Against the popular perception of being too big in size and integrated in their approach for disruptive innovation, big companies are nurturing aspiring entrepreneurs within and outside the company to embrace open innovation, signaling the rise of “corporate garage” in India.
The anxiety among corporate houses across sectors of getting disrupted and obsolete by faster, better and cheaper solutions offered by new-age startups, is turning them into corporate garages. This inherently seems to be a long-term survival strategy to not only retain the talent, but also unify company’s unique capabilities with fresh entrepreneurial thinking to ensure their future growth.
“We have to create both internally and externally an environment for new ideas and imbibe them, which we our self can’t incubate. These startups bring new-age thinking to the company,” says Jagdish Mitra, Chief Strategy & Marketing Officer and Head, Growth Factories, Tech Mahindra – the IT arm of $16.9 billion Mahindra Group.
“If we don’t help our employees who want to do startups, we will lose them and most importantly their ideas,” says Mitra. Tech Mahindra earlier this year formed a unit “Global Strategy and Growth Factories” to boost its technology innovation.
Currently, “Growth Factories” with centers in Delhi and Bengaluru is supporting around six B2B and B2C startups launched by its employees and around 10 B2C startups from outside, in some of which it has acquired stake. The group’s payment bank initiative, Saral Rozgar, a mobile marketplace for blue-collar jobs, and MoboMoney, a near field communication enabled prepaid mobile wallet, are few of its employee-led ideas.
While creating new businesses, large companies are also keen to solve their current and future challenges. Consumer goods giant Hindustan Unilever this year brought its global platform for technology startups, The Unilever Foundry, in India to partner with various Unilever brands and help these brands solve their challenges in areas like consumer insights, sustainability and digital marketing.
“It provides entrepreneurs the opportunity to develop and work on global projects, access mentoring from marketing professionals, mentoring from Unilever teams and tap a new source of funding through Unilever Ventures,” says an HUL spokesperson. Around 100 startups across sectors have already applied for different challenges on the platform.
HUL, through its global investment arm Unilever Ventures, invests in startups, particularly those offering innovative solutions around digital marketing. Even large consultancy, professional services and law firms have jumped on the startup bandwagon to understand the solutions startups operating in respective verticals, such as accountancy, management consultancy, legal and tax advisory and setting up businesses, have.
US-based management consultant Hay Group’s sector-agnostic “NextBig 100 program” is to help 100 startups achieve scale while getting insights into the changing market trends and much more from them. The startups supported ranges from concept stage to raising Series B round of funding.
“It helps us understand problems of big clients. For example, innovation in recruitment by a start-up and the thinking behind it can also be adopted by a large company like us. Even if five out of these 100 become big, they can become our paying customers to help them solve their challenges of being a large company,” says Debabrat Mishra, Director, Hay Group India.
Abhishek Bansal, Co-founder and CEO, Shadowfax, a hyper-local delivery start-up, is among the three Hay Group’s employees doing startups. The company has received around 400 applications and has already picked more than 65 startups for the program.
Pick Your Path
There are a number of ways large companies are partnering with startups. Corporate garages incubate and scale up startup ideas of their own employees primarily for a duration depending upon how the idea performs, which they might fully integrate into the parent company later or let it operate independently as a group subsidiary.
Also, there is no batch system that leads to a graduation or demo day. Venture builders like Rocket Internet and India’s GrowthStory come up with an idea, bring in the management including founders and help them scale business, acting as a holding company instead of acquiring them later.
Corporate incubators or accelerators like Intel India Maker Laband T Labs on the other hand unlike the above two, are actually separate physical set-ups by the corporate to invite start-ups that align with their products and services.
What’s in Store for Startups?
Apart from funding for equity stake, a corporate offers the brand name, trust, market reach, hiring, team building, etc. for startups. The duration of the support however varies with the performance of a startup.
“We are able to help startups, irrespective of the markets they serve, with their fund-raising, what should be their strategy to win in the marketplace, whether it should be on the digital, operations, acquisition, regulatory, logistics or supply chain management side, etc,” says Sandeep Ladda, Leader, Technology, PwC India.
The professional services giant will soon start supporting 10 startups selected in last few months. But does that mean those startups, which don’t align to these corporates’ larger vision, will be left to fend for themselves? “Not at all, as their selection is strategically oriented. We will work with only those that are primarily in alignment with helping our business grow,” says Mitra.
If not left out, corporates agree that going forward in next few years or months, the successful startups can make for great acquisition bets, however if they fail, the chances of taking entrepreneurs back into job are less.
“There is certainly a possibility of acquiring these startups later but sometimes it is also good to let them run independently with a different brand name. At any given time we are evaluating 4-5 startups for acquisitions,” concludes Mitra.
(This article first appeared in the Indian edition of Entrepreneur magazine (December, 2015 Issue).