Corporate Start-up Engagement: 9 Potential Pitfalls

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This article explores the key points both public and private sector organizations should keep in mind before engaging with start-ups. I have drawn these lessons from having had the opportunity to connect and co-create with 13 government and private sector organizations and 230+ start-ups and scale-ups from around the world.

When starting the corporate engagement journey, it is essential to clearly define your organization’s intent of engaging with start-ups/scale-ups.

• Are you aiming to expose your employees to the entrepreneurship world?
• Do you want to position your organization as an attractive partner for start-ups/scale-ups and maybe even future employees?
• Are you looking to test actively, co-create, or even purchase innovative (tech) solutions?
• Have you made a strategic decision to invest in start-ups/scale-ups?

Once you have determined your organizational goal, the front-end of any partnership, it will be easier to select the right program (e.g., hackathons, pitch competitions, incubators, accelerators, venture funds, etc.) and, if required, an external program partner. Moreover, you will be able to allocate the needed resources and communicate the scope and expectations of the partnership opportunity to the start-ups/scale-ups.

Before you start approaching start-ups/scale-ups, it is vital that you review and potentially adapt the ‘back-end’ of any partnership. While this is initially a bit bureaucratic, diligent assessment and preparation enable a faster engagement execution later.

If your organization has been working with established companies so far, some of your procedures and policies could become a pitfall for working with start-ups/scale-ups. Hence, it’s essential to review the nine questions and potential pitfalls:

1. Decision-making and budget: How many stages of approval are required internally for a final decision? Ideally, decision-makers are involved in the engagement program’s critical stages and have a basic understanding of how start-ups/scale-ups operate and are visible advocates for the program. On top of it, it’s essential to clarify how much budget is allocated to running a proof-of-concept or a pilot project and who can sign off on it.
2. Organizational culture and willingness to take a risk: Being innovative and, in particular, exploring emerging technologies comes with a level of uncertainty and risk, as a positive outcome — especially in the short-term — is not always guaranteed and may require iterations. Is your internal culture accepting a trial-error-pivot-trial-approach?
3. Internal ambassadors and champions: While the innovation department often leads the start-up/scale-up program, other departments from product development, sales/marketing, IT, finance, and legal are also involved. How is this program communicated to them, and how do they view their contribution? Are they even aware of the program and the intention behind it? Do they regard their involvement as an extra task added to their already-full-plate that does not count towards their KPIs? Do they see it as a give-only-task, or are they curious and open-minded to learn from the start-ups/scale-ups and so consider it a win-win opportunity?
4. Procurement process: Once you have identified a suitable start-up/scale-up and would like to purchase their solution, what are the next steps? Is it possible to confirm them right away as the preferred supplier? Do your internal guidelines mandate you to launch an official RFP-process to which they have to respond and submit their proposal separately?
5. Sharing data: If you are looking to test or co-develop a solution, what kind of data (either sample or original) can and cannot be shared? For example, if you are looking to share footage from your cameras to test a computer-vision solution, can you provide the footage directly, or do you have to create a separate one? When it comes to AI-powered solutions, it is also essential to clarify whether your organization has the data to train the algorithm. Another aspect that often causes a delay in the collaboration is sharing data via the cloud. Here it’s essential to confirm whether your organization is allowed to move data to a cloud-based outside your country.
6. Partnership type and ownership: Are you looking to enter a supplier/vendor-relationship, form a joint venture, hire them as consultants, own equity, or jointly develop a solution with the start-up/scale-up? Each option comes with a different form of partnership scope and agreement. With the latter in particular, the IP of co-developed solutions is a sensitive aspect that requires proper clarification.
7. Jurisdiction: Assuming you are working with a start-up/scale-up from abroad, are they required to set up an office in your country? This question usually arises when it comes to sharing data, and sometimes also payment processes.
8. Regulatory settings: If you are working in a field where policies and frameworks are not yet officially clarified, can you and the start-up/scale-up collaborate with the regulatory entities to help test and define regulations?
9. Payment methods and terms: Are you flexible with your payment terms? Does your organization allow payment only upon completing a project, or can you agree on payment per prior defined milestones? What is the average time until payment is processed and reaches your partners’ accounts? If your average duration is 60 or 90days, make sure you reconfirm with the start-up/scale-up that is still acceptable for them. After all, smaller and younger companies often have a shorter runway than larger corporations, and timely payments are critical.

Working together with start-ups/scale-ups is truly exciting and even eye-opening. With their innovation and creativity level, they can become sources of new products and services or even enable a new business model for public and private sector organizations. For employees, the passion, drive, agility, and resilience of entrepreneurs and their teams can spark a corporate culture shift.

Have you previously been involved in start-up/scale-up engagement programs? What were the outcomes and lessons learned for your organizations?

Or are you considering launching such a program? Were you able to confirm the internal buy-in, or are you facing any difficulties in getting the key stakeholders on board?

I’d love to hear from you.