How Can Major Companies and Innovative Startups Best Work Together?

By August 07, 2014

Venture Capital deals, contract-based production or services, hackathons – we are seeing an increasing variety of collaboration methods between large and small companies, but there is no guarantee of fairness or a profitable outcome for either of the two parties involved. However, most failures are due to lack of a methodical approach.

Interview, during a broadcast by L’Atelier numérique (L’Atelier Digital) on the BFM business channel, with Giovanni Ungaro, Assisted Living Director at French industrial group Legrand, which manufactures electrical and digital infrastructure for the building industry, and Managing Director of its Intervox subsidiary; and Marie Noéline Viguié, co-founder and CEO of nod-A, a company which helps its clients to set up innovation systems. Nod-A encourages companies to find new ways of working, including collaboration with startups.

L’Atelier: Apart from voicing their good intentions about the need for large firms to forge links with the startup ecosystem, are these companies really doing anything constructive?

Giovanni Ungaro: Well, there are companies which really are getting on with the job and others which are doing less. Today almost everywhere in large firms we’re seeing the growth of what you might call ‘speed dating’ – crowdfunding initiatives for example. But in the end is this really effective? That’s the main question. I think that what’s lacking most of all today is a methodical approach. We shouldn’t just be putting a large company across the table from a small startup and letting them get on with it. We also need to advise them about how to work together.

Marie Noéline Viguié: Of course you’ll come across various ways of collaborating. In some cases it will be a service provided on the basis of a business agreement. This can be a valuable approach for both the startup and the established firms, and it has led to a good many innovations. Then there are a number of models such as hackathons – somewhat controversial – and ‘speed dating’, among others, which may or may not help to grow the ecosystem. And we also see joint R&D projects taking place through consortiums set up via competitiveness hubs. Then there are investment models of the venture capital type. Each model has its advantages and drawbacks. Today I see a lot of collaboration in the form of venture capital and direct investment, which is not necessarily the best solution for today’s startups, nor perhaps the best solution for large companies either. There are more useful types of business relationship, which I think ought to be used more.

So if collaboration between a major firm and a startup shouldn’t necessarily involve taking a stake, even though this is what startups are usually looking for, what should be happening?

Giovanni Ungaro: You need to focus on the market. In my view that will lead to win-win partnerships between small companies – startups – and larger firms. After all it’s the large firms that are market-driven. What I mean is, the two sides should aim for a partnership capable of getting innovative solutions quickly to market. They just don’t need to go through a long venture capital procedure, or period of development, or ‘hackathons’. The partnership must be able to get solutions to market fast. It’s very Darwinian because the more losers there are, the more the survivors will be in a position to survive and thrive.

Can you give us some examples of these approaches?

Giovanni Ungaro: About two years ago at Legrand, we came into contact with a startup called Matooma. We had just developed a new ‘machine-to-machine’ connectivity solution using GSM connectivity. The main problem was the connection and network coverage as no operator can guarantee 100% area network coverage. That doesn’t exist. So what could we do, given that our equipment is fixed, and has to be installed in a precise location, whatever the area it happens to be?  And it has to work. What could we do? We were contacted by the startup, and they came up with a solution that we thought was really innovative. It was a multi-operator SIM card which could capture the best-operating network in any given area. So we put our money on this startup. This was something that we really knew nothing about. And in the end it turned out to be a market winner.

Marie Noéline Viguié: I’d like to talk about two examples of different approaches to resources. As Giovanni just said, it’s really about methodology, finding the right way for large firms to work successfully with startups. These days we’re seeing a number of approaches emerging. L’Oréal has installed a ‘Wall to Wall’ [component supply programme] whereby the company brings its suppliers inside its own factories. The two parties share their skills and are able to bring in changes much faster. In short, this is more of a tailored-made approach.

Then, recently [France’s mail service] La Poste launched a system called ‘Start'inPost’ which, rather than incubating startups, incubates joint projects with startups by hosting them on the spot. And Orange has launched a short-term programme which emulates the features of accelerators in digital ecosystems. It’s call Orange Fab France. A given number of startup projects are chosen to work with the accelerator to drive the projects forward on the spot. This enables the chosen startups to gain access to new markets, and it helps Orange to understand the innovations better and to grow its value portfolio. These are approaches that help to overcome the drawbacks of standard collaboration between startups and large firms, i.e. contract milestones involving intellectual property, and moving beyond the purchase barrier. We’re talking about two completely different worlds in terms of timing.  These new approaches provide a more agile solution which in turn speeds up collaboration.

One of the problems is that these cultures are diametrically opposed to each other. Large firms have very long drawn-out processes while startup processes tend to be much shorter. How can all this be dovetailed?

Giovanni Ungaro: It’s extremely important to be clear about the value propositions and what the boundaries of those propositions are. This is extremely important because there’s always going to be mutual suspicion: Who’s going to put one over on whom? How?  And what’s the really important thing? When we analyse what they have to offer, we have to be able to tell our interlocutors exactly where the boundaries are so that the startup can ask itself “How is the strategy that’s being explained to me going to work. I can look to the future. I know that I won’t be swallowed up tomorrow. This is a project in which both sides will grow together.” It’s extremely important to ensure clarity in the relationship from the very beginning.

Will it be essential for some business sectors to build bridges with startups in order to survive?

Marie Noéline Viguié: Frankly, that’s true for pretty much all of them these days, as digital technology is becoming a cross-cutting aspect and is disrupting business models in almost all markets. This is what’s happening with mobility. And with transport. And in the luxury goods industry. It’s also happening in the buildings and public works sector, in construction. The threat is everywhere. And everywhere large firms need to transform their working culture. They need to find a way of being more agile. Rubbing shoulders with startups will help bigger companies to inject a new work culture. And they must take the new culture on board. That will solve a lot of problems. It will help to streamline over-complex processes and so on. For example, you can’t pay a startup on a 30-day basis at month-end in arrears. When a company has a turnover of less than €2 million, you have to smooth the path a bit. You have to learn to live together. One party shouldn’t try and impose its own rules; you can’t work together on that basis.

Should risk-taking be shared? Or should the large firm take the risk of working with the startup?

Giovanni Ungaro: When a big company signs a partnership with a startup to market a solution, it’s already taking a risk, because a startup is not always the soundest organisation in the world. So the large firm is basically betting on the innovation. It’s in an area with which it may not be too familiar. This is also one of the reasons why these big firms are slow to reach decisions. However, they do have a clear responsibility to come up with new things. They have a duty to go out and look for innovations, to set up partnerships. I must stress again that such commercial partnerships are absolutely vital for getting the solution to market fast. And then it’ll be the market that decides, that makes the judgement call.

Marie Noéline Viguié: Well, the startup is already taking a risk – the risk of losing its own business model by adapting too much to the needs of the larger partner.  Even if it’s still looking for a business model. In any case that’s what makes up its identity. The startup risks losing its own way of working, its basic spirit. Collaboration must be two-sided. Yes, it’s true that it can be very rewarding to go for market-oriented projects, but innovation cannot always be achieved in two days. You need the time to look for the innovation and to find it.

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