Corporate-StartUp collaboration: Recipe for a happy marriage (ep21)
INTRO:
Today we’re discussing an exciting new trend in connection to corporations, and whether large business models should continue to look for startups when they want to innovate?
How does management even make the decision, from the corporation’s perspective? And if they fall on the decision to sign a contract and collaborate with startups, how do they decide on a model?
Today at ChairTalks, we are asking this question because there are so many pitfalls that can open up at the early stages of such a collaboration. Pitfalls that can hurt startups more than their larger counterparts, but can, of course, damage corporations just as well.
We are seeing that this innovative trend is gaining traction, so we invited Tanja Kuzman, Senior Manager for Startups and Corporate Innovation at PwC Serbia, to talk more in-depth about corporate-startup collaboration. By talking to Tanja, we are gaining an insightful perspective into the corporate side of the equation.
Tanja has been overseeing eight countries of Southeast Europe in her role in PwC. Additionally, she is part of the global PwC team that deals with these topics. Before joining PwC she was an Investment Principal at a VC fund in the UK where she finished her Ph.D. studies.
N: This is Chair, a place where we discuss innovations. And lately, we are talking a lot about collaboration between startups and the corporate world, probably because it’s accelerating a lot. So today we are getting perspective from the corporate side, from the corporate side of the equation. And we are talking about this subject with Tanja Kuzman, Senior Manager for Startups and Corporate Innovation in PricewaterhouseCoopers. Tanja holds this role in PWC for eight countries in Southeast Europe and she’s part of a global team that deals with these topics. Before joining this company, she was Investment Principal in VC Fund in the U.K. where she finished her Ph.D. studies. So, Tanja, welcome to Chair, a pleasure to have you here today.
Tanja: Thank you very much. And thank you for the invitation.
N: In some of the earliest episodes, I had the pleasure to talk with one distinguished guest about this subject. And we looked at this innovation from the perspective of what startups can give to corporations. Today, I want to ask you, what can corporations provide startups with?
Tanja: I would say that primarily there are four main aspects that corporations provide to startups when we start collaborating on a partnership level. So one thing is definitely access to resources and the network, because when you are a startup and you are developing a product or service, especially if you have a B2B business model, you want to get as many as possible corporate clients. And there is statistical data that says it takes you from 6–9 months from the moment you first approach the corporate till the moment you actually sign the contract. So you have to go through a kind of pretty painful process for startups, but a pretty normal process for companies. And in that aspect, once you sign that first contract, you actually get access to the wider network, because if you have gone through all the procedures, risk clearances with one big corporation, then the other corporates also have a certain level of, let’s say, confidence that you are properly doing things, that there is no risk attached or that those risks are really minimal, that they can be mitigated.
And that’s one thing I would say, that then it speeds up for the startups, their scaling ability to get more clients on board. The second thing that definitely is beneficial for startups in that they get through the cooperation with the corporates is insights. So once the corporate start using your product or service, actually, you get the perspective of what your client needs and how you can adjust it, and whether there is some feature that needs to be added to the product or service, whether you have been missing some perspective. In that sense, it’s also really helpful for startups to see that, adjust and then move on with their scaling and obtaining additional customers. The third thing, I would say, is that actually once you get into the corporate world, you really realize what is the cycle. So what will be your sales cycle?
How much patience do you need to have? What kind of procedures exist there? And how you need to prepare for them to go through them as soon as possible next time. So in that sense, it’s also, like, the first time when you get into that corporate world, it’s usually more painful than the next time you are going through the procedure because you exactly know what to expect. And then the last thing that, I would say, the main thing is that you actually can see how it will look like for you if you start growing at the really fast pace down the line in like 3–5 years because you will become probably a big organization, a big system as well with employing, you know, like a lot of people, adding a lot of new channels for sales, marketing, etc. So in that sense, you will be able to see that certain procedures in certain systems, you will need them down the line. So in that sense, it is also beneficial to see how this looks like from the corporate perspective. And startups can gain that through this cooperation as well.
N: As I mentioned at the beginning of the intro, you’re now working for eight countries in Southeast Europe on this subject. How is it different from different startup ecosystems, depending on the country or a region or something like that?
T: Yeah, it depends really on the level of development of the startup ecosystem. So in some of the countries that I cover, the startup ecosystems are pretty advanced and you already have unicorns there that are recognized on the global level. So in that sense, in those ecosystems, it’s much more viable to create this kind of cooperation with the corporates because the system is already used to it. So, you already see that everyone is working with everyone. They communicate that actually cooperation with startups is needed. It’s not a matter of a trend. It’s not anymore, the fancy thing to be published in the newspaper is that you are cooperating with someone. It’s actually strategically important because you cannot keep up the pace with what is going on at the global level. So I would say that out of those eight countries, would say the two of them have really advanced startup ecosystems, while the others are still in the early stages of development. And they’re and based on our research that PricewaterhouseCoopers has done previously, in the previous year, we have seen that actually, corporates are willing to transform, willing to innovate, but only a small percentage of them is willing to do that with startups. So we still have a long way to go until we grasp that mentality and that business model of cooperation with startups.
N: Before we continue on the subject, I want to add a personal note, because I know that your career path it’s not that usual. In fact, it’s not conventional at all. So can you share with me something from that perspective?
T: Yeah, sure. I mean, my work in the startup world, actually, and in my experience started, I would say six years ago during my Ph.D. studies in the UK. And before that, I mean, my career was completely related to the corporate world, to finance. I worked in the government, I worked for large international financial institutions like World Bank, OECD, and even the European Commission. So my career was quite, you know, like related to the traditional, if I can say, yes.
N: And we shouldn’t talk about startups today if you think from that perspective.
T: Yes, exactly. But then, I mean, during my Ph.D. studies, just an email came in and it said: “Ok, do you have the opportunity to work for an investment VC fund. And you can learn how the investors think about startups, how they evaluate their ideas, what is the criteria for the investments”. And I was like, well, I’m interested, you know like I want to know, I want to learn. And now, if someone told me that my career will completely shift towards startups, innovation, and digital solutions, I would definitely not believe in that. But immediately, from the first moment I started learning that actually there is a kind of parallel world to what I know, you know, that actually there is a startup world, that there is the traditional big corporate world. I just started falling in love with the startup world and everything that it brings from the innovation, from great ideas, people, dedication, just the different kind of energy and the ability to really every day sit and listen about some new great products and services and learn about the new developments in different areas. I mean, for me, that was a huge plus. So, now I have combined, you know, like the startup in the corporate world into one. But I believe that as far as the shift in the career, I can not say I’m done because you never know.
N: Yeah, maybe you will fall in love with something else completely a couple of years from now.
T: But for now, I mean, definitely I love what I’m doing.
N: So let’s go back to the subject and the base of corporate-startUp collaboration. Can you share with me some different models and maybe insights into why you think that some are more successful than others?
T: Definitely, I can. But I would say that when it comes to success, each model can be successful and each model can be unsuccessful. And it really depends on the fact of whether from the start corporates and startups have set up the clear objective of their corporation. And I think that’s the key to success. And that’s the first thing that makes one model successful or not. And then the other layer that I would definitely add to that is that we are living in a constantly changing world, right? The constant is almost non-existent today. And if you set an objective of your corporation at the beginning and then you know that like six or nine months down the line, your project will be completed because you have upgraded certain processes in your company or you have developed together with some new technology, and you believe that this objective will stay the same throughout this nine months, you are probably wrong. And that’s what makes this model probably unsuccessful, because three months down the line or maybe two weeks down the line, you’ll realize that certain market conditions have changed that you have and you need to twist it. But then communication is the key. So if you realize that certain things have changed in the market, don’t stick to the objective that you have set at the beginning.
You have to communicate openly between the corporates and startups and actually realize that you need to adjust this objective to accomplish success at the end of the road.
But if we talk about the models, I think that previously at the beginning of this wave of cooperation between corporates and startups, we have seen this one of hackathons, small scale projects, and really mini corporations as they call them. And then, later on, we have seen that actually, this becomes more of a partnership and strategic collaboration. And then we also see this trend of creation of the corporate VCs where they invest in startups. And lately, I would say M&As have become also really, really important. So I would say that all of these models currently coexist and they currently, I would say, give different results in different markets. But if we talk about Europe, what we have seen is definitely that a lot more corporates are now getting into the creation of incubation processes and then corporate venture capital funds because they want to actually work with certain early-stage startups, invest in them, and help them grow further, and then potentially either become part of their larger system or even, you know, like let them become part of some other system, but then again the return on investment, invest further and help the development of the new ideas and innovation in the industry.
N: As you said, innovation. Because usually why a corporate-startup collaboration happens, or why companies buy startups, it’s all about innovation. So there arise many questions such as how to decide if corporate should acquire, or should start work and collaborate with the startup, or if they made that decision then choose one of the models that you just said. Based on that there are so many pitfalls that can open in this collaboration. And as I see it, those pitfalls can hurt startups, sure, but maybe they can hurt corporate as well.
T: For sure. As you said, many questions are on the table when you start thinking about how to innovate. Whether to do it internally, externally. What is actually that you want to innovate, where to start from? And I think that there is the beginning. When you are a corporation and when you are seeing that certain market trends are happening and that you need to either create a disruption in the market, or make a bigger step into the market by taking, you know, like a portion of the market from your competitor, or even just changing some marketing strategies, or changing your internal structure to be more efficient. Any of those can embed the innovation within, right? And then when you start thinking about it, the right question to ask, and I would say, for me, that the zero phase, as I call it, you ask yourself, what do I need to do and why am I doing this? So whether there is some kind of a problem that I have recognized in my organization, whether I have seen some trend and there is a need that my customers are now clearly expressing and shifting their behavior. So answering that question is the zero phase. So there you have to really define why you want to change something and whether you need to change something in your corporate behavior, market presence, etc... And after that zero-phase, you go into the question of how I can do that. Then you need to evaluate two aspects. One is the internal aspect. Whether I want to innovate just with the capacities that I have internally or the other aspect is, I want to do it externally and I want to cooperate with startups.
Each of these has its own, of course, pros and cons, and depending on the zero-phase, you will be able to evaluate whether you have enough resources or whether there are teams in your company that can actually be open-minded and innovative enough that you can dedicate to that project and not hurting the performance of the company as well. So you have to answer all that on one hand.
And on the other hand, you have to realize whether externally there is a startup with whom you strategically can align on what you need. If the answer to that second part is not a startup, then you will have probably to develop it internally.
So in that sense, I think that, like starting from zero and asking really what do you need and how you need to change and what is that that you are changing and in knowing exactly where the problem is the first thing and the key. And then you go into evaluating different aspects, meaning internal, external, and how you are going to do that. But when I said you need to identify the problem more often than not, what we actually see is that you know, like people come to us and say, Ok, I have this problem, and they are completely convinced that this is the problem — what they have said to us. Then when we start actually analyzing and disaggregating what they said is the problem, we realize that the problem is actually something else and that the core of what they thought the problem is, is the actual problem if I can say so. So in that sense, it’s really about doing a proper analysis of what you need in that zero phases.
N: So you mentioned the different approaches to Corporate-StartUp collaborations. Can you share with me some success stories? It’s always interesting to hear about some.
T: Well, I cannot disclose the names, but I would say that the largest number of success stories we have seen, definitely when a tech company starts collaborating with a startup because for them it’s kind of a natural synergy that is created. You know, like you have quite similar cultures, even though this company usually has the system procedures and everything else. But still, you have a pretty similar culture in terms of thinking, perspectives. Both of them are used to innovation, open-mindedness and that kind of creates synergies from the beginning on a large scale.
And outside of, let’s say, these kinds of synergies that can be created in the innovation ecosystem, as I call the tech companies, plus the startups, I would say that regarding the traditional industries where we have seen the most success stories is definitely the financial industry. So I would say the banks, because of the recent trends where we have seen the development of a large number of fintech startups, then additional pressure in the market to change, digitalize, innovate. And then the behavior of individuals when it comes to financial services is completely different from what it was 5 or 10, 20 years ago. So in that sense, I believe that for banks there was pressure that came from the market to collaborate with startups because they realized that if they started doing it internally, it will take them one year or two years to develop what they need. And then they are already lost in the battle and the market will not wait for them. So I would say that with the banks like changing the customer experience, digitalizing, using AI robots and all these kind of different aspects definitely brought a completely new dimension and brought about a lot of success stories of collaboration between, let’s say, the traditional, if I can say, financial institutions and the ones that brought some new technologies, some new approaches to the market definitely.
N: So lately, not lately, like almost two years now, it’s always around the pandemic. But I do want to ask you a question about this crisis. I want to ask you, what is the post-crisis, what you see from your perspective? Will corporate and startups learn from the situation and what will change in their relationship in the future?
T: I believe that corporates have realized that you don’t have to have all your employees in one building, 9 am-5 pm all the time, and that this kind of culture that already existed in the startups, was kind of strange for corporates. Where you have part-time, full-time employees, some consultants, some freelancers working for startups. Where, you know, like someone who is employed in a startup can work from 10 pm until 8 am instead of having a 9 am-5 pm job. It is actually strange for them because of their culture and getting used to this kind of different approach was really difficult for them. But now with the pandemic, I think that all corporates have realized that they can have their employees sitting anywhere in the world and working on the project and still be successful. So the success is not equal to 9 am-5 pm.
N: And FaceTime and everything.
T: Exactly. So in that sense, I believe that it somehow brought closer the culture of the corporates towards what is going on in the startup world and what the startup employees are used to, actually. And I would say that, again, the pandemic has shown that the companies and reconfirm that they need to adjust more, that they need to act quicker, that this collaboration with startups needs to be more profound, more thorough. That needs to happen more often because that’s the only way how they can address challenges that appear almost overnight in this case. And for startups, I would say the other way around, for them, this crisis has shown that actually you need to have certain structures. You need to have certain procedures when this kind of crisis moments happens when the changes are so fast when you need to bring decisions really quickly, but then have the system how this will be implemented. So I think that definitely, it brought both sides closer to each other through this Covid-19. So my expectation is that post Covid-19 will definitely see a greater pace of Corporate-StartUp collaboration, and I think it will go more towards the partnerships and creation of new disruption and technologies in the market.
N: Let’s use some hypothetical examples. I just asked you about what is going to be post-crisis, but let’s move 10 years from now and imagine you’re still moving your corporate leather like this and moving your career in this area, still working with the startups. What you think 10 or more years from now are going to be the biggest challenges and the challenges that should be addressed in terms of collaboration between startups and corporates.
T: Well, I need a crystal ball for that for sure.
N: Let’s imagine that we have it here.
T: Well, if I would have to let’s assume I would definitely say that the pace that we are seeing now like we are constantly talking about the pace is there and it’s really fast-changing. New technologies are coming out constantly. And you need to keep up with the pace and you need to constantly innovate. I think that 10 years from now, what we are having currently will be almost nothing. Like, I think that 10 years from now, we will see the pace that is hundreds of times faster than what we are having currently. And I think that the biggest challenge for companies will be to keep up with the technology innovation, a market disruption that is out there. And that’s why I think that this cooperation between corporates and startups will be even more present and profound going forward. And on the other hand, I believe that 10 years from now, the biggest challenge will also be the data, because we all know that the amount of data that you can analyze and use for the development of new products, services, knowing about the behavior of your customers is increasing. I think that 10 years from now there will be so much data that we will need much more companies and startups that will be able to process the data and take the meaningful conclusions out of that without the biases, without all the problems regarding the machine learning, AI and all the other aspects that we have seen now as is kind of problematic currently. In that sense, I believe that using the data that is going to definitely increase will be something that will be one of the challenges that corporations and startups will have to deal with together.
N: You mentioned the pace and then that reminded me. One guest before you in this show said, and I’m going to quote him: “The speed of innovation it’s right now, it’s slow that it’s going to be ever’’, in terms of it changing. And that is going to be the biggest challenge in the future for sure.
T: That for me, even for individuals, not just for corporates. I mean, you need to really learn every single day what is going on and what new technologies are providing. You know, using an iPhone for many purposes that you can use today was not like that. You know, like 5 years ago.
N: You haven’t been thinking about that at all.
T: Exactly. So in that sense, it’s kind of like the small things that we actually take for granted and that we are used to and that we are adopting. But there is so much more out there that we need to learn. And I think that that’s the same for the corporates as well because keeping pace with all these kinds of changes and the market disruptions going forward will be hard. And we’ve seen, Musk was one of the first ones to actually offer the patents to everyone. So he said, Ok, I have a patent here it is, to everyone. And then, everyone thought he’s crazy, you know, why he would do that. His primary goal was that everyone starts doing the same thing and that he creates a market for himself. So everyone starts talking about, you know, like electric cars. And everyone started producing or creating their own innovative ways of creating electric cars. And now, as I said, everyone thought he’s crazy. But actually behind the strategy was that he wanted to speed up the pace of the innovation and creation of the disruption in the market. And I believe that going forward, we will see that strategy or similar strategies being used more often to even more increase the pace and create disruptions that I think we cannot even foresee right now.
N: Yeah, with Musk, he says something new and does something unexpected, usually, everybody thinks — now he’s crazy, but a couple of years later, he’s a genius. Just switching all the time. Tanja, thank you so much for this conversation. I enjoyed it so much. And for you out there, if you enjoyed the episode, subscribe, and see you next Thursday when we talk about some innovations. Thank you.
T: Thank you.
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