The Five Commandments for Larger Companies Working with Tech Startups

There are many reasons why large, established companies may want to work with smaller, agile tech startups. Potential benefits include access to innovation, the ability to try cheaper ways of doing business, and launch new products.

However, I’ve found that very few large companies are set up to work with startups, and as a result, the B2B collaboration experience often becomes less than ideal for both parties. In this article, in the form of commandments of what not to do, I would like to review some of the main concerns that a larger company should be aware of when working with startups.

1. You will not ask for exclusivity (even if you are willing to pay for it)

I understand it; you want to be the only one with access to unique technology. However, consider for a moment what that means for startup. An exclusive contract with your organization has the potential to become the single point of failure for the company. Startups sometimes agree to these terms, especially if you are one of their first customers. But in the long run, it’s your unique product launch and marketing strategy that will help you overcome barriers to entry rather than an exclusivity clause.

2. It won’t take months to say no to a startup

Even if you personally don’t like to say no, it’s always best to let the startup know early on if they have a good chance of working with you. I recently had an experience with a pharmaceutical company that dragged my company through 18 months of meetings, hundreds of pages of documents, and hundreds of hours of work. Every week they said that they were hoping to get a positive response within the organization to move forward with our project.

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In the end, the answer we got was that the organization was not yet ready for our solution. Don’t do that to startups. They go and tell their board and their investors that they are in promising talks and spend scarce resources to keep you happy. If your organization isn’t ready, do your homework before engaging the startup further or making promises.

3. You will not put all the risk in the start-up.

Startups have strengths, such as new solutions and technologies, but often lack significant resources. This means that if there is a collaboration, they may not be able to bear 80% of the risk of the collaboration. Your organization must have a culture that understands that risk distribution must be proportional to organizational capacity.

4. You will not covet the IP of a startup

You’d think this would be too low for an established company to do, but you’d be surprised at how many organizations I’ve come across in the last five years feigning interest in my company’s technology and asking for due diligence documents just to try to go and recreate the intellectual property themselves.

Most of the time, they can’t do that either, but this is really low for any company that considers itself professional (let alone ethical). We had this problem with a major supplement company that sent our confidential documents to our competitor. Luckily, the competition had the decency to tell us. I also had a stealth fitness startup that, after we provided them with significant resources and ideas, decided to do everything in-house. This was after the C-level team assured us that they wanted a strategic partner. Counting on the fact that startups often don’t have the resources to go to court for NDAs and IP confidentiality violations is not a good reason.

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5. Thou Shalt Not Build a Corporate Accelerator in Vain

Many startups that enter an accelerator program sponsored by a major corporation hope that upon successful completion of the program, there will be opportunities to collaborate with the company. Often, however, the innovation part of the company is not fully aligned with the rest of the business and was only given a budget for an innovation accelerator to meet some PR needs. If you create an accelerator or incubator for your organization, be sure to engage all business units and map out collaborations before launching the project. Participating in accelerators takes time and energy, so having that plan makes sense. Of four experiences with accelerators that my company has had, three had no plans, but a recent one stood out for having a commercial roadmap. Be the last and not the first.

There are many other considerations when working with startups, but even paying attention to the above will help improve corporate relationships early on.

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