(Editor’s note: This was originally posted on Medium. It’s reposted here with the permission of the author.)
By ELODIE GERRIET, Viva Technology Paris
The interests of large corporations and startups have never been so aligned. The former fear the disruptors, the latter need stability and visibility to thrive.
Only a few years ago, the Voie Royale for a startup was the IPO. But since its peak in 2013, the stock market exit has lost its luster. In the United States, 70 percent of last year’s IPOs are trading below their offering price while in the United Kingdom the number of offerings has dropped by 16 percent in 2015 and 55 percent since 2007. Even if this spring might bring some better news, the golden years of the stock market seem over.
On the funding side, the atmosphere seems to have cooled down, too. In Silicon Valley, scores of companies are postponing new rounds of funding while venture capital firms mark down their portfolios. This probably doesn’t represent a “systemic risk” as it involves private placements, but there are definitely some cracks in the funding pipeline.
Such an adverse context impacts the perspective for startups when it comes to considering exit conditions — usually a crucial element that shows up in their very first PowerPoint. Today, many entrepreneurs prefer to tailor their business toward an eventual acquisition — preferably by a Unicorn-like startup or a publicly-traded internet giant.
A growing segment of startups, especially in Europe, are choosing a different path.
Their goal is to work with large corporations willing to outsource their R&D and product innovation. Instead of maintaining large research staffs and prototyping facilities often crippled by ancestral culture and red tape, these companies prefer to buy agility and swiftness by tapping into the startup ecosystem.
For once, the interests of the New and Old Business World seem aligned.
Large corporations live in fear of tsunami-like disruption. Maurice Levy, CEO of Publicis Groupe, coined the term “Ubérisation” to refer to the massive upheaval that hurt sectors such as transportation and travel. Levy and others claim that no companies or sectors are immune to swift and implacable disruptive shock: energy, banking, insurance face the same threat as taxis and hotels.
Getting closer to the startup world therefore seems the most obvious step for some established players. In the C-Suites, execs fantasize about acquiring critical practices or technologies by placing bets on promising startups, hoping that some of them will come up with the miracle cure against dreaded disruption.
Unfortunately, that’s not so simple.
First, startups with real breakthrough potential are not necessarily willing to sell themselves on the cheap – in any case, their funders will remain extremely vigilant against such an outcome.
Second, there is the cultural blend issue. Most often, startups’ DNA gets quickly diluted in the corpocracy; teams loses their motivation as they trade Slack-based, friction-free operations for endless meetings loaded with thick slide-decks and multiple layers of management.
One of the most interesting models we witnessed while preparing the Viva Technology challenges* goes beyond the classic acquisition of a company. It involves initiating long-term cooperation to address specific issues or design products.
The mutual benefits are obvious. Avoiding the hassles of an acquisition process simplifies drastically relations between the startup and the large corporation. It also saves time, energy and money.
However some precautions apply.
When preparing for the Viva Technology Paris event, we ran several panels, mostly with French and European startups. Asked what is their biggest concern in cooperating with large companies, entrepreneurs outlined the following (this is extracted from verbatims):
“Most often, the corporate client approaches us with a certain degree of suspicion, suggesting that our internal, relaxed culture, lead to poor work processes and a certain lack of discipline… While we might need to correct our own images, big groups must understand that our working habits do not make us a bunch of inexperienced, unpredictable amateurs. Actually it is the startup world that came up with powerful collaborative tools that were eventually adopted by large corporations, not the other way around…”
“The agility gap between the startup and its big client is the main issue. In our environment, rapid execution, ability to swiftly build, test, learn and iterate is the most important element of the startup culture. Unfortunately, that is also the most difficult factor to incorporate for big companies. This is our main struggle, and we often yield to the usual culprits: ingrained risk aversion within the company, timorous mid-management, fear of being rebuffed for granting an excessive leeway. This leads too often to selecting the least risky option; while it warrants everyone’s safety, it also reduces considerably the upside potential; in that case, often a consensus based on a dull average prevails -which is the perfect innovation inhibitor…”
“Above all, the whole purpose of a close and durable relationship with large clients is to provide us with continuity in our operations. When you have a team of dedicated engineers trying to solve a complex problem, the last thing you want is to worry about a late payment or legal woes about a contracts. Scrutiny and accountability are fine, but dealing with some cash management anxiety due to an overdue invoice or excess of administrative pressure is not.”
Such accounts have been heard many times. All our interlocutors, however, are quick to acknowledge considerable improvements in large companies’ ability to work with startups.
As one entrepreneur put it:
“The stars are aligned to foster Open Innovation: A country like France harbours a vast pool of engineers who are as good as anywhere else but cost 50-percent less than in Silicon Valley. On the corporate side, the short-term pressure of the stock market to lower the costs of R&D, combined with a real sense of urgency to avoid being brutally disrupted favors an unprecedented rapprochement between the old and the new world.”
About the author: Elodie Gerriet is part of the team that works on Viva Technology Startup Connect Paris 2016. She’s in charge of organizing challenges between VivaTech partners (such as Ernst & Young, BNP Paribas, Axa and Orange….) and the startup community. From June 30th to July 2nd, VivaTech will gather 5,000 startups and hundreds of large and medium-size corporations. Viva Technology is organized by Publicis Groupe and Les Echos.