How Corporations Can Work With and Find Value in Startups

Problem

Most of the time the greatest ideas come from the startup domain. Not all startups are able to execute those ideas or scale them, but the ideas usually have a solid foundation. On the corporate side of things, whenever we engage with a startup, one of the things we do early on is to evaluate if the startup's idea is core to what we do. If it is something that resonates with us then there are three different paths we pursue according to what's best for the organization.

Actions taken

• If we view the technology as great (think the next Youtube) but ultimately it's not the right match for us at the moment, we will wait for it to mature and then find another place for it in the market. Otherwise, if it is a core capability built into our layer value chain and we can create the best growth path we will acquire it right away.
• If we see it as a core value but it has better opportunities to grow or presents itself better elsewhere, we push it towards partners that we work with who also benefit from acquiring it. It would be as if we had acquired the startup because we still have accessibility and it can be monetized in other industries.
• If it is more a point solution and we have enough confidence that we can drive a sufficient amount of the volume, attention, and focus on the startup, we aid and work with them to scale up, as a partner. This requires trusting that the team is focused on the direction and that they don't change the course of action 6 months down the line.

Lessons learned

• Number 3 is the least likely outcome. I have had the most success with action number 2- the partner play. For example, we had a joint acquisition take place where we acquired parts of a company and a partner acquired the remainder. In the long run, it ended up generating the highest return for them as well as for us. It was a win-win-win situation because we drove the most value out of what we were looking at.
• Sometimes you can make the best short-term decision for your company by acquiring a startup. However, this might create a gap in the market where someone else can come in and then end up destroying your recent acquisition. Thus, it's better to base your decision on the long-term viewpoint.