Love fest: Startups and large companies innovate together

The term innovation has become synonymous with a sort of vague, milk and honey version of corporate goodness. However, real innovation involves changing processes, technologies, and even the culture of an organization. For many companies, this creates a sharp divide between innovation idealism and reality.

I recently presented opening remarks at an event on corporate innovation sponsored by Cintrifuse, a startup accelerator and “fund of funds” – meaning they aggregate investment from large organizations to place with venture capital firms. Cintrifuse describes itself as "connecting high-potential, venture-backable startups to advice, talent, funding, and customers."

This event explored how established companies can use startups as an extension of their own innovation efforts and bridge the gap between idealism and reality.

During the talk, I presented lessons learned from conversations with top innovators as part of the CXO-Talk series.

The love affair that large companies have toward startups is well known, with hundreds of big companies having set up venture funds, incubators, and accelerators.

Of course, the reason for this is clear: innovation can add tremendous value and provide a host of benefits. A study of 450 executives, by Bain & Company, demonstrated some of these benefits. For example, the study quantified benefits in areas such as revenue growth, employee loyalty, and decision-making effectiveness.

Although these benefits are obviously desirable, large companies tend to organize around processes that are consistent, systematic, and predictable. During a panel discussion at the Cintrifuse event, one participant noted, “I don’t want Starbucks changing my cappuccino; it should be the same every day.”

During an appearance on CXO-Talk, top venture capital investor, Bruce Cleveland, noted that, “Corporate innovation is an oxymoron” precisely because the DNA of most large companies is predictability rather than change.

Similarly, another CXO-Talk guest, Chris Michel, himself an investor and serial entrepreneur, has pointed out the cultural dimension of corporate innovation. He believes innovation requires “unnatural acts of sacrifice” that large organizations cannot usually achieve.

In contrast, by definition startups are ideal vehicles to conduct innovation activities. The nature of a startup requires ongoing change in a constant search to discover what will work. Entrepreneur and educator, Steve Blank, defines a startup as, “A temporary organization searching for a repeatable, scalable business model.”

In summary, large organizations offer stability, distribution, and consistency while startups are natural sources of innovation. For this reason, innovation magic can happen at the intersection of these two groups, when they collaborate closely.

Adobe Systems offers an example of great collaboration between a large company and startups. Each year, Adobe’s CIO, Gerri Martin-Flickinger, hosts a CIO Innovation Forum. At this event, startups and investors come to Adobe to share their stories with the Adobe community. The event offers startups an opportunity to connect with Adobe, while the larger company is exposed to new ideas, technologies, and potential partnerships with startups.

Standard Chartered Bank offers another example of successful partnership with startups. Standard Chartered is a large bank with primary operations in the Middle East and Africa. As part of its effort to improve certain financial indices, the bank has crowdsourced data collection in street markets in Nigeria. Using a mobile platform developed by Premise Data, the bank has improved the accuracy and reliability of its Nigeria market index.

During a recent episode of CXO-Talk on the topic of corporate innovation, Todd Schofield of Standard Chartered Bank described the bank's goals.

As with all areas of business, innovation success depends on being clear about the goals. For example, in Adobe’s case, the Innovation Forums create an opportunity to learn about new technologies and products that could benefit Adobe. In contrast, Standard Chartered Bank uses their crowdsourcing model to improve processes related to compiling a specific financial index.

In each instance, aligning innovation methods to corporate goals is key to creating a positive outcome.

Anytime a large company engages closely with a startup, there is always a risk that corporate antibodies will try to stifle the startup’s tendencies toward experimentation.

Although this is to be expected, senior management must protect the startup and ensure that its culture of innovation remains intact. Ideally, the startup can help jumpstart an innovation mindset in the larger company. In bad cases, the startup is suffocated, preventing the large company from gaining any benefit from the relationship.

Here are source credits for all items used in this presentation:

http://www.slideshare.net/schlaf/raising-a-seed-round

http://www.bain.com/publications/articles/taking-the-measure-of-your-innovation-performance.aspx

http://lagoscityphotos.blogspot.com/2010/09/theme-day-open-air-market.html

Portrait illustrations courtesy of CXO-Talk

Photos by Michael Krigsman