The late Stephen Hawking famously said that “intelligence is the ability to adapt to change”.
If you’re reading this, then it’s no secret that the world is changing fast thanks to Moore’s Law and its impact on technology and consequently, the way we do business. The challenge for organisations that were founded in the previous Century is updating their way of doing business to suit and stay competitive. Failure to adapt ultimately results in extinction.
Such organisations are responding with their balance sheets.
Investment on digital transformation alone is set to hit US$7 trillion worldwide by 2021, according to IDC. However, big investments open the door for costly failures, and 84% of digital transformations go on to fail. Organisations are investing big on innovation initiatives that are said to build a culture of innovation but ultimately amount to little more than innovation theatre, despite their best intentions.
Many are turning to startups but often find themselves looking back and saying “never again”, “what a waste of money”, or both.
Large organisations tend to think of startups as young, progressive, cutting edge organisations. However, the reality is that 96% of startups fail.
The typical approach large organisations take is to run a hackathon or a startup pitch night locally, invite startups to participate and then watch 10 or so of them - usually the first ten that applied - pitch their ideas on the night.
Just some problems with this approach:
1. Nowhere near enough startups are being targeted - 96% of startups fail, the likelihood of finding quality startups using this approach is incredibly remote
2. Clear objectives aren't defined, nor is there strategic alignment between the startups and the corporate
3. Evaluation criteria is flawed (winners are often decided by the highest paid person’s opinion or the popularity contest that is employee votes - neither of which usually have much experience building things from scratch)
4. The commercial engagement model has not been determined and often ends up being a key bugbear for both corporate and startup
5. Given that this approach is unlikely to bear fruit, it risks being counterproductive as senior executives and intrapreneurs alike grow disgruntled and impatient at the lack of results
A typical VC firm will track between 6,000 and 9,000 new companies each year and many teams will meet with 2,500 such startups, investing in just 20 of them, and still hit a proverbial home run only 10% of the time.So what chance do large corporations with no track record of early stage innovation have of getting it right by placing bets on the first ten startups they see?
Venture capitalists know that most of their portfolio is going to come up doughnuts, no matter how compelling the idea or how talented the team behind it. As a result, they place lots of small bets, which has been shown to materially increase their likelihood of success so that they can generate a high enough return on investment on the winners to cover all of the so-called losers.
It’s imperative that you cast a wide net when it comes to startups.
Here’s what our funnel looks like for startup matching programs we’ve run for corporate clients such as NTUC Income.
Taking this approach, you’ve addressed some of the key problems underpinning typical startup matching initiatives that ultimately amount to more smoke than fire, and radically increased your chances of success in building mutually beneficial partnerships with startups that can help to achieve strategic objectives and solve specific problems.
I’m not proposing that this approach is perfect by any means - it’s not, when it comes to innovation there is no perfect approach - but it's much better than many existing programs that do little to support a sustainable and effective investment in the development of an innovation culture and the delivery of genuine value, and often do more harm than good.
For more on corporate startup partnerships, download our Corporate Startup Partnerships ebook.
In this ebook, we provide an overview of how customer expectations are changing, what technology and business models are disrupting insurance, and how incumbents can drive internal and external innovation to best prepare for the disruption.