Points to check before letting a large company enter your business

For successful collaboration between corporations and entrepreneurs, existing risks must be addressed
Points to check before letting a large company enter your business
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8 min read
This article was translated from our Spanish edition using AI technologies. Errors may exist due to this process.
Opinions expressed by Entrepreneur contributors are their own.

By Dan Toma, co-author of The Corporate Startup, and José Enrique Alba Escamilla, Director of the Innovative Entrepreneurship Zone (PIEC) in collaboration with EGADE Business School.

In the first part of this series of articles, titled “ Startups and corporations: The winning bar ”, we discussed the benefits and opportunities generated by collaboration between startups and corporations. In this second part, we will talk about the risks that arise when making synergies between both types of organizations.

Collaborations between startups and corporations can come in many shapes and sizes: incubation, acceleration, paid demos, joint ventures, or free partnership . However, success stories always stem from an awareness of the other party's interests, expectations, incentives, culture, and work ethic. Therefore, in addition to clearly defining roles, rights and responsibilities, a collaboration must also consider the risks present for both parties.

Risks for startups :
  • Risk 1: Being absorbed by a single customer . By focusing on a single custom solution for a large corporate client, the startup may neglect its vision and scalability, limiting its long-term growth prospects. On the opposite end of the scale, some corporations are not looking for a strong collaboration with the startup , but rather a source of free consulting and testing, compromising many of the startup's resources.
  • Risk 2: Track and scale prematurely. After a successful proof of concept or the signing of the first agreement with an innovation department or a customer, the solution should not be scaled up immediately. On the other hand, since collaborating with a startup can be interesting for various departments of the corporation, which handle different requirements, delays can occur, affecting the financial resources of the startup .
  • Risk 3: Losing your agile spirit. In the event that collaboration accelerates and dependence on corporate decision-making increases, there is a high risk that the startup will lose its agile spirit.
Risks for corporations :
  • Risk 1: Damage to reputation . When something goes wrong in a partnership, the reputational damage has far greater consequences for the corporation than for the startup .
  • Risk 2: Loss of investment . Around 80% of startups fail, so the investment risk for companies is high, compared to their usual projects of incremental improvement or closed innovation.
  • Risk 3: Protection of the status quo . Corporate employees are used to going the traditional way and tend to view failure as a danger to their careers. In a partnership with a startup , they may feel threatened by an unfamiliar culture and protect the corporate status quo , without fully committing to the association's objectives.

When companies engage with high-tech startups that propose solutions that the corporate is not yet ready to adopt, a so-called maturity misalignment can occur. Therefore, before joining, it is best to agree on technological parameters similar to those NASA has been using.

Partnerships between startups and corporations can be complex, including latent challenges and risks, but, as we noted in the previous article , there are also benefits that make them desirable. To mitigate risk and begin to lay the foundation for a successful partnership, we recommend that both parties verify and respond to the points in the following list:

For the startup or entrepreneur

  1. Objective of the association :
  1. What is the goal of the partnership for the startup ?
  2. What is the objective of the corporate partner?
  3. Are the two goals achievable at the same time?
  4. Will the partnership, in its current state (eg, paid demonstration), lead to both parties achieving their objectives?
  1. Measuring the success of the collaboration :
  1. How will the startup measure the success of the collaboration?
  2. How will the corporate partner make this measurement?
  3. Are the two measures contradictory or complementary?
  1. Budget :
  1. Do you, as a startup , have enough headroom to meet the collaboration goals?
  2. Is the budget that is allocated on the side of the corporation (time, resources, other materials) is sufficient to achieve the objective of the association?

4. People with whom you will have contact :

  1. Which person from corporate are you talking to?
  2. Is this the only person with whom you have contact?
  3. Is the person correct to achieve the objectives of the association? (Be sure to speak to at least two people. In the event that you are in contact with only one person in the corporation and they leave the company, the collaboration is in jeopardy. In the best case, collaboration could happen, but they go to spend countless hours figuring out who the new person in charge of the deal is. This could affect timing, goals, and resources. This risk is greatest early in the collaboration, before the deal is signed.)
  4. Do the people you will be in contact with have enough clout to protect the collaboration in the event that priorities are reorganized on the corporate side?

For the corporate or company

1. Objective of the collaboration:

  1. What are the objectives of the collaboration?
  2. Are these objectives aligned with the (innovation) strategy of our company?
  3. Does the startup's goal for collaboration compete with our goal?

2. Internal reasoning for collaboration:

A. Does it make sense for us to collaborate with a startup to achieve our goals or can we achieve the same results using internal resources?

3. Clarity on the best way to collaborate:

A. What form should collaboration take in order for us to achieve our goal (eg, paid demo, joint venture, free demo, etc.)?

B. Will this form of collaboration also help the startup to achieve its goal?

4. Resource allocation:
  1. What resources are needed for this collaboration to be successful?
  2. Can we allocate the necessary resources for the collaboration to be successful?
  3. Do we have the necessary resources at our disposal?
5. Measurement of the success of the collaboration:
  1. How will the corporation measure the success of the collaboration?
  2. How will the startup do it ?
  3. Are the two measurements contradictory or complementary?
6. Internal stakeholders of the corporate:
  1. Who will be the stakeholders responsible for driving collaboration in our company?
  2. Are these the right people for the collaboration to be successful?
  3. Can these people and their leaders invest the necessary time and facilitate internal processes?

The most important part of this checklist is to understand, from our position as a corporation or startup , the possibilities, capabilities and risks of this collaboration. Both parties want to create value and detonate the greatest positive impact; With these considerations they will be able to minimize risks, focus their efforts on the same objective and / or work on developing one together.

Note from the authors to our dear readers: The next part of this series of articles will talk about the tools to do collaboration between corporations and startups.

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