Collaboration between startups and corporations leads to better products and happier customers

Startups are often the ‘darlings’ of modern business. They’re passionate, innovative, exciting, and compete against their larger, established and often more conservative corporate counterparts. In this business version of the age-old David and Goliath story, many people gravitate towards these smaller players, and for various reasons. For instance, Accenture’s research shows that only 19 per cent of 2017 graduates in the US want to work for a large company. So it’s no wonder that startups are celebrated as role models for others to follow, and as companies where people want to work. This is, however, a rather limited view that ignores crucial facts.

Sure, in their journey from scruffy garages to modern, flashy offices, many corporations may have turned into faceless juggernauts, interested only in their bottom line. But they’ve also learnt valuable lessons along the way, something startups shouldn’t forget. And of course, corporations can also learn a great deal from the good practices developed by their younger, smaller counterparts. After all, relations between these two don’t have to be adversarial; they can learn important lessons from each other and create new value for customers.

For example, startups could act more like corporations – still being disruptive, but in a more tactical way. Also, they could benefit from establishing processes that’ll make their life less chaotic, help them avoid unnecessary risks, and make them pay more attention to HR policies. Corporations could improve tons if they made decisions faster, and, like startups, perceived failures as learning opportunities instead of incompetence. Rather than ignoring or battling startups, corporations should embrace them and provide funds and guidance so that young entrepreneurs make less costly mistakes.

Corporations can teach startups a few lessons

One of the mistakes startups tend to make is to suddenly introduce dramatic changes to employees and customers. Although their mission is to disrupt the status quo, startups need to draw lessons from corporations that realise that people don’t always respond well to abrupt changes in their lives but prefer gradual improvements. So, instead of hastily revolutionising your product or introducing new software to employees, do it gradually, so as to avoid turning people against your idea.

But companies won’t be able to do any of this without capable employees. That’s why corporations put in a lot of energy to hire only the best people. And finding the right employees is even more important for a small startup. The wrong person can delay projects for months, while the right one can make the difference between success and failure. But with proper procedures in place, hiring staff and many others tasks can become efficient processes. And although startups like to be flexible, some corporate rules and procedures can be beneficial. As Universal Stream Solution’s Jignesh Vaghasiya says, procedures “establish patterns of working and help you develop your business in an organized, strategic way”.

Another trait of corporations is that they’re risk-averse when it comes to investments and new projects. While working and innovating too slowly isn’t adviseable, startups should try to avoid reckless risk-taking. Many of them have limited resources and a single mistake can be fatal. When mistakes do happen, it’s important to act like corporations do and carefully analyse what went wrong.

Finally, both small and big companies must ensure that making money isn’t their only priority. The best way to do this is by introducing corporate social responsibility programmes that are focused, for instance, on helping people in need, cleaning up rivers and lakes, or helping local schools. This will give employees a sense of higher purpose and the feeling that they’re engaging in meaningful work.

Startup rules that corporations should follow

Another way to make people feel their work is meaningful is by creating an open work environment, where they’re free to voice their opinion and exchange ideas with coworkers and superiors alike. Startups tend to provide such an environment whereas corporations are usually hierarchical with more rigid company cultures. This type of environment prevents employees from innovating since failure could be seen as a lack of competency. But the reality is that failure is a critical part of the learning process, and it’s important for corporations to be more open to that concept. As Mario Bartels, a consultant at the strategy firm Vivaldi, explains, “embracing experimentation for big brands means fostering a shift in mindset to accept failure as what it is: a chance to improve.”

Besides accepting failure as part of the process of learning and improving, the ability to make decisions on the fly is another critical factor that helps startups to grow. Corporations are notorious for just the opposite – their slow and arduous decision-making processes that demotivate their staff and prevent them from seizing market opportunities. They need to realise that cutting the red tape and making decisions faster will benefit them in many ways.

Listening to customers is another area in which corporations could do with some improvement, and startups are great examples of how to go about this. While focus groups, big data, and market research are useful tools, nothing beats the effectiveness of startups when it comes to speaking to customers directly and intimately understanding their pain points. As Vivaldi argues, “having firsthand interactions with customers … is valuable to build an intuitive understanding of behaviour. While big data is great, getting lost in the numbers can sometimes lead to big brands forgetting to truly understand their customers.” And one of the corporations that looks to startups to gain an understanding of its customers is the Spanish telecommunication giant Telefónica.

How Telefónica embraces startups

This company launched the startup accelerator Wayra in 2011 through which it funded 800 startups with $160 million. The project has proven hugely successful with entrepreneurs developing hundreds of services and apps, many of which are used by Telefónica to improve its operations, analyse customers, and boost sales. Miguel Arias, who manages Wayra, shared some of the lessons he’s learned along the way. He notes that “perpetual reinvention is needed for big corporations to survive.” At the same time, startups and corporations must think big – think global – instead of merely focusing on local markets. And for large corporations and small startups to work together successfully, they need to possess a willingness to change. Corporations must learn to “live with failure… so that they can find those new companies who will transform markets,” Arias argues. Lastly, he boasts that Wayra made the Spanish corporation more entrepreneurial and ready to bet on startups.

Collaboration leads to better products and happier customers

Competition between corporations and startups is one of the hallmarks of modern business. Small startups take on big competitors and many people instinctively support and celebrate these ‘underdogs’ and consider them as role models. But while large corporations – in comparison – are usually less popular, they, too, have invaluable business lessons to share. At the end of the day, it’s the willingness to engage with and learn from one another that will lead to better products, fewer mistakes, and happier customers.

This article was originally published in 2019 on the Richard van Hooijdonk’s blog.