Corporates and Startups tell it how it is

In October last year, Andrea Kerwat and Bindi Karia hosted our first Corporate-Startup networking event at the Bankside Hotel in London. In the second part of our Corporate-Startup panel roundup, we ask the group for some real honesty about some of the difficulties the corporates and startups faced working together: “Tell the truth: what annoys you about each other?”

In the startup corner, we have two seasoned CEOs, one whose company is innovating in causal AI; the other whose technology is revolutionising the back-end infrastructure of financial service institutions. Opposite, sit two corporate leaders: one from the CVC team at a global bank; the other who heads up the innovation team at a multinational travel conglomerate.

One of our corporate attendees kicked off the discussion with a candid take on which companies succeed and which fail. 

“We’ve seen companies who do really well and others who just absolutely fail from the outset,” they remarked. “There are a couple of indicators that I try to distinguish at the outset. Do they have clarity on the commercial imperative and proposition they are offering the enterprise? Is it considered ‘important’ for that business?"

Are you an add-on or a replacement?

Crucially, startups should ask themselves: is their technology an ‘add on’ or a replacement?

"If they’re an add on, effectively they are saying to the enterprise that it will have to keep all its systems, keep everything it’s already paying for, plus find budget for a technology that people aren't anticipating. Where do they think that money is going to come from? Startups need to think very carefully about how you pitch your value proposition to those stakeholders. It’s a very different ask and requires a different conversation to that if you were replacing something legacy, which may be old or with an established set of problems.

"One is about convincing corporates that you're better, cheaper, or more efficient. The other is concerned with proving that new value you’re bringing to the organisation is so great that budget needs to be found or conjured from somewhere. Millions of dollars don't grow on trees, especially in times like now.

"Entrepreneurs who grapple with and understand that do well out of the gate, and people who work very closely and create those relationships do great. People who are more diva-ish can sometimes struggle.”

Stop being a diva

“What do I mean by diva-ish? We had one entrepreneur who made a lot of promises but refused to explain how their technology was going to deliver any of those promises. The corporate was never going to give them access to sensitive data if they couldn’t explain how they’re going to use it, or how it's going to work. You have got to be able to have the right conversations with stakeholders. Know your customer; know your value."

The undeniable slowness of corporates

One of the startup CEOs shares their biggest frustration: how incredibly slow corporates are, provoking a clarification from their corporate number opposite: “sometimes we can move at lightning speed. But there are many, many circumstances in which we will be slow.” 

There are cases where that happens, agrees the startup, before outlining the no-win scenario in which they often find themselves when deciding who to target in the organisation. “If it comes from the top and you have a C-Suite person deciding that ours is the strategic technology they want, you get troubles down the line with a data science leader, who will find any reason not to do it because they were not consulted.

They may have liked it if we asked them first but if you do, there’s another problem: everybody loves it through the ranks, but the C-Suite would rather go with IBM because they are more risk averse. It's an interesting top-down, bottom-up dynamic that you need to play right. That's where the slowness comes from.”

Another corporate exec brings up the issue of timing. “One of the biggest challenges I find is a lack of understanding among entrepreneurs of corporate cycles. If you haven't done your stakeholder management to make sure that you are in train for when budgets are decided, that shows me you don't understand the maturity of the organisation you're going to work with.”

“A lot of organisations also have technology freezes. In retail, many corporates stop just before the Christmas season. Our job is making sure that entrepreneurs understand that it's not personal.”

Buy versus Build

One startup CEO laments what they call ‘stupid decision making’. “In our case, corporates increasingly make ‘build vs buy’ decisions. And, especially in very large banks, they choose to build the technology in house because they can. Or because you're talking to the turkey who won’t vote for Christmas: that person who has hundreds of engineers available and needs to keep those people in their job—outsourcing it would weaken their influence.

The question then becomes: 'should they?’ Should they invest precious engineering resource in something that isn't strategic, and doesn't give them any competitive advantage? And then there's this little sort of tiny satisfaction when they make a build decision, but then figure out they can't build it, they come back.

One corporate leader offers an explanation around why they choose to build things when even people internally don't agree. "I'm nodding and smiling. Corporates have their own cycles and they change. When you're on the raw end of that change it’s annoying. But startups sometimes don't appreciate that corporates often been around for a very long time and have previously had their fingers burned after deciding to go all in on a particular supplier. It starts out cheap and it's all about the partnership. And then before you know it, once they've reduced their internal teams and fired their other suppliers, that ‘best friend’ startup takes advantage, ratcheting up costs and embedding themselves so deeply and opaquely that’s it’s almost impossible to offboard them.”

What we’ve learned

Interestingly, the common theme both startups and corporates cite as tonics for the frustrations and misalignments manifests as something akin to ‘compassion’. Startups must understand that corporate execs have their own issues: internal politics, the welfare of their own staff, the potential to erode their own influence and power within their organisation. Corporates meanwhile need to appreciate just how infuriating they can appear to startups. They are slow, often creaky and ruthless and inconsistent, but they hold the promise of rocket-boosting growth and stability of revenue.

As Stuart Chapman noted when opening the event: “The reason why they [corporates] want to talk to you [startups], is because you're the fastest speedboat; you're agile, you can move fast, you can develop quickly. Because unfortunately, when you have many thousands of employees, you can't. The reason why the young companies want to talk to you [corporates] is because you've got everything they don't have. You got distribution, you got people, you got money.”

Nonetheless, there is still an extremely imbalanced power dynamic—startups must hold a significant amount of valuable IP and – indeed, grit – to be taken seriously, let alone call the shots.

But when the magic happens, it really happens. There is much to be taught and much to be learned: startups can prepare themselves for the treacly bureaucracy that can come with being a successful, revenue-generating, profit-delivering organisation, while enjoying a reprieve from the precariousness steeped in the experience of running a young business. Corporates, meanwhile, can remind themselves what true unfettered ambition and drive can produce in terms of delivering real, revolutionary category-defining innovation.

At Molten Ventures, we believe that in this evolving environment, one thing remains certain: collaboration amongst corporates, entrepreneurs and financial VCs ensures success for all parts of the ecosystem. Together we prosper.