Startup buisness partnership models can mitigate risk

In a fast-changing digital era, small businesses grow fast. They disrupt the markets before market leaders have time to react. Airbnb and Uber have shown that startups with new business concepts are industry disruptors and threaten large companies.

However, Startups are also high-risk businesses that even the smartest and most skillful team might fail. It has been estimated that 90% Of Startups Fail. Fortune reported the “top reason” that startups fail: “They make products no one wants.” A careful survey of failed startups determined that 42% of them identified the “lack of a market need for their product” as the single biggest reason for their failure.

“The second largest reason why startups fail (29% of cases) is due to running out of funding and personal money. Money and time are finite and need to be allocated judiciously. The question of how should you spend your money was a frequent conundrum and reason for failure cited by startups,” – CB Insights.

One way to mitigate startup risks is collaborations between startups and established corporate players which is pivotal for fostering innovation.  A corporate partner provides human resources, expertise, global reach and funding to support a concentrated, pre-existing and focused initiative to accelerate start-ups. On the one hand, corporations are receiving partners that help them to innovate, and on the other hand, startups find all kinds of support they need for their business to mature and grow. According to recent studies, more than 80 percent of corporations see partnerships with startups as “very important”.

This helps corporates connect with entrepreneurs, while at the same time adding value back into the community to help it grow. This way, corporates can strengthen their position in an evolving marketplace, while start-ups get the chance to pilot their technology with a well-known corporate. It’s a win-win.

There are 4 models in which corporations are engaging with startups:

– Corporate venture fund or capital describes the investment of corporate funds directly in external start-up companies. Some examples are entities such as SAP, Qualcomm, IBM Watson, M12 (former Microsoft Ventures), Google Venture, Intel Capital acting as some of the active venture funds;

– Corporate accelerator. A corporate accelerator is a specific form of seed accelerator which is sponsored by an established for-profit corporation. Similar to seed accelerators they support early-stage startup companies through mentorship and often capital and office space. Examples include featuring services and efforts from Microsoft Accelerator for Azure, PayPal, Oracle, Citrix, and Cisco Accelerator exemplifying a few well-known startup accelerators conceived by their respective multinational corporations (MNCs);

– Platform evangelism (Google cloud platform, Bluemix, AWS, IBM, Oracle, Rackspace, Salesforce, etc.);

Another model is a business partnership between startups. There can also be startup ecosystem consists of a group of people, startups, and related organizations that work as a system to create and scale new startups. The engagement in this category falls under hackathons, startup competitions, conferences, meetups, thought leadership, etc.

Startup ecosystems are formed often in a relatively limited area with a center of gravity like a university or a concentration of technology companies. This ecosystem draws together key actors and stakeholders that gravitate towards growth ventures, including new entrepreneurs, mentors, incubators, sources of talent such as universities and corporations, investors and supporting services like startup-savvy law and accounting agencies.

The ecosystem needs a great number of companies to have a chance to produce success.  If there are for example 20 startups with great teams and ideas supporting each other (and even some other ecosystem entities supporting them), it’s already quite likely that some of the startups will grow to be international successes.

The startup ecosystem can, of course, support you with capital from investors and other entities providing funding if you are able to create something that is attractive for them. But we would argue that even more valuable is knowledge and experience the ecosystem entities can provide an entrepreneur. This is especially important for a first time entrepreneur.

References and Resources also include:

https://www.weforum.org/agenda/2018/09/creating-powerful-partnerships-between-startups-and-corporates/

https://www.valuer.ai/blog/startup-corporation-partnership-infographic