Startups often want to engage with big companies. And big companies know that startups are developing business models and technologies that will impact their industry. So where do things go wrong?
We put that question to Peter Cherukuri, President and Chief Innovation Officer of 1776, the Washington, D.C.-based startup incubator that focuses on complex, highly-regulated industries like healthcare, education, energy, and transportation.
One snafu that big companies often encounter, Cherukuri says, is that they start talking to startups before they’ve created a process for getting their business units to spell out real-world challenges they’re grappling with, or a process to run pilots with startups.Highlights from our recent conversation are below.
There’s still a gap on the corporate side. Chief Innovation Officers and other innovation executives have access to all these startups, but they’re not necessarily operationally set up to deliver real outcomes.
We did a study that we’re still finalizing about Chief Innovation Officers, asking them questions about what the barriers are to innovation being successful in their companies. Over 45 percent of respondents say it’s internal bureaucracy.
The companies that are successful at overcoming that…are the ones who are looking at startups not only as venture [capital funding] vehicles, but as an efficient R&D arm for innovation within their company. But what that requires is really a re-imagination of how innovation leaders are framing their challenges to the startup communities. You don’t want to put out a challenge that is too broad, where it has no applicability to business outcomes. [With some companies, challenges] can be so broad and generic – like, “Let’s do an energy challenge, and recruit startups in the energy space, or healthcare, or defense.” There’s no pathway in the company where anything should go in the business after the challenge, no constituency that wants to take it on.
At the same time, you don’t want a challenge to be so narrow, that you are looking to [the startup community] to solve a specific engineering problem you have.Some companies have the concern about, “is it a sign of weakness, or a competitive tip-off, to run a more focused challenge for startups?” I think it’s actually a sign of strength. What we’ve been learning is that internally, within a large company, you can’t get traction when you don’t have alignment.
You have many innovation officers whose job got created to solve a 10-year problem for the company, but they have to solve a 10-month problem to keep their job. So trying to bring value in that requires you get to a place of specificity in terms of how you’d like to engage startups, and not being generic.
The Most Important Metric
In our survey, when we asked respondents about the value of startups from their perspective — is it about acquiring them, investing in them, sourcing talent, R&D — almost 50 percent said it’s to help them doing R&D, which may mean creating new product lines, and reaching new customers. When we asked about innovation success, and what it meant, over 60 percent said innovation success is about new products. That’s the important measure.
Incentives Matter
There’s over 30,000 startups raising capital right now, and over 5,000 incubators and accelerators. That can make it hard to figure out who you should be talking to, or to reach the startups that can deliver the most value.
A lot of the incentives you see companies offering are tied to prize money or investment – and sometimes, corporations are looking at those programs as part of their corporate venture arms.
But what we’re seeing as the way that we hope more corporations will end up working is that the outcome is not necessarily the prize money or investment; the outcome is getting that corporation to be a customer. So the incentive for the startup is to get a pilot going that could lead to a contract that leads to revenue and maybe potentially an acquisition.
