Rapid advancements in technology have made it all too easy for new, innovative start-ups to rapidly achieve global success and disrupt big business.
Many established companies are seeing both their market share and secure revenues diminish due to such start-ups, which set up easily and offer lower costs and more innovative services to customers than their big business competitors.
The best example of this is Uber; founded in 2009 as a start-up, Uber now boasts 77% of the US ride-sharing market and has a substantial value of £51 million.
Uber is not a rare case, start-ups such as Airbnb, Snapchat and WeWork have all disrupted markets or opened up new ones, and have eaten away at the market share and revenue of more established companies. By the time these start-ups are noticed as a threat, they are often too large to be bought out or taken over.
Therefore, it is no wonder big businesses are concerned by this situation, and fear they will be damaged by start-ups entering their markets, using drastic cost-cutting techniques, faster handling and information transfer times to gain customers.
However, not all start-ups are successful – in fact, nine out of 10 fail. This is not always due to a lack of vision or business know-how, but frequently due to a lack of funding or resources.
Big businesses are often the polar opposite of these start-ups. Though they have the funding, reputation and valuable resources for innovation, they lack the creativeness that start-ups possess. Seemingly, it is therefore a win-win for innovative start-ups to collaborate with well-funded established companies instead of competing. Here’s how it could benefit both.
Benefits for big business
For many large established companies, one of the major problems they experience is a severe lack of internal innovation, which makes growth opportunities increasingly hard to harness. Despite having large funds, specific research and development departments and valuable resources, many of these established companies fail to really innovate beyond what they already offer, and can therefore experience stagnating profits and little-to-no growth.
By taking advice from start-ups, large organisations stand to enhance their internal innovation capabilities. Through such collaborations, companies can build the innovative and entrepreneurial mind-set from start-ups into their own R&D departments, to create new and more efficient products and services.
It is also likely that such mergers between start-ups and established companies will not only increase inspiration and capacity for new ideas, but help ensure new ideas are better thought out and implemented.
Investing in these savvy, but cash-strapped start-ups will mean companies can tap into new markets and consumer bases. Companies with an already established market share, strong reputation and a loyal clientele can still stand to substantially grow their market, by offering better products and services and reducing the potential competition that can be caused by innovative start-ups, entering their markets.
Benefits for start-ups
One of the hardest tasks for emerging start-ups is gaining the funds needed to produce, distribute and promote their products. Many resort to crowdfunding, acquiring loans or searching tirelessly for potential investors in an attempt to raise funds, whereas, large companies already have huge funds, distribution, manufacturing and sales and marketing at their disposal. Therefore, by sharing their innovative ideas with established companies, start-ups stand to gain financial support.
Many start-ups also experience difficulties in accessing their desired markets due to their lack of resources for marketing and promotion purposes, and their unknown reputation.
Large established companies offer start-ups easier access into markets, a successful brand image to work with and expert market knowledge for start-ups to learn from, offering them better opportunities to launch products into their specific markets.
The reality is that the majority of start-ups fail. For many, a collaboration with an established company means that their start-up idea becomes viable, keeping themselves in business and keeping its workers in a job. Collaborating with big business is likely the only route to success and security.
The likelihood of growth also dramatically increases if a start-up works with a large company, because of the substantially greater facilities for production and distribution on offer. This is likely to lead to more sales and revenues, and creates a greater potential for growth.
Benefits for customers
However, it is not only both big business and start-ups that benefit from this collaborative relationship. An increase in innovation is likely to lead to better-quality products and services for consumers, improving customer experience, and the accessibility to products. The advancements in innovation are likely to reduce costs and increase efficiency for the production and distribution of a product, meaning the savings can be passed onto the consumer, to make the product or service cheaper.
One of the hardest parts of enabling this collaboration however, is the initial introduction between both parties. Business schools offer a great environment to bridge the gap between start-ups and large corporations by introducing students from a host of different organisations, industries and global locations, and encouraging these students to engage with each other and share their ideas.
At HEC Paris business school, we also facilitate opportunities for students enrolled on our Executive MBA to work directly with industry leaders on consulting projects – helping solve current business issues, and support them through their entrepreneurial aspirations outside of the classroom by providing access to city-based start-up hubs such as Station F, where they can find further support for the local business community.
But, there are a few key criteria that must be met. There must be an equal sharing of both the risks and value created by these joint innovations, ensured through correct and competent management. Both companies must have relative power and a mutual trust between them. Collaborations that hold these key ingredients are more likely to have a mutually beneficial partnership and stronger collaborative business relationship.
Collaboration and knowledge-sharing between both start-ups and established companies, can enable faster and more advanced global innovation, which can substantially benefit both collaborative companies and the consumer. With 80% of corporates now actively working or interested in working with start-ups, it is clear to see that big business and start-ups are finally recognizing how their collaboration could be a win-win partnership