Every so often you get a clear glimpse into the future, as was the case at the recent On Ramp Manufacturing Conference in Milwaukee. The conference was organized as a unique platform for established firms and startups to come together with 1:1’s, panel sessions and keynotes.
The meta takeaway was that large firms are counting on major infusions of talent, technology and teams from startups. The impact of this, is that what used to be the province of small back room meetings, is coming out in a larger and more formal way. Larger firms are making bigger investments in engaging with this community and third-party accelerators are becoming platforms of systematic interaction.
The bigger picture is that like many major shifts, this is a prototype of an ecosystem that has been developing subtly and off the radar in most firms. Also like many major shifts, the milestones are most clear in the rearview mirror. In my practice, I have the privilege of working with firms across the waterfront (including startups and emerging and mature firms), and have seen the embers of this movement for a while.
In the historic corporate pursuit of an end to end, agile, winsome value capture engine, the world is shifting into a more efficient mode, and the implications are substantial for all participants.
We have seen some of this before, but the difference this time, is that the talent shortage and intensity of shareholder performance pressure is moving the cycle earlier. In the 90’s, large firms like Cisco built a huge value capture engine by building a world-class early position and sales team in the burgeoning network server space. As they “IP’d” vertical after vertical, they used their enormous sales presence as an intelligence tool to acquire and integrate new tech companies. Their M&A capability was renowned and eventually built into a best-in-class case study.
Then the intensity pivoted towards small nascent firms. In the late 90’s and early 00’s we had the VC-funded tech boom and bust. The hard truth is that VC-funded, direct-to-market startups is not the norm, but the exception. The start-to-success ratio is much debated – most authors put it at less than 20 percent, and many much lower.
Large companies came under the lens next. The year 2008 happened, which brought a transformation that we are still dusting ourselves off from. Big Co’s universally got much, much leaner. No function was exempt, and in many cases, Corp Development and R&D are still a shadow of their former size. The VC world matured as well, developing strong industry specializations, and tapping into larger pools of retirement and pension funds seeking earnings that would allow them to meet their shareholder obligations. This put pressure on venture funds to get more consistent in their returns to their limited partners.
Fast forward to today.
The VC and startup ecosystem is becoming an outsourced R&D lab for many mid-sized and large firms.
They Need Each Other
There are lots of reasons for this, but for today, let me share just a few with you.
In today’s shareholder environment, quarterly earnings pressure make it increasingly difficult for established firms to make high-risk, high-reward investments in developing stage technology. Much smaller corporate staffs have limited time and energy to find, form and assess new ideas. The VC-Startup ecosystem, however, has the ability to look at many many new ideas and make directional decisions at lightening speed relative to more established firms.
Alternately, to get above that 20 percent success level and drive up returns, the VC-Startup community needs to have access to the depth and breadth of Big Co’s strategy, distribution and manufacturing. In the old days, VC’s would look to “sell off” the 8 out of 10 that didn’t drive the massive returns they were looking for. This has morphed into an earlier and tighter alignment with value chain needs so that VC investments sync more closely with corporate venture arms. Stephen Covey’s famous line, “Begin with the end in mind,” applies well here.
Universities and national labs are a third piece of this early stage work. Nearly all of them have “offices for commercialization” that range from amazing to limiting. These development offices serve as ecosystem bridge builders as well, keeping the lines of communications open to professors, grad students and researchers.
They Need to Learn to Work with Each Other
So, all is good right? Well the truth is the interface between startups and larger firms is the wild, wild west. There are examples of amazing successes and massive fails, with fortunes being made and lost.
The developmental task is how to build a level of relationship and communication while handling the need to partition risk and reward in the right part of the system.
So into this gap steps the new wave of accelerators, one of which is acceler8or. Think of them as being hosts to the party where startups and corporations get to know one another. In addition, they provide education and cohort training opportunities for the two groups to learn from one another.
There is Much Work to be Done
At the Milwaukee event, the most commonly highlighted areas to be worked out were:
- How can we find the right people to talk to?
- How can we be honest and unambiguous while maintaining our corporate firewall?
- Timeline expectations
- Startups need to make shifts measured in hours and days
- Larger firms can take a week or more for feedback
- It can take weeks to get 15 minutes with a corporate group
- The meeting can end quickly if there are conflictive IP issues
- Unprepared startups are unfortunately commonplace
- The speed to truth and clarity on both sides need to be radically improved
The work to build an efficient, yet arm’s length set of relationships is substantial and ongoing. Their needs to be work on “both ends of the bridge.” To get a sense of what this looks like, see this post for startups, and this post for larger firms to set the stage for clear strategic domains.
It Takes an Investment
This is an emerging space, and as such there is a shortage of good insightful support. Leaders are going to recognize that outsized returns are possible if they invest in the people and systems to make this happen.
If you’d like to talk about what programs might be best for you and your team, please reach out via email, give me a call at 847-651-1014, or click here, and set up a no strings attached, 20-minute phone call.
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