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Enterprises turn to startups for innovation

Adam Bender | Nov. 1, 2013
ANZ says startup initiative gives bank early access to new ideas.

"They're probably not going to make any money from selling those few people phones, but they're going to get access to ideas and technology."

Tan notes that big companies are starting to think "outside of the box" as they seek to innovate.

"It's not only finance sector talking to finance startups, or retail sector talking to retail startups. The level of thinking companies have seem to be much more fluid than that. Meaning, at times though not always, it's more about capturing value -- like a venture capitalist -- rather than all just about strategic investment."

Case studies show that internal innovation is too expensive and may not succeed, while external partnerships are relatively inexpensive and have led to success, he says. "In Australia in particular, the vernacular and the mainstream coverage of startups have increased. So has the maturity of startups themselves. This all means it's less of a risk for big companies to take the plunge of partnership."

However, while enterprises may be looking to increase their work with startups, not every big company has gotten the recipe right, according to Ollo Mobile CEO Hugh Geiger.

"Fluffy mission statements about driving innovation is a giant red flag," he warns.

Ollo is a startup that has developed a wearable 3G telehealth device designed to protect seniors and young children. The company has recently launched a crowdfunding initiative for their CloudPhone product.

"We're talking to a number of public companies. Some are doing it right, others not so much," says Geiger. "The main issue we've experienced are lines of approval--if they have traditional corporate structures, the guys that are 'startup focused' actually have little or no authority to do a deal.

"The ones doing it right have CEO buy-in, and one or more entrepreneurs recruited to manage that business line. They know why they're there, they can articulate clearly what they want from a deal, and they have a strong idea about how a deal would fit the existing business."

It can be a major risk for a startup to partner with an enterprise, Geiger says.

"It's all very exciting. But getting turned down by a big name is a great way to spook existing investors and dent team enthusiasm. It's one thing if a [venture capitalist] or another angel says 'no' but it's a big deal if it's a 'corporate partner'."

Many enterprises are extremely averse to risk and won't make a deal unless the startup has deployed a product and has a dominant position, adds Geiger.

"If you've got those things you might be better off just having them as a customer and taking funding from a professional source that wants to help you conquer the world, not just buy your product [or] service."

 

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