Ever since the internet bubble of the 1990s, start-ups have become an increasingly powerful force of innovation, disruption and growth in the market led by visionary and pioneering entrepreneurs that transform ideas into new products and services every year. Many start-ups fail – either for poor product-market-fit or a misinterpreted need – whilst others go onto become well-known brands that are the perfect case studies of how a start-up can scale, disrupt and become an industry leader, the likes of Shopify, Lemonade and Revolut. Others are recognised early for their game-changing idea, technology or for the potential opportunity created by the data they collect and are snapped up by competitors for a pretty sum, such as Slack or Nest. The common theme behind every success story identified a pain-point or opportunity to disrupt the status quo and applied technology to address customer needs quickly and effectively - and reaped the financial and reputational rewards. This has led more and more businesses to recognise the benefits of collaborating or investing in start-ups.
Why are big corporations increasingly interested in start ups?
The start-up ethos is one of innovation, disruption and rapid growth: build, test, learn, launch, scale. Move fast and break things. The upside is immense, and the risks for their size are manageable, whereas for most large organisations and even scale-ups, stability is key. The focus shifts towards predictability and delivering consistent and reliable growth rather than ventures that may expose risk to profits, stability or even their own business model. This often comes at the cost of agility and timely innovation, which presents its own risks. Many businesses are adept at considering the risks of action but less mindful of the consequences of inaction, which can sometimes have devastating results.
Kodak is an infamous example of a company reluctant to embrace innovation because it undermined the profitability of their existing products and business model. Kodak developed the world’s first customer digital camera but could not get approval to sell due to fear of cannibalising their existing market. The business model was so focused on profiting from film-based product they missed the opportunity to be a key player in the digital revolution.
By collaborating with or acquiring start-ups, organisations gain a competitive edge without many of the hassles associated with innovation, such as investing the time and effort upfront, exposure to development risk, hassle of recruiting and onboarding new talent or organisational restructuring and can avoid friction from shareholders who may be more concerned with profits right now rather than investing in unvalidated technology with unquantified potential. Compared to many big-corps and most SMEs, start-ups have a clear advantage when it comes to testing and validating ideas fast and cost-effectively, scaling and launching rapidly to exploit the opportunity. What is more, working with a start-up provides a buffer between the innovation and a big brand: providing more room to experiment - and potentially fail – without harming the brand's image, reputation or customer experience.
Working with start-ups to outsource, accelerate and de-risk innovation?
Working with start-ups to outsource and accelerate innovation is not an entirely new idea. Outsourcing has been a hot trend for many years for functions such as IT, HR and accounting, and has become an integral part of business management on a global scale. Many big corporations are somewhat reliant on outsourcing to run their business, with around 85% of IT leaders with budgets over $250 million already outsourcing some services. The benefits of outsourcing are extensive such as accessing niche expertise when required, being more cost effective (particularly if off shored) and overcoming skill and talent shortages (according to McKinsey's survey, 87% of organisations are already experiencing a staff shortage).
Things have been heating up on the start-up front too. Since 2013 the number of corporate investments in start-ups has grew from 980 in 2013 to over 3000 in 2018. They act as either accelerator, venture clients or builders, nurturing the seeds of innovation for potentially industry changing revolutionary ideas. For example, Wonolo is a start-up that helps companies fill the next shift with reliable local workers using AI and Machine Learning. Coca-Cola invested $5.7m for support in avoiding out of stocks, which is a billion-dollar concern. Having the option to collaborate with start-ups to drive innovation is a game-changing for many SME’s and potentially even big corps: it may no longer be feasible to have an in-house innovation team that can drive innovation at the pace demanded by a rapidly changing market, but it might not necessarily be desirable either. Instead, mutually beneficial outsourced agreements or partnerships may not only be the norm, but the most sensible and effective option.
Nonetheless, many SME’s find themselves falling behind their larger counterparts. Facing budget pressures, resource and skills shortages, 57% of SME leaders say they struggle to keep their business thriving and 37% of medium businesses outsource key services such as accounting whereas small companies with less than 50 staff only 25%. Unfortunately, when survival is threatened, investment in innovation is often one of the first things to be slashed. This does not mean that innovation is impossible for SMEs, rather that it requires re-thinking the approach to ensure they have access to the resources and opportunities that enable them to remain competitive and potentially disrupt the plans of bigger competitors.
Collaborate for hassle free innovation.
Looking to the future, adoption of intelligent automation enabled by AI will become more and more prevalent in both B2B and B2C products and services. Companies operating without the advantages and benefits created by AI are likely to struggle to keep pace with existing competitors and new ones that go-to-market with AI at the core of their business model. The good news is that the opportunity to have the advantages of working with start-ups and accessing the capability of AI is not limited to big businesses.
Brainpool AI is a consultancy that specialises in AI strategy and custom solutions. We help businesses from all sectors validate, develop and deploy game-changing solutions that our clients own that transform their business and industry. We offer an end-to-end solution, meaning you can rely on our expertise for every step of your AI and innovation journey: leaving you to focus on your core business while we manage and continually improve the technology on your behalf.
Do you have a transformational business idea you are looking to turn into reality quickly and cost-effectively with the help of an experienced and trusted partner? Get in touch with the team at [email protected]