Special Feature
Part of a ZDNet Special Feature: Enterprise Startups: Risk vs. Reward

Startups and big businesses: How to get them to work together

Big companies are slow moving and risk averse; small ones like to move fast and break things. But finding a way for the suits and the hipsters to work together could be the key to success for both.

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Image: Shutterstock

There are plenty of reasons why firms find it hard to innovate. Successful companies, as per The Innovator's Dilemma, find it hard to spot the next big thing -- and even if they can spot it, struggle to act for fear of undermining their own business.

And while the tech chiefs might be expected to do this kind of future gazing, few have the chance to develop tomorrow's disruptive technologies when they are busy implementing today's essentials.

But building tomorrow's tech is exactly what startups do, but many lack the polish and contacts for big companies to take a risk on them. And as the UK's startup scene has gathered momentum over the last couple of years, there have been a number of attempts to bridge the gap between the two in the shape of business-backed startup accelerators.

One business backer

These differ from standard startup accelerators because they are backed by one company that often has a specific set of needs. For a startup, getting involved is a chance to grab some funding and impress a potentially huge foundation client; for big business, the lure is a little sprinkle of startup glamour and maybe access to the next big thing long before the competition.

For example, BBC Worldwide runs its BBC Labs accelerator, which aims to develop digital media companies -- ranging from gaming, mobile, advertising technologies to collaborative software and CRM -- with the objective of helping them strike up a commercial partnership with BBC Worldwide.

Similarly Barclays is currently recruiting for the second run of its accelerator programme aimed at finding financial services startups. The first run saw ideas including a new credit scoring system and a new peer-to-peer lending platform being pitched to investors; the 2015 programme, starting in March, will see ten companies gaining access to a catalogue of Barclays APIs and data to help them build and refine their business models. "We recognise that we can't do everything ourselves internally. It's about recognizing that there's this startup ecosystem out there than can provide some of the answers," said Barclays.

John Lewis JLAB

Retailer John Lewis was looking for new ideas to help its customers shop, whether in store or online, and this year used its JLAB accelerator to find small companies to help.The accelerator programme allowed the 150-year-old retailer to "immerse" itself in the startup community, said IT innovation manager, John Vary.

"The whole goal of JLAB was to provide benefit for the customer, to improve that customer experience," said Vary. From an initial 163 applications in March this year, 30 firms were invited to a pitch day, from which a final five were chosen for the 12-week accelerator (housed at Level 39 in London's Canary Wharf) and offered £12,500 in exchange for a four percent stake in their company.

During the 12 weeks, the startups visited big players like Paypal and Apple, and were also given mentoring from John Lewis executives and from other industry experts. That involved a combination of general business mentoring -- how to build a compelling story around their product, for example -- and technical assistance, including from the architecture teams at John Lewis, which worked with them on issues such as APIs.

The winner, scooping £100,000 in funding, was Australian startup Localz, which uses iBeacon technology to offer customers additional services based on their location. For example, if a customer has ordered goods to be picked up in store using the retailer's Click & Collect service, the Localz technology will recognise that the customer (or more precisely their smartphone) has arrived at the shop, and can alert staff to prepare the order. The system can also help customers to navigate around the store based on their online wish list.

"Our ambition is early in the new year to roll out this click-and-collect service using the winner's software. We are now working to storyboard the idea, looking at how we can integrate into our systems and processes," Vary said.

Rather than just being an IT project, JLAB was run as a joint initiative between the IT and retail divisions: "Having that collaboration of retail and IT and the other directorates, you're already starting to get that serendipitous way of working where retail are bouncing [ideas] off IT and the other way around, and I just think that's a really powerful tool to have," said Vary.

As well as delivering the product that John Lewis is now testing out, the project had additional benefits.

"What this has done is open our doors to a whole range of other ideas. On the back of JLAB we're getting so many startups coming to us and saying 'have you seen this?'," said Vary, adding "This is not just a one-off" in reference to the retailer's plans to run another JLAB, which will start early in the new year.

Tesco and the Rainmaking Loft

Another retailer aiming to build stronger ties with startups is Tesco, which sponsors the Rainmaking Loft, a startup 'nursery' a stone's throw from the Tower of London, where entrepreneurs go to work on their projects before going on to an accelerator. Tesco's sponsorship lowers the cost of desk rent for startups.

"It was a great way of getting in there and having conversations with them," said Nick Lansley, head of open innovation at Tesco Labs, the supermarket chain's innovation group.

Lansley regularly mentors startups at the Rainmaking Loft, so they can learn to communicate better with large companies like Tesco. "There have been occasions where I've uncovered what the product or idea the startup was showing me despite their five-minute pitch, not because of it," he notes wryly.

The retailer also holds monthly tech speed-dating events where product experts and and tech people from Tesco meet with around 15 startups (it usually gets around 90 applications for these events). Some startups go forward to present to executives, seeking sponsorship for an experiment or a trial.

One startup that Tesco has worked with is Swogo, which has improved the product recommendations and overall customer experience on the Tesco Direct website. "The Swogo technology was able to connect up appropriate accessory bundles with each of the major products that we sell. Because we sell 250,000 products on the Tesco Direct website there's no way we can have human operators trying to connect products together. so we get technology to do it," said Lansley.

"The service is running live on our site now. That's one of our early successes and there's more on the way," said Lansley, who noted that getting the Swogo service up and running took about nine months from initial conversation to live: "That's much faster than a 70 year-old PLC would normally do because the whole idea of Tesco Labs is that we want to get things moving a lot quicker."

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