Advantages for big business to embrace small startups

Ask the head of a large company about the value of working with startups. Almost invariably, they will talk about the future: the potential to acquire them; building a talent pipeline. Or they’ll talk about investing in a promising technology so that when it’s ready for prime time, they are there for the payout.

Big companies want to talk to startups because they are, to borrow Gus Levy’s description of Goldman Sachs’ corporate philosophy, “long-term greedy”. This attitude is especially true in the process of procurement, according to research by a new initiative at the World Economic Forum, titled Fostering Innovation-Driven Entrepreneurship in Europe (in which my company, OneLeap, is leading a work stream on “increasing the role of large corporations”).

Even buying the services or goods of small companies is often handled as a corporate citizenship matter: burnishing the corporation’s reputation among startups, contributing to the bottom line only potentially, indirectly or eventually. Rather like being a woman in technology, you cannot have a serious conversation without words such as “quota”, “subsidy” or “perception” sneaking in.

When much-needed solutions, such as simpler procurement processes, are discussed, the focus is on reducing costs, or “levelling the playing field” – again echoing the women-in-business discourse, with more emphasis on the costs to the company (paying for childcare, for example) than on the value brought by people who think differently.

By this logic, you might expect mid-size companies, with fewer buffers in their budgets, to be wary of the cost of startups. But just the opposite is true; when it comes to startups, mid-size corporations are “short-term greedy”.

Jon Kamaluddin, former International Director at ASOS, the fast-growing online clothing retailer, explains that by working with a small, little-known tech company, ASOS has managed to translate its site into foreign languages in one-10th of the time it would have taken with a market-leading technology business. And because the company is small, ASOS could negotiate a confidentiality and exclusivity clause to which no large company would agree. In the dark, its competitors were left wrong-footed.

The travel group Kuoni often works with small enterprises – in the luxury sector almost all partner companies are small – and this has allowed for a level of flexibility that has benefits across the company. According to chief marketing officer Remo Masala, the Serbian startup company building Kuoni an intranet is delivering technology of an unprecedented quality.

When these executives talk about startups, they speak of immediate competitive advantage, better and cheaper technology, more favourable deals. They also praise the easy access to support – how when things go wrong at midnight, the owner of a small company will get out of bed and not rest until the problem is solved.

Heads of mid-size companies also value a nimble team. At a time when “lean” startup methodologies are all the rage in large corporations, mid-size businesses understand that the fastest, cheapest way to help their teams become like lean startups is, obviously, to work with lean startups. Large companies, on the other hand, often hire strategy consultants.

Many of the executives who extol the benefits of startups tend to be “intrapreneurs”, or former entrepreneurs, themselves. This means they know how to get the best out of startups, while managing their risks. To do so, they appoint themselves to the role of friend and mentor – and occasionally bodyguard. “You have to be willing to make payment on account if necessary,” says Kamaluddin. “And you’ve got to provide them with air cover when they wobble.”

Giving startups a chance to prove themselves on small, lower-risk projects is also important. “For cover-my-ass managers, even this is hard,” said another entrepreneurial executive in a mid-size company. “These guys have no future. If you see the speed at which things change, you cannot afford to be a cover-my-ass manager.”

However, as useful as startup companies are, the problem for executives is that they don’t meet enough of the superb entrepreneurs who can solve their problems. “Every CEO should have a really good friend in the entrepreneurial world,” suggests Masala, “someone who can take them to the right bars to meet and hang out with the right entrepreneurs.”

“You have to kiss a few frogs,” says Kamaluddin. “But it’s worth it.”

Robyn Scott is co-founder of OneLeap, a website that connects entrepreneurs with businesses leaders and decision-makers.

This article was first published on the World Economic Forum blog