How Startups Can Capitalize on IoT's New Co-Economy

Collaboration is no longer an option.
How Startups Can Capitalize on IoT's New Co-Economy
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The co-economy is here, inspired by the thinking behind collaboration, cooperation, co-development, co-innovation, co-support, co-opetition, co-anything and co-everything.

We can think of the co-economy as a mindset, a process, and a value proposition by which organizations partner with other organizations. They combine their skills, talents and resources for anything from a one-off project to an ongoing initiative. In the co-economy, the customer is at the center -- and quite likely, may be one of the active co-players in the effort.

Related: How Small Business Owners Should Be Using IoT

The co-economy has emerged from an environment fostered by the internet of things (IoT) that demands speed, improved customer service, greater business agility, better responsiveness, lower costs and compelling customer experiences. Add to this a complex, rapidly evolving technology landscape and it is clear that no company can do it all alone.

This is particularly true for firms working to co-develop or co-implement IoT solutions in business-to-business sectors. IoT is built upon complex technologies and processes, from sensor technology to networking to big data and analytics. No single company has expertise in all those areas, particularly if the solution needs to be tailored to the requirements of an industry segment. Collaboration is no longer an option. Vendors must work through a select set of partners, each of which contributes its particular horizontal or vertical capabilities to deliver a complete solution.

This is where startups come in. There are hundreds of IoT startups vying to provide either robust horizontal capabilities, modules or platforms for delivering IoT solutions, or specialized applications for specific vertical industry segments. Because IoT is such a big, complex, fast-changing field, it offers startups a unique opportunity to carve out their own place in the market and innovate with established enterprises -- if they do it right

Co-innovatin is easy to want, but hard to do.

While 95 percent of startups say they want to develop long-term corporate partnerships, according to a recent BCG study, only 57 percent of them have done so. Co-innovation between a startup and a large enterprise can be tricky. Differences in size, culture, expectations and behavior often get in the way of a truly collaborative and productive partnership. Another recent study found that half of startups that do work with corporations rate these experiences as mediocre or worse. This dismal record is not because corporations do not value the contributions of their startup partners -- 82 percent said their interactions with startups were somewhat important to very important, and almost a quarter of them viewed their startup relationships as mission critical.

Related: How Startups Can Be Invited to the Big IoT Party

So, why can’t they get it right?

To ensure a successful co-innovation partnership with a large corporation, keep in mind the following lessons:

  • Both parties should take the time to make sure they are aligned in their vision and values, with clearly defined and realistic roles and expectations.
  • Startups should be careful not to be drawn into either custom single customer development or several disparate custom projects that take up significant resources or even shift the resources away from the core capability and don’t result in a scalable and repeatable solution that brings in revenue.
  • Startups should ask, is it real, or is it a science project? If you are working with a large customer, make sure you are working with their production team, rather than an advanced research group. If you’re working with a large vendor, avoid projects that are focused on thought leadership or “innovation as a sales tool.”
  • Make allowances for a possible culture clash. The enterprise may not be able to move as quickly as the startup is used to, and the startup may not have all the formal processes in place that the enterprise needs.
  • Startups should think about how they can scale their solution by working collaboratively with large enterprises that have experience, resources, contacts and credibility in the marketplace. This is especially true if the startup wants to grow its presence on a global scale.
  • When enterprises bring a new startup solution to their customers, they take ownership of the success and reliability of the solution, so they should choose a startup partner with a good chance of stability and longevity.
  • Both partners must have a commitment to the long-term roadmap of the solution and their partnership, not just short-term revenues.
  • Start small and build on incremental successes. Have achievable milestones, fail fast, quickly correct things that are going in the wrong direction and move on.

Related: How the Internet of Things Inspired a New Startup Niche

When it works, it works for all.

When partners keep those tips in mind, co-innovating between startups and large enterprises can be good for both parties.

Let’s look at some of the advantages from a large vendor perspective. First, by working with a nimble startup, vendors can often fill in a missing piece for their solution -- and deliver it to customers faster than they would be able to do it on their own. Additionally, many large vendors focus on providing broad platforms, or developing common horizontal modules that can be used to deliver vertical solutions. They often rely on channel partners, application developers, integrators and yes, startups, to develop these solutions for specific markets. Startups can differentiate a large vendor’s offerings, providing specialized capabilities that help make the sale to customers that might otherwise go with a niche player.

From the startup perspective, co-innovating with an industry giant can be scary, but if done right, it can boost the startup’s credibility and help propel it into the market. When startups co-innovate with large vendors, they gain access to customers and channel partners where they might not get in the door on their own. As Brian McGlynn, COO and co-founder of IoT startup Davra Networks, told me recently, “When you partner with a large vendor and are validated in their ecosystem, you have a stronger play.” Or, if the startup is co-innovating directly with a large customer, it develops a targeted product that it can then sell to other customers, using the original customer as an important reference account.

What are some of the factors from the startup’s viewpoint that contribute to win-win co-innovation experiences? Co-innovation between a startup and an enterprise works best when each party fills a gap in the other’s capabilities, and when they share equitably in both the work and the rewards.

Related: The 'Internet of Things' Is Steering the On-Demand Economy. Want to Be a Part of It?

Josef Brunner, CEO of relayr, an IoT startup, pointed out that it’s important to be guided by your overall strategy when evaluating co-innovation opportunities. “Sometimes it’s hard to say no to a big company,” he said in an interview. “Founders and CEOs want to take the opportunity to partner with an industry leader, but you have to make sure it’s the right thing to do strategically. Otherwise, it’s easy to lose your identity.” Another guiding principle for relayr has been to keep the focus on the customer -- always. “Don’t fall in love with the technology. Co-innovation should be about helping the customer be commercially successful. The most important thing is to keep the customer at the very center of what we do, understand their challenges and always think of the business case.”

“You can bring in partners by having the right architecture, but you need the right governance to make it work,” Davra’s McGlynn also pointed out. It is important to have explicit agreements around who owns what, who decides what, how prices are set and how revenue is shared. “With the right governance environment, both sides can make money.”

Finally, it’s important to develop the relationship incrementally, taking the time to understand the other partner and to define appropriate roles. As Josef Brunner told me, “A lot of companies want to boil the ocean in one day, and that’s very challenging. We take an approach of, ‘crawl before you walk, walk before you run.’”

So, begin taking those first steps toward co-development. Be prepared with a clear value proposition, application, and proof of concept, then find the right corporate partner to develop it and take it to market with you. Welcome to the co-economy!

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