In the recent series of posts on the Combient Foundry blog, we’ve explored how large companies can speed up product development and innovation through collaborating with startups, found out that instead of investing in startups, partnering with them as venture clients is often the winning formula, identified for what kind of needs that formula works particularly well and then laid out practical steps on how one should make it happen – become venture clients. The Feedback received from the blogs has been overwhelmingly positive, though it often centers on one aspect of the mission at hand: scouting for startups.
What is startup scouting, and why does it garner so much attention?
Essentially, startup scouting is the practice of actively searching for and evaluating early-stage companies with high potential for success. It’s about gathering information and seeking out the next big thing based on predefined search criteria.
When considering strategic startup collaboration, it’s understandable to view it solely through the lens of scouting. If you have a strategic priority to work with startups, the critical step along the way is to find promising startups and solutions. However, there’s a trap here – it’s not the first step, nor should it be the last.
A common mistake is to approach strategic collaboration with startups with a simple formula:
We understand the need to start somewhere. Often, corporate teams seeking structured ways to work with startups look to established benchmarks. Usually the case is that there is an existing Venture Capital arm at the company and there, you find existing ways to engage with startups. However it’s important to recognize that investing may not always be the most suitable method for achieving desired results from the startup ecosystem for corporations. In our post “Unlocking Corporate Innovation” we explored different Risk – Time to Value profiles of becoming Venture clients, Venture Builders or Corporate Venture Capitalists. The Venture Client approach stands out for its significantly shorter Time to Value and less capital requirements, as well as a lower risk profile than ones associated with Corporate Venture Capital and Venture Building.
Furthermore, the approach and processes of investing are not transferable to buying processes. We’ve covered in depth what to do instead to become a venture client.
Why isn’t startup scouting enough?
Finding high-quality startups through scouting or screening activities won’t yield results if there isn’t a corresponding need or if the organization rejects them.
Startup scouting often falls short of delivering tangible outcomes due to three challenges
Challenge 1. Organizational culture isn’t sufficiently aligned with startups
Challenge 2. Capabilities to identify the right business needs for suitable solutions are lacking
Challenge 3. Existing methods and business processes for implementing startup solutions aren’t suited for mutual value creation or efficient collaboration with startups
To avoid these shortfalls, let’s dive deeper into solving challenges of working with startups.
1. How can we align our culture to be more open for startup innovation
“Average startups ask for money from investors. Best startups pick their investors.”
From a startup’s point of view, partnering with corporations has both advantages and disadvantages.
At this stage, we probably agree that large companies and small companies can benefit from working together. They share different strengths and weaknesses, which must be considered before starting any collaboration.
Startups are organizations built for rapidly testing different hypotheses, and mistakes are a part of the process creating significant operational risks. That is all part of their nature. Large corporations, especially in industrial manufacturing, have a lower tolerance for risks as missed opportunities can come at steep costs. This cultural difference cannot be overlooked but rather managed, for example, by having an intermediary or a layer to mitigate risks while facilitating collaboration.
2. How to identify high potential business needs?
“Scouting and scoping the business needs is even more important than scouting for solutions – startups and other”
Determining and prioritizing the specific needs to address through corporate-startup collaboration depends largely on three key factors: the organization’s readiness to take risks, the time horizon for achieving goals, and the desired balance between innovation and stability. The business impact must be evident, and the drive has to come from within the organization.
After that, the scoping is key. Once the business impact is confirmed, the need must be scoped into a right-sized package to meet the organization’s expectations of time-to-value and risks involved. The best startups do not waste their time with ill defined and vague projects, they can choose who to collaborate with. Being an easy client is key here.
Failure here can cause startups to withdraw, prioritizing their time to mitigate the risk of depleting their funds.
3. How to establish methods and processes?
A more structured and strategic approach to startup purchasing is needed. One solution lies in adopting the Venture Client model, which emphasizes a business need-driven approach.
Success is not only determined by knowing and recognizing the future-oriented innovations and business areas where the scouting activities take place but also by acting on them and developing them consistently and in a timely fashion.
“Making meaningful connections is more than just finding the right partner”
The Combient Foundry way
We believe that structured startup purchasing can unlock value for everyone involved, value that is key in driving the transformation that global industry leaders are facing.
A structured and strategic approach to startup purchasing with the Venture Client model – a comprehensive corporate venturing vehicle – begins with having the required team, competencies, and resources in place. This is no different from any other business function. Embarking on the journey together and sharing the load and learnings can be a great way to increase the likelihood of success. As a shared and synergistic resource for different corporations, working with Combient Foundry will lead to a more efficient setup and reduced costs for Venture Client operations and Proof of Concepts per each industrial member company, providing the opportunity to gain more value with fewer associated risks. The benefits of the Combient Foundry approach include:
- Holistic corporate venturing vehicle and extended corporate resource addressing all key areas of driving successful corporate-startup partnering
- An experienced and trusted partner for a network of globally leading corporations
- Access to industry best practices on venturing and knowledge sharing between members
- Access to leading scouting technology and fine-tuned, scalable processes
- Global access to leading startup hubs and technology growth companies
- More attractive towards the startup ecosystem as a multi-company player
- Possibility to cooperate and drive synergies between members
