of high qualified candidates during the search. Clarity and speed are the key success factors for a good collaboration.
Further articles about the co-operation between start-ups and corporates you will find in our best practices section.